Author: Editor

Editorial staff of AAT

THE SWAZILAND COMPETITION COMMISSION POWER TO IMPOSE ADMINISTRATIVE FINES UNDER SPOTLIGHT

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swaziland

By Julie Tirtiaux

On Tuesday 14 July 2015, the Swaziland Competition Commission (the “SCC”) Board heard the substantive issues related to the anticompetitive behavior of Eagles Nest and Usuthu Poultry Farm (the “Parties”). The hearing followed the decisions of the Swaziland High Court and Supreme Court respectively regarding the procedure. The hearing deserves attention as it triggered questions about the SCC’s power to impose administrative fines.

The penalties that were imposed on the Parties

In November 2010, the Parties entered into a supply agreement whereby they agreed to restrict output and allocate customers. Following a complaint raised by the Minister for Commerce, Industry and Trade, the SCC Secretariat, which is the investigative and administrative arm of the Commission, initiated an investigation into this alleged anticompetitive conduct.

In 2013, the SCC Secretariat required the imposition of a fine on the Parties. The SCC Secretariat recommended a fine fixed at 10 percent of Eagles Nest’s affected turnover, while Usuthu Poultry Farm would be fined five percent of its affected turnover. The affected turnover for each company would amount to the total turnover of the companies for the three years that the Parties had allegedly contravened the Swaziland Competition Act, 8 of 2007 (the “Competition Act”).

On 15 July 2013, an appeal was launched by the Parties before the High Court based on procedural grounds as they were denied access to the full record of the SCC Secretariat’s investigations and the hearing suffered from procedural fairness problems.[1] This dispute carried on before the Supreme Court which confirmed the High Court decision by dismissing the appeal. The Supreme Court held that the SCC Board “had not taken real decision on the substantive matter of anticompetitive conduct”.[2]

Consequently, during the hearing on 14 July 2015 the substantive matters were before the SCC Board for determination. Surprisingly, however, the SCC Secretariat, chaired by Nkonzo Hlatjwayo, introduced new issues which were not raised in the first place by requesting the imposition of one of two proposed sanctions;

  1. either both of the egg producers would be required to pay 10 percent of their annual turnover for the period whereby the anti-competitive behavior was occurring; or
  2. alternatively they would be liable to a fine of E250 000 or to five years imprisonment.

In addition, the SCC referred the matter to the director of public prosecution.

What does the Swaziland Competition Act state?

The SCC is empowered to impose the fine of E250 000 or five years imprisonment since Section 42(1)(a) of the Competition Act states that “Any person who contravenes or fails to comply with any provision of this Act (…) commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand Emalangeni or to imprisonment to a term not exceeding 5 years or to both”.

The first option imposing a fine of 10 percent of the Parties turnover, however, is problematic since in terms of Sections 11(2)(a) and 40 of the Competition Act, the SCC has the power “to issue orders or directives it deems necessary to secure compliance with this Act” (our emphasis). There is therefore no specific provision which empowers the SCC to impose administrative fines or to refer the matter for prosecution.

How should the Swaziland Competition Act be interpreted?

Different interpretations are given to these public enforcement provisions of the Competition Act.

From the SCC’s perspective, Section 11(2)(a) read with Section 40 of the Competition Act provides the SCC with a wide range of powers in so far as the enforcement of the provisions of the Competition Act was concerned. Thus, the Secretariat of the SCC deduces from a teleological approach, based on the effective enforcement of the Competition Act, that the Board has the power to impose administrative fines.

As far as the Parties are concerned, if regard has had to the text of the Competition Act, none of the provisions confer the SCC with the authority to impose administrative penalties.

Why can’t the SCC grant itself a power which was not given by the legislator?

Imposing administrative fines without having the power triggers two main concerns.

Firstly, it leads to unpredictability as to how the factors which determine how the penalties are calculated are to be considered. Accordingly, the silence of the Competition Act and the lack of guidelines in that respect undermine the rights of companies who cannot accurately contest a fine. You cannot contest a fine if you don’t know how it was determined. The lack of clarity would make it challenging for companies to contest the imposition of a fine, if there is no guarantee as to how the fine was calculated.

