Author: oxenhamjmj

South Africa: another senior Commission member resigns

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It has recently been reported that Ms Trudi Makhaya, the Deputy Competition Commissioner, has resigned. There has been no indication yet on a replacement but it signals a continuation of the worrying trend of senior experienced Commission staff departing the authority.

For further information see the attached link.  Her twitter and LinkedIn accounts remain unaffected by her resignation as of Feb. 11, as both still show her job title as Competition Commission executive.  She is likewise still listed on the Commission’s web site as active.  We previously reported on one of her opinion pieces here.  She also recently published this piece in the Daily Maverick, entitled “The temptations of neo-volkskapitalisme“.

Quo vadis? Political interventionism in South African competition law

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There has been a somewhat startling demonstration of diverging views regarding interventionism in competition matters between emerging and established jurisdictions.

During the recent BRICS international competition conference, held in New Delhi over the last few days, FTC chairwoman Edith Ramirez had sought to steer emerging economies away from mixing industrial policy with antitrust law. She indicated that “proper goals of competition law were best solved when a competition authority is focused on competition effects and consumer welfare, and when its analysis is not “interrupted to meet social and political goals.” (Ramirez cited the well-known case of the Wal-Mart / Massmart merger during which a number of South African government departments had intervened and extracted significant non-competition centric conditions from the merging parties as an example of permitting non-competition factors to intervene in the merger-review process to an undue degree).

Juxtapose this with the comments made at the very same conference, by the newly appointed interim South African Competition Commissioner, Tembinkosi Bonakele. Bonakele had the following to say during an interview regarding the independence of the competition authorities in South Africa:

“In a country which suffers from 35 per cent unemployment, there are increasingly calls for the authority to consider job creation and the development of local industries in its investigation and merger reviews. This is not an unreasonable call. While competition authorities should not be beholden to the government neither can they be loose cannons who claim independence without accountability. Competition policy cannot exist in isolation and each BRICS enforcer faces the need to balance competition law with its government’s political and economic policies. Competition authorities cannot afford to shy away from the debate.”

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A number of practitioners have keenly been awaiting Bonekele’s views on the independence of the Competition Commission in the light of the untimely and suspicious departure of the previous commissioner, Shan Ramburuth (in what many commentators have described as evidence of pure uninterrupted interventionism by the Department of Economic Development). It is, particularly, in light of the cloud surrounding (and possible political element involved in) his predecessor’s removal, that these comments of the South African competition commissioner are all the most startling. It is worrying that the prevalent view in developing economies (after all, the venue at issue here was a BRICS conference) appears to open the door for greater non-antitrust intervention rather than less government meddling.

It is certainly the view of the author of this piece — a presentation given this fall at the Inaugural Global Mergers Conference in Paris (Concurrences/Paul Hastings) — that the South African competition authority should rather seek to assert its independence rather than tolerate what appears to be an ever increasing amount of political interventionism.

South Africa- Supreme Court of Appeal upholds Competition Commission appeal relating to investigatory powers

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The Supreme Court of Appeal (the “SCA”) upheld an appeal against a judgment of the Competition Appeal Court invalidating a complaint referred to the Competition Tribunal (the “Tribunal”) by the Competition Commission (the “Commission”) against cartel activity allegedly entered into by Yara South Africa (Pty) Ltd (“Yara”) and Omnia Fertilizer Ltd (“Omnia”).

The dispute in this matter arose out of a complaint lodged with the Commission, citing Sasol Chemical Industries Proprietary’ (“Sasol”) for imposing unfair price increases in respect of certain raw materials it supplied to the complainant company. The complainant elaborated upon its complaint by way of an affidavit which explained the price increases with reference to a cartel which Sasol was alleged to have entered into with Yara and Omnia. Pursuant to the complaint, the Commission conducted an investigation which confirmed both the price increase allegations made against Sasol and the claims of cartel activity made against Sasol, Omnia and Yara. As a result, the Commission referred the complaints relating to both price increases and cartel activity to the Tribunal for adjudication.

The legality of this referral formed the substance of the dispute. Omnia argued that the initial complaint brought to the Commission was directed against Sasol alone and, further, was limited to Sasol’s conduct as it related to price increases. Omnia disputed the lawfulness of the referral insofar as the Commission had, under the auspices of the original complaint directed at Sasol, sought to refer Omnia’s conduct to the Tribunal absent a separate complaint initiation. Omnia contended that, in order for the referral of this further complaint to have been lawful, it ought to have been separately initiated by the Commission.

The SCA confirmed Omnia’s position, and that the complaint referred to the Tribunal indeed extended beyond the cause of action raised by the original complaint. However, the SCA went further and stated that complaints made by private persons may well trigger separate complaints and, in such cases, the Commission need only decide to initiate a new complaint, investigate that complaint and, if appropriate, refer that complaint to the Tribunal. The SCA confirmed that the process may be both informal and tacit. Further, should the Commission already have enough information to warrant a referral, the intervening investigation can be cursory. The SCA found that the requirements for valid initiation and referral had been satisfied on the facts of this case.

