Category: South Africa

Panel highlights SA Competition Amendment Bill’s pitfalls

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As AAT has reported on extensively, the South African Competition Amendment Bill, currently pending in Parliament, is likely to be adopted in short order in its current draft form.

It carries with it significant, and in our view, adverse, effects that will burden companies trying to conduct business or invest in South Africa. These burdens will be particularly onerous on foreign entities wishing to enter the market by acquisitions, as well as any firm having a market share approaching the presumptive threshold of dominance, namely 35%

On Wednesday, 17 October 2018, the law firms of Primerio and Norton Incorporated held an in-depth seminar and round-table discussion on the ramifications of the Competition Amendment Bill. The setting was an intimate “fireside chat“ with business and in-house legal representatives from leading companies, active across a variety of sectors in the South African economy.

Moderated and given an international pan-African perspective by Primerio partner Andreas Stargard, the panel included colleagues John Oxenham and Michael-James Currie, who delved into the details of the proposed amendments to the existing Competition Act, covered extensively by AAT here.

As of today, 18 October 2018, the Bill appears set to be promulgated.  The SA Parliament’s committee on economic development has rubber-stamped the proposed amendments after a prior committee walk-out staged by the opposition Democratic Alliance (DA), in opposition to the Bill. DA MP and economic development spokesperson Michael Cardo states:

“The ANC rammed the Competition Amendment Bill through the committee on economic development, and adopted a report agreeing to various amendments. To make sure they had the numbers for a quorum, the ANC bussed in two never-seen-before members to act as pliant yes men and women. Questions from the DA to the minister… This bill is going to have far-reaching consequences for the economy. It gives both the minister and the competition authorities a great deal of power to try and reshape the economy. It is unfortunate that the ANC, and the committee chair in particular, have suspended their critical faculties to force through this controversial bill and behaved like puppets on a string pulled by the minister of economic development.”

The Amendment Bill introduces significant powers for ministerial intervention and bestows greater powers on the Competition Commission, the investigatory body of the competition authorities in South Africa.

The panel discussion provided invaluable insights into the driving forces behind the Bill and ultimately what this means for companies in South Africa as it certainly won’t be business as usual if the Amendment Bill is brought into effect – particularly not for dominant entities.

[If you attended the panel discussion and would like to provide feedback to the panelists or would generally like to get in touch with the panelists, please send an email to editor@africanantitrust.com and we will put you in touch with the relevant individuals]

 

October Antitrust Conference Shines Spotlight on Africa

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New York Concurrences conference: Focus on emerging economies, “coping with nationalism and building inclusive growth”

AAT invites its readers to sign up for what promises to be a timely and topical conference in NYC this October 26, 2018, at NYU Law School.  Program below, sign-up with Eventbrite here.  The event features the SACC’s Commissioner Tembinkosi Bonakele as well as professor Simon Roberts from the Univ. of Johannesburg.

08.15 am

Registration & Breakfast

 8:45am

Opening Keynote Speech

Joseph STIGLITZ  

Nobel Prize-Winning Economist | Professor, Columbia University, New York  

9:30am

Competition, Industrial Policy and Developing Countries

Noah BRUMFIELD | Partner, White & Case, Washington DC

Dennis DAVIS | President, Competition Appeal Court of South Africa, Cape Town

Kirti GUPTA | Senior Director, Economic Strategy Qualcomm, San Diego

Frédéric JENNY | Chairman, OECD Competition Committee, Paris

Simon ROBERTS | Professor, University of Johannesburg, Johannesburg

Moderator: Eleanor FOX | Professor, NYU School of Law, New York

 11:00am

Coffee Break

11:15am

Mega Mergers and Developing Countries

Tembinkosi BONAKELE | Commissioner, South Africa Competition Commission, Pretoria

Marcio DE OLIVEIRA JR | Senior Consultant, Charles River Associates, São Paulo

Gönenç GÜRKAYNAK | Partner, ELIG Gürkaynak Attorneys-at-Law, Istanbul

Nicholas LEVY | Partner, Cleary Gottlieb Steen & Hamilton, London

Ioannis LIANOS | Professor, University College London

Moderator: Harry FIRST | Professor, NYU School of Law, New York

 12:45pm

Lunch

1:45pm

BRICS: A Competition Agenda? 

