Category: South Africa

Beyond the DOJ: Criminal liability for cartel conduct in Africa

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South Africa: Driving Force behind Enforcement of Criminal Sanctions for Cartelists?

By AAT Senior Contributor, Michael-James Currie

In May 2016, precisely a year ago, criminal liability for directors or persons with management authority who cause a firm to engage in cartel conduct was introduced in South Africa by way of amendments to the Competition Act.

The introduction of criminal liability caught most of the South African competition law community off-guard, including the competition authorities, despite the relevant legislative provisions having been drafted and presented to Parliament for approval in 2009.

A major reason why there was such a delay in the enactment of the relevant legislation were concerns raised about the practicality and legality in enforcing the criminal liability provisions, at least in the manner currently drafted. These concerns, however, were never addressed and the Minister of Economic Development, Minister Patel, proceeded to bring into effect the criminalising provisions. The Minister has openly taken a view that current administrative penalties, which to date have been the most prominent form of sanctions imposed on firms for engaging in cartel conduct, do not provide a sufficient deterrent.

Criminal sanctions are, however, by nature a rather retributive liability, and there have been limited instances in which firms that have previously found to have contravened the Competition Act are repeat offenders. Administrative penalties coupled with reputational damage would appear to be a substantial deterrent.

Regardless, the sentiments of Minister Patel were recently echoed by the head of the National Prosecuting Authority, Shaun Abrahams, who recently indicated that anti-corruption task team (ACTT) has been briefed to treat ‘collusion’ in the same vein as corruption. The ACTT was formulated in 2010 to target high profile cases of corruption.

While it is understood that the Competition Commission (SACC) and the National Prosecuting Authority (NPA) having been working on a memorandum of understanding between the two enforcement agencies for over a year, it appears that such a MoU is still some way off from being finalised.

It is not yet clear whether the NPA envisages a more active role in cartel investigations with a view to institute criminal proceedings in terms of the Competition Act, or whether Mr Abrahams envisages holding those accountable by other pieces of anti-corruption legislation such as the Prevention and Combatting of Corrupt Activities Act (PACCA).

Mr Abrahams has indicated that he has been trying to set up a meeting with the Commissioner of the South Africa Competition Commission, Tembinkosi Bonakele, in order to discuss recent investigations by the SACC, most notably in the banking sector.

Of particular interest is that the Black Empowerment Forum (BEF) had laid criminal charges at the South African Police against Citibank following Citibank’s R69 million settlement agreement with the SACC. The BEF had indicated that they would write to the President and the NPA in an effort to elevate and expedite this case.

The recent banking referrals have been politically charged with many of the view that there has been political interference in the manner in which the banking investigation has been handled. A number of reports have linked the BEF which was allegedly only established in April 2017, to the President’s son, Edward Zuma.

This does raise queries as to the motivation behind the BEF’s criminal complaint and also whether it was the BEF’s criminal complaint that has sparked Mr Abrahams’ recent comments.

The timing of the BEF criminal complaint and Mr Abrahams’ expressed interest in pursuing cartelists for criminal liability, the allegations of political interference in the banking referrals and the lack of any formal arrangement between the SACC and the NPA regarding the enforcement of the criminal sanctions (as far as we are aware) may all be unrelated issues. This, however, seems doubtful.

View from the Jump Seat: the SAA/Mango Merger

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By Mitchell Brooks, AAT guest author

The recent proposal of a SAA/Mango/Express merger has sparked debate throughout the aviation industry. A good friend of mine has gained incredible experience in the private jet charter industry based in London, but more importantly, he also doubles as keen aviation blogger. And so, it only felt right to join the debate, as a team. What you are about to read is a merger between two SAFFAS with a passion for aviation. – A big thanks to Nick Combes (from The Aisle View)Flugsimulator_DASA_Dortmund

In late 2016 it was announced that SAA, SA Express and Mango airlines would undergo a merger. The merger is said to be overseen by an American 3rd party organisation, Bain & Co, a management consultant firm. The reported fee agreed for Bain’s oversee was in the region of R12 million.

From an operational aspect, Mango is already operating under SAA’s AOC (Air Operating Certificate) and its fleet is maintained by SAA’s technical department. This means that no real change would be felt across airline operations, however as discussed below, the legal structure of its fleet changes quite drastically.

