CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT 90/18
In the matter between:
COMPETITION COMMISSION OF
SOUTH AFRICA Applicant
and
MEDIA 24 (PTY) LIMITED Respondent
Neutral citation: Competition Commission of South Africa v Media 24 (Pty) Limited
[2019] ZACC 26
Coram: Mogoeng CJ, Basson AJ, Camer on J, Dlodlo AJ, Froneman J,
Goliath AJ, Khampepe J, Mhlantla J, Petse AJ and Theron J
Judgments: The Court: [1] to [4]
Goliath AJ: [5] to [123]
Cameron J, Froneman J and Khampepe J: [124] to [139]
Theron J: [140] to [187]
Mhlantla J: [188] to [193]
Heard on: 22 November 2018
Decided on: 3 July 2019
Summary: Competition Act — section 8(c) — predatory pricing — cost
standards
Jurisdiction — arguable point of law — matter of general public
importance —interests of justice
2
ORDER
On appeal from the Competition Appeal Court of South Africa (hearing an appeal from
the Competition Tribunal of South Africa). The following order is made:
1. Leave to appeal is granted.
2. The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
THE COURT
The first judgment in this matter was written by Goliath AJ and concurred in by
Mogoeng CJ and Dlodlo AJ. The first judgment held that this ap plication raises a
constitutional issue and an argua ble point of law of general pu blic importance within
this Court’s jurisdiction. The first judgment further held that leave to appeal should be
granted and the appeal must succeed.
The second judgment in this matter was written by Cameron J, Fr oneman J and
Khampepe J, and concurred in by Petse AJ. The second judgment held that it is not in
the interests of justice to gra nt leave to appeal and that the application should be
dismissed with costs, including the costs of two counsel.
Theron J wrote a judgment (third judgment) concurring in the fi rst judgment to
the extent that this application raises an arguable point of la w of general public
importance within this Court’s jurisdiction and that leave to a ppeal should be granted.
Theron J held that the appeal must be dismissed with costs, inc luding the costs of two
THE COURT/GOLIATH AJ
3
counsel. Basson AJ concurred in the judgment penned by Theron J. Mhlantla J wrote
a judgment in which she concurred in the third judgment to the extent that this
application raises an arguable point of law of general public i mportance within this
Court’s jurisdiction and that leave to appeal should be granted . Mhlantla J concurred
in the first judgment in respect of the merits and that the appeal must succeed.
The effect of these four judgments is that six members of the Court held that this
application raises an arguable point of law of general public i mportance within this
Court’s jurisdiction and granted leave to appeal against the ju dgment and order of the
Competition Appeal Court. Six members of the Court did not uphold the appeal. There
is thus a majority decision that this application raises an arguable point of law of general
public importance within this Court’s jurisdiction, that leave to appeal should be granted
and that the appeal must be dismissed with costs, including the costs of two counsel.
GOLIATH AJ (Mogoeng CJ and Dlodlo AJ concurring):
Introduction
“Predatory pricing is a paradoxical offense. Although antitrus t law values low prices
and abhors high ones, the ‘predator’ stands accused of charging too low of a price – of
doing too much of a good thing. Society considers predation socially harmful because
the artificially low prices of today drive out competitors and allow the high prices of
tomorrow.”1
This matter is the first of its kind dealing with South African law prohibiting
predatory pricing. Predatory pricing is conduct that involves a dominant firm setting
prices for goods or services at such a low level that (a) the firm incurs losses relative to
alternative non-predatory conduct in the short term (referred t o as “sacrifice”); (b) the
pricing has the effect of elimin ating, or being likely to elimi nate, one or more of the
1 Crane “The Paradox of Predatory Pricing” (2005) 91 Cornell Law Review 1 at 2-3.
GOLIATH AJ
4
firm’s actual or potential competitors; and, in turn, (c) the pricing has the further effect
of strengthening or maintaining the firm’s market power, thereb y causing consumer
harm.
The principles underpinning the paradox of predatory pricing must be carefully
balanced. An accurate test for predation must be capable of ba lancing the fine line
between over-enforcing the prohibition, with the possibility of higher prices for goods
and services, and under-enforcing it to the benefit of large firms aiming to monopolise
the market.
This case enjoins the Court to g r a p p l e w i t h l e g a l e l e m e n t s o f the economic
concept of predatory pricing. Th is involves establishing what must be proven when
predatory pricing is alleged to have occurred. In making this evaluation, the Court is
required to deal with two aspects. The first is whether it is in the interests of justice to
grant the applicant leave to appeal to this Court. The second relates to the legal test for
establishing predatory pricing.
Parties
The applicant is the Competition Commission of South Africa, es tablished in
terms of section 19 of the Competition Act.2 The respondent is Media24 (Pty) Limited
(Media24), a company which acts as the print media arm of the S outh African media
company Naspers Limited.
2 89 of 1998. Section 19 of the Competition Act, concerning the establishment and constitution of the
Competition Commission, states:
“(1) There is hereby established a body to be known as the Comp etition Commission, which—
(a) has jurisdiction throughout the Republic;
(b) is a juristic person; and
(c) must exercise its functio ns in accordance with this Act.
(2) The Competition Commission consists of the Commissioner and one or more Deputy Commissioners,
appointed by the Minister in terms of this Act.”
GOLIATH AJ
5
Background
In 1971 and 1983, two community newspapers called Vista a n d Forum w e r e
established respectively. These two papers were fierce competi tors in the Welkom
community newspaper market. Both papers were acquired by Media24 which, by doing
so, acquired a monopoly in the co mmunity newspaper market in We lkom. When
Media24 took over Vista, some staff chose to leave. One of these staff members was
Ms Leda Joubert, who went on to establish Gold Net News ( GNN). Ms Joubert
appointed veteran Welkom newspaper editor, Mr Hans Steyl to run GNN. While GNN
started strongly with loyal adver tising support, it ended up st ruggling to attract
advertising and eventually close d down in April 2009. Nine mon ths later, in January
2010, Media24 closed down Forum.
Shortly before GNN closed, Mr Steyl filed a complaint on behalf of GNN with
the Competition Commission that Media24, through Vista and Forum, had abused its
dominant position in the Welkom area by drastically cutting the rates that it charged
advertisers for the period between 2004 and 2009. It was alleged that the rates were so
low that they were below market price. Mr Steyl asserted that this anti-competitive
behaviour forced GNN to close as it could not compete with the low prices and continue
to meet the profit margins it needed to survive. In 2011, the Competition Commission,
after investigating the complain t, referred a case of predatory pricing on the part of
Media24 to the Competition Tribun al (Tribunal). The Tribunal’s decision 3 and the
subsequent decision on appeal to the Competition Appeal Court4 are the foundation of
the case before us.
Predatory pricing
Because low prices are generally encouraged by competition law, costs standards
have been developed to indicate the line between competitive pr ice cutting and
u n r e a s o n a b l y l o w p r i c e s t h a t a r e p r e d a t o r y . P r e d a t o r y p r i c i n g is prohibited in two
3 Competition Commission v Media 24 (Pty) Ltd [2016] ZACT 86 (Tribunal decision).
4 Media 24 (Pty) Ltd v Competition Commission 2018 (4) SA 278 (Competition Appeal Court judgment).
GOLIATH AJ
6
provisions in the Competition Ac t. Section 8(d)(iv) creates a specific prohibition
against pricing below two specific cost standards. This section provides:
“It is prohibited for a dominant firm to—
. . .
(d) engage in any of the following exclusionary acts, unless the firm concerned
can show technological, efficiency or other pro-competitive, ga ins which
outweigh the anti-competitive effect of its act:
. . .
(iv) selling goods or services below their marginal or average variable
cost.”
Section 8(c) of the Competition Act contains a general prohibit ion against anti-
competitive behaviour and is con sidered the “catch-all” provisi on to protect against
abuses of dominance. The section provides:
“It is prohibited for a dominant firm to—
. . .
(c) engage in an exclusionary act, other than an act listed in paragraph (d), if the
anti-competitive effect of that act outweighs its technologica l, efficiency or
other pro-competitive, gain.”
An “exclusionary act” is defined by the Competition Act as “an act that impedes
or prevents a firm from entering into, or expanding within, a market.”5
Section 8(c) should be read to prohibit pricing that is below o ther appropriate
cost standards besides the two listed in section 8(d)(iv). The re are five cost standards
that are important to understand for the determination of this case. They are the cost
standards that are used in various foreign jurisdictions to determine whether prices are
predatory, and they are the stand ards pleaded in this case. Th ese are: marginal cost;
average variable cost; average av oidable cost; long run average incremental cost; and
5 Section 1 of the Competition Act.
GOLIATH AJ
7
average total cost. The first t wo are the standards applicable to complaints brought
under section 8(d)(iv), while the latter three are of relevance to complaints brought
under section 8(c).
The various standards are define d as follows: Marginal cost ref ers to a
comparison between the cost of producing an additional unit of output and the price that
the firm is charging per unit of output. If the price exceeds marginal cost, then it makes
sense to produce an additional unit. If it costs more to produce a unit of output than the
firm can charge, then the rational firm would not produce that unit. Consequently, if a
firm prices below marginal cost it is presumed to be participating in predatory pricing.
Establishing marginal cost is extremely difficult; therefore, a second and similar test
was created.6
Average variable cost is this second test. It is referred to a s the Areeda-Turner
test in various local judgments and foreign commentaries.7 This is the sum of the firm’s
variable costs (labour, electricity, et cetera) divided by the number of units produced.8
Variable costs are costs that vary as output increases, as oppo sed to fixed costs, which
do not. If a firm charges a price which does not cover its variable costs, it intentionally
suffers a loss on every sale and is presumed to be participating in predatory pricing.9
Average avoidable cost refers to the average costs that the fir m could have
avoided if it had not produced particular units of output. Thi s includes variable costs
and any fixed costs that are sp ecifically incurred in the produ ction of the particular
product being examined. Average avoidable cost is generally equal to average variable
cost plus product-specific fixed costs.10
6 O’Donoghue and Padilla The Law and Economics of Article 82 EC (Hart Publishing, Oxford 2006) at 237.
7 Id at 240.
8 Id at 237 and 245.
9 Id at 240.
10 Id at 241.
GOLIATH AJ
8
Average total cost is equal to the total cost of producing a product divided by the
number of units produced. This number includes the costs assoc iated with average
variable cost, the product-specific fixed costs, and a proportion of the common costs of
the company that have been apportioned to the particular produc t if the firm produces
multiple products. Common costs are costs that the firm incurs regardless of how many
different products are produced.
Long-run average incremental cost refers to the total value of costs that are
needed to enter and start supplying a specific product, represe nted as an average over
output. This test is generally u sed in industries which have h igh barriers to entry but
low operating costs, as it allows companies to average out the high sunk costs 11 that
they must recover with the low operation costs.12
Litigation history
Competition Tribunal
The case referred to the Tribunal was based firstly on a contra vention of
section 8(d)(iv), and in the alternative on a violation of section 8(c). The Tribunal found
that Media24 had not priced its advertising below its average a voidable cost, and thus
the Competition Commission failed to establish that Media24 pri ced below the lower
standards of average variable cost or marginal cost.13 As a result, the Tribunal made its
determination using section 8(c) and not section 8(d)(iv). The case presented by the
Competition Commission was that Media24 had used Forum as a fighting brand. This
means that it was kept in the market with the express purpose o f charging prices that
were lower than its competitors, who were then forced to leave the market. Once this
task was completed, the fighting brand was closed down. The Tr ibunal held that the
Competition Commission had established that the average total cost was an appropriate
11 “Sunk costs” refer to money that is spent by businesses upfron t and cannot be recovered or refunded. For
example, once money is spent on rent or expensive equipment whi ch value will deflate over time that amount is
not recoverable and is thus sunk. See Baumol “Fixed Costs, Sun k Costs, Entry Barriers, and Sustainability of
Monopoly” (1981) 96 Quarterly Journal of Economics 405 at 406.
12 O’Donoghue and Padilla above n 6 at 242-3.
13 Tribunal decision above n 3 at para 211.
GOLIATH AJ
9
cost standard to use to evaluate predation in this case; 14 that Media24 had charged
advertising prices for Forum below its average total cost; that it had intended to predate
GNN; that Media24 had the ability to recoup what it had lost during this predation period
and that GNN had not been excluded due to its relative inefficiency. It fo und that
Media24’s actions had an anti-competitive effect and that there was no evidence of pro-
competitive gain which outweighed this effect. 15 Consequently, it held that Media24
had contravened section 8(c) of the Competition Act.
Additional evidence
The Tribunal held that average total cost could be an appropriate costs standard
for a finding under section 8(c) of the Competition Act when accompanied by additional
evidence of predation. 16 The Tribunal evaluated the additional evidence under the
following four headings: direct i ntention to predate, indirect intention to predate,
recoupment, and the equally efficient competitor test.
Direct intention
Direct intention relates to the subjective intention of Media24 as evidenced by
witness statements. The Tribunal examined the factual evidence that was placed before
it which consisted of oral and written testimony by persons who had been employed by
Media24 during the complaint per iod. The evidence pointed to t he fact that internal
communication had taken place in terms of which employees had stated that they were
attempting to undercut GNN, and that they intended to use Forum as a stopper in the
market to keep business away from GNN. A similar sentiment was expressed at a
Media24 strategy meeting. The Tribunal found that this constit uted more than merely
fighting words and indicated a direct intention to predate GNN.17 Moreover, it held that
14 Id at para 221: the reason for this finding was based first on an understanding that South Africa’s economy is
characterised by high barriers to entry and second, that an information asymmetry exists between large, established
firms and small and mediums ones. Information asymmetry refers to the way that large firms can manipulate their
financial records to exacerbate the imbalance between them and their smaller rivals.
15 Id at para 621.
16 Id at para 222.
17 Id at para 383.
GOLIATH AJ
10
Media24 had not done enough to rebut the evidence that had been put forward. It thus
accepted that Media24 had acted with predatory intent and moved on to evaluate this
finding in the light of other evidence of exclusion.18
Indirect intention
Indirect intention is inferred from objective evidence and invo lves drawing
economically pertinent inferences from certain behaviour. 19 The Tribunal examined
three areas of evidence. These were: firstly, evidence that Forum w a s c o n s i s t e n t l y
making a loss for nine years before it eventually closed down. Secondly, the Tribunal
examined the circumstances around the closing down of Forum such as the fact that
Media24 closed Forum nine months after GNN left the market. It concluded that
Media24 had intended to close Forum as soon as GNN had left the market but retained
it to make them look less suspicious and ensure that they were not brought before the
Commission. Finally, the Tribunal examined the cannibalism factor. This relates to the
fact that during the period that Forum was maintained, it prevented some advertisers
from advertising in Vista. Generally, allowing a product to draw customers away from
another in the same firm would not be rational. The Tribunal held that this points to a
separate strategic reason for maintaining Forum. The strategic value was that Forum
was able to predate GNN.
Recoupment
The Tribunal accepted that since GNN’s exit from the market, Vista h a d
increased its prices by 17%. This, it held, was substantial when compared to the price
increases of previous years. Mor eover, because no other compet itors had entered the
market after GNN and Forum exited, Vista was able to continue charging high prices to
the detriment of consumers in an unchecked fashion. These fact ors taken together
amount to strong evidence of recoupment.
18 Id at paras 619 and 621.
19 O’Donoghue and Padilla above n 6 at 252.
GOLIATH AJ
11
Equally efficient competitor test
Media24 contended that the reason for GNN’s exit from the market was because
it was not an equally efficient competitor20 and so could not survive in a true competitive
market. The Commission conteste d this. The Tribunal held that it was unlikely that
GNN left the market simply because it was inefficient. It based this finding on the fact
that it was run by a veteran of the Welkom newspaper market who knew how to run a
profitable business. Moreover, the fact that GNN was able to break into the market and
gain market share pointed to the fact that it was efficiently run.21
All of this evidence, taken toget her with the fact that Media24 priced below
average total cost, led the Tribunal to hold that Media24 was guilty of predatory pricing
in terms of section 8(c) of the Competition Act.22
Competition Appeal Court
The Competition Appeal Court summarised the Commission’s case as:
“(a) Appellant operated Forum solely as a ‘fighting brand’ in order to exclude GNN
from the market;
(b) Forum’s average revenues did not cove r the average total costs of pr oducing
and publishing the paper;
(c) Forum ’s average revenues did not cover its average variable costs ov er a
12 month period (where all costs were considered variable and thus could have
been avoided if Forum had ceased publication at this point); and/or
(d) Forum’s incremental costs (calculated as Forum's total revenues reduced by
the proportion of its revenues which would have been diverted t o Vista i f
Forum had exited the market) did not cover its incremental costs, calculated as
the total costs that were incremental to the operation of Forum based on two
definitions:
(i) all costs that could have been eliminated over a period of one year; and
20 Elzinga “The goals of antitrust: other than competition and ef ficiency, what else counts?” (1977) Vol 125:6
University of Pennsylvania Law Review 1191 at 1192.