Alexey IVANOV | Director, HSE-Skolkovo Institute for Law and Development, Moscow

Ruchit PATEL | Partner, Ropes & Gray, London

Cristiane SCHMIDT| Commissioner, CADE, Brasília

Xianlin WANG | Professor, Shanghai Jiao Tong University, Shanghai

Moderator: Daniel RUBINFELD | Professor, NYU School of Law

 3:15pm

Coffee Break

3:30pm

Enforcer’s Roundtable: What’s Under the Radar?

Roger ALFORD|Deputy Assistant Attorney General, US DOJ, Washington DC

Tembinkosi BONAKELE | Commissioner, South Africa Competition Commission, Pretoria

Randolph TRITELL | Director, Office of International Affairs, US FTC, Washington DC

Joseph WILSON | Adjunct Professor, McGill University, Montreal | Former Chairman, Competition Commission of Pakistan

Moderator: Frédéric JENNY| Chairman, OECD Competition Committee, Paris

5:00pm

Closing Wrap-up: New York Minute

Eleanor M. FOX | Professor, New York University School of Law

Harry FIRST | Professor, New York University School of Law

5:15pm

Cocktail Reception 

 

South Africa Competition Tribunal: Merging Parties Penalised for Failure to Comply with Public Interest Conditions

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By Michael-James Currie

On 29 June 2018, the South African Competition Tribunal (Tribunal) penalised the RTO Group R75 000 for failing to comply with the Tribunal’s conditional merger approval in respect of two companies now within the RTI stable, Warehouseit and Courierit. The Tribunal approved the large merger in August 2015.

In terms of the Tribunal’s merger approval, a moratorium on merger specific retrenchments for a two year period was imposed – now a frequently imposed public interest related condition by the competition agencies in South Africa.

RTI, however, was penalised not for retrenching any employees during this window but for failure to adhere to the monitoring obligations as set out in the Tribunal’s conditional approval certificate.

In this regard, the merging parties were obliged to notify their employees (and Courierit’s subcontractors) of the conditions to the merger approval within five days of the merger approval date. The merging parties were also obliged to provide the Competition Commission with an affidavit confirming that the obligations in terms of the conditions had been complied with.

By way of a consent order, RTI admitted that it failed to comply with its monitoring obligations and agreed to pay an administrative penalty for breaching the Tribunal’s conditional merger approval.

Although there have been a limited number of cases in respect of which an administrative penalty has been imposed for a breach of the merger conditions, this case demonstrates the importance of fully complying with the terms set out by way of a conditional merger approval.

Furthermore, although notifying the employees of the relevant conditions may not have been a particularly onus obligation, merging parties should take particular cognisance of monitoring and reporting obligations when negotiating conditions with the Competition Commission. Merging parties understandably place greater emphasis on the substantive aspects of the conditions and may underestimate the reporting obligations related thereto – particularly if conditions are being negotiated at the eleventh hour (which is not uncommon).

While there are mechanism’s available to merging parties to remedy any patently unworkable aspects contained in merger approval conditions, it is advisable to ensure that the conditions are practical and capable of being adhered to in full prior to being finalised – assuming the merging parties have that luxury.

[Michael-James Currie is a South African based competition lawyer and practices across Sub-Saharan Africa]

Competition Appeal Court’s Ruling in Standard Bank Case: A Changing of the Tides?

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Threat of Referral no Longer an Arrow in the Commission’s Quiver?

By AAT Senior Contributor Michael-James Currie

In the first week of June 2018, the South African Competition Appeal Court (CAC) upheld Standard Bank’s appeal and ordered that the Competition Commission (Commission) make available its investigation record to Standard Bank. Standard Bank is a respondent in the Commission’s ForEx investigation.

