THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No:  118/2010

In the matter between:

SENWES LIMITED

APPELLANT

v

THE COMPETITION COMMISSION OF
SOUTH AFRICA

RESPONDENT

Neutral citation:
Senwes v Competition Commission (118/2010) [2011]
ZASCA 99 (1 June 2011)

Coram:
Mpati P, Brand, Lewis, Bosielo and Seriti JJA

Heard:
11 May 2011

Delivered:
01 June 2011

Summary:
Competition Act 89 of 1998 ─ finding of Tribunal that appellant
contravened s 8(c) of the Act by conduct constituting a margin squeeze ─ held
that this conduct not covered by the referral to the Tribunal and the finding
therefore not competent.

________________________________________________________________

ORDER
________________________________________________________________

On appeal from:
The Competition Appeal Court (Davis JP, Mailula and Malan
JJA concurring, sitting as court of appeal from the Competition Tribunal).
The application for leave to appeal is granted with costs, including the
costs of two counsel.
The appeal is upheld with costs including the costs of two counsel.
The order of the Competition Appeal Court is set aside and replaced with
the following:
‘(a)
The appeal is upheld with costs, including the costs of two counsel.
(b)
The order of the Competition Tribunal is set aside and replaced with the
following:
“The application is dismissed.”’
________________________________________________________________

JUDGMENT
________________________________________________________________

BRAND JA  (MPATI P, LEWIS, BOSIELO and SERITI JJA concurring)

[1] This is an application for leave to appeal against an order from the
Competition Appeal Court (the CAC) dismissing an appeal by the appellant
(Senwes) against a judgment of the Competition Tribunal (the Tribunal) in which
an application by the respondent (the Commission) was upheld. The application
for leave to appeal had been referred for the hearing of argument in terms of s
21(3) of the Supreme Court Act 59 of 1959. At the heart of the impugned
judgment of the Tribunal lies its finding that Senwes had contravened s 8(c) of
the Competition Act 89 of 1988 (the Act) by engaging in what is classified in the
parlance of competition law as a ‘margin squeeze’.

[2] Section 8(c) of the Act prohibits a dominant firm from engaging in an
‘exclusionary act’ which is defined in s 1 of the Act as ‘an act that impedes or
prevents a firm from entering into, or expanding within, a market’. By the nature
of things I am bound to return to these provisions as well as to the concept of a
margin squeeze in more detail. But for purposes of introduction, a ‘margin
squeeze’ is a phenomenon that occurs when a vertically integrated firm,
participating in both the upstream and downstream markets, is dominant in the
upstream market and supplies an essential input to its competitors in the
downstream market. The dominant firm is then said to engage in a margin
squeeze when it raises the price of that input to a level where the downstream
competitors can no longer survive in that market.
[3] Put very simply ─ for I shall return to the facts in detail later ─ Senwes
provided storage facilities in silos to farmers (producers) in a particular area. That
is referred to as the ‘upstream market’. It trades in the product ─ grain and
maize, for example ─ by buying from farmers and selling to processors (millers
and bakers) and to other traders. The trading is the ‘downstream  market’.
Senwes is a ‘vertically integrated firm’ because it operated as one entity in both
markets.
[4] In concluding that Senwes engaged in a margin squeeze thus described,
the Tribunal made four essential findings:
(a)
Senwes is a vertically integrated firm in that it participates in both the
upstream market of grain storage in silos and the downstream market of grain
trading.
(b)
In the upstream market of grain storage Senwes is a dominant firm within
its area of operation.
(c)
Storage is an essential input in the downstream market of grain trading.
(d)
Through manipulation of its storage charges, Senwes has prevented its
competitors in the downstream market from earning a viable profit.
[5] Before the CAC, Senwes’ ground of appeal amounted to two contentions:

(a)
The finding of margin squeeze by the Tribunal was not competent
because this was not a case that Senwes was called upon to answer:  neither a
margin squeeze nor the alleged conduct giving rise to the consequence of a
margin squeeze was ever pleaded by the Commission (the proceedings
contention).
(b)
Alternatively, even if the complaint of margin squeeze could appropriately
be entertained by the Tribunal, the elements of the complaint had not been
established on the evidence (the evidence contention).
[6] The CAC found both these contentions wanting. In consequence it
dismissed the appeal as well as the subsequent application by Senwes to appeal
to this court against that judgment. In its present application before this court
Senwes relies on essentially the same two grounds. A finding in favour of
Senwes on the proceedings contention will render an inquiry into the evidence
contention unnecessary. I therefore propose to deal with the former at the outset.
But before doing so, it is appropriate to refer to the general requirements for
leave to appeal to this court against a judgment of the CAC.
Requirements for leave to appeal
[7] These requirements were succinctly formulated in American Natural Soda
Ash Corporation v Competition Commission 2005 (6) SA 158 (SCA) para 19.1:
‘This Court’s inherent constitutional power to protect and regulate its own process
empowers it to require applicants for leave to appeal from a specialist appellate tribunal
to demonstrate, in addition to a reasonable prospect of success, that there are “special
circumstances” indicating that a further appeal should lie.’
And para 21:
‘As we observed in NUMSA1 (para 43), the procedures for applying for leave to appeal,
and the factors relevant to obtaining special leave, are well established. The criterion for
the grant of special leave to appeal is not merely that there is a reasonable prospect that
the decision of the CAC will be reversed – but that the applicants can establish “some
additional factor or criterion”. One is where the matter, though depending mainly on

