New Kenya domestic merger thresholds proposed, limiting notifications

The Competition Authority of Kenya (“the CAK”) has issued a new proposal introducing financial thresholds for merger notifications which will exempt firms with less than 1 billion Kenyan Shillings (KSh)(approximately US$10 million) domestic turnover from filing a merger notification with the CAK.

Currently, it is mandatory to notify the CAK of all mergers, irrespective of their value.  According to Stephany Torres of Primerio Limited, this may deter investments in Kenya as the merger is subject to delays and additional transaction costs for the merging parties while the CAK assesses it.

In terms of the new proposal notification of the proposed merger to the CAK is not required where the parties to the merger have a combined annual turnover and/or gross asset value in Kenya, whichever is the higher, of below KSh500 million (about US$5 million or South African R60 million).

Mergers between firms which have a combined annual turnover or gross asset value, whichever is the higher, in Kenya of between KSH 500 million and KSH 1 billion may be considered for exclusion.  In this case, the merging parties will still need to notify the CAK of the proposed merger.  The CAK will then make the decision as to whether to approve the merger or whether the merger requires a more in depth investigation.

It is mandatory to notify a merger where the target firm has an annual revenue or gross asset value of KSh 500 million, and the parties’ combined annual turnover and/or gross asset value, whichever is the higher, meets or exceeds KSh 1 billion.

Notwithstanding the above, where the acquiring firm has an annual revenue or gross asset value, whichever is the higher, of KSH 10 billion, and the merging parties operate in the same market and/or the proposed merger gives rise to vertical integration, then notification to the CAK is required regardless of the value of the target firm.  However, if the proposed merger meets the thresholds for notification in the supra-national Common Market for Eastern and South Africa (“COMESA”), then the CAK will accede to the jurisdiction of the COMESA Competition Commission (“CCC”) and the merging parties would not have to file a merger with the CAK.

COMESA is a regional competition authority having jurisdiction over competition law matters within its nineteen member states, of which Kenya is one.

It is worth mention that Kenya is also a member state of the East African Community (“the EAC”).  As AAT reported recently, the East African Community Competition Authority (“the EACCA”) became operational in April 2018 and its mandate is to investigate competition law matters within its five partner states  (Burundi, Kenya, Rwanda, Tanzania and Uganda).  There is no agreement between the CAK and EACCA similar to the one between the CAK and CCC, and it uncertain how mergers notifiable in both Kenya and the EAC will be dealt with.

 

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COMESA Competition Chief Approves of FDI, M&A Transactions

Lipimile Advocates for Foreign Direct Investment, Encouraging Acquisition-Hungry Multi-Nationals in Recent COMESA Trade Remarks

In a comment on the COMESA Simplified Trade Regime (STR) regional programme, recently being implemented locally in the border region between Rwanda and the DRC, George Lipimilie, the Chief Executive Officer of the COMESA Competition Commission, stated that the regional body’s “focus on free movement of goods has generally paid dividends resulting in [] a lot of cross-border mergers and acquisitions,” according to an article in the Rwanda New Times.

George Lipimile of the COMESA Competition Commission

It appears that the CCC chief is expressly favouring foreign direct investment into the region by way of mergers (or perhaps more accurately, acquisitions).  “This is particularly so where the ‘foreign’ (presumably implying non-COMESA) multi-national entity brings with it novel technologies or R&D to improve the market position of the local competitor,” according to Andreas Stargard, a Pr1merio Ltd. competition-law practitioner.

Of interest to M&A practitioners, Mr. Lipimile is quoted as saying: “There are situations when foreign companies use acquisitions to enter the market where you find a multinational company buying a local company which is good because it comes with a lot of technology.” (Emphasis added).

Mr. Lipimile was also rather specific about encouraging FDI in the region’s raw-materials sector from nation states other than the PRC: said Lipimile, “[w]e have seen China taking advantage of our raw materials and we hope more countries can follow suit.”

We note that the domain of international trade — specifically tariffs as barriers to trade — has historically not been within the jurisdictional purview of the COMESA Competition Commission, which was designed to be a competition-law enforcement body.  Technically, there exists the post of COMESA Director for Trade, Customs & Monetary Affairs, held by Dr. Francis Mang’eni and not by Mr. Lipimile.  The CCC, however, “has recently emerged to take a more active role within the COMESA architecture of regional enforcement institutions,” Mr. Stargard says.  He notes that Article 4 of the COMESA Treaty expressly provides that “[i]n the field of trade liberalisation and customs co-operation [the Member States shall] (a) establish a customs union, abolish all non-tariff barriers to trade among themselves”, and that the regional Competition Regulations expressly bestow the CCC with the authority to investigate and abolish all “anti-competitive practices affecting COMESA regional and international trade.”

