The Guideline establishes a two-step methodology when determining a fine to be imposed on undertakings. The first step will see the Commission set a “base amount” for each undertaking or association of undertakings. The second step provides the Commission with the necessary discretion to adjust the base amount, either upwards or downwards, having consideration of any aggravating, mitigating or any other factors (Section 5(1)(a)-(b)).
The “base amount” will be set with reference to the undertaking’s turnover in the Common Market from the previous financial year and by applying the following methodology:
The base amount will be a proportion of the turnover and will depend on the nature, degree and gravity of the infringement and multiplied by the number of years of the infringement (Section 5(8)).
The Guideline deems the following as aggravating factors:
Nature and gravity of the infringement (Section 5(10)(a));
Duration of infringement(Section 5(10)(b));
Extend of consumers affected in the Member States and any action taken by the company to mitigate or remedy the damage suffered by consumers (Section 5(10)(c)).
The Guidelines propose the following base proportion of turnover to be applied:
Cartel conduct: a base of 5% of turnover;
Other horizontal conduct: a base of 4% of turnover;
Abuse of dominance: a base of 3% of turnover;
Restraints: a base of 2% of turnover;
Consumer protection violations: a base of 1% of turnover;
Mergers implemented in contravention of the Regulations: a base of 2% of turnover;
Failure to cooperate with the Commission: a base of 0.5% of turnover; and
Other infringements: a base of 0.5% of turnover.
The following aggravating circumstances may result in the increase of the base amount:
Continuation or repeat of the same or a similar infringement: basic amount will be increased by 3% of the amount of the fine for each infringement;
Refusal to cooperate with or obstruction of the Commission’s investigation: basic amount will be increased by 5% of the amount of the fine;
Where an undertaking is a leader in, or instigator of the infringement: basic amount will be increased by 4% of the amount of the fine.
The Commission may reduce the basic amount if the following mitigating factors exist:
Cooperation: decrease in the basic amount by 5% of the fine;
First offender: decrease in the basic amount by 3% of the fine;
Justifications on efficiency and consumer benefit: decrease in the basic amount by 0.5% of the fine;
Termination of the infringement: decrease in the basic amount by 0.5% of the fine;
Negligence: decrease in the basic amount by 0.1% of the fine; and
Extent of involvement in the infringement: decrease in the basic amount by 0.5% of the fine.
A reduction of a fine could be granted, upon request, solely on the basis of objective evidence that the imposition of the fine would irretrievably jeopardize the economic viability of the undertaking concerned and cause its assets to lose all their value (Section 5(21)).
In this article, we briefly discuss the Hearing Procedure draft which has been published (in addition to the Administrative Penalties Procedure and Settlement Guidelines). The draft Guidelines have been published for public stakeholder comments due by 12 November 2021. Fundamentally, the COMESA Competition Commission (“CCC”) emphasizes that, during its investigative proceedings, the principles of natural justice must be adhered to, in the sense that the parties have the right to be heard.
Hearings will be conducted during either of the following stages:
The hearings during the investigations process;
Hearing by the Director before publication of notice of compulsory recall of defective goods; and
Hearing before the Committee for the Initial Determination (“Committee”) of cases.
The CCC notes that in regard to hearings for the initial determination of cases, hearings are not intended to be the major source of information because the primary method of information gathering will be gleaned from responses received from the “Notice of Investigation” that will first be sent in terms of Article 21(6)(a) and 22(1) of the Regulations.
When will the CCC hold hearings?
May hold hearings during investigations (at any time);
Shall hold a hearing:
Before making recommendations;
Before taking decisions; and
(In its consumer-protection role only:) Before the CCC publishes a notice of a compulsory product recall.
Hearing procedure once it has been determined that a hearing will be held
The CCC shall give fifteen working days notice to all of the parties involved;
A notice will be published to invite interested parties;
Notice of the main issue must be given within ten working days and will provide the main issues identified and the main questions that will be raised (any other questions may still be raised at the hearing as long as “they are reasonably related to the matter under investigation.”
During the Hearing
The Committee will test the evidence before it and interrogate the CCC’s team that conducted the investigation.
The party under investigation will also be provided the opportunity to:
Clarify and develop the evidence that it provided during the investigation;
Comment on and rebut evidence and information supplied by other parties; and
Make further representations, which may, in relevant cases, address the question of whether a practice has public benefits that may offset any adverse effects on competition.
