Category: civil action

South Africa: Competition Tribunal Fines Computicket for Abusing its Dominance

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By Charl van der Merwe

On 21 January 2019, the South African Competition Tribunal (Tribunal), ruled in favour of the South African Competition Commission (SACC) who prosecuted Computicket (Pty) Ltd. (Computicket) for abuse of dominance in contravention of the Competition Act.

The Tribunal ruled that Computicket had abused its dominance, in contravention of section 8(d)(i) of the Competition Act (which prohibits dominant entities from inducing customer or suppliers not to deal with competitors) by engaging in exclusionary conduct and fined the company R20 million (approximately US$1.44 million), payable within 60 days.

In terms of section 8(d)(i) of the Competition Act, exclusionary conduct is prohibited unless the dominant firm can show that the anti-competitive effect of the exclusionary conduct is outweighed by technological, efficiency or other pro-competitive gains.

The SACC referred the complaint to the Tribunal in April 2010 after its investigation found that Computicket had entered into long term exclusive agreements with customers for the period 2005 to 2010 (immediately after being acquired by a large South African retailer, Shoprite), thereby excluding new entrants from entering the market. At the hearing of the matter, the SACC produced evidence that Computicket entered into these agreements shortly after being acquired and that employees vigorously enforced the exclusive agreements, particularly when new entrants sought to enter the market.

Computicket denied the allegations, arguing that its long term exclusive contracts had no anti-competitive effects as it was offering a superior service and the exclusive contracts were necessary to safeguard against reputational risks.

The Tribunal rejected the argument on the basis that:

  • Computicket had a near monopoly in the market;
  • there was limited market entry during the relevant period which coincided with the introduction of the longer term exclusivity contracts; and
  • no other theory was put forward as to why entry into the market was so limited and ineffectual.

The Tribunal, however, limited the period of the conduct to that period for which the SACC managed to produce conclusive evidence of anti-competitive effects.

The Tribunal found that while some of the anti-competitive effects were inconclusive, the evidence suggesting that the foreclosure of the market to competition during the period (coupled with the cumulative effect of the other inconclusive theories) is sufficient to prove an anti-competitive effect on a balance of probabilities.

According to John Oxenham, director at Primerio,  the Tribunal’s decision followed  largely on the same principles which were set out in the South African Airways case some years earlier. In terms of principles set out in SAA, the SACC was required to prove that the conduct of a dominate firm constitutes an exclusionary act as defined in section 8(1)(d) and, if so, that the exclusionary act has an anti-competitive effect. In other words, whether the conduct resulted in harm to consumer welfare or was “substantial or significant” in that it led to the foreclosing of market rivals. It is then for the respondent to justify its conduct based on a rule of reason analysis.

Competition lawyer, Michael-James Currie says that although there have been a limited number of abuse of dominance cases in South Africa which have successfully been prosecuted, companies with high market shares should take particular cognizance of the Tribunal’s decision. Tackling abuse of dominance cases is very much on the SACC’s radar and the Competition Amendment Bill (expected to be introduced in early 2019) will assist the SACC in prosecuting abuse of dominance cases by introducing thresholds divorced of competition or consumer welfare standards and placing a reverse onus on respondents to justify its conduct (particularly in relation to the excessive pricing, price discrimination and buyer power prohibitions).

Currie says that over and above the administrative penalty, companies found to have contravened section 8 of the Act are potentially at risk from a civil liability perspective. In this regard, both Currie and Oxenham point to the SAA case which resulted in Comair and Nationwide successfully claiming damages in the first follow-on damages case in South Africa for abuse of dominance conduct.

It appears that Computicket will take the Tribunal’s decision on appeal to the Competition Appeal Court.

 

 

 

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.

 

Book release exclusive: “Class Action Litigation in South Africa”

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As foreshadowed over the past 4 years, since the inception of this blog, the topic of class action litigation (aka collective action) has gained momentum in Africa’s southern-most jurisdiction.

For our readers’ consideration, we invite you to purchase our editor John Oxenham‘s new authoritative (and first of its kind) book, entitled “Class Action Litigation in South Africa”.  If interested, please use the form below or e-mail us (editor@africanantitrust.com) for ordering information from JUTA Law publishers.

If you are in Johannesburg, S.A., on Wednesday, 2 August 2017, we would also be delighted if you could attend the book launch event — please be sure to R.S.V.P. to bdev@primerio.international if you plan to do so, however, as it is a private guest-list event only and requires your name for access to the venue.

We are most excited about the volume, which is the first of its kind and deals with a novel area of the law.  It contains chapters written by current and former firm members, including Andreas Stargard, Njeri Mugure, and of course the editor, John Oxenham.

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

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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

currie2

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.