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IN THE COMPETITION APPEAL COURT

OF SOUTH AFRICA

In the matter between: Case No: 70/CAC/Apr07

Mittal Steel South Africa Limited 1^st Appellant

Macsteel International BV 2^nd Appellant

Macsteel Holdings (Pty) Limited 3^rd Appellant

and

Harmony Gold Mining Company Limited 1^st Respondent

Durban Roodepoort Deep Limited 2^nd Respondent

Judgment: 29 May 2009

________________________________________________________________

Davis JP, Malan JA and Tshiqi JA:

[1] Introduction

The first and second complainants filed a complaint with the Competition Commission against the first appellant (‘Mittal’) of a contravention of ss 8(a) and 8(d)(i) of the Competition Act 89 of 1998 in terms of s 49B. The Commission issued a notice of non-referral in terms of s 50(2)(b) and the complainants thereafter referred the complaints to the Competition Tribunal in terms of s 51(1). The Tribunal found on 27 March 2007 that Mittal had contravened s 8(a) and dismissed the complaint under s 8(d) (the ‘Merits Decision’). The issue of the remedies to be ordered was postponed. The Tribunal then handed down its judgment on the remedies on 6 September 2007 (the ‘Remedies Decision’).

[2] The Competition Appeal Court ordered that any appeals by Mittal and the second appellant would be consolidated and heard as a single appeal. This appeal concerns both the merits and the remedies decisions. All the appellants appealed against the orders given pursuant to both decisions. In addition, and in the alternative, the second and third appellants renewed the application for leave to introduce further evidence and other related relief. The third appellant lodged a notice of appeal on the basis that it was a person affected by the decision of the Tribunal as contemplated by s 61(1). This is clearly the position.

[3] The process before the Tribunal was initiated by a complaint referral by the complainants alleging contraventions by Mittal of s 8(a) and of s 8(d)(i). The latter complaint was dismissed, and there is no cross-appeal against the order dismissing this complaint. Hence only the complaint under s 8(a) is relevant to this appeal. No question arises of whether the conduct in issue could have fallen under any of the prohibitions in other sections of the Act (eg ss 8(c), 8(d)(iii) or 9). The embodiment of these other sections in the Act, however, have a bearing on the interpretation of s 8(a), and on the remedies for contravention of s 8(a).

[4] Section 8 deals with the ‘abuse of dominance’ and provides:

‘It is prohibited for a dominant firm to –

1. charge an excessive price to the detriment of consumers;

2. refuse to give a competitor access to an essential facility when it is economically feasible to do so;

3. engage in an exclusionary act, other than an act listed in paragraph (d), if the anti-competitive effect of that act outweighs its technological, efficiency or other pro-competitive, gain;

4. engage in any of the following exclusionary acts, unless the firm concerned can show technological, efficiency or other pro-competitive, gains which outweigh the anti-competitive effect of its act:

1. requiring or inducing a supplier or customer to not deal with a competitor;

2. refusing to supply scarce goods to a competitor when supplying those goods is economically feasible;

3. selling goods or services on condition that the buyer purchases separate goods or services unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated to the object of a contract;

4. selling goods or services below their marginal or average variable cost; or

5. buying-up a scarce supply of intermediate goods or resource required by a competitor.

[5] Section 1(1)(ix) defines ‘excessive price’ as:¹

‘a price for a good or service which

27. bears no reasonable relation to the economic value of that good or service; and

28. is higher than the value referred to in subparagraph (aa).’

[6] The complaint referred to the Tribunal sought an order declaring that the practice of Mittal of employing import parity pricing (‘IPP’) in the South African flat steel market constituted an abuse of dominance in terms of s 8(a), ie constituted the charging of an excessive price, and for consequential relief based on that declaration. In amended form, the consequential relief claimed included orders prohibiting the imposition of use or resale conditions on customers, requiring Mittal to waive any existing conditions of that kind, the publishing of Mittal’s list prices, and an administrative penalty. The Tribunal declined to grant an order declaring that Mittal’s practice of employing IPP in the domestic flat steel market constituted an abuse of dominance. The Tribunal instead made an order (paragraph 1 of the Remedies Decision) declaring that Mittal’s practice of reducing the supply of flat steel products available for sale on the domestic market through the imposition of conditions of resale on the steel merchants and those of its customers who receive a rebate off the Mittal SA domestic list price is an abuse of dominance in terms of s 8(a).

[7] On the strength of that declaration, the Tribunal granted the consequential relief claimed by the complainants (see orders 2 to 5 of the Remedies Decision) and costs. The full text of the order granted by the Tribunal in the Remedies Decision reads as follows:

1. Mittal SA’s practice of reducing the supply of flat steel products available for sale on the domestic market through the imposition of conditions of resale on the steel merchants and those of its customers who receive a rebate off the Mittal SA domestic list price, is an abuse of dominance in terms of Section 8(a) of the Competition Act.

2. Mittal SA may not:

1. Impose upon any customer of its flat steel products any conditions in respect of the customers use or resale of those products; or

2. Reach agreement on a condition with a customer of its flat steel products, or enter into any arrangement or understanding with such a customer, in respect of the customers’ use or resale of those products.

3. Mittal SA is ordered to waive in writing any condition in any agreement concerning the use or resale of flat steel products by a customer.

4. Mittal SA is ordered to make known in the public domain, at all times, its list prices, rebates, discounts and other standard items of sale for flat steel products.

5. Mittal SA is ordered to pay an administrative penalty of R691 800 000.00 (six hundred and ninety one million and eight hundred thousand) to the Commission within 20 Business days of this decision.

6. Mittal SA is ordered to pay the costs of the complainants including the cost of two counsel and the qualifying costs of two expert witnesses.

[8] Since the only conduct proscribed by s 8(a) is the charging of an excessive price, the Tribunal’s declaratory order can be characterised as a declaration that Mittal’s practice of reducing the supply of flat steel in South Africa through the imposition of resale conditions constitutes the charging of an excessive price. The remaining orders made by the Tribunal were consequential upon its declaratory order. The Tribunal would have had no jurisdiction to grant the consequential relief in the absence of a finding that Mittal had charged an excessive price in violation of s 8(a).²

[9] The Mittal/Macsteel relationship: Role of the Joint Venture

Although the Tribunal’s declaratory order refers to the imposition of resale conditions on ‘the steel merchants’, the Tribunal appears to have had only one arrangement in mind, namely the condition in the agreement between Mittal and the Macsteel joint venture company (the second appellant) in terms whereof the latter handles Mittal’s exports on the basis that the steel in question must be exported and cannot be resold by the second appellant into the domestic market. Mittal exports steel exclusively through the joint venture company. Sales from Mittal to the second respondent and by the latter to the end-customer are back-to-back contracts. The reference to customers who receive rebates is a reference to customers to whom such rebates are offered because they either intend to use the steel in the manufacture of steel products for export or because they are competing domestically with cheap imports of fabricated steel products. The price at which Mittal exports steel through the second appellant has historically been lower than the domestic price. In respect of the period covered by the evidence, Mittal’s domestic price was determined with reference to IPP, though various customers were offered discounts and rebates.

[10] The Tribunal ruled that s 8(a) did not require an analysis of price levels. Nevertheless, it appears to have been of the view that the domestic price was higher than it would have been if resale conditions had not been imposed on the second respondent and on rebate customers.³ The Tribunal’s thinking was that if customers who received reduced prices were free simply to resell the steel into the domestic market, such steel would become available domestically at lower prices than IPP, thus causing the domestic price to drop from IPP and tend towards the export price. The Tribunal described the imposition of the resale conditions as a segmentation of the market which led to a reduction in the volume of steel available domestically.⁴

[11] It is common cause that Mittal manufactures more steel than is required by the domestic market. Mittal supplies part of its production to the international steel market. Mittal found it more efficient to use the services of the second appellant as its vehicle for marketing steel in the international steel market. The second appellant is a Netherlands company, jointly owned by subsidiaries of Mittal and the third appellant, established pursuant to a joint venture agreement in 1995 (‘the JV Agreement’).⁵ At the time the JV Agreement was concluded, the Macsteel group was a well-established steel trader in the international steel market. When the second appellant was established, a significant part of its business comprised sales in the export market of Mittal’s products, but it also conducted other business in the international steel market.⁶ The second appellant traded and trades only in the international steel market; it has not, and does not, trade in the domestic market in South Africa.⁷

[12] The JV Agreement relates to ‘specified ISCOR products’, which are the products ‘which are exported’ and itemised in clause 1.2.15, and include flat steel and other steel products. These are the products which the second appellant is, to the extent that Mittal is able and willing to supply them to the second appellant, obliged to purchase from Mittal,⁸ and which Mittal is obliged to market in the international market only through the second appellant.⁹ The allocation between products for the domestic market and products for the international market, lies entirely with Mittal. This is further recognised by clause 21.4, which reads: ‘It is specifically recorded that ISCOR will service its local clients on a first priority basis.’ The mechanism of this allocation arises from the nature of the ordering and production function. Given the differences in specification between products produced by Mittal, the orders (both domestic and international) are placed early which enables Mittal to estimate and meet the local demand and still produce for orders generated internationally.¹⁰

[13] The relevant provisions of the JV Agreement are:

‘MACSTEEL Group has a well established capability and organisation for the international marketing of steel products’ (Clause 2.12)

‘ISCOR will in all likelihood always produce a certain quality and quantity of steel products which will be available for export’ (Clause 2.2)

‘the parties … have agreed to an arrangement for the marketing of steel products in the international territory’ (Clause 2.3)

[14] Clause 5.3 provides for Mittal to ‘give notice of termination to all its existing steel export agents’. The second appellant would fulfil the role which Mittal’s export agents had previously fulfilled.¹¹ Clause 21.1.2 provides that Mittal ‘shall be entitled to require that its products are sold pursuant to long term contracts’ and that Mittal would bear any additional commercial risk arising from this requirement. Such risks would include fluctuations in international steel prices and currency exchange rates that would emerge from a fixed price long-term contract but not form part of the usual transactions concluded by the second respondent. Clause 21.2 provides that ‘the day to day trading management of JV CO will remain in contact with ISCOR’s mill operations’, and that ‘ISCOR will be entitled to constant communication regarding the trading activities of JV CO’; and that ‘ISCOR will be entitled at any time to have full access to the end user after notifying JV CO’. Clause 29.2 provides ‘To the extent that ISCOR is able and willing to supply the specified ISCOR products to JV CO’ the second appellant was obliged to purchase them. In terms of clause 32.6.1 Mittal undertakes that, if the tonnage of specified products fell below 1 million tons per annum (and the shortfall cannot be made up in the ensuing 6 months), it would pay an amount equal to 75 % of the commission income which the second appellant would have earned on such shortfall. Clause 34.2 obliges the second appellant to ‘endeavour to obtain the highest prevailing prices in the markets in which it operates, having regard for ISCOR’s ability to deliver on time and in accordance with the conditions set out in this agreement’. Clause 37 obliges the second appellant to ‘promote the sales of the specified ISCOR products produced by ISCOR’; to ‘obtain the highest prices for such products’; to ‘promote the best interests of ISCOR’; to ‘provide ISCOR with market intelligence in respect of all products traded’; and that the second appellant ‘will owe a duty of the utmost good faith to ISCOR’. In terms of clause 34, the second appellant earned only a margin on sales: ‘JV CO shall be entitled to deduct a percentage commission from ISCOR as remuneration for its marketing services.’

[15] In summary, the JV Agreement provides that the second appellant is obliged to seek offers from purchasers only in the international steel market, at the best available prices, for only the steel products which Mittal is willing and able to supply for the export market. The second appellant will present Mittal with such offers. Mittal does not offer steel to the second appellant at any particular price; the price setting operates the other way round, in that the second appellant solicits offers from customers on the international steel market, and Mittal then decides to supply or decline to supply the second appellant, pursuant to that offer, taking into account transport and other costs associated with delivery to the ultimate buyer with whom volumes, price and the delivery destination have been pre-arranged. Mittal will supply steel pursuant to such offers only to the extent that it is able and willing to do so. The second appellant earns only a fixed margin on sales effected by the aforesaid process.

