EAC antitrust enforcement finally a reality: supra-national body carries out market enquiries

12 years in the making, East African regional competition-law enforcer now operational

By Stephany Torres

The East African Community Competition Authority (“the EACCA”) has finally become operational, after years of starts and spurts, having had its original Commissioners appointed (and half-million US$ budget approved) over 2 years ago.  The EACCA will focus on investigating firms and trade associations suspected of engaging in price fixing in contravention of the EAC Competition Act 2006 (the “EAC Act”), and proceed under its 2010 Competition Regulations.  The East African Community (“EAC”) is a regional intergovernmental organisation of 5 partner states, comprising Burundi, Kenya, Rwanda, Tanzania and Uganda (South Sudan will be covered at a later stage, as it is not fully integrated into the EAC).  The EACCA, therefore has jurisdiction in all the five partner states.  EAC headquarters are located in Arusha, Tanzania.

Now, as of April 2018, the EACCA is said to be undertaking its first market enquiries in selected industries, according to Lilian Mukoronia, the Authority’s deputy registrar.

As we mentioned in the fall of 2017, the success of the EACCA’s activities will also be dependent on the EAC’s member countries’ level of and commitment to domestic competition-law enforcement: “Only two out of the EAC’s six member states — namely Kenya and Tanzania — currently have working antitrust enforcement authorities,” according to competition & antitrust practitioner Andreas Stargard.  “That said — in a fashion rather similar to other supra-national enforcers, such as COMESA’s CCC or the European Commission — the EACCA will oversee competition-law matters that have a regional dimension, implying that there must be economic consequences reaching well beyond domestic borders before the regional body steps in to investigate,” he says.

There is thus no technical need for all of its partner states to have enacted competition laws and created institutions to enable the EACCA to implement its regional mandate.  Moreover, each member state gets to nominate one EACCA commissioner, the current panel of whom were approved by the group’s Council of Ministers and sworn into office in 2016.

The EAC Act, which came into force in December 2014, mandates the EACCA to promote and protect fair competition in the EAC and to provide for consumer welfare.  The EAC Act prohibits, amongst other things, anti-competitive trade practices and abuse of market dominance.  It provides for notification of mergers and acquisitions, notification of subsidies granted by partner states, and regulates public procurement.

Advertisements

The Long(er) Arm of Malawi’s Competition Law: CFTC Investigates Foreign Textbook Supplier in Cartel Probe

By Michael-James Currie

In a potential first, Malawi’s Competition and Fair Trade Commission’s (CFTC) Chief Executive Officer, Ms Charlotte Malonda, recently announced that the CFTC is investigating a UK-based supplier of textbooks, Mallory International, for alleged cartel conduct.  Mallory had partnered up with a local company, Maneno Books Investments, as part of a joint venture, called “Mallory International JV Maneno Enterprise”.  In addition, other companies also being investigated include Jhango Publishers, South African based Pearson Education Africa, Dzuka Publishing Company and UK based Trade Wings International.

The investigation follows complaints received by the Human Rights Consultative Committee as well as a number of its constituent civil society organisations and NGOs.

textbooksThe allegations include price fixing and collusive tendering vis-à-vis tenders issued by the Malawian government for the supply of pupils’ text books.

Section 33 of the Competition and Fair Trade Act prohibits collusive tendering and bid rigging per se. Furthermore, a contravention of section 33 is an offence in terms of the Act carries with it not only the imposition of an administrative penalty, which is the greater of the financial gain generated from the collusive conduct or K500 000, but also criminal sanctions, the maximum being a prison sentence of five years, notes Andreas Stargard, a competition attorney:

“The Malawian competition enforcer, under Ms. Malonda’s leadership, has shown significant growth both in terms of bench strength and actual enforcement activity since her involvement began in 2012.”

He continues:

“The present price-fixing investigation began as a result of complaints brought by HRCC, a human-rights network of 90 civil-society organisations.  Together with several NGOs, they evidently felt that the CFTC was the most competent domestic enforcer with long-arm jurisdiction and potential criminal sanctions at their disposal; and in Ms. Malonda — whose personal C.V. notably also includes prior human-rights law experience — they have found an effective champion of their cause.  Based on some of the complainant’s testimony, the alleged conduct goes back over a decade and included collusion with Ministry of Education staffers and even  direct intimidation of potential competitors not to bid on the government’s tenders…”

The Nyasa Times quoted the CFTC head as confirming that the agency had “received a few complaints about allegations of a cartel and other procurement malpractices, hence our commencement of the investigations to get the bottom of the matter.”

