Civil dam­ages adding to the woes of SAA

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - HB Senekal & Sa­man­tha Hob­son-Jones

THE high court on Au­gust 8 or­dered South African Air­ways (SAA) to pay R104.6m (plus in­ter­est) to liq­ui­dated air­line Na­tion­wide for dam­ages aris­ing out of an­ti­com­pet­i­tive prac­tices.

Af­ter an ex­tended le­gal bat­tle, this de­ci­sion rep­re­sents the first time that civil dam­ages have been or­dered in SA for a breach of com­pe­ti­tion law.

The ge­n­e­sis of this de­ci­sion was a com­plaint made by Na­tion­wide to the Com­pe­ti­tion Com­mis­sion in re­sponse to in­cen­tive agree­ments be­tween SAA and var­i­ous travel agents whereby travel agents were fi­nan­cially in­cen­tivised to book air tick­ets with SAA. Sub­se­quent to the com­mis­sion’s in­ves­ti­ga­tion, the Com­pe­ti­tion Tri­bunal found that SAA was a “dom­i­nant firm” for the pur­pose of the Com­pe­ti­tion Act. While the Com­pe­ti­tion Act does not pro­hibit dom­i­nance, it does pre­vent an abuse of dom­i­nance, in­clud­ing “in­duc­ing a sup­plier or cus­tomer to not deal with a com­peti­tor”.

The tri­bunal found the con­tracts that SAA en­tered into with travel agents in­duced them to deal ex­clu­sively with SAA at the ex­pense of its ri­vals and were thus an abuse of SAA’s dom­i­nance. This judg­ment was sub­se­quently con­firmed by the Com­pe­ti­tion Ap­peal Court.

In terms of sec­tion 65 of the Com­pe­ti­tion Act, any­one who suf­fers loss or dam­age as a re­sult of a pro­hib­ited prac­tice (such as an abuse of dom­i­nance) may claim civil dam­ages from the of­fend­ing party on ob­tain­ing a cer­tifi­cate is­sued by the tri­bunal or Com­pe­ti­tion Ap­peal Court. This cer­tifi­cate serves as con­clu­sive proof that the ba­sis of such ac­tion is a pro­hib­ited prac­tice and is bind­ing on a civil court. It was this pro­vi­sion on which Na­tion­wide re­lied in pur­su­ing an or­der from the court for civil dam­ages against SAA in com­pen­sa­tion of its loss in prof­its.

Bound by the de­ci­sions of the tri­bunal and the Com­pe­ti­tion Ap­peal Court, the court was left to de­ter­mine the quan­tum of dam­ages. It was com­mon cause be­tween the par­ties that any dam­ages suf­fered by Na­tion­wide would amount to its lost profit over the rel­e­vant pe­riod — in other words, the dif­fer­ence be­tween what Na­tion­wide would have earned but for SAA’s abu­sive con­duct, and what Na­tion­wide did in fact earn. Im­por­tantly, the court from the out­set made it clear that the nu­mer­ous vari­ables to be taken into con­sid­er­a­tion made it an “im­pos­si­ble ex­er­cise” to quan­tify dam­ages with any pre­ci­sion. The court noted that such a cal­cu­la­tion could be likened to the “pre­serve of for­tune tell­ers and sooth­say­ers” due to the spec­u­la­tion re­quired.

The court there­fore con­cluded that even if the quan­tum of dam­ages amounted to merely an es­ti­ma­tion, it was en­joined to do the best it could on the avail­able ma­te­rial — which is con­sis­tent with the ap­proach taken by for­eign courts. It there­fore fell to the par­ties to lead ev­i­dence to as­sist the court in mak­ing as ac­cu­rate a de­ci­sion as pos­si­ble.

