The Competition Commission v. Dawn consolidated holdings (pty) ltd and Ors.

South Africa

23.03.2017

Commercial

Commission is not required to show any anti-competitive effects of agreement as anti-competitive effects are presumed

Present case concerns a complaint referral brought by Competition Commission against Respondents; Dawn Consolidated Holdings (Pty) Ltd ("Dawn"), DPI Plastics (Pty) Ltd ("DPI"), and Sangio Pipe (Pty) Ltd ("Sangio"). Complaint referral arises from a merger transaction that was filed with Commission in 2014, wherein Dawn wished to acquire 51% of Sangio. At time of merger filing, Dawn already held 49% of Sangio which it had acquired in 2007. Commission alleges that, because Clause 20 seeks to prevent Dawn from entering market for manufacture of regular HDPE pipes nationally, it amounts to market allocation as contemplated in Section 4(1)(b)(ii) of Competition Act, 1998 It is apparent on plain reading of Clause 20, that Dawn had undertaken not to manufacture HDPE piping (other than corrugated pipes) in entire Republic of South Africa, for as long as it or its associates held shares in Sangio. Dawn also undertook to procure all its South African HDPE piping (other than corrugated pipes) from Sangio. In practice, this meant that Dawn was precluded by operation of Clause 20 to manufacture regular HDPE piping throughout country, which would include Western Cape. Furthermore, Dawn was under an obligation as provided in Clause 20.2 to purchase all its South African (not only in Western Cape) regular HDPE piping from Sangio. Purpose of Clause 20 was clearly to keep Dawn out of market for manufacture of regular HDPE piping (at a national level). Both Dawn and Sangio had agreed to this as evidenced by signatures to document. On face of it, this amounted to market division in regular HDPE piping market and required an explanation by parties in rebuttal of a prima facie case. Restraints of trade in ordinary course of commercial transactions are usually justified, when seller sells a business (in part or in whole). Seller is thereafter restrained from competing with buyer in same line of business for a relatively short period of time and in a prescribed territory so as to permit buyer to recoup his or her investment in business. Clause 20 is clearly limiting of competition between Dawn and Sangio in national market for regular HDPE piping.

Elements of Section 4(1)(b)(ii) that, Commission is required to prove are: an agreement between competitors; and a division of markets between them. There is no dispute that, shareholders’ agreement was an agreement as contemplated in Section 4(1)(b)(ii). It was in writing and signed by all parties thereto. Even if Dawn and Sangio may not have been actual competitors by time the shareholders' agreement was concluded, they remained potential competitors. Fact that, Dawn subsequently re-commissioned the machinery, albeit as an agent for Sangio, served to confirm that, Dawn had the ability to re-enter market for regular HDPE piping, at very least in Western Cape, if not nationally. Sangio was a supplier of regular HDPE pipes in Western Cape, albeit a small competitor. No indication was given of when decision to mothball the extruders was taken by Dawn. Parties were still de facto actual competitors in regular HDPE at a point in time in period October 2006, when they had discussions regarding Dawn's proposed sale of its extruders to Sangio, and April 2007, when they concluded shareholders' agreement.

It is well established that, Section 4(1)(b) contraventions in Act are per se prohibitions. Commission is not required to show any anti-competitive effects of agreement as anti-competitive effects are presumed. Conversely, Respondents are not permitted to justify their conduct by showing pro-competitive effects of their conduct. At best for Respondents, any pro-competitive effects alleged may be considered as a mitigating factor in determining appropriate administrative penalty, but they do not expunge liability by Respondents. On face of it, Clause 20 limits competition between Dawn and Sangio in HDPE piping (other than corrugated) throughout the country. Common sense and competition economics tells that, this would amount to market allocation between actual or potential competitors. Non-compete clause to fall with scope of prohibition contemplated in Section 4(1)(b)(ii) of Act. It is held that, Dawn and Sangio contravened Section 4(1)(b)(ii) of Act, in period 2007 to 2012.

Tags : Shareholding Agreement Contravention Provision

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