21 Tribunal decision above n 3 at para 557.
22 Id at para 621.
GOLIATH AJ
12
(ii) all Forum’s costs.”23
The Competition Appeal Court held that the test envisaged in se ction 8(c)
determines whether specific conduct amounts to an exclusionary act as defined in the
Competition Act. This, it held, is an objective test. The cou rt held that subjective
evidence of intent should not be examined in proving predatory pricing and that, once
this evidence was disregarded, average total cost was not an ap propriate cost standard
to illustrate that predatory pricing occurred. The Competition Appeal Court concluded
that:
“[T]here is no escaping the conclusion that predation must focus on the likely economic
effect of pricing below a partic ular cost measure to determine whether the low prices
are due to a lawful competitive response to rivals or to predat ion and unlawful
behaviour rather than on the intention with which a pricing strategy is adopted.”24
Having rejected average total cost plus intention, the Competition Appeal Court
concluded that the only appropria te benchmark that had been rel ied upon by the
Commission in their pleadings was average avoidable cost. This does not mean that it
is the only appropriate benchmark to apply to section 8(c) in all cases, but rather that in
this particular case it is the only appropriate test that remains. In the light of its rejection
of the average total cost plus intent test, the Competition Appeal Court did not have to
consider the balance of the evidence concerning the intention of Media24. In the result,
the appeal by Media24 was upheld as it could not be established that Media24 had
violated section 8(d)(iv) or 8(c).
Leave to appeal
Both the Competition Commission and Media24 contend that this c ase raises a
constitutional issue. This is because the Competition Act was enacted as transformative
legislation. Section 2(e) and (f) of the Competition Act state s that part of the purpose
23 Competition Appeal Court judgment above n 4 at para 17.
24 Id at para 56.
GOLIATH AJ
13
of the Competition Act is to ensu re that small and medium sized businesses have
equitable opportunities to participate in the economy and to promote a greater spread of
ownership in the economy by thos e who were disadvantaged by Apa rtheid. These
purposes implicate the right of equality contained in section 9 of the Constitution.
Section 9(2) enjoins the State t o take legislative and other me asures to advance the
equality of previously disadvantag ed people and section 2(e) an d (f) of the
Competition Act is a legislative measure of this kind.
Section 8 of the Competition Act is an important component for the achievement
of the purposes contained in s ection 2(e) and (f). Section 8 p rohibits dominant firms
from abusing their power to the detriment of the market and con sumers. Consumer
welfare lies at the heart of the matter before us. The prohibition of abuses of dominance
is recognition of the fact that dominant firms attained this status due to our exclusionary
history. The protection section 8 provides applies specificall y to small and medium
sized firms which are at the greatest risk of being excluded fr om the market by abuses
of dominance or monopolies. Consequently, when a Court interprets the extent of the
protection contained in section 8, it must do so in line with t he purpose of the
Competition Act and the Constitu tion as abuses of dominance and the resultant
monopolies have the potential to perpetuate historic patterns o f exclusion and
inequality.
Beyond this, this Court held in S.O.S and Hosken, that the ambit of the
Commission’s investigatory powers, in terms of section 21(1)(c) of the Competition
Act, is an inherently constitutional issue.25 This section empowers the Commission to
investigate alleged violations of Chapter 2 of the Competition Act. The case before us
involves an interpretation of the extent of the powers held by the Commission to
prosecute alleged violations subse quent to an investigation. T h e e f f e c t o f t h e
25 S.O.S Support Public Broadcasting Coalition v South African Broadcasting Corporation (SOC) Limited [2018]
ZACC 37; 2019 (1) SA 370 (CC); 2018 (12) BCLR 1553 (CC) (S.O.S) at para 21; and Competition Commission
of South Africa v Hosken Consolidated Investments Limited [2019] ZACC 2; 2019 (3) SA 1 (CC) 2019 (4) BCLR
470 (CC) (Hosken) at para 31.
GOLIATH AJ
14
Competition Appeal Court judgment is to limit the tools that the Commission has at its
disposal to prove a violation of section 8(c).
This is because on the test it applied, it was unnecessary to e xamine certain
evidence regarding predation. While evaluations under section 8(c) are economic in
nature, a limitation of the investigative and prosecutorial pow ers of the Commission
may have adverse consequences. Surely, if the ambit of the Commission’s investigatory
powers raises a constitutional issue, the ambit of its ability to bring prosecutions based
on findings made during investigation is, by parity of reasonin g, similarly
constitutional. What would be the purpose of the strong invest igatory powers of the
Commission if it cannot present all of the evidence that it has gathered in order to
prosecute an offence?
Aside from raising a constitutional issue, this matter engages the Court’s
jurisdiction because it raises an arguable point of law of gene ral public importance
which this Court ought to conside r. The question whether prici ng above average
avoidable cost but below average total cost amounts to predatio n requires the
interpretation of the law relati ng to exclusionary acts and the consideration of which
tests can be used to equitably es tablish predation. This is un questionably an arguable
point of law, especially when the contradicting views in foreig n jurisprudence, and
between the Tribunal and Competition Appeal Court are considered. Moreover, given
the impact that this determination will have on the interpretation and implementation of
section 8(c) of the Competition Ac t going forward, it is certai nly of general public
importance and this Court ought to consider it. One problem ex ists in this regard,
however: the Competition Act in section 62 states that for all matters, aside from those
that raise constitutional issues , the Competition Appeal Court has exclusive and final
appeal jurisdiction.
Can this Court then hear competition cases which raise arguable points of law of
general public importance? The answer must be yes. Section 62 was enacted prior to
the seventeenth amendment of the Constitution, which imbued the Court with the power
GOLIATH AJ
15
to hear arguable points of law of general public importance, and as such could not have
predicted that the Court would one day have the jurisdiction to decide such cases.
Section 62 of the Competition Act must be read in the context o f section 167 of the
Constitution. Section 167(3)(b)(ii) establishes that this Court can hear arguable points
of law of general public importance and section 167(3)(c) states that this Court makes
the final decision as to whether a matter falls within its juri sdiction.26 If the
Competition Act was read to fina lly exclude arguable points of law of general public
importance from the jurisdiction of this Court, it would then b e in conflict with the
Constitution. Legislation should not be read to derogate from the constitutionally
enshrined powers of this Court, i nstead a reading which aligns with the Constitution
should be favoured. A contextual reading of the Competition Act therefore leads to the
conclusion that the Competition Appeal Court has exclusive jurisdiction to hear appeals
on all matters except those which fall into the constitutionally protected jurisdiction of
the Constitutional Court. Resultantly, this Court has jurisdiction to hear this matter as
it raises a constitutional issue, and in any event raises an arguable point of law of general
public importance which this Court ought to consider.
Failure to approach the Competition Appeal Court
Appellate jurisdiction in compe tition law matters is regulated by section 62 of
the Competition Act. Section 62(1) stipulates which matters fa ll within the exclusive
jurisdiction of the Tribunal and the Competition Appeal Court. 27 Section 62(3) of the
Competition Act states that the Competition Appeal Court is the final court of appeal
26 Section 167 of the Constitution states:
“(3) The Constitutional Court—
…
(b) may decide—
…
(ii) any other matter, if the Constitutional Court grants leave to appeal
on the grounds that the matter raises an arguable point of law of
general public importance which ought to be considered by that
Court.”
27 The matters that fall within the exclusive jurisdiction includ e the interpretation of chapter 2 of the
Competition Act. Section 8(c) is located in chapter 2.
GOLIATH AJ
16
on all matters regulated by section 62(1). However, the appell ate jurisdiction of the
Competition Appeal Court is not final in competition matters which raise constitutional
issues.28 Resultantly, and crucial to this case, the appellate jurisdic tion of the
Competition Appeal Court is only final when the interpretation of chapter 2 does not
raise a constitutional issue.
The Competition Act states that where a constitutional issue is raised, both the
Supreme Court of Appeal and this Court have the jurisdiction to hear it. 29 A n
application for leave to appeal from the Competition Appeal Cou rt to either of these
courts is regulated by section 63(2) of the Competition Act. H owever, the right to
appeal to the Supreme Court of Appeal and this Court is made co nditional on a party
first applying to the Competition Appeal Court for leave to appeal. Section 63(2) reads:
“An appeal in terms of section 62(4) may be brought to the Supr eme Court of Appeal
or, if it concerns a constitutional matter, to the Constitutional Court, only
(a) with leave of the Competition Appeal Court; or
(b) if the Competition Appeal Court refuses leave, with leave o f the Supreme
Court of Appeal or the Constitutional Court, as the case may be .” (Emphasis
added.)
The interpretation of section 63(2) has been the subject of extensive debate. The
question is whether the use of the word “only” bars an applicant from applying to either
the Supreme Court of Appeal or this Court without first approac hing the
Competition Appeal Court for leav e, or whether the failure to a pproach the
Competition Appeal Court is merel y an obstacle that can be over come in certain
circumstances. This dichotomy was set out in the majority deci sions in both
28 Section 62(3)(b) of the Competition Act.
29 Id at section 62(4) which states:
“An appeal from a decision of the Competition Appeal Court in r espect of a matter within its
jurisdiction in terms of subsection (2) lies to the Supreme Cou rt of Appeal or
Constitutional Court, subject to section 63 and their respective rules.”
GOLIATH AJ
17
Loungefoam and Yara.30 However, this Court in those cases did not make a final
pronouncement on whether a bar or an obstacle is created.31
It has become necessary to decide this issue. In doing so, the judgments in
Loungefoam and Yara, which I fully endorse, are instructive. These judgments both
hold that the failure to seek leave to appeal from the Competition Appeal Court before
appealing to the Supreme Court of Appeal and this Court creates an obstacle to the
application which can be overcome if it is in the interests of justice for this Court to
grant a direct appeal.32
The restriction contained in section 63(2) of the Competition A ct, and the right
to appeal in section 62(4) are both qualified by section 63(1)(a).33 Section 167(6) of the
Constitution establishes that:
“National legislation or the rules of the Constitutional Court must allow a person, when
it is in the interests of justice and with leave of the Constitutional Court—
(a) to bring a matter directly to the Constitutional Court; or
(b) to appeal directly to the Constitutional Court from any oth er court.”
With regard to this, Cameron J in Yara noted the following:
“[T]he right of appeal is expressly subject to ‘any law’ that ‘specifically grants’ a right
of appeal. Plainly, section 167(6) of the Constitution is a law of this kind. It provides
30 Competition Commission v Loungefoam (Pty) Ltd [2012] ZACC 15; 2012 JDR 1119 (CC); 2012 (9) BCLR 907
(CC) (Loungefoam) at paras 22-3 and Competition Commission v Yara South Africa (Pty) Ltd [2012] ZACC 14;
2012 JDR 1118 (CC); 2012 (9) BCLR 923 (CC) (Yara) at para 20.
31 Loungefoam id at para 24 and Yara id at para 21.
32 Loungefoam id at para 24 and Yara id at para 68.
33 Section 63(1)(a) states:
“The right to an appeal in terms of section 62(4)—
(a) is subject to any law that—
(i) specifically limits the right of appeal set out in that section; or
(ii) specifically grants, limits or excludes any right of appeal.”
GOLIATH AJ
18
that national legislation or the rules of this Court ‘must allo w’ a litigant, ‘when it is in
the interests of justice and with leave of the Constitutional C ourt’, to bring an appeal
directly to this Court.”34 (Footnotes omitted.)
The provisions of section 63 of the Competition Act must be interpreted so that
they comply with the Constitution35. It appears that the section itself, by providing that
the right of appeal is subject t o any law that specifically gra nts a right of appeal,
subordinates its requirements to the right of direct appeal to this Court contained in
section 167(6) of the Constitution.36 In light of the provisions of section 167(6) of the
Constitution, section 63(2) read with section 63(1)(a)(ii) cann ot be said to create an
absolute bar. As the minority in Yara held:
“[T]he fact that a litigant has not sought the leave of the Com petition Appeal Court
would be pertinent to its application to this Court, but will not disable it. This Court is
at liberty to grant direct access, as the Constitution requires , and nothing in the
legislation need be read to detract from its power.”37
The word “only” should be interpr eted to mean that litigants ar e barred from
approaching this Court directly only when the interests of just ice do not warrant the
granting of a direct appeal.38 In such cases, leave of the Competition Appeal Court must
first be obtained. Furthermore, on whether the interests of justice warrant the granting
of leave to appeal directly to this Court appears later in this judgment.
Failure to approach the Supreme Court of Appeal
It must be established whether the Supreme Court of Appeal can still be
approached to hear appeals relating to competition law. If it retains its appellate
jurisdiction in such matters, th is creates difficulties for the Commission as it failed to
34 Yara above n 30 at para 65.
35 Id at para 66.
36 Id.
37 Id at para 70.
38 Id at para 68.
GOLIATH AJ
19
approach the Supreme Court of Appeal before appealing to this Court. The seventeenth
amendment to the Constitution amended section 168(3)(a) of the Constitution to read:
“The Supreme Court of Appeal may decide appeals in any matter a rising from the
High Court of South Africa or a court of a status similar to th e High Court of
South Africa, except in respect of labour or competition matters to such an extent as
may be determined by an Act of Parliament.”39 (Own emphasis.)
The question is how to interpret the express wording of the Con stitution. The
Commission contends that it should be interpreted to mean that
the Supreme Court of Appeal’s appellate jurisdiction has been e xcluded by this
amendment, while Media24 contends that until an Act of Parliament is enacted limiting
the Supreme Court’s jurisdiction in these matters, it should continue to hear competition
matters.
Brand JA in Computicket40 embraces the conclusion by Froneman J in National
Lotteries Board which states:
“As a result of the Constitution Seventeenth Amendment Act of 20 12, this right of
appeal to the Supreme Court of Appeal no longer exists.”41
In Democratic Alliance, Zondo J, stated that the phrase “to such extent as may
be determined by an Act of Parliament” in section 168(3), quali fies the words “except
in respect of labour or competition matters” and not “the High Court of South Africa or
a court of a status similar to that of the High Court”. Result antly, Zondo J held that
appeals concerning all matters except competition and labour ma tters still lie with the
Supreme Court of Appeal.42 By implication, it appears that the seventeenth amendment
39 Section 168(3)(a) of the Constitution.
40 Competition Commission v Computicket (Pty) Ltd [2014] ZASCA; 185 JDR 2507 (SCA) at para 10.
41 National Union of Public Service & Allied Workers obo Mani v National Lotteries Board [2014] ZACC 10;
2014 (3) SA 544 (CC); 2014 (6) BCLR 663 (CC) (National Lotteries Board) at fn 26.
42 Democratic Alliance v African National Congress [2015] ZACC 1; 2015 (2) SA 232 (CC); 2015 (3) BCLR 298
(CC) at paras 26-8.
GOLIATH AJ
20
did indeed remove the appellate jurisdiction of the Supreme Court of Appeal in respect
of labour and competition matters. It may be that further Acts of Parliament will qualify
this exclusion. However, the amendment itself constitutes an Act of Parliament and its
express wording must be respected. Consequently, it was not ne c e s s a r y f o r t h e
Competition Commission to approach the Supreme Court of Appeal before appealing
to this Court.
Eve n i f t his wa s not t he c a s e , t he r e a re i ns ta nc e s whe r e i t i s unnecessary for
litigants to approach the Supreme Court of Appeal before approa ching this Court. As
Cameron J and Yacoob J held in Yara:
“The Act envisages appeals directly from the Competition Appeal Court to this Court.
In matters involving the constitutionality of the Commission’s interpretation and
exercise of its statutory powers, this Court is necessarily the final Court. The questions
at issue here are so important that it is nearly inevitable tha t, whoever succeeds in the
Supreme Court of Appeal, this Court will be asked to have the l ast word. The issues
do not involve matters of common law, on which this Court parti cularly values the
views and experience of the Supreme Court of Appeal. It is tru e that even where
common law matters are not at issue, this Court values the view s of the Supreme
Court of Appeal. Nevertheless, the largely statutory and const itutional nature of the
questions at issue counts against requiring an appeal to the Su preme Court of Appeal
first.”43 (Footnotes omitted.)
