The New South African Competition Amendment Bill – What this Means for Business

By Michael-James Currie

Background

On 1 December 2017, the Minister of Economic Development (under whose auspices the South African competition authorities fall), Ebrahim Patel, published draft amendments to the South African Competition Act [PDF], 89 of 1998 (Act) for public comment.

The proposed amendments (Amendments) to the Act, which principally aim to address concentration in the market, go well beyond pure competition issues and bestow a significant public-interest mandate on the competition authorities.

In this regard, Minister Patel has remarked that the old, i.e., current, Act “was focused mainly on the conduct of market participants rather than the structure of markets, and while this was part of industrial policy, there was room for competition legislation as well”.

south_africaPatel’s influence in advancing his industrial-policy objectives through the utilisation of the public-interest provisions in merger control are well documented. AAT contributors have written about the increasing trend by the competition authorities in merger control to impose public-interest conditions that go well beyond merger specificity – often justified on the basis of the Act’s preamble which, inter alia, seeks to promote a more inclusive economy.  The following extracts from the introduction to the Amendments indicate a similar, if not more expansive, role for public interest considerations in competition law enforcement:

“…the explicit reference to these structural and transformative objectives in the Act clearly  indicates that the legislature intended that competition policy should be broadly framed, embracing both traditional competition issues, as well as these explicit transformative public interest goals”.

The draft Bill focuses on creating and enhancing the substantive provisions of the Act aimed at addressing two key structural challenges in the South African economy: concentration and the racially-skewed spread of ownership of firms in the economy.

The role of public interest provisions in merger control have often been criticised, predominantly on the basis that once the agencies move away from competition issues and merger specificity and seek conditions that go beyond that which is strictly necessary to remedy any potential negative effects, one moves away from an objective standard by which to assess mergers. This leads to a negative impact on costs, timing and certainty – essential factors for potential investors considering entering or expanding into a market.

As John Oxenham, director of Pr1merio states, “from a policy perspective it is apparent that consumer-welfare tests have been frustrated by uncertainty”. In this regard, the South African authorities initially adopted a position in terms of which competition law played a primary role, with public-interest considerations taking second place.  Largely owing to Minister Patel’s intervention, the agencies have recently taken a more direct approach to public-interest considerations and have effectively elevated the role of public-interest considerations to the same level as pure competition matters – particularly in relation to merger control (although we have seen a similar influence of public-interest considerations in, inter alia, market inquiries and more recently in the publishing of industry Codes of Conduct, e.g., in the automotive aftermarkets industry).

Minister Patel speaks

Minister Patel speaks

The current amendments, however, risk elevating public-interest provisions above those of competition issues. The broad remedies and powers which the competition agencies may impose absent any evidence of anti-competitive behaviour are indicative of the competition agencies moving into an entirely new ‘world of enforcement’ in what could very likely be a significant ‘over-correction’ on the part of Minister Patel, at the cost of certainty and the likely deleterious impact on investment.

The proposed Amendments, which we unpack below, seem to elevate industrial policies above competition related objectives thereby introducing a significant amount of discretion on behalf of the agencies. Importantly, the Amendments are a clear departure from the general internationally accepted view that that ‘being big isn’t bad’, but competition law is rather about how you conduct yourself in the market place.

The Proposed Amendments

The Amendments identify five key objectives namely:

(i) The provisions of the Competition Act relating to prohibited practices and mergers must be strengthened.

(ii) Special attention must be given to the impact of anti-competitive conduct on small businesses and firms owned by historically disadvantaged persons.

(iii) The provisions relating to market inquiries must be strengthened so that their remedial actions effectively address market features and conduct that prevents, restricts or distorts competition in the relevant markets.

(iv) It is necessary to promote the alignment of competition-related processes and decisions with other public policies, programmes and interests.

(v) The administrative efficacy of the competition regulatory authorities and their processes must be enhanced.

At the outset, it may be worth noting that the Amendments now cater for the imposition of an administrative penalty for all contraventions of the Act (previously, only cartel conduct, resale price maintenance and certain abuse of dominance conduct attracted an administrative penalty for a first-time offence).

Secondly, the Amendments envisage that an administrative penalty may be imposed on any firm which forms part of a single economic entity (in an effort to preclude firms from setting up corporate structures to avoid liability).

We summarise below the key proposed Amendments to the Competition Act.

Abuse-of-Dominance Provisions

Excessive pricing

  • The evidentiary onus will now be on the respondent to counter the Competition Commission’s (Commission) prima facie case of excessive pricing against it.
  • The removal of the current requirement that an “excessive price” must be shown to be to the “detriment of consumers” in order to sustain a complaint.
  • An obligation on the Commission to publish guidelines to determine what constitutes an “excessive price”.