1 National Union of Metal Workers of South Africa v Fry’s Metals (Pty) Ltd 2005 (5) SA 433
(SCA).

factual issues, is of very great importance to the parties or of great public importance. In
applying this criterion, this Court must be satisfied, notwithstanding that there has
already been an appeal to a specialist tribunal, and that the public interest demands that
disputes about competition issues be resolved speedily, that the matter is objectively of
such importance to the parties or the public that special leave should be granted.’
[8] The central question is therefore whether Senwes has demonstrated on
the basis of either its proceedings contention or its evidence contention (a)
reasonable prospects of success on appeal; and (b) that there are special
circumstances requiring a further appeal to this court. I shall consider these
questions against the factual background that follows.
Background
[9] Senwes has been in existence for almost a hundred years. For most of
that period it was an agricultural co-operative. But in April 1997, it was converted
into a public company.  Its area of operation is mainly in the Free State and to a
lesser extent in the North-West, Gauteng and the Northern Cape. Within its area
of operation it owns 56 grain silos, which represents more than 90 per cent of the
grain storage capacity in that area. The extent of its dominance in that market is
due to historic reasons.
[10] These reasons were, according to expert testimony before the Tribunal,
that agricultural marketing in this country had been characterised for many years,
by State intervention. It started in 19372 as part of a global trend towards State
intervention in agricultural affairs after the Great Depression. Grain industries
were controlled by different control boards, eg the Maize Board, the Wheat Board
and so forth. These  boards administered single channel marketing schemes;
they were the only buyers and sellers of the commodities that they controlled;
they administered fixed prices at which these commodities were bought from
farmers and sold to millers; and they appointed agents to perform the physical
handling functions to move the commodities from farm gate to mill door.

2 Originally with the Marketing Act 26 of 1937 which was then consolidated and redrafted in the
Marketing Act 59 of 1968.

[11] Generally speaking, the agents of the boards were agricultural
cooperatives. These agents earned most of their income from handling and
storing grain on behalf of the boards. The boards usually appointed only one
agent in a particular area. This, of course, afforded the cooperatives a
competitive edge in their areas of operation. To enable them to perform their
agency functions, cooperatives were encouraged to build bulk silos. Financial
assistance was afforded to them, generally in the form of low interest loans by
the Land Bank.  Senwes was one of these cooperatives.
[12] Drastic changes in the system came about with the deregulation of
agricultural marketing in terms of the Marketing of Agricultural Products Act 47 of
1996. Under the deregulated system, single marketing channels were formally
terminated, control boards were disbanded and grain traders entered the scene.
What did not change, however, was that the agricultural cooperatives retained
ownership of the silos. In addition, silos are enormously expensive and since
there proved to be a general over-supply of silo storage capacity in the country,
the construction of new silos does not constitute a financially viable option.
[13] Under the deregulated system the vertical linkages in the South African
grain industry can broadly be described as follows. The first link of the supply
chain comprises the grain producers, ie the farmers. The next level is the silo
owners. Then there is the level of grain traders and finally, there are the
processors, consisting of the millers and (in the case of wheat), the bakers. The
new entrants after deregulation, the grain traders, provide an intermediary
service between the producers and the processors. In doing so they usually earn
a margin from the difference between the purchase price and the sale price of
grain.
[14] Another significant change brought about by deregulation was that grain
can now be traded as a commodity on the South African Futures Exchange
(Safex).3  In order to facilitate this trading, contracts are standardised according
to product (eg white maize), contract size (eg 100 tons), date of delivery in the

3 Which is part of the Johannesburg Securities Exchange.

future and location (eg Bultfontein Silo). A requirement for trade on Safex is a
negotiable instrument. In the case of grain, this instrument is referred to as a silo
certificate which is issued by a Safex approved silo. Silo certificates guarantee
the holder’s entitlement to a fixed quantity of the specified grain product at the
issuing silo on the specified date of delivery. The Senwes silos are authorised by
Safex to issue these silo certificates.
[15] Safex transactions do not necessarily result in physical delivery of grain.
On the contrary, the amount of grain traded on Safex exceeds the physical grain
trade by a factor of eight. For present purposes we are not really concerned with
the Safex trade, but with the physical trade in grain. Yet the Safex trade is
important because the prices that traders offer to farmers in the physical trade
are determined with reference to the Safex price. In broad outline, the physical
price of grain is calculated by deducting the anticipated price of storage and
transport as well as the trader’s margin from the Safex price. Because Safex
constitutes a national market, grain prices are determined with reference to a
national standard of which both producers and processors are well aware.
Moreover, committees within Safex recommend annual tariffs for daily storage
rates. Though these rates are not binding, they are in practice followed by silo
owners, including Senwes.
[16] Storage plays a vital role in the physical grain trade. It flows from the fact
that the harvesting season of grain is limited to three or four months. In the case
of maize – which comprises about 80 per cent of the grain crop in South Africa –
it is between May and August. Processors, on the other hand, require a constant
supply throughout the year. Grain not consumed during the harvest season
therefore requires to be stored. Storage is predominantly supplied by silo owners.
An alternative is to store grain in huge silo bags (up to 200 tons). At present,
however, this alternative has some features that makes it less appealing, not the
least of which is that silo bags are not eligible for silo certificates and are
therefore excluded from the Safex trade. In the end, about 75 per cent of the total
grain crop is stored in commercial silos like those that belong to Senwes.

