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Glaxo Wellcome (Pty) Ltd and Others v National Association of Pharmaceutical Wholesalers and Others (15/CAC/Feb02) [2002] ZACAC 3 (21 October 2002)

         IN THE COMPETITION APPEAL COURT OF SOUTH AFRICA

         CASE NO: 15/CAC/Feb02




In the matter between:

GLAXO WELLCOME (PTY) LIMITED     First Appellant
PFIZER LABORATORIES (PTY) LIMITED        Second Appellant
PHARMACARE LIMITED       Third Appellant
SMITHKLINE BEECHAM PHARMACEUTICALS (PTY) LIMITED         Fourth Appellant
WARNER LAMBERT SA (PTY) LIMITED  Fifth Appellant
SYNERGISTIC ALLIANCE INVESTMENTS (PTY) LIMITED   Seventh Appellant
DRUGGIST DISTRIBUTORS (PTY) LIMITED      Eighth Appellant
and
NATIONAL ASSOCIATION OF PHARMACEUTICAL
WHOLESALERS      First Respondent

NATAL WHOLESALE CHEMIST (PTY) LIMITED
t/a ALPHA PHARM DURBAN   Second Respondent

MIDLANDS WHOLESALE CHEMISTS (PTY) LTD
t/a ALPHA PHARM PIETERMARITZBURG         Third Respondent

EAST CAPE PHARMACEUTICALS LIMITED
t/a ALPHA PHARM EASTERN CAPE     Fourth Respondent

FREE STATE BUYING ASSOCIATION LIMITED
t/a ALPHA PHARM BLOEMFONTEIN (KEMCO)     Fifth Respondent

PHARMED PHARMACEUTICALS LIMITED  Sixth Respondent

L’ETANGS WHOLE CHEMISTS CC
t/a L’ETANGS      Seventh Respondent

RESEPKOR (PTY) LIMITED t/a RESKOR
PHARMACEUTICALS WHOLESALERS      Eighth Respondent

MAINSTREET 2 (PTY) LIMITED t/a NEW UNITED
PHARMACEUTICAL DISTRIBUTORS      Ninth Respondent

_______________________________________________________________________

         J U D G M E N T
______________________________________________________________________



HUSSAIN, JA:

Introduction

[1] This is an appeal and cross-appeal against a decision of the Competition Tribunal (“the Tribunal”) handed down on 14 January 2002.

The background

[2] The appellants before this Court are respondents in a complaint referral brought by the respondents before this Court to the Tribunal. In this judgment, in relation to both the appeal and cross-appeal, I shall refer to the respondents as “the complainants” and the appellants as “the respondents”.

[3] The complainants are pharmaceutical wholesalers and distributors while the first to seventh respondents are manufacturers of pharmaceutical products a substantial volume of which are sold and distributed by the complainants. The respondents and the complainants are thus in a vertical relationship whereby the complainants procure products from the respondents which they market and distribute as wholesalers.

[4] The appellants’ complaint to the Competition Commission (“the Commission”) related to the conversion by the respondents of, 8threspondent, Druggists Distributors (Pty) Ltd (“DD”), from a wholesaler into a distribution agent, and the performance by this agent of distribution services on behalf of the respondent. Before the conversion of DD, the respondents sold a significant amount of their private sector products to wholesalers, such as the complainants. The complainants purchased products from the respondents at a standard discount of 17,5% off the list prices. These products were then sold by the complainants to the retail market made up mainly of chemists/pharmacists and dispensing doctors. The respondents continue to supply the complainants large volumes of their respective products except that the respondents stopped offering the complainants the 17,5% discount. The complainants objected to the respondents’ decision to set up a distribution agent.

[5] The complainants sought relief against the respondents through the provisions of the Competition Act No 89 of 1998 (“the Act”) alleging that the latter have engaged in conduct prohibited by sections 4, 5, 8 and 9 of the Act.

On 7 June 2000 the complainants lodged a complaint with the Commission (“the complaint”). The Commission investigated the complaint and decided to refer the complaint to the Tribunal in terms of the Act. The referral however was filed outside of the statutory period prescribed by the Act and the Commission was deemed to have issued a certificate of non-referral.

[6] On 19 June 2001 the complainants, in terms of section 51(1) of the Act referred the complaint to the Tribunal (“the referral”). Thereafter the respondents were required to file their answer within the prescribed time period. The respondents applied to the Tribunal for an extension of the date for the filing of their answering affidavit to the complaint referral. During the course of this application the complainants expressed some reservations about the possibility that the respondents might raise certain technical points thereby causing delay. The Tribunal allowed the respondents the extension that was sought and at the same time placed the latter on terms for the raising of any technical points. Thus the respondents were asked to raise any technical points in limineon or before 20 August 2001.

[7] On 17 August 2001, and before filing their answering affidavit, the respondents on notice of motion (Form CT6), applied to the Tribunal for the striking out of various paragraphs and prayers contained in the complaint referral.