The matter before us is an important one involving largely stat utory
interpretation and constitutional questions. This weighs again st it being necessary for
the Competition Commission to first approach the Supreme Court of Appeal.
Besides, a proper reading of that excerpt from Yara relied on by the second
judgment would reveal that Yara is no authority for the proposition that this Court ought
to defer to the Supreme Court of Appeal in relation to the comm on law or to the
Competition Appeal Court as a specialist court. Yara does no more than recognise that
43 Yara above n 30 at para 62.
GOLIATH AJ
21
obvious benefit that this Court generally stands to derive from allowing courts with
general jurisdiction and specialist courts to first express the mselves on issues that fall
within their jurisdiction before we deal with a matter. The ap ex court of the Republic
of South Africa ought never to abdicate its constitutional resp onsibility of providing
guidance to all courts in this country regardless of how complex or specialised the area
of law under consideration might be. To do so could be misunderstood as a confession
by this Court, of its incompetence and would probably undermine the jurisdiction and
authority of this Court in relation to matters of a specialist nature. As a matter of fact,
many complex issues that require s peciality in certain areas of the law have served
before this Court, but we have never deemed it appropriate to defer to any of the lower
courts, for good reason.
Interests of justice
The fact that this Court has jurisdiction to hear the matter is , however, not
decisive and leave may still be refused if it is not in the int erests of justice to hear the
appeal. There are a number of elements to this case that indicate that it would be in the
interests of justice for this Court to hear a direct appeal to it.
First, the Commission pointed out that this matter involves sta tutory
interpretation which ought to be developed in the legal framewo rk of the Constitution
and not parallel to it. This Co urt regularly undertakes interpretative exercises such as
this in relation to the Labour Relations Act. 44 The analogy between the two areas of
law, Media24 submits, is misplaced because this case seems to r aise more specialised
economic issues which require expert evaluation. This may be true, but this Court has
the benefit of the expert opinions of both the Tribunal and the
Competition Appeal Court in making its decision. Were this mat ter to confront the
Court with a factual question, it might then be in the interest s of justice to defer to the
44 See South African Commercial, Catering and Allied Workers Union v Woolworths (Pty) Ltd [2018] ZACC 44;
(2019) 40 ILJ 87 (CC) ( Woolworths) at para 20; National Union of Metalworkers of SA v Intervalve (Pty) Ltd
[2014] ZACC 35; (2015) 36 ILJ 363 (CC); 2015 (2) BCLR 182 (CC) at para 25 and National Education Health
and Allied Workers Union v University of Cape Town [2002] ZACC 27; 2003 (3) SA 1 (CC); 2003 (2) BCLR 154
(CC).
GOLIATH AJ
22
specialist courts but as the third judgment points out that, “this question entails critically
examining the policy and normative implications of the various standards for predatory
pricing”45, this Court is in a position to reach the best determinable co nclusion in line
with the interests of the public.
Davis JP, in the introductory paragraph of the Competition Appe al Court
judgment, places great emphasis on the fact that this matter is the first of its kind.46 As
a result, in interpreting the Co mpetition Act’s prohibition of predatory pricing, this
Court must establish how the prohibition aligns with, and fulfils, the imperatives of the
Constitution. Competition matters impact on the interests of t he public, especially
considering South Africa’s evol ving and transforming market eco nomy. The need to
provide the country with free and fair guidelines for an equitable competitive market is
crucial, and something that this Court is qualified to do.
Second, the implications of this case will be far-reaching. Me dia24 contested
this by arguing that the Compe tition Act is being amended and a mendments minimise
the importance of this Court’s decision. While it is true that the Competition Act is
being amended and that the new sections may limit the implicati ons of this judgment,
section 8(c) will still remain in the amended version of the Co mpetition Act. The
question of what kind of evidence can be used to prove a violat ion of that section will
continue to affect parties beyond those before us. The potenti al amendment of the
Competition Act does not negate or counteract the importance of the issues raised in
this matter.
Third, the Competition Commission has reasonable prospects of s uccess on
appeal. Both the Tribunal and the Competition Appeal Court are specialist bodies, and
in this case they have arrived at opposite conclusions. Ngcobo J in NEHAWU states
that—
45 Third judgment at [144].
46 Competition Appeal Court judgment above n 4 at para 1.
GOLIATH AJ
23
“[A]n important factor in considering the prospects of success in this application is the
fact that members of the Labour Appeal Court and the Labour Court are divided on the
proper construction of section 197. This factor alone suggests, at least prima facie, that
there are prospects of success. It is true that the Labour App eal Court, like all courts,
is bound by the doctrine of precedent, and should not depart fr om its own decisions
unless it is satisfied that they are clearly wrong. Nevertheless, given the clear division
amongst the labour Judges, it is desirable for this Court to co nsider the issue.” 47
(Footnotes omitted.)
The division between the specia list Judges at these bodies, ind icates that
interference with the decision of the Competition Appeal Court may be warranted. In
these circumstances, as is the case with labour law matters, this Court will not shy away
from intervening and interpreting the law in a way that best ca ters for the interests of
justice and the public at large.
Consequently, it is in the interests of justice that leave to a ppeal directly to this
Court from the Competition Appeal Court be granted. What must be decided now is
whether the appeal should be upheld.
The appeal
Aims and purpose of the Competition Act
It is a fundamental principle of competition law that competition between firms
is desirable. Competition generally encourages efficiency, innovation and the charging
of lower prices by firms. 48 Competition on the merits 49 includes price competition
which involves firms lowering their prices to attract business away from their
competitors. However, competition law also acknowledges that e xceptionally low
47 National Education Health and Allied Workers Union v University of Cape Town [2002] ZACC 27; 2003 (3)
SA 1 (CC); 2003 (2) BCLR 154 (CC) (NEHAWU) at para 26.
48 Bishop and Walker The Economics of EC Competition Law: Concepts, Application and Measurement 1 (Sweet
& Maxwell Ltd, London 2002) at 11.
49 OECD “What is competition on the merits?” (June 2006), at 1 av ailable at
http://www.oecd.org/competition/mergers/37082099.pdf. “Competi tion on the merits” refers to competition
between a dominant firm and its competitors which has the effect of increasing consumer welfare.
GOLIATH AJ
24
prices may be harmful to compet ition and thus, in the long run, consumers. This is
because below-cost pricing has the effect of forcing competitors out of the market which
increases the likelihood of the formation of monopolies 50. Monopolies are harmful to
consumer welfare and should therefore be regulated.51
The South African Competition Act acknowledges that the unjust distribution of
wealth during apartheid has led to concentrations of power and capital in the market.
One way of combatting this concentration is through the regulation of firms which hold
dominant shares in the market. The Competition Act specificall y regulates the
behaviour of these firms to ensure that they are not abusing their dominant positions to
the detriment of competition and consumers. 52 Section 8 of the Competition Act
prohibits two forms of abusive behaviour by dominant firms: exp loitative abuse and
exclusionary abuse. Exploitativ e abuses result in direct harm to consumers. 53
Exclusionary abuse, on the other hand, is conduct that attacks the dominant firm’s
competitors and as a result, indirectly harms consumers.54
The prohibition of predatory pricing contained in section 8(c) and (d)(iv) of the
Competition Act is an example of the regulation of exclusionary abuse. This regulation
is not an easy task. Approaches to evaluating whether predation has occurred are often
criticised as being over-inclusive, in that they implicate innocent firms in predation, or
under-inclusive, in that they fail to identify firms which are genuinely participating in
predation, to the detriment of competition.55 Any approach taken to prevent predatory
pricing must strike a balance be tween over and under enforcemen t, while
50 Bishop and Walker above n 48 at 51 at para 6.69.
51 Id at 21 at para 2.21.
52 Section 8 of the Competition Act.
53 Section 8(a) of the Competition Act states that “it is prohibited for a dominant firm to charge an excessive price
to the detriment of consumers”.
54 Section 8(c) and (d) of the Competition Act prohibit examples of this kind of behaviour.
55 Mackenzie “Are South Africa’s predatory pricing rules suitable?” (September 2014) at 3, 5 and 6, available at
http://www.compcom.co.za/wp-content/uploads/2014/09/Neil-Mackenzie-Predatory-Pricing-in-SA.pdf.
GOLIATH AJ
25
simultaneously fulfilling the pur pose of the Competition Act. This case therefore
requires a careful balancing act.
Section 2 of the Competition Act sets out the purpose for which it was enacted.
It states:
“The purpose of this Act is to promote and maintain competition in the Republic in
order—
(a) to promote the efficiency, a daptability and development of the economy;
(b) to provide consumers with competitive prices and product choices;
(c) to promote employment and advance the social and economic w elfare of
South Africans;
(d) to expand opportunities for South African participation in world markets and
recognise the role of foreign competition in the Republic;
(e) to ensure that small and medium-sized enterprises have an e quitable
opportunity to participate in the economy; and
(f) to promote a greater spread of ownership, in particular to increase the
ownership stakes of historically disadvantaged persons.”
This provision seemingly envisages the desired balance mentioned above. While
competitive prices and product choices are important, so is the protection of small and
medium-sized businesses. There fore, any approach to prohibitin g predatory pricing
must avoid over-inclusion as this will harm the ability of firms to set competitive prices,
while simultaneously not being under-inclusive as this makes it easy for dominant firms
to force small and medium-sized competitors to exit the market.
Examining predatory pricing in the Competition Act
Predatory pricing is prohibited by sections 8(c) and 8(d)(iv) of the Competition
Act. Section 8(d)(iv) contains a specific prohibition against predatory pricing. It
presumes that prices which are below a firm’s marginal cost or average variable cost
will have exclusionary effects and are not motivated by a ratio nal business rationale
beyond the gains that a dominant firm makes by excluding compet itors. Section 8(c),
on the other hand, is a catch-all provision which prohibits unjustified exclusionary acts
GOLIATH AJ
26
not listed in section 8(d)(iv). This appeal requires this Cour t to determine how best to
interpret section 8(c) to ensure that predatory pricing that fa lls outside of
section 8(d)(iv) is prohibited.
The approach to evaluating claims in terms of section 8(c) was established by
this Court in Senwes. Here the Court held:
“Plainly the section requires the presence of three conditions in order to establish that
an abuse of dominance has occurred. First, the act in which th e dominant firm was
engaged must be an ‘exclusionary act’ as defined in the empowering legislation. . . .
Second, the act in which the dominant firm was engaged must fall outside the scope of
section 8(d). Third, the anti-competitive effect of that act m ust outweigh its
technological, efficiency or other pro-competitive gain.”56
However, when examining section 8(c), both parties before us ar gued that the
section creates a two-stage test. This is likely because it is common cause that the
exclusionary act falls outside o f section 8(d). The Commission contends that first, it
must be determined whether an exclusionary act had occurred, and second, whether the
anti-competitive effect of that act outweighs some form of gain listed in the section.
Media24 characterised the test for predation as pricing which is low enough to exclude
an equally efficient competitor, which is done without a rational business justification.
There is not much difference between the tests that the parties each propose. Moreover,
while there are two stages to each test, they appear to be inte rrelated. This is because
an act that leads to the exclusion of a competitor but does not have an anti-competitive
effect, or has a rational business justification, will not be p redatory and conversely an
act that has anti-competitive effects but does not result in the exclusion of a competitor
is not prohibited by section 8(c).
56 Competition Commission of South Africa v Senwes Limited [2012] ZACC 6; 2012 JDR 0579 (CC); 2012 (7)
BCLR 667 (CC) (Senwes) at paras 27-8.
GOLIATH AJ
27
Both stages of the test are effect-based and objective.57 Whether an act excludes
competitors is a question of factual causation. Once it has been determined that an act
excluded a competitor, the extent of the anti-competitive effec t of this exclusion is
established by examining whether there has been actual harm to consumers or a
foreclosing effect on the market. 58 Actual harm to consumers occurs when, upon a
competing firm’s exit from the market, the dominant firm raises the price that it charges
for goods and services in order to recoup the losses that it made while charging below-
cost prices. This is known as recoupment. It is often difficult to prove that recoupment
has taken place.59 Consequently, anti-competitive effect can also be proven by showing
that there has been a substantial effect on the structure of th e market and that this is
likely to indirectly harm consumers. The exit of a firm from the market, where this exit
results in the elimination or r eduction of competition, is the kind of structural change
that is envisaged.
Proving predatory pricing
There is a debate about whether predatory pricing even exists. S o m e
commentators suggest that pricing below-cost, even in the short term, is irrational as it
runs contrary to the principle of profit maximisation.60 However, it is now settled that
predation is a tactic used by som e dominant firms to cement the ir ability to maximise
profits in the future. 61 This is because by making short term losses which drive a
competitor from the market, the dominant firm is able to set th e higher price at which
they can recoup their losses and continue to charge in the medium to long term.62 The
principle of short term profit maximisation still underpins mar ket strategy.
57 See definition of “exclusionary act” in [14].
58 European Commission Communication from the Commission: Guidance on the Commission’s Enforcement
Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings
(2009/C 45/02, February 2009) at para 71.
59 O’Donoghue and Padilla The Law and Economics of Article 102 TFEU 2 ed (Hart Publishing, Oxford 2013) at
314.
60 B o l t o n , B r o d l e y a n d R i o r d a n “ P r e d a t o r y P r i c i n g : S t r a t e g i c T h e ory and Legal Policy” (2000) 88 Geo Law
Journal 2239 at 2244.
61 O’Donoghue and Padilla above n 6 at 237.
62 Id at 236.
GOLIATH AJ
28
Consequently, a determination th a t a f i r m i s p u r p o s e f u l l y l o s s -making, and thus
sacrificing some of the money it could have been earning, may be indicative that greater
scrutiny of its pricing model is required.63
The cost standards that are centr al to the dispute before this Court become
relevant here. Costs standards identify the various expenses i n creating a product and
running a firm. Pricing below a particular cost standard indic ates that a firm is not
recovering all of the costs incurred in producing a product.64 This means these standards
are useful to establish whethe r predation has taken place becau se they point to profit
sacrifice on the part of the dominant firm.65
However, all costs measures have short-comings. Marginal cost is criticised as
being too difficult to calculate. 66 Average variable cost, which was developed to
supplement these difficulties, is difficult to determine when the line between fixed and
variable costs is blurred.67 Average avoidable cost, which is generally considered to be
the most readily ascertainable a nd calculable cost standard, st ill encounters problems
where predation has occurred over a long period of time and it is difficult to determine
which costs are avoidable and which are not. 68 Long run average incremental cost is
accused of being biased against firms that produce only one product, as the calculation
will not include comm on or joint costs. 69 With regard to average total cost, there are
often rational business justifications for pricing below this standard and determining the
costs included in it is practically difficult due to the element of discretion present in the
allocation of common costs to products in multi-product firms.70
63 Id at 237.
64 Bishop and Walker above n 48 at 17-9.
65 Id at 12.
66 O’Donoghue and Padilla above n 6 at 240.
67 Tribunal decision above n 3 at para 82.
68 O’Donoghue and Padilla above n 6 at 243.
69 Id.
70 Bishop and Walker The Economics of EC Competition Law: Concepts, Application and Measurement (Sweet
and Maxwell, London 2010) at 305.
GOLIATH AJ
29
This case requires the Court to evaluate the merits of two of these cost standards
which were pleaded to illustrate t hat Media24 was participating in predatory pricing.
The Competition Commission contends that pricing below average total cost could
amount to predatory pricing if it is accompanied by additional evidence of intention to
predate or a predatory scheme. M edia24, on the other hand, sub mits that relying on
average total cost plus additio nal evidence is an unreliable wa y of evaluating whether
predation has occurred. Instead, Media24 proposes that average avoidable cost be used
as the appropriate costs standard below, which prices charged i ndicate a violation of
section 8(c). The Tribunal found in favour of the Competition Commission, while the
Competition Appeal Tribunal agreed with Media24 and excluded average total cost plus
additional evidence as a relevant cost measure.
However, because of the difficulties inherent in all cost stand ards, it would not
be wise for this Court to tie its elf too closely to any particu lar cost standard. The
ultimate concern in cases such as these should be whether pricing below a cost standard
could lead, or led, to the exclu sion of a competitor, which exc lusion had
anti- competitive effects that are not outweighed by the gains listed in section 8(c).
Profit sacrifice
One of the crucial indicators of predatory pricing is profit sa crifice. This refers
to a dominant firm deliberately incurring losses relative to al ternative non-predatory
conduct in the short-term by pricing its products too low. The profit sacrifice test
assumes that a firm would not r ationally engage in exclusionary conduct unless it
considers the short-term loss of profits to be less than any expected gains achieved as a
result of excluding or discouraging rivals. 71 When a firm prices below average
avoidable cost (or average variable cost), sacrifice is easily established because the firm
is actively making a loss on a p articular product line. This i s because the product-
specific costs incurred are not being covered by the price that is charged for the product.