Secondly, allowing the SCC the power to impose administrative penalties while the Competition Act only empowers the SCC to issue orders or directives to ensure compliance leaves the door open to the SCC to assume other powers, which they would not be entitled to do so without overstepping its bounds defined by the legislature.

We will continue to monitor this matter and eagerly await the decision of the SCC Board expected for the first week of September.

[1] Eagles Nest (Pty) and 5 others v Swaziland Competition Commission & Another (1/2014) [2014] SZSC 39 (30 May 2014, see pages 15-16.

[2] Ibid, see page 60 paragraph 8.

CEO Calls for Introduction of Nigerian Competition Law

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“Too huge to be monopolised”? — Orkeh cites business need for Nigerian competition law

The Managing Director and Chief Executive Officer of African Cable Television, Mr. Godfrey Orkeh, was interviewed recently in Lagos, Nigeria, and discussed a topic we at AAT have previously addressed: The need for Africa’s largest economy to enact antitrust laws.  ACTV (pronounced “active”) began its service in December 2014 and has faced an uphill battle in entering the pay-TV marketplace.

As John Oxenham, a founding director of Pr1merio, the Africa-focussed legal advisory firm and business consultancy, points out: “In April of 2014, Nigeria surpassed South Africa as the continent’s largest economy, yet it still lacks any enforceable antitrust provision in its statutes.” (See Economist Apr. 12, 2014: “Africa’s New Number One“).

nigeria

Even prior to Nigeria’s rise to become the continent’s premier economy in terms of GDP, we published several calls for a Nigerian competition law. For example, in our article “Another call for Competition Law in Nigeria: Privatization of Electricity,” AAT contributor Chinwe Chiwete wrote:

The way forward still remains for Nigeria to have a Competition Law as the basic legal framework upon which other sector regulations can build upon.

Chilufya Sampa, a former COMESA Competition Commissioner and currently the Executive Director of the Zambian Competition & Consumer Protection Commission, said that antitrust law in Africa’s largest economy “would be great indeed,” noting the “many benefits in having a competition law.”

Pr1merio director Andreas Stargard likewise promoted the idea of establishing an antitrust regime in West Africa’s dominant economy. He wrote in an article aptly entitled “Nigerian antitrust?“:

Today, AfricanAntitrust adds its voice to the steady, though infrequent, discussion surrounding the possibility of a Nigerian competition-law regime.  In our opinion, it is not a question of “if” but “when”, and perhaps more importantly, “how“?

“If”: it is a virtual certainty that sooner or later, the drivers of growth in the Nigerian economy (innovators, IPR owners and applicants, upstarts, and foreign investment) will succeed in their demands for an antitrust law to be enacted.

“When”: it’s been debated in Nigeria since at least 1988; there was another push in the right direction in 2002; and, since then, at least a steady trickle of intermittent calls for a central antitrust regulator, often coming loudest from the outside (as does this post). This general time line coincides with that of other developing or now emerging competition-law jurisdictions, and we believe it is now a question of years, not decades, until a Nigerian Sherman Act will see the legislative light of day. Our (admittedly unscientific) prediction is that Nigeria will have a competition-law regime prior to 2020. (Note: the latest of up to six bills introduced to date, the Competition and Consumer Protection Bill, has been languishing in the Nigerian Senate since 2009).

“How”: this is the kicker — the most interesting bit of the Groundhog Day story this would otherwise be and remain. The intriguing part about reigniting the discussion surrounding Nigerian antitrust law is that we now live in the age of COMESA and more importantly here, the COMESA CCC (Competition Commission).

This opens up new opportunities that may not have been envisaged by others in the 1990s or 2000s. For example: will the economies of West Africa band together and create a similar organisation, notably with “legal teeth”, which might include provisions for a centralised enforcement of antitrust? Will it be under the auspices of ECOWAS or UEMOA? A monetary union has been known to be an effective driver of ever-increasing competition-law enforcement elsewhere in the world (hint: Brussels)…

If the answer to these crucial questions is “no”, what are the consequences to the Nigerian economy? Will Nigeria continue on its path to outsider status when it comes to healthy economic regulation — despite its powerhouse status in sub-Saharan Africa? Will this add to the disincentive against increased foreign investment, akin to the prevalent oil and diesel-stealing that occurs ’round-the-clock and in the open? Will businesses — other than former state monopolies, now privatised and firmly in the hands of oligarchs, or cartelists — continue to accept being deprived of the economic fruit of their labour, without protection from certifiably anti-competitive behaviour? Will other state agencies continue to step in and act as quasi-enforcers of antitrust, as they have done in the past (the Air Cargo cartel is an example), filling the void of a central competition commission?

