Dawn Consolidated Holdings (Pty) Ltd and Others v Competition Commission of South Africa

Dawn Consolidated Holdings (Pty) Ltd (Dawn), a distributor of hardware products, acquired a 49% shareholding in Sangio Pipe (Pty) Ltd (Sangio) in April 2007, a manufacturer of HDPE plastic pipes, with the remaining 51% held by the Warplas Share Trust. Dawn’s wholly owned subsidiary, DPI Plastics (Pty) Ltd (DPI), had previously manufactured small quantities of HDPE pipes but had mothballed its HDPE extruders due to inefficiency. A shareholders’ agreement regulated the relationship and included a non-compete clause (clause 20) prohibiting Dawn and its subsidiaries from manufacturing HDPE piping in South Africa and obliging them to procure their HDPE requirements from Sangio for as long as Dawn remained a shareholder. In 2014, when Dawn sought approval for a merger to acquire full ownership of Sangio, the Competition Commission discovered the clause and referred a complaint to the Competition Tribunal, alleging that clause 20 contravened s 4(1)(b)(ii) of the Competition Act 89 of 1998 as an impermissible horizontal market-allocation agreement. The Tribunal upheld the complaint, and Dawn, DPI and Sangio appealed to the Competition Appeal Court.

The appeal was upheld and the Competition Tribunal’s decision was set aside; the non-compete clause was found not to contravene s 4(1)(b)(ii) of the Competition Act.

The case is significant for clarifying the application of the principle of characterisation in South African competition law, particularly in relation to non-compete clauses in joint ventures and shareholders’ agreements. It confirms that not all restraints between competitors or potential competitors fall within the per se prohibitions of s 4(1)(b), and that commercially reasonable ancillary restraints necessary for legitimate transactions may fall outside the prohibition altogether.