|To a casual, uninformed reader it looks like an innocuous, routine news item - but for the diamond business it is neither. Actually, it is outright shocking. "On 31 December 2012, the President of the [Belgian] Competition Council has once more extended the order to continue [DTC sight] deliveries [to a DTC sightholder who was dropped 10 years ago from the client list], this time until 7 October 2013. By the end of September 2013, the General Court of the European Union in Luxembourg has to render a judgment regarding the appeal by Diamanthandel A. Spira against the rejection of its complaint against De Beers by the competition authority of the European Commission. After that decision it will have become clear whether the complaint on the merits of Spira against De Beers will be examined and whether further interim measures will be justified awaiting the result of that investigation." [Text in brackets added. Ed.]
Irrespective of the final outcome, one might raise serious concerns about any legal system that needs 11 years or more to decide whether De Beers was allowed to cease supplies to a sightholder who failed to meet the Supplier of Choice (SoC) criteria in 2003. To suggest that in September 2013 the Competition Council will consider whether again to issue an "interim measure" defies any common sense.
With all due respect to the Belgian Competition Council, which is responsible for promoting and safeguarding competition in Belgium, may not fully comprehend that its very own "interim measures" actually harm competition in the Antwerp diamond market. The European Commission (EC) Competition Authority rejected the previous sight allocation system because it lacked transparency and fair competition among all applicants. It was the EC that, after issuing an initial Statement of Objections, insisted on promoting and maintaining competition among applicants. The EC approved Supplier of Choice after a thorough investigation which also resulted in amendments to the initially-notified SoC arrangements. In other words, Spira finds abuse in the system which in some way was co-authored by the EC itself.
The far-from-perfect Supplier of Choice mechanism successfully creates competition among sight applicants. Every applicant is judged by the same set of EC approved and endorsed criteria. All prospective sightholders are competing on a level playing field. Except for one.
Council Decision Harms Competition
What the Belgian Competition Council has essentially done - via continuous interim measures - is to create two different categories of DTC sightholders: those who are selected by the Diamond Trading Company (DTC) following an EC approved and agreed application and evaluation process, and those who are able to use the Belgian courts ad infinitum to ensure a steady and continuous DTC allocation, irrespective of their qualifications. Whether the second group consists of one or 10 clients isn't relevant. Even just one such client is one too many. Their respective sight privileges are maintained and managed through dissimilar processes and justified by unequal criteria. The day may come when someone will have to take the Belgian Competition Council to task for possible abuse of its own dominant power in the Belgian market.
Court ordered sights in a way seriously discriminate against companies which qualified under the SoC criteria, as they otherwise would have been entitled to these court-ordered allocations. Some regular sightholders are especially hurting in times of limited availability. Maybe, for the first time in 11 years, someone ought to point out that they are the real victims in this strange legal spectacle. At the end of the day: why would De Beers care from whom it collects payments for rough? It is those qualified sightholders, who may have built factories in Botswana and other Southern African beneficiation countries counting on the relevant types of supplies, who suffer from the Competition Council's arbitrary decisions.
Decisions Based on Pre-SOC System
Many view Spira's battle against De Beers as some kind of David Vs. Goliath tale. They draw the Biblical comparisons where the underdogs likewise acknowledged their weakness but were eventually victorious because they cleverly chose an unconventional strategy. But this isn't a matter of personal sympathies. There is much more at stake. When De Beers introduced its Supplier of Choice distribution system in 2003, Spira didn't meet the newly established value-adding criteria - and lost his sight. And there were many other such companies.
Spira then put his fate in the hands of the courts, charging De Beers with abusing its dominant position - mainly because of its exclusionary effects. Basically, Spira found De Beers guilty of excluding Spira. But no court has yet issued any guilty finding. That is the most perplexing part of the saga. The Courts and the Council have found grounds for the imposition of interim measures solely to preserve Spira's commercial viability - and these decisions are justified based on either pre-SOC or on prima facie SOC system findings. However, there has been no substantive investigation on the merits of Spira's claims. That's also the amazing part of the January 3, 2012, decision by the President of the Council: only in October 2013 "will [it] have become clear whether the complaint on the merits of Spira against De Beers will be examined and whether further interim measures will be justified awaiting the result of that investigation."