71 O’Donoghue and Padilla above n 59 at 227.
GOLIATH AJ
30
It is presumed that there can be no rational justification for making such a loss and thus,
the pricing is predatory. However, a firm that prices below av erage total cost is still
participating in profit sacrifice even if it is not actively loss-making. Common costs are
allocated to product-lines in multi-product firms on some ratio nal accounting basis.
However, management makes the conscious decision to sacrifice p art of the
contribution that the firm could, and in accounting terms, should be making to common
costs in favour of charging lower prices.
While profit sacrifice is relied upon in many cases of predatory pricing, criticism
of the test does exist. Academics question whether the profit sacrifice test requires a
firm to opt for the most profitable business strategy to avoid a finding of exclusionary
conduct. It is also unclear what degree of sacrifice is required to establish exclusionary
conduct, or whether the rule is strict in that any profit sacri fice indicates abuse. 72 In
response to these criticisms, some jurisdictions, such as the United States, have adopted
a variant of the test called the “no economic sense” test. 73 This test establishes that
conduct is not exclusionary unless it would not make economic s ense for a dominant
firm to pursue this behaviour save for its tendency to eliminate or lessen competition.74
By combining the usual test for profit sacrifice with the “no e conomic sense”
test, other jurisdictions have been able to develop an approach to predatory pricing that
ensures that only profit sacrifice which is undertaken exclusiv ely to eliminate
competitors is prohibited. This is essentially the same approach which the parties before
us argue section 8(c) requires. It is clear from the discussion above that there is no one
cost standard that best illustrates profit sacrifice in all cases. Instead, the circumstances
of each case must be considered t o determine which cost standar d is most appropriate
to prove that sacrifice has occurred.
72 Id at 229.
73 Id at 230.
74 Id. See also Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP 540 US 398 (2004).
GOLIATH AJ
31
Anti-competitive effects
Once profit sacrifice is established, it must be determined whe ther the sacrifice
excluded or could exclude a com petitor with anti-competitive ef fects.75 T h e a n t i -
competitive effect element can be determined based on whether the below-cost pricing
was for a legitimate business reason, or whether the only ratio n a l e w a s t o d r i v e
competitors out of the market.
In SAA, the Competition Tribunal held:
“If the conduct meets the requirements of the definition, we th en enquire whether the
exclusionary act has an anti-competitive effect. This question will be answered in the
affirmative if there is (i) evidence of actual harm to consumer welfare or (ii) if the
exclusionary act is substantial or significant in terms of its effect in foreclosing the
market to rivals. This latter conclusion is partly factual and partly based on reasonable
inferences drawn from proven facts. If the answer to that quest ion is yes, we conclude
that the conduct will have an anti-competitive effect. Whichev er species of anti-
competitive effect we have, consumer welfare or likely foreclosure, we have evidence
of a quantitative nature and hence we can return to the scales with a concept capable of
being measured against the alleged efficiency gain.”76
There are many legitimate business reasons why a firm might cho ose to price a
product below average total cost. Two such examples come immediately to mind. First,
the levels of competition in particular markets fluctuate over time. It may be, therefore,
that new entrants can afford to charge lower prices and the dom inant firm is forced to
decrease its prices in the short-term to meet the prices that c ompetitors are charging.77
Second, when dominant firms want to encourage customers to become familiar with a
product, they will drop the price of the product in the short-t erm as a promotion. 78
75 O’Donoghue and Padilla above n 59 at 227.
76 Competition Commission v South African Airways (Pty) Ltd [2005] ZACT 50 (SAA) at para 132.
77 O’Donoghue and Padilla above n 59 at 285.
78 Id at 291.
GOLIATH AJ
32
Neither of these price reductions are predatory because they are done with the intention
of attracting customers and not of excluding competitors from the market.79
Because of the multiple justifications that exist, pricing below average total cost
is considered lawful in some jurisdictions, but competitors may adduce evidence to
prove that, in the circumstances of the specific case, the pric ing was predatory. The
Tribunal relied on the decision of the European Court of Justice in AKZO, which is the
seminal European authority for the contention that pricing below average total cost must
be regarded as abusive if it is determined to be part of a plan for eliminating a
competitor.80 In terms of the rule established in AKZO, prices that are above average
variable cost (or average avoidable cost) but below average tot al cost are only abusive
when they are part of such an el iminatory plan, meaning that in all other instances,
below average total cost pricing is considered to be lawful.81 In terms of this decision,
a plan is usually shown first through direct evidence of intent arising from the dominant
firm’s documents, and second thro ugh indirect factors which, ta ken together, show an
anti-competitive intention underlying the price-cutting.82
Europe is not the only jurisdiction that relies on the presumpt ion that pricing
below average total cost is lawf ul, but can be shown to be othe rwise with additional
evidence. The United States has not endorsed any particular cost standard and instead
holds that predatory pricing must be shown to be below some mea sure of incremental
cost.83 This rule was articulated by the Supreme Court of the United States in
Brooke Group, where the Court held that only below-cost pricing may be predat ory.84
In defining below-cost pricing, the Court held that this referred to pricing that was below
79 Id at 284.
80 Case C-62/86 AKZO Chémie BV v Commission of the European Communities [1991] ECR I-3359 (AKZO) at
para 72.
81 O’Donoghue and Padilla above n 6 at 249.
82 Id.
83 Bolton, Brodley and Riordan above n 60 at 20. See also Brooke Group Ltd v Brown and Williamson Tobacco
Corp 509 US 209 (1993) (Brooke Group) at 222-3.
84 Brooke Group id at 223.
GOLIATH AJ
33
the average total cost of producing a product. 85 Notably, the Court did not endorse
average total cost but rather held that pricing anywhere below average total cost,
including below the lower cost standards of marginal cost and a verage variable cost,
may be predatory. Pricing below a measure of incremental cost is only the first stage
of the inquiry used by the Court. The second stage requires that the competitor alleging
that a dominant firm is engaged in predatory pricing show that there is a reasonable
prospect or dangerous probability of the dominant firm recouping more than the losses
incurred through below-cost pricing.86
While the requirement of recoupment has made successful prosecu tion of
predatory pricing in the United States nearly impossible, the a bove is confirmation of
the fact that other jurisdictions accept that pricing below ave rage total cost may be
predatory if it is accompanied b y other evidence of a predatory scheme or predatory
effects.
Average avoidable cost or average total cost plus intent
This case neither requires the Court to determine the correct t est to prove
predatory pricing nor to create a new test to be applied to sec tion 8(c). Instead, this
Court is called upon to decide w hether the Competition Appeal C ourt’s decision to
exclude a cost standard from the section is correct. If there are instances where the use
of average total cost plus additional evidence may be the best test for the Competition
Commission to rely upon to prove predation, then the appeal must succeed.
Average avoidable cost has gaine d prominence in the past few de cades as a
reliable standard to determine whether predatory pricing has occurred. Both American
and European academics recommend it as the cost standard of choice, and EU Guidance
states that average avoidable cost should be used as the starting point in investigations
85 Hovenkamp Federal Anti-trust Policy: The Law of Competition and its Practice 3 ed (Thomas/West, St Paul
2005) at 346.
86 Brooke Group above n 83 at 224.
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34
into predatory pricing.87 It is true that average avoida ble cost is generally accepted as
the most readily ascertainable and reliable cost measure. 88 However, as discussed
above, it is not without its problems. The most pressing of these exists in multi-product
firms where assets are transferred or redeployed from one operation to another. It is not
clear in those instances which costs are avoidable and which are not.89 The Competition
Commission asserted that average avoidable cost may be difficult to determine as it is
inherently uncertain. Resultan tly, average avoidable cost shou ld not be used
dogmatically as the test for predation in all alleged cases of predatory pricing.
Media24 characterises average avoi dable cost as never consideri ng non-
avoidable common costs. Non-avoidable common costs refer to no n-product specific
fixed and sunk costs. It also appears that average avoidable c osts are calculated from
the dominant firm’s perspective and not from the perspective of the firm that is the
victim of predation. However, pricing below the cost of recovering fixed costs or sunk
costs may, in some instances, exclude competitors.
Multi-product firms
The Competition Commission points t o a few instances where fixe d and sunk
costs may contribute to the exclusion of a competitor. The first is where a multi-product
firm is competing with an equally efficient single-product firm . Multi-product firms
are firms which produce multiple product lines. The firm incurs product-specific fixed
and variable costs for each product line but also has unavoidab le costs that would be
incurred regardless of how many different product lines the fir m produced. These
unavoidable costs are also referred to as common costs. The mu lti-product firm can
spread out its common costs, w ith each product line contributin g something to the
recovery of these costs, while the single-product firm must inc ur and recover all of its
costs from money made by one product. In order to compete with the multi-product
87 European Commission above n 58 at para 64.
88 O’Donoghue and Padilla above n 6 at 242 read with fn 19.
89 O’Donoghue and Padilla above n 59 at 248.
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35
firm which spreads out its common costs, the single-product firm would consistently be
m a k i n g a l o s s a s i t i s n o t c o v e r i n g i t s f i x e d a n d s u n k c o s t s . In this situation the
Competition Commission contends t hat average total cost may be the appropriate
standard to use to evaluate whether predation has occurred because average total cost is
the only standard which considers a portion of the company’s common costs.
The length of the period over which predatory prices were charged is relevant to
determining whether pricing above average avoidable cost but be low fixed and sunk
costs had exclusionary effects. Alleged predatory prices that last only one month may
not cause an equally efficient rival to lose any money by not e xiting the market unless
those prices are lower than the short-run costs incurred by ope rating on a month-to-
month basis.90 However, fixed and sunk costs become very relevant when low pricing
occurs over a long period of time. Pricing that lasts for one or ten years will cause an
equally efficient rival to lose money, relative to exiting the market, if the price does not
allow it to cover the fixed costs of producing anything, like i ts overhead costs, the
following year. Moreover, the longer a dominant firm prices at a low price, the less
likely competitors would be able to make future capital payment s for sunk costs like
long-term property rent or maintenance of facilities. 91 In these cases, it would be
cheaper for the competitor to exit the market than remain in it and attempt to compete
with the dominant firm’s prices.
Some academics, including Elhauge, believe that the difficulties associated with
average avoidable cost stemming from its exclusion of fixed and sunk costs can be
rectified by simply changing the perspective from which costs a re examined when
calculating average avoidable cost. They contend that the comm on costs faced by the
dominant firm should be viewed from the perspective of the competitor and would thus
be avoidable.92 When deciding whether to sign a new long-term lease or exit the market,
90 Elhauge “Why Above-Cost Price Cuts to Drive out Entrants Are Not Predato r y - a n d t he I m pl i c a tions f o r
Defining Costs and Market Power” (2003) 112 Yale Law Journal 681 at 708.
91 Id.
92 Id.
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36
the lease has yet to be signed and is thus avoidable to the com petitor. Therefore, the
cost of rent could be factored into the average variable cost below which the dominant
firm cannot price.
This approach, while intuitively appealing, faces a few obstacl es. The first is
that other commentators contend that it would be nonsensical to accuse a dominant firm
of predatory pricing every time a competitor finds itself unabl e to make a profit. 93
Moreover, expecting a dominant firm to price above the average avoidable cost of its
competitors is inherently uncertain as to which costs are avoidable as it depends on the
circumstances that the competing firm finds itself in. It is unclear how a dominant firm
would ascertain a competitor’s average avoidable cost to ensure that pricing is above it.
Due to this uncertainty, a cautious firm would price its goods based on the assumption
that the firm that will accuse it of predation is a competitor who is yet to enter the
market. This prospective compe titor’s average avoidable cost w ould be equal to its
average total cost as it has yet t o i n c u r a n y f i x e d o r s u n k c o sts, making all costs
avoidable. Media24 argues that it is dangerous to require firm s to price above their
average total cost as it will harm the economy in the long run. It is unclear, however,
why the criticisms that Media24 level against average total cost would not equally apply
to the situation described here. The final problem with this a pproach stems from the
fact that Media24 pleaded average avoidable cost based on the c osts incurred by the
dominant firm, and not those from the perspective of the compet itor. This approach
was not challenged by the Competition Commission or criticised by either the Tribunal
or the Competition Appeal Court. It appears therefore that, at least in the context of the
present case, it is common cause that average avoidable cost is examined from the
dominant firm’s perspective.
Average total cost is the one cost standard that allows regulators to look at fixed
and sunk costs in order to determine whether pricing below thes e costs resulted in the
exclusion of a competitor. In hi s scathing critique of the ave rage total cost standard,
93 Bishop and Walker above n 70 at 306.
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37
Baumol argues that there is, in reality, no such thing as a single-product firm.94 And as
a result, the reliance on average total cost in instances where a single-product firm
competes with a multi-product firm is only ever hypothetical. Even if single-product
firms are indeed rare, it is far too much of a generalisation t o assume that they do not
exist outside of the pages of textbooks. Indeed, in the case before us, GNN was running
a single-product firm for the duration of the alleged predation period even if it initially
started out as a multi-product firm.
The generally difficult task of calculating fixed and variable costs becomes more
complex when a firm produces multiple products.95 This is because the firm may have
fixed and variable costs that are incurred jointly between the various products.96 There
is no unambiguous way of calcula ting what proportion of these c ommon costs are
incurred by any particular product.97 There appears to be two approaches to the problem
created by common costs in multi-product firms. The first is t o ignore these costs
altogether, while the second is to undertake the complicated task of allocating the costs
between products.98
The first approach essentially is to exclude common costs from all considerations
of cost standards.99 This approach is the one that is favoured by Media24 in that they
argue that average avoidable cost, the cost measure which exclu des common costs, is
the most appropriate one to prove predation. This means that the only relevant concern
is whether a price enables a firm to recover the product-specif ic costs of producing it,
and not whether it is able to cover these costs and make a contribution towards common
costs.100 The problem with this approach is that it disadvantages compe titors who
94 Baumol “Predation and the Logic of the Average Variable Cost Test” (1996) 39 Journal of Law and Economics
49 at 59.
95 O’Donoghue and Padilla above n 6 at 260.
96 Id.
97 Id.
98 Id at 261.
99 Id at 260.
100 Id.
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38
produce only a single -product. Even if the firm is as efficient as the dominant firm, it
may still be forced to exit the market as it must recover all of its costs from one product
without the luxury of recovering common costs from different product lines.101 This is
the problem that the case before us presents.
The second approach is to unde rtake to allocate the common cost s between
product lines in order to determine the average total cost of a particular product.102 It is
true that the calculation of this amount is complicated and cum bersome but other
jurisdictions have developed guidelines for the allocation. In Claymore Dairies, the
UK Competition Appeal Tribunal set out general guidance for the allocation of common
costs.103 The Tribunal held that—
“[t]here are conventional accounti ng methods for making such al locations (e.g. by
volume, value, time, etc.) but the most appropriate yardstick to use may be debateable.
One approach, shared by the expert witnesses in the present case, is to seek to identify
“the cost drivers”, i.e. to determine the factors that cause th e costs to be incurred and
then make allocations appropriately.
So far as possible, cost allocations should reflect the underly ing business reality. A
reasonably detailed understanding of the nature of the business, and how costs arise, is
generally necessary when determining how particular costs shoul d be allocated.
Similarly, how the business itself treats the costs in its inte rnal management accounts
will normally be an invaluable source of information.
. . .
However the allocations are ultimately to be made, it is import ant in our view that the
investigation is grounded on a firm and reliable assessment of what the total costs are,
cross-checked as far as possible against the dominant undertaki ng’s statutory and
management accounts.”
104
101 Id at 261.
102 Id.
103 Claymore Dairies Limited and Arla Foods UK PLC v Office of Fair Trading [2005] CAT 30 ( Claymore
Dairies).
104 Id at paras 210-1 and 216. See also O’Donoghue and Padilla above n 6 at 264.
GOLIATH AJ
39
The above shows that while there may be difficulties with the a llocation of
common costs, it is neither an impossible task nor one that cou rts in other parts of the
world are unwilling to undertake. Importantly, the use of any specific cost measure is
motivated by the facts of the case. 105 For instance, where a multi-product dominant
firm is operating in a market which has high barriers to entry, the long-run average
incremental cost standard would likely be most appropriate and thus be used instead of
average total cost.106
In cases where a multi-product firm is predating an equally eff icient single-
product firm, it is the fact that the multi-product firm can sp read out its common costs
that contributes to the exclusi on of the competitor. It would make sense therefore to
consider common costs, and thus u se average total cost, when ev aluating whether
predation has occurred in multi-product firms.