In the case be­fore the com­pe­ti­tion au­thor­i­ties, SAA ar­gued that Na­tion­wide’s losses were in­curred as a re­sult a num­ber of fac­tors, in­clud­ing mar­ket and pas­sen­ger per­cep­tions of Na­tion­wide, rather than SAA’s abu­sive con­duct. It is ev­i­dent SAA was re­ly­ing on the safety record is­sues and fi­nan­cial dif­fi­cul­ties ex­pe­ri­enced by Na­tion­wide dur­ing the lat­ter years of its op­er­a­tion, in­clud­ing se­ri­ous main­te­nance is­sues and the ground­ing of the en­tire Na­tion­wide fleet in 2007.

This ar­gu­ment was specif­i­cally re­jected by the Com­pe­ti­tion Ap­peal Court, which held that while Na­tion­wide’s safety record and fi­nan­cial dif­fi­cul­ties may have been to blame for the drop of its mar­ket share dur­ing the pe­riod of SAA’s abuse, such fac­tors were ir­rel­e­vant in the case as it was SAA’s in­cen­tive agree­ments that had the an­ti­com­pet­i­tive ef­fect.

Not ready to give up the ar­gu­ment, SAA led ev­i­dence be­fore the court in an at­tempt to show that Na­tion­wide suf­fered no dam­ages as a re­sult of SAA’s abu­sive con­duct, as Na­tion­wide’s mar­ket share ac­tu­ally de­creased once SAA’s abu­sive con­duct ceased, which was not to be ex­pected if the abu­sive con­duct was hav­ing the al­leged im­pact. This ex­pert ev­i­dence was re­jected by the court, which re­it­er­ated that it was bound by the tri­bunal’s find­ing that Na­tion­wide did in fact suf­fer dam­ages.

The court was there­fore clear that it would en­ter­tain ar­gu­ments as to the quan­tum of dam­ages and not ar­gu­ments on the ex­is­tence thereof.

Dur­ing the hear­ing, one of the sig­nif­i­cant ar­eas of dif­fer­ence be­tween the eco­nomic mod­els pro­posed by SAA and Na­tion­wide ex­perts for cal­cu­lat­ing the losses was whether to use data from only those routes on which Na­tion­wide com­peted with SAA, or the en­tire do­mes­tic mar­ket. Again, the court re­peated that it was bound by the find­ings of the com­pe­ti­tion au­thor­i­ties and that the use of the to­tal data for the en­tire do­mes­tic mar­ket best ad­hered to the de­ci­sion of the com­pe­ti­tion au­thor­i­ties. This is be­cause it had been found that the ef­fect of SAA’s con­duct was not con­fined to those routes where Na­tion­wide and SAA com­peted, but also on routes where Na­tion­wide did not fly.

The court for the most part agreed with Na­tion­wide’s ex­pert wit­ness and cal­cu­lated the quan­tum of dam­ages on the ba­sis of the fol­low­ing for­mula: the num­ber of pas­sen­gers that it es­ti­mated Na­tion­wide lost as a re­sult of SAA’s be­hav­iour (based on mar­ket share in­for­ma­tion), mul­ti­plied by Na­tion­wide’s av­er­age rev­enue per pas­sen­ger, the re­sult of which was then mul­ti­plied by Na­tion­wide’s profit mar­gin. The court then used its dis­cre­tion in ap­ply­ing a 25% con­tin­gency dis­count to pro­vide for the fact that only 70% of air­line book­ings ac­tu­ally oc­cur through travel agents (the mar­ket held to be the most af­fected by SAA’s abu­sive con­duct).

The fig­ure reached was R104.6m (plus in­ter­est payable from the date of judg­ment), a hefty fine for SAA, which is al­ready fac­ing a num­ber of chal­lenges. The prece­dent set by this case, as well as the hefty fine at­tached to it, serves to show that firms en­gag­ing in pro­hib­ited prac­tices will face in­creas­ing fi­nan­cial con­se­quences in the fu­ture.

It marks the first time civil dam­ages have been or­dered in SA for a breach of com­pe­ti­tion law

HB Senekal is a di­rec­tor and Sa­man­tha Hob­son-Jones a can­di­date at­tor­ney in the an­titrust/com­pe­ti­tion prac­tice at ENSafrica.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.