The SCA’s decision will embolden the Commission to proceed with a number of complaint referrals which were left pending the outcome of the matter.

South African Competition Tribunal approves merger in record time of 4 hours

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The South African Competition Tribunal received notice of, heard and approved the acquisition by construction firm, Stefanutti Stocks (Pty) Ltd, of Energotec, which is a division of First Strut (Pty) Ltd, and approved the merger within four hours of receiving the Competition Commission’s recommendation.

The Tribunal approved the deal on the basis that Energotec, and ultimately First Strut, are in a precarious financial condition (under liquidation).  The parties explained to the Commission and Tribunal that If the merger had not been approved the 667 staff employed by Energotec would have lost their jobs. The parties also relied on the failing firm jusitfication. As a condition for the approval of the merger however the Tribunal ordered that, for a period of 2 years from the date the merger is implemented, Stefanutti Stocks must limit retrenchments resulting from the merger to 16 employees.  This type of public interest condition has become common in South Africa.

It was stated by the parties that the deal will enable the acquirier to offer a more comprehensive service to its clients, making this an attractive opportunity for the construction firm.

The Competition Commission had concluded that the merger was unlikely to cause a substantial lessening of competition. The only customer affected by the transaction, Sasol, had provided support for the deal.

The matter provides useful precedent for future failing firm merger cases.

South Africa: Telkom fined again…

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South Africa’s Competition Tribunal had a busy week last week tasked with considering the proposed penalties for the various construction companies and also confirming the second significant administrative penalty on South Africa’s incumbent provider of fixed line telecommunication services, Telkom.  In terms of the second order, Telkom has agreed to pay an administrative penalty of R200m and committed to separate its wholesale and retail divisions, in order to reduce the wholesale and retail prices of its products to the value of R875m over five years.

Telkom, was previously before the Tribunal in relation to a further abuse of dominance matter and was fined R449m.  Telkom had appealed the finding but recently withdrew its appeal against the fine which related to allegations of an abuse of dominance in the telecommunications market between 1999 and 2004, a period in which it was a monopoly provider of telecoms facilities in the country. The fine was much less than the R3bn that the commission had initially requested.

In relation to the second order, the Commission found (following receipt of a significant amount of information from Telkom’s downstream competitors) that Telkom had engaged in a so-called “margin squeeze” by billing licenced operators excessive fees for bandwidth and for a product called IPLC (international private leased circuit). The pricing was set at levels that precluded cost-effective competition with Telkom’s retail internet access and services available via a leased line or ADSL access.

In terms of the settlement, Telkom has agreed to reduce prices on specific product lines that had been implicated in the complaints before the commission over the next three financial years, with no increases in the final two years in which the agreement remains in place.

Telkom has also committed itself to a weighting of 70% price reduction in its wholesale division and 30% in its retail division to eliminate any margin squeeze while ensuring that wholesale products savings are passed on to the benefit of its consumers.

It will also embark on a roll-out of strategic points of presence in the public sector at its own cost and discuss the specific needs of state departments with the Department of Communications.

South African Constitutional Court rules on appropriate test for class action relief for damages

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ZA Constitutional Court broadens ambit of class-action relief

As previously reported, the Supreme Court of Appeal (the “SCA”) handed down two judgments, in November 2012, in respect of the certification of a class in respect of a number of class actions against three bread producers arising from an investigation by the Competition Commission into price fixing and market allocation in respect of various bread products. The appeals were brought by a bread distributor in the Western Cape (the “distributor” application) and by a number of organisations in relation to a so-called “consumer” class action for damages after their applications were dismissed by the Western Cape High Court (the “WCHC”).

The distributors and consumers sought, separately and on appeal to the SCA, to certify three classes, one in respect of the distributors and two in relation to the consumer case. The consumers sought a certification of two classes: Class 1 – all persons who purchased the bread of the three Respondents in the Western Cape Province during the period 18 December 2006 to 6 January 2009; and Class 2 – all persons who purchased the bread of the three Respondents in Gauteng, Free State, North – West or Mpumalanga Province during the period 1 September 2999 to 6 January 2009. The respondents in the appeal were three bread producers, namely Pioneer Foods, Tiger Consumer Brands Limited and Premier Foods Limited.

The SCA upheld the appeal only in relation to the certification of consumer Class 1, and dismissed the consumer Class 2 certification application as well as the certification of the distributor’s class. In a landmark decision, the SCA held that class actions should be recognised, not only in respect of constitutional claims, but also in any other case where access to justice in terms of Section 34 of the Constitution recognized that it would be the most appropriate means of litigating the claims of the members of the class. The decision, per Wallis JA, laid down criteria for class action claims (these included certification, a class definition, a cause of action, a triable issue, common issues of fact or law and a representative who did not have a conflict). Furthermore, in highlighting the importance of the certification process, it set out further requirements that should be met in order to succeed with an application for certification of a class.