The second example provided by the Competition Commission of a situation
where fixed and sunk costs might lead to the exclusion of a com petitor is where a less
efficient competitor is the only firm competing with a dominant firm which would, but
for that competitor, hold a monopoly in the market. As the firm is less efficient, it will
not be able to compete with the prices levied by the dominant firm. While competition
law is generally not concerned with protecting less efficient competitors, for the sake of
protecting the market from monopo ly, pricing below total costs should be considered
as possibly exclusionary in this case.107
The above illustrates that there are instances where it is possible to have profit-
sacrificial conduct below average total cost which excludes an equally efficient
competitor and thus, while pricing below average total cost should not be determinative
105 O’Donoghue and Padilla id at 261.
106 Case COMP/35.141 Commission Decision of 20 March 2001 relating to a proceeding under Article 82 of the
EC Treaty-Deutsche Post AG , 2001/354/EC. See also O’Donoghue id at 261-2 and Case 66/86 Ahmed Saeed
Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR
803.
107 European Commission above n 58 at paras 23-4.
GOLIATH AJ
40
of predation, it should be ava ilable to competition authorities. While the Competition
Appeal Court is an expert body, the categorical exclusion of av erage total cost plus
additional evidence of predation as a standard of proof is inco rrect as it unduly limits
the prosecutorial powers of t he Competition Commission. This f inding does not lay
down a new standard, but rather makes the determination of the appropriate standard
for predation dependent on the specific facts of each case.
Evidence of predation before the Tribunal
Because there are often legitimat e business justifications for pricing above
average avoidable cost or average variable cost but below avera ge total cost, the
Tribunal held that pricing below average total cost alone was not sufficient to justify a
finding of predation. 108 The Tribunal held that average total cost plus intent was an
appropriate cost standard to examine in this case to establish whether predation
occurred. While the test that it used has been colloquially referred to as “average total
cost plus intent”, it would be more accurate to describe it as “average total cost plus
additional evidence including evidence of intent”. This is because the Tribunal did not
only examine evidence of subjective intention to predate. It relied on direct, subjective
evidence of intention to predate, indirect and objective evidence of predation, evidence
of recoupment and the equally effi cient competitor test to show that the pricing below
average total cost was executed for the purpose of eliminating GNN from the market.109
The Tribunal specified the meani ng and content of both subjecti ve intention 110 a n d
objective intention.111 This judgment endorses the Tribunal’s interpretation of these
terms.112
108 Tribunal decision above n 3 at paras 233-8.
109 Id at paras 242-8.
110 See [23].
111 See [24].
112 The Tribunal decision above n 3 at paras 260-1 held that—
“Direct intent is the type of intent that we have discussed up until now - that which emanates
from the documents of the accused firm and statements by its employees. Indirect intent has a
greater economic basis. Examples cited would be reputational reasons for predation, targeting
of specific customers and competitors reliant on external funding.
GOLIATH AJ
41
Intent
The Competition Commission argues that evidence of subjective i ntention to
predate is not determinative of predatory pricing, but rather t hat this evidence has
probative value when coupled with other evidence, including obj ective evidence that
corroborates the subjective evid ence of intention. This argume nt is a considerable
departure from the arguments that the Competition Commission pr esented before the
Tribunal and the Competition App eal Court. Before those bodies , the Commission
contended that average total cos t plus evidence of subjective i ntention was definitive
proof of predation.
The angle that the Commission’s argument before us takes in terms of subjective
intent is in line with the manner that this form of intent is treated in other jurisdictions.
The European Court of Justice ha s examined what constitutes dir ect evidence of
intention to predate. In AKZO, the Court relied on documentary evidence of a detailed
plan to eliminate the competitor.113 In Tetra Pak II, the Court relied on a report by the
company’s board of directors indicating that financial sacrifices should be made to fight
competition.114 In Wanadoo, the Court held that subjective intent could be proven by
looking at both formal presentat ions by management and informal remarks made by
staff members but that the former had higher evidential value.115
The European Courts do recognise the difficulties with direct o r subjective
evidence of intention to predate. In AKZO, the Commission noted that it does not
As the name suggests, indirect intention is not reliant on dire ct intention as expressed by the
impugned firm but circumstantia l economic evidence that may giv e rise to an inference that
conduct is predatory. Indirect i ntention received more attenti on in a document that preceded
the Guidance, which is referred to as the Discussion Paper, yet the approach to analysing indirect
intention still forms part of the present Guidance.”
113 AKZO above n 80. See also O’Donoghue and Padilla above n 6 at 249.
114 Case T-83/91Tetra Pak International SA v Commission [1994] ECR 11-765.
115 Case COMP/38.233 Wanadoo Interactive Commission Decision 16 July 2003. See also O’Donoghue and
Padilla above n 6 at 250.
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42
consider an intention to prevail over competitors as unlawful. 116 Moreover,
commentators suggest that the enforcement of competition law should not be dependent
on whether a firm uses “commercia lly correct” language in its c orrespondence.117
Resultantly, evidence of subjective intent is treated with caution even in Europe, being
the jurisdiction which relies most heavily on intent as an element of predation.
In response to these problems, r eliance has been placed on indi rect evidence of
intent, which is really just obj ective evidence that assists a court to make inferences
about the explanation for the below-cost pricing. 118 This encompasses evidence of a
plausible predatory strategy in a particular market. 119 Examples of indirect evidence
include the actual or likely ex clusion of a competitor, whether certain customers are
selectively targeted, the scale, duration, continuity of the low pricing, the possibility of
the dominant firm off-setting its l o s s e s w i t h p r o f i t s e a r n e d o n other sales and the
possibility of recoupment of losse s through a future return to high prices. 120 T h i s
approach was endorsed both in AKZO and Tetra Pak II.121 However, when reliance is
placed on indirect evidence, there must be a strong evidential basis for alleging that the
below-cost pricing had no ratio nal business justification. 122 If pricing below average
total cost only makes commercial sense as part of a predatory strategy and there are no
other reasonable explanations, indirect evidence will be suffic ient to show that
predation has occurred.
The European approach to pricing below average total cost appears to be in line
with the only South African authority on predatory pricing in terms of section 8(c) – the
Competition Tribunal decision in Nationwide.123 The Tribunal held:
116 AKZO above n 80 at para 81.
117 O’Donoghue and Padilla above n 6 at 250.
118 Id.
119 Id.
120 Id at 251-2.
121 AKZO above n 80 and Tetra Pak II above n 114. See also, O’Donaghue above n 6 at 252.
122 O’Donaghue id.
123 Nationwide Airlines v South African Airways (Pty) Ltd [2001] ZACT 1 (Nationwide).
GOLIATH AJ
43
“[I]f a complainant, relying o n section 8(c), can show that a r espondent’s costs are
below some other appropriate measure of costs not mentioned in [section 8(d)(iv)] it
may prevail provided it adduces additional evidence of predatio n beyond mere
evidence of costs.”124
While the decision of the Competition Tribunal in Nationwide is obviously not
binding on this Court, both the Competition Tribunal and the Competition Appeal Court
referred to the extract approvingl y, despite their disagreement over what additional
evidence should entail.125 Nationwide has therefore been accepted as a useful starting
point by both of the specialist bodies on matters of competitio n l a w . I n m y v i e w ,
average total cost may be an app ropriate cost standard in some instances and courts
should be given the power to inve stigate pricing that is below average total cost,
including examining the additional evidence that is adduced to illustrate predation.
The critiques of subjective evidence are compelling and justify an approach that
illustrates that the management of a firm had the subjective in tention to predate does
not mean that this conduct had exclusionary effects. It appears that section 8(c) focuses
on the effects that conduct has on competition and there is no reason why objective
evidence cannot be presented to p rove that pricing that exclude d a competitor had
anti- competitive effects that outweighed pro-competitive gains. This evidence would
include objective, indirect evidence.
Media24 raised a number of potential harms that a finding endor sing average
total cost plus additional evid ence as an appropriate cost stan dard would have on the
South African economy. Most notably, they argued that dominant firms would, because
of fear of allegations of predation, primarily charge prices above average total cost and
that this would harm consumers b ecause they would have to pay h igh prices for
products. The second concern was that multi-product firms would be discouraged from
124 Id at 10.
125 Competition Appeal Court judgment above n 4 at paras 45 and 55 . See also the Tribunal decision above n 3
at paras 100-1.
GOLIATH AJ
44
growing their firms and runni ng different product lines because those lines would be
less profitable. This, it was submitted, would harm consumers as it would limit their
product choices.
Both of these eventualities are extremely undesirable. It is important, therefore,
that the approach taken strikes an appropriate balance between under and over-
enforcement. Pricing below averag e total cost that is to the b enefit of consumers and
competition in general should no t be discouraged. As a result, pricing below average
total cost should be considered lawful. However, competitors m ay raise additional
evidence to prove that the prof it sacrifice undertaken by the d ominant firm was only
beneficial to the dominant firm insofar as it excluded competit o r s . T h i s i s a h i g h
evidential burden. If pricing be haviour only makes commercial sense as part of a
predatory strategy, and there ar e no other reasonable explanati ons, this will meet the
burden.
The Competition Commission presen ted various pieces of evidence t o t h e
Competition Appeal Court, all of which potentially pointed towa rds proving that
predation had occurred. Some of t he evidence proves the intent ion to predate.
However, the balance of the evi dence was objective and allegedl y pointed towards
predation being the only rational reason for the low prices charged and towards the anti-
competitive effect of these prices. The Competition Appeal Court dismissed all of the
additional evidence out of hand on the basis that intention has no role to play in the
interpretation of section 8(c). This meant that it failed to e xamine any of the other
evidence that, while framed as indirect evidence of intent, is in actual fact objective
evidence to establish the purpose for which the below cost prices were charged.
Equally efficient competitor test
Media24 alleged before the T ribunal that the reason for GNN’s exit from the
market was not related to Forum’s pricing but instead occurred because GNN was a less
GOLIATH AJ
45
efficient competitor that was unable to survive in a volatile market.126 It was contended
that average avoidable cost and not average total cost is the appropriate cost standard to
use in cases involving section 8(c) because pricing above avera ge avoidable cost will
not lead to the exclusion of an equally efficient competitor. It is a fundamental principle
of competition law that firms shoul d be allowed to maximise the ir profits by charging
prices that are lower than those charged by their competitors. 127 In general, “less
efficient firms should not recei ve any protection from aggressi ve competition since
consumers are best served by more efficient firms”.128 This is because competition law
is concerned with protecting competition and not competitors.129
It should be noted that the seco nd example that the Competition Commission
points to in respect of which aver age total cost may be an appr opriate cost standard to
rely upon is where a less effici ent competitor is the only comp etitor preventing a
dominant firm from becoming a monopoly. The Tribunal held that GNN and Forum
were equally efficient but even if that was not the case, this may not be fatal to the
Competition Commission’s case.130
There are concerns in academia about the equally efficient competitor test. The
first concern is that less effici ent competitors can increase c onsumer welfare if the
increased competition that their presence in the market creates outweighs their relative
inefficiency.131 In Europe this has led to an acceptance that the duty to prot ect firms
from predation is not limited to protecting equally efficient f irms, but also, in
exceptional circumstances, less efficient firms.132
126 Tribunal decision id at paras 511-2.
127 Kelly et al Principles of Competition Law in South Africa (OUP, Cape Town 2016) at 2-3.
128 O’Donoghue and Padilla above n 6 at 233.
129 Id.
130 Tribunal decision above n 3 at paras 607-9.
131 O’Donoghue and Padilla above n 6 at 232.
132 Id.
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46
The second concern with the equ ally efficient co mpetitor test a rises in cases
where economies of scope and scale dominate the market and competitors only compete
for a limited portion of the market. 133 T h e E u r o p e a n c o u r t s s e e k t o o v e r c o m e t h i s
obstacle by putting aside the advantages that the dominant firm derives from being an
unavoidable competitor for a por tion of the market and focusing instead on equal
efficiency only for that portion of the market that is contestable.134
It is important that economies of scale exist and that we do not prohibit legitimate
competition on the merits. The protection of equally efficient firms only does not
appear to be a hard-and-fast rule that must be applied in all i nvestigations into
potentially abusive pricing conduct. In terms of the definition of an “exclusionary act”
in the Competition Act, 135 there is no textual basis which mandates the protection of
equally efficient competitors onl y. The definition speaks mere ly of “a firm” being
actually or potentially impeded or prevented and not an equally efficient firm. 136
Moreover, as discussed above, there are instances where the ben efit that a competitor
brings to the market through enhancing competition outweighs it s inefficiency. The
clearest example of this is where a dominant firm would be a mo nopoly but for the
existence of one smaller, less efficient firm. The less efficient firm’s existence protects
consumers from monopoly pricing and thus benefits them greatly. International
authorities appear to support the relaxing of the equally efficient competitor test in these
circumstances.137 This is the very instance that the Competition Commission rel ies
upon to illustrate that pricing be low average total cost may le ad to exclusion in some
cases.
133 Id.
134 Id at 233.
135 See definition in [14].
136 Section 1(1) of the Competition Act.
137 European Commission above n 58 at para 24 and International Co mpetition Network “Predatory Pricing
Analysis” in Unilateral Conduct Workbook (International Competition Network, Rio de Jeneiro 2012) at paras
35-7.
GOLIATH AJ
47
Further, in many industries the variable costs of large-scale p roduction are
cheaper than those associated with small-scale production. Her e, new entrants are
easily driven out of the market before they have had the opportunity to expand and reach
their potential as an equally efficient competitor. 138 In markets which are already
dominated by one or a few firms, new entry by firms is desirable, as is their allowance
to blossom into large scale producers. 139 Given that the aims of the Competition Act
include giving small- and medium-s ized enterprises an equitable opportunity to
participate in the economy, it would be inappropriate to rule that pricing below average
total cost can never be predator y simply because it would not e xclude an equally
efficient competitor.
Recoupment
The Tribunal found that there was evidence of recoupment by Med ia24.140
Recoupment refers to the raising of prices by the dominant firm once the competitor has
left the market.141 The Commission alleged that once GNN had left the market, Media24
raised the prices that it was charging advertisers for advertising space in Vista.
O‘Donoghue and Padilla suggest that recoupment can be tested us ing two
methods: either by examining the conduct itself or by looking a t the structure of the
market.142 The examination of conduct refers to determining whether the predation has
paid off in that it has enabled the dominant firm to raise its prices. Such an increase
must be to a level that enables the firm to recoup the losses t hat it made previously.143
T o s h o w t h a t t h e s t r u c t u r e o f t he market has changed, a number of factors can be
examined. If the market share of a predator has grown, post predation, then it has gained
power over a greater share of the market than it had before the predation period; in that
138 Bishop and Walker above n 70 at 306.
139 Id.
140 Tribunal decision above n 3 at paras 595-6.
141 O’Donoghue and Padilla above n 6 at 253.
142 Id at 253.
143 Id.
GOLIATH AJ
48
sense there has been recoupment.144 Other factors which indicate changes to the market
structure include examining what barriers of entry have been created and whether there
are significant constraints on the capacity of competitors to e nter and survive in the
market.145
The Tribunal held that there was evidence of conduct of predati on in that
Media24 had raised its prices and there had been changes in the market structure as a
result of GNN exiting the market.146
Treatment of evidence by the Competition Appeal Court
The Competition Appeal Court held that average total cost plus intent was not
an appropriate test to use to determine whether a violation of section 8(c) had occurred.
I t h e l d t h a t t h e t e s t i n s e c t i o n 8(c) for an exclusionary act i s an objective one that
examines the effect of conduct and not the intention behind it. 147 Moreover, the Court
held that because all firms comp eting with one another on the m erits intend to harm
their competitors, with the potential result of their exit from the market, it is difficult to
distinguish predatory intent from the intention to compete.148 These criticisms are valid.
However, they are largely direct ed at the subjective evidence o f intent, and do not
address the rest of the evidence which was objectively presented and aimed to show that
the conduct had exclusionary effects.
The Competition Appeal Court held that once the subjective evidence had been
excluded, average total cost al o n e w a s n o t a p p r o p r i a t e t o i l l u strate that predation
occurred.149 The Court was correct to hold that unsupported evidence of su bjective
intention should be excluded from investigations into predatory pricing. However, the
144 Id at 254.
145 Id at 253-4.
146 Tribunal decision above n 3 at para 621.
147 Competition Appeal Court judgment above n 4 at para 111.
148 Id at para 38.
149 Id at para 111.
GOLIATH AJ
49
exclusion of this evidence does not require reliance on costing below average total cost
alone as it is still supported by indirect, objective evidence of exclusionary effects,
objective evidence of efficiency and objective evidence of recoupment.