Based on the language of Section 50 of the Act suggests that the sanctions for committing an offence in terms of the Act requires the imposition of both a penalty and a five year prison sentence. Although not aware of any case law which has previously interpreted this provision, the wording of the Act is particularly onerous, particularly in light of the per se nature of cartel conduct.

The Act is not clear what “financial gain” means in this instance and whether the penalty is based on the entire revenue generated by the firm for the specific tender (allegedly tainted by collusion) or whether it applies only to the profit generated from the project. Furthermore, it is unclear how this would apply to a co-cartelist who did not win the tender. The Act may be interpreted that the “losing bidder” is fined the minimum amount of K500 000 which equates to appox. USD 700 (a nominal amount) while the “winner” is penalised the value of the entire tender value (which would be overly prejudicial, particularly if turnover and not profit is used as the basis for financial gain).

Although the investigation has only recently commenced and no respondent has admitted to wrong doing nor has there been a finding of wrongdoing, this will be an important case to monitor to the extent that there is an adverse finding made by the CFTC. Unless the Malawian authorities adopt a pragmatic approach to sentencing offending parties, section 50 of the Act may significantly undermine foreign investment as a literal interpretation of the Act would render Malawi one of the most high risk jurisdictions in terms of potential sanctions from a competition law perspective.

It may also result in fewer firms wishing to partner up with local firms by way of joint ventures as JV’s are a particularly high risk form of collaboration between competitors if there is no clear guidance form the authorities as to how JV’s are likely to be treated from a competition law perspective.

[Michael-James Currie is a competition lawyer practicing competition law across Sub-Saharan Africa. To get in touch with Michael-James, please contact the editors of AfricanAntitrust]

Shipping cartels: BMW Pursues Civil Damages Claim against certain Carriers

By Stephany Torres

BMW plans to lodge a claim in South Africa for damages against international car-carriers and shipping companies which have been found guilty or have pleaded guilty to competition law contraventions, including Japanese-based Mitsui O.S.K. Lines (“MOL”) and K-Line Shipping South Africa, the local subsidiary of Kawasaki Kisen Kaisha (“K-Line”), Norway’s Wallenius Wilhelmsen Logistics AS (“WWL”) and Nippon Yusen Kabushiki Kaisha (“NYK”).  BMW is seeking compensation for the losses it alleges to have suffered as a result of the anti-competitive price-fixing arrangements between the car carriers.

BMWship.jpgBMW’s case stems from an amnesty application, by which MOL approached the South African Competition Commission (“the Commission”) in terms of its Corporate Leniency Policy (“CLP”), which outlines a process through which the Commission may grant a self-confessing cartel member, who approaches the Commission first, immunity for its participation in cartel activity upon the cartel member fulfilling specific requirements which includes providing information and cooperating fully with the Commission’s investigation.  Says John Oxenham, a South African competition lawyer, “if the Commission grants an applicant what is called ‘conditional immunity’, a possible outcome is the complete avoidance of a fine, which could otherwise be calculated at up   to 10% of domestic revenues, including exports.”  That said, conditional antitrust immunity, does not offer full exoneration from potential other liability in respect of the conduct for which the Competition Commission granted immunity.

It is notable that MOL, NYK and WWL subsequently agreed to cooperate with the Commission in prosecuting K-Line.

On further investigation by the Commission it found that K-Line, MOL, NYK and WWL fixed prices, divided markets and tendered collusively in contravention of section 4(1)(b)(i), (ii) and (iii) of the Competition Act no 89 of 1998 in respect of the roll-on/roll-off (Ro-Ro) ocean transportation of Toyota vehicles from South Africa to Europe, the Mediterranean Coast of North Africa and the Caribbean Islands via Europe, West Africa, East Africa and the Red Sea.

The Commission’s investigation found that from at least 2002 to 2013 K-Line, MOL, NYK and WWL colluded on a tender issued by Toyota SA Motors (“TSAM”) to transport Toyota vehicles from South Africa abroad by sea.  The Commission further found that K-Line, MOL, NYK and WWL agreed on the number of vessels that they were to operate on the South Africa to Europe routes at agreed intervals or frequencies.