Godfrey-Orkeh
Chief Executive Officer of African Cable Television, Mr. Godfrey Orkeh

Below, we excerpt a few of Mr. Orkeh’s pertinent comments on the issue, in which he discusses the lack of any monopolisation offence under Nigerian law and the high barriers of entry in the television and media sector he and his company have faced while challenging the incumbent domestic TV provider.

The number one challenge in the industry is that there is no regulation, NBC is doing its best but there is no act of law that backs the activities up. Before the last government handed over, there was a bill that was being pushed, [competition-law] bill like what we find in Europe that nobody can own 100 per cent of an industry, if you grow beyond a particular size, for instance when Microsoft, Google among others grew beyond a certain size, they were stopped to allow room for other players. There is no such law right now in Nigeria so it is a big barrier; it is only legislature that can change that. … This is good for the economy and the customers.

We knew there is a monopolistic tendency in the market, the existing structure in the legislature of Nigeria allows a dominant player to take advantage of the environment, before we came to the market. There was no pay TV offering PVR for the middle class and for you to get decoder with PVR you have to cough out about N70, 000 but we are saying with N15, 000 you can have a PVR. And content-wise there was a lot of exclusivity which is going to be difficult for one person to break. Beyond this, we will develop the market for our self, develop a niche for our self because right now the tendency is also thriving in the industry, Nigeria with a population of about 170 million, 26 million households with television, but the market is so huge. There is still a huge market that is not being addressed, we are here to capture that niche market and grow it. … [] Nigerians are the only ones that can take a stand as far as monopoly is concerned, and we have started seeing that in recent social media reactions about what is happening in the industry.  If we don’t have a choice there will always be a monopoly even if it is only a player that is that market, but you’ve created an avenue for two to three players to play in the market, there would be options like what we see in the telecoms sector, where I can port my number, which I believe has  taken efficiency to another level. So we are getting to a point where with digitisation every Nigerian would be exposed to as many channels as possible.  But the fact remains that the market is a huge segment. It is too huge to be monopolised.

Outside of AAT’s own resources on the prospect of a future Nigerian antitrust law, we refer our readers to the following resources for further reading on this topic:

  1. http://www.globalcompetitionforum.org/regions/africa/Nigeria/antitrust%20article.pdf
  2. http://afro-ip.blogspot.be/2011/11/iprs-and-competition-law-nigerian.html
  3. http://www.cuts-ccier.org/7up4/NTW-Nigeria_media.htm

South African Competition Commission’s Guidelines for the Determination of Administrative Penalties for Prohibited Practices (the “Guidelines”)

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On 17 April 2015, the new Guidelines were published in the Government Gazette (No. 38693). The Guidelines will come into effect on 1 May 2015.

The Guidelines have been adopted in response to criticism that there is a lack of transparency, certainty and consistency when imposing administrative penalties on firms for prohibited conduct.

Notably the Guidelines are virtually identical  to the guidelines which were published in November 2014 for comment (“draft guidelines”). Despite a number of individuals and entities submitting proactive and substantive comments to the South African Competition Commission (“SACC”) in relation to the draft guidelines, it is somewhat remarkable that the only material change effected by the SACC is to be found in the Guidelines is in 5.19.4., which deals with repeated conduct in terms of Section 59(3)(g) of the Competition Act, 89 of 1998 (the “Act”). The Guidelines now requires that a firm must have engaged in conduct which is substantially a repeat, of conduct previously found by the Competition Tribunal to be a prohibited practice. Previously, the word “substantially” was omitted from the draft guidelines. Beyond this the Guidelines mirror the draft guidelines of 2014.

