Competition Commission of South Africa v Media 24 (Pty) Ltd

• Jurisdiction: South Africa

Competition Commission of South Africa v Media 24 (Pty) Ltd
2019 (5) SA 598 (CC)

2019 (5) SA p598

Citation	2019 (5) SA 598 (CC)
Case No	CCT 90/18; [2019] ZACC 26
Court	Constitutional Court
Judge	Mogoeng CJ, Basson AJ, Cameron J, Dlodlo AJ, Froneman J, Goliath AJ, Khampepe J, Mhlantla J, Petse AJ and Theron J
Heard	July 3, 2019
Judgment	July 3, 2019
Counsel	J Wilson SC (with GD Marriott and T Ngcukaitobi) for the applicant.; W Trengove SC (with M Norton SC and M Mbikiwa) for the respondent.

Flynote : Sleutelwoorde

Competition — Unlawful competition — Prohibited practices — Abuse of dominance C — Predatory pricing — Appropriate cost benchmarks — Discussion of — Whether standard of 'average total cost' could ever be used to assess predatory pricing — Competition Act 89 of 1998, s 8(c).

Competition — Unlawful competition — Prohibited practices — Abuse of dominance — Predatory pricing — Relevance of dominant firm's intent in assessing predatory pricing — Competition Act 89 of 1998, s 8(c).

Court D — Constitutional Court — Jurisdiction — Matter of general public importance — What constitutes — Appropriate cost benchmark for purposes of assessing predatory pricing in breach of Competition Act 89 of 1998 — Constitution, s 167(3)(b)(ii).

Headnote : Kopnota

The E present matter concerned a charge of 'predatory pricing'. Such conduct occurs when a dominant firm sets prices at a loss-making level with the effect, or likely effect, of eliminating actual or potential competitors and ultimately strengthening the firm's market power, to the detriment of the consumer (see [5]). The Competition Act 89 of 1998, in s 8(c) and (d), F disallowed predatory pricing by prohibiting a dominant firm from engaging in 'exclusionary acts' — ie conduct that impeded or prevented a firm from entering, or expanding within, a market — if there could not be shown some pro-competitive gain that outweighed the anti-competitive effect of the conduct (see [11] – [12]). Given that low prices were encouraged by competition law, cost standards have been developed to indicate the line G between legitimate price cutting and unreasonable low prices that were predatory (see [11]). Section 8(d)(iv) expressly prohibited a firm from selling goods or services below their marginal [*] or average variable cost, [*1] without justification. Section 8(c) (by disallowing exclusionary acts not expressly listed in s 8(d) without justification) prohibited pricing below other appropriate cost standards. The precise question before the Constitutional Court H was whether 'average total cost' (ATC) [*2] was such an appropriate cost standard.

2019 (5) SA p599

This case arose out of a complaint to the Competition Commission (Commission) A against Media24, a print media company, of anti-competitive conduct, in charging advertisers excessively low prices to run ads in a community newspaper in its stable. After investigating, the Commission referred its case to the Competition Tribunal (Tribunal). The latter upheld the Commission's claim that Media24 had engaged in predatory pricing in breach of s 8(c) by charging prices below ATC. In doing so, the Tribunal B agreed with the Commission that, in circumstances in which there was evidence of intent to predate, ATC was an appropriate cost standard to determine whether predatory pricing in conflict with s 8(c) had occurred. However, the Competition Appeal Court (CAC) reversed the decision of the Tribunal. It held that the test envisaged in s 8(c) determined whether specific conduct amounted to an exclusionary act as defined in the C Competition Act. This, it held, was an objective test. Accordingly, the CAC found, subjective evidence of intent should not be examined in proving predatory pricing and, once this evidence was disregarded, average total cost was not an appropriate cost standard to use (there being many reasons for a firm to price its goods below ATC). The Commission subsequently sought leave from the Constitutional Court to appeal directly to the latter. D The Constitutional Court handed down four judgments, whose effect when read together was that leave should be granted, but the appeal dismissed (see [1] – [4]).

