9.
Only a dominant firm can contravene sections 8 or 9 of the Act. In order to establish that a firm is dominant it must meet one or more of the requirements set out in section 7 of the Act, which
states:
A firm is dominant in a market if –
(a)
it has at least 45% of that market;
(b)
it has at least 35%, but less than 45%, of that market, unless it can show that it does not have market power; or
(c)
it has less than 35% of that market, but has market power.
10.
FFS alleges that Eskom is dominant in the energymarket in that it has more than 45% of that market. It relies for this proposition on Eskom’s self-stated claim that it supplies
98% of the countries electricityrequirements. It alleges that the energy market consists of four energy sources, oil, coal, gas and electricity and that these sources
are substitutes for one another. However it makes no allegations of dominance in the energymarket, the market which FFS identifies as the relevant market and in respect of which FFS relies on an abuse of a dominant position.
In other words, in respect of the relevant market it has identified, the energy market, FFS has simply not made the material averments
necessary to establish Eskom’s dominance therein.
11.
As Eskom correctly points out it does not follow that because Eskom is the preponderant supplier
of one of four substitute sources that it is necessarily dominant. There is a gap missing in the pleadings to link the preponderance
in the segment to dominance in the market.
12.
To cure this, counsel for the complainants attempted to construct an argument on the basis that
since there are other sources of energy, comprising fuel, oil, coal and gas, these sub-markets should be taken to designate the energy
market as a whole. What is described as the energy market incorporates the other energy sources, which are substitutable for one
another. We should therefore interpret the energy market as that market where energy is produced by one or the other fuel sources.
It is therefore in respect of this broad market that Eskom is dominant. Alternatively, complainant’s counsel conceded that
in the event of uncertainty, referral to evidence may clarify the market definition.
13.
We do not accept this view. It is quite possible that in addition to Eskom, there may be one or
other dominant player/s in either of the sub-markets, which would dilute Eskom’s position in the broader energy market. The
fact that Eskom is manifestly dominant in one of the four legs of their expansive definition does not necessarily make it dominant
in the entire energy market. The complainant’s inability to correctly align the market in respect of which they allege abuse
with that in respect of which they allege dominance creates confusion, not only for the parties who are required to answer the complaint,
but also the Tribunal. Moreover, in terms of the framing of section 8 of the Competition Act, parties are required to establish dominance
before they can move onto the abuse leg of the provision. This is a necessary prerequisite specified by the language of the section
- if there is no dominance, the party cannot be guilty of an abuse of dominance. Therefore, in order to succeed on an abuse of dominance
claim, it is essential that the complainants plead dominance in respect of the market in which they allege abuse. This must be alleged
in the complaint referral – it would not assist the respondent for this to be clarified only at the hearing or some later stage.
14.
Dominance can be established by alleging the respondent firm falls into any of the three categories
set out in section 7 or if the complainant is uncertain, to allege more than one as alternatives. Mere repetition of the language
of the section is insufficient to afford a respondent some basis for understanding the case against it and how it should answer.
What is noticeable about section 7 is that the onus varies depending on the subsection the respondent is alleged to fall into. Since
this has a material consequence on the nature of the answer, in particular whether the respondent needs to deny it has market power
(7(1)(b)) or whether the complainant, can irrebuttably presume that fact (7(1)(a)) or has the onus to prove it (7(1)(c)), it must
be properly set out.
15.
In this case the factual allegations made out concerning the respondent ‘s market share relate
to a segment of the market that on the complainant’ s version is but a subset of the relevant market. The failure to link the
two notions makes the pleading incomplete and hence excipiable.
In respect of a contravention of section 8(d)(iv) – selling goods or services below their marginal or average variable cost:
16.
The complainant alleges that Eskom is selling electricity to its customer at below marginal or average
variable cost. To substantiate this assertion, it relies on a price comparison of prices at which Eskom sells electricity to FFS
and a selection of other customers on the one hand, and EB Steam (“EBS”), on the other. In view of the vast difference in price charged to FFS and EBS, the
complainant asserts Eskom is undercutting it and therefore selling electricity to its customer at below marginal or average variable cost. In essence the complainant is seeking to make out its claim under this section by way of inference.
17.
Eskom argues that in order to sustain a claim under section 8(d)(iv), the complainant must make some reference to the respondent’s cost structure,
in order to enable an evaluation of whether its prices fall below this cost base. Complainant’s counsel pointed out that they
requested such information from the respondent and were denied it.
18.
