By AAT Senior Contributor, Michael-James Currie.
The Competition Commission and South African steel producer, ArcelorMittal South Africa Limited (ArcelorMittal), have agreed to settle six complaints against ArcelorMittal for R1.5 billion (approximately US$ 112 million), in what is the largest (agreed) administrative penalty imposed in South Africa.
The penalty (by consent order) represents just under 5% of ArcelorMittal total turnover (including chemicals) for 2015.
The allegations which were brought against ArcelorMittal included allegations of price fixing and market allocation in what was termed by the Competition Commission the “steel cartel”.
In terms of the settlement agreement, ArcelorMittal admitted to contravening section 4(1)(b) of the Competition Act and will pay not less than R300 million per annum for five years from 2017. Furthermore, ArcelorMittal has undertaken to invest approximately R4.6 million into the South African economy for the next 5 years (provided the prevailing economic conditions render such investment feasible). Interest will be charged on the outstanding amount, interest starting to run 17 months after the finalisation of the settlement agreement.
In addition to the cartel conduct, the Commission had also instituted a complaint alleging the dominant steel manufacturer had engaged in excessive pricing. Although ArcelorMittal did not admit to wrongdoing in relation to the abuse of dominance allegation, the parties nevertheless agree that ArcelorMittal would not generate earnings before interest and tax of over 10% for the next 5 years (subject to certain exceptions).
The Competition Commission’s press release states the following:
ArcelorMittal admits that it engaged in collusion with CISCO, Scaw and Cape Gate by fixing prices and discounts, allocating customers and sharing commercially sensitive information in the market for the manufacture of long steel products, in contravention of the Competition Act. ArcelorMittal also admits that it fixed the purchased price of scrap metal with Columbus Steel, Cape Gate and Scaw. In respect of the flat steel complaint and the Barnes Fencing complaints, ArcelorMittal admits the conduct as alleged by the Commission but does not admit that this conduct constituted a contravention of the Competition Act. In relation to the pricing complaint, ArcelorMittal does not admit that it acted in contravention of the Competition Act.
The investigation and settlement agreement follows a leniency application brought by another respondent, Scaw Metals. There is little doubt that the Competition Commission’s corporate leniency policy has permitted the Commission to uncover and successfully prosecute a number of cartels. As previously reported on AAT, the risk remains that the recent introduction of criminal liability (on directors or persons having management authority) for engaging in cartel conduct, may dampen the use of the whistle-blower regime (absent any formal immunity from criminal prosecutions).
The settlement agreement does, however, bring finality to all six cases against ArcelorMittal.
In light of the very recent civil damages awarded in favour of Nationwide Airlines against South African Airways for abuse of dominance which led to loss of profits, it will be interesting to see whether any civil party elects to prosecute ArcelorMittal for the excessive pricing complaint. In terms of the South African Competition Act and a recent judgment by the Supreme Court of Appeal, it appears as if the door is closed on a civil litigant brining a civil damages claim against a respondent, based on a breach of the competition Act, if there has been no adverse finding made against such a respondent by the Competition Tribunal (or Competition Appeal Court) as per section 65 of the Competition Act.
The admission to having engaged in cartel conduct, may, however, expose ArcelorMittal to civil liability over and above the settlement agreement.