Uncategorized

South African Competition Enforcement: a Juxtaposition.

AAT has previously reported on the South African “Consumer and Customer Protection and National Disaster Management Regulations and Directions” (Pricing Regulations) which came into force on 19 March 2020.

The Pricing Regulations provide the temporary framework within which excessive or unfair price increases will be assessed during the national state of disaster. Further, to give effect to the Pricing Regulations, the South African Competition Commission (SACC) and Competition Tribunal (Tribunal), both made specific provision to prioritize and prosecute matters arising out of the Pricing Regulations, on an urgent basis.

Following the publication of the Pricing Regulations, the SACC has reportedly received a myriad of complaints arising out of alleged breaches of the Pricing Regulations and, in order to effectively respond, has allocated its resources almost exclusively to dealing with such cases.

Notably, a large majority of these have not been referred to the Tribunal and, in some instance, the SACC has opted to, instead, resolve such allegations through direct and informal engagement with the relevant parties. In this regard, the SACC has taken the approach of liaising with industry players proactively, in order to greenlight pricing and other potentially anticompetitive conduct. This can be compared to the efforts of other international agencies who have undertaken to, on an expedited basis, consider and approve ‘waiver requests’. While firms may take comfort in the fact that the SACC will not prosecute firms who have cooperated in this informal manner, balancing cooperation with the right against self-incrimination may be a risky exercise for firms, particularly where such engagement takes place informally, without the advice of counsel.

Even so, there can be little doubt that the SACC, like its international counterparts, are wearing two hats, presenting firms with temporary but valuable measures to successfully navigate the uncertainty of a national state of disaster. The various exemptions published in terms of the Competition Act is a further such example.

In wearing the hat of enforcement, the SACC has concluded various settlements by way of consent orders, with small independent retailers and pharmacies emanating from the Pricing Regulations.

The most notable of these include a consent order, reached with face mask and protective gear distributor, Matus, following an investigation undertaken by the SACC which found that Matus increased the prices of dust masks (FFP1 and FFP2) for the relevant period, causing its gross profit margins to be markedly inflated. Matus, in the consent order, admitted to inflating its gross profit margins although it denied having contravened any laws (likely on the basis that it may not be dominant in any specific market, as required for a contravention of Section 8 of the Competition Act) and agreed to:

  • Pay an administrative penalty of R5.9 million;
  • Contribute R5 million to the Covid-19 Solidarity Fund;
  • Reduce its gross profit margin on dust masks to an acceptable level for the national disaster period (linked to an assurance that its gross profit margins for essential products will not be increased above that which was applicable on 16 February 2020).

The SACC has also, to date, referred and litigated two complaints before the Tribunal in terms of the Tribunal’s expedited Rules for Covid-19 Excessive Pricing Complaint Referrals (Tribunal Rules). These are:

Babelegi Workwear Overall Manufacturers & Industrial Supplies CC (Babelegi) – The SACC alleged that Babelegi increased the prices of facial masks for the period, earning a mark-up of over 500%, in contravention of the Pricing Regulations (and section 8 of the Competition Act).

Dis-Chem Pharmacies Limited (Dis-Chem) – The SACC alleged that Dis-Chem increased prices on surgical face masks (with increases between 43% and 261%) for the period February 2020 to March 2020, in contravention of the Pricing Regulations (and section 8 of the Competition Act).

The Dis-Chem matter has been interesting for a variety of reasons and is considered to be the ‘seminal case’ on prosecution in terms of the Pricing Regulations, with the SACC openly declaring that a “clear message must be sent that deters all other firms and Dis-Chem again from engaging in the same conduct”.

Dis-Chem is disputing its dominance in the relevant markets as well as the lawfulness of its decision to raise prices, arguing that it faced increased input costs and supply shortages which led to temporary price increases from all of its competitors and that Dis-Chem’s price adjustment was lower than that of other retailers.

