Category: civil action

From Cartel to Courtroom: Why Tembisa Is the Case the Competition Commission Should Be Bringing

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By Joshua Eveleigh and Astra Christodoulou

Introduction

In 2016, an important amendment to the Competition Act 89 of 1998 (the “Act”) was brought into operation. The amendment introduced criminal liability for cartel conduct in the form of section 73A of the Act, which states:

“(1) A person commits an offence if, while being a director of a firm or while engaged or purporting to be engaged by a firm in a position having management authority within the firm, such person –

(a) caused the firm to engage in a prohibited practice in terms of section 4(1)(b); or

(b) knowingly acquiesced in the firm engaging in a prohibited practice in terms of section 4(1)(b).”

Section 74 states further:

“Any person convicted of an offence in terms of this Act, is liable –

(a) in the case of a contravention of section 73(1), or section 73A, to a fine not exceeding R500 000-00 or to imprisonment for a period not exceeding 10 years, or to both a fine and such imprisonment; or

(b) in any other case, to a fine not exceeding R10 000-00 or to imprisonment for a period not exceeding six months, or to both a fine and imprisonment.”

In other words, a manager or director who steers a firm into price fixing, market division or collusive tendering can, under section 74 of the Act, face a fine up to R500,000 or imprisonment for up to 10 years, or both. Section 73A(5) of the Act would provide that a consent order or a finding by the Competition Tribunal (the “Tribunal”) or Competition Appeal Court (the “CAC”) that a firm is guilty of price fixing, dividing markets or colluding on tenders could be used as prima facie proof in criminal proceedings against any of that firm’s directors or managers. It must be noted, however, that while section 73A(1) to (4) came into operation on 1 May 2016, subsections (5) and (6) (the former dealing with the prima facie evidentiary effect, and the latter prohibiting a firm from paying or indemnifying a convicted individual) have not yet been brought into operation.

Despite section 73A having been in force for over a decade, it has not yet been put into practice.

One of South Africa’s largest and ongoing corruption cases, the investigation into the Tembisa Hospital Scandal, offers an opportunity to consider why this is the case. The case involves collusive manipulation of South Africa’s procurement system to the tune of billions of rands; however, the criminal cartel offence and operation of the Act have played no part thus far in the State’s investigation. Setting aside the criminal offence, section 59 of the Act gives the Commission a route against the firms involved that carries administrative penalties measured against their turnover, and that could be pursued independently of the criminal process. Tembisa’s sharpest lesson may lie not in the dormant criminal route but in the unused civil one.

The criminal cartel offence

Section 73A criminalises individual involvement in hardcore cartel conduct prohibited in section 4(1)(b) of the Act, namely price fixing, the division of markets and collusive tendering. It does not address criminal liability for the firm, which remains subject to the civil regime, but for the natural person who directed it.  Liability extends beyond registered directors to anyone “engaged or purporting to be engaged by a firm in a position having management authority”; therefore, the whole management chain may be exposed.

The offence may be committed in one of two ways: by causing the firm to engage in the prohibited practice, or by knowingly acquiescing in it. Section 73A(2) indicates that acquiescence requires actual knowledge of the conduct; therefore, mere negligence or a failure to detect a cartel operating below management level will not found liability.

The consequences of conviction are found in section 74, which provides for a fine of up to R500,000, imprisonment for up to 10 years, or both. Any fine must be paid personally by the convicted individual, and section 73A(6) would, once in operation, prevent a firm from paying it or indemnifying the person against it. A conviction also carries collateral consequences under company law, including potential disqualification from serving as a director.

Crucially, an individual cannot be charged in a vacuum. Section 73A(3) provides that a person may only be prosecuted once the firm has admitted, in a consent order, that it engaged in a prohibited practice under section 4(1)(b), or once the Tribunal or the CAC has made a finding to that effect. The finding against the firm is therefore a precondition to the criminal charge against the individual. Section 73A(5) would then allow that finding to serve as prima facie proof in the criminal proceedings against the individual. That feature, though not yet in operation, has attracted sustained criticism on the basis that it may amount to a reverse onus and could raise constitutional concerns regarding the rights protected in section 35 of the Constitution of the Republic of South Africa, 1996, including the right to be presumed innocent and the right to a fair trial

Enforcing the offence

The difficulty lies not in the definition of the offence but in the conditions attached to prosecuting it. South Africa operates two separate enforcement processes for cartel conduct. The civil process is directed at the firm, is investigated and prosecuted by the South African Competition Commission (the “Commission”) and is adjudicated by the Tribunal. The criminal process is directed at the individual and may be prosecuted only by the National Prosecuting Authority (the “NPA”).