Predatory Pricing

  • The introduction of a standard which benchmarks against the respondents own “cost benchmarking” as opposed to the utilisation of more objective standards tests.
  • The benchmarking now includes reference to “average avoidable costs” or “long run average incremental costs” (previously the Act’s only tests were marginal costs and average variable costs).

General Exclusionary Conduct

  • The current general exclusionary conduct provision, Section 8(c), will be replaced by an open list of commonly accepted forms of exclusionary conduct as identified in Section 8(d).
  • The definition of exclusionary conduct will include not only “barriers to entry and expansion within a market, but also to participation in a market”.
  • The additional forms of abusive conduct will be added to Section 8(d):
    • prevent unreasonable conditions unrelated to the object of a contract being placed on the seller of goods or services”;
    • Section 8(1)(d)(vii) is inserted to include the practice of engaging in a margin squeeze as a possible abuse of dominance;
    • Section (1)(d)(viii) is introduced to protect suppliers to dominant firms from being required, through the abuse of dominance, to sell their goods or services at excessively low prices. This addresses the problem of monopsonies, namely when a customer enjoys significant buyer power over its suppliers”.

Price Discrimination

  • The Amendment will look to expand Section 9 of the Act to prohibit price discrimination by a dominant firm against its suppliers.
  • An onus of proof has been shifted on to the respondent to demonstrate that any price discrimination does not result in a substantial lessening of competition.

Merger-Control Provisions

  • Introduction of certain mandatory disclosures relating, in particular, to that of cross-shareholding or directorship between the merging parties and other third parties.
  • Introduction of provisions which essentially allow the competition authorities to treat a number of smaller transactions (which fell below the merger thresholds), which took place within three years, as a single merger on the date of the latest transaction.
  • Introduction of additional public-interest grounds which must be taken into account when assessing the effects of a merger. These relate to “ownership, control and the support of small businesses and firms owned or controlled by historically disadvantaged persons”.

Market Inquiries

  • Granting the Commission powers to make orders or impose remedies (including forced divestiture recommendations which must be approved by the Tribunal) following the conclusion of a market inquiry (previously the Commission was only empowered to make recommendations to Parliament).
  • The introduction of a new competition test for market inquiries, namely whether any feature or combination of features in a market that prevents, restricts or distorts competition in that market constitutes an “adverse effect” (a significant departure from the traditional “substantial lessening of competition” test).
  • Focussed market inquiries are envisaged to replace the “Complex Monopoly” provisions which were promulgated in 2009 but not yet brought into effect.

Additional Amendments

  • Empowering the Commission to grant leniency to any firm.
  • This is a departure from the current leniency policy, under which the Commission is only permitted to grant leniency to the ‘first through the door’.

What does this all mean going forward?

The above proposed amendments are not exhaustive. In addition to above, it is apparent that Minister Patel envisages utilising the competition agencies and Act as a “one-stop-shop” in order to address not only competition issues but facilitate increased transformation within the industry and to promote a number of additional socio-economic objectives (i.e., to bring industrial policies within the remit of the competition agencies).

In a move which would may undermine the independence and impartiality of the competition agencies, the Amendment also intends providing the responsible “Minister with more effective means of participating in competition-related inquiries, investigations and adjudicative processes”.

The amendments also strengthen the available interventions that will be undertaken to redress the specific challenges posed by concentration and untransformed ownership”.

Competition-law observers interviewed by AAT point out that the principle of separation of powers is a fundamental cornerstone of the South African constitutional democracy and is paramount in ensuring that there is an appropriate ‘checks and balances’ system in place. It is for this reason that the judiciary (which in this context includes the competition agencies) must remain independent, impartial and act without fear or favour (as mandated in terms of the Act).

The increased interventionist role which the executive is envisaged to play, by way of the Amendments, in the context of competition law enforcement raises particular concerns in this regard.  Furthermore, the increased role of public-interest considerations effectively confers on the competition agencies the responsibility of determining the relevant ambit, scope and enforcement of socio-economic objectives. These are broad, subjective and may be vastly different depending on whether one is assessing these non-competition objectives in the short or long term.

Any uncertainty regarding the relevant factors which the competition authorities ought to take into account or whose views the authorities will be prepared to afford the most weight too, risks trust being lost in the objectivity and impartiality of the enforcement agencies. This will have a direct negative impact on the Government’s objective in selling South Africa as an investor friendly environment.

In addition, as Primerio attorney and competition counsel Andreas Stargard notes, the “future role played by the SACC’s market inquiries” is arguably open to significant abuse, as “the Competition Commission has broad discretion to impose robust remedies, even absent any evidence of a substantial lessening of competition.”

