By Malcolm Ratz

The Competition Tribunal and Competition Appeal Court have exclusive jurisdiction to adjudicate whether conduct is in contravention of the provisions of the Competition Act 89 of 1998. Section 65(6)(b) of the Competition Act states that a party seeking to pursue an action for damages requires a certificate from the Chairperson of the Competition Tribunal or the President of the Competition Appeal Court certifying that the conduct forming the basis of the damages claim has been found to be a prohibited practice in terms of the Competition Act. A s 65 certificate serves as irrefutable confirmation of the contravention of the Competition Act by the cited party. The civil courts are, therefore, not tasked with reconsidering the merits of the conduct and assessing whether such conduct was in contravention of the Competition Act. Rather, the civil court will be tasked with assessing the remaining elements necessary for a successful damages action, being the elements of causation and the extent of damage caused by the contravening conduct.

On 8 August, the Gauteng Local Division of the High Court in Johannesburg, gave the first judgment relating to damages arising from contraventions of the Competition Act, in the matter of Nationwide Airlines (Pty) Ltd (in Liquidation) v South African Airways (Pty) Ltd 2016 (6) SA 19 (GJ). After all the excitement and attention generated by the Competition Commission’s successful investigation and prosecution of various major players in the construction industry for their participation in anticompetitive conduct in contravention of the Competition Act, the judgment by Nicholls J will undoubtedly herald in a new phase of competition law in South Africa (SA), moving away from a system characterised by only public prosecution of contraventions of the Competition Act, to an environment where the victims of contravening conduct seek to assert their rights to seek civil damages against contravening firms.

The judgment by Nicholls J was the first of its kind in SA and confirmed some important aspects.

The first significant statement made by Nicholls J appears in the very first line of the judgment, where it is stated that: ‘This is a delictual claim, the first of its kind, arising out of the anti-competitive practices of our national carrier South African Airways (SAA).’

This seemingly insignificant statement does put to rest a debate raised before the Supreme Court of Appeal (SCA) in Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others 2013 (2) SA 213 (SCA), where the parties debated whether the nature of the damages action arising from contraventions of the Competition Act should be classified as delictual or statutory. In the case before the SCA, Wallis JA stated that:
‘[I]t is premature at the stage of this appeal for this court to determine the questions raised by these arguments in view of their novelty, complexity and the fact that they are raised for the first time in this court’ (para 75).

Nicholls J has effectively put an end to this debate, confirming that these actions are delictual.

The second important aspect dealt with by Nicholls J, was the quantification of the damages claimed by Nationwide Airlines (in liquidation).

The South African damages regime is compensatory in nature, therefore, victims are limited to claiming only the actual damage suffered as a result of the unlawful conduct.

The concept of punitive damage, which is the damages system of the United States (US) and so often dramatised on television, is not part of the South African law of damages. Therefore, the courts are required to take great care when assessing the causal connection between the conduct and the actual damage suffered.

Nicholls’ J approach to the all-important assessment of damages required a comparison of the actual situation in the relevant markets, with the hypothetical position or the so-called counterfactual scenario in the same market, absent the contravening conduct (in the case of SAA – abuse of dominance) (at para 50).

Given the complexities and numerous variables to be considered when attempting an estimation of damages, particularly in the case of complex matters such as the loss of profit and future earnings, arriving at a precise damages award is impossible. With this in mind, the courts are tasked with attempting to arrive at the best possible damages award, based on the material it has available.

South African courts have traditionally steered away from rigidly binding itself to a specific method for damages quantification and in this case the experts presented various potential models for the court to consider.

Nicholls J referred to the ‘Practical Guide – Quantifying harm in actions for damages based on breaches of article 101 or 102 of the treaty on the functioning of the European Union’, favourably stating that: ‘It should be stressed that it is only possible to estimate, not to measure with certainty and precision, what the hypothetical non-infringement scenario is likely to have looked like. There is no method that could be singled out as the one that would in all cases be more appropriate than others. Each of the methods described above has particular features, strengths and weaknesses that may make it more or less suitable to estimate the harm suffered in a given set of circumstances’ (see www.ec.europa.eu, accessed 24-11-2016).

The court eventually settled on the linear interpolation method as the most appropriate method for assessing the damages. This method essentially seeks to plot two points on a graph, the first representing a point pre-contravention and the second representing post-contravention, with the straight line between the plotted points representing the estimated growth but-for the contravening conduct (at para 132).