[17] Storage cost forms a major part of the eventual price of the grain that
requires storage. It is calculated on the basis of one ton per day, for which the
Safex recommended tariff was, at the time of the proceedings before the
Tribunal, in the region of 40 cents. Storage for 100 days would therefore amount
to R40 per ton, which can, by way of illustration, be compared to the trader’s
margin which was, during the same period, in the region of R15 to R17 per ton.
[18] This brings me closer to the complaints brought against Senwes which
centred around the storage tariffs that it imposed. Historically Senwes offered two
options to all its storage customers ─ both farmers and traders: A daily tariff
which was the Safex recommended tariff; and a lump sum storage amount that
was roughly equivalent to 100 days of storage at the daily tariff. This was referred
to as the capped tariff. The capped tariff applied only until the next harvest
season when either the daily tariff or a new capped tariff started again. In May
2003 Senwes removed the capped tariff for traders and offered it to farmers only.
This new dispensation became known as the differential tariff because it
differentiated between farmers and traders. A trader who stored for longer than
100 days thus continued to pay the daily tariff. At the same time a rumour started
amongst competitors of Senwes that farmers were only eligible for the capped
tariff if they sold their grain to Senwes. If they sold to other traders instead, they
would have to pay a daily tariff on an uncapped basis. Against this background I
now turn to the complaint as it was formulated by the Commission in its referral
to the Tribunal.
The referral
[19] The complaint against Senwes was referred to the Tribunal by the
Commission in its prosecutorial role on 20 December 2006. It had its origin in a
formal complaint by a competitor of Senwes in the trading market, C T H Trading
(Pty) Ltd (CTH), which was filed on 2 December 2004. In accordance with the
rules of the Tribunal, the referral was by way of notice of motion, which embodied

the prayers for relief, supported by an affidavit, stating the grounds of the
complaint and the material facts upon which the Commission relied.4

[20] The referral was in line with, though substantially narrower than, the
original complaint. So, for example, complaints by CTH about administrative
charges raised by Senwes and the fact that Senwes provided finance to farmers
who sold their crops to it, were not referred. What the referral focussed on were
two allegations of fact. First, that Senwes offered a capped tariff only to farmers
who sold their grain to it.  Second, that Senwes discriminated against its
customers who are traders in that the capped tariff was offered to farmers only
and was not available to traders.
[21] The first alleged factual situation was said to constitute a contravention of
s 8(d)(i) of the Act, which prohibits a dominant firm from ‘inducing a customer not
to deal with a competitor’. Senwes’ answer to this charge was a denial that it
offered the capped tariff only to farmers who ultimately sold to it. As a fact, so
Senwes contended, its storage charges in no way distinguished between farmers
who sold their crop to it and those who did not. Even at this early stage I find it
convenient to point out that on this issue the Tribunal found for Senwes and that
the CAC accepted this finding as correct. In consequence we need no longer be
detained by this charge.
[22] The second complaint relied on the differential tariff levied on farmers and
traders, respectively, which practice was admitted by Senwes. The Commission’s
main complaint based on this practice was that it constituted price discrimination
as envisaged in s 9 of the Act, which provides, in relevant part:
‘An action by a dominant firm, as the seller of goods or services, is prohibited price
discrimination, if –
(a)
it is likely to have the effect of substantially preventing or lessening competition;
(b)
it relates to the sale, in equivalent transactions, of goods or services of like grade
and quality to different purchasers; and

4 See rules 14 and 15 of the Rules for the Conduct of Proceedings in the Competition Tribunal
which were promulgated in terms of s 27(2) of the Act.

(c)
it involves discriminating between those purchasers in terms of –

(i)
the price charged for the goods or services;
(ii)
any discount, allowance, rebate or credit given or allowed in relation to
the supply of goods or services . . .  ‘
[23] As to why the differential tariff constituted a contravention of s 9, the
Commission motivated its case as follows in paragraph 32 to 34 of the affidavit
supporting the referral.
‘32
The service of provision of commercial handling and storage facilities of grain by
Senwes to producers and traders constitutes a sale, in equivalent transactions, of
services of like grade and quality to different purchasers.
Senwes’ differentiated pricing policy for grain storage between producers and
traders is such that it involves discriminating between those purchasers in terms
of:

33.1  The price charged for the service; or
33.2
The discount or rebate given or allowed in relation to the supply of the
service.
The aforegoing conduct further has the effect of substantially preventing or
lessening competition within the contemplation of section 9(1) and is therefore
prohibited price discrimination in terms of the Act.’
[24] Senwes’ answer to this charge was in essence that farmers and traders
are not competitors in the same market and that the differential tariff would
therefore have no negative effect on competition. In the event, both the Tribunal
and the CAC held this complaint to be ill-founded as well. Again, we therefore
need not be detained any further by the charge of price discrimination under s 9.
[25] But according to the referral, the Commission founded an alternative
complaint on the basis of the differential tariff, which the Tribunal and the CAC
eventually endorsed, namely, that the differential tariff constituted an
exclusionary act with anti-competitive effect as envisaged in the prohibition
contained in s 8(c) of the Act.5 The terse motivation advanced in the referral for
the alternative complaint was that:

5 The full text of s 8(c) provides:

‘Senwes’ practice of charging differential tariff fees for storage, is exclusionary and has
an anti-competitive effect, as it impedes or prevents CTH and other grain traders who
compete with Senwes from expanding within the downstream market for grain trading
and is thus in contravention of section 8(c) of the Act.’
[26] Senwes contended from the start that the charge under 8(c) was, on the
face of it, without a factual foundation. After it had filed its answering affidavit,6
Senwes therefore applied for the Tribunal to adjudicate the complaint based on a
differential tariff by way of exception.7 As the basis for the exception it contended
that ‘it is axiomatic that conduct can only have an effect on competition between
identified persons or groups of persons if the persons identified compete with
each other in the same market’ and that, because the roles of farmers and
traders ‘are complementary, not competitive, giving producers better storage
rates than traders, can never produce anti-competitive consequences’. The
Commission did not deal with the exception on its merits. It opposed the
application on two procedural bases: That its case against Senwes was set out
with sufficient clarity and particularity in the referral; and that Senwes had elected
to file an answering affidavit and thereby waived its right to except. In the event
the Tribunal dismissed the application for leave to except out of hand and without
reasons.
Witness statements
[27] Subsequently, witness statements were exchanged between the parties.
This happened shortly before the commencement of the hearing before the
Tribunal. The witness statements pertained to both expert witnesses and
witnesses on fact. According to factual witness statements filed on behalf of the
Commission, traders competing with Senwes complained that they would be

‘It is prohibited for a dominant firm to –
(c)
engage in an exclusionary act, other than an act listed in paragraph (d), if the anti-
competitive effect of that act outweighs its technological, efficiency or other pro-
competitive, gain; or . . .‘
6 In terms of Tribunal Rule 16.
7 Though the rules of the Tribunal do not provide for exception procedure, Senwes contended
that the Tribunal could entertain an exception on the basis of s 27(1)(d) of the Act which
authorizes it ‘to make any ruling or order necessary or incidental to the performance of its
functions in terms of the Act’.

better able to trade if they were afforded the benefit of the capped tariff. But their
complaint went further. Because they were not offered the capped tariff, so they
said, Senwes was able to beat the offer they made to farmers in that it was able
to deduct a lesser amount for storage from the Safex price. What this amounted
to, of course, was not a comparison of the position of traders vis-à-vis farmers,
but with the position of competing traders vis-à-vis Senwes qua trader. In short,
the complaint thus formulated was that Senwes as storage provider offered a
better deal to its trading arm than to other traders. The witnesses were careful,
however, not to level this charge in express terms. They put the charge no higher
than ‘I suspect that Senwes does not deal with its own trading division as it does
with a third party trader when it comes to storage charges’.
[28] In the same vein, factual witnesses also complained about administrative
charges that were levied by Senwes – qua storage provider – on other traders,
but not on its own trading arm. So, for example, they complained about a charge
of R8,50 per ton levied by Senwes on other traders for information about their
own stock stored in the Senwes silos. If a trader therefore sought information
about its own stock of, say, 5 000 tons in a Senwes silo, it had to pay an amount
of R42 500. Further, if a trader required Senwes to issue a silo certificate, the
cost would be R1,50 per ton, irrespective of volume. A silo certificate for 100 tons
would therefore cost R150 and a 10 000 ton certificate, R15 000. Neither of these
charges, so the witnesses said, were levied on the Senwes trading arm. Since
competing traders were bound to deduct these expenses from the Safex price in
arriving at the price that they offered to farmers,  it was almost impossible to
compete with Senwes in a market where the profit margin was no more than R15
per ton.
[29] The concept of margin squeeze was pertinently raised for the first time in
the witness statement of an expert economist, Dr Nicola Theron, which was filed
by the Commission, together with its factual witness statements. With reference
to this concept, she levelled the following charge against Senwes:
‘A margin squeeze generally prevents rivals also active in the downstream market from
making a profit. The dominant firm uses its power over supply of the downstream input

