It was only natural that lawyers, not only those acting for steel producer ArcelorMittal South Africa, would cast an extremely critical eye over the Competition Tribunal’s first-ever excessive-pricing ruling of 2007, involving flat steel.

It was a landmark case and the approach taken by the tribunal would set the tone for further such cases.

Some immediately argued that the tribunal’s exclusive reliance on a so-called ‘structuralist’ approach made them uncomfortable. Through such a prism, “super dominance” was determined as a necessary, albeit insufficient, condition for excessive pricing.

Some lawyers argued that this immediately seemed to exclude a range of other key sectors and companies from scrutiny. But the chief complaint was that the tribunal focused on the market conditions that generated what was deemed to be an excessive price, rather than determining the actual level at which a price became excessive.

However, it was precisely such precision that the tribunal was at pains to avoid.

In fact, very early on during the 2006 hearings, chairperson Dr David Lewis asked former Department of Trade and Industry director-general Dr Zavareh Rustomjee whether he would be comfortable about the price of steel being set on the basis of an adversarial hearing.

“Do you think this is an environment conducive to the task of setting the price of any commodity, and especially a commodity as complex as this, with the complex interplay between the world market, domestic markets, previous subsidies, debates about whether replacement capital or existing capital should be used as the basis for the pricing regime?” Lewis asked.

This reticence was reflected in the later determination, which was decided on the basis that ArcelorMittal South Africa was “no mere dominant firm”, but a “super dominant” entity – an uncontested firm in an incontestable market. Further, that it employed this super dominance to create the conditions for “ancillary conduct” (the segmentation of the market in a way that prevented arbitrage) that resulted in an excessive price being charged.

In opting for such an approach, and eschewing the notion of having to find an exact price level, the tribunal felt it had avoided the obvious hazard of being transformed “from an agency that promotes and protects competi-tive market conditions to an agency that determines price through the simulation of competitive market conditions”.

At Odds Over Language
But in its reading of the Act, the Competition Appeal Court found itself at odds with this definition and with the tribunal’s model. Therefore, it has ordered it to reassess whether the steel producer was indeed guilty of the said offence under another more tightly defined definition.

In a 90-page judgement, Judge Dennis Davis set aside the tribunal’s decision,

arguing that the tribunal “misconstrued its powers” and that its decision could not be “justified by the words on the Act”.

It contends that the “language” of the Act demands the following: that the actual price of the good or service said to be priced excessively be determined; the “economic value” of that good in monetary terms; whether the actual price was higher, and the difference unreasonable; and if the charging of the excessive price was to the detriment of the consumers.

In other words, the court made no call on the actual merits of whether or not ArcelorMittal South Africa was guilty of charging excessive prices. In fact, it even agreed that there could be a “prima facie presumption” of a contravention by the steel company.

Nevertheless, it has ordered the tribunal to reanalyse the evidence to determine whether the “specific” prices involved were indeed excessive.

The bulk of this reassessment would be based on material and evidence already canvassed at hearings. But the court also wants some new evidence to be heard, chiefly evidence related to an affidavit by Leon Price, of Macsteel International, who provided new information relating to the operation of the international steel market.

It is not entirely clear when this new hearing will be held and, more interestingly, how the tribunal intends going about determining the specific economic value of the product concerned and whether the prices charged by the steel producer during the period in question were such that it could be deemed excessive.

What is apparent, though, is that this already protracted case probably has many years to run yet – a reality that has disappointed both sides.

It should not be forgotten that Harmony first laid its complaint with the Competition Commission in 2002, and decided to make a direct referral to the tribunal in 2004, after the commission decided against a referral.

Extensive hearings were held in 2006 and the tribunal made a ruling in 2007, which included a R691,8-million fine. This was then followed by ArcelorMittal South Africa’s appeal to the Competition Appeal Court in 2008, whose ruling was released in late May 2009.

It is now quite likely that, should the tribunal settle on a precise figure, and that figure continues to show that ArcelorMittal South Africa was in breach of the Act, the case will wend its way all the way back to the Competition Appeal Court.

To be sure, it all seems a bit excessive. But that, I suppose, is the price we need to pay to have greater regulatory certainty.

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