DECISION
[1] By originating summons dated October 9, 2006 andamended March 15, 2007, the Applicant seeks an order pursuant to Section 36 of the Fair Trading Commission ActCap 326C of the Laws of Barbados that the findings set out below made bythe respondent be reversed or set aside and/or a declaration that there is noevidence to support the following findings:
1) That the Applicant informed theBL&P (Barbados Light &Power Co Ltd) that it would be supplying all Fuel Oil to the BL&P and that the saidBL&P was not allowed to chooseanother supplier of Heavy Fuel Oil;
2) That the Applicant denied certain competitors the opportunity to compete for thepurchase and supply of HeavyFuel Oil to the BL&P;
3) That the Applicant sought to deny competitors access to a newly constructed pipeline nowconsidered essential to theeconomic transportation of Heavy Fuel Oil to the BL&P;
4) That at the date of the complaint by SOL in March 2006, andall material times prior to that date, the market for the delivery of retail Heavy Fuel Oilto the BL&P was competitive;
5) That the Applicant as the designated sole importer and wholesaler/supplier of Fuel Oil inBarbados abused its dominanceby unilaterally dictating to the BL&P the exclusiveterms under which it will be supplied Fuel Oil.
THE PARTIES
[2] The Fair Trading Commission (FTC) is the statutory authority with responsibility for ensuring that there is faircompetition in the market. The primary legislative framework is provided byvirtue of the Fair Competition Act Cap326C (FCA).
[3] The Barbados National Oil Company Limited (BNOCL) is a state owned company involved in the importation and wholesale supply of fuel oil in Barbados. From 2005, BNOCL assumed a retail role and became involved in competitive supply.
[4] The Barbados National Terminal Company Limited (BNTCL) is a wholly owned subsidiary of the BNOCL and prior to 2005 was involved in the retail supply and distribution of fuel oil. From 2005, themandate of the BNTCL changed and it became responsible for the storage of petroleum products.
[5] BNTCL had responsibility for constructing a pipeline from the Holborn terminal (which itleased from ESSO, another MOC) to the BL&P Spring Gardengenerating plant.
[6] The complainant, Simpson Oil Limited (SOL), is aprivate entity involved in the competitive supply of petroleum products as a Major Oil Company (MOC).
THE COMPLAINT
[7] O n February 19, 2006 SOL made a complaint to the FTC against the BNOCL. They alleged that the BNOCL was abusingits dominant position in the petroleum market to the detriment of SOL and other Major Oil Companies (MOCs).
[8] The complaint effectively alleged that:
1) “SOL was effectively preventedfrom participating in the recently concluded fuel oil tendering process undertaken by the Barbados Light and Power; and
2) BNOCL was pursuing a business model making it the exclusive importer and supplier ofdomestic use of bulk petroleum products with a stated intention of becoming a marketer,without employing a transparent pricing mechanism which promotes fair competition.”
THE INVESTIGATION
[9] The FTC’s investigation commenced firstly on the basisof verbal and written information provided by SOL and they then sought to obtain information from the key partners identified.
[10] O n March 7, 2006 the FTC met with the Applicant’s representatives to discuss issues surrounding the complaint. The minutes of the meeting indicate that theFTC was “in essence seeking to understand the arrangements pertaining to the supply and distribution of fuel oil to the BL&P.” During that meeting the applicant confirmed that they had not given the complainant (SOL) a throughput rate as they were carrying out a directive of the Cabinet ofBarbados.
[11] The FTC also contacted the other parties with a viewto obtaining more information from them. They subsequently wrote SOL and BNOCLrequesting that they provide written responses to potential breaches of the Fair Competition Act Cap 326C arisingfrom the applicant’s actions. The FTC indicated that those breaches were:
1) BNOCL had taken the unilateral decision to exclusively supply all Heavy Fuel Oil to the BL&P,regardless of the preferences ofBL&P;
2) BNOCL had denied competing oil companies the opportunity to compete for the purchase andsubsequent supply of heavy fuel oil after importation for on-sell to BL&P;and
3) BNOCL having constructed a pipelinefacility, now essential to the economic transportation of heavy fuel oil to BL&P, was seeking to deny its competitorsaccess to the saidfacility.
[12] Having received correspondence from all parties theFTC sought to consider all the information and set out its findings on thesame.