From a procedural perspective, the matter has re-emphasized the need for compliance with the temporary Tribunal Rules, which provides for significantly reduced time periods, including that a respondent has 72 hours from service of the complaint referral in which to file a copy of their answering affidavit. Dis-Chem requested a one week extension for filing its answering affidavit, citing prejudice as a result of the complex nature of cases of excessive pricing and the severity of the penalty which may ultimately be imposed. The request was opposed by the SACC and Dis-Chem was forced to adhere to the shortened time period. Judgment is currently pending.

Competition agencies and advisors, globally, have stressed the pitfalls and advantaged of competition law during the state of disaster. A quick glance at enforcement statistics both now and following, for example the 2008 global financial crises, show that firms which have attempted to take advantage of consumers by flouting competition compliance during these times, have faced severe and endured consequences; economic and financial conditions cannot be used ex post to justify otherwise anticompetitive conduct.

Having said that, the proactive role played by the SACC also present opportunities for firms to utilize and take advantage of the temporary measures put in place by the SACC to green-light conduct which may otherwise be considered problematic.

The rules of the game have most certainly changed and, with it, there will be both winner and losers. A proactive approach to competition law compliance during these times, when perhaps firms are faced with more pressing concerns, may make all the difference.

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Appellate Review, Kenya, mergers, Telecoms

Kenya’s Competition Tribunal: Airtel/Telkom merger generates first decision

By Ruth Mosoti, Esq. (Primerio Ltd. Kenya practice head)

On 4th May 2020, the Kenyan Competition Tribunal made its first decision after considering the application for review of the Airtel-Telkom merger where they contested 7 out of 8 the conditions imposed. The competition Act allows the tribunal to look at the merits of the Competition Authority’s (CAK) decision therefore and has power to confirm, modify or reverse any order issued either partially or wholly. In this particular decision the Tribunal did exercise all these powers.  The decision of the Tribunal was guided by whether CAK’s decision promoted or protected effective competition in the telecommunications sector, enhanced the welfare of the Kenyan people and prevented unfair and misleading conduct throughout Kenya among other things.

First, the Tribunal confirmed the condition set in relation to employment. This public interest consideration varies on a case by case basis hence the difference in its application. In some mergers CAK has limited the retention of employees to 12 months and in others it is limited to 3 years. In this particular case, it was limited to 2 years. The tribunal agreed that due to the specialized nature of the industry and the presence of only two players in that market post-merger, then the condition imposed in regard to employment was justified.

Ruth Mosoti (author)

Secondly, the 2 conditions in relation to spectrum licensing and management were varied in their entirety primarily because it was found that CAK had no basis to interfere with licensing conditions imposed by the Communications Authority. It was their view that the Communications Authority was the competent authority to govern the licensing terms and, in the event, that there are any competition concerns then, these two regulators would consult. The imposition of these two conditions were deemed to be unnecessary. It was emphasized that competition law is there to protect competition and not competitors.

Thirdly, the condition on restricting entering into any sale agreement was modified to bring clarity. As imposed by CAK any form of sale was prohibited which was found to be blanket, therefore unreasonable. The Tribunal clarified that the merged entity would be able to enter into sale agreements in the ordinary course of business however the merged undertaking cannot be sold for a period of 5 years. In addition to this, the condition of audit in case the merged undertaking became a failing firm was done away with because CAK failed to justify why it applied the “failing firm doctrine” post-merger. In any event should this happen, the Tribunal reasoned that this would require approval from CAK therefore an unnecessary condition at this point.

The conditions in relation to contracts managed by Telkom on behalf of the government were retained however the tribunal clarified that this was not to interfere with the freedom of contract between the Kenyan government and the merged entity. While it is unconceivable how the government would agree to preferential terms while entering into these contracts without offending the law (this would be to my understanding that you pay for a government service/product depending on who you are which would be outright discriminatory)

Lastly, imposing a requirement for annual reports to CAK with no time limit was not justified. The appellants asked for 2 years and the Tribunal obliged. This was based on the fact that most of the conditions imposed on the merged entity after the review would lapse after 2 years therefore the tribunal deemed two years to be a justifiable time frame to comply with the 8th condition.