Standard Bank had requested that the Commission make available its record in terms of Rule 15 of the Competition Commission Rules. Rule 15 permits any member of the public to request access to the Commission’s non-confidential record. Standard Bank therefore brought its application in terms of Rule 15 not on the basis of it being a respondent to the Commission’s investigation but as an ordinary member of the public.

Although the CAC had in an earlier case, Group 5, set out the correct interpretation and application of Rule 15 and stated that:

  1. the Commission is obliged in terms of Rule 15 to make available its record of investigation;
  2. that the Commission must do so within a “reasonable time”; and
  3. that the Commission must disregard the applicants status as a litigant when determining what a reasonable time is.

The Tribunal in the Standard Bank case, however, deviated from the CAC’s binding decision in Group 5 and held that the Commission would only need to make its record available to Standard Bank at the time of discovery.

Accordingly, the CAC in the Standard Bank case found that the Tribunal took Standard Bank’s status as a litigant into account when assessing what a reasonable time would be by which the Commission was obliged to make available its record to Standard Bank. The CAC in Standard Bank confirmed that although the Tribunal is not bound by the stare decisis principle in relation to its own decisions, the Tribunal is bound by the CAC’s decisions. The Tribunal’s decision in Standard Bank was inconsistent with the CAC’s earlier decision in the Group 5 case – where the CAC expressly stated that there is no rational basis for linking the production of the Commission’s record with discovery proceedings. The Tribunal’s departure from the CAC’s earlier precedent was noted with concern by the CAC in Standard Bank.

The Commission argued – as justification for not producing its record – that Standard Bank was abusing its position as a litigant. In this regard, the CAC expressly rejected this argument and held that simply because a plaintiff would be better placed to plead its case after receiving the Commission’s record that, in of itself, does not amount to an abuse of process. The CAC held that it would only amount to an abuse of process if an applicant sought to rely on Rule 15 in order to avoid or delay having to plead within the prescribed time periods.

Furthermore, the CAC reaffirmed that a member of the public’s right to access the Commission’s record should not be prejudiced by the fact that such a member is also a litigant.

The Court’s Standard Bank decision is important as respondents will invariably be inclined to seek access to the Commission’s record prior to pleading their case. This may have a material impact on the Commission’s settlement strategy as respondents in settlement negotiations with the Commission are likely to request the Commission’s record in order to assess the strength of the Commission’s case against it before deciding whether to settle the case or not – thereby compelling the Commission to ensure that a robust investigation is conducted prior to entering into settlement negotiations with respondents.

Says John Oxenham, ‘the “threat of a referral” is unlikely to present the Commission with the same negotiating leverage as it may otherwise have enjoyed when respondents were kept in the dark as to the evidence which the Commission may have against them.’

Whether this all plays out in practice remains to be seen although any decision which promotes transparency and legal certainty can only be positive. It is for this reason that the CAC’s express criticism of the Tribunal’s decision to depart from established case precedent is particularly noteworthy as it is a stark reminder to all adjudicative bodies of the importance of adhering to the rule of law.

Shipping cartels: BMW Pursues Civil Damages Claim against certain Carriers

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By Stephany Torres

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

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

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

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

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

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

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

 

Media cartel exposed and fined

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By AAT Senior Contributor Stephany Torres

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

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

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

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

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

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

The agreements were confirmed as orders of the Competition Tribunal.

 

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

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By Stephany Torres

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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By Michael-James Currie

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

South African Competition Tribunal Finds in Favour of Ster-Kinekor in Market Allocation Case

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The South African Competition Tribunal (“the Tribunal”) last week dismissed a complaint referred to it by the Competition Commission (“the Commission”) in 2009 which alleged that two rival cinemas, Primedia’s Ster-Kinekor Theatres and Avusa’s Nu-Metro Entertainment (Pty) Ltd, which operate in the market for the exhibition of films at the V&A Waterfront shopping complex in Cape Town, engaged in market allocation by agreeing not to screen the same film genres in contravention of section 4(1)(b)(ii) of the Competition Act[1].

The Commission initiated the complaint after Avusa applied for conditional immunity and provided evidence of the existence of a settlement agreement, which was made an order of court in 1998, between Nu Metro and Ster-Kinekor. In terms of the settlement agreement, Ster-Kinekor agreed not to exhibit any films identified as “commercial films” and Nu Metro would not exhibit any films identified as “art films” at the V&A waterfront.