The Guidelines set out a six step process to be used by the SACC  to calculate administrative penalties. The six steps are summarised below:

  1. An affected turnover in the base year is calculated;
  2. the base amount is a proportion of the affected turnover ranging from 0-30% depending on the type of infringement (the higher end of the scale being reserved for the more serious types of prohibited conduct such as collusion or price fixing);
  3. the amount obtained in step 2 is then multiplied by the number of years that the contravention took place;
  4. the amount in step 3 is then rounded off in terms of Section 59(20 of the Act which is limited to 10% of the firms turnover derived from or within South Africa;
  5. the amount in step 4 can be adjusted upwards or downwards depending on mitigating or aggravating circumstances; and
  6. the amount should again be rounded down in accordance with Section 59(2) of the Act if the sum exceeds the statutory limit.

It is important to note in the case of bid-rigging or collusive tendering, the affected turnover will be determined by calculating the value of the tender awarded. Thus, even where a firm deliberately ‘loses’ a tender, the firm will be subjected to an administrative penalty which calculates the value of the tender in the hands of the firm who ‘won’ the tender.

The Guidelines are not, however, clear as to how the affected turnover will be calculated when the value of the tender is not readily ascertainable.

Part of the objectives of the Guidelines is to encourage settlement proposals and outcomes. The SACC may at its sole discretion, offer a discount of between 10-50% of a potential administrative penalty as calculated in terms of the six steps identified. There are a number of factors that will determine what discount percentage will apply, including the timing, pro activeness and co-operation of the firm, during the settlement discussions.

Importantly, in terms of the Guidelines, a holding company (parent company) may be held liable for an administrative penalty imposed on one of the holding company’s subsidiaries (the proviso is that the holding company must directly control the subsidiary company). This is a noteworthy development and certainly raises constitutional concerns. The disregard of separate juristic personality, which is a well established principle in South African law, is problematic. These concerns, which were initially addressed by various parties with the SACC, have seemingly been ignored.

While the Guidelines are binding on the SACC, the Guidelines also afford the SACC the use of its discretion to impose administrative penalties on a case-by-case basis. Furthermore, the Guidelines are not binding on the Competition Tribunal or the Competition Appeal Court, who may also use their discretion to impose administrative penalties on a case-by-case basis.

SA guidelines for administrative penalties

South Africa-Dawn Raids in Gauteng in Relation to Suppliers of Fire Control and Protection Systems

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The South African Competition Commission (SACC) launched a dawn raid, in terms of Section 48 of the Competition Act, 89 of 1998, on the offices of six companies in Gauteng, who supply fire control and protection systems on 20 March 2015. The companies subjected to the dawn raid include:

  •  Belfa Fire (Pty) Ltd;
  • Cross Fire Management (Pty) Ltd;
  • Fire Control Systems (Pty) Ltd;
  • QD Air (Pty) Ltd;
  • Technological Fire Innovations (Pty) Ltd; and
  • Fireco (Pty) Ltd

According to the SACC’s spokesperson, the SACC has reasonable grounds to believe that these companies have been involved in collusion when bidding for tenders in respect to the provision of fire control and protection systems.  The dawn raid forms part of an on-going investigation into this alleged anti-competitive conduct. This is the first dawn raid conducted in 2015.  The SACC  conducted 3 dawn raids in 2014, after a substantial period of no activity signalling that the trend in 2014 may well continue in 2015.  Some of the dawn raids conducted in 2014 include:

  •  Investchem Pty Ltd (Investchem) and Akulu Marchon Pty Ltd (Akulu Marchon), in Kempton Park, Gauteng (December 2014);
  • Unilever in Durban and Sime Darby Hudson & Knight in Boksburg (April 2014);
  • Precision and Sons, Eldan Auto Body in Pretoria West and the Vehicle Accident Assessment Centre in Centurion (July 2014).

The SACC appears content to increasingly uitilise dawn raids as an investigative tool during its investigations into anti-competitive conduct. The increase in the use of dawn raids coincides with a change of senior management at the SACC.

UNCTAD report evaluates antitrust efforts in Namibia

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Extensive UNCTAD report highlights state of Namibian competition enforcement, comes at right time when Namibia ponders inclusion of “unfairness” standard in merger control

A.S.

Following the release of the final UNCTAD report (entitled “Voluntary Peer Review of Competition Law and Policy: Namibia“), the report’s sponsors organised a gathering of interested parties in mid-February in Windhoek, the Namibian capital, for a “dissemination event” of the report.