to distort competition in this way. This can be done by raising input prices to a level
where the rival firms cannot survive or compete. Generally, there should not be a
discriminating difference between prices charged to the downstream rivals and its own
integrated business . . . . In the current case this is the alleged practice that Senwes is
guilty of.’
[30] In support of this charge she relied on the following examples emanating
from the factual witness statements:
(a)
That the capped tariff was not available to traders, but only to farmers.
(b)
That the capped storage tariff was only available to farmers who sold to
Senwes  ─ an allegation which the Tribunal found not to have been established.
(c)
The levying of administrative fees by Senwes for information which ‘are so
much that it often makes a trade unprofitable’ ─ a complaint originally made by
CTH but not referred to the Tribunal.
(d)
That Senwes provided finance to farmers on condition that they sell their
crops to Senwes ─ again a complaint originally made by CTH but not referred to
the Tribunal.
Objections by Senwes
[31]  Upon receipt of the witness statements, Senwes prepared a document
entitled ‘A Schedule of Objections’. The schedule recited the alleged
objectionable conduct by Senwes referred to the Tribunal and then proceeded,
with reference to each witness statement, to identify those paragraphs that
contained evidence of conduct or practices that did not form part of the referral.
Thus it started by pointing out that the only alleged practices of Senwes referred
to the Tribunal were:
‘(a)
differentiating between traders and producers of grain in respect of silo costs for
grain stored in excess of 100 days; and
(b)
differentiating silo costs for producers who sell to Senwes from those who do
not.’
[32] Traversing the factual witness statements, the schedule pertinently raised
objections to the introduction of evidence relating to a comparison between how

Senwes treated its own trading arm, on the one hand, and competing traders on
the other. With regard to the expert witness statement by Dr Theron, Senwes
objected to her expressing an opinion based on alleged abuses that had not
been referred. The schedule was conveyed to the Commission prior to the
hearing.
[33] At the commencement of the hearing, Senwes formerly presented its
schedule of objections to the Tribunal. In the course of going through the
schedule, counsel for Senwes requested that the objections be treated as being
raised against all evidence tendered in despite the objections and that he would
not burden the Tribunal by raising an objection each time evidence was
presented outside the referral.  In response to the objections, both the
Commission and the Tribunal remained passive. In particular, the Tribunal gave
no indication that it would be willing to entertain complaints outside the referral.
[34] The factual evidence presented by the Commission followed the course
predicted in its witness statements.  Despite the general nature of the objection
raised at the outset, counsel for Senwes from time to time pertinently objected to
evidence relating to discrimination by Senwes against other traders in favour of
its own trading arm. The views expressed by Dr Theron as an expert were
likewise in line with those formulated in her witness statement. Under cross-
examination, she admitted that the thesis of a margin squeeze rested squarely
on an assumption of discrimination by Senwes against competing traders in
favour of its own trading arm. At the same time she conceded, however, that she
had no knowledge of what charges Senwes imposed on its trading arm.
[35] The gap in the factual basis of the Commission’s case thus exposed was
closed in cross-examination of the factual witnesses on behalf of Senwes. In
short they were compelled to concede that Senwes did not charge its trading arm
any storage costs at all. The expert witness called on behalf of Senwes refused
to take issue with Dr Theron on the matter of margin squeeze, because, so he
testified, he was advised by Senwes’ legal representatives that it fell outside the
ambit of the referral and was therefore irrelevant.

Margin squeeze covered by the referral
[36] The Commission’s primary argument which found favour with both the
Tribunal and the CAC was that Senwes’ conduct which the Commission
eventually held to be in contravention of the Act, was indeed covered by the
referral.  Though the concept of a margin squeeze in itself was not specifically
mentioned in the referral, so the Commission argued, Senwes’ conduct which
attracted that label was part of the complaint referred. In this regard the
Commission inter alia relied on the following allegation in the referral:
‘Senwes’ practice of charging differential tariff fees for storage is exclusionary and has
an anti-competitive effect, as it impedes or prevents CTH and other grain traders who
compete with Senwes from expanding within the downstream market for grain trading
and is thus a contravention of s 8(c) of the Act.’
[37] These allegations, so the Commission’s argument proceeded, are borne
out by the evidence of one of its factual witnesses, Mr Herbert Keyser. What
Keyser testified, amongst other things, is that, although his firm can compete with
Senwes during the first 100 days of storage, the charges it had to pay for storage
after that period rendered further competition with the trading arm of Senwes
impossible. Had his firm been allowed the same benefit of a capped tariff
afforded to farmers, it would have been able to compete with Senwes after 100
days as well. This evidence shows, so the Commission’s argument concluded,
that it is Senwes’ conduct of charging a differential tariff which had properly been
pleaded, which constituted the marginal squeeze.
[38] Unlike the Tribunal and the CAC I do not believe that the Commission’s
argument can be sustained. In formulating my reasons for saying this, I refer, for
the sake of brevity, to the conduct complained of in the referral as ‘the charge’
and to the conduct which the Tribunal found to be objectionable as ‘the
conviction’. The differential tariff referred to in the charge focussed on a
comparison between traders and farmers. The margin squeeze which formed the
basis of the conviction, on the other hand, focussed on a discrimination by
Senwes, as storage provider, against other traders in favour of its own trading
arm. To have founded a complaint of margin squeeze the Commission would