[16] Merits Decision

In its decision on the merits, the Tribunal asked itself how a competition authority should approach the question of excessive pricing. It gave the following answer:¹²

‘[W]e must first ask ourselves whether the structure of the market in question enables those who participate in it to charge excessive prices [the ‘structural test’]. As we will indicate, we believe this to be a significantly higher hurdle than those that must be cleared to establish “mere” dominance. It requires “super-dominance”, a structural condition the characteristics of which are elaborated below. If that higher hurdle is cleared, we must then ask ourselves whether Mittal SA has engaged in conduct designed to take advantage of – to “abuse” – those structural opportunities by imposing excessive prices on its customers [the ‘conduct test’]. If the second question is also answered in the affirmative, the excessive pricing must be proscribed by imposing a remedy which addresses the underlying structural basis for the offending conduct arising from the structural advantage that enables the firm in question to charge a price in excess of that which would have prevailed in the absence of the anti-competitive structure and/or ancillary conduct. As will be elaborated at length, in this case Mittal SA does rely on its super-dominant structural position as well as on ancillary conduct in setting the price that it charges. Only if both forms of these remedies are impossible to devise should an actual price level be specified. In short, we treat excessive pricing as a phenomenon that may arise from a particular structure and that itself may be the basis for ancillary conduct that is utilized in order to sustain supra-competitive prices, to sustain, as per the definition of the Act …’ (own italics).

[17] The Tribunal opined that, given that Mittal’s pricing power extended beyond that enjoyed by a mere dominant firm and its price not being subject to regulation, it could conclude without further analysis that¹³

‘as a matter of profit maximising rationality, be reasonably construed as excessive because, in the oft quoted words of the United Brands judgement, it does not derive from structures compatible with any notion of “normal and effective competition.”’

The Tribunal was, however, still obliged to consider whether, as a fact, the firm was charging the maximum monopoly price or not:¹⁴

‘In short, while our examination of the relevant market and market shares and entry barriers is a sufficient basis for our conclusion that Mittal SA is one of those rare firms endowed with sufficient market power to charge excessive prices, it may be an insufficient basis for finding that it has actually deployed that power in contravention of Section 8 (a).’

[18] The Tribunal accepted that Mittal produces more steel than the domestic market requires and, consequently exports the excess production. The second appellant is the ‘export arm’ of Mittal and Mittal offers the excess production to the second appellant at a discount or rebate on the price it charges domestic steel merchants. In return, the second appellant undertakes not to sell the excess in the domestic market. Therefore, the Tribunal opined that Mittal shorts the domestic market by ensuring that the excess production is not available in South Africa at a lower price than its own domestic price. In this way, the Tribunal found, Mittal maintains its domestic price at a higher level than would have been the case if the excess were also made available to merchants at a lower price in the domestic market. This analysis led the Tribunal to the conclusion that, if the price is determined by ‘cognisable competition considerations, then that price will bear a reasonable relationship to the economic value of the good in question.¹⁵ The Tribunal found that the arrangement with the second appellant pursuant to the JV Agreement was the essential ancillary conduct¹⁶

‘whereby Mittal SA abuses its structural advantage to maintain its pre-selected price level. It is, of course, conduct that is only available to an uncontested firm in an incontestable market. If this were not the case, Mittal SA’s traders would be able to turn to alternative suppliers of flat steel products in order to meet demand that is unrealised at Mittal SA’s pre-selected domestic price level. Mittal SA of course wishes to create the impression that there is no unrealised demand. It wishes to create the impression that it satisfies all domestic demand and that its export activities are simply a vent – an unprofitable vent, it moreover alleges - for a surplus that it would much rather sell into the more lucrative domestic market. However this is, at best, only a half-truth and one that, when fully considered, does considerable violence to the whole truth – certainly, Mittal SA meets all domestic demand, but, and here is the crucial caveat, at its unilaterally targeted price level. If a would-be purchaser of steel for use in South Africa were to approach Macsteel International with an offer to purchase at a price below the prevailing domestic price but above that which Macsteel International could realise on the international market, the trader would, as a matter of profit maximising rationality, accept such an offer. However, it is by agreement with Mittal SA, prohibited from accepting the offer because to do so would, as Mr. Dednam candidly concedes, be to reduce the price of steel across the whole range of Mittal SA’s domestic sales. Its willingness to enter into such an agreement is, of course, predicated on Mittal SA’s super dominance – to express it crudely, a firm that wishes to trade in South African steel is obliged to accept Mittal SA’s trading conditions. The economics is disarmingly elementary – indeed it is the first principle of monopolistic conduct.

[19] As regards the market structure, the ‘structural test’,¹⁷ the Tribunal held that, in order for a firm to charge an excessive price, the market share of that firm should ‘approximate 100% and there should be no realistic prospect of entry – in other words the market should be uncontested and incontestable’.¹⁸ The key to the Tribunal’s approach is found in the following passage:

‘[96] In summary then our approach is to follow the schema of the Act and the standard approach to allegations of abuse of dominance which, as we have seen, derives dominance from specified market shares and the possession of market power. Following this approach, it reasonably holds that the power to price ‘excessively’ is the preserve of firms of overwhelming size relative to the market in which they are located and which are, in addition, markets characterised by unusually high entry barriers. That is, the market share enjoyed by the firm in question should approximate 100% and there should be no realistic prospect of entry – in other words the market should be both uncontested and incontestable. The concept of ‘super dominance’ and the special responsibilities that attach to this privileged status is well recognised in scholarly work …

[106] We should of course add that the question of excessive pricing – or, at least, the possibility of challenging pricing conduct – is unlikely to arise in the case of a legal monopoly precisely because, in the current economic policy environment, such an institution will, invariably, be subject to regulation. As already noted, it is our view that Section 8(a) is precisely intended to apply to those rare markets that are uncontested (monopolised or ‘super-dominated’), incontestable (subject to insurmountable entry barriers) and unregulated (not subject to price regulation). The South African market for flat steel products is, the evidence shows, just such a market, and this is why the proposal of Evans and Padilla and other writers that the powers of competition authorities to intervene in pricing conduct be reserved for the most exceptional circumstances is, in our view, strictly adhered to in this decision even though we do not require it to be restricted to a case of a legal monopoly.

[107] In the present case, dominance of the relevant market is indeed absolute, that is, there are, within the boundaries of the relevant market, no meaningful constraints on the first respondent’s ability to unilaterally determine price – its market share is persistently vast and there is no prospect of new entry at all, and certainly not within any time-frame that anti-trust jurisprudence and enforcement practice would regard as constituting an effective competitive constraint. Moreover, the firm in question was owned by the state, for much of its life its prices were regulated by the state, and certain of its current advantages derive from advantages accrued from the period of state ownership as well as subsequent subsidisation.

[108] In short, the first respondent, Mittal SA, is no mere ‘dominant firm’ – it is ‘super dominant’, a ‘monopoly’ in the parlance of US anti-trust law. It is, to all intents and purposes, an uncontested firm in an incontestable market. This is a market structure that is rarely encountered in competition analysis, possibly as rare as its opposite number, a market that meets the conditions of perfect competition. As already noted, while even a super-dominant firm, a monopolist pure and simple, remains constrained by the existence of a ceiling in the price that it may charge, this limitation is not imposed by, indeed is in no way influenced by, the pricing practices of competitors, actual or potential, in the relevant market, or, even as a last resort, by the ability of the customers, to forego use of the product in question.

[121] In summary then, Mittal SA is, for the purposes of the Act, clearly dominant in the relevant market, the South African market for flat steel products. However, as already elaborated, in order to establish the structural basis for charging excess prices, something more than mere dominance is required. In our view Section 8(a) demands a showing of extraordinary or ‘excessive’ market power, the power to price at a level beyond that available to a mere dominant firm. The extent of Mittal SA’s market share taken together with the height of entry barriers and its recent history of state support easily establishes its status as a super-dominant firm within the relevant market. It has been proved that it is indeed an uncontested firm within an incontestable market.

It is in such a market that a firm approximates a true monopoly and can charge monopoly prices.¹⁹ In holding that a firm is super-dominant when its market share ‘approximates 100%’, the Tribunal was indicating that a firm is super-dominant when it is able to exercise market power as if it had 100% of the market ie that it is able to exercise market power as if it were a monopolist.

[20] As regards the second question, the ‘conduct test’, the Tribunal explained that it was required to consider whether the firm ‘has engaged in conduct designed to abuse its “super dominant” position by charging an excessive price’.²⁰ The Tribunal said:

‘[134] Hence, in addition to examining the structural features of the market in question, we must examine evidence which suggests that Mittal SA has engaged in conduct designed to abuse its ‘super dominant’ position by charging an excessive price. This is an enquiry mandated by the principles and practice of competition law and economics. We emphasise that we will not approach this enquiry by considering that evidence relating to actual price levels which effectively requires us, first, to identify a particular level as unlawful (‘excessive) and then to impose a level of price that would be lawful (‘non-excessive’). This, we stress, is an approach consistent with the practice of price regulation – it is not commonly found in the principles and practice of competition law and economics.’

[21] In assessing that price, the Tribunal held that it must assess whether the price is the result of ‘cognisable competition considerations’ or not.²¹ A price determined in the former method reflects the economic value of the product.²² Where, however, ‘the price appears to have no explanation other than the pure exercise of monopoly power, then the price is not reasonable in relation to economic value’.²³ This is a criterion to determine whether the pricing behaviour of a firm is at a competitive level or not:

‘[146] We should at once dispel the notion that the term ‘economic value’ in our Act is intended to impute a cost-based theory of value, much less one that is rooted in any particular version of cost because if the legislature intended economic value to mean marginal cost or average variable cost it would have said so since it uses these terms explicitly in 8d(iv). That is to say, in assessing predatory pricing the legislature intends us to use a cost-based test and so Section 8(d)(iv) explicitly guides us in the cost measurement that is central to an evaluation of an allegation of price predation. However Section 8(a) and its accompanying definition make no reference at all to the relationship between an excessive price and cost. The reference is rather to the relationship between price and economic value.

[147] The concept of economic value consistent with the principles and practice of competition law and economics is, in the words of Evans and Padilla, ‘the equilibrium price that would result from the free interaction of demand and supply in a competitive market’ or the ‘competitive market price’. As we have already suggested then, our judgement of the relationship between price and economic value rests on our evaluation of the market conditions that underpin the price. If the examination of the structure of the market and any relevant ancillary conduct reveals that price is indeed determined by, what we have termed above, cognisable competition considerations, then that price will bear a reasonable relationship to the economic value of the good in question. However, if the price is the product of a market structure and of ancillary conduct that reflects precisely the absence of cognisable competition considerations then that price will be excessive in relation to the economic value because it will not have been determined by ‘the free interaction of demand and supply in a competitive market’. As we are careful to explicate below, ‘cognisable competition considerations’ or a ‘competitive market’ do not necessarily equate to conditions of perfect competition.

[148] Having rejected the view that the concept of economic value suggested by the Act is cost-based, we note the obvious point that this does not mean that cost does not play a major role in determining the absolute level of the competitive price or, what is the same thing, the economic value of a good or service. Even if the market for high performance cars is vigorously competitive and that for bicycles is monopolised, a high performance sports car will always have a higher price or economic value than a bicycle, and this for the simple reason that the underlying costs of producing a high performance sport car would not allow a manufacturer of these products to stay in business if he sold his product at the same price as a bicycle. But to extend this analogy, it may well be that price and economic value are satisfactorily aligned in the pricing of high performance sports cars (that is, there is no excessive pricing) if their prices are the product of competitive market conditions, while the price of bicycles may be found to be excessive in relation to their economic value if they are priced under conditions of pure monopoly.