10 Year History
The action started 10 years ago, and through ingenious and imaginative use of the Belgian and European Community's legal systems, including commercial courts and others, Spira continues to receive supplies up to this very day. As one ex-De Beers executive remarked: "Spira didn't need sightholder proposals, questionnaires, contracts, presentations, DTC brokers, no factories in beneficiation countries, no value added services charges - it just needed a lawyer. It beats being just a regular client."
Over the years, Spira has lost many rounds in court - but then always appealed and, successfully, argued that while waiting for a decision, supplies must continue.
The Sanctity of Confidentiality
The European Commission in 2008 totally rejected Spira's complaints that Supplier of Choice was an illegal distribution arrangement and dismissed the complaints. That should have been obvious, because the Supplier of Choice system was created precisely to remedy the previous illegal marketing system - and it was only implemented after the European Commission had specifically approved it, after an in-depth investigation that lasted a number of years.
Needless to say, Spira knew this as well, or should have known this as well, but there are ways to appeal and to postpone and still get supplies under interim decisions. So, in 2009, Spira submitted applications to the EC demanding that certain information contained in its complaints should be kept confidential and was not to be shared with De Beers. And when, in late 2010, the EC replied on the subject, the company again asked for confidentiality regarding parts of the court's reply.
To cut a long story short: only in May 2012, in a 15-page decision on the merits of the applications for confidentiality, the EC largely dismissed Spira's confidentiality application and gave the green light, and a time limit, in which the court "registrar shall serve on De Beers and De Beers UK a non-confidential version of the procedural documents consistent with [the decision]". This is followed, of course, by "a prescribed [period] within which De Beers and De Beers UK are to submit in writing any additional observations on the information disclosed in accordance with the present order."
In the meantime, the DTC continues to supply Spira with sight allocations. Spira was successfully gaining time - though, of course, that was just a consequence and not the reason for the various court actions.
The DTC was careful. Stefaan Raes, the President of the Competition Council, in his July 2012 order, stated that if the DTC didn't exactly provide Spira with the boxes up to an agreed maximum, or otherwise infringed the court orders, the DTC would have to pay a penalty of €1,500,000 per infringement. Thereafter, the interesting question arose as to whether a Court Ordered Client enjoys the same rights and privileges as a regular sightholder. As the ‘willing seller - willing buyer' equation had gone out of the window years before, there were few goodwill gestures or attempts to be accommodative.
Spira Demands €4.5 Million Penalty from De Beers
In 2012, many regular DTC sightholders, frustrated by the DTC rough prices and large box discounts, started to defer sight purchases. The DTC then quickly turned it into official policy. One could take the goods later. However, before 2003, there was no such a thing as deferring sights. If you refused, you became toast. So a new policy was introduced. Did it also apply to Spira? Expecting that the DTC would decrease its rough selling prices at some point, Spira also used the opportunity to defer purchases. The DTC refused.
The DTC argued that Spira was not a regular sightholder but a company receiving goods as a result of court orders. Sightholders wanting a deferral announced this well before the sight. Spira didn't. As far as the DTC was concerned, the refusal to take the goods offered is just that - a refusal, forfeiting the right to acquire these goods later.
The DTC further argued that allowing deferred purchases would lead to a future allocation that would then exceed the maximum supply level set by the court. So, by allowing deferrals, De Beers would violate the court order's specifications later on. De Beers also denied, or wanted to deny, to Spira the right of access to the extranet sightholder website and the right to select additional boxes outside of the agreed allocations - i.e. the boxes Spira received before 2003.
This triggered Spira's demand for the payment of €4,500,000 in penalties for three different infringements. Now it was the turn of De Beers to request from the President of the Belgian Competition Council to delay or even avoid the payment of the penalty. In a request, filed on September 28, 2012, De Beers asked the Competition Council to clarify the meaning of an earlier order to continue supplying rough diamonds to Spira.
In a way, this is absurd: the DTC depending on a Belgian court's or European Commission interpretation, of DTC allocation rules. Specifically, De Beers wanted to know whether:
Spira has a right of deferral of its purchases to begin with
Whether Spira has a right to a specific type of rough diamonds
Whether De Beers is obliged to provide Spira access to its extranet.
De Beers argued it wanted to postpone the payment of the penalty until a decision was rendered. De Beers has not made a penalty payment in the context of the interim measures ordered by the President.
