Section 9(2) defences & the onus of proof.
Almost invariably, the law places the onus of proof on a person making an allegation of unlawfulness. It is only with considerable forethought that an onus is placed upon someone defending an allegation of unlawfulness. Why then is it that the price discrimination section of our Competition Act contains such a reverse onus of proof?
The reverse onus of proof permits a firm otherwise guilty of having practiced prohibited price discrimination to make a series of defences. These defences relate to economic necessity. Our law recognises certain specific circumstances in which it may be necessary for a dominant firm to practice price discrimination which otherwise would be considered unlawful. These circumstances are laid down in Section 9(2) of the Act. This section of the Act reads as follows:
2. Despite subsection (1), conduct involving differential treatment of purchasers in terms of any matter listed in paragraph (c) of that subsection is not prohibited price discrimination if the dominant firm establishes that the differential treatment –
(a) makes only reasonable allowance for differences in cost or likely cost of manufacture, distribution, sale, promotion or delivery resulting from the differing places to which, methods by which, or quantities in which, goods or services are supplied to different purchasers;
The sub-section referred to above needs some comment. It uses the limiting word “only’ in introducing those matters that may be brought into account when examining this defence. The use of this word limits both those costs that were incurred or which are likely to be incurred as well as the circumstances under which a cost justified defence may be raised.
It is well to note that only costs of manufacture, distribution, sale, promotion or delivery can be used for cost justifications. No reference is made to credit risk, interest rates charged, idle time, administrative charges, service charges or the plethora of other fees commonly charged in addition to price of the basic goods and services we consume. Whether these additional charges should fall within one of the permitted cost justification categories is another matter. Fortunately this was a fight that we did not have to consider.
These exceptional cost categories must also result from the circumstances contemplated by the exception. During our case, we pointed out following. The places from which, the methods by which and the quantities in which the goods were supplied to ourselves and our competitors was in all respects identical with regard to the supply of the product in question. Because the goods were supplied under identical circumstances, cost justification could not have resulted from differences in the circumstances of supply. For this reason, cost justification should not be contemplated as a defence unless there are differences between the circumstances of supply as contemplated in the exception.
We must also note that cost justification is an exception that makes lawful that which would otherwise be prohibited. Significantly, in the absence of quantifiable cost justification, price discrimination becomes unlawful. The head of the European Competition, Luc Geyselen, had this to say on the subject.
“It remains unclear which standard of proof a dominant company faces when it invokes objective justifications … for the alleged abuse. For a start, the dominant company must surely demonstrate that its allegedly abusive conduct (and nothing else) generates the efficiencies. Furthermore, the efficiencies must be verifiable, i.e. quantifiable”.
Mr. Geyselen comments at 88 that in Michelin 1, “the fact that the rebates were dependent on meeting volume targets did not make them quantity discounts, which are normally unobjectionable. It defines quantity discounts as being “normally paid in respect of individual orders (i.e. unrelated to a customers purchases over time) and in return for cost savings achieved by the supplier”. If cost savings are not quantified, then a differential quantity discount structure can be equated to selling some product at an excessive price”.
Sub-section 2 continues with the following economic justifications:
(b)is constituted by doing acts in good faith to meet a price or benefit offered by a competitor; or
(c)is in response to changing conditions affecting the market for the goods or services concerned, including –
(i) any action in response to the actual or imminent deterioration of perishable goods
(ii) any action in response to the obsolescence of goods;
(iii) a sale pursuant to a liquidation or sequestration procedure;
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Disclaimer: This site does not profess to offer legal assistance or interpretation. It’s content reflects the view and experience gained by of the author during a hearing at the Competitions Tribunal of South Africa. It may help you to figure out what happens & why.