7 March 2018 by and Competition Alert

A tale of two cinemas

The Competition Tribunal recently dismissed a market division complaint against Ster-Kinekor and Nu Metro arising from an agreement prescribing the genre of film which each could exhibit at the Victoria & Alfred Waterfront (V&A Waterfront) in Cape Town.

The alleged market allocation agreement arose in the context of a civil dispute between Nu Metro and the landlord of the V&A Waterfront when Ster-Kinekor sought to operate an “art cinema complex”. Nu Metro contended that it enjoyed a right of first refusal should any further theatres be developed at the V&A Waterfront. When its objection was disregarded, it instituted action in the High Court. The matter was resolved by way of a settlement agreement in terms of which Nu Metro agreed to withdraw its objection to Ster-Kinekor entering the V&A Waterfront on condition that Ster-Kinekor’s operations would be limited to “art films” while Nu Metro would only exhibit “commercial films”. This agreement was subsequently made an order of the High Court (Settlement Agreement). All of this took place before the prohibition against market division in the Competition Act, No 89 of 1998 (Act) came into effect.

It later appeared that Ster-Kinekor intended to exhibit certain commercial films at the V&A Waterfront which would amount to a breach of the Settlement Agreement.

Nu Metro accordingly sought legal advice and on this basis decided against implementing the Settlement Agreement, and applied for leniency. The Commission granted Nu Metro leniency and referred the complaint against Ster-Kinekor to the Tribunal. Ster-Kinekor raised the following key arguments before the Tribunal:

  • Firstly, the Commission improperly characterised the Settlement Agreement as an agreement between competitors (a prerequisite for a market division contravention) when in fact it comprised two vertical relationships: the one between Nu Metro and the landlord of the V&A Waterfront, and the other between Ster-Kinekor and the landlord.
  • Secondly, Ster-Kinekor, having changed hands, argued that the Tribunal could not grant relief against its new owner because it had not contravened the Act even if its predecessor had.
  • Thirdly, Ster-Kinekor contended that the Settlement Agreement was concluded before the commencement date of the Act’s market division prohibition and thus the parties could not be deemed to have contravened the Act.

Ultimately, the case turned on the third issue. The Commission contended that notwithstanding the fact that the parties concluded the Settlement Agreement before the relevant section of the Act came into force, both parties had implemented the agreement after the commencement of the relevant section.

The Tribunal held, however, that the evidence revealed that Ster-Kinekor’s exhibition of art films could have plausibly been more attributable to the implementation of Ster-Kinekor’s business model rather than the Settlement Agreement. Counsel for Ster-Kinekor pointed out, the fallacy of such an argument by a story our courts have retold about the Parisian cripple suspected of being a German spy in disguise:

That he [ie the Parisian cripple] habitually speaks French and limps on two sticks matters not all: that he was once heard speaking fluent German and was seen to run may well be conclusive.

Secondly, post the enforcement of the Act, Nu Metro had only tried to invoke the Settlement Agreement once in circumstances where there was uncontested evidence indicating that the Ster-Kinekor employees had no knowledge of the Settlement Agreement which Nu Metro sought to invoke. Without knowledge of a Settlement Agreement, it follows that there could be no implementation of it.

The Tribunal ultimately dismissed the complaint against Ster-Kinekor and held that the Settlement Agreement was concluded before the relevant provision in the Act came into force and that the Commission could not prove that there was continuing conduct regarding the implementation of the Settlement Agreement after the section’s commencement.

Had there been evidence of actions or discussions aimed at implementing the Settlement Agreement, the historic nature thereof would unlikely have been a sound defence to the market division allegations. Any risky arrangements concluded prior to the enforcement of the Act’s market division section will be deemed to be on-going, unless clearly discarded.

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