  • Mr. Stargard notes that the draft Amendment Bill, in its own words in section 43D (clause 21) “places a duty on the Commission to remedy structural features identified as having an adverse effect on competition in a market, including the use of divestiture orders. It also requires the Commission to record its reasons for the identified remedy. … These amendments empower the Commission to tailor new remedies demanded by the findings of the market inquiry. These remedies can be creative and flexible, constrained only by the requirements that they address the adverse effect on competition established by the market inquiry, and are reasonable and practicable.”
Andreas Stargard

Andreas Stargard

Although the Amendments recognise that concentration in of itself is not in all circumstances to be construed as an a priori negative, the lack of a clear and objective set of criteria together with the lower threshold (i.e., “adverse effect”) which must be met before the competition authorities may impose far-reaching remedies, coupled with the interventionist role which the executive may play (particularly in relation to market inquiries), may have a number of deterrent effects on both competition and investment.

Mr. Stargard notes in this regard that the “approach taken by the new draft legislation may in fact stifle innovation, growth, and an appetite for commercial expansion, thereby counteracting the express goals listed in its preamble:  Firms that are currently sitting at a market share of around 30% for instance may not be incentivised to obtain any greater accretive share for fear of being construed as holding a dominant market position, once the 35% threshold is crossed“.

The objectives to facilitate a spread of ownership is not a novel objective of the post-Apartheid government and a number of pieces of legislation and policies have been introduced in order to facilitate the entry of small previously disadvantaged players into the market through agencies generally better equipped to deal with this. These policies, in general, have arguably not led to the government’s envisaged benefits. There may be a number of reasons for this, but the new Amendments do not seek to address the previous failures or identify why various other initiatives and pieces of legislation such as the Black Economic Empowerment (BEE) legislation has not worked (to the extent envisaged by Government). Furthermore, the Tribunal summed up this potential conflict neatly in the following extract in the Distillers case:

Thus the public interest asserted pulls us in opposing directions. Where there are other appropriate legislative instruments to redress the public interest, we must be cognisant of them in determining what is left for us to do before we can consider whether the residual public interest, that is that part of the public interest not susceptible to or better able to be dealt with under another law, is substantial.”

Perhaps directing the substantial amount of tax payers’ money away from a certain dominant state-owned Airline – which has been plagued with maladministration – and rather use those funds to invest in small businesses will be a better solution to grow the economy and spread ownership to previously disadvantaged groups than potentially prejudicing dominant firms which are in fact efficient.

Furthermore, ordering divestitures requires that there be a suitable third party who could effectively take up the divested business and impose a competitive constraint on the dominant entity. It seems inevitable that based on the proposed Amendments the competition authorities will be placed in the invidious position of considering a divestiture to an entity which may not yet have proven any successful track record. The Amendments do not provide guidance for this and although the competition authorities have the necessary skills and resources to assess whether conduct has an anti-competitive effect on the market, it is less clear whether the authorities have the necessary skills to properly identify a suitable third party acquirer of a divested business.

In addition and importantly, promoting competition within the market achieves public interest objectives. Likewise, anything which undermines competition in the market will have a negative impact on the public interest considerations.

John Oxenham

John Oxenham

As John Oxenham and Patrick Smith have argued elsewhere, “competition drives a more efficient allocation of resources, resulting in lower prices and better quality products for customers. Lower prices typically result in an expansion of output. Output expansion, combined with the effect of lower prices in respect of one good or service frees up resources to be spent in other areas of the economy. The result is likely to be higher output and, most importantly for emerging economies, employment”.

While it is true that ordinarily, a decrease in concentration and market power should result in an increase in employment we have not seen a comprehensive assessment of the negative costs associated with pursuing public interest objectives. Any weakening of a pure competition test must imply some costs in terms of lost efficiency, or less competitive outcome, which is justified based on a party’s perspective of a particular public interest factor. That loss in efficiency and less competitive outcome is very likely to have negative consequences for consumers, growth, and employment. Accordingly, the pursuit of “public-interest factors” might have some component of a loss to the public interest itself. We have not seen that loss in efficiency (and resultant harm to the public interest, as comprehensively understood) meaningfully acknowledged in the proposed Amendments.

A further risk to the broad and open ended role which public interest considerations are likely to play in competition law matters should the Amendments be passed is a significant risk of interventionism by third parties (in particular, competitors, Trade Unions and Government) who may look to utilise the Act to simply to harass competitors rather than pursue legitimate pro-competition objectives. The competition authorities will need to be extra mindful of the delays, costs and uncertainty which opportunistic intervention may lead to.

Although there are certain aspects of the Amendments which are welcomed, such as limiting the timeline of market inquiries, from a policy perspective the Amendments appear to go far beyond consumer protection issues in an effort to address certain socio-economic disparities in the South African economy, and may, in fact very likely hinder the development of the economy.