In addition, the Commission found that K-Line, MOL, NYK and WWL agreed on the freight rates that they were to charge TSAM for the shipment of Toyota vehicles.

International competition authorities including authorities in the US, Canada, Japan, China and Australia investigated this case and, in recent years, imposed large fines on the respective cartelists for engaging in market division and price fixing.  In February 2018, Wallenius Wilhelmsen agreed to pay a large fine to the EU.  Höegh Autoliners has reportedly been summoned to a court meeting in South Africa in March 2018.

 

Angola: Antitrust Update

The recently appointed president of Republic of Angola, João lourenço’s proposal to introduce competition law into Angola, was recently approved by the Commissions of Constitutional and Legal Affairs and Economy and Finance of the National Assembly with the intention to introduce rules of sound competition law into Angola’s legal system.

In addition, the formation of a Regulatory Competition Authority has been approved this month.  The Regulatory Competition Authority which will be tasked with promoting competition and ensuring compliance with the proposed rules and principles of competition.  In ensuring compliance the Authority will have the power to introduce sanctions against any entity which fails to comply with the rules.  The Competition Regulatory Authority will be guided by the criterion of public interest for promotion and defence of competition in within the market.

Harmonising agricultural seed regulations across COMESA: COMSHIP Certification

COMSHIP advances bloc’s Certification Programme to next level

Announced in Lusaka by COMESA’s Assistant Secretary General in charge of Programmes, the long-awaited Regional Seed Certificates will be issued by member states’ national seed authorities, in an attempt to level the competitive playing field and establish guaranteed performance and yields of otherwise unpredictably performing seed products.  The COMESA programme requires verification that a registered seed lot in the region’s “Variety Catalogue” has been inspected to field standards and laboratory analysis.

Andreas Stargard

Andreas Stargard

“The COMESA Competition Commission (CCC) having approved no less than three major agricultural mergers over the past year (Bayer/Monsanto, Dow/DuPont, and Syngenta/ChemChina) — all of which involved significant seed production and R&D elements — the Regional Seed Certificate programme represents the next step in bringing to fruition the COMESA Seed Harmonisation Implementation Plan (COMSHIP), designed to align seed regulations within the trading bloc,” says Andreas Stargard, a competition lawyer with Primerio Ltd.  “The Secretariat’s stated goal of COMSHIP is not only to assure product quality and grow intra-bloc commerce, but also increase the extra-regional competitiveness of the trade group’s substantial seed industry,” in line with COMESA’s Seed Trade Harmonization Regulations of 2014.

COMESACCAccording to its own statements, whilst only five member countries (Burundi, Rwanda, Kenya, Uganda and Zimbabwe) have fully modelled their national seed laws on the COMESA Seed System, the group’s Seed Certification system is the first such “use and distribution of seed labels and certificates as a way of improving access to quality seeds in the region” anywhere in the world, based on a model suggested by the OECD.  The system will “impact virtually all of the approximately 130 million COMESA inhabitants, who stand to benefit, according to the group, from assured-quality improved seed production and usage, as well as a de-fragmentation of the historically rather localised, national markets for seeds,” commented Stargard.

Practically speaking, the seed certification labels will incorporate machine-readability, traceability, and security features, and will be printed in the COMESA official languages: English, French and Arabic.

COMESA to Introduce Seed Labels and Certificates to Boost regional Trade

Competition Authority approves KFC Franchise M&A with public-interest conditions

On 7 February 2018 the Competition Authority of Botswana (“The Competition Authority”) approved, with conditions, the acquisition by Bradleymore’s Holdings (Pty) Ltd (“Bradleymore’s”), which is incorporated in accordance with the laws of the Republic of Botswana (a joint venture between Vivo Energy Africa Holdings Limited and Baobab Khulisani South Africa (Pty) Ltd) of KFC franchises in Botswana, namely VPB Propco (Pty) Ltd (in liquidation), QSR Food Company (Pty) Ltd (in liquidation), Boitumelo Dijo (Pty) Ltd (in liquidation) and Greenax (Pty) Ltd (in liquidation).

The Competition Authority determined that the Proposed Transaction is not likely to result in the prevention or substantial lessening of competition, or endanger the continuity of the services offered in the market for quick-service or fast food restaurants.