The event included a session on “various elements of knowledge management systems,” for which the the South African Competition Commission was selected to serve as an exemplary agency.  The Namibia Competition Commission presented a plan for implementing the Report’s recommendations.  This plan will form part of the agency’s overall strategic planning framework “Smart enforcement, smart advocacy and smart research” that is to be launched by June 2015.

In attendace was, among others, the country’s Deputy Minister of Trade and Industry, Tjekero Tweya.  Participants were invited to attend two round tables discussions on the intersection and complementarities of competition policy and consumer protection; and strengthening cooperation between different government bodies to improve competition enforcement in Namibia.

Can Report avert devolution of merger-control regime into extrajudicial “fairness” criteria?
Substantively, AAT welcomes further and deeper discussion of true antitrust/competition law issues in Namibia wholeheartedly.  We reported last year that a crucial revision of the Namibian competition law includes consumer-protection provisions that would potentially bar M&A deals not only on pure antitrust grounds but also on a more broadly defined “unfairness” basis.
The cited Report contains two relevant statistics, showing the relatively young enforcement agency’s workload in absolute terms as well as in relative (merger vs. other enforcement work) numbers:

Namibia stats

Namibia stats comparison

 

Video: Oxenham on government interventionism in African antitrust

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AAT the big picture

AAT’s own editor John Oxenham has been featured in a video discussion of government interventionism in African competition law.  See the talk on Competition Law Observatory (subscription required)

The topic at issue is successfully negotiating the ever-increasing rise of government interventionism in South African and regional merger control.  Not only does interventionism have the potential to undermine the independence of the agencies, but given the increasing trend of government intervention over the past decade, there are concomitant negative effects on merger control in terms of timing and costs.

John Oxenham, editor
John Oxenham, editor

The number of countries in Sub-Saharan Africa, and indeed Africa as a whole, which require mandatory merger notification, has increased dramatically in recent times. South Africa, which has the largest economy in Africa and has had a merger control regime in place for some time now, has made significant contributions to merger jurisprudence in Sub-Saharan Africa already. Accordingly, as many regional countries adopt competition law legislation or specific merger control regimes, they will look increasingly towards South Africa’s Competition Authorities to assist in interpreting and enforcing competition law policies.

In addition with this growth in regimes there are significant challenges for companies (and advisors on their behalf) engaging in multi-jurisdictional mergers principally due to the lack of uniformity across the respective jurisdictions. In particular, when one considers the unique merger review considerations that the South African authorities take into account, it becomes clear that navigating through the field of merger control in South Africa and indeed many African countries requires great skill and care.

Kowlessur appointed as head of Mauritian Competition Commission

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New head of CCM announced

Amid some controversy over other past (and some other pending) political appointments and potential nepotism, Mr. Deshmuk Kowlessur has been appointed as new head of the Competition Commission in Mauritius.

An article in Le Mauricien states (French skills required) that the rules have “followed to a T” in Mr. Kowlessur’s case, thereby alleviating readers’ concerns that the Competition Commission’s recent appointment may have been similarly tainted:

Les nominations de proches du MSM continuent conformément à l’engagement donné par Pravind Jugnauth. Et c’est d’ailleurs un proche, Deshmuk Kowlessur, qui décroche le poste de directeur de la Competition Commission en attendant que d’autres affidés du Sun Trust soient casés.

Deshmuk Kowlessur, un professionnel de la gestion qui a occupé divers postes dans le management de quelque grandes compagnies dont Rogers ou Emtel, est le beau-frère du beau-frère du leader du MSM et il avait déjà occupé le poste de président de la SIC lorsque Pravind Jugnauth était vice-Premier ministre et ministre des Finances entre 2003 et 2005. Week-End a toutefois appris que, contrairement à l’ICAC, les procédures et les consultations d’usage ont été respectées à la lettre pour la nomination de M. Kowlessur.

EU gives Kenya until October 1 to sign Partnership Agreement

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Kenya is currently at risk of losing preferential access to European markets

As of next year, this risk will expose the country’s exporters of flowers, fish, fruits and vegetables to high tariffs and logistical problems.

