Did the tribunal put its thumb on the scales?

The law applies even in a pandemic, and authorities can’t use the coronavirus outbreak, no matter how frightening, to circumvent it. Except many competition lawyers feel this is just what the Competition Tribunal has done.

The tribunal, which acts as a court in antitrust matters, this week found Babelegi, a small family-run Pretoria company, guilty of charging excessive prices after it sold 76 boxes of dust masks at an average 500% markup in February.

The first chair of the tribunal, David Lewis, has previously noted that excessive pricing in competition law “is fraught with complexity and controversy”.

Excessive pricing is a difficult case to prove for many reasons. For one, the law was set up so that it wouldn’t be easy for the state to interfere with markets and rule on the prices of goods at a whim.  

The tribunal appears to have made proving such an excessive price case remarkably easy, by using the coronavirus pandemic to reinterpret the strict law on what constitutes an excessive price. This has raised questions about whether authorities are using the pandemic to circumvent the requirement to behave lawfully.

The Competition Act states only a dominant company with market power can be guilty of excessive pricing.

It helps to have context about South Africa’s two main cases of excessive pricing in the past 20 years to explain the rather technical issue.

Both cases were against huge companies: Sasol and the firm now known as  ArcelorMittal, which were monopolies thanks to apartheid-era support given by the state when the energy and steel giants were established.

Both cases went all the way to the Competition Appeal Court, which overturned the guilty verdicts. Put another way, not a single case of excessive pricing in SA’s democracy has been upheld by the Competition Appeal Court.

So back to the case at hand.

First, the commission, which brings a case before the tribunal, had to prove this family-run company was a dominant player with market power to set excessive prices unconstrained by competition.

So is Babelegi, a “firm you have never heard of in your life” as described by its advocate, really a dominant market player in the mask business?

According to the tribunal, yes it is. It accepted the commission’s argument that because Babelegi sold masks at high prices, it was therefore dominant.

This, say lawyers, is problematic. The law has many tests to prove a company is dominant, including considering competitors’ prices at home and in other markets, the length of time this happened and barriers to entry. But the commission didn’t examine these issues.

It used a circular argument — it said the charge of excessive pricing proved the dominance. The fact that Babelegi charged what it did means it had temporary market power.

The commission also argued that the law and Babelegi’s high prices should be seen through the prism of extraordinary circumstances of the pandemic. And the tribunal agreed with it on this point too.

But Babelegi sold these masks in February, before South Africa had been gripped by the pandemic and imposed its national lockdown, which came towards the end of March.

Is it fair to apply the circumstances of the coronavirus pandemic to a company’s behaviour in February, when South Africa did not have a single case and mask wearing was not widespread? Lawyers who are not involved in this case have described this finding as unfair. The conduct and high prices took place before a state of disaster was declared in South Africa and yet this disaster is being used to make a case against the company.

The guilty finding does mean Dis-Chem, which made the same argument as Babelegi and argued that a dominance case had not been proved against it, is likely to lose its case.  

It also means the coronavirus pandemic has made what has been an impossible case to prove in 20 years much easier for the competition authorities to win.

But the law must not be diluted even in the face of a health tragedy.