Section 60 of the Competition Act No 17 of 2009 (“the Competition Act”) allows the Competition Authorities to approve a merger “subject to such conditions as it considers appropriate” and “contain such directions as the Authority considers necessary, reasonable and practicable to remedy, mitigate or prevent any adverse effects of the merger”.

Furthermore, section 61 of the Competition Act provides for either of the parties to a merger to offer an undertaking to the Competition Authority to address any concerns that may arise or be expected to arise during the Competition Authorities consideration of the notified merger and the Competition Authority may make determinations in relation to the merger on the basis of such an undertaking.

Pursuant to the provisions of section 60 and 61 of the Competition Act; the Competition Authority approved the Proposed Transaction with the following conditions:

  1. Bradleymore’s shall source a significant portion of their input requirements locally by continuing to source from existing suppliers that were engaged by VPB, provided they are YUM accredited; as well as consider sourcing from any other YUM accredited suppliers based in Botswana who are currently not supplying KFC;
  2. Bradleymore’s shall ensure that local suppliers are assisted in penetrating or meeting YUM’s standards of accreditation with the aim of sourcing from these suppliers; and
  3. The Parties shall not retrench any employees of the target entities as a result of the acquisition for a period of three (3) years from the implementation date. For the sake of clarity, retrenchments do not include: voluntary separation; voluntary early retirement; unreasonable refusal to be deployed in accordance with the provisions of the labour laws of Botswana; resignations or retirements in the ordinary course of business; terminations in the ordinary course of business; dismissals as a result of misconduct of poor performance.

In order for the Competition Authority to properly monitor compliance with the above conditions, the Competition Authority shall require Bradleymore’s to adhere to the following:

  1. Bradleymore’s shall annually (for a period of three years from the implementation date) submit to the Competition Authority, a detailed report     indicating:-
  2. Any changes to its employment records in the country and the reasons thereof;
  3. A list of its existing and new locally based suppliers (including the type of inputs they supply). This information can be captured in the supply agreements KFC has with such suppliers; and
  4. A copy of the strategy to be employed in building capacity of local suppliers in ensuring they meet YUM accreditation standards. That copy should be availed to the Authority within a period of twelve (12) months from the implementation date. The parties need to demonstrate to the Authority efforts made in identifying potential suppliers in line with their expansion strategy.

Stephany Torres, a competition lawyer, believes such a decision is indicative of the Competition Authorities’ tendency to give public interest considerations a prominent role in merger review.

In terms of section 59(1) of the Competition Act, “[i]n assessing a  proposed merger, the Authority shall first determine whether the merger (a) would be likely to prevent or substantially lessen competition or to restrict trade or the provision of any service or to endanger the continuity of supplies or services; or (b) would be likely to result in any enterprise, including an enterprise which is not involved as a party in the proposed merger, acquiring a dominant position in a market”.

In addition to considering the effect of a merger on competition, in terms of section 59(2) of the Competition Act, the Competition Authority may consider any factor which it considers bears upon the broader public interest, including the extent to which “(a) the proposed merger would be likely to result in a benefit to the public which would outweigh any detriment attributable to a substantial lessening of competition or to the acquisition or strengthening of a dominant position in a market; (b) the merger may improve, or prevent a decline in the production or distribution of goods or the provision of services; (c) the merger may promote technical or economic progress, having regard to Botswana’s development needs; (d) the proposed merger would be likely to affect a particular industrial sector or region; (e) the proposed merger would maintain or promote exports or employment; (f) the merger may advance citizen empowerment initiatives or enhance the competitiveness of citizen-owned small and medium sized enterprises; or (g) the merger may affect the ability of national industries to compete in international markets”.

Torres believes the Competition Authorities’ willingness to push public-interest considerations even in instances such as the proposed transaction, where no competition issues arise, is indicative of them trying to address unemployment issues in Botswana through their merger review.  This willingness to let public interest take centre stage is often seen in countries with new competition law regimes.  She expressed concern that public interest considerations may possibly be the deciding factor when making decisions regarding mergers as these are particularly difficult to quantify or objectively assess.