After a Committee has been convened to hear the matter:
Any party required to attend the hearing must be given twenty-one days’ notice of the hearing date.
Upon application by a party, a pre-hearing can be requested to confirm that all of the parties can attend the hearing and have received all documentation relied on by the other party.
After the conclusion of the hearing, a decision will be made by the Committee within forty-five days. If the Committee finds that the respondent has breached the Rules or Regulations, in “appropriate instances” a remedy can be discussed.
Any party has a right of appeal and will do so in accordance with Rule 24(d), (e) and (f) of the COMESA Rules, 2004.
The Agency is seeking stakeholder comments with a deadline of Nov. 12th, 2021. The (draft) Settlement Guidelines are modeled expressly after European and Zambian precedent (as opposed to U.S.-American law, which is not mentioned as a source), and include key provisions that lay out the procedure envisioned by COMESA.
In this article, we discuss the Settlement Guidelines draft, which has been published (in addition to Hearing Procedure and Fines Guidelines). Key elements for a respondent party entering into the Settlement procedure outlined in the draft include:
Settlement (negotiations) may occur “before or after having sight of the Commission’s case.” (Section 3.7);
that any settlement, other than in Article 20 proceedings, must include an admission of liability (Section 4);
settlements are to achieve “procedural efficiency” and the “possibility of setting a precedent.” (Ibid.);
a rather onerous 4-factor list of requirements demanded of parties opting for a settlement procedure, including (a) liability acknowledgement, (b) commitment to pay CCC’s fines or other remedies imposed pursuant to the Regulations (with an understanding that the party has been made aware of the maximum fine amount previously), (c) acknowledgement of procedural transparency, and (d) agreement not to seek additional access to the file or request further hearings on the matter. (Section 6);
both the CCC as well as the affected party may withdraw from the procedure, with notice (Ibid., points 3-6);
submissions made during the settlement procedure are not publicly available (nor to complainants), instead they are only made available for viewing (not copying) to other addressees of the investigation who are not settling (Ibid., point 7);
COMESA member state competition authorities (NCAs) will be sent copies of the settlement submissions, under the same safeguard rules (Ibid., point 8);
Section 8 covers CCC investigations pursuant to all Articles other than Art. 20, i.e., Arts. 18, 21, and 22 investigations brought by the Commission. It lays out a time frame and procedure akin to what AAT perceives as a “quasi-leniency regime”, as it requires similarly onerous commitments: admission of liability, full disclosure of evidence related to the conduct at issue and its “implementation”, as well as a commitment to cease and desist from engaging in the conduct. The respondent party is subject to strict gag orders of non-disclosure of materials obtained during the investigation and settlement procedure, and it may propose “undertakings” to the CCC, which the Commission is not obligated to accept (point 7).
The draft Settlement Guidelines highlight “efficiency, absence of subsequent litigation, and savings on resources” as three incentives for settlement (Section 12), although it is unclear to us how the CCC envisions to achieve legal certainty as to the second factor, namely protecting the settling respondent(s) from future follow-on litigation in other jurisdictions outside COMESA. Clarity in this regard will be required, as this promise appears to be unenforceable as an extraterritorial application of the COMESA Regulations and Guidelines.
The South African Competition Act and the re-emergence of non-binding advisory opinions: Draft regulations published for comment
By Jemma Muller and Estelle Naude
After the suspension of the Competition Commission’s (“Commission”) advisory service in 2018, following the Constitutional Court’s decision in Hosken Consolidated Investments Limited v The Competition Commission, the regulation of non-binding advisory opinions is once again on the Commission’s agenda.
On the 23rd of March 2021, the Proposed Regulations on Non-Binding Advisory Opinions (“Proposed Regulations”) were published for comment by the Department of Trade, Industry and Competition (“DTIC”) in Gazette 44310 GoN 248. The public have been afforded until 23 April 2021 to provide their comment on the Proposed Regulations.
These Draft Regulations are centered around three important aspects of non-binding advisory opinions, namely:
How one can request a non-binding advisory opinion from the Commission;
The legal status of a non-binding advisory opinion; and
The fees payable if one requests a non-binding advisory opinion.