Namibian Supreme Court rules Competition Commission has no Jurisdiction Over Medical Aid Fund Members

By AAT contributors Charl van der Merwe and Aurelie Cassagnes

On 19 July 2017, the Namibian Supreme Court, was tasked with settling a long standing dispute (not the first of its kind) as to whether or not the Respondents fell within the jurisdiction of the Namibian Competition Commission (NCC) in terms of the Namibian Competition Act of 2003 (Namibian Act). The case was brought on appeal by the Namibian Medical Aid Funds (NAMAF) and its members (collectively referred to as the Respondents).

After an investigation lasting a couple of years, the NCC announced in November 2015 that it had considered the behaviour of the Respondents in setting a “benchmark tariff” and found that the practice amounted to Price Fixing in contravention of section 23 of the Namibian Act. The Respondents, in pre-empting the commission’s planned litigation, disputed the NCC’s jurisdiction. The High Court found in favour of the NCC which led to the appeal by the Respondents to the Namibian Supreme Court.

Benchmark tariffs, in short, is a recommended fee, payable to doctors, at which medical aid expenses and consultations are covered. The issues surrounding benchmark tariffs has sparked debate across Africa with ‘those for’ arguing that without them, the medical profession would be “nothing short of economic lawlessness” whilst critics argue that it is “quietly killing off the health-care profession”.

The Namibian High Court, in finding against the Respondents, confirmed the NCC’s jurisdiction over the matter and ruled that determining and recommending a benchmark tariff for medical services was unlawful because it amounted to fixing a selling price. The court, in making its decision, held that “The funds’ activities in formulating a benchmark tariff were not ‘designed to achieve a non-commercial socioeconomic objective’. Rather, it was to produce and distribute wealth.” (Own emphasis)

The main issue to be decided on appeal by the Namibian Supreme Court, however, was not whether the benchmark tariff amounted to a contravention of the Namibian Act, but rather, whether the NCC had jurisdiction over the matter. In other words, whether the Respondents were included under the definition of ‘undertakings’ in terms of the Namibian Act.  Chapter 1 of the Namibian Act provides that:

An “’undertaking’ means any business carried on for gain or reward by an individual, a body corporate, an unincorporated body of persons or a trust in the production supply or distribution of goods or the provision of any service”

The Namibian Supreme Court found that the Respondents were not a “business carried on for gain or reward” and, therefore, were not subject to the provisions of the Namibian Act. As such, the Namibian Supreme Court overruled the High Court’s decision, leaving NAMAF and its members to continue the use of benchmark tariffs.

The South African Competition Tribunal (SACT) had similarly dealt with this issue in a series of Orders during the course of 2004 and 2005 (see the Hospital Association of South Africa and the Board of Healthcare Funders of Southern Africa). In this regard, the SACT found that the relevant medical schemes (the Respondents) fell within the ambit of the South African Competition Act 89 of 1998 (South African Act) and, accordingly, imposed an administrative penalty on the Respondents for “benchmarking tariffs”.

In its consent orders, the South African Competition Commission (SACC), despite mentioning that the Respondents were “an association incorporated not for gain in terms of the company laws in South Africa”, held that the Respondents are an association of firms that “determines, recommends and published tariffs to and/or for its members; and which recommendations has the effect of fixing a purchase price

Furthermore, the SACC, condemned the ‘benchmarking tariffs system’ put in place by the Respondents and argued, despite the fact that the health care professionals were still largely free to determine their own fees, publishing these recommendations amounted to price-fixing which is a per se contravention in terms of section 4(1)(b) of the South African Competition Act.

Accordingly, the differing approaches in Namibia and South Africa come down to the interpretation of what entities fall within the umbrella of the respective Competition Acts.

Cooperation, handshakes & MoUs: all the rage in African antitrust?

AAT the big picture

Significant Strides made to Promote Harmonisation across African Competition Agencies

By AAT Senior Contributor, Michael-James Currie.