The Tribunal’s take on the procedural issues raised by the appellants is quite interesting. On the issue as to what constituted a “fair administrative process”, it was of the opinion that CAK had accorded the appellants adequate notice and opportunity to respond. To contextualize this, the appellants received a notice of a proposed decision and had a meeting on 25th October 2019, the Appellants contested these conditions and on the same date after the meeting, CAK sent amended conditions. The appellants advocates asked for time to consult their clients on the amended conditions.  The CAK however went ahead to issue a notice of determination on 31st October 2019 which was 6 days later. CAK’s position on this was that the board having sat, the decision issued on 31st October 2019 was final. This being the case, the only avenue available to the Appellants was to challenge it before the tribunal. The position by the tribunal that the Appellants had been given adequate time to challenge procedural fairness bearing in mind that the 30 days were to lapse on 24th November 2019 is baffling at best.

In conclusion, this decision being the first of has accorded practitioners an insight as to how CAK arrive at its decisions as well as the considerations of the tribunal in case of appeals. We now look forward to its determination of the other appeals in relation to RTPs before it.

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AAT exclusive, BRICS, collusion, COVID-19, exemptions, South Africa

Pandemic Antitrust Exemptions, or: “The Virus Let Me Do It!”

In antitrust circles, the term “Competitor Collaboration” may refer to quite an innocent practice, but is perhaps more often used as a euphemistic reference for good old-fashioned collusion: namely, a cartel by any other name.  Antitrust enforcers around the globe attempt to harness its “good side” during the viral pandemic…

In the COVID-19 world, several competition-law enforcers, including those in the United States and in South Africa, have tried to act swiftly to create express “safe harbours” for certain types of permissible conduct between (otherwise horizontal and direct) competitors.  The goal of these (usually temporary) exemptions from the strictures of antitrust prohibitions against collaboration, information exchanges, and the like, is to enable medical-supply providers to ensure that urgently-needed products and services can be delivered most expediently to the affected areas, patients, and hospitals.

Andreas Stargard

Andreas Stargard

In the United States, notes Andreas Stargard, an antitrust attorney, the COVID-19 pandemic has shown that the federal antitrust agencies are capable of proceeding with speed when it comes to signing off on such allowable “competitor collaborations”, which are in the best interest of facilitating an efficient health-care industry response to the crisis.  The FTC and DOJ are now swiftly, within one week of the submission of a detailed request for review, sanctioning proposed cooperation agreements by firms that would otherwise compete to supply medicines or equipment.  Applicants for a business-review letter (“BRL”) must provide a detailed explanation of the planned conduct, together with its rationale and expected likely effects, to the agencies.

The first of these opinion letters was issued on April 4th, 2020, under the expedited procedure to McKesson, Cardinal Health and others.  It allows them to collaborate on PPE production, following the call for such action by FEMA and other federal agencies, and pursuing the coordinated response under their supervision for a limited time period (namely the duration of the crisis).  What could be deemed anti-competitive effects, such as an undue price increase, output reduction or the like, is expressly excluded from the permissible conduct.

Applying the “same analytical framework” as the DOJ’s approval of the PPE-related collaboration between McKesson, Cardinal Health, Owens & Minor, Medline Industries and Henry Schein Inc., the Department’s Antitrust Division has now issued a second BRL, dated April 20th, to AmeriSource Bergen and others, approving their similarly designed scheme to distribute medicinal products jointly across the country.  AmerisourceBergen sought the agency’s blessing of the proposal pursuant to the expedited review procedure outlined in the March 24th joint FTC and DOJ guidance on health-care providers collaborating on necessary public-health initiatives, in which the dual antitrust enforcers announced their goal to answer COVID-19-related BRL requests within one week of receiving the BRL applicants’ detailed description of the proposed collaborative conduct.

Mr. Stargard counsels that those firms seeking a BRL exemption should consult with a competent antitrust specialist lawyer.  He notes that the federal agencies have expressly invited providers to take advantage of the expedited BRL procedure, which is temporary in nature and only available during the time of the declared COVID-19 pandemic.