have had to refer to the discrimination as between it, qua trader, and other
traders, in the downstream market, caused by its participation and dominance in
the upstream market. That, as I see it, is the essential difference between the
conviction and the charge.
[39] The difference becomes more apparent once it is appreciated that the
complaint of a differential tariff, between traders and farmers could be removed
by abolition of the 100 day cap for farmers as well. That would place farmers and
traders on the same footing. Yet it would not assist the traders in their
competition with Senwes at all. Conversely, if the trading arm of Senwes was
charged the same storage fee as other traders after 100 days, the abolition of the
100 day cap for traders would have no impact on the ability of the latter to
compete with the former. All this is borne out by Keyser’s concession in cross-
examination that his real complaint against the abolition of the 100 day cap for
traders was grounded on his suspicion ─ which turned out to be true ─ that the
abolition of the cap did not apply to the Senwes trading arm.
[40] But the difference between the charge and the conviction goes deeper.
Since the conviction is entirely dependent on the discrimination by Senwes
against other traders, the abolition of the 100 day cap can be no less
objectionable in principle than the charges for silo fees and information that
Senwes levied against other traders, but not against its own trading arm. That
much appears from the evidence of Dr Theron. It is clear from her expert opinion
that all these charges contribute in equal measure to the consequence of a
margin squeeze. Yet, while the abolition of a cap was part of the referral, the
other charges were not. This goes to show, in my view, that the discrimination by
Senwes against other traders was not the subject of the referral.
[41] If the charges levied by Senwes qua storage owner against its own trading
arm was as vital to the charge as it was to the conviction, one would have
expected the Commission to have investigated these charges prior to the
referral, in terms of its wide powers under ss 46 - 49(A) of the Act. That would
have rendered it unnecessary for the witnesses called by the Commission to

speculate and for the Commission to rely on concessions by Senwes’ witnesses
with regard to these matters. This again seems to show that these matters, which
turned out to be vital to the conviction, were not even regarded as relevant at the
time of the referral.
[42] In its judgment refusing leave to appeal to this court, the CAC found
support for its view that the conviction was covered by the charge in the following
quotations from the referral:
‘Senwes abuses its dominance in the handling and storage of grain market by charging
in effect a lower storage fee to a producer who agrees to sell the grain stored in Senwes’
silos to Senwes. [This statement is contrary to the actual finding by the Tribunal with
which the CAC agreed.] Producers who sell their products through third parties that
compete with Senwes downstream pay a higher fee for the storage of grain. CTH
alleges that this practice has made it virtually impossible for it to compete with Senwes in
a trading market within the relevant geographical area.’
[43] The answer to the reliance on these allegations, I think, is that they were
made in support of a charge which the Tribunal found not to have been
established ─ ie that Senwes contravened s 8(d)(i) of the Act, which prohibits a
dominant firm from inducing a customer not to deal with a competitor. They had
nothing to do with the discrimination by Senwes against other traders in favour of
its own trading arm, which formed the basis of the conviction.
[44] Finally, I believe the difference between the charge and the conviction is
borne out by the Commission’s change of course with regard to the remedies it
sought against Senwes. Originally the remedies sought were set out in the notice
of motion. At the commencement of the hearing, the Tribunal was asked, by
agreement between the parties, to decide the merits of the complaint first while
the issues pertaining to the appropriate remedies stood over for later
determination. The remedies originally sought were in line with the charge. In the
main they comprised orders declaring the practice of differential tariffs a
prohibited practice, an interdict against its continuation and the imposition of an
administrative penalty under s 59(1) of the Act.

[45] But the Commission must have realised that the remedies originally
sought would not prevent the conduct constituting the margin queeze of which
Senwes was convicted. Compliance would require no more from Senwes than to
abolish the 100 day cap with reference to farmers. After the decision of the
Tribunal and the CAC in its favour, the Commission therefore applied for a
drastic amendment to the remedies it proposed to seek at the resumed hearing
before the Tribunal. These would include:
(a)
An order against Senwes to sell either its grain trading division or its
storage division to a separate registered company.
(b)
Directing that all parties who store grain with Senwes would be charged
for such storage on the same terms and conditions.
[46] In the affidavit supporting the amendment application (p 196) the
deponent on behalf of the Commission explained that, in order to remove the
margin squeeze, it is necessary to ensure that the price paid to Senwes by other
traders for storage facilities must be equal to what Senwes’ own trading division
has to pay. This result can only be attained, so the deponent continued, by a full
business separation of Senwes’ different business entities. From all this it is
clear, in my view, that the conduct constituting a margin squeeze was so far
removed from the referral that it was not even contemplated in the relief originally
sought.
Was the Tribunal entitled to go beyond the terms of the referral?
[47]  The further contention advanced by the Commission, which also found
favour with both the Tribunal and the CAC, was that even if Senwes’ conduct
which led to its conviction was not covered by the terms of the referral, the
Tribunal was entitled to go beyond its terms in the circumstances of this case. As
to why the Tribunal was entitled to do so, the Commission relied on the following
arguments.