The failure to examine this evidence, particularly the evidence of recoupment is
noteworthy, as many jurisdictions treat it as crucial to the es tablishment of predation.
While the Competition Appeal Court may have concluded that ther e was insufficient
evidence to prove recoupment, or that the indirect evidence and evidence of efficiency
did not exclude all explanations f or the below cost pricing, it was important for the
Court to scrutinise the evidence to ensure the protection of consumer welfare. By failing
to examine this evidence and excluding the average total cost s tandard altogether, the
Competition Appeal Court imperm issibly limited the ability of t he
Competition Commission to investigate, prosecute and present ev idence of violations
of section 8(c).
Remittal
The Competition Appeal Court made no finding as to whether Medi a24 had
participated in predatory pricing based on the average total cost plus additional evidence
test. The court dismissed the evidence of intention and found that average total cost
alone is not sufficient to ever prove predation. It is true that average total cost alone is
not sufficient to prove predation but this Court has now held that, where below average
total cost pricing is alleged, a complaint may be found to have statutory warrant if there
is significant additional evidence that the pricing was purely to predate and had anti-
competitive effects. The questi on whether Media24 participated in predatory pricing
remains open and the parties re quested that it be remitted to t he Competition
Appeal Court to make a final decision on this in the event that average total cost plus
additional evidence was found to be an appropriate test.
GOLIATH AJ
50
This Court has previously ordered that matters be remitted to lower courts when
it would be just and equitable to do so. 150 The question whether Media24 engaged in
predatory pricing based on the t est that this Court has formula ted is a question of fact
combined with a question of eco nomics. The Competition Appeal Court heard
extensive arguments about the a dditional evidence proffered by the Competition
Commission despite opting not to make findings based on it. Th e Court has had the
advantage of oral testimony and cross-examination that will best allow it to assess the
expert evidence that was presented. Moreover, this Court does not have jurisdiction to
determine pure questions of fact. The examination of evidence and a subsequent finding
on the validity of the predation complaint would require this Court to investigate factual
questions without having properly tested the evidence.
The remittal of this matter to the Competition Appeal Court doe s not mean that
Media24 will necessarily be foun d guilty of predation. As disc ussed above, the
evidentiary burden placed upon a complainant alleging that predation has occurred due
t o p r i c i n g b e l o w a v e r a g e t o t a l c o s t i s h i g h . H o w e v e r , t h e r e m ittal will compel the
Competition Appeal Court to scru tinise the evidence presented a nd then come to a
decision about whether predation has taken place. This is an a dditional accountability
mechanism to ensure that dominan t firms do not abuse their powe r and monopolise
markets. This mechanism is im portant given that the Competitio n Act envisages the
empowerment of small- and medium-sized businesses and a more equitable share in the
market by previously disadvantaged persons.151
Conclusion
The Competition Commission has wide investigatory powers. This Court has
recently held that the protection of these powers is paramount as it empowers the
150 Qhinga v S [2011] ZACC 18; 2011 (2) SACR 378 (CC); 2011 (9) BCLR 980 (CC); Road Accident Fund v
Mdeyide [2010] ZACC 18; 2011 (2) SA 26 (CC); 2011 (1) BCLR 1 (CC); and Merafong Demarcation Forum v
President of the Republic of South Africa [2008] ZACC 10; 2008 (5) SA 171 (CC); 2008 (10) BCLR 968 (CC).
151 Section 2(e) and (f) of the Competition Act.
GOLIATH AJ/ CAMERON J, FRONEMAN J and KHAMPEPE J
51
Commission to fulfil its envisaged role. 152 However, the decision of the Competition
Appeal Court limits its prosecutorial powers arising from inves tigations which
concluded that abuses of dominance had occurred. The Competition Appeal Court has
dismissed all evidence of intention as irrelevant, even where that evidence is objective
and points towards the effects of conduct rather than the motiv ation behind it. The
Court’s failure to look past the subjective evidence and consider the objective evidence
relating to recoupment and efficiency has severely hamstrung th e ability of the
Commission to prosecute cases where the fixed and sunk costs included in average total
cost have contributed to the exc lusion of a competitor. The Co mmission should be
empowered to plead whatever costs benchmark best suits the fact s of the case. This
should include allowing the Commission to plead average total c ost when there is
sufficient additional evidence to illustrate that the pricing w as lowered for no rational
reason besides to force the exit of a competitor.
In the result, I would have made the following order:
1. Leave to appeal is granted.
2. The appeal is upheld to the extent that the finding by the Competition
Appeal Court, that pricing below average total cost plus additional
evidence is an inappropriate standard to establish a violation of
section 8(c) of the Competition Act 89 of 1998, is set aside.
3. The matter is remitted to the Competition Appeal Court to de termine
whether Media24 engaged in predatory pricing.
4. Media24 is ordered to pay costs of the applicant, which cost s shall include
the costs of two counsel.
CAMERON J, FRONEMAN J and KHAMPEPE J (Petse AJ concurring):
152 Hosken above n 25 and S.O.S above n 25.
CAMERON J, FRONEMAN J and KHAMPEPE J
52
We have had the privilege of reading the judgments of Goliath A J (first
judgment) and Theron J (third judgment). Whilst we admire the breadth of the first
judgment’s treatment of predator y pricing benchmarks and recogn ise the added
justification for doing so in the third judgment, we do not thi nk it is in the interests of
justice for this Court to embark on an exercise of that kind. In short, we doubt whether
we have jurisdiction to entertain the application for leave to appeal and, even if we have,
we do not consider it to be in the interests of justice to grant leave. We would therefore
dismiss the application for leave to appeal.
The first judgment considerably extends the constitutional juri sdiction of this
Court in respect of the workings of the Competition Act.153 Previous cases have found
constitutional jurisdiction in determining the boundaries of the powers and functions of
the public bodies of the compe tition institutions created by th e Competition Act, a
legality issue.154 This is not the starting point for finding constitutional jurisdiction in
the first judgment. Understandably so, because section 8 of the Competition Act is not
a provision that purports to delineate those boundaries. So the first judgment seeks the
constitutional jurisdictional links elsewhere.
The first purported link is equality:
“Section 2(e) and (f) of the Act states that part of the purpos e of the Competition Act
is to ensure that small- and medium-sized business have equitab le opportunities to
participate in the economy and to promote a greater spread of o wnership in the
economy by those who were disadvantaged by Apartheid. These pu rposes implicate
the right of equality contained in section 9 of the Constitution. Section 9(2) enjoins the
State to take legislative and other measures to advance the equ ality of previously
disadvantaged people and section 2(e) and (f) of the Competitio n Act is a legislative
measure of this kind.”155
153 Above n 2.
154 Hosken above n 25; S.O.S above n 25; and Senwes above n 56.
155 First judgment at [31].
CAMERON J, FRONEMAN J and KHAMPEPE J
53
The effect of this is to make th e interpretation and applicatio n of the entire
Competition Act a constitutional matter for purposes of the jur isdiction of this Court.
This would mimic the way that th e interpretation and applicatio n of the Promotion of
Administrative Justice Act (PAJA) 156 and the Labour Relations Act (LRA) 157 a r e
innately constitutional matters because they give legislative expression to fundamental
rights in the Constitution.158 But the PAJA and the LRA templates are not appropriate.
First, the analogy is inapt. T he Competition Act is not the le gislation the
Constitution mandated to give effect to the right to equality i n the way that PAJA and
the LRA are statutes specifically mandated by the Constitution in terms of, respectively,
the rights to just administrative action159 and fair labour rights.160 The Competition Act
is just legislation. It has no elite constitutional allure. A ll legislation must conform to
the constitutional imperative of equality.
Second, this roundabout way of seeking a legislative link in th e Constitution’s
equality clause is unnecessary. If the interpretation and application of the provisions of
the Competition Act do infringe the equality clause, this Court would have
constitutional jurisdiction in any event, by virtue of that inf ringement alone. But this
was not the basis on which the Commission brought its applicati on. And notably and
rightly, the first judgment does not dispose of the merits of t he matter on equality
grounds.
The next link is said to reside in the indirect impact on the investigatory powers
of the competition authorities:
156 3 of 2000.
157 66 of 1995.
158 In respect of PAJA, see State Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd [2017]
ZACC 40; 2018 (2) SA 23 (CC); 2018 (2) BCLR 240 (CC) at para 17 . In respect of the LRA, see Woolworths
above n 44 at para 20.
159 Section 33 of the Constitution.
160 Section 23 of the Constitution.
CAMERON J, FRONEMAN J and KHAMPEPE J
54
“The effect of the Competition Appeal Court judgment is to limi t the tools that the
Commission has at its disposal to prove a violation of section 8(c).
This is because on the test it applied, it was unnecessary to e xamine certain evidence
regarding predation. While ev aluations under section 8(c) are economic in nature, a
limitation of the investigative and prosecutorial powers of the Commission may have
adverse consequences. Surely, if the ambit of the Commission’s investigatory powers
raises a constitutional issue, the ambit of its ability to brin g prosecutions based on
findings made during investigation is, by parity of reasoning, similarly constitutional.
What would be the purpose of the strong investigatory powers of the Competition
Commission if it cannot present all of the evidence that it has gathered in order to
prosecute an offence?”161
Apart from the objection that this is a “tail wagging the dog” argument, in that
the tools to prove a violation and not the violation itself become the issue, it also entails
that any wrongful exclusion of e vidence in proceedings before t he Tribunal and
Competition Appeal Court will necessarily have a constitutionally significant impact on
the investigatory powers of the Commission. As a general propo sition this has
attraction, but closer examination reveals that it has nothing to do with the legality issue
relating to the nature and extent of the Commission’s investiga tory powers, which is a
constitutional issue.
Those investigatory powers are s et out in section 21(1)(c) of t he Competition
Act. This section empowers the Competition Commission to inves tigate alleged
violations of Chapter 2 of the Competition Act. A finding by t he Tribunal or the
Competition Appeal Court on what evidence may be led at a hearing into violations of
Chapter 2 does not in any way diminish the legal competence of the Commission to
investigate these violations. To hold that it does would be tantamount to saying, in other
settings, that any ruling on excluding the admissibility of evidence in a criminal matter
necessarily impacts on the powers of the South African Police S ervice to investigate
161 First judgment at [33] to [34].
CAMERON J, FRONEMAN J and KHAMPEPE J
55
crime. Any evidential matter then becomes a constitutional legality issue. That is not
correct.
This Court’s decisions in S.O.S and Hosken offer no support for the proposition.
They both dealt with the competence of the Commission to investigate specified aspects
of merger activity under the Competition Act, not the manner in which the
investigations should be execute d. Whether the Commission has the competence to
investigate particular subject m atter under the Competition Act raises legality issues;
what evidence it may legally pre sent before the adjudicative bo dies established under
the Competition Act after its investigation does not.
The first judgment finds final jurisdictional solace on the gro und that the
Commission’s case raises an arguable point of law of general public importance, namely
“whether pricing above average avoidable cost but below average total cost amounts to
predation [which] requires the interpretation of the law relating to exclusionary acts and
the consideration of which tests can be used to equitably estab lish predation”.162 The
third judgment adds further justif ication for this jurisdiction al ground. This does not,
however, establish any persuasive basis for this Court to exerc ise its jurisdiction. It is
only in those rare instances where purely legal issues of interpretation arise in the work
of the Tribunal and the Competition Appeal Court that this Court should intervene. This
is not one of those rare cases, because it does not raise a purely legal issue, but a mixed
one of fact and law.
And that is where the problem lies and remains, because mixed questions of fact
and law require evaluative assessments, 163 and it is precisely those assessments that it
is not the function of this Court to tread into.
162 First judgment at [35].
163 Media Workers Association of South Africa v Press Corporation of South Africa Limited [1992] ZASCA 149;
1992 (4) SA 791 (AD). See also Mukaddam v Pioneer Foods (Pty) Ltd [2013] ZACC 23; 2013 (5) SA 89 (CC);
2013 (10) BCLR 1135 (CC); Dikoko v Mokhatla [2006] ZACC 10; 2006 (6) SA 235 (CC); 2007 (1) BCLR 1
(CC); Betha v BTR Sarmcol, A Division of BTR Dunlop Ltd [1998] ZASCA 5; 1998 (3) SA 349 (SCA); National
Union of Mineworkers v Free State Consolidated Gold Mines (Operations) Ltd – President Steyn Mine; President
Brand Mine; Freddies Mine [1995] ZASCA 109; 1996 (1) SA 422 (SCA)..
CAMERON J, FRONEMAN J and KHAMPEPE J
56
The adjudicative institutions u nder the Competition Act are exp ert bodies and
due recognition must be given to this, also in determining the proper constitutional
competence of this Court in relation to competition matters. In addition to the accepted
deference given to other courts in relation to factual findings ,164 this means a similar
deference to the competition aut horities as better qualified to determine economic
issues. In Yara, Cameron J stated:
“In considering whether it is in the interests of justice to allow an appeal directly to this
Court, the nature of the matter is relevant. In the same way as t h e v i e w s o f t h e
Supreme Court of Appeal are particularly pertinent in common law matters, so are the
views of the Competition Appeal Court, as a specialist body, important in competition
matters that lie at the complex intersection of law and economics.”165
Determining the appropriate benchmark for predatory pricing under section 8(c)
of the Competition Act inevitably depends on an assessment of t he relative merits of
expert evidence in that regard. That does not fall within the functional competence of
this Court.166 It is not a purely legal interpretative exercise.
Section 167(3)(b)(ii) requires th at this Court “ought to” consi der the legal point. As
Paulsen trenchantly explained—
“[i]f – for whatever reason – it is not in the interests of justice for this Court to entertain
what is otherwise an arguable point of law of general public importance, then that point
is not one that ‘ought to be considered by [this] Court’.”167
164 ST v CT [2018] ZASCA 73; 2018 (5) SA 479 (SCA); Matlou v Makhubedu 1978 (1) SA 946 (A) at 950 A-E;
Protea Assurance Co Ltd v Casey 1970 (2) SA 643 (A) at 648E; R v Dhlumayo 1948 (2) SA 677 (A) at 705-6.
165 Yara above n 30 at para 71.
166 Hosken above n 25 at para 31; and S.O.S above n 25 at para 21.
167 Paulsen v Slip Knot Investments 777 (Pty) Ltd [2015] ZACC 5; 2015 (3) SA 479 (CC); 2015 (5) BCLR 509
(CC) at para 30.
CAMERON J, FRONEMAN J and KHAMPEPE J / THERON J
57
And even if one clothes it as an assessment of the reasonablene ss of the
Competition Appeal Court’s assessment, one cannot escape that, in reality, it involves
second-guessing the relative merits of different expert views.
The final proof of this is in the remedy favoured in the first judgment: referral
back to the Competition Appeal Court. What option does the Competition Appeal Court
have other than to allow evidence of intention now? And how ca n we avoid the blunt
reality that by compelling the Competition Appeal Court to allow evidence of intention
this Court is itself setting the appropriate benchmark – in spe cialist territory that the
statute specifically entrusts to that Court?
For these reasons we would dismiss the application for leave to appeal with costs,
including the costs of two counsel.
THERON J (Basson AJ concurring):
I have had the pleasure of read ing the well-crafted judgments of my colleagues
Goliath AJ (first judgment) and Cameron J, Froneman J and Khamp epe J (second
judgment). I concur in the first judgment that we have jurisdiction to adjudicate the
appeal as it raises an arguable point of law of general public importance. I also concur
that it would be in the interests of justice to grant leave to appeal.168
I, however, part ways with the first judgment and find that the
Competition Appeal Court was co rrect in holding that the adopti on of a test for
predatory pricing under section 8(c) of the Competition Act that is based on the average
total cost standard and the intention of a dominant firm is inappropriate. In this regard,
I am of the view that the interpretation adopted by the first judgment of section 8(c) of
168 See first judgment at [57].
THERON J
58
the Competition Act is contrary to the objectives of the Competition Act and may serve
to severely undermine price competition and in so doing harm consumer welfare.
Jurisdiction
In my view, and for the reasons given in the second judgment, this case does not
raise a constitutional matter. It does, however, raise an arguable point of law of general
public importance that ought to be considered by this Court.
