Was case against SAB a waste of time, money?

In its decision for dismissing the case, Competition Tribunal chairman Norman Manoim highlights two fault lines in the commission's case. One is that the commission made no case against the depot distribution model that accounts for 90% of SAB's distribution, and mounted a case concerning only 10% of its distribution, through its appointed distributors.

This makes two things "immediately obvious", the tribunal says.

First, no remedy was likely to have a great effect, given the restriction of the case to 10% of SAB's distribution. And even if the commission's remedy was imposed - to abolish the exclusive territorial agreement with its appointed distributors - SAB could, as it threatened it would, simply move the distribution to its depots, which were not under attack from the commission.

The commission asked the tribunal to order SAB to remove the exclusivity section of its contracts with its appointed distributors and to extend the discounts offered to those distributors to a wider class of distributors. The investigation of the exclusive arrangements between SAB and its 13 appointed distributors started in 2004 with a complaint from competitor Nico Pitsiladi of Big Daddy's in the Eastern Cape. He complained that he was unable to make margins on SAB products because he did not enjoy the same discounts as SAB's appointed distributors.

Long delays followed the referral of the case in 2007 to the tribunal, mainly due to procedural challenges put up by SAB.

Why pursue the case?

The question that comes to mind is, why did the commission continue with the case if one of the fault lines in the case was "immediately obvious" to the Competition Tribunal?

Nick Altini, head of the competition practice at law firm Cliffe Dekker Hofmeyr, says the commission has a duty to prosecute when it feels there is anticompetitive behaviour, and its view is often quite different from that of respondent companies.

The commission is motivated by competition policy. "I do not think the commission acts frivolously. It will take on a case where it believes it can win. As in all litigation, it must accept there are risks. That is the nature of our law - there are two sides to an argument."

Sometimes the commission wants to run a test case to test a proposition, or it could be that the commission really believes it is right but turns out to be wrong - as in the SAB case.

No evidence

Lara Granville, associate director at law firm Norton Rose Fulbright, which represented the appointed distributors, says the commission really did not have the evidence to back its case, or a coherent picture of how consumers may have benefited from its alternative world, in which appointed distributors' exclusive territories were abolished and discounts were extended to other distributors.

This was the second fault line the tribunal identified, saying the commission's case lacked a "counterfactual", or proof of how things would have been under different circumstances.

Manoim says there is no history of the independent distributors, such as Big Daddy's, having received a discount for distribution of SAB products that was then removed from them in favour of SAB's appointed distributors.

"Without this past history, (the commission's) case on effects had to be speculative."

He says the commission's final position was that although the independents "might" not now be more efficient than appointed distributors, they might have been if they had got the volume and could have invested in distribution.

"This might be so, but 'might' is not good enough when a case has to be made out on a balance of probabilities," Manoim says. "Given the two fault lines in this case, it had to ultimately fail and so it did."

Cost not a factor

Altini says one of the reasons it took so long to come to this point is that the commission does not face the risk of the respondent being awarded costs, so the question of cost does not hold the commission back as it does a private litigant. SAB and its distributors have contended that they were entitled to costs, but the legal position has been clarified and respondents are not allowed costs in complaint referrals against the commission.

"The fact that this case took as inordinately long as it did is as much due to the manner in which the respondents conducted their defence as it is to the commission's efforts," Manoim says.

Altini says there is little a respondent can do to drive the litigation forward. "If you are in year three and you want finality - which I have tried in my own matters - to get it set down and heard is very difficult.

"The tribunal is quite patient with the commission - and quite aware it has stretched resources and budgetary constraints."

In limbo

Granville says her clients have been affected on a very personal level. "Frankly, they have been stuck in limbo for many years without growing the value of their businesses and without being able to sell their businesses or being able to move on.

"They have finally let out their breath. They are in a better position. At least there is now an authoritative decision in the matter," she says.

The SAB case really shows the commission must have evidence, she says. It needs to identify clearly the anticompetitive effect of the conduct in question - that customers are paying more or service levels are poor because of the lack of competition.

"We do know this from the wording of the law, but the commission pursued a partly theoretical case on what the theoretical anticompetitive effects could be or would be, without being able to show what the actual effect was."

Source: Business Day