In the past 12 months there has been a steady drive by competition law agencies in Africa to promote harmonisation between the respective jurisdictions.

The African regional competition authority, the COMESA Competition Commission (CCC), has entered into memorandum of understandings with a number of its nineteen member states. On 5 June 2016, it was announced that the CCC has further concluded MoU’s with the Swaziland Competition Commission as well as the Fair Trade Commission of the Seychelles.

On 7 May 2016, it was announced that nine members of the Southern African Development Community (SADC) have also entered into and MoU. These member states include South Africa, Malawi, Botswana, Swaziland, Seychelles, Mozambique, Namibia, Tanzania and Zambia.

The SADC MoU was based on the 2009 SADC Declaration on Regional Cooperation and Consumer Policies.

SADC MoUAccording to the South African Competition Commissioner, Mr Tembinkosi Bonakele, the MoU creates a framework for cooperation enforcement within the SADC region.  “The MoU provides a framework for cooperation in competition enforcement within the SADC region and we are delighted to be part of this historic initiative,” said Bonakele.

Interestingly, although a number of the signatories to SADC MoU are not member states of COMESA (that is, South Africa and Namibia, who in turn, have a MoU between their respective competition authorities), Swaziland, Malawi and the Seychelles have existing MoU’s with the COMESA Competition Commission. Says Andreas Stargard, a competition practitioner with Primerio Ltd., “it will be interesting to see, first, whether there may be conflicts that arise out of the divergent patchwork of cooperation MoUs, and second, to what extent the South African Competition Authorities, for example, could indirectly benefit from the broader cooperation amongst the various jurisdiction and regional authorities.”

Part of the objectives of the MoUs to date has largely been to facilitate an advocacy role. However, from a practical perspective, the SADC MoU envisages broader information exchanges and coordination of investigations.

While the MoU’s are a positive stride in achieving cross-border harmonisation, it remains to be seen to what extent the collaboration will assist the respective antitrust agencies in detecting and prosecuting cross border anticompetitive conduct.

There may be a number of practical and legal hurdles which may provide challenges to the effective collaboration envisaged. The introduction of criminal liability for cartel conduct in South Africa, for example, may provide challenges as to how various agencies obtain and share evidence.

Meet the Enforcers: COMESA’s Rajeev Hasnah, 1st in exclusive AAT interview series

meet the enforcers

New AAT interview series highlights individual African competition enforcers

In the first instalment of our new Meet the Enforcers series, we speak with Rajeev Hasnah, CFA, who is a sitting Commissioner of the COMESA Competition Commission.  In our exclusive interview, we discuss the CCC’s merger review practice, its revised Guidelines, young history and achievements, and seek practitioner guidance.