Based on the objectives which underpin the Amendments, it appears as if the Department of Economic Development is focused on dividing the existing ‘economic pie’ rather than on growing it for the benefit of all South Africans.

From a competition law enforcement perspective, however, firms conducting business in South Africa are likely to see a significant shake-up should the Amendments be brought into effect as a number of markets have been identified as highly concentrated (including, Communication Energy, Financial Services, Food and agro-processing, Infrastructure and construction, Intermediate industrial products, Mining, Pharmaceuticals and Transport).

[To contact any of the contributors to this article, or should you require any further information regarding the Amendment Bill, you are welcome to contact the AAT editors at editor@africanantitrust.com]

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

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

In this regard, the President stated that:

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

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

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

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

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

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

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

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

New Zambian Settlement Guidelines: A Risky Reprieve

By AAT Senior Contributor, Michael-James Currie & Mweshi Mutuna, Pr1merio competition advocate (Zambia)

The Zambian Competition and Consumer Protection Commission (‘CCPC’) has recently published draft settlement guidelines (‘Draft Guidelines’) for respondents who have allegedly engaged in conduct in contravention of the domestic Competition and Consumer Protection Act (‘Act’).

zambiaThe Draft Guidelines have been published in addition to the ‘Leniency Programme’ as well as the ‘Fines Guidelines’ published earlier this year (as well as the 2015 Merger Guidelines), and essentially sets out a framework within which respondent parties may engage the CCPC for purposes of reaching a settlement agreement for alleged contraventions of the Act.

Notably, the Draft Guidelines will be binding on the CCPC which is an important aspect of ensuring a transparent and objective approach to settlement negotiations. Furthermore, the Draft Guidelines emphasise that respondents should be fully informed of the case against them prior to settling. In this regard, the Draft Guidelines provide for an initial stage of the settlement negotiations (essentially an expression of interest) which follows from a formal request by a firm expressing an interest to settle.

Should the CCPC decide to proceed with settlement negotiations, the CCPC must, within 21 days, provide the respondent party with information as to the nature of the case against the respondent. This includes disclosing the alleged facts and the classification of those facts, the gravity and duration of the alleged conduct, the attribution of liability (which we discuss further below) and the evidence relied on by the CCPC to support the complaint.

currie2

The authors, Mr. Currie & Ms. Mutuna

The purpose of disclosing these facts to a respondent is to afford a respondent the opportunity to meaningfully consider and evaluate the case against it in order to make an informed decision whether to settle or not.

Assuming that an expression of interest in settling the matter is established by both parties, the CCPC will then proceed by requesting that the respondent provide a formal “settlement submission” within 15 days of the CCPC’s request. Included in the settlement submission, must be a clear and unequivocal acknowledgement of liability (which includes a summary of the pertinent facts, duration and the respondent’s participation in the anticompetitive conduct) and the maximum settlement quantum which the respondent is prepared to pay by way of an administrative penalty.

Should the CCPC accept the settlement submission, the CCPC will then commence with drafting and ultimately publishing a statement of objections (‘SO’) which essentially captures the material terms of the settlement submission. This is largely a necessary procedural step although the respondent party may object to the SO should it not correctly record the terms of the settlement agreement.

Following the publication of the SO, the CCPC will, subject to any challenges to the SO, proceed formally to make the settlement agreement a final decision as required by the Act.

Risky Business?

The above framework appears to be relatively straightforward and balanced, assuming that the parties in fact do reach a settlement agreement. The position is somewhat different in the event that settlement negotiations breakdown, particularly if the negotiations are already at a relatively advanced stage.

Most notably, settlement negotiations in terms of the Draft Guidelines are not conduced on a “without prejudice” basis. To the contrary, the Draft Guidelines states that the CCPC has the right to adopt a SO which does not reflect the parties’ settlement submission. In this event, the normal procedures for investigating and prosecuting a complaint as set out in the Act will apply.

In the event that the CCPC elects not to accept a settlement submission submitted by a respondent, the Draft Guidelines specifically state that “the acknowledgements provided by the parties in the settlement submission shall not be withdrawn and the Commission reserves the right to use the information submitted for its investigation”.

This paragraph is controversial as it places a substantial risk on a party making a settlement submission with no guarantee that the settlement proffer will be accepted by the CCPC, while at the same time, the respondent party exposes itself by making admissions which may be used against it in the course of a normal complaint investigation and determination by the CCPC.

Whether or not the financial incentive to respondents would entice a respondent to, nonetheless, engage in settlement discussions in terms of the Draft Guidelines is sufficient, only time will tell. In this regard, however, the Draft Guidelines state that a firm who settles with the CCPC prior to the matter being referred to the Board will be limited to a maximum penalty of up to 4% of the firm’s annual turnover. Should the firm settle after the matter has been referred to the Board, the maximum penalty will be capped at 7% of the firm’s annual turnover.