Due to the precondition in section 73A(3), the civil process must ordinarily conclude, whether by consent order or by a Tribunal or CAC finding, before the criminal process against an individual can begin. Cartel matters are frequently litigated for years on technical and jurisdictional grounds before any such finding is made, therefore meaning the ability to prosecute criminal liability tends to arise long after the underlying conduct has occurred.

The interface between the two authorities must also be considered. The Commission cannot prosecute individuals and cannot grant them immunity from criminal prosecution. Under section 73A(4), the Commission is limited to certifying that a person is “deserving of leniency”, in which case it may not itself seek or request that person’s prosecution, and it may make submissions to the NPA in support of leniency. The final decision, however, is that of the NPA, which is not bound by the Commission’s view. Effective enforcement therefore depends on close coordination between the Commission, the NPA and the South African Police Service.

This division of functions establishes a tension with the Commission’s Corporate Leniency Policy, which has historically been its most effective tool for uncovering cartels. Therefore, if a firm’s admission in a consent order can be used as the basis for criminal prosecution of the firm’s own directors and managers, the incentive to cooperate and settle diminishes. Further, as section 73A remains untested in practice, there is also the unresolved tension as to what extent the NPA may access the material a firm hands over in the course of seeking leniency.

Tembisa Hospital and the potential use of the Act

The Tembisa Hospital scandal concerns the alleged looting of more than R2 billion from the procurement budget of the Tembisa Provincial Tertiary Hospital in Gauteng. The scheme is said to have exploited the Request for Quotation system for purchases below the R500,000 threshold (set in National Treasury Practice Note No 8 of 2007/2008 “Supply Chain Management: Threshold Values for the Procurement of Goods, Works and Services by Means of Petty Cash, Verbal / Written Price Quotations or Competitive Bids”, since amended), deliberately splitting orders to circumvent the formal tender process. Investigators have identified several syndicates operating through large networks of companies. One alleged network is said to have controlled dozens of entities, the majority of which were irregularly appointed as suppliers; another is alleged to have funnelled contracts through a cluster of commonly linked companies.

The use of many nominally separate companies gives the matter a competition-law dimension. From the perspective of Tembisa Hospital, there would have appeared to be several separate entities competing for each quotation. In reality, those entities were, unbeknownst to the hospital, allegedly controlled by a single mind, which caused them to submit coordinated and inflated quotations, ensuring that the lowest of several artificially high bids would win. That is the classic mechanism of bid rigging. The appearance of competition is manufactured to conceal an allocation of business that has already been decided among the bidders. Where a single controlling mind allegedly causes several ostensibly independent firms to submit competing quotations, thereby creating the appearance of competition while allocating business among themselves, the conduct falls squarely within collusive tendering or market division of the kind prohibited by section 4(1)(b). On that characterisation, the individuals directing those firms could, in principle, fall within the reach of section 73A. The concealment of common control is foundational in the competition-law analysis because it is what allowed the entities to hold themselves out as independent competitors. The Commission would still need to establish an agreement or concerted practice between them, but the coordinated submission of rigged quotations is itself compelling evidence.

The difficulties of using the Competition Act at Tembisa

Several obstacles arise when considering whether Tembisa is a suitable vehicle for the first practical use of section 73A.

The first difficulty is that the core issue of the Tembisa scandal has been corruption, not cartelisation. Its core is the corrupt relationship between officials inside the hospital and the suppliers they favoured, a relationship between buyer and seller rather than between competitors. The cartel offence is aimed at competitors who secretly agree to rig a market against a buyer, not at insiders who capture a procurement system from within. Whatever residual element of collusive tendering might be found among the front companies is, for criminal purposes, overshadowed by the established offences of fraud, corruption and money laundering.