In Paulsen, this Court explained that a poi nt of law is one that is not f actual.169
In K, this Court held (in the contex t of vicarious liability) that what renders an issue
legal (and, in that context, potentially constitutional) as opposed to purely factual, is an
enquiry into the social policy and normative content behind a rule.170 When this Court
is called upon to examine the otherwise inarticulate premises i n the normative
implications of a rule that is, in my view, a legal enquiry.171 To view this examination,
even in the context of where a common law rule is imbued with s ocial norms as in K,
169 Paulsen above n 167 at para 20, which explains:
“The point must be one of law; and it must be arguable. Starti ng with the first prong, quite
axiomatically, the point must not be one of fact. This Court’s jurisprudence on purely factual
matters, developed in the context of what constitutes a constit utional, as opposed to a factual
issue, is an instructive guide on this.”
170 K v Minister of Safety and Security [2005] ZACC 8; 2005 (6) SA 419 (CC); 2005 (9) BCLR 835 (CC) at para
22, which reads:
“Despite the policy-laden character of vicarious liability, our courts have often asserted, though
not without exception, that the common-law principles of vicari ous liability are not to be
confused with the reasons for th em, and that their application remains a matter of fact. If one
looks at the principle of vicarious liability through the prism of section 39(2) of the Constitution,
one realises that characterising the application of the common- law principles of vicarious
liability as a matter of fact untrammelled by any consideration s of law or normative principle
cannot be correct. Such an approach appears to be seeking to sterilise the common law test for
vicarious liability and purge it of any normative or social or economic considerations. Given
the clear policy basis of the rule as well as the fact that it is a rule developed and applied by the
courts themselves, such an approach cannot be sustained under o ur new constitutional order.
This is not to say that there are no circumstances where rules may be applied without
consideration of their normative content or social impact. Such circumstances may exist. What
is clear, however, is that as a matter of law and social regula tion, the principles of vicarious
liability are principles which are imbued with social policy and normative content.”
171 Id at para 23.
THERON J
59
as a factual enquiry over which this Court has no jurisdiction will “sterilise” the law and
“purge it from any normative, social or economic considerations”.172
In this case, there is clearly a point of law: is it appropriate to determine whether
prices are predatory in terms of section 8(c) of the Competition Act by considering the
average total cost standard and the intention of a dominant firm to predate? Answering
this question entails critically examining the policy and norma tive implications of the
various standards for predatory pricing. There is nothing fact ual about this. On the
contrary, the facts in this case are common cause: all parties agree that Media24 was
pricing below average total cost (but above the standard of average avoidable cost). The
question in this matter is legal. No facts are evaluated by this Court.173
I also agree with the first judgment’s argument that the Competition Act should
not be read to deprive this Court of jurisdiction over arguable points of law of general
public importance.174 In this regard, section 62(2)(b) and (3)(b) of the Competition Act
states that the Competition Appe al Court does not have exclusiv e and final appeal
jurisdiction for those matters that raise constitutional issues . In Soda Ash, albeit in a
slightly different context, the Supreme Court of Appeal similar ly interpreted the
Competition Act to be consonant w ith the appellate jurisdiction that was conferred on
the Supreme Court of Appeal by the Constitution (prior to the 1 7th Amendment).175
The approach adopted in Soda Ash is equally apposite in this context: where it would
not be unduly strained, as in thi s case, section 62(2) of the C ompetition Act must be
interpreted to accord with secti on 167(3)(b)(ii) of the Constit ution which founds this
Court’s jurisdiction. Our jurisdiction is accordingly engaged.
172 Id at para 22.
173 Even if this matter concerned a mixed question of facts and la w, in Mtokonya v Minister of Police [2017]
ZACC 33; 2018 (5) SA 22 (CC); 2017 (11) BCLR 1443 (CC) at paras 43-4, this Court endorsed the proposition
that if a rule of law must be applied prior to the reaching of a conclusion, then that conclusion is necessarily one
of law. It follows that we may have jurisdiction to adjudicate matters involving mixed questions of fact and law.
174 First judgment at [35].
175 American Natural Soda Ash Corporation v Competition Commission of South Africa [2005] ZASCA 42; 2005
(6) SA 158 (SCA) (Soda Ash) at paras 13-15.
THERON J
60
Leave to appeal
Though this matter raises an arguable point of law of general public importance,
it does not follow that it “ought to be considered” by this Court. In Paulsen, this Court
explained that an arguable point should only be considered by this Court if it would be
in the interests of justice to do so. This enquiry is identica l to that employed by this
Court in establishing whether leave to appeal should be granted i n r e s p e c t o f a
constitutional matter.176
Media24 posited two reasons why leave to appeal should not be g ranted. First,
it argued that the Commission sh ould have approached the Competition Appeal Court
for leave to appeal before appr oaching this Court. Second, it argued that the
Commission should have also first approached the Supreme Court of Appeal before
appealing to this Court.
Approaching the Competition Appeal Court for leave to appeal
Media24 argued that section 63(2) of the Competition Act always requires the
Commission to apply to the Competition Appeal Court for leave to appeal to this Court
against a decision of that Court.177 It contended that the Commission’s failure to do so
was fatal with the result that this Court cannot hear the Commission’s appeal.
Section 63(2) of the Competition Act provides:
“An appeal in terms of section 62(4) may be brought to the Supr eme Court of Appeal
or, if it concerns a constitutional matter, to the Constitutional Court, only—
(a) with leave of the Competition Appeal Court; or
176 Paulsen above n 167 at paras 29-31.
177 Such matters are listed in section 62(2) read with section 62( 3)(b) and this Court’s finding that section 62(2)
must include appeals concerning “arguable points of law of general public importance”.
THERON J
61
(b) if the Competition Appeal Court refuses leave, with leave o f the Supreme
Court of Appeal or the Constitutional Court, as the case may be.”178
Media24 submitted that—
(a) the word “only” in section 63 (2) implies that an applicatio n for leave to
appeal in the Competition Appeal Court is a necessary condition f o r
approaching this Court;
(b) the purpose of a prior approach to the Competition Appeal C ourt for leave
to appeal ensures that this Court enjoys the views of that specialist Court;
and
(c) section 167(6)(b) of the Con stitution envisages the promulg ation of
national legislation to allow fo r a direct appeal from any othe r court,179
and the Competition Act is cons istent with this. The Competiti on Act
allows for a direct appeal to be made to this Court only after the
procedural step of applying to the Competition Appeal Court for leave to
appeal has been complied with.
The challenge for Media24 is that the third leg of its argument cannot be
accepted. This is for the reasons given by Cameron J and Yacoob J in their dissenting
judgments in Yara180 and Loungefoam.181 Their reasoning in Yara is that the right to
appeal to this Court under section 62(4) of the Competition Act is made subject to any
law that specifically grants any right of appeal.182 Section 167(6)(b) of the Constitution
178 Section 62(4) reads that “[a]n a ppeal from a decision of the C ompetition Appeal Court in respect of a matter
within its [non-exclusive] jurisdiction in terms of [section 62 (2)] lies to the Supreme Court of Appeal or
Constitutional Court, subject to section 63 and their respective rules”.
179 Section 167(6) reads:
“National legislation or the rules of the Constitutional Court must allow a person, when it is in
the interests of justice and with leave of the Constitutional Court—
. . .
(b) to appeal directly to the Constitutional Court from any oth er court.”
180 Above n 30.
181 Above n 30.
182 Section 63(1)(a)(ii) of the Competition Act. It would follow nonetheless that section 63(4) would be subject
to and must be reasonably interpreted to accord with the Constitution. See section 1(2)(a) of the Competition Act,
which requires that its provisions must be interpreted in a man ner that is consistent with the Constitution, and
THERON J
62
requires that national legislati on or the Rules of this Court “ must” allow a person to
bring a matter directly to this C ourt when it is in the interes ts of justice to do so. 183
Section 167(6)(b) specifically grants a right of direct appeal to this Court. It follows
that the right to appeal provided for in section 62(4) of the C ompetition Act must be
subject to section 167(6)(b) of the Constitution, which gives persons the right of a direct
appeal to this Court if the interests of justice require.184
If a right to appeal in section 62(4) of the Competition Act is subject to section
167(6)(b) of the Constitution, t hen an applicant is entitled to rely on the pre-existing
right to appeal directly to this Court in terms of rule 19 of this Court’s Rules. This pre-
existing right does not require that an applicant first obtain leave to appeal from the
Court below. Moreover, an applicant need not rely on the right in section 62(4) of the
Competition Act, which is subjected to the restriction in section 63(2)(a) (that leave of
the Competition Appeal Court to appeal against its judgment must be applied for). An
applicant is empowered to appeal directly to this Court without first seeking the leave
of the Competition Appeal Court.
However, where the leave of the Competition Appeal Court is not sought, and
the procedure in rule 19(2) of this Court’s Rules is invoked by an applicant, the matter
is a direct appeal. In these circumstances, this Court must as sess whether it is in the
interests of justice to entertain the appeal without the Competition Appeal Court having
had an opportunity to consider the application for leave to appeal.185 Factors which will
Democratic Alliance v Speaker of the National Assembly [2016] ZACC 8; 2016 (3) SA 487 (CC); 2016 (5) BCLR
577 (CC) at para 33.
183 Rule 19(2) of the Rules of this Court provides for direct appe als as envisaged in section 167(6)(b) of the
Constitution:
“A litigant who is aggrieved by the decision of a court and who wishes to appeal against it
directly to the Court on a constitutional matter shall, within 15 days of the order against which
the appeal is sought to be brought and after giving notice to the other party or parties concerned,
lodge with the Registrar an application for leave to appeal: Pr ovided that where the President
has refused leave to appeal the period prescribed in this rule shall run from the date of the order
refusing leave.”
184 Yara above n 30 at paras 64-6; and Loungefoam above n 30 at para 23.
185 Yara id at paras 68-70; and Loungefoam id.
THERON J
63
influence this assessment include the nature of the matter, the prospects of success of
the appeal, the significance of the issues raised, whether the views of the Competition
Appeal Court are useful or necessary to determine the appeal, and whether the subject
matter of the appeal implicates complex questions of economics and law.186
Both Yara and Loungefoam were handed down on the same day by this Court,
but were heard in different terms and have slightly different q u o r u m s . I t i s w o r t h
mentioning that the minority’s reasoning in Yara, while not endorsed by the majority in
that matter, was considered to be “appealing” and assumed to be correct in the partial
concurrence of Froneman J (with Skweyiya J and van der Westhuizen J concurring) in
Yara.187 The issue whether the Competition Appeal Court must first be approached for
leave to appeal was left open in the judgment of Zondo AJ (with Jafta J and Nkabinde
J concurring).188 It follows that no Justice of this Court has objected to the minority’s
reasoning in Yara and a majority found it to be, at the very least, “appealing”.
As in Yara, the majority in Loungefoam, per Maya AJ did not consider it
necessary to decide the issue regarding section 63(2) and appro aching this Court
without the leave of the Competition Appeal Court. 189 T h e m i n o r i t y i n v o k e d t h e i r
reasoning in Yara for why, in Loungefoam, the Commission did not need to approach
the Competition Appeal Court for leave to appeal before this Court could consider the
appeal.190
On the facts of this case, do the interests of justice permit t he Commission to
approach this Court directly? It is true that this matter invo lves complex questions of
law and economics. This suggests that the Commission should be required to first
approach the Competition Appeal Court for leave to appeal. On the other hand, this
186 Yara id at para 71; and Loungefoam id at para 36.
187 Yara id at para 77.
188 Id at para 21.
189 Loungefoam above n 30 at para 24.
190 Id at para 32.
THERON J
64
Court has had the benefit of comprehensive argument. In addition, it has access to two
judgments of the Tribunal and th e Competition Appeal Court; the se judgments each
reach divergent conclusions on the relevant issues, which, along with reasons that will
become apparent, indicate that t here may be prospects of succes s;191 t h e m a t t e r
primarily concerns statutory interpretation; and the determinat ion of the proper legal
test for predatory pricing is of immense significance. For these reasons, leave to appeal
ought to be granted notwithstanding the Commission’s failure to approach the
Competition Appeal Court for leave to appeal.
Failure to approach the Supreme Court of Appeal
Media24 argued that even if the Commission was not required to approach the
Competition Appeal Court for l eave to appeal, the Commission sh o u l d f i r s t h a v e
appealed to the Supreme Court of Appeal before coming to this Court. Their argument
was that section 168(3)(a) of the Constitution anticipates that legislation may limit the
jurisdiction of the Supreme Court of Appeal in competition matters;192 Loungefoam held
that sections 62 and 63 of the Competition Act confer appellate jurisdiction on the
Supreme Court of Appeal in resp ect of matters mentioned in sect ion 62(2) of the
Competition Act;193 therefore sections 62 and 63 of the Competition Act confer on the
Supreme Court of Appeal jurisdi ction in competition matters fal ling within section
62(2) of the Competition Act. It follows that the Commission could have applied to the
Supreme Court of Appeal. There is then no reason why it would be in the interests of
justice to allow it to bypass that Court.
The Commission agreed that secti on 168(3)(a) removes the Suprem e Court of
Appeal’s jurisdiction to hear a ppeals in respect of competition matters. The extent of
191 Similarly, this makes the point of law “arguable” as envisaged in Paulsen above n 167 at para 23. It is also
trite that prospects of success are an important factor in determining leave to appeal. See S v Boesak [2000] ZACC
25; 2001 (1) SA 912 (CC); 2001 (1) BCLR 36 (CC) at para 12.
192 The section was amended in 2012 by the 17th Amendment to the Constitution to read:
“The Supreme Court of Appeal may decide appeals in any matter arising from the High Court
of South Africa or a court of a status similar to the High Court of South Africa, except in respect
of labour or competition matters to such extent as may be determined by an Act of Parliament.”
193 Once again, section 62(2)(b) is now to be read as including arguable points of law.
THERON J
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such removal may be determined by an Act of Parliament. However, the Commission
argued that sections 62 and 63(2), properly interpreted, do not give the Supreme Court
of Appeal jurisdiction to hear appeals arising from the Competi tion Appeal Court that
concerned constitutional matters under section 62(2)(b). Section 63(2) provides that an
appeal “may be brought to the Supreme Court of Appeal or, if it concerns a
constitutional matter, to the Constitutional Court”.
I n s u p p o r t o f i t s a r g u m e n t , t h e C o m m i s s i o n i n v o k e d t h e S u p r e m e Court of
Appeal’s decision in Computicket.194 In that matter, that Court held that section 63(2)
of the Competition Act excludes the Supreme Court of Appeal from hearing an appeal
which raises a constitutional ma tter as envisaged in section 62 (2)(b). The Supreme
Court of Appeal read section 61(2)(b) to mean that appeals conc erning constitutional
matters must be determined by this Court; they cannot “also” be entertained by the
Supreme Court of Appeal. 195 This approach would prevent a case which had already
gone through two courts (the Tr ibunal and the Competition Appeal Court) from being
considered by two further courts (the Supreme Court of Appeal a nd this Court)
ostensibly without justification.196
On the face of it, Computicket appears to contradict Loungefoam. I n
Loungefoam this Court held that the Competition Act confers “appellate jurisdiction on
both the Supreme Court of Appeal and this Court from the Compet ition Appeal Court
in respect of constitutional and other matters listed in sectio n 62(2)” and that this “is
evident from the plain wording of sections 62 and 63”.197 This Court also held that the
Commission had not demonstrated why the Supreme Court of Appeal should be
bypassed – a finding that presupposes that the Supreme Court of Appeal was vested
194 Computicket above n 40.
195 Id at para 17.
196 Id.
197 Loungefoam above n 30 at para 19.
THERON J
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with jurisdiction to adjudicate the appeal in question.198 This Court could not have been
clearer about its interpretation of the Competition Act:
“Further, until the Legislature decides otherwise, the Supreme Court of Appeal also
serves as a further filter in the appellate hierarchy, even in matters that do not explicitly
involve the development of the common law.”199
The first judgment appears to p ronounce on this question in fav our of the
Commission by finding that the Supreme Court of Appeal no longe r has jurisdiction
over matters envisaged in secti on 62(2)(b) of t he Competition Act as contemplated in
Computicket. Its terse reasoning is that the 17th Amendment clearly remov es the
Supreme Court of Appeal’s jurisdiction.200 It does not deal with this Court’s finding in
Loungefoam that appellate jurisdiction is a lso conferred on the Supreme C ourt of
Appeal from the Competition Appeal Court. It also fails to dea l with whether
section 63(2) nonetheless gives the Supreme Court of Appeal jurisdiction over section
62(2) matters as envisaged by the 17th Amendment.201 It also does not have regard to
the further complication flowing from its finding that arguable points of law are also
appealable under section 62(2)(b). This finding might imply that the Supreme Court of
Appeal can no longer adjudicate appeals from the Competition Ap peal Court
concerning an arguable point of law. This approach could sever ely restrict the
jurisdiction of the Supreme Court of Appeal in competition matters.
