Namib Mills in the dockNaCC claims loan deals with 54 bakeries are 'anti-competitive' The proudly Namibian miller has hit back, saying the bakery loan agreements are competition-enhancing and pro-competitive, as they encourage and support new entrants into the bakery sector. The Namibia Competition Commission (NaCC), in the first case of its kind in the country, is taking on Namib Mills for concluding loan agreements with 54 bakeries, which the commission alleges is anti-competitive and unlawful.
In accordance with clause 19 of the agreements the bakeries may only purchase wheat flour, pre-mixes and ready-mix products from Namib Mills.
“If this is not the case, the creditor can ask for full settlement of the loan within seven days or the bakery equipment can be collected by the creditor (Namib Mills),” the NaCC said of Namib Mills' loan deals, which the commission claims is anti-competitive behaviour.
In its heads of argument, in which it cites Bokomo as an interested party, the NaCC said Namib Mills' conduct contravenes provisions of the Competition Act, and hence it initiated proceedings against the company.
“The commission submits that section 26 of the Competition Act strictly prohibits certain forms of conduct by dominant firms, as such entering into exclusive supply agreements to restrict market access,” the NaCC said in its heads of argument prepared by senior counsel from South Africa, Advocate Rafik Bhana.
Namib Mills has a market share of 45% or more in in the production and sale of wheat flour.
According to the NaCC, Namib Mills in contrast advocates for a rule of reason or effect-based approach in its interpretation of section 26 (1).
It was explained in the heads of argument there are two approaches, a form-based or per se approach, which focuses on how a firm's conduct is categorised, and the effect-based approach, which focuses on the economic impact a firm's conduct has on consumers and competition.
The per se rule emanates from the evaluation of anti-competitive business practices in United States anti-trust law, which puts a restraint on trade that is considered to be inherently anti-competitive.
“It is a conduct - either an agreement or a practice by an undertaking - that is conclusively presumed to be anti-competitive and thus illegal, merely by its nature, that is, by virtue of its 'pernicious effect',” the NaCC argued.
According to the commission, the per se rule therefore allows courts to rule that certain types of conduct have anti-competitive effects, without engaging in a detailed analysis to ascertain whether the conduct in fact has such an effect and should be prohibited.
In contrast, the NaCC said, the rule of reason or effect-based approach involves a detailed and often complicated inquiry into competition flow harm by particular business practises and then balancing it against the pro-competition benefits that may result.
The analysis first identities whether the agreement or conduct substantially prevents, restricts, lessens or reduces competition, usually by evaluating whether there is direct harm to consumer welfare or whether such harm could be caused indirectly by the substantial foreclosure of competition.
The NaCC alleges that in Namibia the classification of the per se and rule of reason restraints are embodied in the Namibian Competition Act itself.
“It is therefore to the proper interpretation of that statute that we must turn.”
The NaCC argued that these provisions require a rule of reason analysis is a function of the wording of the provision, and by contrast, the words “anti-competitive effect”, simply do not appear in section 26 of the Namibian legislation.
“Nor is there any wording which suggests that a dominant firm might raise an efficiency justification in defence of its conduct.”
The NaCC accordingly submitted that the court should find in its favour in relation to the separated issues and declare that section 26 of the Act must be interpreted to apply to a “per se object” or “presumptive” basis, with the consequence that it is not required to allege and prove that clause 19.1 of the Namib Mills' loan agreements had an anti-competitive effect in order to be unlawful under section 26 (1) of the Act.
In its reply, Namib Mills disagreed with the commission's approach and contends that the process of interpreting legislation is objective.
It argued that interplay between sections 23 and 26 of the Competition Act is required in a way that yields results.
“The loan agreements in issue in this case are 'vertical agreements' - concluded between a supplier and its customer, and not between competitors. Section 23 regulates both horizontal and vertical agreements,” Namib Mills argued.
It consequently submitted that section 26 should not be interpreted in a vacuum and that it must be interpreted while taking the impact of section 23 into account.
The miller said it is appropriate for the court to consider relevant foreign and international laws when interpreting and applying the Competition Act.
“The dominance of a firm is not prohibited. They are entitled to conclude vertical agreements as any other firm in the market and would be subject to all the requirements of section 23, as any other firm. It may conclude a vertical agreement with exclusive provisions. Such an agreement could contravene section 23 if it lessens competition and conversely would not offend it if it does not lessen competition,” Namib Mills argued.
It said further the true nature of the loan agreement must be interrogated and that these agreements are aimed at assisting downstream customers.
“Properly construed, agreements of the type of bakery loan agreements are competition-enhancing and pro-competitive, as they encourage and support new entrants into the bakery sector and provide much-needed support to participants that may otherwise not be able to enter the market because of a lack of funding.”
Namib Mills submitted the agreements have not had an anti-competitive effect, in the form of market foreclosure or harm to consumers.
“Quite the opposite, the bakery loan agreements have benefitted bakery owners by allowing them to enter or expand in the downstream market while end-consumers benefit from access to increased suppliers.”
According to Namib Mills, bakery customers switch between it and Bokomo, which indicates active rivalry between the two competing suppliers.
It argued the application failed to demonstrate that Namib Mills is dominant in an appropriately defined market and if it succeeds, it will result in Bokomo benefitting, by shielding it from legitimate competition.