Multi-Party Settlements: the More the Better?

A further interesting and rather novel aspect to the Draft Guidelines is the provision made for tripartite settlement negotiations. In this regard, the Draft Guidelines cater for a rather unusual mechanism by which multiple respondents in relation to the same investigation may approach the CCPC for purposes of reaching a settlement agreement.

Although referred to as “tripartite” negotiations, the Draft Guidelines state that when the CCPC initiates proceedings against two or more respondents, the CCPC will inform a respondent of the other respondents to the complaint. Should the respondent parties collectively wish to enter into settlement negotiations, the respondents should jointly appoint a duly authorised representative to act on their behalf. In the event that the respondent parties do settle with the CCPC, the fact that the respondents were represented by a jointly appointed representative will not prejudice them insofar as the CCPC making any finding as to the attribution of liability between the respondents is concerned.

While joint representation may be suitable in the case of merger-related offences (which may have been what was envisaged by the drafters hence the reference to “tripartite” negotiations), we believe that it is hard to imagine that the drafters anticipated that, should respondents to a cartel be invited to settle the complaint against them, the cartelists would then be required to embark on further collaborative efforts: this time to engage collectively in formulating a settlement strategy and decide how they are ultimately going to ‘split the bill’ should a settlement agreement be reached.

The issue of a multi-party settlement submission is further complicated in the event that a settlement proffer is not accepted by the CCPC following a multiparty settlement submission. As mentioned above, the settlement submission must contain an admission of liability which, in the case of cartel conduct, would invariably amount to the parties to the settlement proposal admitting to engaging in cartel conduct by fixing prices or allocating markets, by way of example, between each other.

Although, the Draft Guidelines is a welcome endeavour to provide respondents with a transparent and objective framework to utilise when engaging with the CCPC for purposes of reaching a settlement, the uncertainty and risk which flows from a rejection of the settlement proffer may prove to be an impediment in achieving the very objectives of the Draft Guidelines.

In this regard, we understand that the CCPC is currently considering revised guidelines which hopefully address the concerns raised above.

 

Don’t wait for leniency… Lipimile signals delays

COMESA Chief Warns of Delayed Implementation of Leniency Policy

George Lipimile, CEO, COMESA Competition Commission

George Lipimile, Director, COMESA Competition Commission

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

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

Namibia: NaCC issues Guidelines on Restrictive Practices

By Michael-James Currie

In April 2016, the Namibian Competition Commission (NaCC) finalised its guidelines on restrictive practices (Guidelines) in terms of chapter three of the Namibian Competition Act. The Guidelines focus in particular on the investigatory powers and procedures to be utilised by the NaCC during its investigations into restrictive practices.

The Namibian Competition Act contains most of the traditional antitrust prohibitions in relation to restrictive conduct. These include ‘agreements’ or ‘concerted practices’ between firms in a horizontal or vertical relationship which have the “object” or “effect” of substantially lessening competition in the market.

The Competition Act does not, from a plain reading of the language, impose a per se prohibition for ‘hardcore’ cartel conduct. The Guidelines, however, confirm that certain practices such as ‘hardcore cartel conduct’ and ‘minimum resale price maintenance’ will be considered per se to be anticompetitive. It is unclear, however, whether this per se contravention should rather serve as a presumption that the conduct is anti-competitive which may affect the onus of proof, rather, as in the South African context where the Act makes it clear that the effect of hardcore cartel conduct is irrelevant.

Furthermore, there is no express provision which deals with ‘rule of reason’ defences, however, the Guidelines confirm that efficiency or pro-competitive features of the alleged anti-competitive conduct, may outweigh any anti-competitive effect. It should be noted, however, that even if there was no anti-competitive effect, if the objective of the conduct was to engage in an anti-competitive agreement or concerted practice, a respondent may still be liable. Accordingly, conduct must not only be shown not to have an anti-competitive effect, but must also be properly ‘characterised’ as not being anti-competitive, in order to avoid liability.

The Namibian Competition Act also prohibits abuse of dominance conduct. The Act does not contain thresholds or criteria for deterring when a firm would be considered ‘dominant’, however, in term of the Competition Commission’s Rules, a firm:

  • will be considered dominant if it has above a 45% market share;
  • will be presumed dominant if it has between 35-45% market share (unless it can show it does not have market power); or
  • has a market share of less than 35%, but has market power.

Although the abuse of dominant provision is intended to prohibit a broad range of potential anti-competitive conduct, the Act in particular, notes the following conduct which, if a firm is dominant, is restricted:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress;
  • applying dissimilar conditions to equivalent transactions with other trading parties; and
  • making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.”