[22] The Tribunal examined the actual prices charged by Mittal and concluded that Mittal charged its domestic customers an import parity price for flat steel products, in other words, a price set by calculating the notional cost of importing those products.²⁴ It expressly rejected Mittal’s suggestion that it no longer employed the import parity pricing methodology.²⁵ The Tribunal set out in some detail the methodology employed by Mittal to arrive at its import parity prices, and also noted that Mittal contractually prevents customers who receive prices lower than import parity from ‘redirecting’ this discounted product into the general domestic market.²⁶ The Tribunal held that Mittal targeted the import parity price because of its ‘close approximation to the monopolist’s profit maximising price’.²⁷ The Tribunal held further that to achieve this price Mittal was obliged to engage in further acts that amounted to an abuse of its dominance, namely withholding its full supply from the domestic market. Absent this further conduct, particularly the JV, Mittal would not be able to charge the maximum monopoly price because, for example, Macsteel would then accept an offer to sell to a domestic purchaser at a price below Mittal’s domestic price but above the price Macsteel could realise on the international market.²⁸ The JV, as employed by Mittal, thus prevented this supply at such a price from becoming available to the domestic market, although the measures Mittal adopted to prevent other flat steel products it sold at prices lower than IPP becoming available in the domestic market were also fundamental to the abuse, since such sales also had the potential to exert downward pressure on the domestic price.²⁹ This conduct confirmed that Mittal was abusing its position of super dominance and charging a price in the domestic market that is not the product of cognisable competition:³⁰

‘[152] In this case our finding is that the price of flat steel products in the South African market is only explicable by reference to Mittal SA’s unusually high level of structural dominance which, in turn, supports ancillary conduct that maintains the price targeted by the monopoly steel producer. The ancillary conduct – which as we shall elaborate below is the enforced segmentation of separately priced markets – is a critical element of this decision because it demonstrates, as we shall elaborate, that even Mittal SA’s structural super-dominance was not on its own sufficient to guarantee that it actually achieved its unilaterally selected target price. Instead it was obliged to engage, in a clearly pre-meditated fashion, in ancillary conduct, conduct that is only available to a super-dominant firm, to achieve its desired price level in the domestic market. In other words, our finding of excessive pricing does not derive from an examination of the market structure alone; it also rests on the ancillary conduct upon which Mittal SA relied, ancillary conduct that itself depends upon the existence of structural super-dominance, in order to achieve its pricing ambitions. It is the cumulative impact of this structure and the ancillary conduct that puts Mittal SA’s contravention of Section 8(a) beyond doubt.’

[23] This analysis of the reasoning employed by the Tribunal assists in elucidating the core basis of the dispute in this case: the definition of excessive pricing appears to mandate an examination as to whether there is a reasonable relationship between the price charged and the economic value of the good or service. Volumes of expert evidence were generated to give content to this relationship. However, the Tribunal held that it was not necessary in this case to determine the reasonableness of the relationship between the maximum monopoly price charged by Mittal and the economic value of flat steel products on the basis of an empirical quantitative comparative study of prices in various markets. In its view, the price charged by Mittal could never bear a reasonable relationship to the economic value because it was the maximum monopoly price achieved through the exertion of market power to reduce supply in the domestic market and was therefore, by definition, not determined under conditions of competition (which would always have invariably produced a lower price). The Tribunal held that, in the light of this evidence, it was not necessary for it to consider the expert evidence to establish that fact:

‘[153] In summary then, our examination as to the source of the pricing power is thus an examination into its reasonableness. Reasonableness in the context of a competition statute must mean ‘economically reasonable’. Economically reasonable in the context of a competition statute must mean having regard to the pro and anti –competitive considerations that we normally apply. As we go on to argue in this decision, the occasions where one can find no reasonable relationship between a price and the economic value underpinning it are few indeed. The circumstances giving rise to Mittal SA’s pricing power in respect of some of its domestic consumers depends on the existence of a range of factual issues that we do not encounter in the market place everyday, even in those markets habituated by long extant dominant firms.

[154] Nor is there any need to dwell on dictionary definitions of what excessive means. The term is a defined one and hence it is the statutory, rather than the dictionary, definition of the word that we apply. The statutory definition as opposed to the ordinary word ‘excess’ does not require one to conclude when a particular level of differentiation is sufficiently large to constitute excess. Rather it requires one to find a relationship between a price and economic value that admits of no reasonable explanation, that is, of an explanation that does not rely upon the exercise of the degree of market power that arises from super-dominance. The finding of an excessive price is then determined not by some arbitrary measure of difference but is rather an enquiry into the rationality of pricing. It thus condemns pricing for which unchallenged and incontestable monopoly is the only explanation as opposed to a price that may simply be high but for which innovation or even branding – that is, pro-competitive measures - provide the underlying rationale.

[155] For this reason we find that a reading of the Act that requires us to find precise levels for the economic value and then the actual prevailing price and then to correlate them to some notional competitive price to be overly mechanistic and contextually unsupported. This reading might have some validity if we were meant to act as price regulators and to order the price back down to the non-excessive level. We have already firmly rejected the implicit contention that the sparse wording of Section 8(a) is intended to convert us from an agency that promotes and protects competitive market conditions to an agency that determines price through the simulation of competitive market conditions.’

[24] The Tribunal did not, however, discount fixing price levels in the future, should it be so required. The Tribunal expressly held only that it should sidestep methodologies of price regulation ‘if it is possible – and we believe in this instance it is’.³¹ The Tribunal held further that ‘if a competition authority is not able to carry out its excessive pricing mandate [by isolating and addressing underlying structural conditions and ancillary behaviour that enables the setting of an excessive price] then it may have to resort to the fixing of a price but, we stress, in our view this should be done as a final resort.’³²

In summary, the Tribunal appeared to take the view that a literal interpretation of s 8(a) read with s 1(i) (ix) of the Act could require an investigation into actual price levels and hence the determination of particular price abuse which pricing would contravene the Act. That enquiry would convert the Tribunal into a price regulator and thus take it outside of its mandated scope as a competition authority.

[25] Foreign law

This is the first case dealing with the meaning and scope of s 8(a). The influence of foreign law on the meaning and purpose of this section may be clear but the proper application thereof mandates caution.

[26] Section 8(a) has its origin in the jurisprudence of European competition law. As important a consideration as that may be the Supreme Court of Appeal has cautioned that our Act must be interpreted primarily with reference to its own language.³³ Thus, while s 1(3) of the Act provides that when interpreting and applying the statute, appropriate foreign and international law may be considered, it is nonetheless ‘necessary to view the competition laws of other countries in their proper historical, social and institutional contexts’.³⁴

[27] The Tribunal noted that the definition of ‘excessive price’ was borrowed from United Brands³⁵ but observed that this borrowing ‘in no way requires us to adopt uncritically all elements of a European approach to excessive pricing.’³⁶ The Tribunal was well aware of the differences between s 8 of the Act and Article 82 and correctly noted that our legislation contained a definition of an ‘excessive price’.³⁷ The Tribunal’s cautious approach to foreign law is correct. This approach has been emphasised by both this court and the Supreme Court of Appeal.³⁸ Unfortunately, the Tribunal did not follow this cautious approach but, instead, applied its a priori view on the role of a competition authority, that is its ‘conceptual approach’, to almost the complete extension of an engagement with the legislative texts. This very point was made by this Court in Goldfields Ltd v Harmony Gold Mining Company Ltd and Another in criticising the approach the Tribunal had adopted in that case:³⁹

‘In any event great care should be taken to ensure that a purposive approach to the interpretation of the Act engages with the wording of the Act and its overall architecture, rather than seeking to ignore the latter in order to promote a particular policy objective which is both contested and controversial.

[28] The Tribunal is bound to apply the Act. If the proper interpretation of s 8(a) requires the Tribunal to engage with price levels, it must do so. Even less justifiable is the taking of liberties with the language of the Act so as to make s 8(a) serve the Tribunal’s preference to deal with market structure rather than price level. That is to turn the exercise of establishing the intention of Parliament on its head. Instead of starting with the words the legislature chose to use, the Tribunal started with the interpretation it preferred and then ignored the language of the section. The words chosen by the legislature when enacting s 8(a) (and the definition of ‘excessive price’) clearly and unambiguously⁴⁰ indicate that what is prohibited is the ‘charging’ of an excessive ‘price’, not so-called ‘ancillary abusive conduct’ designed to take advantage of a particular market structure.

We do not wish to be misunderstood. Legislative interpretation does not reduce to a simple recourse to a dictionary. For a start, the inherent plasticity of language and the manner in which precedent and legal culture influence the process of statutory interpretation dictate otherwise. But, a court is required to engage with the text and the language employed therein; it must produce an interpretation which it can justify after this engagement with the legislation. It 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.

[29] This approach to interpretation should not be construed as an indication that this Court is oblivious to the problems posed by this case. To the contrary . Mittal (in its previous guises) was owned and controlled by the State since its establishment in 1928 until its privatisation in 1989. As Dr Zaveren Rustomjee, a previous Director-general of the Department of Trade and Industry, testified before the Tribunal, government incentives and support for Mittal continued for a number of years after privatisation. We emphasise that the preamble to the Act includes a manifest concern with previous excessive concentrations of ownership and control within the national economy. Further, a purpose of competition law, particularly South African competition law as is made clear in s 2, dictates that a history of such state largesse cannot be permitted to subvert competition nor should the market power inherited from the erstwhile status as a state enterprise be exerted with continued impunity. Further, as the available literature compellingly illustrates,

‘[t]he assessment of excessive pricing is subject to substantial conceptual and practical difficulties, and any policy that seeks to detect and prohibit excessive prices is likely to yield incorrect predictions in numerous instances.’⁴¹

But none of these difficulties permits a disregard of the provisions of the Act. With these observations, we now turn to a more precise analysis of the Tribunal’s determination.

[30] Analysis of the Judgment

Part B of Chapter 2 of the Act is headed ‘Abuse of a Dominant Position’ and s 8 ‘Abuse of dominance prohibited’. The prohibitions in section 8 are preceded by the words ‘It is prohibited for a dominant firm to —’. The test for dominance is expressly laid down in s 7 and a firm is ‘dominant’ in a market if ‘(a) it has at least 45 % of that market’.⁴² Other categories are referred to in paragraphs (b) and (c). The same test is applicable to all firms to which Part B of Chapter 2 applies, namely those meeting the threshold requirement determined under s 6. There is no reference in s 8 to the concept of a ‘super-dominant firm’ used by the Tribunal. Section 8 applies to all dominant firms whether they are monopolies or ‘super-dominant firms’ provided only the requirements of ss 6 and 7 are met. To introduce the concept of ‘super-dominance’ ignores principles of statutory interpretation: it was, moreover, emphasised in S v Dodo⁴³ that ‘[i]t is pre-eminently the function of the legislature to determine what conduct should be criminalised and punished.’

[31] The methodology employed by the Tribunal to determine whether a price is ‘excessive’ for purposes of s 8(a) depends on its criterion of ‘super-dominance’.⁴⁴ It said⁴⁵ that, as a competition authority, it had to first ask whether the market structure enabled those participating in it to charge excessive prices (the ‘structural test’). The market share of the firm concerned should be approaching 100 per cent and the market ‘uncontested’ and ‘incontestable’.⁴⁶ This ‘hurdle’ the Tribunal considered was a significant one, requiring not mere dominance but ‘super-dominance’. Once that has been established, it must further be determined whether the firm concerned has engaged in conduct abusing the structural opportunities by imposing excessive prices (the ‘conduct test’).

[32] The Tribunal’s idea that a market must be ‘uncontested’ and ‘incontestable’ and the firm ‘super-dominant’ otherwise the price charged cannot be excessive finds no support in the Act.⁴⁷ The wording of s 8(a), read with the definition of ‘excessive price’ in s 1, calls for the making of certain distinct enquiries. First, the determination of the actual price of the good or service in question and which is alleged to be excessive. Secondly, the determination of the ‘economic value’ of the good or service expressed in monetary terms, as an amount of money.⁴⁸ Thirdly, if the actual price is higher than the economic value of the good or service, is the difference unreasonable or, to put it in another way, is there ‘no reasonable relation’ between the actual price and the economic value of the good or service? Fourthly, is the charging of the excessive price to the detriment of the consumers? The first two enquiries call for factual determinations of the actual price and the economic value and the third for a value judgment. The fourth enquiry also involves, as we will show, a value judgment.

