Dis-Chem has withdrawn its appeal against a competition tribunal ruling that it was guilty of excessive face-mask pricing, saying it faced reputational damage and being seen in the same light as those implicated in corruption scandals.
In late February, weeks before the government declared a state of national disaster, Dis-Chem, SA’s second-largest pharmacy chain, increased its prices from R43.47 for 50 masks to R156.95, a 261% increase. Other mask packs increased 43%.
Had Dis-Chem pursued its case at the competition appeal court, some lawyers argue, the pharmacy group would probably have won because in 20 years no company appealing in a case of excessive pricing has lost. However, the case would probably have gone all the way to the Constitutional Court.
Dis-Chem opted instead to pay a R1.2m fine, much lower than the 10% of annual turnover the commission had asked for, which would have amounted to more than R2bn.
The competition commission, which acts as prosecutor, is using competition law designed to penalise monopoly companies to fine any business for overcharging for masks in what some competition lawyers feel is not the best application of
the law.
But Dis-Chem felt it needed to get back to business rather than set legal precedent in what could have been a costly and lengthy battle.
Dis-Chem said that "the withdrawal has nothing to do with the legal merits of the case but was based on a strategic assessment to focus on trading in an environment, which remains challenged".
Dis-Chem also said it withdrew the appeal after being associated with the personal protective equipment (PPE) corruption scandals.
Social media users expressed outrage about high prices of masks, and compared the company to allegedly corrupt politicians and their family members exploiting PPE tenders for personal gain.
Dis-Chem said its decision to withdraw the appeal "is informed by the justifiable anger at procurement abuses during the provision of PPE at taxpayers’ expense".
The company said that being linked to corruption scandals "could taint Dis-Chem’s reputation by misplaced association".
Verlie Oosthuizen, a social media lawyer at Shepstone & Wylie, said "the social media mob" do not always apply the law. If people don’t take a stand, mob justice is going to continue, but litigation is often not worth the time or money.
‘Business decision’
"The legal system is incredibly expensive. It becomes a business decision."
Ivan Saltzman, CEO of Dis-Chem, said lawyers said that the company would have won the case on appeal.
"We remain confident that we neither overcharged nor broke the law. We believe that our price adjustments ... were justified, given the increased costs we were facing."
Dis-Chem had a strong case because the provision on excessive pricing in the Competition Act can only be applied to "dominant" companies and the commission, which acts as a prosecutor, needs to prove the company was dominant and set prices independently of its competitors.
A small industrial clothing firm, Babelegi, is appealing against a similar conviction in September, with economists and more than seven lawyers acting pro-bono due to concern about the tribunal’s application of competition law.
Competition lawyer Nkonzo Hlatshwayo of Lawtons Africa said Dis-Chem’s alleged dominance had not been proved. Instead, he said, based on Dis-Chem’s conduct of putting up prices, the competition commission "just assumed" dominance.
"The competition commission has never successfully prosecuted an excessive pricing case at the appeal court," he said.
But he understood why Dis-Chem withdrew its appeal.
"I do understand Dis-Chem’s dilemma here. Although the
law might be on their side, the bottom line is that they are
a business."
"I am pleased that Dis-Chem has made this decision," said competition commissioner Tembinkosi Bonakele. "We believe that the tribunal made the right call by condemning the conduct."
Bonakele said charging high prices during the pandemic "deprived consumers, particularly poor consumers, of access to essential goods".
NGOs Open Secrets and the Health Justice Initiative, who had been admitted as friends of the court in the Dis-Chem case, welcomed the withdrawal.
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