040-SLLR-SLLR-1997-2-CEYLON-OXYGEN-CO.-LTD-v.-FAIR-TRADING-COMMISSION-AND-ANOTHER.pdf
372
Sri Lanka Law Reports
[1997] 2 Sri L.R.
CEYLON OXYGEN CO. LTD.
v.FAIR TRADING COMMISSION AND ANOTHER
COURT OF APPEAL.
DR. RANARAJA, J.
C.A. 932/94APRIL 30.1996.
Fair Trading Commission Act, No. 1 of 1987 sections 11, 14, 15 – Monopolysituation – Anti-competitive practice – Jurisdiction to inquire into predatory pricingand discriminatory pricing.
The appellant Company was investigated by the respondent Fair TradingCommission (FTC) with respect to the existence of a monopoly situation or anti-competitive practice in the supply of oxygen. The FTC formed an opinion that theappellant had resorted to anti-competitive practice of entering into writtenagreements for the supply of gases/products in bulk to its customers containing aprovision that the buyers must purchase his total requirements from the appellant.
On appeal it was argued that the FTC did not hold a fair and proper inquiry andthe agreements complained of are not anti-competitive. Further having made theappellant understand that it was investigating into complaints relating topredatory pricing and discriminatory pricing it could not have changed the scopeof the inquiry into anti-competitive practices without due notice to the appellant.
The Commission commenced the investigation on a complaint made by IndustrialGases (Pvt) Ltd., that the appellant Company was resorting to unfair tradepractices to their detriment. The FTC investigation focussed onpredatory/discriminatory pricing, exclusive dealings discriminatory refutes/discounts in its pricing policies. It was argued that the Commission has come to afinding that there was no evidence to establish predatory/discriminatory pricingbut the said agreements amounts to an anti-competitive practice; further that theFTC has commenced inquiries not on any of the three matters specified in section11(a) (b) and (c) – which deals with the prevalence of any anti-competitivepractice.
Held;
(1) Ex facie the FTC has acted outside the scope of section 11 in commencing itsinvestigation.
Per Ranaraja, J.
“If an investigating body commences an inquiry without jurisdiction. Whateverdecision it may arrive at the conclusion of that investigation, that patent defect oflack of jurisdiction will render the entire investigation improper and unfair".
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Ceylon Oxygen Co. Ltd. v.
Fair Trading Commission and Another (Dr. Ranaraja, J.)
373
(2) The FTC has declared the agreements between the appellant and the fivecustomers null and void, inoperative and any agreements of a similar natureentered into with its customers to be deemed null and void and inoperative. Thereis no evidence, that these parties apart from the appellant were heard. Section 15does not empower the respondent to make such orders without hearing theparties to such agreements.
APPEAL from an Order of the Fair Trading Commission.
Romesh de Silva P.C. for petitioner.
Alan Thambinayagam S.C. for respondents.
Cur. adv. vult.
April 30,1996.
DR. RANARAJA, J.
The appellant company, Ceylon Oxygen Ltd., was investigated bythe respondent Fair Trading Commission under the provisions ofsection 11 of the Fair Trading Commission Act, No. 1 of 1987,purportedly with respect to the existence of a monopoly situation oranti competitive practice in the supply of Oxygen. At the conclusionof the investigation, the Commission acting under section 15 of thesaid Act, formed the opinion that the appellant had resorted to anticompetitive practice and proceeded to direct the appellant;
To terminate the anti-competitive practice of entering intowritten agreements for the supply of gases/products in bulk to itscustomers containing a provision that the buyer must purchase histotal requirements from the appellant. The Commission directed anyagreements of such a nature entered into by the appellant bedeemed null, void and inoperative.
to refrain from entering into similar agreements.
The Commission also decided to closely monitor the activitiesand market behaviour of all manufacturers and distributors of gasesand related products to ensure fair and effective competition.
The appellant has filed this appeal to have the order of therespondent set aside inter alia, on the grounds,
the respondent did not hold a fair and proper inquiry.
The agreements complained of are not anti competitive.
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Section 14 of the Act defines "anti competitive" practice to mean asituation “where a person in the course of business, pursues a courseof conduct, which of itself or when taken together with a course ofconduct pursued by a person associated with him, has or is intendedto have or is likely to have the effect of restricting, distorting orpreventing competition in connection with the production, supply oracquisition of goods in Sri Lanka or the supply or securing ofservices in Sri Lanka.”
Section 15 requires the Commission at the conclusion of theinvestigation, inter alia, where the anti competitive practice is likely tooperate against the public interest, (1) the adjustment of contracts,whether by discharge or reduction of any liability or obligation orotherwise, (2) the termination of any anti competitive practice in suchmanner as may be specified in the order, (3) such other action as theCommission may consider necessary for the purpose of remedyingor preventing the adverse effects of any anti competitive practice.