Furthermore, the structure of the offence makes the utilisation of the route slow. The criminal case against the individual depends on a prior admission by, or adverse finding against, the firm. The Commission would first have to investigate, refer and litigate to a conclusion its case against the firm. Cartel proceedings of that kind practically run for years. One of South Africa’s longest-running cartel investigations, into the alleged manipulation of the rand, lasted close to a decade before the Constitutional Court had ruled only on preliminary questions of pleading and jurisdiction, without yet deciding whether any collusion had occurred at all. A procurement-corruption matter of this severity and national importance cannot sensibly wait on that timetable.

A further consideration is the sanction available under section 73A, which may be viewed as modest against the scale of the conduct. Section 74 caps the penalty at a fine of R500,000 and imprisonment for up to 10 years. Against an alleged scheme running to billions of rand, a fine of that order may be seen as negligible, and the competition route offers nothing equivalent to the asset-recovery machinery that is at the core of the State’s response, namely the forfeiture and preservation of the proceeds of the fraud. By contrast, the ordinary offences of fraud, corruption and money laundering carry heavier penalties and unlock the confiscation of the stolen funds.

This modest cap, however, attaches only to the criminal sanction against the individual. The Act’s civil regime is another matter entirely. An administrative penalty imposed on the firms, by section 59 of the Act, can reach 10% (ten per cent) of the firm’s annual turnover, a figure that, on contracts totalling billions of rand, would be anything but negligible. While imprisonment for up to ten years remains a significant sanction, section 73A offers little by way of asset recovery and may therefore be less attractive to prosecutors than the ordinary offences. The availability of a substantial administrative penalty, by contrast, raises a distinct question about the regulator’s own role.

Taken together, these difficulties explain why the criminal cartel offence, for all its apparent reach, may be seen as a slow and, on its criminal side, ill-suited instrument for a matter such as Tembisa, which largely explains the criminal route the State has taken.

The route the State has taken  

The State has thus far opted not to utilise the Competition Act. The response has been driven by the Special Investigating Unit (the “SIU”), which was authorised by Presidential Proclamation 136 of 2023, to conduct a forensic investigation. Under the Special Investigating Units and Special Tribunals Act 74 of 1996, the SIU refers evidence of possible criminal conduct to the NPA for prosecution and is separately empowered to bring civil proceedings in the High Court or the Special Tribunal to recover the State’s losses.

On the criminal side, the charges brought and contemplated are the offences of fraud, theft, corruption, money laundering, forgery and uttering, and contraventions of the Public Finance Management Act. In August 2026, one of the alleged syndicate masterminds was arrested on his return to South Africa and appeared before the Specialised Commercial Crimes Court facing dozens of counts, before being released on bail; the NPA has indicated that further prosecutions arising from the three identified syndicates are to follow. On the civil side, the Asset Forfeiture Unit has obtained substantial forfeiture orders against assets linked to the alleged networks, and the SIU continues to pursue recovery of the diverted funds.

The logic of this route is straightforward. The ordinary criminal law reaches the corrupt heart of the scheme, which competition law cannot; its offences are broader and well established; it requires no prior finding by the Tribunal as a precondition to charging individuals; and it allows the various enforcement agencies to coordinate a single, faster response.

The route the Commission has not taken

Even if the criminal cartel offence is seen to be ill-suited to Tembisa, the Act’s civil prohibition is not. Section 4(1)(b), enforced by the Commission and the Tribunal, catches the collusive tendering described above directly, and without the features that make section 73A difficult to utilise. It does not depend on the NPA, on the criminal burden of proof, or on the outstanding subsections of section 73A, and it is directed at the firms rather than at the individuals. On a finding of contravention, it carries an administrative penalty of up to 10% (ten per cent) of a firm’s annual turnover, which on contracts of this value would be substantial.

Prosecuting cartel conduct with the goal of administrative penalties is a financial route the Commission can pursue independently of both the NPA’s prosecutions and the Asset Forfeiture Unit’s proceedings under the Prevention of Organised Crime Act. An administrative penalty differs from recovering the specific proceeds of the fraud, since it is calculated on turnover rather than on the amount looted, and it is paid into the National Revenue Fund rather than restored to the hospital. It is not, therefore, asset recovery in the sense that forfeiture is, but it is a substantial financial consequence for the very firms that profited. It operates alongside rather than instead of the forfeiture the State is already pursuing.

