Month: August 2022

Insurance companies raided by antitrust agency for alleged rate-setting collusion

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PRICE-FIXING ALLEGATIONS LEAD TO THURSDAY’S DAWN RAIDS AT MAJOR SOUTH AFRICAN INSURANCE COMPANIES

By Michael-James Currie and Joshua Eveleigh

On 25 August 2022, the South African Competition Commission (“SACC”) announced that it was conducting so-called ‘dawn raids’ as part of an ongoing investigation into the industry, initiated in 2021. The raid took place simultaneously at 8 of South Africa’s major insurance firms: Discovery Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MNI Limited; Old Mutual Limited; BrightRock Life Limited; FMI, a division of Bidvest Life Limited; Professional Provident Society Limited, and South African National Life Assurance Company (Pty) Ltd (together, the “Insurance Firms”).

Notably, all of the Insurance Firms operate within the long-term insurance market.

The SACC’s decision to raid the premises of the Insurance Firms comes as the result of suspicions that the they had agreed to fix prices and/or trading terms in relation to certain investment products in contravention of section 4(1)(i) of the Competition Act, 89 of 1998 (“Competition Act”). Specifically, the SACC stated that it was in possession of information implicating the Insurance Firms in a scheme to share information regarding premium rates on risk-related products and fees for other investment products.

Says John Oxenham, a lawyer with Primerio Ltd., “[a]lthough dawn raids form part of the SACC’s ordinary evidence gathering procedure and is not indicative of the guilt of the Insurance Firms, the sharing of information would enable the coordination of increased prices.” Given that the clients of the Insurance Firms include both natural and juristic persons, the effect of the alleged conduct would have far-reaching and adverse effects on consumers, particularly where those consumers are sensitive to price increases.  Continues attorney Oxenham: “In this respect, it would be unsurprising if the SACC were to continue on its path of highlighting ‘public-interest‘ objectives by pursuing the investigation against the Insurance Firms and seeking the maximum penalty in respect of a contravention of section 4(1)(b)(i) – 10% of the Firm’s annual turnover in and from South Africa, for first-time offenders.”

Mr. Oxenham’s colleague, Andreas Stargard, notes the size of the RSA insurance market, and points out that the dawn raids occurred across the entire geography of the Republic of South Africa: “South Africa alone makes up over two-thirds of all African insurance premiums continent-wide! Today, the SACC’s spokesperson Sipho Ngwema confirmed today that 5 sites were raided in Gauteng, 2 in the Western Cape, and 1 in KwaZulu-Natal. This simultaneous and unannounced action is testament to the Commission’s bench strength, no doubt assisted by local provincial law-enforcement authorities, as is usually the case across in antitrust raids across the globe, where the actual evidence-gathering procedure is not only undertaken by government competition lawyers, but rather significantly assisted by local police, sheriffs, or similar enforcement agencies”. Finally, Stargard notes, “it remains to be seen whether this raid occurred as a result purely of the agency’s prior sector investigation, or whether there was (or were) any whistleblower(s) seeking leniency for their participation in the alleged cartel conduct, thus enabling the SACC to pursue a targeted and well-founded raid.”

Interestingly, a U.S. consulting firm, McKinsey, which has been involved with several South African government agencies and quasi-governmental entities, recently published an article entitled “Africa’s insurance market is set for takeoff“, noting that the “African insurance market’s immaturity points to significant scope for growth”:

Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent. Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries. South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa

It remains to be seen whether the effect of today’s raids in the RSA will hinder the predicted “takeoff” of the insurance industry, or assist in its growth within permissible, lawful boundaries.

Zimbabwean leader lauds antitrust efforts

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Zimbabwean President Emmerson Mnangagwa recently exalted the benefits of antitrust law at a joint COMESA-CTC (Competition and Tariff Commission of Zimbabwe) conference for sitting judges, held in Victoria Falls. Below is an excerpt of his oral remarks, given at the opening of the event:

“Competition and consumer protection laws, are therefore, key enablers of free, open and liberalised trade between countries and foreign regional integration. Against this backdrop, these laws must continue to enhance consumer interests and the realisation of our country’s development aspirations as set out in the National Development Strategy and Vision 2030. To this end, under the radar are the cartels, and all those who collude in promoting unjustified price increases, illicit activities and currency manipulation for the purposes of realising super profits.