(a)
Tribunal proceedings should not be equated with a civil dispute between
parties. Consequently the Tribunal is entitled to adopt a more flexible approach to
pleadings than a court does in civil proceedings.
(b)
On Senwes’ own admission it became aware that the Commission
intended to rely on conduct constituting a margin squeeze, prior to the hearing,
when witness statements were exchanged. Despite ample opportunity to do so,
Senwes however deliberately elected, in the implementation of a conscious
strategy, not to deal with that part of the  Commission’s case. In the words of the
Commission, Senwes took this high risk gamble because it had no answer to
these allegations. A party  who conducts litigation in a manner which amounts to
a high risk gamble, so the Commission contended, cannot be heard to complain
when  the strategy fails.
(c)
Senwes had no answer to the charge of a margin squeeze because
Senwes’ witnesses conceded that its own trading division did not incur the
storage costs that other traders had to pay; that in consequence other traders
could not compete with it; and thus conceded, for all practicable purposes, that
Senwes was guilty of margin squeeze conduct.
(d)
Senwes had failed to seek a ruling from the Tribunal that conduct
constituting a margin squeeze was not part of the complaint referred nor did it
properly object to the introduction of evidence to that effect.
[48] Again I do not agree with the Tribunal and the CAC in their acceptance of
the contentions by the Commission. In motivating my conclusion I propose to
deal with the arguments advanced in support of the contention, individually.
[49] Elaborating on its argument based on the difference between the Tribunal
and civil courts, the Commission pointed out that proceedings before the Tribunal
are not aimed at resolving civil disputes between parties, but at the protection of
the public from anti-competitive behaviour. Hence the Tribunal should not be
constrained by the ambit of pleadings to the extent of a civil court. Rules of
procedure, the Commission contended, are for the convenience of the Tribunal
and are not to stand in the way of its endeavour to fulfil the purposes of the Act.

[50] This approach, so the Commission continued, is borne out by the
provisions of ss 52 and 55 of the Act. Thus, for example, s 52 provides that the
Tribunal must adhere to the principles of natural justice but that it may conduct its
hearings informally or in an inquisitorial manner. And, in terms of s 55, the
Tribunal is authorised to accept as evidence any relevant oral testimony,
document or other thing, whether or not it is given or proven under oath or
affirmation and whether or not it would be admissible as evidence in a court.
What is apparent from these provisions, so the Commission contended, is that
the Tribunal has unique procedural powers which differ from those of a court in
adversarial civil proceedings.
[51] While all this may be true, the starting point of an enquiry into the scope of
the Tribunal’s authority, is that we are dealing with a creature of the Act. It has no
inherent powers. In accordance with the constitutional principle of legality, it has
to act within the powers conferred upon it by the Act.8 In terms of s 52(1) the
Tribunal must conduct a hearing, subject to its rules, into any matter referred to it.
The reverse side of this must be that the Tribunal has no power to enquire into
and to decide any matter not referred to it. I therefore agree with the following
statement by the CAC in Netstar:9
‘. . . . [I]t is necessary once again to emphasize that the Tribunal is not at large to decide
whether conduct is anti-competitive and then to formulate reasons for that finding. It is . .
. . bound to apply the Act and engage with the issues as they arise from a proper
construction of the Act’s provisions. It does so in the light of a specific complaint that has
been referred to it for determination and its only function is to determine whether in the
light of the Act’s provisions and the evidence placed before it or obtained by it pursuant
to the exercise of its inquisitorial powers, that complaint is made out.’
[52] Thus understood, all the provisions of the Act and the rules pertaining to
the Tribunal’s conduct of its hearings are subject to the overriding limitation that
the hearing must be confined to matters set out in the referral. Of course these

8 See eg Fedsure Life Assurance Ltd v Greater Johannesburg Transitional Metropolitan Council
1999 (1) SA 374 (CC) paras 56-59.
9 Netstar (Pty) Ltd v Competition Commission SA (99/CAC/May 10) [2011] ZACAC 1 (15
February 2011) para 61.

matters can be extended by an amendment of the referral.10 Moreover, I accept
for the sake of argument that, as in the case of civil matters before the courts, the
referral can be extended by agreement (expressed or implied) between the
parties11 but the principle remains that the referral, with or without extension,
constitutes the boundaries beyond which the Tribunal may not legitimately travel.
[53] In terms of s 55 of the Act the Tribunal’s power to receive evidence in an
informal way is limited by the section to evidence that is relevant. Irrelevant
evidence may not be allowed in any way, whether formal or informal. That, of
course, includes evidence introduced by cross-examination. Relevance is
determined by the subject matter of the hearing which, in turn, is determined by
the referral. The same goes for the Tribunal’s power to gather information in an
inquisitorial manner. In doing so it may not stray beyond matters circumscribed
by the referral. That would offend the principle of legality.
[54] As to the argument that Senwes had been forewarned by the contents of
the witness statements that the Commission intended to rely on conduct
constituting a margin squeeze, the answer is that the Commission could not
render irrelevant evidence relevant by incorporating it into witness statements.
Whether Senwes had sufficient opportunity to deal with this irrelevant evidence is
neither here nor there. I accept that if Senwes had decided to confront the new
case, it could have done so. Presumably the referral would then have been
extended by implied agreement. But Senwes was under no obligation to so do. It
was entitled to do what it did, namely to adopt the stance that the evidence
pertaining to a margin squeeze was irrelevant.
[55] With regard to the argument based on Senwes’ failure to seek a ruling
from the Tribunal as to whether the conduct constituting a margin squeeze was
part of the referral before it adopted the stance that it did, I believe the answer is
this: in doing so Senwes took a gamble that it might be wrong in its interpretation
of the referral. If it turned out that as an objective fact the conduct constituting a

10 In terms of rule 18 of the Rules of the Tribunal.
11 See eg Shill v Milner 1937 AD 101 at 105; Fourway Haulage SA (Pty) Ltd v SA National Roads
Agency Ltd 2009 (2) SA 150 (SCA) para 14.