On this front, Tembisa is close to an ideal case for the Commission. The NPA is already going forward with prosecutions arising from the same collusive bidding; the conduct has been investigated in exhaustive detail; and the sums involved are vast. It is therefore difficult to understand why the Commission, as the regulator charged with enforcing the very prohibition in question, has not itself moved to secure a finding and the administrative penalties that would follow. Delay is the obvious objection, since a referral to the Tribunal could take years; but that is a reason for the Commission to begin now having its prosecution running alongside the criminal one. The penalty does not turn on the criminal outcome, and the passage of time weakens neither the turnover figures on which it is based nor the public interest in imposing it. A parallel referral would not compete with the criminal prosecutions but complement them and would signal that rigged public tenders attract a competition-law response as well as a criminal one.

What Tembisa means going forward

Tembisa is a revealing test of the criminal cartel offence precisely because it was never invoked. It shows that section 73A is unlikely to become the vehicle for the headline procurement-corruption cases that draw national attention, for the reason that corruption is the core issue the NPA wish to prosecute rather than cartel cases, and the ordinary criminal law is better fitted in this regard.

However, the more pointed lesson of Tembisa concerns the Commission rather than the NPA. The same conduct that supports the criminal charges is also a civil contravention of section 4(1)(b) that the Commission can pursue in its own right. That route asks none of the questions that make section 73A so hard to use. The weight of the administrative penalty alone is justification for the Commission pursuing prosecution in its own right. Over and above the administrative penalties, the message it would send to firms participating in public procurement would be that uncompetitive conduct will not go unpunished by the competition authorities.

Where a genuine horizontal cartel sits behind a public tender, section 73A remains available, and a future consent order or Tribunal finding could still open the door to the prosecution of the directors and managers responsible. The real test of the criminal offence will arise when the Commission secures a clear finding under section 4(1)(b) and the NPA elects to prosecute an individual on the strength of it. Until then, the deterrent value of the offence will remain largely theoretical, depending as it does on the interface between the Commission and the NPA being made to work, on the dormant provisions being brought into operation, and, above all, on a prosecution finally being brought.

The more immediate lesson, however, concerns not the dormant criminal offence but the civil route beside it. The administrative penalty route requires only a civil referral against the firms; it can be pursued by the Commission alone, and it is available now. That is why Tembisa speaks less to an untested criminal provision than about the unused civil one.

Cartel, Courts, and Currency: Inside South Africa’s Longest-Running Bank Collusion Case

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By Matthew Freer, Astra Christodoulou and Natasha Reib

Background

After a decade-long battle over allegations made by the Competition Commission, alleging that up to 18 local and foreign banks had participated in a Single Overarching Conspiracy (“SOC”), the Constitutional Court of South Africa delivered its judgment on the multi-application dispute on 30 June 2026 in BNP Paribas v Competition Commission of South Africa; Credit Suisse Securities (USA) LLC v Competition Commission of South Africa; Competition Commission of South Africa v Bank of America Europe Designated Activity Company and Others [2026] ZACC 28.

The matter arises from the Competition Commission’s complaint that a number of South African and international banks contravened section 4(1)(b) of the Competition Act, which prohibits restrictive horizontal practices. The section provides that such an agreement or concerted practice is prohibited if:

“(b) it involves any of the following restrictive horizontal practices:

(i) directly or indirectly fixing a purchase or selling price or any other trading conditions;

(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering.”

The Commission alleged that up to 18 local South African banks and foreign banks, which were identified in the February 2017 referral, colluded to manipulate the United States Dollar/South African Rand (USD/ZAR) exchange rate between 2007 and 2013.

Leniency and settlements

Leniency was granted to three respondents, Absa Bank Limited and the two Barclays entities, on the basis of cooperation with the Commission in prosecuting the complaint. A fourth respondent, Citibank NA, reached a settlement with the Commission. This left 14 of the original 18 remaining respondents as active parties in the referral proceedings.

The Joinder Battles: Adding Banks After Referral

In January 2018, the Commission served an application to join another 5 respondents to the matter. An exception was filed arguing that the Commission could not add more respondents to the matter after the referral had been made. The Constitutional Court held that neither the Competition Act nor the Tribunal Rules impose an absolute prohibition on post-referral joinder. Furthermore, it was confirmed that there is no need for the Competition Commission to initiate an entirely new complaint every time a new respondent is identified post-referral.  A second joinder application followed in September 2020, adding a further five respondents, including Standard Americas Incorporated (“SAI”), which brought the total number of respondent banks to 28.