Lodewijk Briët, the European Union Ambassador has indicated that the bloc would remove Kenya from the preferential list again, if the East African Community fails to ratify the new Economic Partnership Agreements by October 2015. The removal of Kenya from the list would result in Kenya accessing the European Union market under the Generalised System of Preferences which results in tariffs of up to 15 per cent.  The deadline is apparently not a “must-beat” time limit, according to a quote from the Daily Nation article on the topic:

Negotiations between EU and EAC started in 2002, culminating in the two trading blocs signing an interim EPA in 2007 that ensured duty-free, quota-free access for its products under the Market Access Regulation that will end in October.

Kenya exports flowers to the European Union worth Ksh46.3 billion and vegetables worth Ksh26.5 billion annually resulting in the horticulture sector being one of the most important contributors of foreign exchange. The European Union takes about 40 per cent of Kenya’s fresh produce exports. The horticulture industry has also created job opportunities for about 90 000 Kenyans.

In October 2014, the European Union removed Kenya from its list of duty-free exporters after the East African Community failed to meet the Economic Partnership Agreements deadline which subjected fresh produce to levies of Ksh100 million per week.

Mobile phone provider loses antitrust appeal

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Mobile phone provider loses antitrust appeal

Airtel Malawi Limited, a company incorporated under the Companies Act, engaged in the provisions of mobile phone and telecommunication services in Malawi has lost its appeal against the decision of the Competition and Fair Trading Commission regarding its application for authorisation of an exclusive distribution arrangement.

In a letter dated 28 May 2013, Airtel applied to the commission for the authorisation of an exclusive dealership agreement with its distributors in respect of the sale of its recharge vouchers and other products. This application is in line with section 44 of the Competition and Fair Trading Act Cap 48:09 of the Laws of Malawi.

Due to the fact that Airtel’s exclusive dealership agreement with its distributors contained a clause to ensure that the Distribution Sales Accountants are employed exclusively to undertake Airtel’s sales activities, the Commission refused its approval. The Commission provided its reasoning in a letter to Airtel dated 1st August 2013, specifically stating that the clause “would negatively affect competition in the distribution of mobile products particularly in rural areas.”

Airtel filed an appeal at the High Court Commercial Division against the Commssion’s order that required the company to remove or amend the clause in issue. Airtel submits that the Commission cannot reasonably expect it to appoint Distributor Sales Accountants who will be engaged in accounting for the sales of Airtel’s competitiors in the market.

Delivering his ruling on the 10th of February 2013, Justice Mtambo upheld the decision of the commission and found the justification for the rejection of Airtel’s application for the approval of distributorship agreement to be reasonable. Justice Mtambo went further and stated that, “it is after all the Appellant who is attempting to regulate the business affairs and conduct of its distributors who are independent businesspersons just because the Appellant has dominance on the market.”

 

The court also ruled that it was within the mandate of the Competition and Fair Trading Commission to require companies that use exclusive distribution arrangements in the distribution of their products or services to amend their standard agreements.

Botswana authority seeks to improve merger notification process

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AAT welcomes the news that the Competition Authority of Botswana is currently seeking to improve the merger notification filing process.  In this regard, on 11 February 2015,  the Competition Authority engaged representatives of parties filing merger notifications in an effort to address the merger notification, merger assessment and merger determination processes. This discussion was aimed at positively impacting on the time taken to assess mergers by the Competition Authority.

Mr. Innocent Molalapata, the manager of Mergers and Monopolies identified factors which continuously contribute to the delay in the merger assessment and determination process. Mr. Molalapata stated that the following factors lead to a delay in the process;

  • the submission of unaudited financial statements,
  • failing to provide the required information,
  • giving incorrect or misleading information and
  • failure to provide the most recent version of all documents constituting the merger agreement.

The representatives of merging parties expressed concern with requests by the Competition Authority for clarification or the provision of further information near the expiry of the 30 day merger review window.  In his regard, the representatives stated that these requests cause delays as they often lead to applications for extensions. The representatives suggested that further information requests should be made as soon as the documents are filed with the Competition Authority.

Finally, representatives of merging parties requested a review of the P10 million merger notification threshold (approximately USD 1 million) indicating that the threshold is too low.

The Competition Authority noted the suggestion and indicated that a review of the threshold was currently underway.