The two companies first signed the ‘non-compete’ settlement agreement in May 1998, before section 4 of the Competition Act (which prohibits cartel conduct) became effective. Section 4 of the Competition Act only became effective as at 1 September 1999.

The Tribunal dismissed the complaint on the basis that the settlement agreement was concluded before the Competition Act came into operation and Ster-Kinekor and Nu Metro could only be found guilty of a contravention if there was evidence of actions or discussions between them directed at actually implementing the agreement after the Competition Act came into force.

In this regard cross-examination of witnesses revealed that while leniency applicant Nu Metro had attempted to invoke the settlement once after the Competition Act came into force, Ster-Kinekor employees “did not know about the… agreement, did not implement it, and had not implemented it before”, the Tribunal stated.

The Tribunal did not deal with Primedia’s other defence that no relief could be granted against Primedia because Primedia had only purchased Ster-Kinekor in 2008, so could not be liable for the actions of its predecessor.

John Oxenham, a South African competition lawyer, said that “the case confirms that the Competition Act does not apply retrospectively and some form of understanding or agreement (in essence a “new” agreement) needs to arise between the parties after the Act came into force for the conduct to be unlawful”.  He believes that although the Tribunal mentioned that there needs to be some implementation of the agreement after the Competition Act came into force, what they are actually saying or should be saying is that it is not the implementation which is necessary but the arising of a “new” agreement between the parties which is essential.

Section 4(1)(b)(ii) of the Competition Act is a per se offence and an agreement does not need to be implemented in order to contravene the market allocation prohibitions.

Accordingly, the Tribunal has to some extent blurred the distinction between a ‘lack of implementation’ and the duty to distance oneself from a ‘prohibited agreement’.

 

Merger Control: Public Interest & SINOPEC/Chevron

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When the Stick is Greater than the Carrot

While China Petroleum & Chemical Corporation (Sinopec), and global commodities trader and miner Glencore are the front runners in a bid to buy Chevron’s South African Business (Chevron SA), it appears that Sinopec has managed to edge ahead after the Chinese firm has agreed to a number of public interest conditions in an effort to placate the South African Minister of Economic Development, Ebrahim Patel (Patel) and avoid ministerial intervention before the Competition Tribunal’s (the agency responsible for approving the merger) hearing.

PublicInterestpic.jpgThe South African Competition Commission (SACC), responsible for investigating and making recommendations to the Tribunal, recently published its recommendation in relation to the proposed Sinopec-Chevron deal. Unsurprisingly, consistent with large mergers (particularly by foreign acquiring firms) – the SACC’s recommendations contain a number of non-merger specific public interest conditions. A feature of South African merger control which has become increasingly prevalent in recent years (refer to the AB-InBev/SAB or the SAB/Coca-Cola mergers) – largely as a result of Minister Patel’s ‘direct’ involvement in the merger control process.

It is not yet cast in stone that Sinopec will in fact be the acquiring entity as the minority shareholders in Chevron SA enjoy a right to first refusal. Regardless of the entity who is ultimately successful in acquiring Chevron SA (Chevron has confirmed that the proposed deal with Glencore is also currently before the SACC), the South African government has set its price for investing in South Africa, as confirmed by Minister Patel’s following statement:

“Government will not choose to whom Chevron sells control of Chevron South Africa, but we will ensure that proper public interest conditions, in line with the Competition Act, should apply to whoever is the successful bidder,”

Apart from the significant Ministerial intervention and the direct influence this has on the SACC’s independent investigation and review of a merger, a particularly contentious issue in relation to the imposition of public interest conditions relates to the Minister’s comment that the public interest conditions are “in line with the Competition Act”.