Pleading a Single Overarching Conspiracy

The respondents filed further exceptions to challenge the referral made in February 2017. They argued that the Commission had not pleaded its case properly; that the Tribunal lacked personal jurisdiction over foreign banks, and that the alleged collusion was not adequately explained. The Constitutional Court had to consider the exceptions raised but mainly focused on the issues regarding pleading, jurisdiction, and the addition of respondents post-referral rather than the allegations of collusion.

As to whether the Commission pleaded its case properly, the Constitutional Court clarified the legal principles governing an SOC and explained that the Commission must plead enough material facts, and not just vague allegations, to make out a prima facie case that each respondent intentionally participated in the collusion.  The order handed down in the earlier Competition Appeal Court judgment illustrates just how granular this pleading standard is. The Commission was required to “provide the facts that are relied on to prove that the particular respondent joined or had joined the SOC” (paragraph 19).

The Court clarified the standard applicable to exceptions of this kind. The question is whether, assuming all the facts pleaded by the Commission to be true, the Tribunal could reasonably conclude that the Commission has established a prima facie case for the relief it seeks. Respondents are generally confined to the Commission’s pleaded case when raising an exception, save where fairness justifies a limited departure.

Jurisdiction Over Foreign Banks: Section 3(1) and the Doctrine of Res Judicata

In terms of the exception regarding the Tribunal’s jurisdiction over foreign banks, section 3(1) of the Competition Act is relevant.  The section provides that “this Act applies to all economic activity within, or having an effect within, the Republic.” The Commission’s own position was that section 3(1) displaced the common law requirements of personal and subject matter jurisdiction entirely, so that any effect within South Africa sufficed to found the Tribunal’s jurisdiction, even over banks with no presence here. That argument was rejected by both the Tribunal and, on appeal, the Competition Appeal Court, which held that personal jurisdiction over foreign banks was still required, while developing the common law so that it could be established where there were “adequate connecting factors” between the Commission’s complaint and the Tribunal as a forum (paragraph 17), such as whether the alleged conspiracy connected pure foreign banks, local foreign banks, and South African banks in a single scheme targeting the rand.

The Commission argued before the Constitutional Court that this interpretation was wrong and should be revisited. But the Constitutional Court did not reconsider the interpretation of the section, as the Competition Appeal Court’s earlier judgment on the point had never been appealed. This attracted the doctrines of res judicata, since the matter had already been finally decided, and peremption, since the Commission’s conduct in pleading its later case on the basis of that judgment showed it had accepted it, both of which prevented the Commission from reopening the issue in these proceedings. As the Court put it, quoting its earlier judgment in Zuma v Secretary of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector Including Organs of State [2021] ZACC 28; 2021 (11) BCLR 1263 (CC):

“the principles of legal certainty and finality of judgments are the oxygen without which the rule of law languishes, suffocates and perishes” (paragraph 99).

The previous interpretation of the section accordingly remains binding for purposes of this matter.

The outcome

As to outcome, the Constitutional Court refused BNP Paribas leave to appeal, with costs, so the Competition Appeal Court’s decision against it stands. Credit Suisse Securities (USA) LLC succeeded, its appeal was upheld, and the Commission’s application to join it was dismissed, so it is no longer a respondent. The Commission’s own appeal succeeded only against JPM Bank and SAI, whose cases were reinstated before the Tribunal. The Commission’s appeal failed against all the other banks named above, and HBEU’s cross-appeal was also dismissed.

What this means going forward

Although this judgment did not determine whether the banks participated in the alleged SOC, it is likely to set a new precedent in competition law procedure in South Africa. This is because it establishes guidance on how future multi-application disputes regarding a SOC should be investigated, pleaded, and litigated. The case discusses how exceptions should be decided, the legal requirements for a SOC pleading, the jurisdiction over foreign firms involved in anti-competitive conduct affecting South Africa, and the addition of respondents post-referral.

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.

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Thank you for your response. ✨

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

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

Posted on by Editor

-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.