While the judgment by Nicholls J will generate much discussion and debate and actions brought within the scope of s 65 of the Competition Act, the debate solicited by the judgment may revolve more around what the judgment does not address, rather than the aspects it does address.

The judgment (albeit not necessary) could have provided some important insights into the assessment of the elements of a delictual claim of this nature. Nicholls J confirmed that the claim is delictual, however, fails to give a more detailed analysis of how the elements of the delict should be assessed within the context of competition law contraventions, rather merely bypassing over these elements and focussing predominately on the quantification and the debate between the experts.

Aside from the criticism that the legal aspects may have been dealt with in more detail by Nicholls J, a further criticism is directed at the order insofar as it relates to interest. I submit that Nicholls J erred in the awarding of interest on the damages sum. The order provides for interest on the damages sum as from date of judgment, however, s 65(10) of the Competition Act expressly entitles a claimant to interest as from the date on which the s 65(6) certificate is issued: ‘For purposes of section 2A(2)(a) of the Prescribed Rate of Interest Act, 1975 (Act No. 55 of 1975), interest on a debt in relation to a claim for damages in terms of this Act will commence on the date of issue of the certificate referred to in subsection (6).’

The judgment, therefore, clearly falls short in some regards, however, despite this, it is expected that this judgment will play a significant role in future litigation of this kind and will undoubtedly serve as the judgment that will get the wheels of private competition damages actions moving in the right direction.

Conclusion

The judgment of Nicholls J has given some clarity on the nature of a s 65 damages action as being delictual and has confirmed confidence in the approach by the courts to make use of experts and economic models in order to equip the court in making the best possible estimation for purposes of performing a damages assessment. The Nationwide Airlines case (as well as Comair Ltd v Minister of Public Enterprises and Others 2016 (1) SA 1 (GP)), does have the benefit of having individual litigants with the financial resources to tackle a major corporate such as SAA. The cases where one is dealing with a smaller claimant or as in the case of Children’s Resource Centre Trust, one is dealing with a class of individual claimants, then the costs of litigation and the quantification of damages may prove to be significantly more difficult to prove and for the courts to assess.

Should the legislature agree that a system where public enforcement and private enforcement are collectively pursued in order to serve as a deterrent for contraventions of the Competition Act, then it is recommended that the legislature consider statutory interventions in order to develop and promote the actions envisaged in s 65 of the Competition Act.

The US has successfully introduced the concept of treble damages claimable by victims of contraventions of the United States competition legislation (s 4 of the Clayton Antitrust Act of 1914). Armed with the benefit of possible treble damages litigants are incentivised to pursue private actions against contravening firms. In SA, given the compensatory nature of damages actions, a punitive damages regime is unlikely to be established. Other interventions are, however, available which could facilitate these actions. These interventions include the express governing of class actions in cases of contraventions of the Competition Act, the development of a favourable discovery regime for would-be claimants, thereby allowing potential claimants and legal representatives to timeously assess the merits of a particular action before getting embroiled in costly litigation, conceivably allowing for contingency arrangements to be entered into and thereby give even the claimants not in a financial position to litigate, the opportunity to vindicate their rights to claim damages.

Finally, given the fact that a significant number of South African’s do not have the financial means to bring these actions, particularly given that these actions invariably involve large corporates who have contravened the provisions of the Competition Act, statutory intervention into the costs awards in civil damages actions brought in terms of s 65 of the Competition Act could curb the litigation risks facing potential claimants. Given that the defendant (ie, the firm found to have contravened the Act) has been found to at least have acted unlawfully, a position where each litigant, therefore, the claimant and the defendant, pay their own legal costs, may temper the risks of corporate litigants driving up litigation costs so as to stave off litigation by individuals and also serve to temper private litigants from pursuing wishful damages actions.

South Africa is ripe for private competition enforcement, allowing the real victims of the contraventions of the Competition Act to attain recourse and further serve to punish and deter the firms taking advantage of the public through illegal business practices.

Malcolm Ratz BA LLB LLM (Stell) is an attorney at Roestoff and Kruse Attorneys in Pretoria.

This article was first published in De Rebus in 2017 (Jan/Feb) DR 34.