Importantly, the Namibian Competition Act does not state that the conduct identified above must lead to a substantial-lessening of competition in the market. Furthermore, in terms of the Guidelines, the NaCC not only considers the conduct of and individual firm, but also considers the conduct of a “number of connected undertakings acting collectively” for purposes of considering whether there has been an “abuse of dominance”.

It should be noted that the Namibian Competition Act does cater for exemptions from the application of Chapter 3 (i.e. restrictive practices) and sets out in some detail the requirements and terms upon which an exemption may be granted.

As noted above, however, the most elements contained in the Guidelines relate to the NaCC’s investigatory powers.

In terms of the Namibian Competition Act, the NaCC may initiate a complaint or may elect to investigate a third party complaint.

The NaCC‘s investigatory powers include the power to conduct search and seizure operations. Importantly, the NaCC may take into possession any evidence which, in its opinion, will assist in the investigation. This is so even if such evidence would not be admissible as evidence in a court of law. For purposes of obtaining witness statements, however, a witness has the same rights and privileges as a witness before a court of law.

The Guidelines also confirm that the NaCC is not entitled to peruse or seize “legally privileged” documents unless privilege is waived. Interestingly, the Guidelines do not appear to protect communication between in-house legal and the firm and refers to legally privileged communication as that between “lawyer and client” only.

Search and seizure operations must be conducted in terms of a valid search warrant.

The Guidelines also contains further guidance on various topics and caters for a number of procedural aspects which must be adhered to (as well as the prescribed forms which should be utilised in certain circumstances) in relation to, inter alia the following:

  • initiating complaint;
  • applying for an exemption;
  • requesting an advisory opinion;
  • handling and the use of ‘confidential information’;

The Guidelines is no doubt a stern indication that the NaCC is preparing to heighten its intensity in terms of investigating and prosecuting restrictive practices. Since inception, the NaCC has dealt with over 450 merger cases, but has only handled approximately 40 restrictive practice complaints.

Furthermore, and in line with the NaCC’s newly adopted 5 year ‘Strategic Plan (2015-2020), the NaCC is growing in confidence and competence and firms should be aware that the NaCC will look to utilise the dawn raids provisions when necessary.

Namibian Competition Act to be Amended

By Michael-James Currie

The Namibian Competition Commission (“NaCC”) has recently confirmed that the NaCC has submitted proposals to the Ministry of Industrialisation, Trade and SME Development (“Ministry”) relating to possible amendments to the Namibian Competition Act.

namibiaAAT does not yet know exactly what the nature and scope of the proposed amendments are, although the NaCC has indicated that the current Act, which was promulgated in 2003, is out of date and does not sufficiently cater for Namibia’s context (relating both to Namibia’s economic and socio-economic environment).

Furthermore, the NaCC has indicated that the amendments are aimed at increasing the NaCC’s enforcement capabilities and address ‘loopholes’ in the current Act.

In this regard, Minister Calle Schlettwein under whose portfolio the NaCC falls, stated that: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.  To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.

As Andreas Stargard notes, ‘[i]t would not be surprising if the proposed amendments related to “complex monopolies” and the introduction of criminal sanctions for cartel conduct,’ as this would be in line with the amendments made to the South African Competition Act (although not yet in force).  “Moreover, the Namibian commission will also likely cater for so-called ‘public interest’ elements in its enforcement strategy, as we have seen in several African jurisdictions.”  Stargard’s law partner at Pr1merio, John Oxenham, likewise emphasises “the strong ties between the two respective competition authorities” in southern Africa:

“The NaCC has often taken the lead from the South African competition authorities in respect of the interpretation and enforcement of competition law matters. The Namibian Competition Act is also largely moulded around the South African Competition Act.”

The strong links between the two respective authorities culminated in the signing of a Memorandum of Understanding under the heading, “In the field of competition law, enforcement and policy”MOU-COMPETITION-COMMISSION-SOUTH-AFRICA-and-NAMIBIAN-COMPETITION-COMMISSION

The spokesperson for the NaCC has said that “the aim of the review is to strengthen the enforcement capabilities and machinery of the commission and to close loopholes that exist within the current law.  Our Competition Act is similar, in many ways, to that of South Africa and the amendment thereof will only raise our standards to international best practices but within the context of Namibia.”

Schlettwein is on record as saying: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.

“To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

In sum, given that the proposed introduction of a “complex monopolies” offence and criminal sanctions in South Africa has led a number of practioners in that country questioning the constitutionality or the practicality of the these amendments, it will be interesting to see whether the NaCC takes these concerns into consideration assuming we at AAT are indeed correct that these are the amendments which the NaCC is also proposing to introduce.

Competition & the Public Interest

The public-interest saga continues: South African antitrust & inclusiveness

More on the revised Guidelines for the public-interest assessment in southern African’s largest economy… By AAT guest author Anne Brigot-Laperrousaz.