margin squeeze was indeed covered by the referral, that gamble would have
been lost. But the converse is equally true. In the light of Senwes’ consistent
attitude first in its exception and then in its objections, the Commission was
aware of the contention that its case based on margin squeeze fell outside the
referral. By refusing to seek an amendment of the referral so as to incorporate
the complaint of a margin squeeze, it is the Commission which took the gamble
and lost.
[56] This brings me to the Commission’s argument that Senwes took the
technical stance because it had no defence against the charge of a margin
squeeze. I believe there is more than one answer to this argument. The first is
that since Senwes’ stance had been found to be properly taken, its motive for
doing so is of no consequence. Secondly, the concessions by Senwes’ witnesses
which proved to be a vital part of the Commission’s case were elicited through
cross-examination aimed at irrelevant issues and therefore inadmissible. Of far
greater consequence, however, is that Senwes, in the light of its stance,
steadfastly refused to engage with a charge of a margin squeeze. Whether or not
it has a defence to that charge we simply do not know.
[57] The Commission’s argument that Senwes had failed to object properly is
primarily based on the fact that it did not raise a pertinent objection every time
evidence was presented by the Commission in support of a margin squeeze.
This objection comes as somewhat surprising in the light of the statement by
counsel for Senwes at the commencement of the hearing that the objections
raised in the document entitled ‘Schedule of Objections’ should be treated as
being raised against all evidence tendered in spite of them. But be that as it may,
the argument shows a lack of appreciation  as to the role of an objection. A
failure to object does not render irrelevant evidence tendered by the opposing
party relevant. But in the absence  of an objection it might be argued that the
issues had been extended by implied agreement. In the light of Senwes’
persistent attitude throughout the proceedings that the complaint of a margin

squeeze was not part of the case against it, any suggestion of an implied
agreement to incorporate that complaint is clearly unsustainable.
Compliance with the requirements of special leave.
[58] As to the requirement of reasonable prospects of success, it should be
clear by now that in my view Senwes not only succeeded in satisfying this
requirement, but that the appeal should in fact succeed. In criminal law parlance,
Senwes was acquitted of the charges brought against it and convicted on one
which was not.
[59] As to the requirements of ‘special circumstances’ it bears no denial that
the matter is of vital importance to Senwes, particularly in the light of the
remedies the Commission now proposes to seek at the resumed hearing of the
Tribunal. After all, what the Commission will now seek is that Senwes be broken
up as a business entity with all the ramifications that that might entail. Moreover,
it is clearly in the public interest that the Tribunal should not, in the exercise of its
far-reaching powers, stray beyond the authority bestowed upon it by the Act.
Although it probably did so with the best of intentions, it exceeded its powers and
thereby contravened the principle of legality which is an aspect of the rule of law
itself and therefore admits of no exception.
Relief
For these reasons it is ordered:
The application for leave to appeal is granted with costs, including the
costs of two counsel.
The appeal is upheld with costs including the costs of two counsel.
The order of the Competition Appeal Court is set aside and replaced with
the following:
‘(a)
The appeal is upheld with costs, including the costs of two counsel.
(b)
The order of the Competition Tribunal is set aside and replaced with the
following:
“The application is dismissed.”’

_____________________
F D J Brand
Judge of Appeal

APPEARANCES:

M S M Brassey SC (with him W G Engelbrecht)

Instructed by Cliffe Dekker Hofmeyr Inc, Sandton

Symington & De Kok, Bloemfontein

A R Bhana SC (with him T Dalrymple)

Instructed by The State Attorney, Pretoria

The State Attorney, Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment.

Senwes v Competition Commission (118/2010) [2011] ZASCA 99 (1 June 2011)

The Supreme Court of Appeal (SCA) upheld an appeal against an order made
by the Competition Appeal Court (the CAC) dismissing an appeal by the
appellant (Senwes) against a judgment of the Competition Tribunal (the
Tribunal) in which an application by the respondent (the Commission) was
upheld.  The appellant appealed to the CAC after the Tribunal found that they,
the appellant, had contravened s 8(c) of the Competition Act 89 of 1988 (the
Act) by engaging in what is classified in the parlance of competition law as a
‘margin squeeze’.

A ‘margin squeeze’ is a phenomenon that occurs when a vertically integrated
firm, participating in both the upstream and downstream markets, is dominant
in the upstream market and supplies an essential input to its competitors in
the downstream market. The dominant firm is then said to engage in a margin
squeeze when it raises the price of that input to a level where the downstream
competitors can no longer survive in that market.
The SCA found that the respondents’ charge of margin squeeze was not
included in the original referral to the Tribunal. In addition, the Commission
refused to seek an amendment of the referral so as to incorporate the
complaint of margin squeeze. In the light of Senwes’ persistent attitude
throughout the proceedings that the complaint of a margin squeeze was not
part of the case against it, any suggestion of an implied agreement to
incorporate that complaint is clearly unsustainable.
The court held that the Tribunal, as a creature of statute, was not empowered
to adjudicate charges that are not included in the referral before them. For
these reasons the SCA made the following order:

‘The order of the Competition Tribunal is set aside and replaced with the
following:
“The application is dismissed.”’