Rajeev Hasnah, CFA
You are an economist by training and currently a sitting COMESA Competition Commissioner.  As the young agency is about to celebrate its 2nd anniversary, what do you consider to be the CCC’s biggest achievement to date?
According to me, it is the fact that the CCC is effectively enforcing the COMESA Competition Regulations since it started operating in January 2013.  It is indeed a commendable achievement given that the current Board of Commissioners sworn-in in October 2011.  In 2012, the CCC worked on the drafting of the guidelines, in consultation with various stakeholders, and under the advice of other competition experts.
The institution also established a good working relationship with national authorities across COMESA and beyond, and proved its credibility and effectiveness as a regional competition authority within the business and legal communities globally.  The rather high number of merger notifications with a COMESA dimension already adjudicated to-date (around 50) is testimony to the success of the CCC being an effective competition law enforcer in its still early days.
Comparing the CCC merger review in practice with that of other competition enforcement agencies worldwide, where do you see the key differences?
Nowadays it is getting harder to talk about differences in any field of economic activity in this increasingly globalised world.  In my view, the key principles and the application of the Competition Law in the COMESA region do not differ significantly either from that of the national authorities or other major jurisdictions across the globe.  The assessment of “substantial lessening of competition” as the underlying fundamental test in merger reviews is at the core of the evaluation conducted by the CCC as well.
Does the multi-national nature of the CCC (akin to the European Commission) make the substantive work more difficult?
It is definitely not an easy feat to enforce the COMESA Competition Regulations across 19 different countries, each with its own economic, legal and cultural environments.  Yet, under the leadership of the current Chairman, Alex Kububa and Director/CEO of the CCC, George Lipimile, a good working relationship and collaboration has been established with the different national authorities across the COMESA region, which facilitates an effective enforcement of the Competition Regulations.   This also ensures that the CCC has a good perspective of the individual local realities, which is no doubt a key element to assess the impact on competition at the regional level.
What prompted the re-drafting of the CCC Merger Guidelines, and why was the indirect path of an administrative guidelines interpretation of the verb “to operate” chosen to elevate the review thresholds, as opposed to increasing the thresholds in the underlying Rules themselves?
It is not uncommon that an authority reviews its guidelines as it gains experience in enforcing the law.  Any changes or further clarifications are geared toward ensuring that the business and legal communities as well as competition economics experts have a good understanding of how the Regulations are enforced by the CCC.  This indeed shows that the CCC stands ready to ensure an improved clarity of its enforcement of the Competition Regulations among its key stakeholders.
The relevant paragraphs defining the verb “to operate” in the Merger Guidelines, should not be construed as a review of the merger notification thresholds per se.  The latter has its own procedures regarding any likely review.  The definition in the Merger Guidelines is rather to ascertain whether the said undertaking is construed to be effectively operating in a Member State or not.
Do you have advice for African practitioners counselling their clients on whether or not to notify a merger to the CCC?
Taking into consideration the rise in the enactment and enforcement of a competition policy regime across various jurisdictions and at the level of regional trading blocs as well, one can safely say that a competition authority is here to stay and to enforce the law as prescribed.
One of the key considerations in doing business is a proper assessment of the risks the undertaking faces or could potentially face and the implementation of a suitable actionplan to deal with these risks.  I believe that non-notification of a notifiable COMESA dimension merger to the CCC should not be construed as carrying a low probability of being detected by the CCC and certainly not a low impact one for the undertaking.
What is your view about the elevation of non-competition assessments above those of pure competition tests in merger review?  Is it good for the adjudication of competition matters generally?
Some jurisdictions consider public interests as important, while some don’t.  This is normally provided for or not in the respective laws, and whichever is the case, as adjudicators, we need to follow what is prescribed in the Regulations.
It is also important to note that in practice, the enforcement of competition law can be defined as being the conduct of economic analysis within a legal framework.  Both the economic analysis and legal framework evolve accordingly in line with the development of the jurisdiction’s economy.  We can take the examples of more mature competition policy regimes which started with the consideration of non-competition issues in merger review, to then afterwards moving to assessing only competition matters.  As such, each jurisdiction has its own specificities that it needs to take into consideration, though these are bound to evolve with time.
By way of background, how did you get into antitrust/competition law & economics?
I am an economist and a Chartered Financial Analyst (CFA) by training, and prior to joining the antitrust world I was an investment professional.  Four years ago I had the choice between acquiring experience in private equity or joining the nascent competition law enforcement team of the Competition Commission of Mauritius as its Chief Economist/Deputy Executive Director, working with the then Executive Director, John Davies.  I chose the latter for its excellent combination of applied microeconomics and law.
What was the path that took you to working for competition enforcement agencies?
I started as a macroeconomist working in London for an economic consultancy firm in the city, where I was advising traders and asset managers.  I then moved on to financial investing in an investment management firm and to corporate finance in one of the largest conglomerates in Mauritius.  So I came to the antitrust world as a business/investment practitioner with a strong background and experience in applied economic and financial analysis.
Having seen the world from the private sector side, I acquired an edge in the application of competition economics in my previous role as a Chief Economist/Deputy Executive Director and as a current Commissioner at the COMESA Competition Commission.
What skills would you encourage regional African practitioners focus on for purposes of developing antitrust advocacy in the COMESA region?
Having previously led the Competition Culture project for the International Competition Network (ICN) Advocacy Working Group (AWG), I am now one of the strong proponents of the importance of advocacy to develop and maintain a strong competition culture within society.
Ensuring that advocacy activities are properly designed and tailored to meet the requirements of the target group is crucial.  Equally important is to ability to communicate in a very simple and easy to understand language, adapted to meeting the target audience’s expectations.
Thank you, Mr. Hasnah.

Confusion reigns in COMESA: filing fees misstated, “operation” vs. “threshold”, and new web site

COMESA Competition Commission logo

COMESA Competition Commission makes changes, but observers deplore lack of clarity and persisting mistakes

Visiting the CCC web site will yield a surprise to COMESA followers, as the Commission’s online presence has an updated look.  (Importantly, we express hope that it’s not all cosmetic but also substantive, and that the CCC’s webmaster has improved online security, in light of the numerous hacking attacks to which the agency was subjected in 2014.)