[33] As already noted, the Tribunal did not proceed along these lines. Its approach was that, if a ‘super-dominant’ firm exercises to the full its market power in setting a price, then its price is ipso facto excessive as contemplated by s 8(a).^{49anc" HREF="#sdfootnote49sym">49} It found in so many words that Mittal had contravened s 8: it had, by virtue of its super-dominance, the structural market power to select a target price for its domestic market (the IPP) and supported this price by withholding supply from the domestic market. This, the Tribunal said was ‘the most elementary and offensive of monopolistic conduct’.⁵⁰ The cumulative impact of its super-dominance and its resultant conduct led to the withholding of supply from the domestic market resulting in a price that is unconstrained by any competitive considerations and hence ‘excessive’. There is no support for this approach in the Act.⁵¹

[34] The expression ‘economic value’ is not defined but must be interpreted to give it a definite meaning corresponding to the intention of the legislature – a meaning capable, moreover, of practical application. As we have already observed, if it is impossible to do so, the conclusion would follow that the legislative provision does not pass constitutional muster; but that is a conclusion which ought to be avoided.⁵² Because s 8(a) contemplates a relation between a price and the economic value, it follows that the latter expression must, as is ordinarily the case with price, refer to an amount of money. In contrast with Article 82(a) (formerly article 86(a)) of the Treaty of Rome, our legislation does not refer to a price that is ‘unfair’.⁵³. Article 86 (now Article 82) read as follows:⁵⁴

‘Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common 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 unfair trading conditions;

(b) limiting production markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.’

The governing criterion used in Article 86 was widely formulated: ‘any abuse … of a dominant position … shall be prohibited…’. The four instances set out in sub-articles (a) to (d) of Article 86 were cases of conduct which ‘may’ constitute ‘such abuse’; the words ‘may in particular’ make it clear that there is no legislative numerus clausus. There are however significant textual pointers in the direction of the mandated enquiry: First, Article 86 deals with an ‘unfair price’ not an ‘excessive price’. Secondly, Article 86 contains the integer of an ‘abuse … of a dominant position’. If no finding of such ‘abuse’ is made, there can be no contravention of Article 86. Thirdly, the imposing of ‘unfair … prices or other unfair trading conditions’ may but do not necessarily constitute such ‘abuse’. Fourthly, the determination of an ‘unfair price’ requires an empirical analysis. Finally, in addition, an assessment that the price in issue constitutes an ‘abuse of dominant power’ must be made.

[35] In United Brands ⁵⁵the Commission decided that United Brands had contravened Article 86 in that it had abused its dominant position as seller of bananas in the relevant market comprising the Belgo-Luxembourg Economic Union, Denmark, Germany, Ireland and the Netherlands. The complaint, under the wide provisions of Article 86, was in respect of four categories of transgression: First, the use of a clause prohibiting the resale of bananas while still green; secondly, the refusal to supply a particular reseller (Oleson); thirdly, discriminatory pricing; and, fourthly, unfair pricing. The Commission decided that United Brands had transgressed Article 86 on all four grounds. On appeal the ECJ upheld the decision in regard to the first three categories, but set aside the decision of the Commission in respect of the fourth category, unfair pricing.⁵⁶

[36] The essence of the Commission’s contentions was that ‘the policy of partitioning the relevant market has enabled UBC to charge prices … which … often amount to wide differences which cannot be justified objectively.’⁵⁷ The ECJ pointed out that ‘it appeared to the Commission to be justifiable without analysing the UBC’s costs structure, to treat prices charged to Irish customers as representative and that differences between the prices cif Dublin delivered Rotterdam and the other prices charged by UBC for its sales for Rotterdam or Bremerhaven show profits of the same order of magnitude as these differences.’⁵⁸ The prices charged in Germany, Denmark and Belgo-Luxembourg area were sometimes 100 per cent higher than the prices charged in Ireland. United Brand countered the contentions of the Commission by alleging that it suffered a loss on its sales in Ireland.⁵⁹

[37] The crucial passages in United Brands which influenced the Tribunal in this dispute are the following:

‘[248] The imposition by an undertaking in a dominant position directly or indirectly of unfair purchase or selling prices is an abuse to which exception can be taken under Article 86 of the Treaty.

[249] It is advisable therefore to ascertain whether the dominant undertaking has made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition..

[250] In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied, is such an abuse’

[251] This excess could inter alia be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin; however the Commission has not done this since it has not analysed UBC’s costs structure.

[252] The question therefore to be determined is whether the difference between the costs actually incurred and the price actually charged is excessive and, if the answer to this question is in the affirmative, to consider whether a price has been imposed which is either unfair in itself or when compared to competing products’.

[253] Other ways may be devised – and economic theorists have not failed to think up several – of selecting rules for determining whether the price of a product is unfair.

[254] While appreciating the considerable and at times great difficulties in working out production costs which may sometimes include a discretionary apportionment of indirect costs and general expenditure and which may vary significantly according to the size of the undertaking, its object, the complex nature of its set up, its territorial area of operations, whether it manufactures one or several products, the number of its subsidiaries and their relationship with each other, the production costs of the banana do not seem to present any insuperable problems.

[258] The Commission bases its view that prices are excessive on an analysis of the differences – in its view excessive – between the prices charged in the different member-States and on the policy of discriminatory prices which has been considered above.

[259] The foundation of its argument has been … [that] the margin allowed by the sale of bananas to Irish ripeners was much smaller than in some other member-States and it concluded from this that the amount by which the actual prices f.o.r Bremerhaven and Rotterdam exceed the delivered Rotterdam prices for bananas to be sold to Irish customers c.i.f Dublin must represent a profit of the same order of magnitude.

[260] Having found that the prices charged to ripeners of the other member-States were considerably higher sometimes by as much as 50 per cent, than the prices charged to customers in Ireland it concluded that UBC was making a very substantial profit.’

[38] The ECJ considered an empirical enquiry into the costs actually incurred by the seller and into the prices actually charged by the seller to be necessary. This exercise was however not done by the Commission, because it had made no empiric enquiry into United Brand’s costs. The remarks in paragraph 252 are not a finding on the facts of United Brands; that is obvious from what followed in paragraph 251 – 268, where it was found that the evidence had not established that an unfair price had been imposed. The dictum was a general statement to the effect that charging a price which is found to be excessive, would (more accurately ‘may’) constitute an abuse; and that a price which ‘has no reasonable relation to the economic value of the product supplied’ would be ‘a price which is excessive’.

[39] This paragraph did not deal with the question of how it can or should be objectively determined whether or not a particular price ‘has no reasonable relation to the economic value of the product supplied’ and hence be regarded as ‘excessive’. An answer to this question appears from the following paragraphs. What the Commission argued was that, in order to assess whether a price is ‘excessive’, there was no need to engage in an empirical enquiry into the costs actually incurred, (and hence the comparison between those costs and the actual selling prices, and the assessment whether the difference is excessive); and that the final assessment whether a price is unfair in itself, or when compared to competing products, could be made without an empirical enquiry into costs actually incurred. Put positively, the Commission contended that the assessment that a price actually charged is excessive and hence unfair, could be made purely by comparing that price with other prices. This contention of the Commission was rejected by the ECJ: the absence of an enquiry resulted in the Commission having failed to prove, by the required evidence, that the price actually charged in the member-States other than Ireland was ‘excessive’.⁶⁰ In this regard – although this was not necessary in view of the failure of the Commission to make the necessary empirical enquiry – evidence of UBC that it had sold bananas at a loss in Ireland cast further doubt on the Commission’s contention.⁶¹ In short, the ECJ ruled that a mere comparison of prices at which the seller actually sold a product to different buyers in the same market was an insufficient basis to conclude that the higher price was ‘excessive’ – even where they are 50 per cent higher than the lower price.

[40] Mr Petersen, who appeared together with Mr Maenentje and Ms le Roux as amici curiae (and to whom this court is indebted for their thoughtful and diligent contribution), submitted that the legislature must have intended, by using the expression ‘economic value’, an amount of money which would notionally be the price or value of the good or service if market conditions other than those actually prevailing were to prevail.⁶² What the legislature must be taken to have intended by ‘economic value’ is the notional price of the good or service under assumed conditions of long-run competitive equilibrium. This requires the assumption that, in the long run,⁶³ firms could enter the industry in the event of a higher than normal rate of return on capital, or could leave the industry to avoid a lower than normal rate of return. It does not imply perfect competition in the short-run, but rather competition that would be effective enough in the long run to eliminate what economists refer to as ‘pure profit’ – that is a reward of any factor of production in excess of the long-run competitive norm which is relevant to that industry or branch of production.⁶⁴

[41] The European Court of Justice in United Brands considered that the lack of a reasonable relation between price and economic value could be revealed, inter alia, by establishing the firm’s profit margin.⁶⁵ It is apparent that the court considered that a price corresponding to economic value is one which would allow a firm to reap only those trading benefits which it would reap under conditions of ‘normal and sufficiently effective competition’.⁶⁶ A higher price deriving simply from the use made of a dominant position would be one bearing no reasonable relation to economic value.⁶⁷ Section 8(a), read with the definition of ‘excessive price’ in s 1, seems clearly to have had its inspiration in these ideas.⁶⁸

[42] In General Motors Continental NV v Commission of the European Communities,⁶⁹ the ECJ considered that an abuse of dominance might lie, inter alia, in the imposition of a price which is excessive in relation to the economic value of the good or service. In paragraph 22 the court observed that ‘[t]he absence of any abuse is also shown by the fact that very soon afterwards the applicant brought its rates into line with the real economic costs of the operation ...’ It is apparent that the court considered ‘the real economic cost of the operation’ to be indicative of its economic value.⁷⁰

[43] It seems to follow that, in determining the economic value of a good or service, the cost savings to the firm resulting from the subsidised loan or the lower than market rental – or indeed any other special advantage, current or historical, that serves to reduce the particular firm’s costs below the notional competitive norm ought to be disregarded. Thus economic value’ is a notional objective competitive-market standard, and not one derived from circumstances peculiar to the particular firm. If the firm’s price is no higher than economic value, no contravention of s 8(a) can arise. If, however, the firm’s price is in fact higher than economic value so determined, the test of reasonableness in respect of the difference remains to be applied. The expression ‘reasonable profit’⁷¹ when dealing with economic value should be avoided. The test of reasonableness applies to the excess of price over economic value, and thus only to the element of ‘pure profit’ (over and above ‘normal profit’) implicit in that price. It is at this stage of the enquiry that circumstances peculiar to the particular dominant firm would rationally come into the reckoning. It would seem sound, when considering whether the higher price bears a reasonable relation to economic value or not, to take into account the benefits flowing to the firm from the subsidised loan, long-term low rental, or other special advantage which may serve to reduce its own long-run average costs below the notional norm. Having regard to all the particular circumstances, it might then be concluded that no addition of ‘pure’ or ‘economic’ profit by means of a price higher than economic value could reasonably be justified, or that the extent of the excess which might otherwise be justified would fall to be reduced. By parity of reasoning, accounting costs may reflect an uncompetitive inefficiency. The criterion of economic value, on the other hand, recognises only the costs that would be recovered in long-run competitive equilibrium. Accordingly, it is possible that a dominant firm’s price may be substantially and also unreasonably higher than economic value even when the accounting profit of the firm reveals no such picture.⁷²

[44] Import parity pricing

The Tribunal found that the geographic market in which the complainant and Mittal engaged in ‘is indeed the national South African market for flat steel products, the market in which a great many of its customers meet Mittal SA and in which its pricing power is effectively unconstrained by any competing suppliers, either in another country or from a product that could be substituted for steel.’⁷³ In this market, it found that the import parity (‘IPP’) price was excessive. But, under the Act, an IPP cannot per se be excessive. This is so because the Act requires that it be established that the actual price is higher than the economic value. Only when there is no reasonable relation between the price and the value can the price be regarded as being excessive. Whether the actual price is described or formulated on the basis of an IPP cannot, for the purposes of this determination, be definitive. It may, depending on the facts of the dispute, for reasons set out presently, have some evidential relevance as to how the dispute must ultimately be determined. For a domestic producer whose only pricing constraint is the fact that the customer may resort to imports, the IPP is the upper price limit. From this fact, however, it cannot be inferred, without more, that it is a price higher than the economic value of the good or service and hence justify a conclusive finding in terms of s 8(a) of the Act. Nor does it follow that any excess over the economic value is not reasonable.

