Appellate Review, Kenya, mergers, Telecoms

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

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

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

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

Ruth Mosoti (author)

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

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

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

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

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

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

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AAT exclusive, Appellate Review, BRICS, collusion, South Africa, Uncategorized

South Africa: Trilogy of Rulings Against the Competition Commission Demonstrates the Importance of Following Proper Procedure

In three recent decisions, two by the Competition Tribunal and one by the Competition Appeal Court, a number of important procedural flaws were exposed in the manner in which certain complaints were initiated against various respondents. The Competition Appeal Court even made an adverse costs order against the Competition Commission in one of the cases. We discuss these important decisions below.

Misjoinder of Parent Company

The South African Competition Commission (“SACC”) had recently alleged that Power Construction (West Cape) Pty Ltd (“West Cape”) and Haw and Inglis (Pty) Ltd (“H&I”) colluded in respect of a tender submitted to South African National Roads Agency (SANRAL). The tender was in respect of maintenance services. The SACC alleges both parties had contravened section 4(1)(b)(ii) and (iii) of the South African Competition Act (the “Act”).  The parent company of West Cape, Power Construction (Pty) Ltd (“Power Construction”) was cited as a respondent on the basis that it would be liable to pay the administrative penalty. Power Construction, had engaged in “with prejudice” settlement negotiations.

The SACC refused the proffer and informed Power Construction that after having  considered the settlement proceed that it was clear that Power Construction and West Cape (being the subsidiary of Power Construction) shared a majority of their respective directors which, according to the SACC, was sufficient to implicate Power Construction in the alleged collusive conduct. Accordingly, the SACC alleged that any Administrative Should be calculated using the higher annual turnover figures of Power Construction.

Power Construction disputed this, arguing that it was never alleged by the SACC that Power Construction had contravened the Act. The SACC then opted to amend its referral to include Power Construction. On application to the South African Competition Tribunal (“Tribunal”), the Tribunal dismissed the proposed amendment on the basis that the SACC had failed to provide any material evidence to establish a prime facia case in favour the relevant amendment, stating that the burden remains on the applicant to prove that it is deserving of the amendment by putting sufficient factual allegations before the Tribunal.

In conclusion, the Tribunal also confirmed that the amendment could regardless have been rendered excipiable based on prescription. In this matter, the alleged conduct ceased more than three years prior to the Commission becoming aware of the conduct.

Prescription

In a further case, namely the Competition Commission and Pickfords Removals SA, regarding the interpretation of section 67(1) of the Act (namely that dealing with prescription), the Competition Appeal Court (“CAC”) was very recently called to decide on the correct date for the running of prescription in terms of section 67(1) of the Act.

The SACC (being the appellant in the matter), brought an appeal to the CAC after the Tribunal held that the complaint initiated by the SACC was time barred in terms of section 67 of the Act.

The SACC disputed this and submitted that prescription in terms of section 67 of the Act should only commence from the date on which the Commissioner or Complainant acquired knowledge of the prohibited practice and, alternatively, that the Tribunal has a discretion to condone non-compliance with this 3-year time period. The latter issue was central to the dispute.

The question was further complicated by the fact that the SACC filed two compliant initiations against the respondents. The SACC submitted that the so called ‘second initiation’ was merely an amendment to the first initiation. So the SACC argued, even if the time period had begun running when the practice had stopped, the time period in question would still not have expired.

In this regard, the CAC held that the SACC has the power to amend a compliant initiation and that it must be taken at its word on whether a second initiation is an amendment to the first or a separate and distinct complaint initiation. This is so, particularly where both complaint initiations concern the same conduct, in the same market and where the first complaint initiation states that the conduct is ongoing.

In relation to the issue of prescription, the CAC held that section 67 cannot be equated with section 12 of the South African Prescription Act which provides for prescription to commence  from the moment on which the “creditor acquires knowledge of the identity of the debtor and the relevant fact from which the debt arises”. Section 49B(1) of the Prescription Act provides for a much lower threshold, being the ‘reasonable suspicion of the existence of a prohibited practice’.

Accordingly, it must be accepted that the time bar in section 67 is intended to be a limitation of the Commissioner’s wide ranging powers (to prevent investigation into historic matters which are no longer in the public interest) and that the knowledge requirement contained in the Prescription Act cannot be read into this limitation as argued by the SACC. It follows then, based on this reasoning that there can similarly be no condonation by the Tribunal or the CAC on these matters.

For completeness sake, the CAC confirmed the general understanding that, for purposes of section 67, the alleged prohibited conduct will be deemed to have ceased on the date on which the respondent last benefited from the prohibited conduct (e.g. the date on which it last received payment under the agreement). In this regard, the Tribunal initially ordered the parties to produce evidence of the date on which the last payment was received. The CAC deemed this appropriate and opted not to interfere with this order.

Condonation and Costs

The Tribunal was also called recently upon to decide two interlocutory applications, the first being a condonation application brought by the SACC in terms of section 54 of the Act for the late filing of its revised trial bundle (containing an additional 1221 pages), which was opposed by the respondents (Much Asphalt and Roadmac Surfing) and finally a counter application for costs against the SACC.

In terms of the condonation application, the SACC sought to revise the trial bundle on the basis that the revised trial bundle contained documents which were essential to its case (which were inadvertently omitted from its initial bundle) and had been re-organized in a manner that was less burdensome for all the parties involved. In support, the SACC argued, that the respondents wouldn’t be prejudiced by the late filing as the extra documents had already been discovered.

The Tribunal confirmed that the test for condonation must be ‘good cause shown’ by the SACC which should be assessed on case by case basis. The Tribunal held that the SACC had not shown good cause in this matter as it had ample time to furnish the respondents with the revised bundle and further found that filing the revised bundle at the 11th hour was unnecessarily prejudicial to the respondents.

south_africaIn terms of applications for costs, the respondents sought an order for wasted costs in relation to the postponement due to the late furnishing of the bundle as well as the cost of defending the application for condonation. Importantly it should be borne in mind that the Tribunal does not as a matter of course make cost orders against the SACC.  In this regard, the Constitutional Court has previously held that the Tribunal does not have the powers to make adverse cost orders against the SACC, even where the SACC has abused its powers. The general rule is that the parties pay their own costs. The Tribunal may only make cost orders against third parties and, accordingly, dismissed the respondent’s application for costs.

John Oxenham, director of Primerio says that these cases demonstrate the objectivity and impartiality of the adjudicative bodies which is an encouraging sign for respondents who do not believe that the case brought against them is procedural or substantively fair.

Fellow competition lawyer, Michael-James Currie says it is unfortunate that only the Competition Appeal Court makes adverse costs rulings and that the Competition Tribunal is precluded from doing so. Adverse costs ruling against the SACC should be reserved for matters in which there was clear negligence in the manner in which a case was investigated, pleaded or prosecuted. Such costs orders would, however, go a long way in ensuring that parties and in particular the prosecution agency, does not refer cases  to the adjudicative bodies (which have limited prospects of success) with no downside risk in losing the case.

Oxenham shares Currie‘s sentiment and suggests that adverse costs orders against the Commission will likely result in a more efficient enforcement regime as cases will be settled more expeditiously and respondents will be more reluctant to oppose the Competition Commission’s complaints with the knowledge that the SACC is confident in its case and prepared to accept the risk of an adverse costs order.

[The Editor wishes to thank Charl van der Merwe for his contribution to this article]

 

 

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