While we accept that precise costing information is hard to come by and that this information in most cases is jealously protected by respondent firms, nevertheless, at the very least, the respondent
must allege facts that enable us to draw an inference that the respondent is pricing at an abnormally low level. In this referral the complainant has done no more than to show that Eskom prices differently to different customers albeit that the
rate varies greatly. Yet there is no allegation that these transactions are even equivalent to one another let alone below marginal
or average cost. Indeed on the papers the discrepancy in the rate that Eskom charges two of the complainant’s plants, one in
Durban and one in Secunda is more marked than the discrepancy between the Secunda plant and EBS.
19.
It is not an offence under the Act merely to undercut one’s competitor, no matter how stark
the discrepancy in prices. Price competition is after all the essence of healthy competition.
20.
An allegation that a respondent has contravened section 8 (d)(iv) may be made out by way of inference
as opposed to direct allegations that the respondent costs are below marginal or average variable cost. But the inference must be
founded on some reasonable factual basis in the pleadings and not amount to mere speculation.
21.
The present complaint referral falls short of that standard in this respect and hence this exception
is upheld.
Price Discrimination Section 9(1)
22.
Eskom complains that a mere price comparison between those prices charged by Eskom to FFS and EBS
separately do not ground a case for price discrimination. We agree with this view. The wording of the act sets out specifically the
requirements to substantiate an allegation of price discrimination. These are:
An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if –
a.
it is likely to have the effect of substantially
preventing or lessening competition;
b.
it relates to the sale, in equivalent transactions,
of goods or services of like grade and quality to different purchasers; and
it involves discriminating between those
purchasers in terms of –
i.
the price charged for the goods or services;
ii.
any discount, allowance, rebate or credit given or allowed in relation to the supply of goods or
services;
iii.
the provision of services in respect of the goods or services; or
iv.
payment for services provided in respect of the goods or services.
23.
FFS has not alleged that the transactions are equivalent, nor that there is an substantial lessening
of competition occasioned as a result of such alleged price discrimination. The exception is upheld.
Vertical relationship – section 5(1)
24.
The complainant alleges, without stating anything further that the same facts alleged in terms of
section 8(d)(iv), also in the alternative give rise to a contravention of section 5(1). Eskom complains that there are no material allegations made as to why the prices charged by Eskom to EBS have the effect of “substantially preventing or lessening competition in the market’ the essential element of a section 5 claim. Again, we endorse this view and uphold this exception.
Exclusion of competitor – section 8(c )
25.
Here too, the complainant alleges that the same facts alleged in term of section 8(d)(iv) give rise
to a contravention of section 8(c). Eskom alleges that insofar as the complainant has merely reproduced the language of the section, no substantiating allegations are
made in respect of this section of the Act. We can see how it would be difficult for a respondent to plead in response to a broad
assertion with no substantiating factual allegations.
26.
Since the complainant relies on the same set of facts to found this allegation, we assume that the
generalised exclusionary act relied upon is a form of predatory conduct that differs in specie from section 8(d)(iv), the statutory
form for predatory pricing. In the Nationwide case we considered that section 8(d)(iv) may not be exhaustive of the forms of predatory conduct that the Act proscribes and that
predation may still be actionable under section 8(c).
“On the other hand the complainant is not bound to follow the prescribed cost formula suggested in 8(d)(iv). In other words if a complainant,
relying on section 8(c), can show that a respondents costs are below some other appropriate measure of costs not mentioned in the
section, it may prevail provided it adduces additional evidence of predation beyond mere evidence of costs.”
27.
Yet as counsel for the respondent rightly argued, some flesh needs to be placed on such an allegation,
under 8(c) - it is not self- evident. In the referral no further allegations are made to found the complaint under section 8(c) and accordingly the exception here too
is well founded.
Inducing a customer not to deal with the Complainant – section 8(d)(i)
28.
Again, the complainant alleges that the same facts alleged in term of section 8(d)(iv) give rise
to a contravention of section 8(d)(i). Eskom maintains that the supply of cheap electricity to EBS does not constitute an inducement in terms of this section. We accept
this view. The section requires a deliberate act on behalf of the respondents, to induce customers not to deal with a competitor.
There may well be reasons other than inducement for FFS’ clients electing to deal with EBS over the complainant. More substantiation
is required in this regard.
Conclusion and Order
We accordingly uphold all the exceptions.
The Complainant is given 20 days from the date of this decision to cure the defects in the complaint referral.
Costs
The first respondent is awarded costs of this application including costs occasioned by the employment of two legal representatives.
21 February 2003
____________________
N. Manoim
Date
Concurring: M. Holden; P Maponya
D. Unterhalter SC, instructed by Deneys Reitz Attorneys (Respondents)
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