[45] The Tribunal noted⁷⁴ that the ‘insistence that steel imports restrain Mittal SA’s pricing is only at the point where Mittal SA’s domestic price exceeds the landed price of imported steel in South Africa.’ If Mittal SA’s domestic price was, for a sustained period, to exceed, by a significant margin, the landed cost of imported steel products plus ‘add ons’ like the 5 % ‘hassle’ factor, then, and only then, would the incentive to import become a realistic one for domestic consumers of these products.‘ The price constraint imposed by the potential for imports, which is recognised by the Tribunal, is no different in principle from the price constraint that any firm, having the advantage of an exclusive location near to its customers, faces in the form of the potential for those customers to decide rather to incur the cost of fetching alternative products from a more distant supplier or having them transported from afar. The local firm may well have appreciable market power by virtue of the degree of its independence from its customers and competitors; and its exploitation of that power might result in a price judged to be ‘excessive’ But the mere fact that it prices up to the constraining limit, to the point at which the boundaries to its geographical market dissolve and an alternative source of supply becomes realistic for its customers, provides no basis for determining whether its price at that limit is higher than and bears a reasonable relation to economic value or not. The question is simply whether the actual price level at which imports constrain the price of domestic supplies is excessive or not when charged by the domestic supplier. Abuse arises where a domestic monopoly (or indeed an oligopoly in which firms have market power) employs the shelter of distance, for example to extract an unjustifiable amount of ‘pure profit’ by way of a price unreasonably higher than the economic value of the good or service concerned. Whether, in fact, it is doing this or not has to be proved.

[46] If prices charged by foreign suppliers in competitive markets provide a sound comparative basis for assessing the economic value of similar products produced here, then the extent of the transport and related costs needed to bring the foreign supplies to our market will obviously provide a measure of the price premium which a local dominant supplier could extract, over and above economic value. Knowing the extent of the transport and related costs may thus provide a basis for a finding of market power – but the premise remains that a notional competitive price (or economic value) shall first have been established. Once economic value has been established, it is the actual amount of the excess in the price charged by the local firm that has to be measured and evaluated for the purposes of s 8(a). All that import parity pricing will indicate is that the firm is pricing fully to the constraining limit. A dominant supplier which is able, and does, simply set its price at import parity without careful reference to costs would do so at its peril, for, if the import parity price is higher than the economic value of the supply, the supplier could well have difficulty defending the excess as having any reasonable relation to economic value. However, if in fact the supplier references its price to prices prevailing in other comparable but competitive markets, then its price would be likely to approximate to economic value.

[47] Price regulation

As noted previously, the spectre of price regulation was of great concern to the Tribunal. The Tribunal emphasised:⁷⁵ ‘[W]e eschew the role of price regulator, and so the vast quantum of the evidence and much of the argument submitted to us is simply irrelevant’ and added:⁷⁶

‘The standard approaches and instruments of competition enforcement comprise interventions in the structure of the affected markets and in the conduct of its participants so as to produce outcomes that are, as far as possible, unsullied by the possession or, rather, the abuse, of market power. As already noted, there are compelling conceptual and practical reasons why a competition authority should eschew a price regulation role and if it is possible ... to prove and remedy excessive pricing without resort to the methodologies of price regulation, then this is the approach that must be favoured.’

The powers and duties of the competition authorities, and their limitations, are contained in the Act. The authorities are not called upon to set a price for a good or service. It is incumbent on the Tribunal, if necessary to determine whether a specific price is ‘excessive’ in contravention of s 8(a). There is no suggestion in the Act that the competition authorities should regulate and set prices. To the extent that the enquiry requires the examination of a possible excess of the charged price over economic value, as defined, that enquiry is required by virtue of the express formulation employed by the Act.

[48] Determining an ‘excessive’ price

It was remarked in Napp: ⁷⁷

‘Measuring whether a price is above the level that would exist in a competitive market is rarely an easy task. The fact that the exercise may be difficult is not, however, a reason for not attempting it. In the present case, the methods used by the Director are various comparisons of (i) Napp’s prices with Napp’s costs, (ii) Napp’s prices with the costs of its next most profitable competitor, (iii) Napp’s prices with those of its competitors and (iv) Napp’s prices with prices charged by Napp in other markets. Those methods seem to us to be among the approaches that may reasonably be used to establish excessive prices, although there are, no doubt, other methods.’

Evans and Padilla,⁷⁸ in their discussion of various policies towards the prohibition of excessive pricing by dominant firms, emphasise the ‘conceptual as well as practical difficulties’ of determining what constitutes an ‘unfair’ price for purposes of Article 82 of the EC Treaty.⁷⁹ Due to the complexity of the exercise more than one method is employed under Article 82.⁸⁰ Primarily, a comparison between the actual price and the costs of production is made but, where this is not possible, the price can be compared to prices in comparable markets.⁸¹ In comparing prices the European Court makes use of different comparator prices.⁸²

[49] Section 8(a) is differently constructed but, similarly, different methods may be employed to ascertain the ‘economic value’ of the good or service concerned. Section 8(a) does not contain the same prohibition as does Article 82. The latter proscribes the abuse of a dominant position. This is not against which s 8(a) is directed. Section 8(a) prohibits the charging of an excessive price but Article 82 refers to an ‘unfair price’. The effect of United Brands is that an ‘abuse’ can be found in the charging of an ‘unfair price’ and that the latter may be a price which has ‘no reasonable relation to the economic value of the product’. The court did not define what was meant by this term nor did it explain how the absence of a reasonable relationship had to be assessed. Our legislation proceeds from a different premise. It borrowed from United Brands the idea of a price which ‘bears no reasonable relation to the economic value of that good or service’. What this expression means and how it should be determined must be ascertained by the empirical enquiry referred to.⁸³ The Tribunal, however, did not approach the matter in this way but, regarded the price charged by Mittal as one having no reasonable relation to the economic value of the good or service simply because of the absence of normal and effective competition. Courts often have to quantify things in money where only a rough estimate is possible on the basis of evidence reasonably available to the party bearing the onus of proof. The quantification of patrimonial damages,⁸⁴ and of compensation necessary to avoid unjustified enrichment are not dissimilar examples.⁸⁵ A ‘fairly robust approach’ may thus have to be adopted particularly when account is taken that ‘long run normal’ profit and the conceptual basis upon which this term is predicated are notional.⁸⁶ Within the context of adjudication, which deals with probabilities, these concepts cannot be employed with scientific precision. For example, where the actual price is shown, as in the British Leyland case,⁸⁷ to exceed the normal price for roughly similar products to a degree which is, on the face of it, utterly exorbitant, then the need to quantify economic value more precisely before concluding that the actual price bears no reasonable relation to it may fall away.

[50] In this way a prima facie case would have been made out, leaving it to a firm in appellant’s position to adduce evidence to the contrary, if it is to avoid the case against it becoming conclusive.⁸⁸ Likewise, where the dominant firm raises the normal price for its product substantially without any corresponding rise in costs, this may indicate prima facie that the new price is higher than economic value without the need to quantify the latter more precisely.⁸⁹ Where input costs vary considerably in cycles, the dominant firm’s actual costs may fall sharply without it carrying out a corresponding reduction in its price. Likewise, if the firm usually prices to import parity, it may neglect for a time to bring its price into correspondence with that (ultimately constraining) maximum, relying in the short-term on customer ignorance or inertia in order to charge more. In consequence, the firm’s own accounting profits may show a considerable increase during a certain period or periods, over and above the levels which it usually achieves. If there is no reason to suppose that the firm’s own usual levels of accounting profit would have resulted in a return on capital that is less than the notional competitive norm (ie enough to sustain it in business in the long run), then it would appear prima facie that the firm must have earned ‘pure’ profit as a result of its pricing during the period or periods when the spike occurred. Thus an adverse finding on a narrower basis than that originally alleged may potentially be secured, without any concession that the firm’s prices ordinarily charged when input costs etc were higher were themselves legitimate.

[51] Prices ordinarily charged locally in other markets by the same firm or by other firms with broadly comparable cost structures at comparable levels of output, may obviously serve as a measure of the ‘economic value’ of the same good or service in our market – if the other markets are shown to be, or can be assumed to be, characterised by effective competition in the long run.⁹⁰ An assumption of effective competition could usually be made in such a case, without any unfairness to the firm accused, if the comparative price ordinarily charged in the other markets is shown to be lower than the actual price, after all appropriate adjustments have been made.⁹¹ In this way, the difficulty of directly measuring profitability⁹² may be overcome.

[52] However, there may be no alternative to a detailed exercise in comparative costing. If expert evidence has been given concerning costing data, the necessary adjustments to be made for comparative purposes, the appropriate methodology needed to establish the opportunity cost of capital and allow for depreciation and replenishment of plant etc, then findings based on an evaluation of that evidence will have to be made. When a lower price (eg, a rebated local price or an ex-works export price) is said to be sufficient to ‘cover costs’, it is important to establish that the price concerned covers not merely the accounting costs but also the relevant opportunity costs of capital.⁹³ Where a dominant domestic producer maintains price differentiation between export and domestic customers, and embarks on an expansion of its production capacity wholly or mainly in order to increase its export sales, then it would be difficult to avoid the conclusion that its export price would be at or above economic value – at the expanded level of output intended. In any event, the business calculations involved in the expansion could be expected to provide important evidence regarding both the current and future positions.

[53] The experts who gave evidence at the hearing before the Tribunal all recognised the difficulties with the necessary exercise, and the fact that competition authorities worldwide have struggled with excessive price cases. None of them, however, considered it possible to make a finding of excessive price without doing the exercise. Professor Roberts stated:⁹⁴

‘Well, I have termed broadly the conceptual issues. I mean, we are not arguing the import parity pricing per se (inaudible) is [equivalent] to excessive prices. So we do agree that it is an empirical question, because we agree you have got to analyse what the competitive price would be and how large the import parity based prices or how much higher the import parity based prices are above that competitive prices and empirical exercise. However, it’s also important – where we’re looking at the pricing system – to show that it is something, which flows from the exercise of market power. So Dr Walker says, well you know the system really appears to have … it is not about the pricing system. What it is it’s about the pricing levels. Well, we say that it must be about both. I mean, you must analyse the levels, but you must also analyse the way in which those prices are attained and enforced.’

[54] The essence of Prof Roberts’ analysis is the recognition of the need for an empirical exercise to be conducted in analysing whether a price is excessive. He concentrates, however, on his concern to show that the reason for the price level is that the dominant party has abused its market power. The empirical exercise is accepted as a necessity and therefore not elaborated on.⁹⁵

‘Adv Loxton: So what is the determinant that you now say that is the economic value against which you must measure prices?

Prof Roberts: We measure it in terms of what prices will be in a competitive market, subject to those prices covering costs.’

Prof Roberts was asked, in cross-examination, in regard to ‘the difficulty of establishing an excessive price’.⁹⁶

‘Roberts: ‘The proposition being that it is difficult to assess?

Adv Loxton: It’s difficult to assess and difficult to implement.

Prof Roberts: It’s certainly true that the US adopted a different approach because of the difficulties. However, it is certainly an empirical exercise, which requires one to gather a lot of factual evidence together. However, I think you mentioned it in your proposition that this is a similar experience that has been found in the EU and that I would say there that while there is a lot of debate around the EU’s application, that it is very notable, but one still finds this being debated and one finds, for example, the UK’s office of Fair Trading setting up standards for assessing excessive pricing.