Seeking exemptions from Resale Price Maintenance rules

Kenya’s RPM regime of exemptions to floor price-fixing regulations

The Kenya Ships Contractors Association (KSCA) recently became the latest in a long line of industry associations that have approached the Competition Authority of Kenya (CAK) for an exemption to set minimum prices.  Other recent applicants include the Law Society of Kenya (LSK); the Institute of Certified Public Accountants of Kenya (ICPAK), the Institute of Certified Public Secretaries of Kenya (ICPSK) and the Institute of Surveyors of Kenya.

kenyaSection 21 of the Kenyan Competition Act 12 of 2010 (the Act) prohibits firms or associations from entering into any agreement that “involves a practice of minimum resale price maintenance” (‘RPM’).

Under sections 25 and 26 (read jointly), however, firms or associations may apply to the CAK to be exempted from this prohibition by way of an application to the CAK in the prescribed form, especially in instances where they believe there are exceptional and compelling reasons (of public policy) justifying setting such resale price floors.

In evaluating requests for exemption, the CAK will consider whether the granting of an exemption will promote exports, bolster declining industries or, more generally, the potential benefits outweigh the cost of a less competitive environment due to the RPM conduct.

Kenyan competition lawyer Ruth Mosoti, with Primerio Ltd., notes that, “although each exemption will be considered on its own merits, the CAK’s recent decisions in applications of a similar nature seem to have created a precedent unfavourable to the KSCA’s request being approved.” In this regard, the CAK in the ICPAK application rejected the application and stated that the “[i]ntroduction of fee guidelines will decrease competition, increase costs, reduce innovation and efficiencies and limit choices to customers and is in fact likely to raise the cost of accountancy services beyond the reach of some consumers”.

The CAK’s Director General, Mr. Wang’ombe Kariuki has now issued a notice requesting input from the public regarding the application.

Media cartel exposed and fined

By AAT Senior Contributor Stephany Torres

Print media companies Independent Media and Caxton & CTP Publishers and Printers (“Caxton”) have agreed to pay an administrative penalties as well as an amount to the Economic Development Fund of over R8 million as part of two separate settlement agreements with the Competition Commission (“The Commission”) after admitting to fixing prices and trading conditions in contravention of section 4(1)(b)(i) of the Competition Act no. 89 of 1998 (“The Competition Act”).

Caxton owns local print media, including the Citizen newspaper and magazines Bona, Rooirose and Farmer’s Weekly, among others.  Independent owns newspapers The Star, Cape Times, Sunday Independent, among others and magazines GQ and GQ Style.

Attorneys from African competition law firm Primerio Ltd. report that this development follows from a 2011 investigation by the Commission into the matter where they found that, through the facilitating vehicle of the Media Credit CoOrdinators (“MCC”) organization, various media companies agreed to offer similar discounts and payment terms to advertising agencies that place advertisements with MCC members.  MCC accredited agencies were offered a 16.5% discount, while non-members were offered 15%.  In addition, the Commission found that the implicated companies employed services of an intermediary company called Corex to perform risk assessments on advertising agencies for purposes of imposing a settlement discount structure and terms on advertising agencies.  “The Commission found that the practices restricted competition among the competing companies as they did not independently determine an element of a price in the form of discount or trading terms”.

In a media release, the Competition Commission confirmed Caxton will pay a fine of R5 806 890.14, and R2 090 480.45 to the Economic Development Fund over three years.  It will also provide 25% bonus advertising space for every rand of advertising space bought by qualifying small agencies for three years, capped at R15 000 000 per annum.

Independent Media will pay an administrative penalty of R2 220 603 and will contribute R799 417 to the Economic Development Fund over a three-year period, and provide 25% bonus advertising space for every rand of advertising space bought by qualifying small agencies, over three years and capped at R5 000 000. Independent has also said it would obtain its own credit insurance so small agencies are not required to commit any securities or guarantees in order to book advertising space.

The Economic Development Fund is designed to develop black-owned small media or advertising agencies, which require assistance with start-up capital and will assist black students with bursaries to study media or advertising.

The agreements were confirmed as orders of the Competition Tribunal.

 

SA Airlink referred to Tribunal for Engaging in Alleged Excessive and Predatory Pricing Conduct

By Stephany Torres

The Competition Commission (Commission) has referred SA Airlink, a privately owned regional feeder airline, to the Competition Tribunal (Tribunal) for prosecution on charges of excessive and predatory pricing in relation to a specified domestic route in South Africa (Johannesburg-Mthatha).  The Commission was prompted to investigate the matter after receiving complaints lodged by Khwezi Tiya‚ Fly Blue Crane and the OR Tambo District Chamber of Business between 2015 and 2017.

