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What would it take to heal The SAA SAA bird's broken wing?

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What would it take to heal The SAA SAA bird's broken wing?

12th September 2016

By: Sane Dhlamini
Creamer Media Researcher and Writer

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On 8 August 2016 the High Court ordered South African Airways to pay more than R104 million to liquidated airline Nationwide, for damages caused by SAA’s abuse of market dominance for the period between 2001 and 2006. This is the first time a damages claim based on a finding by the Competition Tribunal has been litigated in full.

INTRODUCTION

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The competition authorities found 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 the period 2001 to 2006.

SAA was ordered to pay an administrative penalty to the amount of R45 million during 2005 for the abuse of dominance finding against it in relation to the loyalty rebates offered to travel agents between 1999 and 2001, which loyalty rebates 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 South Africa. 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. Whilst it was the first claim of its kind in South Africa 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 R43 million, stemming from the 2001 ruling by the Competition Tribunal was settled by SAA and Nationwide on a confidential basis shortly after the trial commenced in 2006.

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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 the 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 actual fact, it was the view presented by SAA that no actual damages was caused by the anti competitive conduct it engaged in during the period 2001 to 2005. It was indeed the SAA stance that if there were any losses suffered by Nationwide, which it denied, that such losses 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 R104,625 million, is indeed precedent setting. The Court, in a very detailed judgment, analysed various ways in terms of which the quantum of damages was to be calculated in order 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 of time, in actual fact almost since inception of the Competition Act, been hauled before the competition authorities in relation to allegations of anti competitive behaviour. Various claims for anti-competitive conduct have been investigated against SAA and the national airline has been ordered to pay administrative penalties during 2004 (R15 million), 2005 (R20 million), 2006 (R20 million) and 2010 (R18,799,292). This is in addition to the R45 million administrative penalty being levied during 2005. The amount that SAA has paid in terms of penalties and civil claims for anti-competitive has reached a significant amount. To add to this dim picture, the current claim for civil damages by Comair could impact the overall figure significantly.

CONCLUSION

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 22 August 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 R898 million. Comair also asked the court for 15.5% interest, which would push the total damages claimed to about R2 billion. 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.

 

Submitted by By Ahmore Burger-Smidt, Director and Competition Law specialist at Werksmans Attorneys

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