So, I certainly don’t disagree that it’s an empirical exercise and there are challenges certainly to be overcome, but it is not an exercise, which the US has not undertaken or jurisdiction within the EU have not set out methodologies for address.’

The erroneous approach of the Competition Tribunal also explains why Mittal ends up in the anomalous and wholly impractical position of having been found guilty of and heavily fined for excessive pricing, without any finding of which prices for which of the variety of products were excessive, nor of the period in which the excessive prices were charged, nor of what a non-excessive price would have been, nor of the amount of the excess which it was found to have charged, nor any indication of how – in changing market conditions, eg where production costs may have risen, or supply and/or demand may have changed – an ‘excessive price’ would in the future be determined.

[55] Detriment to consumers

As far as detriment to consumers is concerned the Tribunal remarked:

‘[71] An overly fastidious defence counsel may wish to make something of the subordinate phrase ‘to the detriment of consumers’ though none have attempted to do so here. What, after all, could more clearly inure to the detriment of consumers than an “excessive price”? We will, without further consideration, as, implicitly, have the defence counsel, treat this phrase as simply a superfluous description of an excessive price rather than a qualifier of its likely effects.’

Section 8(a) requires that the excessive price be charged ‘to the detriment of consumers’. This requires a value judgment. However, it does not appear to be in dispute that, if the prices complained of are held to be excessive, detriment to consumers will have resulted. However, a few words are necessary. The customers to whom the excessive price is charged may be consumers (users) of the good or service concerned, but not necessarily so. Although they may overlap, ‘customers’ and ‘consumers’ appear to be distinct concepts in the Act.⁹⁷ There is, generally speaking, a presumption or reasonable supposition that the same words or expressions in the same Act are intended to bear the same meaning where no indication to the contrary is given.⁹⁸ Conversely, where the Legislature uses a different expression, it is presumed to have intended a different meaning.⁹⁹ Moreover, an excessive price may be charged to a single customer; in the expression ‘to the detriment of consumers’ the Legislature uses the plural. Sutherland and Kemp¹⁰⁰ suggest that downstream consumers of the product in question or of products derived from it are the only relevant category of consumers. However, where customers of the dominant firm themselves consume the product – whether productively or as final consumers – it would seem artificial to exclude them from the ambit of the term.

[56] Application to Lead Further Evidence

From the foregoing it is clear that the Tribunal misconstrued its powers and came to a decision that cannot be justified by the words on the Act. Its judgment and order must therefore be set aside. This court is in terms of s 37(2) entitled to

‘give any judgment or make any order, including an order to –

1. confirm, amend or set aside a decision or order of the Competition Tribunal; or

2. to remit a matter to the Competition Tribunal for a further hearing on any appropriate terms.’

[57] The second and third appellants have requested this court to allow further evidence to be lead either by hearing the evidence itself or by setting aside the decision of the Tribunal with directions to receive further evidence and to reconsider its decision and orders in the light of all the evidence including the further evidence to be lead.¹⁰¹ An application to hear further evidence will be granted only in exceptional circumstances. In S v De Jager¹⁰² it was said:

‘(a) There should be some reasonably sufficient explanation, based on allegations which may be true, why the evidence which is sought to be lead was not lead at the trial.

(b) There should be a prima facie likelihood of the truth of the evidence.

(c) The evidence should be materially relevant to the outcome of the trial.’

In addition, the evidence sought to be introduced must not be of such nature as to prejudice the other party to the dispute. This consideration, however, is not necessarily determinative.¹⁰³

[58] The second appellant seeks to introduce the evidence of Mr Leon William Price, the chief executive officer of the third appellant.¹⁰⁴ Briefly, the evidence relates to the operation of the international steel market,¹⁰⁵ the role of the second appellant rendering services to Mittal and the effect of the JV agreement on the domestic steel price. Price refers in his affidavit to the earlier affidavit of Mr Peter Charles Howard Jones¹⁰⁶ which was used in opposing the amendment sought by the respondents. The evidence will establish that the second appellant is an established trader in the international steel market and in 2007 31 per cent of its business was sourced from Mittal. In 2007 Mittal exported 26.27 percent of its production. The second appellant operates in the international steel market which excludes South Africa. Price remarks:¹⁰⁷ ‘The suggestion that export sales to MIHBV are domestic because a ship is loaded in a South African dock is completely erroneous.’ In the international market the second appellant is a small player having less than 2,5 per cent of it. The second appellant does not offer prices to Mittal but gathers price information from the market and solicits offers from customers which it submits to Mittal. Mittal may accept or decline these offers. The second appellant undertook to purchase the entire export capacity of Mittal. Sales are made by Mittal to the second appellant on a FOB stowed basis in US dollars. Payment is made to Mittal on average 13 days after invoice whether or not payment has been received by the second appellant. Only Mittal’s excess production is exported in this way. Price states: ‘The export allocations vary according to domestic requirements, production capacity of the mills, and maintenance programmes. Domestic market requirements always take precedence over exports.’¹⁰⁸ It follows that the second appellant has no control over Mittal’s allocation of products for export, its costs or domestic pricing policy or international steel prices. It follows that export prices will be lower than domestic prices since the ‘price paid to the producer at the point of shipment from the producer’s country must be reduced by all the costs of transporting the material to the overseas market concerned ...’.¹⁰⁹

[59] The relief sought in the original complaint referral of was as follows:

1. For an order declaring that Iscor’s practice of employing import parity pricing (as set out in paragraph 11.1.5 above) in the South African flat steel market amounts to an abuse of dominance in terms of section 8(a) of the Act;

2. For an order directing Iscor to refrain from charging excessive prices in the South African flat steel market;

3. For an order directing Iscor to levy factory gate prices in the South African flat steel market, irrespective of whether the product is intended for export or not;

4. For an administrative penalty to be levied on Iscor of 10% of its annual turnover for the financial year ended 30 June 2003 in the South African flat steel market;

5. For those respondents that oppose the complaint to pay the costs incurred by the complainants in prosecuting the complaint.

[60] That relief was aimed at Mittal’s setting its domestic prices in the South African flat steel market at import parity. The second appellant had no control over the setting of Mittal’s domestic prices, and since the JV Agreement dealt only with the second appellant obtaining offers for Mittal from foreign buyers at the best available international prices for the production capacity in excess of domestic demand, none of the relief originally sought could affect the second appellant’s rights under the JV Agreement. Even the original prayer C, it was submitted, was irrelevant to the second appellant, since under the JV Agreement no question of Mittal offering any prices, let alone factory gate prices, arose. In these circumstances the second appellant, against whom no relief was sought,¹¹⁰ and whose role as the ‘export channel’ of Mittal was – in the opening address of the Complainant’s counsel – said to ‘find no echo’ in the remedies sought by the Complainants, had no reason to, and did not, participate in the hearing of evidence which commenced on 15 March 2006 and concluded on 25 April 2006. Counsel for the respondents expressed himself in argument as follows:¹¹¹

‘Adv Unterhalter: Sorry, I perhaps should have made it clear. The Mac Steel arrangement is simply the export channel, which ensures that effectively arbitrage doesn’t take place. So, what happens is that under the Mac Steel joint venture arrangement all exports are done through that singular channel and consequently it is impacted only because it is an arrangement, which ensures that effectively arbitrage can’t take place.

So, it’s really one of the mechanisms that’s used to ensure market segmentation and the continuance of excessive pricing.

Chairperson: But then this allegation finds no echo in the remedies that you seek.

Adv Unterhalter: No, it doesn’t, and it’s for that treason that we have not ... I mean we cited Mac Steel, but they have simply indicated that they will abide the decision. So, we simply use it for evidence. We don’t seek specific remedies to undo that arrangement.’

[61] After the evidence was completed and on 26 April 2006, the complainants sought an amendment to the relief sought in the prayers. They did so by adding, as an alternative to prayer C, a new prayer C (bis).¹¹² The terms of the amendment sought are as follows:

‘…the complainants intend to apply to the above honourable Tribunal to amend their referral of complaint, form CT1, by substituting the relief sought in the referral in respect of the claim of excessive pricing with the following:

‘A For an order declaring that the first respondent’s practice of employing import parity pricing (as set out in paragraph 11.1.5 of the founding affidavit) in the South African flat steel market amounts to an abuse of dominance in terms of section 8(a) of the Act;

B For an order directing the first respondent to refrain from charging excessive prices in the South African flat steel market;

C For an order directing the first respondent to levy factory gate prices in the South African flat steel market, irrespective of whether the product is intended for export or not;

C bis In the alternative to prayer C above, for an order directing that:

1. The first respondent may not itself, or with any natural or juristic person, or through any entity, vehicle, trust or other juristic person in which it has an interest, export flat steel products from South Africa;

2. The first respondent divest its interest in the second respondent to an independent third party or parties approved by the Tribunal within such period and on such conditions as the Tribunal considers appropriate;

3. The first respondent may not:

1. impose upon any customer of its flat steel products any condition in respect of the customer’s use or resale of those products; or

2. reach agreement on a condition with a customer of its flat steel products, or enter into any arrangement or understanding with such a customer, in respect of the customer’s use or resale of those products;

4. The first respondent waive in writing any condition in any agreement concerning the use or resale of flat steel products by a customer;

5. The first respondent make known in the public domain, at all times, its list prices, rebates, discounts and other standard terms of sale for flat steel products;

D For an administrative penalty to be levied on the first respondent of 10% of its annual turnover for the financial year ended 30 June 2003 in the South African flat steel market;

E For those respondents that oppose the complaint to pay the costs incurred by the complainants in prosecuting the complaint;

F For an order granting further and/or alternative relief.’

[62] The essential amendments are contained in prayer C (bis) directed at preventing Mittal from exporting at all. These prayers C (bis) 1 and C (bis) 2 would, if granted, directly affect the second appellant’s rights and interests under the JV Agreement. The second appellant therefore, and for the first time, participated in the proceedings, at this stage after completion of the evidence, to oppose the granting of the proposed amendment introducing prayers C (bis) 1 and C (bis) 2. The Tribunal refused the amendments contained in the proposed prayers C (bis) 1 and 2. In the reasons and order made by Manoim TM¹¹³ he said:

‘[42] ... If the amendment is granted Mittal argues the respondents would not have been given proper notice of the new consequences for them and they would not have been given a proper opportunity to be heard. Of course fairness and audi alteram partem may still be restored by allowing respondents an adequate opportunity procedurally to redress their prejudice. In this case however, proper concern for the orderly expedition of our procedures cannot allow us to tolerate at this late hour, an amendment whose prejudice would occasion such extensive remedial redress.

[43] Where an amendment is brought as late in proceedings as this one it must, as a matter of fairness to the opposing parties, be accompanied by a reasonable explanation. We have found that Harmony’s amendment does occasion serious legal consequences for the respondents that are not consistent with the case originally pleaded. For this reason we are not dealing with trivial tightening up of relief that should always have been contemplated. Rather the complainants in this case have, through every outward expression on this matter, signalled that the joint venture was not imperilled...

[44] The complainants did not merely remain, to borrow their own language, “supine” on whether relief sought against the joint venture would be sought at a later stage – they actively sought to disabuse both respondents from this notion. Granted, the complainants are correct that relief in competition cases is complex, and that sometimes a remedy that may seem obvious in the dying moments of a case, may not have been obvious at its birth; but in this case the complainants have not convinced us that it took subsequent reflection at the end of the litigious jousting, for an epiphany to come to them for the first time that the joint venture needed to face remedial action. Rather it is more probable that the complainants had considered this throughout – indeed the express disavowal in the pleadings coupled with the late reassurance by counsel seems to reinforce this; that tactically it would be better not to attack the joint venture as this would leave them with one opponent rather than two. This calculation is precisely how matter turned out. Having made this calculation by way of assurances given, it would be manifestly unfair to the respondents to allow them to change their stance now.’