In December 2015, the South African Competition Commission (the “Commission”) issued revised guidelines for the assessment of public interest provisions in mergers (the “Guidelines”). This document is a further step in a long process aiming at ensuring better efficiency in the Commission’s evaluation of mergers. One of the main rationale is that informed parties will be able to anticipate the documentation and data to be transmitted to the Commission in view of obtaining its approval. Transparency, predictability and clarity, all of them fundamental aspects of legal certainty, shall result in reduction of delays and enhancement of legitimacy of the Commission’s decisions.

In January 2015, the Commission issued a first draft of those Guidelines, open to comment by stakeholders. Several bodies answered positively to this initiative, including law firms (Bowman Gilfilan, Baker & McKenzie, …), companies (Vodacom, Tabacks), international associations (International Bar Association) and policy research centers (UK Center for Competition Policy). The December 2015 Guidelines are the result of this broad enquiry, and the final version open to comments until the 29th January 2016.

Public-interest considerations abroad

Firstly, the international perspective on public interest considerations in the assessment of mergers might offer an interesting insight to the question.

In Europe, at Community level, the EU Merger Regulation (the “EUMR”) prevents the European Commission to assess non-competition considerations in its analysis of the proposed transaction. Indeed, Article 2 EUMR sets out a test based exclusively on the potential “significant impediment to effective competition”, and the available remedies when the merger might result in such an impediment.

Yet Article 21(4) EUMR allows interventions of Member States to protect three determined types of public interests, namely, public security, plurality of the media and prudential rules. Exceptionally, the European Commission may allow a national measure aimed at protecting a different legitimate interest, although this procedure is rarely used. In any case, the measures taken shall be compatible with the general principles and provisions of European Union law.

A major difference between EU and US competition laws is that the former was meant to serve as a tool to achieve a State union, whereas the latter intervened in an already federated region. This feature arguably plays a significant role in the importance attached to further political aims in the elaboration of the competition framework, although this feature did appear at the first stages of the US.

Two US institutions are today in charge of reviewing the competitive effects of mergers: the Antitrust Division of the US Department of Justice, and the Federal Trade Commission. Those two institutions act as competition regulators, focusing exclusively on the competition aspects of targeted operations. Other public policy interests, related to specific sectors, might be analysed and taken into account under the responsibility of other US agencies, such as the Federal Communication Commission or the Federal Reserve and the Federal Deposit Insurance Corporation. Such agencies therefore act as sector or industry regulators.

To the extent that the South African Competition Act (1998) (the “Act”) gives a particularly important role to public interest criteria in merger controls, the need for transparency and clarity in the Commission’s assessment mergers is all the more crucial.

south_africaZA: The integration of stakeholders’ comments by the Competition Commission

As for the general observations on the January 2015 guidelines, some constants remain in most of the stakeholders’ commentaries.

This is so in particular as regards evidential requirements, that is, the type and nature of information that would generally be required from the merging parties. Although the Guidelines do provide a relatively detailed and insightful perspective on the Commission’s methodology in assessing mergers, it does not appear that they answer this recurrent request, even in the form of non-exhaustive references to specific documents.

Tembinkosi Bonakele, the South African Competition Commissioner, had the following to say on the topic, when interviewed for AAT’s Meet the Enforcers:

It is important that BRICS countries weigh-in on this important debate. There is a divergence of views amongst many antitrust practitioners on the compatibility of antitrust issues with public interest issues, but everyone accepts that there are public interest issues. The conference will deepen and broaden perspectives on the matter. …

 

Tembinkosi-Bonakele-Profile-PicThe South African competition authorities were established as a package of reforms to transform the unequal South African economy to make it economy inclusive and ensuring that those who participate in it are competitive.

Through engagements such as the BRICS conference we’re able to discuss with our BRICS counterparts how to make our economies, which are similar, more efficient, competitive and inclusive.

A second concern regards the issue of “balancing” competition and other public policy interests. The different nature of those matters, implying various qualitative and quantitative methods of assessment, arguably makes this task “inherently arbitrary”. This is even more so in presence of the broad and general principles addressed by the Act, and that the Guidelines arguably ought to determine and circumscribe. In their revised version, although some further precisions on the process and the determining factors of the Commission’s assessment have been added, some grey areas remain. For instance, some commentators have highlighted the fact that as regards the effect of the merger on a particular industrial sector or region, the Commission “may consider any public interest argument in justification of the substantial negative effect arising as a result of the merger on an industrial sector or region” (Guidelines, §7.2.4.2). It is our view that this wording is all too broad and undetermined to provide useful guidance to practitioners, and ensure a transparent and consistent analysis by the Commission. Not to mention that, as noted by the International Bar Association, the Act limits the Commission’s jurisdiction in evaluating public interest matters in merger reviews. This reference to “any public interest” arguably overlooks the Commission’s limited jurisdiction. Unfortunately, this comment does not seem to have been taken into account in the drafting of the revised version.

