Embattled national carrier South African Airways (SAA) has been slapped with a court order to pay more than R104 million to liquidated airline Nationwide for damages caused by SAA’s abuse of market dominance from 2001 to 2006.
This is only the second claim of its kind in South African Competition Law and the first time a damages claim based on a finding by the Competition Tribunal has been litigated. It sets a precedent for a claim by Comair against SAA for the same conduct, said partner at law firm Bowman Gilfillan Lucinda Verster, who represented Nationwide and its liquidators.
The Comair claim amounts to R870 million plus interest and could total around R1.5 billion. Closing arguments in this case will be heard from August 22.
As was the case in the Comair claim, the Competition Tribunal has already ruled in Comair’s favour on the merits and only the extent of the damages remains to be determined, Verster said.
The Nationwide award comes as a leaked SAA quarterly report for the three months ended June 30 showed the airline made a R1.3 billion loss for the period. It has utilised all but R99 million of its state guarantees of more than R14 billion and National Treasury has been slow to respond to a request for a further R4.5 billion guarantee submitted late last year.
Finance Minister Pravin Gordhan last week publicly repeated his earlier position that the SAA board under chairperson Dudu Myeni should be replaced.
Verster, who has been on Nationwide’s legal team dealing with the matter over the past 14 years told Moneyweb that the Tribunal, Competition Appeals Court as well as the South Gauteng High Court found that if it were not for SAA’s unlawful conduct, Nationwide could have survived. It stopped operating in 2008 and subsequently liquidated.
Verster said the court made the award on Monday. It consists of R104.625 million, plus interest, the cost of the advocates and the cost of international experts who came to South Africa to testify on behalf of Nationwide.
The money will be distributed among Nationwide’s creditors, the biggest of whom is one of its former directors, Vernon Bricknell, Verster said.
Verster said SAA’s unlawful conduct entailed incentives offered to travel agents between 2001 and 2006, which resulted in them selling SAA flight tickets, rather than that of Nationwide and Comair.
SAA was found guilty of similar conduct between 1999 and 2001. A R43 million damages claim by Nationwide stemming from that ruling was settled between the two airlines on a confidential basis shortly after the trial commenced in 2006.
Asked what recourse Nationwide would have if SAA failed to pay the amount, taking into account its precarious financial situation, Verster said there were various options open to her clients, including an application for the liquidation of SAA.
Corporate governance expert at Ratings Afrika Charl Kocks told Moneyweb the prospects of such an application would firstly be dependent on SAA’s Memorandum of Incorporation (MOI). “The South African National Roads Agency (Sanral) for example has a provision in its MOI that precludes having it liquidated. One doesn’t know whether the SAA MOI has a similar provision,” he says.
If not, the applicant would still have to convince the court that liquidation would be the best option for the shareholder and creditors. Government is the only shareholder in SAA. He said courts were reluctant to order the liquidation of state-owned companies.
He says since SAA has failed to publish its financial statements for 2014/15 and 2015/16, the extent and nature of its unencumbered assets is unclear.
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