[63] The amendments to the prayers sought to be introduced by the proposed new prayers C (bis) (3) (i) and (ii), (4) and (5) were not opposed by the second appellant, and were granted. Manoim TM in allowing these amendments said:

‘[46] In relation to prayers C bis 3, 4 and 5 we have no difficulty granting the amendments. Macsteel have raised no objection to them nor in their heads of argument do Mittal. These amendments are in their nature aligned to the economic theory foreshadowed in prayer C, and unlike C bis (1) and (2), were not the subject of any prior legal representation. Again, unlike C bis (1) and (2, they do not threaten the legal edifice of the Macsteel joint venture arrangement.’

[64] Having succeeded in its opposition to the introduction of the proposed new prayers C (bis) 1 and 2 – which would have affected the second appellant’s rights and interests under the JV Agreement - the second appellant was assured that its rights and interests under the JV Agreement would remain unaffected by prayers C (bis) 3, 4 and 5 by other remarks of Manoim TM refusing the amendments proposed by prayers C (bis) 1 and 2 and granting the amendments proposed by prayers C (bis) 3 (i) and (ii), 4 and 5.¹¹⁴

[65] Mr Cilliers, who appeared together with Mr Cockrell and Mr Turner on behalf of the second appellant, submitted that, for these reasons, the second appellant participated during the closing argument only to a limited extent.¹¹⁵ In his oral presentation Mr Cilliers submitted that, in these circumstances, any relief which may be granted could not affect the second appellant’s rights or interests under the JV Agreement, and that this could not be subverted in any way, including dressing up a remedy as having only ‘economic consequences’ while in substance affecting the second appellant’s rights under the JV Agreement. Furthermore, he submitted that prayer C (that Mittal ‘levy factory gate prices in the South African flat steel market, irrespective of whether the product is intended for export or not’) could not extend to the second appellant which obtained prices in the international steel market. The second appellant did not consider itself as a ‘customer’ of Mittal as contemplated by prayers C (bis) 3(i) and (ii) or C (bis) 4. Counsel’s response to the Tribunal was that the second respondent did not understand it to be affected by these prayers in particular prayer C (bis) 3 (i) and (ii) and C (bis) 4.¹¹⁶

[66] In his opposing affidavit Mr Jones stated that the market in which the second appellant operates is ‘an international one, and excludes the South African domestic market’.¹¹⁷ The second appellant purchases and exports only Mittal’s excess production not required for the domestic market.¹¹⁸ It has no control over Mittal’s pricing policy or production costs.¹¹⁹ It solicits offers from overseas purchasers and conveys these offers to Mittal.¹²⁰ There is no link between the prices which the second appellant obtains in the international market and the domestic prices.¹²¹ Jones made it clear that he understood the reference to the ‘South African steel market’ in the original prayer C to limit the relief sought to ‘local merchants or end-users (not MIHBV)’. The second appellant ‘does not operate “in the South African flat steel market.”’¹²² Prayers C (bis) 3 and 4 were both intended to bring about an end to the exclusivity arrangement between Mittal the second appellant, ie introducing a new form of relief.¹²³ It was submitted that there was no indication that prayers C (bis) 3 and 4 would include under ‘customer’ the second appellant or that those prayers would affect the second appellant’s operations outside the domestic steel market or under the JV agreement.

[67] In view of this chronology and the manner in which the forms of relief were couched, it seems that the second appellant is justified in its contention and belief that on a proper construction of the amended prayers for relief, as formulated, none of them could, even if granted, affect the second appellant’s rights and interests under the JV Agreement. The declaratory order sought in prayer A would determine the ambit of any conduct which may be found to be prohibited conduct; all the other orders sought would only constitute mandatory or prohibitory interdicts to give effect to such declaratory order. The declaratory order sought in prayer A, however, was limited to the pricing practice of Mittal ‘in the South African flat steel market’. The JV Agreement, however, show that the second appellant did not trade in, or have anything to do with Mittal’s pricing policies, or any pricing of flat steel, or any steel, in the South African market. Under the JV Agreement the second appellant brought to Mittal offers, which Mittal could, if it so chose, accept in order to dispose of its export volumes. Hence, prayer C (bis), like prayer A (and prayers B and D) was not construed as applying to the trading activities of the second appellant pursuant to the JV Agreement. More specifically, the ‘customer’ referred to in prayers C (bis) 3(i) and C (bis) 3(ii) and C (bis) 4, was not seen as applying to the second appellant, who, acting for a fixed margin as export arm of Mittal, arranged sales of Mittal’s export volumes in the international steel market with ultimate purchasers with whom volumes, prices and destinations had been agreed. On the contrary, the word ‘customer’ in prayers C (bis) 3(i) and (ii), and C (bis) 4, it was submitted, could only be reasonably construed as applying to a ‘customer’ who may wish to resell the Mittal products in the domestic market – a possibility for which the very nature and scope of the JV Agreement left no room. Moreover, since the Competition Tribunal had refused the application to introduce prayers C (bis) 1 and 2, it would reasonably follow that the second appellant remained unconstrained to continue its exports under the JV Agreement, the essence whereof was for the second appellant to obtain the best international prices for Mittal’s surplus production, and bring them to Mittal for acceptance or rejection. These prayers were reproduced in orders 2(i), 2(ii) and 3 of the Tribunal’s final order:

‘Mittal SA may not:

(2) (i) Impose upon any customer of its flat steel products any conditions in respect of the customers use or resale of those products; or (ii) Reach agreement on a condition with a customer of its flat steel products, or enter into any arrangement or understanding with such a customer, in respect of the customers’ use or resale of those products.

(3) Mittal SA is ordered to waive in writing any condition in any agreement concerning the use or resale of flat steel products by a customer.’

[68] The Tribunal appears to have intended that orders 2(i), 2(ii) and 3 should carry such a wide meaning, ie that the second appellant is included under the ‘customer’ referred to in those orders. This impression can be gained from paragraph 29 of the Tribunal’s reasons given in its Remedies Decision where it said:¹²⁴

‘[A]t the hearing of final argument Mr Gauntlett, for Macsteel International, appeared suddenly to oppose the application to his client of the remedy contained in C (bis) 1 and 2 [this is a reference to the original prayers C (bis) 3(i) and (ii) and C (bis) (4) – see Record 1:114-5] We cannot understand Macsteel International’s belated opposition. This is a remedy imposed on Mittal SA and, given that it goes directly to its pricing methodology, will, we believe, impact upon all domestic purchasers of Mittal SA’s flat steel products. All that distinguished Macsteel International was that, by being cited as second respondent, it was given an unusual opportunity to participate at any stage of the hearing. It chose not to do so and its sudden flurry of opposition during the hearing of oral argument is eccentric to say the least.’

[69] It is difficult to understand how the Tribunal, (having stated in relation to the introduction of the prayers now embodied in orders 2(i), 2(ii) and 3, that ‘it was reasonable for the respondents to rely and … assume that the legal edifice of the joint venture … was not going to be subject to a proposed remedy’, and refusing C (bis) 1 and 2 on the basis inter alia that ‘both respondents will be prejudiced by the amendments insofar as they implicate the legal edifice of the joint venture’, and stating that ‘the prayers C (bis) 3, 4 and 5 do not threaten the legal edifice of the Macsteel joint venture arrangement)’, could have intended that orders 2(i), 2(ii) and 3 should have the very opposite effect of applying to the second appellant as a ‘customer’ of Mittal by striking at a material term of the JV Agreement (clause 29.1). If orders 2 and 3 were intended to apply to the second appellant and the JV Agreement, the most glaring instance of a flat contradiction of the Tribunal’s earlier statements would be order 3 that enjoins the second respondent to waive a material term of the ‘legal edifice’ of the JV Agreement, namely clause 29.1, and therefore directly ‘implicates’ the ‘legal edifice” of the JV Agreement and ‘renders it subject to a proposed [and actually ordered] remedy.’

[70] If the Tribunal intended these orders to have a literal effect, they materially differ from the terms of the amended relief sought by the complainants. The consequence of this is either that there was no notification to the second appellant of the opportunity to file additional documents, and no compliance with Rule 18(2); or that the second appellant was taken by surprise and that the hearing was not in accordance with the principles of natural justice as required by s 52(2)(a) of the Act.¹²⁵ Very much the same considerations apply to order 4.

[71] The prayer for a declaratory order, which would define the scope and limits of the prohibited conduct, was originally that Mittal’s practice of employing import parity pricing in the South African flat steel market, be declared an abuse of dominance. The complainants sought to amend the nature and scope of the prohibited conduct by seeking, in the alternative, an order prohibiting Mittal, directly or through an entity in which it has an interest (ie the second appellant) from exporting flat steel products from South Africa at all. The application for this amendment was refused. The declaratory order as originally prayed for, remained unchanged. The Tribunal declined to declare that Mittal’s ‘practice of employing import parity pricing … in the South African flat steel market’ amounts to an abuse of dominance.¹²⁶ Instead in the decision the Tribunal invoked a novel ‘theory of harm’ and ‘characterisation of the prohibited conduct’, and proceeded to make a declaratory order (Order 1), defining the prohibited conduct, which had not been sought by the complainants and, importantly, an order of which the second and third appellants had no forewarning. Order 1 involved ‘steel merchants and those of its customers who receive a rebate off the Mittal SA price list’, and the conditions of sale to them, in the definition of the conduct constituting an abuse of dominance. In paragraph 17 of the Remedies Decision this is explained:

‘It would be unfair to deny the complainant any form of declaratory relief because we have formulated the theory of harm in a different form. Declaratory relief is a necessary prerequisite for a complainant to commence a civil claim for damages in terms of the Act as it is the manner in which the Tribunal characterises the conduct found to be an abuse.¹²⁷ As this case illustrates, even though the Tribunal may find in favour of a complainant, the characterisation of the prohibited conduct may be different. Accordingly, we will not declare a particular price level to be excessive but we have reformulated Prayer A in a manner that is consistent with the conduct that we have found to be an abuse in this case. It now reads as follows:

Mittal SA’s practice of reducing the supply of flat steel products available for sale on the domestic market, through the imposition of conditions of resale on the steel merchants and those of its customers who receive a rebate off the Mittal SA list price, is an abuse of dominance in terms of Section 8(a) of the Competition Act.’

[72] Order 1 differs from the declarator sought by the complainants ( an order that the practice of employing import parity pricing in the South African flat steel market a prohibited practice). Despite the limits inherent in order 1, orders 2(i), 2(ii) and 3 are formulated so as to apply to any ‘customer’ of Mittal for flat steel products, regardless of whether it is a customer supplied with products ‘available for sale in the domestic market’; and even where there is no ‘imposition’ of conditions of resale on the customer (see order 2(ii)); and regardless of whether the customer receives ‘a rebate off the Mittal SA domestic list price’. If orders 1, 2 and 3 are to be read literally they could well be applicable to the second appellant. The second appellant submitted that had they had notice or forewarning of the substance and formulation of order 1, it would have presented evidence and argument to show that order 1, and the consequential orders 2, 3 and 4, should not be made in terms which affected the rights and interests of the second appellant under the JV Agreement. So, for instance, the second appellant would have presented its own evidence to show that it does not deal in products ‘available for sale on the domestic market’; nor does it ‘receive a rebate off the Mittal SA domestic list price’; nor are conditions of resale ‘imposed’ on it; nor does the JV Agreement have anything to do with preserving the possibilities of arbitrage. Hence, also in respect of order 1, there was no compliance with Rule 18(2) and in any event the second appellant was taken by surprise by order 1 (which is the foundation for the other orders), and consequently the hearing was not conducted in accordance with the principles of natural justice as required by s 52(2)(a) of the Act.

[73] We have considered the objections to the application but it seems that a proper case for the leading of further evidence has been made out. This evidence seems to be material and would, but for the misunderstanding, have been led by the second appellant. The evidence to be lead has been identified. It was submitted that evidence tendered will show that the JV agreement does not affect the domestic market or domestic prices and does not lead to excessive prices as the Tribunal accepted¹²⁸. The Tribunal in its reasons for allowing the amendment distinguished between reading the amended prayers qua lawyer and qua businessman and said that the amended prayers would not threaten the ‘legal edifice’ of the JV Agreement. But they indeed seem to affect a material term of the JV Agreement.