What’s more, the new web site has some new merger-related information, most notably of course the new finalized Merger Assessment Guidelines and an “Explanatory Note” on mergers.

Guidelines subvert Rules threshold under guise of companies’ “operation” within region

The former attempt to infuse some sense into the previous zero-dollar notification threshold regime (by re-defining in the Guidelines what it means to “operate” in COMESA countries as having turnover of >$5 million per annum).  They do so without actually amending or otherwise revoking the underlying Rules, which still do specify to this day that the turnover threshold for notification is “$0” COMESA dollars (which are the fictitious FX equivalent currency of U.S. dollars, so there is effectively no currency conversion required from USD figures).  CNBC/Africa has an 8-minute interview on the topic with a World Bank Group staffer who was part of the working group making the revisions here.

We at AAT respectfully question both the validity and the sensibility of keeping the flawed legislation of the Rules in place, while making agency ex parte interpretive changes via CCC “Guidelines” that notably do not have the force of law in COMESA countries.

“Explanatory Note” and the question of filing fees: 0.01% or 0.5%? Errors continue to persist.

The latter document (reproduced below in full) tries to do the same in a more simplistic fashion — asking, curiously, “What is merger?” [sic!]  However, the Explanatory Note appears fundamentally flawed as it incorrectly includes a reference to the filing fee as being set at 0.01% of the parties’ combined annual revenues.

AAT analysed this statement and believes that the CCC improperly refers to the old Rules (which provided for a 0.01% fee in Rule 55) until they were revised and then subsequently interpreted by CCC guidance in February of 2013: since then, filing a CCC notification incurs a fee of 0.5% of turnover, as we extensively discussed here(Update: The CCC has apparently read our post and, as of 5 Nov. 2014, changed this incorrect statement, deleting all references to filing fees in their entirety.)

Continuing lack of clarity emanates from COMESA’s official statements and publications

AAT deplores the ongoing confusion that reigns with respect to the CCC’s pronouncements on crucially important issues such as thresholds, filing fees, and the like.  It takes more than a new web site design to instill parties’ and attorneys’ trust in the young antitrust regime’s competency, and with it, new filings (which have notably stalled at zero for the past half year).

Mergers and Acquisistions

What is Merger?

Most mergers pose little or no serious threat to competition, and may actually be pro-competitive.  Such benevolent mergers have a number of economic advantages such as resultant economies of scale, reduction in the cost of production and sale, and gains of horizontal integration.  There could also be more convenient and reliable supply of input materials and reduction of overheads.  These advantages could, and should, lead to lower prices to the consumer.

Other mergers, however, may harm competition by increasing the probability of exercise of market power and abuse of dominance.  Mergers can also sometimes produce market structures that are anti-competitive in the sense of making it easier for a group of firms to cartelise a market, or enabling the merged entity to act more like a monopolist.

An increasing number of business firms in the COMESA region are merging, or entering into other forms of strategic alliances, in order to take advantage of the many economic benefits that arise from such transactions.  Undertakings in the COMESA region are relatively small compared with those in other parts of the world.  Mergers in the region, however, would create ‘regional champions’ capable of competing with other international companies on an equal footing.

Companies however need to notify the Commission their proposed mergers to enable the mergers to be thoroughly examined for any anti-competitive features that might reduce or eliminate the transaction’s economic benefits.  Not all mergers are notified to the Commission.  Only those large mergers that exceed a certain prescribed threshold have to be notified.  The fee for notifying mergers is not punitive, but is only meant to defray the costs to the Commission for examining the transactions.  The COMESA Competition Rules provide for a relatively small merger notification fee calculated at 0.01% of the combined annual turnover or combined value of assets in the COMESA region of the merging parties.  (NOTE by editor: The CCC has, as of 5 Nov. 2014, changed this incorrect statement and deleted all references to filing fees entirely.) Failure to notify mergers can however be very costly to the merging parties.  The Regulations provide for a high penalty of up to 1% of the merging parties’ annual turnover in the COMESA region for not notifying eligible mergers

Merger in COMESA Competition Regulations

The word merger in this COMESA Competition Regulation is construed in the context of its definition under Article 23(1) of the Regulations.