[13] In its report, the FTC indicated that the allegation being investigated involved two ‘markets’ or areas of economic activity. They were:
1) A market involving the importation and wholesale supply of fuel oil in Barbados wherein BNOCL can be designated as the dominant operator;
2) A second market for the delivery of fueloil to the BL&P where all local oilcompanies compete for the opportunityto supply.
[14] Under the first head, the report detailed that all the fuel oil used in Barbados was supplied and freighted by BNOCL and sold to Barbados National Terminal Company Ltd (BNTCL) at the ship’s flange. The product was then purchased by SOLand sold to BL&P and other end users. After 2005, that arrangement wouldchange and BNOCL would take over the retail role of BNTCL.
[15] Under the second head, the report indicted that themarket for the delivery and retail sale of fuel oil to the BL&P wascompetitive. BNTCL (a subsidiary of BNOCL) had constructed a pipeline as anintegral part of a petroleum distribution project of identifying the mostefficient manner of supplying fuel to the BL&P.
[16] All the local MOCs were free to bid for theopportunity to deliver fuel oil to the BL&P but there were to be changes inthe market from January 1, 2006.
[17] At that time, SOL had the existing contract to deliverfuel oil to BL&P and that contract was to end in May 2006. SOL servicedthis contract by using trucks under a road transportation arrangement but wasallowed by BNOCL to fulfill its contract by temporarily using the pipeline. SOL’scontract was one for exclusive supply prior to 2006 and the BL&P was nowopening the door to a tendering process.
[18] In its investigation of the complaint, the FTCindicates that they had to make two determinations. Firstly, they had toconsider whether that Applicant held a position of dominance in the marketplaceand secondly, whether the Applicant used that dominance to impede themaintenance or development of effective competition in the market.
A POSITION OF DOMINANCE
[19] Under this head, the Commission considered the marketshare of the firm relative to other market participants. They opined that afirm which had a particular market share of 50% or more was likely to be in aposition of dominance.
[20] The FTC reported, making reference to a designation ofthe Government of Barbados, that BNOCL was the primary importer of fuel oilinto Barbadosand most of that fuel oil was destined for BL&P. They also stated thatBNOCL indicated in a Cabinet Paper that all fuel oil used in Barbados wassupplied and freighted by BNOCL and then sold to BNTCL at the ship’s flangeprior to 2006.
[21] The Commission indicated that this statement verifiedthat BNOCL was the dominant importer and wholesale supplier of fuel oil into Barbados.
[22] Nothing was said of BNOCL’s post 2006 position withrespect to the retail market or of BNTCL’s new mandate.
ABUSE
[23] The FTC indicated that to establish a charge of abuse,they had to show that the Applicant through its actions had restrictedcompetition in the particular market. They referred to a letter from theMinistry of Energy to the BL&P dated October 4, 2005 which read as follows:
“That the BNOCL will assumefull responsibility for the sourcing and freighting of gasoline and dieselownership of these products move from BNTCL to BNOCL within the terminal;
“That BNOCL pursue thecompetitive supply of fuel oil to BL&P and other users taking into accountthe implications of the alternative.”
[24] By letter dated November 15, 2005 the Ministry of Energyindicated to SOL and BL&P that
“Government has decided thatfuel oil will be supplied by BNOCL to theBL&P, Spring Garden Plant through the ESSO terminalat Holborn.”
[25] The FTC concluded that BNOCL was given the authoritythrough this directive to leverage its dominance founded in the market for theimportation and wholesale distribution of fuel oil into the market for retailsupply of fuel oil to BL&P, under a monopoly arrangement. The directivemade BNOCL the sole supplier of fuel oil into BL&P irrespective of thecompetitive tender process proposed by BL&P. They concluded that suchaction automatically excluded all other MOCs from that retail activity.
[26] By letter dated December 13, 2005 BL&P in its invitationto all ‘tenderers’ confirmed that
“BNOCL will continue thesupply of fuel oil to Barbadoson the commissioning of the new terminal and the Government of Barbados’ intentthat fuel oil will be supplied by BNOCL to the BL&P Spring Garden Plantthrough the ESSO terminal at Holborn.”