Thus in the instant case the Commission had to satisfy itself on theevidence placed before it that, (a) the appellant in the course of itsbusiness of production and distribution of Oxygen, by entering intowritten agreements for the supply of gases/products in bulk to itscustomers had intended or was likely to have the effect of restricting,distorting or preventing competition in connection with theproduction and supply of Oxygen in Sri Lanka,
that the practice adopted, even though anti competitive wasagainst the public interest,
that the Commission had the power to make the ordersreferred to.
In deciding whether an anti competitive practice is likely to operateagainst the public interest, the Commission is required to take intoaccount all matters relevant to the matter under investigation havingspecial regard to the desirability of,
maintaining and promoting effective competition between thepersons supplying the gases/products,
promoting the interest of consumers in respect of the priceand quality of the supplies,
Ceylon Oxygen Co. Ltd. v.
Fair Trading Commission and Another (Dr. Ranaraja, J.)
375
CA
(c) promoting through competition, the reduction of costs, thedevelopment and use of new techniques and facilitating the entry ofnew competitions into existing markets.
The Commission has come to a finding that the appellant hadentered into written agreements with bulk purchasers ofgases/products beginning in October 1993 with (1) City CycleIndustries, (2) Asian Electricals, (3) Hiat Steel (Pvt) Ltd, (4) CeylonSteel Corporation, (5) Colombo Dockyards, but that they do not affordsufficient evidence to establish predatory pricing or discriminatorydiscounts or rebates. However it expressed the view that theprovisions in the said agreements that the buyer must purchase thetotal requirements from the appellant amounts to an anti competitivepractice. The Commission has based its opinion on the evidence ofwitness Wijesekera that the clause which requires the buyer topurchase the total requirements was inserted with a view to securingthe market share of the appellant. The Commission determined thatsuch a clause would have the effect of preventing any competitor fromselling its products to the buyers concerned. It had totally ignored therequirement that the Commission must also consider whether such apractice was likely to operate against the public interest.
The main complaint of the appellant is that the Commission at thecommencement of the investigation having made the appellantunderstand that it was investigating into complaints relating topredatory pricing and discriminatory pricing could not have changedthe scope of the inquiry into anti competitive practices without duenotice to the appellant.
Learned State Counsel has submitted that the respondent hadcalled upon the counsel for the appellant to make submissions withregard to anti-competitive practice and exclusive dealings on 3.6.94.This Court, although briefed with the proceedings up to page 10, hasnot been provided with proceedings recorded thereafter on that date.However proceedings of 14.7.94 support the State Counsel’ssubmissions that the appellant’s Counsel was asked to makesubmissions on anti competitive practice.
But what is important is whether the respondent had thejurisdiction at the inception of the investigation to inquire intopredatory pricing and discriminatory pricing in the first place, under
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the provisions of the Fair Trading Commission Act. It is to be notedthe Commission may commence an investigation either on its ownmotion or on a complaint made to it by any person. The order of therespondent specifically states. “By a letter dated 7th February, 1994Industrial Gases (Pvt) Ltd., complained to the Fair TradingCommission that Ceylon Oxygen Ltd, was resorting to unfair tradepractices to their detriment.” Thereafter the respondent for thepurpose of investigation focussed on, (1) predatory pricing, (2)exclusive dealings, (3) discriminatory rebates or discounts in itspricing policies. In other words, it had commenced its inquiries not onany of the three matters specified in section 11 (a), (b) and morespecifically, (c) which deals with the prevalence of any anticompetitive practice.
It is clear therefore that ex facie the Commission has acted outsidethe scope of section 11 in commencing its investigation. If aninvestigating body commences an inquiry without jurisdiction,whatever decision it may arrive at the conclusion of that investigation,that patent defect of lack of jurisdiction will render the entireinvestigation improper and unfair.
There is a further reason besides the failure of the Commission toconsider the aspect of public interest, why the order of therespondent cannot be allowed to stand. The Commission hasdeclared the agreements between the appellant and the fivecustomers referred to earlier null, void, inoperative and anyagreements of a similar nature for the bulk supply of gases/productsentered into by the appellant with its customers to be deemed null,void and inoperative. There is no evidence which shows that theparties to those agreements, apart from the appellant, were heard bythe respondent and therefore the orders have been made in breachof basic rules of'natural justice. Section 15 of of the Law does notempower the respondent to make such orders without hearing theparties to such agreements. The respondent had exceeded itspowers in making those orders.
For the reasons given the order of the respondent is set aside. Theappeal is allowed with costs.
Appeal allowed.