Andreas Stargard, a competition partner at Primerio Ltd., notes that President Mnangagwa was once a practicing attorney himself, prior to his political ascent within the ZANU-PF party, although the precise history of the president’s legal studies and degrees remains somewhat murky. “As a former legal practitioner himself, Mnangagwa knows that an educated judge is a better judge. Thus, his admonition to the members of the judiciary present at the conference (at whom the event was aimed in the first place) to better acquaint themselves with competition law & economics was timely and meaningful,” he said. Stargard adds: “There is hardly anything more frustrating than presenting an antitrust case — which is usually difficult in its own right — to an uninformed judicial decision-maker, who shows little understanding or interest in the subject-matter, or who dismisses economics as extraneous; you cannot practice competition law without an understanding of economics.”

The president concluded: “In our case as Zimbabwe, competition law and the attendant robust policy frameworks are important towards the speedy realisation of Vision 2030, of becoming a prosperous and empowered upper middle income economy. This aspiration will be attained through an effective empowered and agile judicial system, which strives for fairness and increased efficiencies across all the productive sectors of the economy. It is, therefore, most opportune that this workshop is taking place at the stage when our economy is transitioning from stabilisation to growth. To this end judicial staff must be kept updated and knowledgeable about activities taking place in industry and commerce. Undoubtedly, judges and other related stakeholders remain key to the interpretation of competition and consumer protection laws. The intricate nexus between the interpretation and enforcement of laws across sectors of the economy cannot be overemphasised. The judiciary should also address competition issues that arise in disputes before the judicial system. This is pertinent more so that competition law intersects with many fields hence training such as this one is an essential requirement in modern day competition law.”

Breaking: CCC withdraws its recent Merger Practice Note

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An AAT-exclusive first report on this — somewhat stunning — development follows below. More details to be published once they become available in a new post…

On August 8th, 2022, the CCC officially announced the formal withdrawal of its Practice Note No. 1 of 2021, which had clarified what it meant for a party to “operate” in the COMESA common market. The announcement mentions that it will (soon? how soon?) be replaced with a revised Practice Note — a somewhat unusual step, in our view, as the revised document could have, or should have, been published simultaneously with the withdrawal of the old one. Otherwise, in the “interim of the void,” legal practitioners and commercial parties evaluating M&A ramifications in the COMESA region will be left with no additional guidance outside the bloc’s basic Competition Regulations and Rules.

Of note, “this clarifying policy document did not stem from the era of Dr. Mwemba’s predecessor (CCC 1.0 as we are wont to call it), but it was already released under Willard’s aegis as then-interim director of the agency,” observes Andreas Stargard, a competition lawyer at Primerio Ltd. He continues: “Therefore, we cannot ascribe this most recent abdication to a change in personnel or agency-leadership philosophy, but rather external factors, such as — perhaps — the apparently numerous inquiries the CCC still received even after implementation of the Note.”

To remind our readers, we had previously reported on AAT as to this (now rescinded) note as follows (Feb. 11, 2021):

The COMESA Competition Commission (“CCC”) issued new guidance today in relation to its application of previously ambiguous and potentially self-contradictory merger-notification rules under the supra-national COMESA regime. As Andreas Stargard, a competition practitioner with Primerio notes:

“This new Practice Note issued by Dr. Mwemba is an extremely welcome step in clarifying when to notify M&A deals to the COMESA authorities. Specifically, it clears up the confusion as to the meaning of the term ‘to operate’ within the Common Market.

Prior conflicts between the 3 operative documents (the ‘Rules’, ‘Guidelines’, and the ‘Regulations’) had become untenable for practitioners to continue without clear guidance from the CCC, which we have now received. I applaud the Commission for taking this important step in the right direction, aligning its merger procedure with the principles of established best-practice jurisdictions such as the European Union.”

New antitrust MoU between COMESA & EEC

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No, that’s not the European Economic Community, but rather the slightly less well-known Eurasian Economic Commission (EEC), thank you for asking…

The Memorandum of Understanding, signed in late July in Geneva, is designed to allow the two agencies to “cooperate in addressing anti-competitive conduct in their respective regions, capacity building and research,” according to AAT’s old friend and CCC 2.0 executive, Dr. Willard Mwemba.