In South Africa, the South African Minster of Trade and Industry and Competition (“Minister”) has taken a similar tack, having published Regulations under Section 78 of the South African Competition Act 89 of 1998 (“Competition Act”).  Unlike the U.S., however, these Regulations go well beyond the medical industry.  John Oxenham, a Johannesburg-based competition lawyer, observes that “these Regulations exempt industry players in certain sectors from prosecution for conduct in contravention of Sections 4 and 5, also known as Block Exemptions.”  They also apply to the prohibition of excessive pricing (and ensuring sufficient supply) by firms selling key supplies.  Related to the exemption process in terms of the Competition Act are the powers of the Minister to publish directions under the recent Regulations issued under section 27 (2) of the Disaster Management Act (GN 318 of 18 March 2020). In this regard, Regulation 10(6) provides that the Minister may issue directions to “protect consumers from excessive, unfair, unreasonable or unjust pricing of goods and services during the national state of disaster; and maintain security and availability of the supply of goods and services during the national state of disaster.”

Block Exemptions

John Oxenham

John Oxenham

Block Exemptions have been published by the Minster in terms of section 10(10) of the Competition Act which provides that the Minister may, after consultation with the Competition Commission (SACC), issue regulations in terms of section 78, exempting a category of agreements or practices from the application of sections 4 and 5 of the Competition Act. As at the date of writing, Block Exemptions have been granted to the Healthcare Sector, the Banking Sector and Retail Property Sector.

Health Care Sector

The exemption include a range of industry players, including healthcare facilities, pharmacies, medical suppliers, medical specialist, pathologists and laboratories, and healthcare funders.  The Block Exemption will similarly allow industry players to coordinate on procurement of supplies, transferring equipment and coordinating the use of staff. In effect, the Block Exemption extends and broadens the scope of the exemption enjoyed by the NHN to include state and private healthcare. While this move is certainly a welcome one to ensure that South Africa is able to effectively deal with the spread of COVID-19, its effect on competition in this market will be most interesting. The health care sector, and particularly large private sector players (Private Health Care), has long been in the cross-hairs of the SACC, with many enforcement actions, heavily contested merger control proceedings and most recently, the market inquiry into the private healthcare sector conducted and concluded by the SACC. Concentration and Coordination has been key to the debate. While the Exemptions will apply only for so long as the state of disaster remains in effect, the effects of these measures on the industry is likely to endure for some time and will reform the debate around the future of health care in South Africa.  On the 8th of April the Block Exemption was amended to additionally cater for the following:

(i)         Those agreements which are exempt can only be undertaken at the request of the Department of Trade, Industry and Competition or the Department of Health. Furthermore, either of these departments may impose further conditions on the agreements or practices; and

(ii)        The Exemption now caters for agreements or practices between manufacturers and suppliers of medical and hygiene supplies.

Banking Sector

The Block Exemption published in favour of the Banking Sector is aimed at exempting a category of agreements or practices between Banks, the members of the Banking Association of South Africa and/or Payments Association of South Africa from application of sections 4 and 5 of the Act and promoting cooperation between these industry participants to mitigate damages and to ensure the effective continuance of banking infrastructure. In this regard, industry participants are to coordinate and agree on, inter alia:

operation of payment systems and the continued availability of notes at ATMs, branches and businesses; debtor and credit management to cater for payment holidays and debt relief (including limitations on asset recovery and the extension of further credit terms).

Retail Property Sector

The Block Exemption in respect of the Retail Property Sector applies only to retail landlords and designated retail tenants (required to shut down in terms of the national shut down currently in place) and aims to provide a framework for cooperation between industry participants in respect of payment holidays and rental discounts and limitations on the eviction of tenants. The Block Exemptions also seek to cater for cooperation on limitations to the restrictions placed on tenants to protect their viability during the nation disaster, likely to allow tenants to alter of expand their product or service offerings to fall within the category of businesses or services exempt from the restrictions currently enforced by Government, thereby ensuring alternative income and increased capacity on key products and services.

Hotel Sector

The Exemption granted to hotel industry operators seeks to enable the hotel industry to collectively engage with various Government departments with respect to identifying and providing appropriate quarantine facilities. The Exemption applies to agreements or practices pertaining to the identification and provision of quarantine facilities, and cost reduction measures in providing accommodation for persons in quarantine.

