Finding upheld against firm for excessive profiteering on sale of masks
Competition appeal court rules that minimal harm was caused and overturns fine previously imposed on Babelegi
The competition appeal court has upheld the first case of excessive pricing in its history against an industrial supplier that sold 76 boxes of dust masks at an average mark-up of 500% in the wake of the coronavirus pandemic.
Babelegi Workwear & Industrial Supplies, north of Pretoria, sold dust masks from January 31 to March 5 with profit markups ranging from 107% to as much as 1,120% to fewer than 20 customers in total.
The Competition Commission, which acts like a prosecutor, charged the company and referred the matter to the Competition Tribunal, which found Babelegi guilty and fined it R76,040.
The commission did not want consumers to be exploited during the pandemic though Babelegi’s high prices occurred before a single case of Covid-19 was detected in SA.
This week, the competition appeal court upheld the tribunal’s finding that Babelegi charged excessive prices, though it overturned the fine, leaving Babelegi with no penalty. The court found that “minimal harm” was caused due to the low number of sales it made and the fact that Babelegi had spent time in court.
In the judgment, Judge Dennis Davis said that cases of excessive pricing are challenging for competition authorities around the globe as it can turn them into price regulators.
Both previous cases of excessive pricing at the competition appeal court against Mittal (now Arcelor Mittal) and Sasol were overturned.
The Competition Act was amended in February this year and Babelegi was the first company to be tried for excessive pricing under the amended act.
Davis and two other judges found Babelegi guilty of excessive pricing, viewing the firm’s actions through the lens of the unprecedented Covid-19 pandemic.
Excessive pricing under the Competition Act requires that the firm charged is proven to be dominant and possesses market power.
A team of seven advocates, acting for free, represented Babelegi at the competition appeal court.
They argued that the commission failed to prove that the firm was dominant and had market power and acted like a monopoly by setting high prices.
Davis disagreed, writing: “The evidence on record revealed that throughout the complaint period [Babelegi] acted as if it was a monopolist, extracting the maximum price that it possibly was able to obtain from those who purchased a product which was necessary to assist in slowing the spread of the virus.”
Davis criticised the tribunal’s haste in bringing the case but found that its excessive zealousness and “unreflective approach” was not a defence that Babelegi could use.
Davis also found that the firm could not justify why it hiked its prices so high when there was no increase in its costs.
Nkonzo Hlatshwayo, a lawyer from Lawtons Africa, said the judgment meant other smaller businesses could be found guilty of excessive pricing.
“The judgment creates an important legal precedent in that dominance can be inferred regardless of the size of a business if it behaves in a similar manner,” he said.
Competition commissioner Tembinkosi Bonakele welcomed the finding as it validates how the commission acted when it fined companies for price hikes of essential goods such as masks and sanitisers.
“This judgment by the competition appeal court vindicates the commission’s proactive stance on investigating and prosecuting excessive prices during the advent of the Covid-19 pandemic,” he said.
“This really places the commission and the competition authorities of SA as pioneers in enforcement and protection of consumers during a national disaster, and I’m sure that this is a precedent that will probably last for a very long time, indeed forever.”
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