It said the NaCC application should therefore be dismissed.
Andrew Theunissen from Theunissen Louw and Partners is appearing for Namib Mills while Judge Boas Usiku presides.
FRED GOEIEMAN
In accordance with clause 19 of the agreements the bakeries may only purchase wheat flour, pre-mixes and ready-mix products from Namib Mills.
“If this is not the case, the creditor can ask for full settlement of the loan within seven days or the bakery equipment can be collected by the creditor (Namib Mills),” the NaCC said of Namib Mills' loan deals, which the commission claims is anti-competitive behaviour.
In its heads of argument, in which it cites Bokomo as an interested party, the NaCC said Namib Mills' conduct contravenes provisions of the Competition Act, and hence it initiated proceedings against the company.
“The commission submits that section 26 of the Competition Act strictly prohibits certain forms of conduct by dominant firms, as such entering into exclusive supply agreements to restrict market access,” the NaCC said in its heads of argument prepared by senior counsel from South Africa, Advocate Rafik Bhana.
Namib Mills has a market share of 45% or more in in the production and sale of wheat flour.
According to the NaCC, Namib Mills in contrast advocates for a rule of reason or effect-based approach in its interpretation of section 26 (1).
It was explained in the heads of argument there are two approaches, a form-based or per se approach, which focuses on how a firm's conduct is categorised, and the effect-based approach, which focuses on the economic impact a firm's conduct has on consumers and competition.
The per se rule emanates from the evaluation of anti-competitive business practices in United States anti-trust law, which puts a restraint on trade that is considered to be inherently anti-competitive.
“It is a conduct - either an agreement or a practice by an undertaking - that is conclusively presumed to be anti-competitive and thus illegal, merely by its nature, that is, by virtue of its 'pernicious effect',” the NaCC argued.
According to the commission, the per se rule therefore allows courts to rule that certain types of conduct have anti-competitive effects, without engaging in a detailed analysis to ascertain whether the conduct in fact has such an effect and should be prohibited.
In contrast, the NaCC said, the rule of reason or effect-based approach involves a detailed and often complicated inquiry into competition flow harm by particular business practises and then balancing it against the pro-competition benefits that may result.
The analysis first identities whether the agreement or conduct substantially prevents, restricts, lessens or reduces competition, usually by evaluating whether there is direct harm to consumer welfare or whether such harm could be caused indirectly by the substantial foreclosure of competition.
The NaCC alleges that in Namibia the classification of the per se and rule of reason restraints are embodied in the Namibian Competition Act itself.
“It is therefore to the proper interpretation of that statute that we must turn.”
The NaCC argued that these provisions require a rule of reason analysis is a function of the wording of the provision, and by contrast, the words “anti-competitive effect”, simply do not appear in section 26 of the Namibian legislation.
“Nor is there any wording which suggests that a dominant firm might raise an efficiency justification in defence of its conduct.”
The NaCC accordingly submitted that the court should find in its favour in relation to the separated issues and declare that section 26 of the Act must be interpreted to apply to a “per se object” or “presumptive” basis, with the consequence that it is not required to allege and prove that clause 19.1 of the Namib Mills' loan agreements had an anti-competitive effect in order to be unlawful under section 26 (1) of the Act.
In its reply, Namib Mills disagreed with the commission's approach and contends that the process of interpreting legislation is objective.
It argued that interplay between sections 23 and 26 of the Competition Act is required in a way that yields results.
“The loan agreements in issue in this case are 'vertical agreements' - concluded between a supplier and its customer, and not between competitors. Section 23 regulates both horizontal and vertical agreements,” Namib Mills argued.
It consequently submitted that section 26 should not be interpreted in a vacuum and that it must be interpreted while taking the impact of section 23 into account.
The miller said it is appropriate for the court to consider relevant foreign and international laws when interpreting and applying the Competition Act.
“The dominance of a firm is not prohibited. They are entitled to conclude vertical agreements as any other firm in the market and would be subject to all the requirements of section 23, as any other firm. It may conclude a vertical agreement with exclusive provisions. Such an agreement could contravene section 23 if it lessens competition and conversely would not offend it if it does not lessen competition,” Namib Mills argued.
It said further the true nature of the loan agreement must be interrogated and that these agreements are aimed at assisting downstream customers.
“Properly construed, agreements of the type of bakery loan agreements are competition-enhancing and pro-competitive, as they encourage and support new entrants into the bakery sector and provide much-needed support to participants that may otherwise not be able to enter the market because of a lack of funding.”
Namib Mills submitted the agreements have not had an anti-competitive effect, in the form of market foreclosure or harm to consumers.
“Quite the opposite, the bakery loan agreements have benefitted bakery owners by allowing them to enter or expand in the downstream market while end-consumers benefit from access to increased suppliers.”
According to Namib Mills, bakery customers switch between it and Bokomo, which indicates active rivalry between the two competing suppliers.
It argued the application failed to demonstrate that Namib Mills is dominant in an appropriately defined market and if it succeeds, it will result in Bokomo benefitting, by shielding it from legitimate competition.
It said the NaCC application should therefore be dismissed.
Andrew Theunissen from Theunissen Louw and Partners is appearing for Namib Mills while Judge Boas Usiku presides.
FRED GOEIEMAN