When requesting a non-binding advisory opinion, the requesting party will have to provide the Commission with a fairly comprehensive set of information, including, inter alia, the requesting party’s name, the market(s) in which it operates, the reasons for seeking a non-binding advisory opinion, the nature of the legal advice requested, appropriate information to allow the Commission to determine whether the requesting party falls within one of the entities exempt from paying a fee, and any other facts, information and documents which would enable to the Commission to provide a non-binding advisory opinion.
The Proposed Regulations serve as a vital tool for parties to receive guidance from the Commission pertaining to their compliance with the Competition Act No. 89 of 1998, as amended (the “Act”). Obtaining guidance from the Commission, for example on whether a proposed merger is notifiable, could not only prevent the party concerned from facing penalties for contravening the Act, but also save time and resources and negate the need for paying a filing fee (although requesting a non-binding advisory opinion does attract a fee in certain circumstances, which is discussed more fully below).
Notwithstanding the above, the information that the requesting party is required to disclose to the Commission may have the unintended consequence of discouraging parties from utilizing the advisory function for fear of confidentiality concerns. In this respect, section 44 of the Act is relevant and states the following:
“1(a) A person, when submitting information to the Competition Commission or the Competition Tribunal, may identity information that the person claims to be confidential information.
(2) The Competition Commission is bound by that a claim contemplated in subsection (1), but may at any time during its proceedings refer the claim to the Competition Tribunal to determine whether or not the information is confidential information” (our emphasis)
On the 23rd of March 2021, the DTIC also published for comment amendments to forms, rules and regulations of the Commission in Gazette 44309 GoN 247 (available at https://www.gov.za/sites/default/files/gcis_document/202103/44309gon247.pdf) which deals with, inter alia, an amended Rule 15A which pertains to access to confidential information submitted to the Commission. Rule 15A states:
“(1) Before the Commission makes the determination contemplated in section 44(3) of the Act in respect of information submitted to the Commission under a confidentiality claim, the Commission must:
(a) issue a Notice of intention to make a determination in Form CC 23 to the claimant and the Respondent; and
(b) allow the claimant and the Respondent 5 business days to make representations to the Commission.
(2) Within 5 business days after the Commission makes its determination in terms of section 44(3), an aggrieved person may refer the Commission’s decision to the Tribunal in accordance with the Tribunal’s rules.” (our emphasis)
According to the Proposed Regulations, the Commission is permitted, upon receipt of a request for a non-binding advisory opinion, to determine whether the issues subject to the request should be dealt with in an investigation or any other process under the Act. Additionally, a non-binding advisory opinion cannot fetter the discretion of the Commission while it exercises its functions in terms of the Act. As with the information the requesting party is required to disclose to the Commission, this provision may serve to deter businesses from utilizing this advisory function for fear that information disclosed may later be used by the Commission in an investigation. In this regard, section 45A of the Act states:
“1(a) When making any decision in terms of this Act, the Competition Commission, subject to paragraph (b), may take confidential information into account in making its decision.”
This also raises the question on the status of confidential information submitted to the Commission pursuant to a non-binding advisory opinion, which the Commission later declines to issue an opinion on. According to the Proposed Regulations, if the Commission declines to issue an opinion, it must refund the fee paid by the requesting party if it appears the issues underpinning the advisory opinion will undermine the objectives of the Act.
Importantly, a request by medium enterprises and other market participants for a non-binding advisory opinion must be accompanied by a fee of R20 000 and R50 000 respectively. This is a notable increase from the fees the Commission previously charged under Rule 10.4 of the Conduct of Proceeding in the Competition Commission, which was a fee of R2500 payable by the requesting party.
While the proposed fee structure is a noticeable increase from the fees previously payable under Rule 10.4, the penalties for contravening the Act as well as merger filing fees prescribed by the Act can be far more costly than the cost of requesting a non-binding advisory opinion. It is also noteworthy that the Proposed Regulations expressly exclude certain entities from paying a fee, namely:
Major public entities;
Other public entities; and
It could be argued that the exclusion of the abovementioned entities from paying a fee may open the floodgates for requests for non-binding advisory opinions to the Commission, which could overburden an already inundated Commission.
In terms of the legal status of non-binding advisory opinions, the Proposed Regulations make it clear that the opinion has no binding legal effect on the Commission, the Competition Tribunal or the Competition Appeal Court.
The Proposed Regulations, while still in draft form, represent an important competition law development in South Africa and provide parties with much needed guidance, particularly in light of the complexities and legal nuances brought about by the recent amendments to the Act. Furthermore, the Proposed Regulations are largely in line with recent trends in promoting competition law compliance through competition advocacy as opposed to enforcement mechanisms.