Whether to grant leave to appeal

A majority of the Constitutional Court — in judgments written by Goliath AJ E (with Mogoeng CJ and Dlodlo AJ concurring); Theron J (with Basson AJ concurring); and Mhlantla J — held that it had jurisdiction to hear the matter on the basis that, in terms of s 167(3)(b)(ii), it raised an arguable point of law of general public importance that it ought to consider, ie whether it was appropriate to determine whether prices were predatory in terms of s 8(c) of the Competition Act by measuring them against the ATC standard and considering the intention of the dominant firm to predate (see [34], [35], F [142], [144] and [189]). Goliath AJ in addition held that the court had jurisdiction on the further ground that the matter raised constitutional issues, given that, firstly, the Competition Act, as was apparent from its stated purposes in s 2(e) and (f), constituted legislation advanced with the purpose of advancing equality of previously disadvantaged persons, and, secondly, that the CAC judgment's effect was to limit the ambit of the G Commission's investigatory powers, hence a legality question (see [30] – [33]). In contrast, Cameron J, Froneman J and Khampepe J (with Petse AJ concurring) found there to be no jurisdictional basis to entertain the appeal (see [124]). The aforementioned majority, in addition, found that it was in the interests of justice for it to hear the direct appeal to it (see [57], [156] and [190]). In this regard it rejected the notion, as advocated by H Cameron J, Froneman J and Khampepe J in their dissenting views, that the matter fell outside the functional competence of the Constitutional Court as it entailed an evaluative assessment of economic policy issues which the competition authorities were better qualified to determine. Noting that the Constitutional Court had repeatedly adjudicated over complex issues of public policy, the majority stressed that the matter was properly before it, I and that it should not shy away from its duty to determine the policy-laden issue of general public importance that it raised (see [164]).

Whether to uphold appeal — merits

Theron J (with Basson AJ concurring) held that the ATC was an inappropriate standard to use to measure alleged unlawful predatory pricing in contravention of s 8(c) of the Competition Act (see [175]). This was because to J

2019 (5) SA p600

do A so would ultimately undermine a key objective of the Competition Act, namely to provide consumers with competitive prices (which purpose called both for the prohibition of predatory pricing strategies by a dominant firm, as well as the adequate protection of the competitive process between firms in recognition of their right to compete on price) (see [169] – [171]). In this regard, Theron J noted, inter alia, that a firm could be pricing below ATC B but still be engaging in legitimate competition; and that if the ATC standard was endorsed, this could lead to firms increasing their pricing above ATC just to avoid sanction under the Competition Act (see [176] – [177]). Theron J concluded, given the Commission's reliance on an inappropriate bench mark, that they had failed to demonstrate that Media24 had priced in C violation of s 8(c) (see [180]). Theron J also found that intention to predate was not a relevant consideration in determining s 8(c) predatory pricing, as the test envisioned in s 8(c) was objective, being outcome-based. She added that a firm's intention was an unreliable guide to proving predation that did not assist in the evaluation of the likely effects of a dominant firm's decision to price below a particular cost measure. (See [182] and [184].) Theron J D concluded that she would have dismissed the appeal (see [187]).

Goliath AJ (Mogoeng CJ, Dlodlo AJ and Mhlantla J (in a separate judgment) concurring) held that a court should not tie itself to a particular cost standard to show that predatory pricing pursuant to s 8(c) of the Competition Act had occurred. The ultimate concern, she added, should be whether pricing below a cost standard led, or could lead, to the exclusion of E a competitor, which exclusion had anti-competitive effects that were not outweighed by the gains listed in s 8(c). (See [71].) Goliath AJ stressed that, in itself, pricing below the ATC was lawful and should not be discouraged (see [105]). However, she added, the standard was appropriate as a means of measuring predatory pricing where there was additional evidence establishing pricing that excluded a competitor, with anti-competitive F effects outweighing pro-competitive gains (see[102] – [103], [105], [119] and [122]). Goliath AJ accordingly found the CAC to have been mistaken in categorically excluding the ATC standard as an appropriate test, and that in doing so it had unduly limited the prosecutorial powers of the Competition Commission (see [95]). She added that the CAC's reasoning for excluding the ATC standard — namely that intent had no role to play in the interpretation G of s 8(c) — ignored the fact that much of the evidence led was objective in nature (see [106]). A court, she held, should be entitled to examine such evidence illustrating predation (see [102] – [103] and [122]). Goliath AJ concluded that she would have upheld the appeal, and remitted the matter to the CAC to scrutinise the evidence presented and then come to a decision whether predation had taken place (see [102] – [103] and [122]).

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