Legally De Beers has Always Been Vindicated
When, 10 years ago, the court first extended Spira's sight allocation period, it argued that it was done for commercial reasons. Spira had claimed that its entire business was based on the sights - and if it lost the sight, this would endanger the viability and continued existence of the business. The Court of Commerce found that to be a compelling argument.
On the legal issues, the court sided with De Beers from day one. The court, for example, specifically confirmed, in its very first decision, the Comfort Letter issued by the European Commission earlier in 2003, approving the Supplier of Choice agreement between sightholders and the DTC. The judgment recognizes that the EC decision was the result of a lengthy investigation by "an authority pre-eminently qualified and competent" to assess compliance with European competition law. It respects the EC findings and does not challenge their validity.
Indeed, the Antwerp court specifically concluded that in light of the exhaustive EC investigation, it must, in the interim proceedings, uphold the lawfulness of Supplier of Choice. It really is a strange story.
The Rights of a "Court-Ordered Client"
In October 2012 the President of the Competition Council ruled that De Beers must supply Spira "under the same conditions applicable to other companies within the Supplier of Choice system of De Beers". Thus, implicitly, Spira has a right of deferral and a right of access to De Beers' extranet under the same conditions as other companies within the Supplier of Choice system. This gives it the best of both worlds.
On the question relating to the types of goods that the DTC must supply, the Competition Council ruled that in the July 2012 decision there had been no request by Spira "to be supplied with a specific category of rough diamonds." So, without ruling on this, the Council reiterates that Spira has the same right of supply of rough diamonds as all other companies within the Supplier of Choice system.
An investigation by the European Commission, following the complaints by Spira, did not result in finding an infringement of competition law. But Spira got the ball rolling in 2003 in a Belgian Court of Commerce. One needs to understand the nature of the court.
The Court of Commerce in Belgium is competent to deal in commercial matters. Cases are generally heard before three judges: only one needs to have a legal background; the two others are non-legal professionals jointly chosen by the ministries of justice, and economic affairs, and by various trade organizations - and then formally appointed by the King of Belgium.
Generally, both sides to a dispute must be traders (merchants); a trader cannot sue, for example, a non-trader before the Court of Commerce. Interestingly, these courts were created in the Middle Ages - and in the old days, all the judges were merchants. So, in the Court of Commerce, a majority decision can be reached by representatives of the trade, sometimes in blatant contrast to the relevant legal positions. That is what happened in Spira versus DTC - the recognition that Spira may lose all its business, i.e. commercial considerations, prevailed over the legal view.
"Interim Measures" - Forever...
This is not the time to recall all the legal wrestling that has taken place in the past decade. Let's just look at the last two years. In November 2010, the President of the Competition Council imposed on De Beers yet another interim measure - an obligation to continue to supply Spira.
When De Beers appealed, a Brussels Court of Appeal decided that this measure had to come to an end on April 30, 2012. Then the President of the Competition Council decided to extend the interim measure until July 13, 2012 in order to allow it to assess the request filed by Spira in January 2012 in which it again asked for the interim measures to be prolonged.
In July 2012 it was ordered that supplies must continue until the end of 2012. It now has been extended to October 2013. My gut feeling tells me that Spira will not only be receiving goods throughout this year but most likely also beyond.
True, the EC has already categorically dismissed Spira's complaints. Spira lodged an appeal to the General Court of the European Union in Luxembourg - and this appeal is still pending. [By the way, lest it is forgotten, the appeal is against 2007 and 2008 decisions vindicating De Beers.] It might take years. But the Court will most likely confirm the previous judgment - as doing otherwise would be tantamount to questioning the EC approved SoC mechanism. Is it possible that what is not considered an abuse of dominant position in the EC is an abuse in Belgium?
Justice Delayed is Justice Denied: But Who Cares?
There are some puzzling implications in the complex wordings of the quite lengthy Council decisions. The linkages between Spira's actions in the EC and the decisions of the Belgian Competition Council are rather ambiguous and unclear. The latest extension of the DTC supply order through October 2013 seems linked to the expected date of the EC General Court decision. Would a De Beers vindication in the EC mean that Spira will lose his sight? Whatever the outcome in Luxembourg, the Council can still embark on a separate investigation in Belgium. After a decade, Spira Diamonds has proven that nothing lasts as forever as "interim measures". Every final date is merely the starting point for the next final date ... and only his DTC sig