The Commission found SA Airlink to be dominant in the market for the provision of flights on the Johannesburg-Mthatha route and further found that SA Airlink contravened the Competition Act by abusing this dominance from September 2012 to August 2016 by charging excessive prices on the route to the detriment of consumers in contravention of Section 8(a) of the Competition Act no 89 of 1998 (“the Competition Act”).  The Competition Act defines an “excessive price” as a price for a good or service “which bears no reasonable relation to the economic value of that good or service and is higher than the value referred to in 8(a)”.

SA country flag outlineAn additional requirement which the Commission will need to demonstrate in order to succeed with an excessive pricing complaint is that the “excessive pricing” was to the detriment of consumers.  In this regard the Commission found that consumers would have saved between R89 million and R108 million had SA Airlink not priced excessively on this route.  Furthermore, lower prices would also have resulted in more passengers traveling by air on the route‚ possibly contributing to the local economy of Mthatha.

The Commission also found SA Airlink to have engaged in predatory pricing to exclude a competitor from the market in contravention of section 8(c) and Section 8(d)(iv) of the Competition Act. In this regard, the Commission alleges that prior to Fly Blue Crane entering the market, SA Airlink had charged excessive prices. When Fly Blue Crane entered the route, SA Airlink allegedly reduced its prices below its average variable costs and average avoidable costs for some of its flights and then subsequently, after Fly Blue Crane stooped flying the relevant route, SA Airlink reverted to their alleged excessive prices.

The Commission went further to say that the effect of the predation is also likely to deter future competition on this route from other airlines which would also be to the detriment of consumers.

The Competition Act provides for an administrative penalty of up to 10% of SA Airlink’s annual turnover for contravention of Section 8. The Commission stated that “it will seek the maximum administrative penalty before the Tribunal”.

In addition‚ the Commission has asked the Tribunal “to determine other appropriate remedies in order to correct the conduct“.

Michael-James Currie, a competition lawyer, notes that “in addition to the potential administrative liability, should SA Airlink be found by the Tribunal to have abused its dominance, SA Airlink may also face civil damages claims similar to those which Nationwide and Commair successfully instituted against South African Airways (SAA) following the Tribunal’s decision that SAA had engaged in abuse of dominance conduct”.

John Oxenham, a director of Primerio and editor of the recently published book “Class Action Litigation in South Africa”, states that “this case may potentially also result in class action litigation if the Commission is correct in its quantification of the harm caused to consumers”.

The Competition Commission’s case against Airlink comes at an interesting juncture in light of the recently published Competition Amendment Bill. Andreas Stargard, also a director at Primerio notes that the underlying motivation for the proposed amendments to the abuse of dominance provisions is to assist the Commission in prosecuting dominant firms (by placing the onus on a dominant firm to demonstrate that its conduct is pro-competitive). The case against Airlink, however, will be decided in terms of the current regime as the Amendment Bill has not yet been brought into effect.

For further information and insight into excessive pricing and predatory pricing cases in South Africa, AAT has previously published papers on the Competition Appeal Court’s decision in Sasol (the seminal excessive pricing case in South Africa) and the Media 24 cases (the first successfully prosecuted case based on a predation theory of harm).

 

 

South African Competition Tribunal Rules against Wal-Mart in South Africa on “Exclusive Leases”

By Michael-James Currie

On 13 February 2018, the South African Competition Tribunal ruled against Massmart Holdings, a subsidiary of Wal-Mart in relation to a complaint filed by Massmart against three of South Africa’s largest grocery retailers (as well as the South African Property Owners Association – who did not actively participate in the hearing).

The history of the complaint dates back to 2014, when Massmart submitted a complaint to the Competition Commission alleging that the exclusive lease agreements which the respondents had concluded with the relevant landlords in respect of shopping malls were exclusionary and contravened the South African Competition Act. The Competition Commission elected not to refer the matter to the Competition Tribunal and dismissed Massmart’s complaint based on a lack of evidence demonstrating any anti-competitive effects.