[8] The respondents’ notice of motion claims the following relief:

“1.       striking out:

1.1               prayers 3 and 7(b) of Annex C and paragraphs 19.4 to 19.9 of Mr Kevin Vyvyan-Day’s affidavit;

1.2               prayer 7(a) of Annex C and paragraph 19.3 of Vyvyan-Day’s affidavit;

1.3               prayer 7(d) of Annex C;

1.4               prayer 7(e) of Annex C;

1.5               prayer 6 of Annex C;

1.6               prayer 8 of Annex C;

1.7               prayers 11 and 12 of Annex C

1.8               prayers 1, 4 and 5 of Annex C;

2.       condoning the shortening of the time periods prescribed by the Rules of Proceedings before the Competition Tribunal on account of the urgency of this application;”

After hearing the application the Tribunal granted an order in the following terms:

“100. We make the following order in respect of the striking out application :

1.       Prayers 1.2; 1.4 and 2 of the Notice of Motion are granted.

2.       Prayer 1.1, insofar as it is partly based on an objection to jurisdiction is dismissed. Insofar as it is partly based on allegations that the Complaint referral discloses no cause of action it is postponed in accordance with paragraph 3 of this order.
3.       Consideration of the remaining prayers is postponed until after close of pleadings or at the hearing of the matter, in accordance with any ruling of the Tribunal.
4.       Costs are reserved.”


[9] The respondents appeal against the second order and the complainants cross appeal against the first order.

The relevant prayers in the complaint referral read as follow:

Prayer 3

“Ordering the Principals to provide direct access to their products on terms determined by the Tribunal to be reasonably required where essential resources like the Principals products are concerned;”

Prayer 7(b)

“the refusal by the Principals to give the Complaints direct access to their products when it is economically feasible to do so;”



Prayer 7(a)

“Declaring the following conduct of the Respondents, past or present, to be prohibited practices in terms of section 8 of the Act, for purposes of section 65:

the charging of excessive prices by the Principals to the detriment of consumers;”


Prayer 7(e)

“selling the Principals’ products, through their exclusive distribution channel, at below their marginal or average variable cost;”


[10] Thus the complainants, in the referral, alleged conduct, on the part of the respondents, which, inter aliaamounted to:

(a)      denial of access to an essential facility;

(b)      the charging of excessive prices and

(c)      predatory pricing.

[11] The respondents’ application to strike out was based on the absence of jurisdiction on the part of the Tribunal to hear the complaint based on the above conduct. The respondents submitted that the complainants, in the referral, were attempting to rely on conduct not alleged in the complaint.

[12] The complainants opposed the application for striking out principally on the basis that:

(a)      the Tribunal, at this stage, ought not to hear such an application and

(b)      if the Tribunal did hear the application, then the application must fail because, in all the circumstances, the Tribunal did have jurisdiction to consider the complaint referral based on the offending conduct as alleged by the complainants.

The Tribunal ruled that they could properly hear the application for striking out and made the aforesaid order.

Complaint procedures

[13] For a proper understanding of the issues in this appeal and cross-appeal a brief consideration of the complaint procedures in Part C of the Act is essential.

[14] Section 49B provides for the initiating of a complaint. This may be done in any manner or form or in the prescribed form. The wording of section 49B is worth noting in that it is not prescriptive as to how a complaint may be initiated. This theme runs throughout the complaint procedures, the object being to enable complaints to be lodged without the need for procedures that are too technical and/or formalistic.

Section 49B provides as follows:

“49B. Initiating a complaint

(1)      The Commissioner may initiate a complaint against an alleged prohibited practice.

(2)      Any person may –

(a)      submit information concerning an alleged prohibited practice to the Competition Commission, in any manner or form; or

(b)      submit a complaint against an alleged prohibited practice to the Competition Commission in the prescribed form.

(3)      Upon initiating or receiving a complaint in terms of this section, the Commissioner must direct an inspector to investigate the complaint as quickly as practicable.

(4)      At any time during an investigation, the Commissioner may designate one or more persons to assist the inspector.”


[15] Section 49B focuses on a “prohibited practice” and does not require a complainant to identify prohibited conduct with reference to various sections of the Act. A complainant is not required to pigeonhole the conduct complained of with reference to particular sections of the Act. What is required is a statement or description of prohibited conduct. In this regard Form CC1, prescribed in terms of sections 21(4) and 49B of the Act, is instructive. The form requires a complainant to “provide a concise statement of the conduct” that is the subject of a complaint. A complainant need only identify the conductof which it complained.

[16] Clearly it is intended that once the complaint is initiated the Commission will investigate the matter and it is the Commission which is enjoined to find that the conduct complained of amounts to prohibited conduct in terms of one or more sections of the Act. While the complaint need not be drafted with precision or even a reference to the Act, the allegations or the conduct in the complaint must be cognisably linked to particular prohibited conduct or practices. There must be a rational or recognisable link between the conduct referred to in a complaint and the prohibitions in the Act, otherwise it will not be possible to say what the complaint is about and what should be investigated. Note that section 49B provides that, once a complaint is initiated, the Commission mustinvestigate the complaint.

