Lawyers representing gold-miners Harmony and DRDGold have advised the companies to keep their legal options open with regard to the possible filing of civil claims for damages, following the precedent-setting ruling by the Competition Tribunal on Tuesday confirming that Mittal Steel South Africa had indeed charged excessive prices on the flat-steel product it sold to domestic consumers.
The two miners referred the case directly with the tribunal in February 2004, after the Competition Commission found no grounds to do so itself, despite an exhaustive investigation initiated over two years earlier.
The claim for civil damages would proceed independently from any administrative penalty that might be imposed by the tribunal itself. The authority has the right to impose a fine of up to 10% on Mittal's annual turnover in South Africa, as well as its exports from the country during the firm's preceding financial year.
In this instance, the penalty was likely to involve revenue arising from Mittal's flat-steel business in 2003. In that year, the then Iscor reported overall revenue of R19-billion, with the bulk of that arising from its flat-steel unit. It has been reported previously, therefore, that Mittal faced a maximum fine of around R1,6-billion. However, the company is facing other competition-related complaints – one from barbecue maker, Cadac, and the other involving its long-products division. Shoplacer mining methodsuld the company be found guilty in those instances, it might be facing administrative penalties of more than R2-billion, as well as a slew of civil claims.
At present, it was nigh impossible to quantify the possible quantum of the civil claims for which Harmony and DRDGold might apply, given that the tribunal was not precise as to level at which domestic steel prices became excessive. But the lawyers acting for the miners would presumably work on a number between the price being charged to Mittal's customers abroad and the import-parity price, which, in some cases, was more than 40% more that being charged on exports.
Cliffe Dekker attorney Nick Altini, who acts for Harmony and DRDGold, reported that the companies could now apply to the tribunal for a certificate opening a cause of action for civil damages.
This certificate had a three-year prescription period, but, should there be an appeal, any possible civil action would have to wait for the outcome of that process. However, the prescription period, which would ordinarily run from the date of the ruling, would also only begin running following jaw crusher made in amerthe conclusion of any appeal process.
But another problem for Africa's largest steel producer was that the Act did not place any limit on who could claim civil damages. In fact, Chapter 6 stated that, a person who had suffered loss or damage as a result of a prohibited practice, could file with the Registrar or Clerk of the Court a notice from the Chairperson of the Competition Tribunal, or with the Judge President of the Competition Appeal Court, for a certificate to proceed with a claim. In other words, the ruling opens the way for just about any consumer of flat steel from Mittal to take action.
However, it is anticipated that such action might be constrained by an order of the High Court, given that such open-endedness could imperil Mittal's very survival.
Further, Mittal faces the prospect of paying for the costs of the hearing itself, with Harmony CEO Bernard Swanepoel having said that it had spent R4-million on the case.
Long legal road forecast
But given that the tribunal ruling went to the very heart of how Mittal priced in the South African context, most observers cconcrete crushing recycle plants for saleanvassed were convinced that an appeal was inevitable. However, Mittal legal representatives could not be reached to confirm this.
Under the Act, Mittal had an automatic right to appeal to the Competition Appeal Court (CAC), and also had other legal avenues that it could exploit. Should the CAC find against it, it could apply for leave to appeal for a hearing at the Supreme Court of Appeal. Should it not gain such leave, it could seek such leave from the Chief Justice.
Despite the prospect of both the administrative penalty and the possible claims for civil damages, Mittal Steel South Africa had, hitherto, decided not to make provision for contingent liabilities arising from a possible fine as a result of the Competition Tribunal hearing.
Some observers believe that this decision might have been imprudent with one attorney describing it as "robust" and another as "surprising". Neither Mittal Steel South Africa nor its attorneys could be reach for comment on the issue at the time of publication.
However, arguably more significant for Mittal and South African steel consumers than any monetary penalties were the possible structural remedies being considered by the tribunal. The authority stated that it would only make public its preferred remedy, or remedies, once it had concluded another hearing into the possible administrative penalty.
At this stage, the only remedy ruled out was the forced divestiture by Mittal of its positions in either the Vanderbijlpark or Saldanha mills, which the tribunal suggested was an obvious way to deal with its super dominance, but that it felt there were alternatives available.
However, the tribunal had indicated that the possible remedies had been fully canvassed in the hearing and that it would also not be constrained to implement only what had been debated and might, thus, come up with its own remedy.
The gold-miners initially called for factory-gate prices to be levied on all flat steel sold by the company, whether it was destined for the local or export market. The aim was to reduce the disparity in prices charged to domestic and export customers, with the gold-miners alleging that the premium charged to domestic consumers has at times exceeded 50%.
But it later also proposed an alternative remedy, which, among others issued, proposed the tribunal force Mittal to divest its interest in Macsteel International Holdings, the company that the miners believe is used to ring-fence the surplus production and prevent arbitrage.
Observers believed it to be quite possible that the tribunal could move to enforce either the factory-gate pricing proposal, or the proposal for a divestiture by Mittal from Macsteel International.
What about the interim?
But what will happen in the steel market in the intervening period, while the legal battles continue to be fought was still an open question. Opinion was mixed as to whether Mittal would move to more aggressively constrain its pricing behaviour, or whether it would "take a risk" on a favourable outcome of its appeal and continue with a business-as-usual stance, given the commercial benefits associated with such a stance.
What was made apparent by the ruling, though, was that the tribunal did not buy into Mittal's argument that it had moved away from import-parity pricing, describing its basket model (which supposedly benchmarked domestic prices in South Africa with a basket of prices from other countries and was meant to have replaced the previous model) as hollow. The Department of Trade and Industry (DTI) put similar sentiments forward during the early stages of the hearing, when an official said that, while Mittal might have changed its methodology, the outcome had not changed for South African steel consumers.
Mittal and the DTI had been engaged in protracted negotiations for years to come up with a so-called "developmental pricing model", but to no avail. However, there have been indications recently that a deal was closer than it had been, leading some to speculate that part of the tribunal's remedy could be to order that these negotiations reach a satisfactory conclusion, and that a monitoring mechanism be established to ensure that there is no backsliding.