Although conditions regarding employment falls within the scope of section 12A(3) of the South African Competition Act, the remainder of the recommendations made by the SACC in casu goes beyond what was envisaged by the legislature in Section 12A(3) of the Competition Act. In this regard, the conditions recommended by the SACC include inter alia the following:

  • Sinopec must set up its head office in South Africa in order for it to co-ordinate and oversee its operations in South Africa and to use South Africa as the platform to oversee its operations throughout Africa;
  • Sinopec undertakes not to retrench any of its employees, in perpetuity;
  • Sinopec agrees to invest further in Chevron’s Cape Town refinery;
  • Sinopec undertakes to make a significant investment over and above the current investment plans of Chevron South Africa;
  • Sinopec must upgrade Chevron South Africa’s operations and expand its refinery capacity in South Africa;
  • Sinopec undertakes to maintain Chevron SA’s current baseline number of independently owned petrol stations;
  • Where independently owned petrol stations are to be established, Sinopec must ensure that Chevron SA will give preference to small businesses, especially black-owned businesses;
  • Sinopec must ensure that Chevron will favour small businesses in granting rights in respect of any new retailer owned petrol stations.
  • Sinopec must also ensure that Chevron will increase its level of supplies of (liquefied petroleum gas) to black-owned businesses, following the expiration of current contractual arrangements; and
  • Sinopec must promote the export and sale of South African manufactured products for sale in China through its service stations network in China.

More specifically, Minister Patel requires that Sinopec makes a R6bn Capex investment, commits to increasing the level of BEE ownership in Chevron SA from 25% to 29% and, an all-time favourite condition, establish a development fund worth R200m.

As John Oxenham, Director of Primerio notes, the absence of merger specificity together with the imposition of public interest conditions which go far beyond the specified grounds listed in the Competition Act has been consistently criticised for resulting in uncertainty, delays and costs in the merger review process. It also sends a message to entities that South Africa is open to business… on condition (at a time when our economy could do with every bit of foreign direct investment).

Regardless of the criticism levelled against the role of public interest conditions in merger control proceedings, the prevalence of public interest conditions is set to play and even greater role in merger control (and competition enforcement more generally) should the Competition Amendment Bill be brought into effect.

John Oxenham further notes: “The Competition Amendment Bill has broadens the scope of the SACC’s powers with regards to public interest, to include the ability of small businesses to enter into, participate in and expand within the relevant market and the promotion of a greater spread of ownership.”

Practising competition law attorney, Michael-James Currie states: “The Bill has clearly sought to strengthen and codify the role of public interest conditions in merger control and expressly elevates public interest considerations to the same status as pure competition issues – the fact that the Bill specifically broadens the scope and role of public interest conditions brings into question whether the proposed conditions in the Chevron deal are in fact “in line with the (current) Competition Act”.

Competition law enforcement in South Africa is set for a significant shake-up to the extent that the Amendment Act is brought into effect – which is likely to occur in 2018. For further insight and commentary to the Amendment Bill, please see an AAT exclusive article here.

One message which business is desperately shouting across at the South African Government at the moment is “policy certainty!”  However, the SACC’s recommendation in casu and the proposed changes to the Competition Act is a move in the opposite direction as it seeks to place a great deal of discretion in the hands of a few key policy decision makers (namely the Minister of the Department of Economic Development and the SACC’s Commissioner). Discretion, exercised in a subjective manner, runs very much contrary to policy certainty – which, in light of an imminent cabinet reshuffle under new ANC President Cyril Ramaphosa’s leadership, may be of particular concern.

Although the Tribunal ultimately needs to approve the merger, the Tribunal is reluctant to intervene in proceedings which are uncontested – which Minister Patel knows all too well. Accordingly, as a crafty negotiator, Minister Patel is well aware that parties in the position of Sinopec have one of two options, agree to the public interest conditions and expedite the merger review or proceed with a contested hearing which will most likely be opposed by the Minister.

Despite calls for a more consistent, certain and transparent application of competition law in South Africa, however, there seems to be a move away from international best practice and competition law enforcement in South Africa and once the Amendment Act is brought into effect, there is a material risk that political influence will undermine the independence, impartiality and effective enforcement of competition law in South Africa to subjective, unqualified and discretion based enforcement.

[The ATT editors wish to thank Charl van Merwe for his assistance with drafting this article]