[27] The FTC then stated two things; firstly that thecommunication confirmed that BNOCL had established an exclusive tradingarrangement with BL&P which they communicated to all ‘tenderers’ andsecondly, that the intent of the action automatically denied the other MOCs theopportunity to purchase fuel oil from BNOCL.
[28] The Commission then went on to examine the refusal toshare a throughput fee by BNOCL. BNOCL had not given a fee on the basis thatthe use of the pipeline by other MOCs was at variance with a decision of theCabinet of Barbados with respect to the supply of fuel oil to the BL&P.
[29] The Commission concluded that the MOCs wereeffectively denied the opportunity to deliver a proper bid because of their inabilityto provide a transparent price for the usage of the pipeline which they neededto use for the delivery of the fuel oil to the BL&P.
[30] In reply BNOCL made a number of submissions whichessentially were:
1) that they were merely responding to a public tender and took no decision to unilaterally supply allheavy oil to BL&P.
2) that prior to the construction of the BNTCL pipeline, the contract for the supply of fuel oil to theBL&P had never been tendered oropen to competition. There was an exclusivearrangement/deal between BL&P, Mobil, Shell and SOL.
3) that they did not deny other MOCs the opportunity to compete for the purchase and subsequentsupply of heavy fuel oil afterimportation.
4) that the pipeline was owned by BNTCL and not BNOCL.
5) that BNOCL was not the only supplier of fuel oil in Barbados
6) that BNOCL also sold fuel oil to MOCs and they could do what they chose to with it
7) that BNTCL built the pipeline and was the owner
8) that BNTCL provided the pipeline at its own expense and competitors were free to provide theirown transportation system to their buyerswhich need not be a pipeline
[31] In their summary of findings, the FTC stated that “from an economic viewpoint, the totalmonopolization of the entire fuel supply establishes an undesirable precedent.It establishes a monopoly in all subsequent distribution and retail aspects of the supply of fuel oil.
[32] They then concluded that “from the evidence available and an analysis of the relevant lawthat there appeared to have been anti-competitive conduct in relation to thecontract for the supply of heavy fuel oil, namely abuse of dominance.”
BRIEF HISTORY
[33] It is essential to understand the overall context inwhich this matter presents itself and its incumbent on the court to examine thehistorical context with respect to this case.
[34] In 1979, a company called “Mobil Exploration BarbadosLtd” was incorporated under the former Companies Act Cap 308. In 1986, theycontinued under the then existing Companies Act Cap 308 as BNOCL.
[35] In 1998, BNTCL was incorporated as a company limitedby shares to, inter alia, purchasethe Mobil Oil refinery and coordinate the supply of petroleum products on theisland. BNOCL would source and freight petroleum products to Barbados,ownership would pass to BNTCL at the ship’s flange and BNTCL would then storeand sell to MOCs and other users.
[36] In 2005, the commercial relationship between BNOCL andBNTCL changed and BNTCL would now only be responsible for storage. BNTCL held ameeting in March 2005 to inform stakeholders of its new mandate.
[37] Prior to this change some significant events occurredwhich put this complaint in its fullest perspective. From the 1960’s Mobilsupplied fuel oil to BL&P using trucks under a monopoly arrangement.
[38] In or about 1998, Mobil sold its interest to ShellAntilles Guianas Ltd (Shell). Shell acquired the monopoly rights to supply fueloil to the BL&P and so did SOL, when it acquired Shell. It was not until2006 that BL&P opened the supply of fuel oil to tender. Therefore, SOL’smonopoly rights were to come to an end in May 2006.
[39] Arrangements had to be made for SOL to fulfill theircontract from January 2006 until May 2006. They were able to use the pipelinein the new facilities to do so.
[40] The new storage facilities were supposed to be jointprojects but, the BNTCL had to construct, on its own, a new terminal andrefurbish another one which was to have a pipeline at a cost of S140 million intotal.
THE EVIDENCE
[41] The Applicant’s case commenced with Ronald Hewitt, inhis capacity as General Manager. He indicated that the market share for BNOCLwas about 85%
[42] He testified that when the Needham’s point facility was closed in 1998,a new storage facility had to be built and this was done at Fairy Valley.Additionally, ‘Holborn’ which was next to BL&P at Spring Garden,was to be used to supply BL&P. The pipeline was developed at Holborn forthat purpose. MOCs could use this pipeline, subject to a throughput fee whenBNTCL did not have to use it.