When looking at the structures of these airline companies, one can become quite skeptical of the underlying rationale for the proposed merger between SAA and Mango. Mango is a 100% subsidiary of SAA, meaning that SAA holds the entirety of Mango’s shares. The financial integration should be straight forward. But it is the restructuring of the company that interests us.

With that said, SAA does not stand to reap profits greater than the existing dividends it already receives. I am no tax expert but, if anything, SAA may be attempting to avoid dividends tax of up to 20% by becoming one single entity.

But it is admittedly difficult to see why a state-owned entity would take on the cost of this merger, simply to avoid the same tax that it enjoys the benefit of!

For those even remotely aware of South African Airways’ financial history, you will remember that the state airline has already been rescued by various state bail outs (thanks, taxpayer). South African Airways still reported a 2015 loss of R5.6 billion or $485 million. Mango is currently the only profitable subsidiary of the 3 merging companies. (It has done well to remain so against the might of Comair’s low-cost subsidiary, Kulula.)

The merger proposes a streamlining of SAA as a parent company to maximise profitability. But if Mango is doing well shouldn’t they be left alone to continue just this? If the SAA board cannot return a flagship carrier to profitability, then taking on another two airlines is not going to make their jobs any easier. Adding two bad eggs with one good egg still makes a horrible pancake.

Mango’s relatively small yet successful operation is not going to be offering any lifelines for SAA parent. SAA is a sinking ship that ultimately threatens to pull Mango down with it.

So what really is the motive for this merger?

Let us back track to the restructuring of the boards of the entities and simplify things. As it stands, an unsuccessful SAA has a board of directors, with its highly criticised Dudu Myeni as its chair. On the other hand, a successful subsidiary, Mango, has its own independent board of directors. What should be noted is that, notwithstanding the MOI of the Companies, the Companies Act 71 of 2008 requires the shareholders of a company to elect a minimum of 50% of the board. This means that the SAA parent already has the power to appoint the majority of its subsidiary’s board.

Based on the endless corruption allegations and financial shortfalls of SAA, is it not plausible that the proposed merger serves the purpose to concentrate power towards one individual, whose purpose to date has clearly not been the success of a company, the chairperson – Dudu Myeni.

Another prominently possible reason for the merger would be to restructure the ownership of the fleet. One may then ask, why? Well SAA has found itself being investigated by the Competition Commission quite often, in fact, state entities are the most frequent transgressors of the Act which has caused quite a lot of speculation surrounding its possible amendment to relieve state entities altogether. Furthermore, our President did hint towards this amendment at SONA 2017, which indicates that there is certainly an intention for the state to relieve itself from this Act to some degree.

This may seem quite deceptive, as the merging of the entities may be for the purpose of avoiding the red tape surrounding the Competition Act. In June 2016 SAA conceded to sub-chartering aircraft to SAA at discounted rates. In fact, the SAFAIR CEO indicated that SAA would have been subsidising almost 40 percent of Mango’s costs through the arrangement.

Of course, such an arrangement drew attention from Mangos biggest rival Kulula, who laid a complaint to the competition commission on grounds of collusion. Unfortunately, the channel chosen by Kulula was slightly flawed and perhaps would have been better suited under a predatory pricing argument.

Firstly, the problem with pursuing the horizontal collusion argument is that the relationship between SAA and Mango is distinctively more vertical than horizontal because, as mentioned earlier, SAA amounts to a supplier of aircraft to its 100% wholly owned subsidiary. It would be quite difficult to argue that SAA competes with its sub in the domestic, low-cost airline market. Arguably, that is where the collusive approach falls flat. A more reasonable approach would be to argue that SAA was abusing its dominance in the domestic airline market, gained by means of historical state funding, by sub-chartering aircraft (a service) to its subsidiary at prices below their marginal or average variable cost. Furthermore, the only intention that can reasonably be inferred from this arrangement is that SAA, and by implication Mango, sought to remove Kulula from the market – hence the term predatory pricing. Think about it, why else would a bleeding parent company sublease aircraft, at a loss, to a succeeding sub?