The distributors subsequently sought leave to appeal the decision of the SCA. Today, on 27 June 2013, the Constitutional Court handed down a judgment upholding the appeal against the SCA’s distributor decision. The majority judgment, written by Jafta J, stated that the standard for determining whether to permit the certification of a class is to determine whether the institution of the class action, while taking account the requirements laid down by Wallis JA, is in the “interests of justice.”  Accordingly, the requirements for seeking class action relief have been diluted somewhat and greater discretion is given to the court which will consider the certification application, as “[a]ccess to courts is fundamentally important to our democratic order.”

The Court admonished trial courts not to limit certification only to those cases in which strictly all factors enunciated in the Bread decisions were present:

“These requirements must serve as factors to be taken into account in determining where the interests of justice lie in a particular case.  They must not be treated as conditions precedent or jurisdictional facts which must be present before an application for certification may succeed. The absence of one or another requirement must not oblige a court to refuse certification where the interests of justice demand otherwise.”

In a separate concurring judgment, Froneman J noted that the development of the common law to make provisions for class actions in non-constitutional matters was a valuable contribution to the law and provided courts with flexible guidelines to apply in applications for the certification of class actions. Froneman J was, however, of the opinion that the test applied by the SCA was too stringent in not recognising opt-in class relief and secondly in finding that the distributor did not have a legally tenable claim due to the pass-on problem in competition matters.

The Constitutional Court, in the distributor case, has also broadened the ambit of class action relief in recognising opt-in class actions (rather than simply the opt-out class actions accepted by the SCA) and by lowering the threshold required for certification more generally.  On the pass-on front, it also viewed the existence of cognisable damages suffered by intermediate bread distributors – and not only end-user consumers – as “potentially plausible” (echoing somewhat the U.S. Supreme Court in Twombly).

All of the above will have ramifications for future competition-law damages actions.

South Africa: MultiChoice may face competition authorities for abuse of dominance

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On Digital Media (“ODM”), owner of TopTV, has filed a complaint with the South African Competition Commission (“Commission”) against the Naspers controlled company, MultiChoice (which owns DStv as well as SuperSport) alleging abuse of dominance.

ODM alleges that SuperSport unfairly refused to share rights to all Premier Soccer League (“PSL”) matches from 2011 until 2016 with ODM. ODM submits that there is “not another sports broadcaster in the world today that enjoys a similar level of dominance to that of SuperSport” and has accused MultiChoice of contravening the Competition Act 89 of 1998 (“Act”) by refusing to give it access to, what ODM believes, is an “essential facility”, when it is feasible to do so.

The ODM complaint was lodged with the Commission several months ago following a statement made in parliament by Communications Minister Dina Pule, that the Minister would issue a policy directive to the Independent Communications Authority of South Africa to address competition in the broadcasting sector.

Commission spokesman, Keitumetse Letebele, said that the complaint is still being processed by the Commission’s screening unit who will write a recommendation to the Commissioner to either drop the case or pursue further investigation.

South Africa: Telkom agrees to penalty

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South Africa’s incumbent telecommunications infrastructure provider, Telkom Limited, has agreed to pay R449 million ($49m) to the South African Competition Commission (the “Commission”) to settle allegations that Telkom had abused its dominant market position. The company statement can be found here.

In August 2012, the Competition Tribunal (the “Tribunal“) levied the R449 million fine against Telkom for abusing its dominant position between 1994 and 2004, after the Commission received complaints from, inter alia, the South African Value Added Networks Services.

Telkom subsequently appealed the Tribunal’s decision to the Competition Appeal Court (“CAC“) which the Commission followed with its own appeal to the CAC seeking to increase the fine to R3 billion ($327m). The settlement agreement will effectively result in the parties withdrawing their appeal and/or cross-appeal and cover their own costs. In terms of the agreement, Telkom will pay 50% of the fine within six months and the balance within 18 months.

COMESA MERGER FILING FORMS- FORM 12

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The COMESA Competition Commission has recently made available the relevant merger filing documentation and forms.  Complying with the requirements set out in Form 12 certainly appears, at first glance, to be relatively straightforward, however, contrary to what is stated in the COMESA Regulations, the Merger notification form appears to prohibit the closing of a transaction without approval (i.e., parties may not implement the merger or acquisition without the COMESA Commission approval).

The attempt to legislate by way of the notification documents further erodes  merger control certainty.  Given the extremely wide ambit of what constitutes a notifiable merger, the COMESA Commission will need to ensure that the contradiction contained in the merger filing forms is urgently rectified.