[43] He testified that he did not believe that withholdingthe throughput fee limited competition when BNOCL was asked to provide a fee by2 MOCs. The real issue was the economic supply to BL&P. He was not of the view that the pipeline wasthe only means of supplying fuel to the BL&P. BL&P set the conditionsof the bid and BNOCL responded to the details requested.
[44] When asked about charges for storage, Mr. Hewittindicated that BNOCL did not incur a charge. BNTCL charged for the entire useof the facility including the pipeline. He was not aware of the amount BNTCLcharged for the pipeline but testified that BNTCL was paid every month.
[45] In his view use of the pipeline did not restrictcompetition because there were other ways of supply. Trucks could be used andhe could not agree with the statement that trucks could not be properly used atHolborn.
THE RESPONDENT’S CASE
[46] The Respondent’s evidence is quite lengthy and thecourt purposes to summarise the salient parts of it. The evidence was given byDeCoursey Eversley; the Director of Fair Competition at the FTC.
[47] Mr. Eversley testified that they had no evidence ofany document from BNOCL to BL&P stating that it would be supplying all thefuel oil to BL&P. Instead he testified that they relied on three letters.
[48] The first letter was from the Ministry of Energy toBL&P. Mr. Eversleyadmitted that he had idea whether BNOCL had input into the letter of not. Theletter informed the BL&P of the change in status with respect to BNOCL andBNTCL and noted at one point that BNOCL would continue the supply of fuel oilto Barbados.
[49] The second letter was from BNOCL to SOL. SOL hadpreviously written to BNOCL asking for a throughput rate for the use of thepipeline and this was a reply letter. BNOCL stated that they could not providethat rate.
[50] The third letter is one from ESSO to BL&P. In thisletter ESSO thanked BL&P for the invitation to tender but advised that theywere not in a position to tender as BNOCL could not give them a throughputrate.
[51] The court notes that in none of these three lettersrelied on by the FTC does any party indicate that BNOCL was to be an exclusivesupplier to BL&P.
[52] Mr. Eversley testified that the pipeline was not theonly means of fuel oil transport. The FTC, however, had failed to enquire fromBL&P the extent to which this was possible. Additionally he indicated that no where in the tender documents was there anything to suggest that the fuel oil had to be transported by pipeline.
[53] His evidence was that the FTC made no enquiries ofBNTCL as to whether transport by truck was possible nor did they visit ‘Holborn’to enquire about this facility. They made no enquiries of BNOCL as to whetherBNOCL owned the pipeline. On the contrary they relied on information providedby SOL where SOL stated that when they enquired of BNTCL as to the throughputfee, they were referred to BNOCL. The FTC did not enquire of BNTCL whether SOLhad made this complaint.
[54] No enquiry was made as to which entity owned thepipeline and no where in any document did BNOCL or any other party indicatethat the pipeline was essential to the transport of fuel oil.
THE MARKET
[55] A strict test was not done to determine the marketsince there was no real substitute in relation to BL&P producing electricity. There was no legal requirement as to who could import fuel oil butin the FTC’s view, it was practically impossible for other parties. They attributed this statement to BL&P. They also noted that no enquiry was madeas to whether BL&P could import its own fuel.
[56] The Commission concluded however that the BNOCL didnot enjoy an absolute monopoly position.
THE LAW
[57] The court considers it quite important to consider thelaw surrounding complaints to the FTC. Part IV of the FTC Act Cap 326B sets out the procedure to be followed when a complaint is laid before the Commission.
[58] Section 23 providesthat any party aggrieved by the act of a service provider or businessenterprise can make a complaint if that act is contrary to any law under whichthe FTC has jurisdiction to administer.
[59] Section 24 providesthat the complaint may be in writing or presented orally and it also sets outcertain requirements to be adhered to where oral complaints are made.
[60] Section 25 is of extreme importance. It provides forthe evaluation of a complaint and is set out below:
“(1) The Commission shall only investigate a complaint made against a service provider or business enterprise where the complainant satisfies the Commission that he has submitted a complaint to the service provider orbusiness enterprise and has failed to obtain reasonable redress.”