The point is if Mango and SAA become one entity they no longer need to formally lease aircraft between each other, meaning that Mango benefits from the use of the aircraft at low costs which allows it to undercut Kulula and squeeze their margins, eventually squeezing them out of the low-cost market. The biggest effect of the restructuring is that without a leasing arrangement the Competition Act is circumvented. However, the merger will have to pass the muster of the Competition Tribunal in order to merge and I am quite hopeful that the merger will be rejected on the grounds that it would lead to extremely anti-competitive consequences in an already struggling market. One could say the merging parties have exceeded their maximum take-off weight (“MTOW”), and even if cleared would unlikely reach their VR speed “rotation speed.”

Ultimately, there are only two parties that may benefit from this merger, Dudu Myeni and allegedly a number of SAA pilots. An anonymous insider has suggested that currently, the policies within the two companies are different in regulating the years of experience required to jump over to the left seat, with the SAA policy requiring over a decade. The question arises as to whether SAA pilots may demand a threshold more akin to their orange comrades.

“Cabin-crew, disarm doors and cross-check”

The risks of seeking antitrust leniency

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‘Excusing yourself from the dinner table’ – the risk in applying for immunity in terms of the Competition Act

By Mitchell Brooks, AAT guest author

cutlery (1).jpg

After reading David Lewis’ ‘Thieves at the Dinner Table’, a must read for any aspiring competition lawyer, Lewis refers to his negotiations with various cartel members as the head of the Competition Commission. Highlighting that anticompetitive conduct essentially robs the consumer of competitive pricing, hence the reference to thieves, and often this is done during informal dinners between top execs.

The question begs, what are some of the inherent risks in applying for immunity for contravening the Competition Act (“the Act”) and, in essence, excusing yourself from the dinner table.

In Brief

For purposes of this discussion, the composition of the Competition process can be described as follows:

  • The Competition Commission (“the Commission”) investigates anticompetitive conduct in contravention of the Act
  • The Commission then refers the potential perpetrator to the Competition Tribunal (“the Tribunal”);
  • The Tribunal adjudicates the matter and determines whether the Act is contravened and whether a fine is imposed.
  • In order for the Commission to investigate a potential perpetrator, either an outside party (like you and I) must submit a complaint to the Commission or the Commission must initiate a complaint itself.

What is the Corporate Leniency Policy “CLP”?

The CLP is a mechanism utilised by the Commission to uncover cartel practices, the most notorious form being price fixing. The CLP is a policy developed by the Commission and possesses no legal status. Rather, it is an expression of how the Commission will handle leniency applications. In brief, the CLP provides for the granting of “immunity” by the Commission to perpetrators who contravene the Competition Act. However, the CLP operates on a “first to the door” principle meaning that only the first member of the cartel to come clean will qualify for immunity. However, in my humble opinion this principle might not find much support in the context of hub-and-spoke collusion whereby the supplier in the upstream market facilitates collusion between competitors in the downstream market (an increasing phenomenon globally). In other words, is it acceptable that the facilitator qualifies for immunity despite being the orchestrator of the collusion?

What does immunity entail?

According to the CLP, “immunity” means that a successful applicant (otherwise a perpetrator) will not be subject to adjudication or a fine. In turn, “adjudication” entails a referral of a contravention of a chapter two provision (cartel conduct for example) by the Commission. However, Wallace JA in AgriWire (Agri Wire (Pty) Ltd and Another v Commissioner of the Competition Commission and Others (660/2011) [2012] ZASCA 134) stressed that immunity is a much broader concept insofar as the successful applicant would not be referred to the Tribunal along with the other cartel members. In essence, an agreement is concluded between the Commission and the applicant to not refer the applicant to the Tribunal. In other words, the Tribunal has no discretion to impose a fine and the Tribunal does not grant a consent order in terms of the Act (my emphasis added).

What are the risks involved?

Higher fines

First, the applicant is still exposed to adjudication despite not being subject to the discretion of the Tribunal. If the Commission decides against referring a complaint brought by an outside party, the outside party may refer the complaint to the Tribunal itself and bypass the requirement that the Commission make a referral.