Block Exemptions have not been widely utilised in South Africa. To the extent that the measures introduced by the Block Exemptions are effectively implemented, however, the use and application of the process of exemptions under the Competition Act may become a more prominent feature of the South African competition law process. The nature of emergencies are such that they expedite the implementation of historical process which were otherwise untouched or contested as the counterfactual has changed.

It is already evident that more and more industries affected by the COVID-19 will apply for or be granted block exemptions to ensure that they are able to effectively avert the negative effects associated with disruptions caused to the business and economy. Examples of these include the Grocery Retail and/or Fast Moving Consumable Goods Sectors, Security Sector and more.

Price Regulation

The Pricing Regulations, are published in terms of a combination of the Competition Act, the Consumer Protection Act 61 of 2008 (2008) and the Disaster Management Act (2002) and apply only to the ‘key supplies identified in the Pricing Regulations and will remain in effect only for so long as COVID-19 remains a ‘national disaster’.  Section 8(3)(f) of the Competition Act provides that in determining whether a price is an excessive price (for purposes of section 8(1)),  it must be determined whether that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account any regulation published by the Minister in terms of Section 78.  In terms of the Pricing Regulations a price will be considered an excessive price for purposes of Section 8(1) of the Competition Act where, during this period of national disaster, a price increase: does not correspond to or is not equivalent to the increase in the costs of providing that goods or service; or increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020.

Notably, Section 8 applies only to dominant firms.

In addition to the above, the Pricing Regulations contain a similar assessment for the consideration of what is termed unconscionable, unfair, unreasonable and unjust price increases in the Consumer Protection Act. While it is likely that what constitutes an excessive price under the Competition Act will also constitute an unreasonable price increase for purposes of the Consumer Protection Act, the opposite may not be true. The Consumer Protection Act is enforced by a different authority in South Africa and case precedent has been quite limited, compared to the competition authorities.

The Pricing Regulations also cover quantities and the restrictions on sale to maintain equitable distribution and curb stockpiling. No mention is made of the Competition Act or Consumer Protection Act in these paragraphs, although they should also be considered in the broader context of competition policy and what the Pricing Regulations seek to achieve. Although South African competition policy is not ordinarily concerned with discrimination at the final consumer level, in terms of the Pricing Regulations, retailers are effectively required to ration the quantity sold, as the normal economic mechanism, whereby suppliers sell to those parts of the demand curve with a sufficient willingness to pay, is suspended.

The penalty provisions of the Pricing Regulations require prosecution in terms of the underling legislation, being the Competition Act and Consumer Protection Act respectively as these sanctions exceed the powers given to the Minister in the Disaster Management Act. The Pricing Regulations state that subject to the further specific provisions of the respective pieces of legislation, a failure to comply with the Pricing Regulations may attract a fine of up to R1 000 000 and/or a 10% of a firms turnover and imprisonment for a period not exceeding 12 months (depending on the applicable legislation). In terms of the Competition Act, only cartel conduct under section 4(1)(b) attracts criminal liability.

The Minister has recently announced that a number of firms are under investigation for allegedly contravening the provisions of the Competition Act and/or Consumer Protection Act in a manner prohibited by the Pricing Regulations.

The Disaster Management Act provides that the declaration of a national state of disaster can terminate after the expiry of 3 months or upon notice in the Government Gazette by the Minister before the expiry of 3 months. The Minister can nonetheless extend such a period for one month at a time.

Accordingly, the Disaster Management Act offers little certainty on how and when the measures implemented will come to an end.

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COVID-19, excessive pricing, South Africa

Competition Commission makes good on its promise to clamp down on excessive pricing amid COVID-19 outbreak

Despite the overwhelming amount of excessive pricing complaints being referred to the South African Competition Commission (“the Commission”), it has remained unwavering in its commitment to prioritize and follow-through on bringing the full might of the law down on suppliers and retails who have used the prevailing circumstances to take advantage of consumers by increasing prices on essential goods and services with no cost increase justification.

This is illustrated in a media statement released by the Commission on 15 April 2020, wherein the particulars of the Commissions first referral to the Competition Tribunal (“the Tribunal”) for price gouging on facial masks was expanded upon, and which is due to be heard on 24 April 2020.

