South Africa: In Competition Proceedings, Hasty Exception Applications May Be Futile

Last Updated: 15 October 2014
Article by Ryan Goodman and Michael Mbikiwa

On 3 September 2014, the Competition Tribunal (the "Tribunal") published the reasons for its decision to grant an exception application by Invensys plc, Invensys Systems (UK) Ltd and Eurotherm Ltd (collectively, "Invensys" or the "Invensys Group") in respect of the self-referral of a complaint by Protea Automation Solutions ("Protea"). The reasons restate a position that is very well known by competition practitioners: the Tribunal will, where possible, adopt a flexible approach to its processes, giving primacy to its inquisitorial powers and favouring considerations of fairness and flexibility over formalism.

The complaint has a long history; however, for present purposes, only the salient facts bear brief mention. The Invensys Group manages the international production, sales and distribution of various industrial automation and control system components, including through the "Eurotherm" and "Foxboro" brands. Until recently, the respondent, Protea, was – in terms of an exclusive distribution agreement with Invensys – the sole South African supplier of Eurotherm and Foxboro products.

The catalyst to the present litigation was the termination by Invensys on 1 March 2011 of its exclusive agreement with Protea and its subsequent decision to conclude a similar arrangement with EOH Mthombo – which is today the sole and exclusive distributor of Foxboro and Eurotherm products in South Africa. Accordingly, Protea is now able to obtain Foxboro and Eurotherm products only from EOH Mthombo, and not from Invensys directly.

Aggrieved by this state of affairs, Protea lodged a complaint with the Competition Commission (the "Commission") and, following the issuing of a notice of non-referral by the Commission, referred the complaint to the Tribunal itself under section 51(1) of the Competition Act, No. 89 of 1998 (as amended) (the "Competition Act"). In its complaint referral, Protea alleged that the arrangements between Invensys and EOH Mthombo, and between EOH Mthombo and itself, contravened the horizontal (section 4), vertical (section 5), abuse of dominance (section 8) and price discrimination (section 9) provisions of the Competition Act.

In its answer to the complaint, Invensys alleged as a "point in limine" (that is, a point taken at the outset of the suit) that the referral was fatally deficient for a variety of reasons. This kind of response, in which a respondent objects at the outset on the basis that a complainant's pleadings are legally deficient (because, for example, they fail to disclose a cause of action) is known as an exception. In this regard, Invensys argued that Protea had had ample opportunity to rectify the deficiencies in its pleadings, which included i) an erroneous reliance on the horizontal provisions in section 4 of the Competition Act (erroneous because Invensys and EOH Mthombo were not competitors of one another); ii) a failure to provide sufficient facts to support its claim that Invensys was dominant in any market; and iii) the misjoinder of the non-trading Invensys holding company.

Protea opposed the exception application on the basis that its referral reflected a prima facie case. Alternatively, it argued that even if the referral was indeed deficient, the appropriate remedy would be for it to be allowed to amend its referral rather than to dismiss its complaint.

In its reasons, the Tribunal provided a useful exposition of its general approach to exception applications. In this regard, there are three central considerations by which it is guided. First, complaint proceedings in the Tribunal are "sui generis" (of their own kind), meaning that they constitute a hybrid process, containing elements of civil motion and trial proceedings. Second, the subject matter of Tribunal proceedings lies at the intersection of law and economics, with the result that a particular set of facts can often reasonably be viewed through the lens of various sections of the Competition Act. Third, the Tribunal is endowed with a wide discretion, and its proceedings are inquisitorial and flexible rather than formalistic. Cumulatively, these considerations demand the adoption of a fact-specific and flexible stance.

That said, the Tribunal recognised that fairness requires respondent parties to be placed in a position where they know the case they are required to meet. In addition, it noted that exceptions are a useful means by which to expedite a trial through the clarification of issues between the parties. Importantly (and correctly, in our view), the Tribunal rejected an argument by Protea that the Constitutional Court decision in Competition Commission v Senwes established a precedent that a complainant's pleadings need not set out its entire case, which may be supplemented through subsequent witness statements. The Tribunal's proceedings may be inquisitorial and flexible, but a complainant is required to provide full particulars of the case it wishes to bring.

The default remedy for a successful exception application is for the Tribunal to grant the offending party an opportunity to amend its pleadings. By corollary, it is only in exceptional circumstances that the Tribunal will dismiss a case pursuant to an exception application. An example of a circumstance in which it will do so is where the exception concerns a pure point of law which might be determinative of the dispute, and which does not require in-depth factual analysis.

However, circumstances such as these are rare; in fact, as noted above, the Tribunal regards it as in the very nature of its proceedings that they comprise mixed questions of law and fact. And the present case did not deviate from that norm. Therefore, although it declared Protea's pleadings to be inadequate, the Tribunal ordered that the appropriate remedy was not to dismiss the referral outright, but instead to afford Protea the opportunity to amend its papers.

In light of this decision, respondents to complaint referrals would be wise not to bring exception applications hastily as a means of curtailing proceedings. Instead, litigants would be better advised, as the Tribunal explicitly suggested, to utilise the Request for Further Particulars procedure prior to the filing of an answering affidavit. If, having done so, the complainant still fails to clarify its case sufficiently, the respondent will then be better positioned to argue for the outright dismissal of the complaint.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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