His EEC counterpart, Mr. Arman Shakkaliyev, Minister in charge of Competition & Antitrust Regulation, said that the future collaboration “opened up new opportunities” for closer interaction and the sharing of experiences and knowledge as to specific investigations, most notably, in addition to the two agencies planning more standard cooperative ventures such as joint conferences or training seminars.

Says Andreas Stargard, a competition lawyer at Primerio Ltd.:

“This latest MoU represents yet a further step in the clear and unmistakable direction of ever-closer cooperation between enforcement agencies on the African continent that we have seen for a few years now. The advice to be taken from this is fairly simple: Companies operating in more than one country in Africa should take note of this development, as their local ‘competition reputation‘ from one jurisdiction will doubtless precede them in the other, given the information-sharing between African watchdogs, which catches many corporates seemingly unawares…”

Tourvest wins on appeal in precedent-setting cartel case: you don’t become a ‘competitor’ solely by virtue of contracting

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CAC ruled in favour of Tourvest nine years after allegedly collusive tender for retail space at Johannesburg airport took place

By Jemma Muller and Nicola Taljaard

In a recent judgment, the South African Competition Appeal Court (“CAC”) provided clarity on the characterization inquiry necessitated by section 4(1)(b) of the Competition Act 89 of 1998. The judgment particularly elucidated the way in which the requirement that the parties must be in an actual or potential horizontal relationship at the time that the offence in issue is committed, must be construed.

The CAC set aside and replaced the Competition Tribunal’s (“Tribunal”) decision wherein it found that Tourvest Holdings (Pty) Ltd (“Tourvest”) was guilty of collusive tendering or price fixing under section 4(1)(b) in relation to tenders issued by Airports Company South Africa (“ACSA”).

The CAC found that Tourvest and the Siyanisiza Trust (“Trust”) agreed to cooperate instead of competing on a tender issued by ACSA by concluding a Memorandum of Understanding (“MoU”) before submitting their separate bids in relation to tenders issued by ACSA. In terms of the MoU, Tourvest agreed to provide the Trust with the expertise, management infrastructure, technology and training that the Trust would require to bid.

Despite the historically vertical relationship between the parties, the Tribunal found that the parties had become actual competitors by submitting separate bids for the same tender (i.e., horizontality by bidding) and potential competitors under the MoU, and alternatively, that the parties became potential competitors by virtue of holding themselves out as competitors submitting bids against one another (i.e., by creating the illusion of competition).

Before scrutinizing the Tribunal’s specific findings in relation to horizontality, the CAC found that the Tribunal misdirected itself by embarking on a characterization inquiry which failed to recognize the character of the parties’ relationship absent the impugned agreement – which relationship was clearly vertical in nature. The CAC explained that, if absent the agreement the parties were not potential competitors, then the agreement could not have removed a potential competitor from the market and could also not have harmed competition, as there was none to start with. The CAC based its reasoning on the purpose of section 4(1)(b) of the Competition Act, which stated as being to penalize ‘conduct which is so egregious that no traditional defence is permitted’. Accordingly, its purpose is not to capture conduct which, correctly characterized, does not harm competition.

With regard to the Tribunal’s specific findings of horizontality, the CAC found that:

  • The submission of separate bids for the same tender could not in and of itself bring the impugned conduct within the ambit of section 4(1)(b);
  • The wording of section 4(1)(b) is clear in that it requires the parties to be in an actual or potential horizontal relationship. Section 4(1)(b) cannot be interpreted to infer strict liability on parties by virtue of them ‘pretending’ to be a competitor (i.e., horizontality by illusion). If parties are ‘ineligible’ to bid as competitors by virtue of their trading environment, they may not be construed as potential competitors. In casu, the Trust was not eligible to participate in the tender as it did not meet the tender criteria; and
  • It is illogical and contrary to the provisions of section 4(1)(b) to conclude that the parties could become competitors in the future by virtue of the tender’s enterprise development purpose. The potential to compete cannot be rationalized from the impugned agreement itself. Rather, it is the (horizontal-or-not) nature of the parties’ relationship at the time the offence in issue is committed, which must be assessed.