[61] To my mind the Act must be read as a whole.The FTC can pick and choose which partsof the Act it wishes to follow. Every complainant, regardless of whether they are a corporate entity or not, mustbe accorded the same status before theFTC.
[62] It was therefore incumbent on the FTC to follow its own statutory framework.I find it unfathomable that the FTC would launch an investigation of this nature without first ensuring thatSOL had made a complaint to the Applicantand that the BNOCL failed to reasonably addressthe complaint.
[63] It could be argued that section 5 (4) of the Fair Competition Act, Cap 326C provides an exception to section 25 of the FTC Act but that is on the basis that the Commission finds thatthe conduct for the basis of aninvestigation could not reasonably be met by the complainant. No such finding was made in thismatter. The FTC simply chose to use section 23 of the FTC Act and ignore theother provisions.
[64] In his re-examination Mr. Eversley statedthat the FTC recognised that the matters under complaint spoke tocompetition within the Oil industryand that the issues would have impacted all the players. He went on to indicate that they (The FTC) recognised that SOL didnot have the powers necessary, skills orknowledge of competition law andpolicy. He went on to say that this was the background under which the FTC decided to pursue the matterunder section 5 (4) of the FCA.In his view, they dealt with the matter as one of fair competition and that is why they did not insist on SOLmaking a complaint to BNOCL.
[65] In my view the FTC’s reasoning is flawed. Sections 23 and 24 of the FTCAct Cap 326 B set out the duties of the complainant and they are quite simply that the complainant canmake a complaint and that it can bedone either written or orally. What section 5 (4) of the FCA Cap 326C does is indicate that if aparty cannot satisfy those conditions,the FTC could still conduct theinvestigation. There is absolutelyno evidence to show that SOL was incapable of making a written or oral complaint to the Applicant and I hold the viewthat the FTC should haveinstructed SOL to pursue their complaint with BNOCL as a first option.
ABUSE OF DOMINANCE
[66] Section16 (3) of the FCA Cap 326C setsout the provisions for a finding of anabuse of dominant position. Most notable is section 16 (4) which provides that an enterpriseshall not be treated as abusing a dominantposition if
“(a) it is shown that its behaviour was exclusively directed to improving the production or distribution ofgoods or to promoting technical oreconomic progress and consumers wereallowed a fair share of the resulting benefit;
“(b) the effect or likely effectof its behaviour in result of its superiorcompetitive performance;”
[67] The FTC’s findings under this head referredto section 16 (3) (b) and (g)which are as follows:
(3) An enterprise abuses its dominant position ifit impedes the maintenance ordevelopment of effective competition in amarket and in particular, but without prejudice to the foregoing, if it
(b) prevents ordeters any enterprise from engaging in competitive conduct in that or anyother market
(g) engages inexclusive dealing, market restrictions or triedselling;
[68] The Court has some difficulty inunderstanding how these finding werearrived at. The evidence before the court is that BL&P made no specifications as to how the fuel oil shouldbe delivered; the FTC made noinvestigations as to whether delivery by means other by pipeline was possible and that there was nothing to indicatethat BL&P considered BNOCL to be theonly entity capable of supplying fueloil to them; indeed, the evidence was that they opened up the process to tender and all parties werefree to bid.
[69] The pipeline was constructed exclusively by BNOCL funding. It was constructed withthe express purpose of BNOCL providing fuel oil to BL&P from the ‘Holborn’ terminal. It seems to me that a finding based on sections 16 (4) (a) or (b) would be the more appropriate finding. The evidence indicates that BNOCLdid no more than invest in itself andin so doing, brought a more efficient service to its customer.
[70] The FTC’s findings would effectively have meant that an entity which uses its funds to deliver a more efficient service to customers could not do so without competitors benefiting from its investment. This essentially would be an absolute nonsense in the corporateworld because a company does not normally invest in itself and its competitorsat the same time.
[71] Additionally, the FTCs findings essentially indicate that BL&P’s tender process was farcical since the clear inference from their decision is that BL&P had no intention ofhiring any entity except BNOCL.
DISPOSAL
[72] Accordingly, the Respondent’s findings are set aside. The Applicant shall have itscosts to be agreed or taxed. Leave is also granted to appeal.
Randall Worrell
JUDGE OF THE HIGH COURT
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