Furthermore, if the Commission decides against taking a self-initiated complaint further, nothing in the Competition Act prevents an outside party from submitting a new complaint and referring the matter themselves. This means that there is still a risk of a higher fine being imposed on the perpetrator. In order to achieve greater certainty, the applicant should seek a Consent Order by the Tribunal, which will ensure no outside party may refer the matter for adjudication. This Consent Order should reduce the risk of a fine, greater than the agreed amount as per the immunity agreement, being imposed.

Civil damages

Second, the CLP does not provide leniency against civil damages, however the process as explained in Agriwire creates the perception that immunity is granted against civil claims as well. This perception is apparent in Premier Foods v NormanManoim 2015 (SCA).

In brief, Premier Foods received immunity for its involvement in the notorious bread cartel. Subsequently, private parties sought civil damages. However, section 65(6) of the Competition Act only allows civil damages claims if the party is found in contravention of the Act. A certificate was issued by the Tribunal on the basis that Premier Foods’ conduct had been referred to the Tribunal and thus a finding was made. However, the SCA in Premier Foods disagreed with this finding, instead the SCA held that Premier Foods was not a party to proceedings in the Tribunal, it had not been referred and therefore the certificate was unlawful. As a result, the private parties were barred from a civil claim.

Therefore, according to Premier Foods, a successful applicant would not be exposed to civil damages because there can be no finding against a perpetrator who is not referred to the Tribunal. In summary, the granting of immunity guards the perpetrator against a civil damages claim, even though the CLP’s objective is not to prevent civil damages.

Contrary to the perception created by this unfortunate precedent, successful applicants are arguably still exposed to civil damages by means of a section 58(1)(a)(v) declaration by the Tribunal that the Act was contravened despite the granting of leniency. Nothing in the Act suggests that a complaint procedure be followed in order to obtain a declaration. A private party should be able to approach the Tribunal to ask for a declaration that the Act was contravened based on the immunity agreement, which will not amount to an adjudication as per Judge Wallace’s interpretation but will still amount to a finding. Although there have been no cases relying on 58(1)(a)(v) since Premier Foods, nothing suggests that this avenue cannot be re-opened.

Criminal prosecution

Lastly, a new amendment to the Companies Act provides for criminal liability against directors who engage in cartel conduct. The CLP and the Competition Act are completely silent on the impact of the CLP on criminal liability. It might well be possible for a managing director to be exposed to criminal prosecution despite the granting of immunity to the perpetrating company. Therefore, the directors would need to communicate with the National Prosecuting Authority and coordinate accordingly.

Conclusion

In light of the above, the CLP will be less effective until the above uncertainties are addressed and it is advisable that when one is faced with cartel conduct, it is important that one seek professional legal advice due to the complexity of the immunity application process.

South African Airways (SAA) to pay $80 million in civil damages to competitor Comair for abuse of dominance

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-by Michael-James Currie

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A second civil damages award was recently imposed on South Africa’s national airline carrier, SAA, following on from the Competition Tribunal’s finding that SAA had engaged in an abuse of dominance.   The award in favour of Comair, comes after the first ever successful follow-on civil damages claim in South Africa (as a result of competition law violation) which related to Nationwide’s civil claim against SAA.  In the Nationwide matter, the High Court awarded , (in August 2016) damages to Nationwide in the amount of R325 million.   Comair claim for damages was based on the same cause of action as Nationwide’s claim. The High Court, however, awarded damages in favour of Comair of R554 million plus interest bring the total award to over a R1 billion (or about US$ 80 million).

Both damages cases entailed lengthy proceedings as Nationwide (and subsequently Comair) launched complaints, in respect of SAA’s abuse of dominance, to the South African Competition Commission as far back as 2003. Importantly, in terms of South Africa’s legislative framework, a complainant may only institute a civil damages claim based on a breach of the South African Competition Act if there has been an adverse finding either by the Competition Tribunal or the Competition Appeal Court.

The outcome of the High Court case is significant as the combined civil damages (both Nationwide’s and Comair’s) together with the administrative penalties imposed by the Competition Tribunal (in 2006) amounts total liability for SA is in excess of R1.5 billion.