The same analysis can be made of the use of such concepts as causality, for example, which is not clearly defined. Furthermore, the Guidelines often provide for the possibility to prove that the effect “results or arises from” the merger, together with the requirement of a causal link, undermining the precise and strict legal requirements that are entailed by the notion of causality (see §7.2.2.1). In other instances, the Commission will merely “consider whether the employment effects are in any way linked to the intentions […] of the acquiring group”, which broadens unreasonably the scope of analysis.

Overall, when considering the clarifications that were called for in various submissions from stakeholders, it appears that in most cases, where the comments have been echoed in the revised Guidelines, the drafting committee has hidden the difficulties rather than going further in its analysis.

For instance, several commentators have expressed their surprise at the principle stated in the January 2015 version of the Guidelines, in the section dedicated to the general approach to assessing public interest provisions, that when the Commission found that the public interest effects were neutral, it would balance the negative and positive effects (§6.6). Indeed, the concept lacked clarity, and does not appear in the revised Guidelines.

Yet, some more substantial comments, in that they pointed to more potentially noxious loopholes, have apparently been disregarded. This is the case of the consequences of the finding of negative competition and public policy effects, a situation where the Commission does not seem to consider the possibility to justify and find remedies. It appears that the result would be a forthright prohibition of the transaction, even if other ways could have existed.

More generally, the perspective on the matters at stake seems to be rather hostile. For instance, in cases where negative public interest effects have been identified, the Commission “may consider imposing remedies or prohibiting the merger depending on the substantiality of the public interest effects”. It may be considered that a more relevant criterion might have been the existence and efficiency of potential remedies, rather than the substantiality of the negative effects at stake. Indeed, although the substantial character of the adverse effects might be a suitable criterion to set the standard of analysis, it does not easily justify to disregard possible remedies, which seems to be the result of the present wording.

Similarly, the Guidelines seem to set the existence of a positive competition finding as a threshold to its analysis. It has been advocated that a more suitable logic would be that the starting point is the absence of any prevention or lessening of competition, which would be more in line with both the Act and the role it affords to public policy concerns, and international best practice.

Conclusion

As noted by the International Competition Network, “the legal framework for competition law merger review should focus exclusively on identifying and preventing or remedying anticompetitive mergers. A merger review law should not be used to pursue other goals”.

Since the introduction of public policy issues in merger control is broadly considered to require cautiousness and measure, it is questionable if the revised Guidelines abide by this general principle of predictability and transparency as regards those matters. Although clear efforts have been made, the public policies at stake do not appear to have been sufficiently identified and articulated with what should remain the fundamental purpose of merger control, that is, the competitive effects of the transaction at stake.

That is particularly so in view of the nature of the Commission, which has no particular expertise in the public policy matters that it his charged to assess. As it is the case in other jurisdictions, such as the UK, it may be useful to create the possibility for the Commission to obtain input from other specialised government agencies or department, although through a transparent and public process which would prevent any diversion of the Act and the Commission’s purposes.

Kenya competition landscape active

kenya

Zuku pay-TV launched complaint against DStv in Kenya

As we reported in “Your Choice“, MultiChoice has been an active (if unwilling) player in African antitrust news.  Zuku pay-TV has recently requested the Competition Authority of Kenya (CAK) to impose a financial penalty on DStv for refusing to re-sell some of its exclusive content like the English Premier League to its rivals.

In its letter to the CAK, Zuku pay-TV accuses MultiChoice, the owners of DStv, of abusing its dominance and curbing the growth of other, competing pay-TV operators. Furthermore, Zuku pay-TV requested the CAK to compel DStv to re-sell some of its exclusive content and impose a financial penalty, which can be up to 10 per cent of a firm’s annual sales, on the South Africa firm. According to Zuku pay-TV, DStv has a market share of 95% in Kenya.

The CAK has not indicated whether it is investigating the complaint yet.

Mr Wang’ombe Kariuki, director of the CAK
Kenya to get leniency policy

In addition to the ongoing pay-TV antitrust dispute, the CAK has drafted a law (the Finance Bill of 2014) which will create a Kenyan cartel leniency programme in order for whistleblower companies and their directors to get off with lighter punishment, for volunteering information that helps to break up cartels, as AAT reported here.

To recap the leniency programme will either grant full immunity for applicants or reduce the applicant’s fines, depending on the circumstances. The Finance Act 2014 is awaiting its third reading in Parliament.

The introduction of a leniency programme in Kenya is a pleasing sight due to leniency programmes’ proving to be an integral and vital tool for uncovering cartels in every jurisdiction in which it has been deployed.