No end in sight for SAA competition litigation

Posted 20 September 2016 Written by Ahmore Burger-Smidt

Quite apart from its well publicised lapses of governance, South African Airways (SAA) has been a serial visitor to the Competition Court since 1998 over accusations that it violated fair competition rules. Recently, the national airline was ordered to pay R104m to Nationwide for infringements of competition rules. This case serves as a useful barometer for meauring damages in similar cases, says Ahmore Burger-Smidt, writing in Business Day.

The high court ordered South African Airways on August 8 2016 to pay more than R104m to liquidated airline Nationwide, for damages caused by SAA’s abuse of market dominance from 2001 to 2006. This is the first time a damages claim based on a finding by the Competition Tribunal has been litigated in full.

The competition authorities found that on more than one occasion that SAA offered incentives to travel agents that resulted in an abuse of dominance by SAA; this for the period 1999 to 2001 as well as 2001 to 2006.

SAA was ordered to pay an administrative penalty of R45m during 2005 for the finding against it of abuse of dominance in relation to loyalty rebates offered to travel agents between 1999 and 2001, which provided incentives to travel agents to divert passengers from rivals domestic flights to SAA. This finding by the competition authorities laid the first basis for a civil claim for damages in SA. The action was brought by Nationwide in the Pretoria High Court for the harm it claimed to have suffered as a result of the abuse of dominance by SAA.

While it was the first claim of its kind in SA following a finding by the competition authorities against a company, it did not result in a ruling. Therefore, the long awaited precedent setting litigation regarding civil claims for competition-related damages did not result. A civil damages claim by Nationwide for R43m, stemming from the 2001 ruling by the Competition Tribunal, was settled by SAA and Nationwide on a confidential basis shortly after the trial began in 2006.

It took almost 10 years from the inception of the Competition Act, 1998 (as amended) for the first civil claim to emerge in the form of a claim by Nationwide Airlines, for damages suffered as a result of abuse of dominance by SAA in the domestic passenger airline market. And it took an additional 10 years for a further civil damages claim to be concluded against the national airline this year.

With regard to the civil damages claim for the period 2001 to 2006, SAA argued during the proceedings, resulting in the successful claim of civil damages by Nationwide this year, that there is a lack of causation to substantiate any Nationwide claim. But what is apparent from the SAA argument is that the alleged lack of causation did not relate to the merits of the claim by Nationwide, but rather the quantum of the claim. In fact, it was the view presented by SAA that no actual damage was caused by the anticompetitive conduct it engaged in during the period 2001 to 2005, that if there were any losses suffered by Nationwide, which it denied, they were caused by factors unrelated to SAA’s anti competitive conduct.

The finding by the high court that SAA is to pay to Nationwide damages in the sum of R104,625m, is precedent setting. The court, in a very detailed judgment, analysed various ways in terms of which the quantum of damages was to be calculated to establish a robust methodology for such quantification. SAA is to pay interest on the damages award until the date of full settlement in addition.

It is of grave concern that SAA has over an extended period, almost since inception of the Competition Act, been hauled before the competition authorities in relation to allegations of anticompetitive behaviour. Various claims for anticompetitive conduct have been investigated against SAA, and the national airline was ordered to pay administrative penalties during 2004 (R15m), 2005 (R20m), 2006 (R20m) and 2010 (R18,799,292). This is in addition to the R45m administrative penalty being levied during 2005. The amount SAA has paid in terms of penalties and civil claims for anticompetitive conduct has reached a significant amount. To add to this dim picture, the current claim for civil damages by Comair could impact on the overall figure significantly.

Comair has instituted a civil claim for damages against SAA for the same conduct that Nationwide had complained about. The Comair claim was argued during the week of August 22 2016. In its voluminous court papers, Comair presented a model produced by an expert witness that showed the total damages suffered by Comair amounted to R898m. Comair also asked the court for 15.5% interest, which would push the total damages claimed to about R2bn. We await the final outcome.

Clearly, a robust competition law compliance initiative is called for if one would endeavour to bring healing to the broken SAA.

• Burger-Smidt is director and competition-law specialist at Werksmans Attorneys.


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