Says John Oxenham, “Although the South African competition regime has been in place for more than 16 years and there have been a number of adverse findings against respondents by the competition authorities, have only been a limited number of civil follow-on damages cases.” This is largely due to the substantial difficulties (or perceived difficulties) a plaintiff faces in trying to quantify the damages, he believes. Follow-on damages claims for breaches of competition legislation are notoriously difficult to prove not only in South Africa but in most jurisdictions.

The recent Nationwide and Comair judgments, however, may pave the way and provide some important guidance to potential plaintiffs who are contemplating pursuing civil redress against firms which have engaged in anti-competitive conduct (including cartel conduct).

In this regard, the South African National Roads Agency (SANRAL) announced last year that it has also instituted a civil damages claim of approximately R700 million against a number of construction firms who had had been found by the Competition Authorities to have engaged in cartel conduct.  The SANRAL case will be the first damages claim, if successful, by a ‘customer’ against a respondent who has contravened the Competition Act in relation to cartel conduct (and not abuse of dominance as in the SAA case).

saaplaceThe only previous civil damages claim was in the form of a class action instituted by bread distributors and consumers in relation to cartel conduct involving plant bakeries. Although the class was ultimately successful in their certification application, the case provides no further guidance as to the quantification of damages as the respective parties have either settled their case or remain in settlement negotiations.

As the development of civil redress in South Africa develops in relation to cartel conduct, it will be particularly interesting to evaluate what the effect of civil damages may have on the Competition Commission’s Corporate Leniency Policy. The Commission’s leniency policy only offers immunity to a respondent who is “first through the door” from an administrative penalty. It does not extend immunity to a whistle-blower for civil damages or criminal liability. It is well understood that the Corporate Leniency Policy has been one of the Commission’s most effective mechanisms in identifying and successfully prosecuting firms which have engaged in cartel conduct.

In relation to the recent civil damages cases, John Oxenham, a Primerio director, notes that “Parties will have to strike a delicate balance whether to approach the Competition Commission for purposes of obtaining immunity from an administrative penalty, which is no doubt made all the more difficult following the R1.5 billion administrative penalty levied on ArcelorMittal in 2016 (the largest administrative penalty imposed in South Africa to date) will no doubt be of some import given that most of the conduct related to cartel conduct“.

Accordingly, in light of the introduction of criminal liability as of May 2016, the imposition of record administrative penalties, the risk substantial follow-on civil damages and the development of class action litigation, South Africa is now evermore a rather treacherous terrain for firms and their directors.

SOUTH AFRICA: ZUMA’S STATE OF THE NATION ADDRESS MAY BE HINT AT INTRODUCTION OF COMPLEX MONOPOLY PROVISIONS

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While the media headlines are largely filled with the disruptions that took place at the State of the Nation Address (SONA) by President Jacob Zuma on 9 February 2017, the President made an important remark which, if true, may have a significant impact on competition law in South Africa, particular in relation to abuse of dominance cases.

In this regard, the President stated that:

“During this year, the Department of Economic Development will bring legislation to Cabinet that will seek to amend the Competition Act. It will among others address the need to have a more inclusive economy and to de-concentrate the high levels of ownership and control we see in many sectors. We will then table the legislation for consideration by parliament.

In this way, we seek to open up the economy to new players, give black South Africans opportunities in the economy and indeed help to make the economy more dynamic, competitive and inclusive. This is our vision of radical economic transformation.”

Patel talksNeither the President nor Minister Patel have given any further clarity as to the proposed legislative amendments other than Patel’s remarks early in January 2017 in which he stated that:

“The review covers areas such as the efficacy of the administration of the Competition Act, procedural aspects in the investigation and prosecution of offences, matters relating to abuse of dominance, more effective investigations against cartels and the current public interest provisions of the act.“

Says John Oxenham, a competition attorney who has closely followed the legislative and policy developments, “despite the broad non-committal remarks by Minister Patel, it is clear that the Minister is zealous in having the ‘complex monopoly’ provisions brought into force to address in order to address, what the Minister perceives to be, significant abuse of dominance in certain concentrated markets.”