Control is used in the context of controlling interest as defined under Article 23(2) of the Regulations. Without prejudice to Article 23(2), control shall be constituted by rights, contracts or any other means which, either separately or in combination with and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. The COMESA Competition Commission (‘the Commission’) shall deem a person or undertaking to exercise control within the meaning of Article 23(2) of the Regulations if the person or undertaking;

  • Beneficially owns more than one half of the issued share capital of the undertaking;
  • Is entitled to cast a majority of the votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of the undertaking;
  • Is able to appoint, or to veto the appointment, of a majority of the directors of the undertakings;
  • Is a holding company, and the undertaking is a subsidiary of that holding company;
  • In the case of the undertaking being a trust, has the ability to control the majority of the votes of the trustees or to appoint or change the majority of the beneficiaries of the trust;
  • In the case of an undertaking being a close corporation, owns the majority of the members’ interest or controls directly, or has the right to control, the majority of the members’ votes in the close corporation; or
  • Has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).

The Commission shall assess material influence on a case by case basis, having regard to the overall relationship between the acquiring firm and the target firm in light of the commercial context.

In its assessment of material influence, the Commission shall focus on the acquiring undertaking(s). Minority and other interests shall be examined by the Commission to the extent that they are able to influence the policy of the undertaking(s) concerned.

The Commission shall consider an acquiring firm’s ability to influence policy relevant to the behaviour of the target firm in the market place. This includes the management of the business, in particular in relation to its competitive conduct, and thus includes the strategic direction of a firm and its ability to define and achieve its commercial objectives.

The Commission shall consider an acquiring firm’s ability to block special resolutions by virtue of share ownership or other factors, including:

  • The distribution and holders of the remaining shares, in particular whether the acquiring entity’s shareholding makes it the largest shareholder;
  • Patterns of attendance and voting at recent shareholders’ meetings based on recent shareholder returns, and, in particular, whether voter attendance is such that in practice a minority holder is able to block a special resolution;
  • Any special voting or veto rights attached to the shareholding under consideration; and
  • Any other special provisions in the constitution of the target firm which confer the ability to exercise influence.

Where an acquiring firm is not able to block special resolutions of the target firm, the Commission shall have regard to the status and expertise of the acquiring firm, and its corresponding influence with other shareholders, and shall consider whether, given the identity and corporate policy of the target company, the acquiring firm may be able to exert material influence on policy formulation at an earlier stage.

The Commission shall review the proportion of Board of Directors appointed by the acquiring firm and the corporate/industry expertise of members of the Board appointed by the acquiring firm. The Commission may also assess the identities, relevant expertise and incentives of other Board Members.

Interpretation of Article 23(3) of the COMESA Competition Regulations
Article 23(3) of the COMESA Competition Regulations (‘the Regulations’) provides that:

                        “This Article shall apply where:

  • both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States; and

  • the threshold of combined annual turnover or assets provided for in paragraph 4 is exceeded”.

The interpretation shall focus on Article 23(3)(a) since Article 23(3)(b) is superfluous due to the non-existent of thresholds currently. Article 23(3)(a) is divided into two parts as follows:

  • both the acquiring firm and the target firm operate in two or more Member States;
  • either the acquiring firm or target firm operate in two or more Member States.

The meaning of the first part above is that for a merger to fall within the dominion of Part IV of the Regulations is that both the acquiring firm and the target firm should operate in two or more Member States. For example if Company A is the acquiring firm and it operates in Zambia and Malawi and Company B is the target company and it equally operates in Zambia and Malawi, then the requirements of the first limb are satisfied and the merger falls within the ambit of Part IV of the Regulations.

Another scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Zambia and Ethiopia. In this example, both Company A and Company B operate in two or more Member States.

The third scenario where the first part is satisfied is where Company A the acquiring firm operates in Zambia and Malawi and Company B the target firm operates in Djibouti and Madagascar. In this example, both Company A and Company B operate in two or more Member States.

As regards the second part, a merger falls within the province of Part IV of the Regulations where for example Company A the acquiring firm operates in Kenya and Seychelles and acquires Company B the target which has no operations in the COMESA Member States.

Another scenario where the second part is satisfied is where Company A the acquiring firm has no operations in any of the COMESA Member States but acquires Company B the target which operates in Rwanda and Burundi.