Babelegi Workwear Overall Manufacturers and Industrial Supplies CC (“Babelegi”) allegedly engaged in price gouging through its 500% mark-up on facial masks, which is considered as an essential good, for the period 31 January 2020 to 5 March 2020. Babelegi’s supplier is also under investigation by the Commission for allegedly engaging in excessive pricing after it subsequently came to light that the said supplier purportedly increased its input prices.

In a media statement issued on 31 March 2020, the Commission aired its concerns  in and prioritization on suppliers and retailers who charge excessive prices on COVID-19 essentials, as well as complainants who are considered essential service professionals (such as doctors, policemen etc). The Commission also outlined the expedited preliminary investigations it will undertake in complaints. In this respect, respondent firms have 48 hours in which to confirm or rebut the allegations brought against it. Importantly, the Commission has showed that some complaints may indeed be justified where firms provide a valid cost increase justification. Accordingly, not all acts of price increases will be condemned as price gouging.

As highlighted by the Commission, firms can expect to see a wave of prosecutions in the coming days. The Commission has already concluded (but not yet referred) numerous price gouging complaints, to name a few:

  • A pharmacy has increased its mark-up on face marks and sanitizers by more than 300%;
  • A hardware store has allegedly increased the price of surgical gloves from R99.99 to R170.00 within one week absent any cost increase justification; and
  • A wholesaler of chicken has marked-up chicken pieces by up to 50%, also absent any cost increase justification.

It is important to keep in mind that firms engaging in excessive pricing, price fixing, allocation of markets and market shares and bid rigging risk facing a fine of up to 10% of their annual turnover, and risk a fine of up to 25% of their annual turnover in respect of repeat offences. Furthermore, complaints regarding price fixing, the allocation of markets and market shares and bid rigging could result in certain directors who engage in or initiate such contraventions with imprisonment of up to 10 years.

The spike in competition law contraventions amidst the COVID-19 outbreak is not unique to South Africa, the Ministry of Trade in Rwanda has itself imposed fines on 178 companies to the amount of RwF of 15 850 000 to date. Furthermore, the Competition Authority of Kenya (“CAK”) has shown its determination in prosecuting exploitative conduct during the outbreak in the remedial order it issued to Cleanshelf Supermarkets for unconscionably adjusting prices of sanitizers.  Cleanshelf was ordered to find and refund all consumers who purchased the sanitizers above the usual selling price.

There is little doubt that the Commission will continue its endeavor in prosecuting COVID-19 related competition complaints, it may very well be slowed down due to the sheer explosion of complaints, but firms should not be quick to translate this voluminous burden as a gap in competition law enforcement that can be taken advantage of. Akin to his observation, Tembinkosi Bonakele, Commissioner of the Competition Commssion said “The Commission has now gone past the stage of moral suasion and appeals to patriotism to stop abuse of market power by those seeking to exploit consumers at the worse possible time – the law must take its course – we will see a wave of prosecution of firms in the next coming days.”

 

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AAT exclusive, COVID-19, event

FREE — Two upcoming Africa-focused telephone seminars

Primerio is hosting two telephone conferences:

Wed. 15 April (9 a.m. Eastern time / 14:00h CET) — on the different standards used for assessing force majeure clauses and other commercial implications relating to COVID-19 issues across key Southern and East African jurisdictions (South Africa, Kenya and Mauritius in particular).
Tue. 21 April (9 a.m. Eastern time / 14:00h CET) — on competition-law developments across Africa.  The panel will discuss the most important legislative developments, enforcement decisions and policy direction to take note of, as well as how the agencies across the continent are responding to COVID-19 related issues.
Attendees are invited to send their questions in advance of the sessions which they would like the diverse panel to consider and address.

There are no registration fees, but please RSVP by clicking here and you will receive the dial-in (& Zoom link) information.

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AAT exclusive, Access to Information, dominance, exemptions, South Africa, Uncategorized

Enforcement Alert: SACC ordered to remedy its complaint referral in 2nd CompuTicket abuse-of-dominance case

By Charl van der Merwe, assisted by Christine Turkington & Gina Lodolo

The South African competition Commission (SACC) has suffered yet another procedural setback- related to the facts pleaded in its referral affidavit – this time, in its ongoing saga with Computicket and Shoprite Checkers, apropos Computicket’s alleged abuse of dominance.