[17] Sections 50 and 51 of the Act regulate how matters may be referred to the Tribunal. These sections provide as follows:

“50.      Outcome of complaint

(1)      At any time after initiating a complaint, the Competition Commission may refer the complaint to the Competition Tribunal.

(2)      Within one year after a complaint was submitted to it, the Commissioner must –

(a)      subject to subsection (3), refer the complaint to the Competition Tribunal, if it determines that a prohibited practice has been established; or

(b)      in any other case, issue a notice of non-referral to the complainant in the prescribed form.

(3)      When the Competition Commission refers a complaint to the Competition Tribunal in terms of subsection (2)(a), it –

(a)      may –

(i)      refer all the particulars of the complaint as submitted by the complainant;

(ii)     refer only some of the particulars of the complaint as submitted by the complainant; or

(iii)    add particulars to the complaint as submitted by the complainant; and

(b)      must issue a notice of non-referral as contemplated in subsection (2)(b) in respect of any particulars of the complaint not referred to the Competition Tribunal.

(4)      In a particular case –

(a)      the Competition Commission and the complainant may agree to extend the period allowed in subsection (2); or

(b)      on application by the Competition Commission made before the end of the period contemplated in paragraph (a), the Competition Tribunal may extend that period.

(5)      If the Competition Commission has not referred a complaint to the Competition Tribunal, or issued a notice of non-referral, within the time contemplated in subsection (2), or the extended period contemplated in subsection (4), the Commission must be regarded as having issued a notice of non-referral on the expiry of the relevant period.




51.      Referral to Competition Tribunal

(1)      If the Competition Commission issues a notice of non-referral in response to a complaint, the complainant may refer the complaint directly to the Competition Tribunal, subject to its rules of procedure.

(2)      A referral to the Competition Tribunal, whether by the Competition Commission in terms of section 50(1), or by a complainant in terms of subsection (1), must be in the prescribed form.

(3)      The Chairperson of the Competition Tribunal must, by notice in the Gazette, publish each referral made to the Tribunal.

(4)      The notice published in terms of subsection (3) must include –

(a)      the name of the respondent; and

(b)      the nature of the conduct that is the subject of the referral.”


[18] The particular wording of sections 50 and 51 is noteworthy. The sections consistently refer to “a complaint” followed by what the Commission may do with “the complaint”. What is intended is that the Commission consider and investigate the particular conduct complained of by the complainant. The Commission may then determine that such conduct amounts to a prohibited practice in terms of a section or sections of the Act.

[19] When a complaint is referred to the Tribunal in terms of the Act, section 50(3), consistently provides that what must be referred are particulars of the complaint “as submitted by the complainant”. Again a clear reference to the conduct referred to by the complainant and which amount to the facta probandanecessary to establish a prohibited practice.

[20] Section 50(3)(a) of the Act provides that the Commission may refer all, or only some, of the particulars of the conduct to the Tribunal. In respect of any particulars which are not referred to the Tribunal the Commission mustissue a notice of non-referral.

[21] The legislature intended that the Commission would issue a notice of non-referral in response to a complaint:

(a)      when, after completing its investigation, the Commission determines that no prohibited practice was established and decides not to refer the complaint in its entirety (section 50(2)(b)) and

(b)      when the Commission does refer the complaint to the Tribunal but decides not to refer all of the particulars of the complaint.

[22] What is intended is that if a complainant believes that those particulars of its complaint that are not referred to the Tribunal may establish a prohibited practice, then the complainant will not be prejudiced by the Commission’s refusal to refer. Again it must be noted that section 50 was carefully crafted and what was contemplated, in the event of non-referral by the Commission, was that the complainant may itself refer to “the complaint” or particulars of “the” complaint to the Tribunal. It was not intended that in the event of a non-referral by the Commission that the complainant is given carte blanche in its referral and may thereby introduce a new complaint or particulars of a complaint not mentioned in the conduct which formed the subject of the complaint in terms of section 49B.

[23] Section 51(1) provides that if the Commission issues a notice of non-referral in response to “a” complaint, the complainant may refer “the” complaint directly to the Tribunal. Note that a complainant is expected to refer “the complaint”, not anycomplaint, a clear reference to the conduct that was the subject of the complaint in terms of section 49B.

[24] Section 51 cannot be interpreted to allow, where the Commission decides not to refer a complaint in its entirety, a complainant to add to the referral particulars of conduct which were not complained of or referred to the Commission in terms of section 49B of the Act.

The jurisdictional requirement

[25] The initiating of a complaint requires a referral of allegedly prohibited conduct to the Commission. There is no provision in the Act for a referral directly to the Tribunal. The purpose of the Commission’s investigation is to consider the conduct described by a complainant and to determine whether or not a prohibited practice has been established. On completion of its enquiry, and having found a prohibited practice, the Commission must refer the matter to the Tribunal.

American Natural Soda Ash Corporation and Another v Botswana Ash (Pty) Ltd a decision of the Competition Tribunal Case No 49/CR/APR00, 27/3/2001.

[26] The Commission is thus the legislature’s “