In terms of the provisions, as currently drafted, where five or less firms have 75% market share in the same market, a firm could be found to have engaged in prohibited conduct if any two or more of those firms collectively act in a parallel manner which has the effect of lessening competition in the market (i.e. by creating barriers to entry, charging excessive prices or exclusive dealing and “other market characteristics which indicate coordinated behavior”).

white-collar-crimeDespite having been promulgated in 2009, the ‘complex monopoly’ provisions have not yet been brought into effect largely due to the concerns raised as to how these provisions will be enforced, says Primerio Ltd.’s Andreas Stargard: “It is noteworthy that the introduction of criminal liability for directors and persons with management authority who engage in cartel conduct was also promulgated in 2009, but surprised most (including the Competition Authorities) when it was quite unexpectedly brought into force in 2016.”

Minister Patel was no doubt a key driving force behind the introduction of criminal liability and it would, therefore, not be surprising if the complex monopoly provisions are brought into force with equal swiftness in 2017.

South Africa: Competition Appeal Court Sends Strong “Passive Participation” Message

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Competitors Beware of Industry Gatherings

By Charl van der Merwe

On 19 December 2016, the South African Competition Appeal Court (CAC) handed down judgment in the Omnico (Pty) Ltd; Cool Heat Agencies (Pty) Ltd vs The Competition Commission & Others matter.

The judgment details an application brought by two respondents who sought to challenge the Competition Tribunal’s finding that their participation at industry association meetings amounted to cartel conduct, despite the appellants’ contention that they did not actively participate in any anticompetitive discussions and were effectively passive participants at the meetings.

The CAC had to decide on whether or not silent participation by firms at an industry  meeting or forum of competitors where cartel activity was discussed amounts to a contravention in terms of section 4(1)(b)(i) of the Competition Act, Act 89 of 1998 (“the Act”).

south_africaSection 4 of the Act provides that “An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if – (a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect”.

The Appellants are wholesalers that supply bicycle and bicycle accessories to the retail trade. The appellants attended a series of industry meetings together with various retailers and wholesalers of bicycles and bicycle accessories to discuss ways in which retailers could increase retail margins. This the CAC found was achieved by the wholesalers agreeing to increase the Recommended Retail Price, (“RRP”) for the various products sold.

In this particular case, the RRP increase was scheduled to take place on the 1st of October.

Though the appellants both increased their RRP on the effective date, the crux of the matter and the point the appellants placed great reliance on was the contention that they never actively participated in the industry meetings.

smoke_filled_room_smallThe CAC in dismissing the appeal held that it was clear that there was a cartel and that due to the complex and clandestine nature of cartel conduct, the Commission merely had to show sufficient evidence that in its entirety proves that the appellants were part of that cartel. The Commission was not required to scrutinise and evaluate each and every activity or discussion at the various meetings, and it was up to the appellants to put forward rebuttal evidence to establish that their participation at the meetings lacked any intention on their part to be a party to the collusive conduct.

Andreas Stargard, a competition lawyer with Primerio Ltd., notes that, “importantly, the CAC confirmed that the standard of proof in competition law cases is lower than that of contract and common law — a wink and a nod may in the smoke-filled-room, under the right circumstances, be sufficient proof to show collusion among competitors.  To prove a cartel, there is no need to apply the rigid principles of contract law, determining whether a meeting of the minds was reached, or to prove formal offer and acceptance in order to show that a collusive agreement was reached.”

Furthermore, he says,“the CAC found that the evidence put forward by the Commission need only be ‘sufficiently precise, consistent and convincing’ — not necessarily the ‘clear and convincing‘ evidentiary standard generally required in terms of common law.”

In addition, the CAC noted that there is no need for a single pressing piece of conduct to show that an anticompetitive arrangement has been entered into, but that the authorities will consider the cumulative effect of conduct whether active or passive in order to determine whether, on a holistic approach, the respondents had entered into a collusive agreement.

The CAC held that although the appellants did not express agreement at the meeting, the appellants did not ‘publicly’ distance themselves from the collusive proposals put forward at the meetings.

Accordingly, the CAC found that:

  • there was consensus reached at the meeting and the appellants failed to distance themselves from the discussions;
  • neither appellants gave any indication that they disagreed with the consensus reached at the meeting nor that they would not proceed along the lines as agreed during the meeting;
  • that at the very least (without even increasing their prices on the effective date) the appellants would have passively benefitted from the conduct resulting from that collusive arrangement; and
  • that neither of the appellants placed any evidence before the CAC to prove that they priced independently.