The foregoing are pursuant to the second limb which uses the words “either or” and therefore presupposes that both the acquiring firm and the target firm do not have to operate in two or more Member States as is the case for the first limb but that where either the target or acquiring is operates in two or more Member States, the merger is captured under Part IV of the Regulations.

It is important to note that where the acquiring firm operates in only one Member State and the target firm operates in another Member State and only that Member State, then such a merger does not satisfy the jurisdictional requirements of Part IV of the Regulations. This is however on the premise that such firms do not control any other firm whether directly or indirectly in a third Member State. Such firms should also not be controlled whether directly or indirectly by any other firm in a third Member State. For example, where Company A the acquiring firm operates in Swaziland only and Company B the target operates in Rwanda only, such a merger does not meet the jurisdictional requirements of Part IV of the Regulations. The situation may be different where Company A has a stake in Company C which operates in Mauritius or Company B has a stake in Company D which operates in the Democratic Republic of Congo.

The word operate is taken to mean that a firm(s) in issue derives turnover in two or more Member States. Therefore does not need to be directly domiciled in a Member State but it can have operations through exports, imports, subsidiaries etc. in a Member State.

COMESA merger stats: January ’14 outperforms first 6 months of 2013

COMESA Competition Commission logo
Three merger notifications in one month set new record for COMESA Competition Commission.

After commenting on the rather lackluster statistics of the first 11 months A.D. 2013, we observed that some deal-making parties might be “flying under the radar” and asked the question:

Combine Point 4 above (low filing statistics) with the zero-threshold and low nexus requirements that trigger a COMESA merger notification, and the following question inevitably comes to mind: With such low thresholds, and the certain existence of commercial deal activity going on in the COMESA zone, why are there so few notifications?

Well, the young agency’s stats have picked up some steam in 2014, it would seem: based on a review of its online document repository, the CC has received a whopping three notifications in January alone.  They are, in chronological order:

  1. Mail & courier services: FedEx / SupaSwift – a transaction involving the acquisition of a South African courier with operations in multiple COMESA member states, Botswana, Malawi, Mozambique, Namibia, Swaziland and Zambia.
  2. Agricultural distribution and financial services: AgriGroupe / AFGRI Ltd. – Mauritian SPV AgriGroupe seems to be taking AFGRI (listed on the JSE) private.  The target has operations in multiple COMESA countries.
  3. Generic pharmaceuticals: CFR Inversiones SPA / Adcock Ingram Holdings Ltd. – Chilean CFR is buying all of South African off-patent pharmaceuticals manufacturer Adcock’s shares. Notably, the buyer has no COMESA activities; target is active in Kenya, Malawi, Rwanda, Sudan, Swaziland, Uganda and Zimbabwe.
(c) AAT

Merger notification stats for COMESA as of Feb. 2014

Take-aways:

  • Activity has increased dramatically.  Is it a coincidence & a statistically irrelevant blip on the radar screen?  This remains to be seen. The parties are – unlike last year’s – not “repeat parties” and therefore the increase in notifications seems to be natural/organic growth, if you will, rather than a case of the same bear falling into the same honey-trap multiple times…
  • The Competition Commission has listened to its critics (including this blog). Notably, the CC now clearly identifies the affected member-state jurisdictions in the published notice – a commendable practice that it did not follow in all previous instances, and which AAT welcomes.

Post-scriptum: Adding up the total 2013 tally of notifications, the Tractor & Grader Supplies Ltd / Torre Industrial Holdings transaction (notified after our prior statistics post in November 2013) brought the sum-total of COMESA merger filings to 11 for FY2013.

More antitrust? Calls for competition legislation in Ghana

ghana

Former Ghanaian Supreme Court Justice calls for competition law

According to online reports, Mr Samuel Date-Bah, retired Justice of the Ghanaian Supreme Court and Council Chairman of the University of Ghana, made some strong public comments on the economic necessity of creating a new West-African antitrust regime at a conference on December 5, 2013, also known as “World Competition Day”.  The event was the “Policy Roundtable Discussion on Competition Reforms in Ghana,” organized by CUTS International, held in the capital of Accra.

The article reports that Justice Date-Bah, who has held visiting academic positions at Oxford and Yale Law School, deplored the legislature’s previously failed attempts of enacting a comprehensive competition law, calling for the country to do so to ensure proper market dynamics.