In its initial case against Computicket, which ultimately went to the Competition Appeal Court, SACC succeeded in holding Computicket to account for abuse of dominance in contravention of section 8(d)(i) of the Competition Act (Computicket One). Computicket One was based on the fact that Computicket had entered into exclusive agreements with customers which had the effect of excluding competitors from the market. See exclusive AAT article on Computicket One case here.

The SACC was critical of the conduct of Shoprite Checkers as, in Computicket One, the SACC alleged that the exclusive agreements were entered into between Computicket and Shoprite Checkers shortly after the Computicket was acquired by Shoprite Checkers. Computicket One was based on the agreement entered into for the period 2005 to 2010.

Accordingly and shortly after the conclusion of Computicket One, the SACC referred a second complaint against Computicket for abuse of dominance. The cause of action is substantively similar as that which had been found to be a contravention in Computicket One, however, this time based on the agreements entered into from January 2013 and which are alleged to be ongoing (Computicket Two). In Computicket Two, however, the SACC now seeks to hold Shoprite Checkers jointly and severally liable with Computicket in its capacity as the ultimate parent company of Computicket. Moreover, the SACC appears to seek the imposition of a penalty based on the higher turnover of Shoprite Checkers.

Note that Computicket Two was referred to the Tribunal prior to the enactment of the Competition Amendment Act, which provides for parent companies to be held jointly and severally liable for the conduct of subsidiaries and/or allows for the calculation of an administrative penalty, based on the turnover of the parent company where the parent was aware or ought to have been aware of the conduct of the subsidiary.

The Tribunal, therefore, found the SACC’s referral affidavit to be flawed and lacking of the facts (and points of law) necessary to sustain a cause of action, particularly in so far as it seeks to hold Shoprite Checkers liable. In this regard, the Tribunal expressly held that they view Computicket and Shoprite Checkers as separate economic entities and should thus be treated separately with respect to the allegations made in the Commission’s complaint referral.

The Tribunal went on the emphasize that on the consideration of dominance (which is the statutory first step to an assessment under section 8), “… the Commission conceded that Shoprite Checkers is not active in the market for outsourced ticketing services to inventory providers in which Computicket is active. Unsurprisingly, no market shares attributable to Shoprite Checkers are reflected anywhere in the Commission’s referral. It is simply unclear of what we are to make of the allegations against Shoprite Checkers.”

In order to correct these defects and instead of dismissing SACC’s case, the Tribunal ordered the SACC to file a supplementary affidavit. The Tribunal held that “[g]iven that the Commission’s reliance on the single economic entity doctrine fails and the question of dominance is abundantly opaque, the Commission must rectify its referral to properly reflect and clarify the case against Shoprite Checkers in order for it to meet the case put against it.”

Should the SACC fail to file its supplementary affidavit, within the 30 business days, as order by the Tribunal, Shoprite Checkers and Computicket may approach the Tribunal for an order that the case be dismissed.

John Oxenham, director of Primerio, notes that the Tribunal’s order in allowing the SACC an opportunity to first supplement or amend its referral affidavit is in line with the recent orders of both the Tribunal and Competition Appeal Court to first allow such opportunity for the SACC to remedy its case, instead of ordering an outright dismissal of the case on an interlocutory basis. This is likely to form the precedent for interlocutory applications, even where the facts suggest that the SACC’s case is opportunistic and incapable of being remedied.

According to competition lawyer, Michael-James Currie, the recent orders which have come out of the Tribunal and Competition Appeal Court in interlocutory applications will hopefully have a positive effect on the manner in which cases are referred and prosecuted in South Africa.

The SACC has at times demonstrated a tendency to be overly broad in its complaint referrals, causing respondent firms to engage in costly and time consuming internal investigations to assess the merits of such cases. With the development of the previously underutilized interlocutory processes, respondent firms are now able to, at an early stage of the litigation process, ensure that the SACC sets out its case in a concise manner, substantiated with the requisite factual allegations required to sustain its case, thereby avoiding the unnecessary cost of expansive internal investigations and protracted litigation.