In conclusion, therefore, it is clear that firms who attend industry association meetings, forums or the like, are obliged to take active steps to denounce any anticompetitive discussions which may have taken place at such meetings.

Once a firm is party to any anticompetitive discussions, the onus rests on that firm to actively distance itself from such discussions – this is so irrespective of whether a collusive arrangement is implemented or not. It is not clear what steps need to be taken to satisfactorily distance oneself from such discussions, although it must be a ‘public’ denouncement. This could be interpreted as indicating that firms may be obliged to report to the authorities any collusive arrangements which they wish to actively distance themselves from.

Don’t wait for leniency… Lipimile signals delays

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COMESA Chief Warns of Delayed Implementation of Leniency Policy

George Lipimile, CEO, COMESA Competition Commission
George Lipimile, Director, COMESA Competition Commission

In an interview with Concurrences, CCC Director George Lipimile stated cautiously that, while the agency had engaged a consultant to help it craft a regional leniency programme, it still had to “be discussed in detail with Member States. Given the different legal systems and the feedback coming from the consultations with Member States so far, this may take some time.”

Thus, “while there is no amnesty programme visible on the near-term horizon, the CCC’s novel cartel enforcement push poses particular concerns for undertakings operating in the COMESA region,” says Andreas Stargard, attorney with Africa advisory firm Pr1merio.  “Director Lipimile has expressed his agency’s plan — jointly with the World Bank organisation — to launch a project designed to combat cartel activity.  They propose to do so first, it seems, by piggy-backing off of other enforcers’ previous investigations, such as the South African Competition Commission’s cartel cases, and analysing whether those instances of foreign collusion could have harmful effects on the COMESA economies.”

Notifying African M&A – balancing burdens & costs

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Merger filings in Africa remain costly and cumbersome

By AAT guest contributor Heather Irvine, Esq.

The Common Market for Eastern and Southern Africa Competition Commission (COMESA) recently announced that it has received over US$3 million in merger filing fees between December 2015 and October 2016.

heatherirvineAbout half of these fees (approximately $1.5 million) were allocated to the national competition authorities in various COMESA states. However, competition authorities in COMESA member states – including Kenya, Zambia and Zimbabwe – continue to insist that merging parties lodge separate merger filings in their jurisdiction. This can add significant transactional costs – the filing fee in Kenya alone for a merger in which the merging parties combined generate more than KES 50 billion (about US $ 493 million) in Kenya is KES 2 million (nearly US $ 20 000). Since Kenya is one of the Continent’s largest economies, significant numbers of global transactions as well as those involving South African firms investing in African businesses are caught in the net.

Merging parties are in effect paying African national competition authorities twice to review exactly the same proposed merger. And they are not receiving quicker approvals or an easier fling process in return. Low merger thresholds mean that even relatively small transactions, often with no impact on competition at all, may trigger multiple filings. There is no explanation for why COMESA member states have failed to amend their local competition laws despite signing the COMESA treaty over 2 years ago.

Filing fees are even higher if a proposed cross-border African merger transaction involves a business in Tanzania or Swaziland– the national authorities there have recently insisted that filing fees must be calculated based on the merging parties’ global turnover (even though the statutory basis for these demands are not clear).

The problem will be exacerbated even further if more regional African competition authorities, like the Economic Community of West African States (ECOWAS) and the proposed East African Competition authority, commence active merger regulation.

Although memoranda of understanding were recently signed between South Africa and some other relatively experienced competition regulators on the Continent, like Kenya and Namibia, there are generally few formal procedures in place to harmonise merger filing requirements, synchronise the timing of reviews or align the approach of the regulators to either competition law or public interest issues.

The result is high filing fees, lots of duplicated effort and documents on the part of merging parties and the regulators, and slow merger reviews.

If African governments are serious about attracting global investors, they should prioritise the harmonisation of national and regional competition law regimes.