At the same time, the first judgment considers whether it is in the interests of
justice to hear the appeal withou t the Supreme Court of Appeal having adjudicated it
first.202 It is accordingly unclear whether the first judgment’s finding that the Supreme
Court of Appeal lacks jurisdiction is obiter.
198 Id at para 26.
199 Id.
200 First judgment at [47].
201 One cannot assume that it does not do so only because it was passed before the 17th Amendment.
202 First judgment at [48] to [50].
THERON J
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In my view, the issue is best left open. I am prepared to assu me in Media24’s
favour that the Commission could have approached the Supreme Court of Appeal. Even
then, this is not fatal to the Commission’s case. The interests of justice permit this Court
to decide a matter without the Supreme Court of Appeal having h eard it first. This is
for the same reasons why it was not necessary for the Commission to seek the leave of
the Competition Appeal Court to appeal the judgment.203
Functional competence
The second judgment suggests that this matter falls outside the functional
competence of this Court as it entails an evaluative assessment of economic policy
issues. I agree that the first judgment’s interpretation of the Competition Act implicates
economic policy considerations. This Court has, however, repeatedly adjudicated over
complex questions of public policy. In my opinion, there is no sound reason why public
policy considerations of an economic nature suddenly swing the interests of justice in
the opposite direction. The matter is properly before us and w e should not shy away
from our duty to determine the policy-laden issue of general pu blic importance that it
raises.204
For these reasons, leave to appeal should be granted.
Merits
On the merits, the first judgment reaches two conclusions:
(a) A firm can be guilty of predatory pricing if it charges pri ces above average
avoidable cost;205 and
203 See [151] to [156] above.
204 See S v Makwanyane [1995] ZACC 3; 1995 (3) SA 391 (CC); 1995 (6) BCLR 665 (CC) at para 187.
205 This standard is based on the costs a firm could have avoided by not engaging in a predatory strategy. The
costs standard includes an element of fixed costs known as product-specific fixed costs. These are the fixed costs
associated with the product or s ervice that would not be incurr ed by the firm if it were to avoid producing the
product or providing the service. See Competition Appeal Court judgment above n 4 at para 19.
THERON J
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(b) A firm can be guilty of predatory pricing if it charges pri ces below
average total cost206 and has an intention to predate.
I agree with the first judgment on its first finding. 207 There may be instances
where a firm charges above average avoidable cost but it is sti ll guilty of predatory
pricing. There is no need to spell out these circumstances in any detail. The
Commission before us has pinned its case on one circumstance in which a firm would
be guilty of predatory pricing even though it charged prices above its average avoidable
cost. The Commission argued tha t where a firm with an intentio n to predate prices
between average total cost and above average avoidable cost, then that firm is guilty of
predatory pricing. I disagree that either average total cost or an intention to predate can
ever be relevant to determining predatory pricing. This is bor ne out from a proper
interpretation of section 8(c) o f the Competition Act. For the reasons that follow, the
Commission’s appeal should be dismissed.
Proper approach to predatory pricing under section 8(c) of the Competition Act
To determine the proper approach to prohibited predatory pricin g under
section 8(c) of the Competition Ac t, we are enjoined to interpr et section 8(c)
purposively, within its proper context, and in accordance with the ordinary grammatical
meaning of its words.208
A key objective of the Competition Act is to provide consumers with competitive
prices.209 A dominant firm may adopt a strategy of reducing its prices t o exclude
competitors from the market. This strategy may have short term pro-competitive effects
for the economy in that prices for the goods or services in question are reduced. In the
long term, however, the adoption of such a predatory pricing strategy may empower the
206 The average total cost standard advocated for by the Commissio n is calculated by dividing the total costs
incurred by Forum in the production of its product by the number of units of the product that Forum produces. In
this regard, Forum’s total costs include both its variable and fixed costs.
207 To the extent that the Competition Appeal Court found otherwise, it must be overturned.
208 Road Traffic Management Corporation v Waymark (Pty) Limited [2019] ZACC 12 at para 29.
209 Section 2(b) of the Competition Act.
THERON J
69
firm to further abuse its position of dominance with exclusiona ry anti-competitive
effects. The adoption of this pr edatory pricing strategy would not only lead to the
undermining of competitive prices, but would violate the Compet ition Act’s objective
of reducing “excessive concentra tions of ownership and control within the national
economy”.210
The regulation of predatory pricing poses significant challenge s . T h e
Competition Act recognises that firms have a right to compete on price. In this regard,
the adequate protection of the competitive process between firm s is essential to the
achievement of the Competition Ac t’s objective of providing con sumers with
competitive prices.211
This inherent tension that is as sociated with predatory pricing implies that the
approach adopted to determine the existence of exclusionary abuses of dominance under
section 8(c) of the Competition Act should be carefully develop ed to avoid two types
of errors, (commonly referred to as type 1 and 2 errors, respectively):
(a) first, errors in which there is false condemnation of a dom inant firm’s
pricing behaviour as constituting prohibited predatory pricing;212 and
(b) second, errors in which there is a failure to condemn preda tory pricing by
a dominant firm.
In Nationwide, the Tribunal held that secti on 8(c) requires the use of an
appropriate measure of costs to assess the prices that are charged by a firm accused of
adopting a prohibited predatory pricing strategy. 213 This must be correct because
section 8(c) of the Competition Act, when interpreted in line w i t h t h e o b j e c t o f t h e
Competition Act to provide consum ers with competitive prices, r equires that a firm
210 See the preamble to the Competition Act.
211 See the Competition Appeal Court judgment above n 4 at para 27.
212 For example, where a firm might have low prices (and is compet ing on the price) but is still labelled as
predatory by the regulation in question.
213 Nationwide above n 123 at 10.
THERON J
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should not be penalised for merely reducing its prices. Additional evidence would also
be required to demonstrate that the general requirements for pr ohibited exclusionary
abuses of dominance in section 8(c) are met.
Section 8(c) of the Competition Act does not prescribe the appl ication of a
specific test to determine whether a dominant firm has engaged in prohibited predatory
pricing. Section 8(d)(iv) of th e Competition Act, however, sta tes that the selling of
goods or services by a dominant firm below the marginal or average variable costs is a
prohibited exclusionary act unle ss the firm is able to show tha t the technological,
efficiency or other pro-competitiv e gains associated with the a ct outweigh its anti-
competitive effect. In Senwes, we held that an exclusionary act must fall outside the
scope of section 8(d) for it to be prohibited by section 8(c).214 It follows that a complaint
of predatory pricing brought in terms of section 8(c) of the Competition Act may not be
founded on the cost formulas prescribed in section 8(d)(iv).
I intend to demonstrate that the consideration of either averag e total cost or
predatory intent under section 8(c) will lead to the type 1 and 2 errors referred to and
consequently undermine the objectives of the Competition Act.
Is average total cost an appropriate standard to measur e alleged unlawful
predatory pricing?
The key question raised in this case is whether it is appropriate to measure prices
against the standard of average total cost. The answer is no. This is for four reasons.
First, a firm could be pricing be low average total cost, which includes fixed
costs, but still be engaging in l egitimate competition. For example, where the price is
sufficient to cover the avoidable cost for producing the unit, the firm may still be acting
competitively by producing that unit even if the price is less than the average total cost.
214 Senwes above n 56 at para 28.
THERON J
71
To hold otherwise would prevent firms from producing new products in circumstances
where they would be deriving more benefits than costs from such production.
Second, the use of a dominant fir m’s average total cost in the determination of
whether it has engaged in prohib ited predatory pricing may oper ate as a price floor.
This is because, if the average total cost standard is endorsed , a dominant firm that
wishes to avoid being found to have engaged in a prohibited exclusionary abuse under
section 8(c) may seek to avoid pricing its goods or services below its average total cost.
This might encourage firms to ra ise their prices, especially in light of the potentially
severe sanctions which they face under the Competition Act for engaging in prohibited
exclusionary abuses of dominance. This price floor would under mine the objective of
the Competition Act by inhibiting the achievement of competitive prices.
Third, the average total cost standard without more can easily be manipulated by
multi-product firms (which the respondent clearly is in this ca se, and which many
dominant firms will be).215 This is because in multi-product firms, there are fixed costs
that are shared across different products. For example, the fixed cost of renting a factory
may be common to all the different products produced by the firm in that factory. The
issue is that there are multiple ways of apportioning these common costs to the various
products. The Commission accepts that under their approach, it is up to the dominant
firm to decide how to rationally apportion the common costs. W ithout additional
guidance, this makes the standard susceptible to manipulation: a firm can account for
common costs through one product and not another in order to av oid regulation aimed
at preventing anti-competitive conduct.216
Finally, the average total cost standard is inappropriate becau se it forces multi-
product firms to ignore economies of scale.217 In practice, firms can add new products
215 Baumol above n 94 at 59.
216 As the Competition Appeal Court put it in its judgment above n 4 at para 53, the average total cost of a firm is
“a figure that is undefinable and unmeasurable in a multi-produ ct firm and must therefore be rejected as part of
any legitimate test of predatory pricing”. See further Bolton, Brodley and Riordan above n 60 at 2272.
217 Elhauge above n 90 at 718.
THERON J
72
to their lines of production and set prices close to or at marg inal or avoidable cost
because other products are funding fixed costs. This may be fo r the benefit of the
consumer: it allows the lowering of prices.
Given the finding that a dominant firm’s average total cost is an inappropriate
benchmark for predatory pricing under section 8(c), the Commiss ion has failed to
demonstrate that the prices charged by Forum violated section 8(c). This is because the
only standard against which the Commission tests Forum’s prices in this application is
its average total cost.
Is the intention of a dominant firm a relevant consideration?
Section 8(c) of the Competition Act prohibits a dominant firm from engaging in
an exclusionary act in the form of predatory pricing if the anti-competitive effect of that
act outweighs its technological e fficiency or other pro-competi tive gain.218 An act is
exclusionary if it impedes or prevents a firm from entering into, or expanding within, a
market.219 The determination of whether a dominant firm has engaged in p rohibited
predatory pricing under section 8(c) of the Competition Act accordingly involves:
(a) assessing whether a dominant firm’s pricing of its goods or s e r v i c e s
operates to prevent another firm from entering into or expandin g within
the market; and
(b) weighing up the anti-compe titive and pro-competitive effect s of a
dominant firm’s pricing of its goods or services.
I endorse the finding by the Competition Appeal Court that thes e tests are
objective in that they are outcome based.220 A dominant firm alleged to have engaged
in predatory pricing under section 8(c) will only commit a proh ibited exclusionary act
where its pricing decisions operate to exclude competitors, and the associated anti-
218 Senwes above n 56 at paras 27-8.
219 Section 1 definition of “exclusionary act” in the Competition Act.
220 Competition Appeal Court judgment above n 4 at para 52.
THERON J
73
competitive effects outweigh the associated pro-competitive effects. In this regard, the
meaning of section 8(c) conveys the Legislature’s chosen approach to the regulation of
predatory pricing by dominant f irms. As noted by the Competiti on Appeal Court in
Mittal, a court “may not eschew the text to promote its own theory, however attractive
the latter may appear to be. In the event that the language of the text is unable plausibly
to support the advocated theory, then it is for Parliament, if it so wishes, to reconsider
the text”.221
I also endorse the Competition Ap peal Court’s finding that when a competitive
firm reduces its prices, it is possible that it intends to—
“increase its market share by taking away customers from its ri vals. In a real sense,
such a firm intends to ‘harm’ its rivals but in a way permitted by competition policy.
The firm may even hope that a prolonged price war may drive its rival from the
marketplace.”222
It follows that the consideration of a dominant firm’s intent w hen assessing
whether it has engaged in prohibited predatory pricing under se ction 8(c) is
inappropriate. A firm’s intention is an “unreliable guide to proving predation” that does
not assist in the evaluation of the likely economic effects of a dominant firm’s decision
to price below a particular cost measure.223
I am unpersuaded by the Commiss ion’s reliance on European juris prudence in
support of the use of predatory intent as a requirement for pre datory pricing. This
requirement was adopted by the European Court of Justice in AKZO224 in relation to
allegations that a firm had violated Article 102 of the Treaty on the Functioning of the
European Union by cutting its prices below average total cost ( but above average
221 Mittal Steel South Africa Limited v Harmony Gold Mining Company Limited [2009] ZACAC 1 at para 28.
222 Competition Appeal Court judgment above n 4 at para 56.
223 Id.
224 Above n 80 at para 72.
THERON J/MHLANTLA J
74
avoidable cost).225 Although Article 102 was held to be capable of incorporating a
consideration of a dominant firm ’s intent to predate, it does n ot resemble section 8(c)
of the Competition Act. As warned by Kriegler J in Du Plessis, our Constitution does
not “warrant the wholesale importation of foreign doctrines or precedents”.226 We may,
of course, have regard to foreign law when interpreting section 8(c), but this should not
displace the express meaning of t he legislation regarding the a ppropriate test to be
applied under the section.
Conclusion
Unlike in respect of a complaint of prohibited predatory pricing pursued against
a dominant firm under section 8(d)(iv), the Commission bears th e onus under section
8(c) of demonstrating that a dom inant firm has engaged in an ex clusionary act by
implementing a predatory pricin g strategy. The Commission is, however, afforded
significant scope under this catch-all section to advance an ap propriate cost standard
against which to measure a dominant firm’s pricing practices. In the present matter, the
Commission has failed to advance such a test.
For these reasons I would grant leave to appeal but dismiss the appeal with costs,
including the costs of two counsel.
MHLANTLA J:
I have had the benefit and pleas ure of reading the judgments of my colleagues
Goliath AJ (first judgment), Cameron J, Froneman J and Khampepe J ( s e c o n d
225 Article 102 of the Treaty (which was Article 82 of the Treaty Establishing the European Community at the
time AKZO was decided) provides in relevant part:
“Any abuse by one or more undertakings of a dominant position w ithin the internal market or
in a substantial part of it shall be prohibited as incompatible with the internal market insofar as
it may affect trade between Member States. Such abuse may, in particular, consist in—
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair
trading conditions.”
226 Du Plessis v De Klerk [1996] ZACC 10; 1996 (3) SA 850 (CC); 1996 (5) BCLR 658 (CC) at para 144.
MHLANTLA J
75
judgment), and Theron J (third judgment). After due consideration, I find myself in the
difficult position of agreeing with the third judgment on the i ssue of jurisdiction and
leave to appeal only, and with the first judgment on the merits.
I too am of the view that this matter does not raise a constitu tional matter, but
rather raises an arguable point of law. The first judgment not es that “[t]he case before
us involves an interpretation of the extent of the powers held by the Competition
Commission to prosecute alleged vi olations subsequent to an inv estigation”,227 which
the first judgment notes is – amongst other reasons – indicativ e of the issue before us
being a constitutional issue. I disagree with this. I wholly support the third judgment’s
formulation of the point of law at issue.228
Further, I commend and support the third judgment’s excursus of the issue of
leave to appeal, as well as its conclusion that it is in the interests of justice to permit the
Commission to appeal directly to th is Court without seeking lea ve to appeal from the
Competition Appeal Court. Finally , I agree that whether the Co mmission could have
approached the Supreme Court of Appeal should have been left open.229 I do not believe
that this matter renders it necessary to decide whether or not the Supreme Court of
Appeal’s jurisdiction in competition matters should be restricted.
However, I am unable to agree with the third judgment’s conclus ion and
reasoning on the merits.230
I agree with the approach of the first judgment to the issue of the merits. In my
view, the first judgment correctly recognises that this Court s hould be hesitant to tie
itself to a cost standard to show predatory pricing pursuant to section 8(c) and
227 See [32].
228 See [144] (para 5 of the third judgment).
229 See [163] (para 24 of third judgment).
230 See [166]-[187] (para 27-48 of the third judgment).
MHLANTLA J
76
recognises the dangers in doing so. 231 However, it also recognises the dangers in not
allowing various costs standards to be employed to determine pr edatory pricing
pursuant to section 8(c).232 In doing so, in my view, it does not commit to average total
cost being used as a cost measure, but restricts it to instances where it is necessitated by
the facts of each case. I agree with this approach.
For these reasons and subject to the qualifications set out, I concur in the order
made by the first judgment.
231 See [71].
232 Id.
For the Applicant:
For the Respondent:
J Wilson SC, G D Marriott and
T Ngcukaitobi instructed by Gildenhuys
Malatji Incorporated
W Trengove SC, M Norton SC and
M Mbikiwa instructed by Werksmans
Attorneys