Massmart proceeded to refer the complaint itself to the Competition Tribunal in 2015 (which is permissible only if the Competition Commission elects not to refer the matter to the Tribunal) on the basis that the respondents had contravened Section 5(1) of the Competition Act — which prohibits any vertical arrangement which has anti-competitive effects and which cannot be outweighed by pro-competitive efficiency enhancing justifications.

Massmart’s case against the respondents was essentially that the respondent retailers had entered into long term lease agreements with landlords of various shopping centres which contained exclusivity provisions effectively precluding (or limiting) competing retailers from entering that same shopping centre.  In other words, the crux of Massmart’s complaint was that Massmart could not enter into a number of shopping centres in a manner which would enable Massmart to compete with the incumbent retailers.

Although the respondents raised a number of exceptions to the Massmart complaint (including the “non-citation” of the relevant landlords who are parties to the respective lease agreements), the Tribunal did not need to rule on these exceptions. The Tribunal dismissed the complaint on the basis that Massmart did not prove that the exclusivity provisions contained in the lease agreements resulted in anti-competitive effects in the relevant market.

In conducting its assessment, the Tribunal considered whether the “exclusive leases” are likely to either:

  1. have an adverse impact on consumer welfare; or
  2. lead to the foreclosure of a rival in the market.

Central to the Tribunal’s assessment was the appropriate definition of the “relevant market”. In this regard, the Tribunal found that Massmart had not properly demonstrated that each shopping mall constituted a separate geographic market.

Assuming that the relevant geographic market is the boundaries of a shopping mall,  the Tribunal went on to state that Massmart’s complaint was not supported by sufficient evidence to demonstrate that there would be a “substantial lessening of competition” in that market. In this regard, the Tribunal confirmed that the mere exclusion of a rival does not equate to a “substantial lessening of competition” – particularly if there is at least one other competitor in the relevant market – which based on the evidence appeared to be the case in a number of circumstances.

In relation to an alternative proposition put forward by Massmart, the Tribunal considered whether the “exclusive leases” would lead to anti-competitive effects in the “national market”. Again, the Tribunal found that there was insufficient evidence pleaded to demonstrate that there was a substantial lessening of competition on the national market. Importantly, however, the Tribunal indicated that the respondent retailers appear to impose a competitive constraint on each other in the national market – assuming that there is in fact a competition dimension at a ‘national level’.

The Tribunal’s decision does not therefore go as far as confirming that ‘exclusive leases’ between retailers and shopping malls are inherently pro-competitive, but rather that parties seeking to demonstrate the anti-competitive effects of the ‘exclusivity arrangements’ must do so with credible theories of harm which is supported with the necessary evidence.

The Tribunal’s decision comes at an interesting juncture in light of the current market inquiry being conducted by the Competition Commission in the grocery retail sector. One of the key objectives of the market inquiry is to assess the anti-competitive effects of “exclusive leases”. The Competition Commission is scheduled to finalise its market inquiry in 2018 following which the SACC will make recommendations to Parliament to remedy any potential anti-competitive features of South Africa’s grocery retail sector.

In relation to international precedent, the UK’s competition agency adopted a view that “exclusive leases” are not anti-competitive per se but rather that the duration of the exclusivity provisions contained in lease agreements should be curtailed. Accordingly, exclusivity provisions in the UK are limited to five years. The Australian agency (the ACCC), after conducting a public inquiry into various features of the grocery retail sector, concluded that exclusive lease provisions may be justified in ‘developing areas’ but are unlikely to be justified in ‘metropolitan areas’.

Accordingly, it remains to be seen whether the Competition Commission will propose that any remedial action be taken to address exclusive leases agreements in the context of the South African grocery retail sector (following the conclusion of the market inquiry) or whether Massmart (and/or other complainants) will look to reformulate a complaint to the Tribunal and focus on specific shopping malls as opposed to an overarching complaint against the existence of exclusivity provisions.

Importantly, however, in light of the Tribunal’s finding that Massmart was not able to sufficiently plead and support an argument that the exclusive leases were likely to lead to anti-competitive effect in any defined market, it was unnecessary to consider whether there are any pro-competitive arguments or economic justifications which would outweigh any anti-competitive effects.

[Michael-James Currie is an admitted attorney of the High Court of South Africa and advises clients on competition law matters across sub-Saharan Africa]