[74] Referral back to the Tribunal

The Competition Tribunal is a specialist administrative tribunal created by s 26(1) of the Act. Its functions are listed and may only be exercised in accordance with the Act.¹²⁹ It must adjudicate on any matter referred to it under the Act, and each matter will be referred to a panel of three. Members need not be lawyers: they may have qualifications and experience in economics, law, commerce, industry or public affairs.¹³⁰ However, the chairperson must when assigning a matter to the Tribunal, ensure that at least one member of the panel, consisting of three, is a person who has legal training and experience. The Chairperson designates one of the three members of a panel to preside over each proceeding.¹³¹ The Tribunal does not function as an ordinary court. Competition proceedings involve the public interest, and under the Act, the Tribunal has an active role to play in protecting that interest.¹³² ‘As a result, the Tribunal conducts its proceedings in an inquisitorial manner, potentially calling its own witnesses, accepting evidence not normally admissible in a court of law, allowing a broad range of participants, and adjusting its procedures as it sees fit.’¹³³

[75] As has been demonstrated in this judgment, the approach of the Tribunal, to the question of an excessive price, the care and considerable thought taken in its formulation notwithstanding, is fundamentally flawed. Both the decision on the merits and the orders made pursuant thereto in the remedies decision should be set aside. This court was urged in argument that, were it arrive at this conclusion, it should decide the matter, given that it had the benefit of all the necessary evidence. The nature of this decision is not a technical legal one. It entails an evaluation of detailed economic and financial evidence. As a specialised administrative body possessed of economic expertise, it follows that the Tribunal’s views on what would be ‘excessive’ in the circumstances of this case and within the parameters of the law as set out in this judgment, are essential for the proper adjudication of the matter, particularly in a case of such importance. The matter should therefore be referred back to the Tribunal.

[76] Mr Unterhalter, who appeared with Mr Wesley on behalf of the respondents, correctly cautioned against any cause of action that would prolong this dispute unnecessary. For this reason, other than the limited scope of evidence relating to matters raised in Mr Price’s affidavit, on which adjudication is clearly limited, there is danger that a referral to the Tribunal on the merits could prolong proceedings unnecessarily.

[77] It is thus helpful to the expedition of further proceedings which must be conducted within the parameters of this judgment to provide further guidance to the Tribunal upon the referral back to it. As we have earlier in this judgment noted,¹³⁴ where the price appears from the evidence and more particularly the manner in which the case is pleaded and argued, to bear no reasonable relation to economic value, then it is upon the firm accused of a breach of s 8(a) to adduce contrary evidence. In the present case, the evidence of Mittal’s overwhelming dominance was rarely contested. Appellants sought to contest the finding that, with a share of 82 % of the domestic market, Mittal was not ‘super – dominant’ but they produced little evidence other than arithmetic hermeneutics to gainsay clear evidence of overwhelming dominance in the domestic market. The difficulties of proving excessive pricing notwithstanding, it is precisely in the case of so dominant a firm, that commentators have advocated the application of an excessive pricing provision by the relevant competition authority.¹³⁵ In this case Mittal imposes a system of IPP. It accepts that this results in higher prices for the domestic market price over the export market price. Its explanation, briefly summarized, was set out in Mittal’s written argument thus:

‘On Mittal’s version (which the Tribunal did not grapple with nor reject), its business in the export market would not on its own be sustainable, nor would its business in both markets be sustainable at the export price. The net realised export price is a low price which Mittal is forced to accept in the export market because of its locational disadvantage.

If one thinks away for the moment the existence of MJV as the intermediary in export sales and postulates the ultimate export customer as purchasing directly from Mittal FOB in South Africa, an export customer is in essence one who represents the Mittal that he will buy a particular volume of steel from Mittal but is prepared to pay no more than (say) $470 pt FOB in Durban, because if the price were higher he could get the product cheaper domestically or from an exporter is (say) Brazil or China. Mittal justifiably regards the price as very low, and unsustainable if applied to its business as a whole. However, because the price will cover variable cost and make some contribution to fixed cost, it makes business sense to do the deal. Given the basis of the transaction, it is perfectly legitimate for Mittal to hold the customer to its representation by way of a condition against domestic resale. Such a condition merely prevents the customer from representing that he is a customer in the export market when in truth he is a customer in the domestic market. MJV as an intermediary simply takes place of this national export customer, and is thus subject to the condition.’

[78] Mr Rogers, who appeared with Mr Loxton and Mr Gotz on behalf of first appellant, in reply rather tellingly conceded, in effect, that the IPP system of pricing in the domestic market ‘subsidised’ Mittal’s export business. In short, Mittal’s case was about its justification for its pricing policy and that was based upon the argument that IPP was required for Mittal’s overall business, domestic and export. Respondent’s case was also different from the approach adopted by the Tribunal. Dr Roberts, its economic expert, provided the following clear conclusion on its case about excessive pricing.

‘To assess the excessiveness of prices of local steel set on an import parity basis, we follow the practice of assessing the prices against various comparitors. We then assesses the comparitors in terms of whether these prices can be taken as based on commercial decisions, yielding a reasonable return , on the basis of efficient operations. In summary, we find that import-parity prices are excessive relative to indictors of a competitive price, which include Iscor’s net export prices, prices for firms producing products for the secondary exports, prices for firms competing with substitutes downstream and prices for multi-national corporations that can locate production elsewhere. The magnitude of the mark-up of local prices over these competitive price benchmarks ranges from approximately twenty per cent to approximately fifty per cent.’¹³⁶

Further, in dealing with the export price comparative, Mr Unterhalter submitted that for basic products (hot rolled coil, cold rolled coil and galvanized steel), over the five year period for which the respondents were provided with data, Mittal’s local IPP prices were more than 50% above its average export prices for much of the period. Over the same cycle, Mittal’s IPP-based prices for hot rolled coil were 61% above its export prices. In Mr Unterhalter’s view, export prices are a reliable indicator of the sort of prices that would be achieved by Mittal for flat steel products in conditions of competition in the domestic market, and therefore the economic value of flat steel. Having regard to the massive differences between those export prices and the domestic prices charged by Mittal, the respondents contended that Mittal’s domestic IPP-based prices bore no reasonable relation to the economic value of flat steel and were therefore excessive.

[80] To an extent, there is a parallel to be drawn between Mittal’s pricing and that of the concept of phantom freight as set out in the brief in Weyerhaeuser v Lyman Lamb:¹³⁷

‘Industry-wide adherence to a single basing-point price system also may result in some firms acting in a manner that would be contrary to their individual interests if they acted without collusion. Some sellers are located closer than others to particular customers. When transportation cost is substantial relative to product cost, this location advantage is a significant competitive benefit that firms, acting unilaterally and in their own self interest, would seek to exploit. Employment of a uniform basing-point system requires sellers to sacrifice that locational advantage by charging “phantom freight.” On the basis of the expert testimony before it, the jury could infer that such behavior would not persist in the plywood market absent collusion – i.e., that under competitive conditions, southern plywood sellers seeking to expand their sales would have reduced freight charges to nearby purchasers until the “phantom” cost was eliminated. Based on respondents’ evidence, the jury could have concluded that adherence to an artificial basing-point system by all sellers would only be rational if those sellers who sacrificed locational advantages were assured by agreement of some recompense in the form of enchanced general price.’

The use of phantom freight appears to approximate the IPP system adopted by MIttal in the present case. It thus further illustrates the need for a proper evaluation of Mittal’s explanation of its IPP policy within the context of the wording of s 8(a) read together with s 1(i) (ix).

[81] In summary, the dominance of Mittal read together with its case in answer to respondent’s case, as pleaded, raised a prima facie presumption of a contravention of s 8 (a). The Tribunal was therefore required to analyse the evidence to determine whether Mittal’s justification rebutted this presumption sufficiently for it to conclude, on the probabilities, that no breach of s 8(a), as alleged, had been committed. That analysis does not require further evidence but rather an examination of the evidence in terms of the statutory framework as set out in this judgment.¹³⁸

[82] In Anglo South Africa Capital (Pty) Ltd v Industrial Development Corporation of South Africa Ltd (Intervening)¹³⁹ this court set out its approach to referrals as follows::

‘The ordinary course in such a dispute is to refer a matter such as this back to third respondent because a Court is slow to assume a discretion which has been granted by the Act to a tribunal (see Johannesburg City Council v Administrator, Transvaal & Another 1969 (2) SA 72 (T) at 76). Case law supports the conclusion, however, that a reviewing court will itself correct a decision of a tribunal, notwithstanding the general approach where the result is a foregone conclusion, where further delay may cause undue prejudice, or where the Tribunal or functionary has exhibited bias or incompetence which would render it unfair to expose a party to the very same jurisdiction. This approach has been confirmed in Erf 167 Orchards CC v The Greater Johannesburg Metropolitan Council 1999(1) SA 104 (SCA) where Ngoepe, AJA held at 109C-F:

“In approving the plan in question, the first respondent was discharging its administrative functions. When setting aside such a decision, a court of law will be governed by certain principles in deciding whether to refer the matter back or substitute its own decision for that of the administrative organ. The principles governing such a decision have been set out as follows:

‘From a survey… of the decisions it seems to me possible to state the basic principle as follows; namely, that the Court has a discretion to exercise judicially upon a consideration of facts of each case and that although the matter will be sent back if there is no reason for not doing so, in essence it is a question of fairness to both sides.’ (Livestock & Meat Industries Control Board v Garda 1961(1) SA 342 (A) at 349G…

The general principle is, therefore, that the matter will be sent back unless there are special circumstances giving reason for not doing so. Thus, for example a matter would not be referred back where the tribunal or functionary has exhibited bias or gross incompetence, or when the outcome appears to be foregone.”

I propose to deal with the three exceptions to the general rule as set out in the Erf 167 Orchards CC case. In my view, the result in this dispute is not a foregone conclusion. Questions arise as to the power of third respondent, acting in terms of section 53, to admit a party to merger proceedings of this kind. In particular, reference can be made to the various objectives of the Act in terms of section 2, including that small and medium size enterprises have an equitable opportunity to participate in the economy (52(e)); the promotion of a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons (52(f)). The decision as to who should be appropriately admitted as a participant must be made with reference to the Act as a whole, including its purposes, two of which I have outlined. In the circumstances of this dispute it cannot be said that it is a foregone conclusion that either first respondent should be refused rights of intervention, or admitted as a participant.’

[83] Given the conclusion at which this court has arrived, an adverse costs order in respect of the merits hearing against either of the parties would not be appropriate. Hence there will be no order as to costs.

[84] The following order is made:

(1) The decision and the order of the Tribunal dated 27 March 2007 and 6 September 2007 respectively are set aside;

(2) The matter is remitted to the Tribunal for

(a) the hearing of viva voce evidence by the parties in relation to the matters canvassed in the affidavit of Leon William Price in the application dated 20 February 2008; and

(b) the determination, by way of an assessment of the evidence which has already been heard by the Tribunal, whether Mittal contravened section 8(a) of the Competition Act 89 of 1998 in respect of the prices it charged for flat steel products and any consequent relief.

(3) The respondents jointly and severally are ordered to pay the costs of the application to adduce further evidence.

Davis JP

Malan JA

Tshiqi JA

Counsel for first appellant: CDA Loxton SC; Owen Rogers SC; and AG Gotz

Attorneys for first appellant: Bell Dewar and Hall

Counsel for second and third appellants: SA Cilliers SC, A Cockrell and DA Turner

Attorneys for second and third appellants: Edward Nathan Sonnenbergs

Counsel for first and second respondents: D Unterhalter SC and MA Wesley

Attorneys for first and second respondents: Cliffe Dekker Hofmeyr Inc

Amici curiae: Robert Petersen SC; Hamilton Maenetje and Michelle le Roux

Date of hearing: 23 & 24 October 2008

Date of judgment: 29 May 2009

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