Copperweld elsewhere: Why SA is not pursuing fisheries “cartel”

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The concept of single economic entities and intra-company conspiracies

south_africaThis week, the South African Competition Commission and Minister Patel explained to the country’s National Assembly why they decided not to take any enforcement action against alleged collusion in the fisheries industry.
Andreas Stargard, an attorney with Pr1merio commercial advisors, explains:
The most succinct answer is quite simple: in short, it’s “Copperweld” all over again.
If that answer does not suffice, let’s unpack this legal doctrine, founded upon the eponymous U.S. Supreme Court precedent from 1984.  Continues Stargard:

Until the Supreme Court’s decision in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), related corporations were generally perceived as separate entities capable of concerted activity, a view which came to be known as the “intra-enterprise conspiracy” doctrine.  Since Copperweld, this doctrine is no longer valid law.  Today, antitrust courts recognize the inherent unity of economic interest and purpose characterizing the relationship between a corporation and its wholly-owned subsidiary entities or business units, thus precludes any finding of illegal conspiracy between a corporation and its subs.

This theory is, evidently, whole-heartedly embraced by the SACC and Minister Patel, whose own short answer to “parliamentary inquiry #1995” from 23 September 2016 was simply: “All firms suspected of collusive conduct constituent firms within a single economic entity, so Act does not apply.”  Not so fast, however, says Mr. Stargard, who admonishes that the “single economic entity” principle must be proven and cannot simply be assumed — substance always wins over form:

Copperweld teaches us to analyze the substance, not the form, of economic arrangements – it is therefore important that the “wholly-owned” character of the fisheries units by Sekunjalo not merely be a sham corporate construct to hide the truly competitively separate and distinct character of the entities; rather, it must be true ownership and control by the parent entity.  This is particularly important here, where the parent is apparently a highly diversified PE-type entity.

At issue in the present SA case was Sekunjalo Investments Limited, Sekunjalo Marine Services Consortium, Premier Fishing SA (Pty) Ltd, and Premier Fishing Consortium.  They were alleged to have entered into an agreement to collude by discussing and coordinating the preparation of their respective bids to the Department of Agriculture, Forestry and Fisheries  in respect of a tender to supply marine patrol services to DAFF.  In light of their nature as a single economic entity, no further investigation or enforcement is recommended.

 

Competition forum highlights antitrust enforcement, international cooperation

Posted on by Editor

South Africa signs cooperation agreements with Russia and Kenya

Leading government officials presented their respective countries’ accomplishments in the antitrust arena at the 10th annual Competition Law, Economics & Policy Conference in Cape Town yesterday.

south_africaThe attendees ranged from the SA Minister of Economic Development, Ebrahim Patel, and the Commissioner of the Competition Commission, Tembinkosi Bonakele, to their Russian and Kenyan counterparts.  Kenya Competition Authority director general Francis Kariuki emphasised the officials’ desire to remove barriers to trade.  He was quoted as saying he looked forward to exchanging information on cross-border cartels, which affect both the South African and Kenyan economies: tsar_200“We have regional economic communities and regional trade. There are some infractions in South Africa which are affecting Kenya and vice versa. We want to join hands to do market enquiries and do research. This will inform our governments when they come up with policies.”

On the inside-BRICS front, the SA Commission signed an MoU with Russia, adding to Russia’s “rich and diverse bilateral agreements portfolio.”  The MoU is described as focussing particularly on pharmaceutical and automotive sectors, in which pending or future sectoral inquiries would see information-sharing between the Federal Antimonopoly Service (FAS) of Russia and the SACC, according to the FAS deputy chief Andrey Tsarikovskiy.

Patel talksMister Patel’s keynote address showed the glass half-full and half-empty, focussing in part on the need to “scale” the South African agency activity up to the level of the “success story” of domestic competition enforcement and its large caseload (quoting 133 new cartel cases initiated in the past year).

Never one to omit politicisation, Mr. Patel noted the perceived parallels he saw between South African history of concentrating economic power in the hands of a minority, raising indirectly the issue of public-interest concessions made in antitrust investigations, including M&A matters.  Mr. Patel clearly sees the SACC’s role as including a reduction in economic inequality among the populace, rather than being a neutral competition enforcer guided solely by internationally recognised legal antitrust & economic principles.  Both he and Commissioner Bonakele drew parallels between their anti-cartel enforcement and a purported reduction in the SA poverty rate of a whopping four tenths of a percent.