 

 

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AAT, AAT exclusive, excessive pricing, South Africa, Uncategorized

South Africa Competition Tribunal: Regulations published to expedite COVID-19 excessive and unfair pricing complaint referrals

[The editors at AfricanAntitrust wish to thank Jemma Muller and Gina Lodolo for compiling this article]

On 3 April 2020, Minister Ebrahim Patel made amendments to section 27(2) of the Competition Act 89 of 1998 (“the Act”) with regards to the regulations pertaining to the functions of the Competition Tribunal (“the Tribunal”).

The amendment was enacted to regulate complaint referrals for alleged contravention of section 8(1)(a) of the Act which deals with the charging of excessive prices by a dominant firm. The amendment is crucial in light of the current state of affairs, where the charging of excessive prices has become more frequent during the Covid-19 outbreak. Accordingly, the amendment is only applicable for the duration of the period of the declaration of a Natural State of Disaster with regards to COVID-19.

An applicant who wishes to bring a complaint based on an alleged contravention of section 8(1)(a) of the Act, read with the Consumer and Customer Protection Regulations, must file a Notice of Motion and founding affidavit to the Tribunal.

Urgent complaint referral procedure

Who must file the complaint referral?

A complaint referral may be filed by the Commission or a complainant, as soon as possible after the commission has issued a notice of non-referral to that complainant.

Notice of motion requirements

An applicant must allege a contravention of section 8(1)(a), indicate the order sought against the respondent(s) and state the name and and address (electronic or otherwise) of each respondent in respect to whom the order is sought. Applicant’s may also state the date and time on which the applicant wishes the matter to be heard by the Tribunal.

Founding affidavit

The founding affidavit must set out the grounds of urgency and the material points of law and evidence that support the complaint. In addition, the applicant may include confirmatory affidavits from any factual or expert witnesses.

Procedure

The applicant must serve a copy of the Notice of Motion and founding affidavit on each of the respondent(s) named in the Notice of Motion and file a copy of the application with the Tribunal.

The important time periods:

A respondent must serve a copy of their Answering Affidavit on the complainant within 72 hours of service of the complaint referral. Thereafter the person who filed the Complaint referral may serve a copy for their Reply within 24 hours after being served with a copy of the Answering Affidavit.

The Tribunal will then determine the date and time for the hearing of the complaint referral (Tribunal Rules 6,16,17,18,18,47,54 and 55 apply to an application under this Rule unless they pertain to Rules which stipulate time-frames).

These documents may be filed electronically.

Urgent hearing

The Tribunal may direct that the urgent complaint proceedings in terms of the Rules may be conducted wholly as video or audio proceedings.

If no answering affidavit is filed within the period set out in the Notice of Motion or such extended period as may be determined by the Tribunal, the urgent complaint referral may be heard on an unopposed basis.

The Tribunal will determine if there was contravention of section 8(1)(a) of the Act based on the evidence contained in the affidavits unless there is a substantial dispute of fact which cannot be resolved by affidavits. In this case the Tribunal may determine an expedited procedure (which may include oral evidence on an expedited basis by way of video or audio proceedings). The Tribunal may also call for further evidence if it is required (subject to section 55 of the Act).

Remedies

The Tribunal may impose a pricing order if the respondent has been found to contravene section 8(1)(a) of the Act. The respondent may apply to appeal or review the decision on an urgent basis to the Competition Appeal Court (the pricing order will remain in force unless it is set aside by the court on appeal or review).

Consent order

The Commission may at any time (before, during and after and investigation) conclude a consent agreement for a complaint under section 8(1)(a) of the Act and it will be the full and final settlement of the matter  (including settlement of civil proceedings). This consent order may be confirmed by the Tribunal without hearing any evidence.

The amended complaint referral procedures equip complainants with the means in which to assist the competition authorities in penalizing those who have used the prevailing circumstances to exploit consumers, and is thus a commendable and efficient tool invoked by the Minister.

 

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