By Jemma Muller & Gina Lodolo/ edits by Charl van der Merwe
The South African Competition Commission (SACC) indicated its intent to formally initiate a market inquiry in the Online Intermediation Platforms Market (Inquiry), in terms of section 43B(1)(a) of the Competition Act 89 of 1998 (as amended) (CompetitionAct).
In terms of the amended Competition Act, the SACC has the power to conduct a market inquiry at any time, “if it has reason to believe that any feature or combination of features of a market or any goods or services impedes, distorts or restricts competition within that market.
The SACC published its draft Terms of Reference (ToR), allowing members of the public until 12 March 2021 to submit their comments on the scope of the Inquiry.
The ToR envisage a limited scope of assessment, to include only online intermediation services and, in particular, eCommerce marketplaces; online classifieds; travel and accommodation aggregators; short term accommodation intermediation; food delivery; app stores (with the notable exclusion of ‘fintech’).
The Inquiry will be focused on both competition and public interest factors and will aim to consider:
market features that may hinder competition amongst the platforms themselves;
market features that give rise to discriminatory or exploitative treatment of business users; and
market features that may negatively impact on the participation of SMEs and/or HDI owned firms
According to the SACC in the ToR, these platforms have been flagged as they have the potential to self-preference and distort markets through algorithms, which is harmful to businesses who rely on these platforms to reach consumers.
The Inquiry follows shortly on the back of the SACC’s “Competition in the Digital Economy” report (Report), which was published for public comment in the final quarter of 2020. In the Report, the SACC specifically identified market inquiries are an effective tool to address market barriers (especially for Small Medium Enterprises (SME) and historically disadvantaged individuals (HDP)) and to address market feature concerns which may lead to reduced competition.
Allied to this, the ToR goes on to state, in support of the Inquiry, that the use of intermediation services can provide a manner of entry into a market for SMEs/ HDPs, but due to the potential distortions of the market, may also discriminate against them. As a result of the COVID-19 pandemic, domestic online business opportunities are vital in ensuring economic recovery as well as inclusive growth of SMEs and HDPs.
The Inquiry will be the first inquiry in terms of the Competition Act as amended. In this regard, the amended Competition Act empowers the SACC to “take action to remedy, mitigate or prevent the adverse effect on competition”. This includes imposing structural or behavioural remedies.
It is also notable that the standard of assessment for market inquiries is a lower standard that that required in complaint proceedings. The SACC need only find that certain elements of the market may have “adverse effect on competition” (as opposed a substantial lessening of competition).
In light of these facts, firms in the relevant market cannot afford to remain passive participants in market inquiries and, instead, must consider and respond to the inquiry, as a respondent.
As one of two key West African nation states (the other being Nigeria), Ghana still lacks functioning competition legislation at the close of 2018. Adding to the chorus of calls for the introduction of a Ghanaian antitrust act, the local branch of the global advocacy group CUTS (“Consumer Unity and Trust Society”), has now asked the government to ensure a currently pending draft competition bill becomes law in 2019. The bill is, at present, before the Ministry of Justice and the Attorney General’s Department for further consideration, prior to being presented to Parliament.
Speaking on the topic of “Competing Without Market Rules” at the annual U.N. World Competition (Antitrust) Day, CUTS’ local director is quoted as deploring the absence of any competition policy or law, allowing unscrupulous firms to engage in conduct that would be deemed illegal virtually anywhere else and impeding the proper functioning of the Ghanaian market in the process.
Notably, Ghana’s Minister of Trade and Industry, Alan Kyeremanten, provided a written statement, noting that the country’s government was formulating its approach to competition policy with an eye toward enacting a law that would go beyond the relatively ineffectual Protection Against Unfair Competition Act, dating back to 2000 (Act 589). Goals of enacting a more effective competition legislation would be to promote private sector development, economic growth, poverty reduction and increasing Foreign Direct Investment.
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”.
Patel’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).
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.
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”.
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”.
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.
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”.
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.
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.”
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.
As John Oxenham and Patrick Smithhave 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 email@example.com]
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.”
Neither 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”).
Despite 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.
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’).
The 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.
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.
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.
COMESA Chief Warns of Delayed Implementation of Leniency Policy
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.”