Other panelists, such as Dr Edward Brown, Director of Policy Advisory Services at the African Centre for Economic Transformation (ACET), reportedly supported the Justice’s position on the need for a Ghanaian competition-law regime and called for its integration into the regional supranational bodies of ECOWAS and UEMOA.

The Zero Threshold Contagion

Published in this month’s “The Threshold,” the American Bar Association’s merger-focused quarterly journal:

The Zero Threshold Contagion — Too Little of a Good Thing in Pan-African Merger Control

Andreas Stargard [1]

Fittingly for this publication, international merger control poses a threshold problem.  One may call it the “zero-threshold contagion.”  On January 14, 2013, it spread to the newest member of the growing number of worldwide merger-control regimes: the victim in this particular instance was COMESA[2] – a multi-jurisdictional body with a vast geographic span across 19 eastern and southern African economies, home to a population 25% larger than that of the United States.

Background

With the inception of the COMESA Competition Commission’s (“CCC”) operations, certain corporate transactions “with a regional dimension” are now subject to mandatory merger notification.  Whether or not this notification requirement has a suspensory effect on the notified transaction[3] is but one of the many ambiguities pervading the young merger regime, which applies a “substantially prevent or lessen competition” test, in addition to other, less-common criteria for merger analysis.  A fair question arises: “What exactly are the rules?”

Much of the commentary on the CCC’s emergence has been critical, mostly focused on the many ambiguities in the system, and occasionally going as far as questioning the agency’s mandate, competence, and extraterritorial reach.  This article lays out the objective underlying facts behind COMESA, which are often little understood.

Having a merger-control regime – more broadly speaking, a competition law[4] – in the region is neither surprising nor a sudden development.  The statute has been in existence for a decade, and the advent of the CCC merely represents the pinnacle of a rather long regional history that was to lead, quite predictably, to its implementation.

To understand the impetus behind this final chapter in the gestation of supra-national antitrust law in Africa, it helps briefly to recall COMESA’s history.  Its goals were premised ab initio on economic progress in the region, having evolved from its precursor “Preferential Trade Area for Eastern and Southern Africa” (1981) into the COMESA of today (1994).  COMESA’s establishing Treaty, drafted two decades ago, left no doubt that competition law would become a key focus area for the organization.[5]  After all, one of COMESA’s primary stated goals is a “wider, harmonised and more competitive market.”[6]

It is against this historical backdrop that the organization enacted its Competition Regulations and Rules in 2004.  Yet, a decade later, the Regulations remained empty legislative vessels, as there was no enforcement body to apply them.[7]  Elsewhere, I have called the phenomenon of the gap between existing antitrust legislation and its lack of enforcement the “missing policeman rubicon.”  The COMESA competition regime finally crossed that river when the CCC, headquartered in Malawi, became operational in January of this year under the leadership of George Lipimile.  Its launch finally awakened the dormant antitrust statute and its merger-control regime.

From tabula rasa to Established Enforcement – a Rocky Road without a Threshold

Almost a year into the CCC’s existence, one may ask how the various pieces of the enforcement puzzle have come together?  Filling in the blank canvas on which Mr. Lipimile’s agency is building its administrative platform has not come without hiccups, as well as numerous pragmatic questions raised about how COMESA will achieve its stated mission.  First and foremost among these is the threshold question.

As readers of this publication are keenly aware, when advising clients on the perennial question of “where must we file,” law firms commonly operate on the basis of a piece of coveted and fiercely guarded work product, created over the course of decades and regularly updated, in all likelihood, by a junior attorney: in short, a jurisdictional matrix showing key variables such as per-party deal-value or revenue thresholds, (disfavored) market-share tests, exceptional minority shareholding or control rules, and other unique characteristics of each of the ten dozen or so merger regimes currently in operation worldwide.

It is a safe bet that the attorneys who had the misfortune of having to add the COMESA section to their firm’s matrix in early 2013 were scratching their heads at the (then virtually unexplained) language governing CCC merger enforcement.  Their first question was: What’s the revenue threshold?  Short answer: None.

The statute requires parties to have combined worldwide and regional aggregate revenues or assets, whichever is higher, of at least “COM$ Zero.[8]  The CCC’s explanation for this de facto non-existent threshold has been that “different Member States are at different levels of economic development and hence a realistic threshold can only be determined after the Regulation has been tested on the market.  Therefore, the threshold shall be raised after a period of implementation of the Regulations.”[9]

In addition to the threshold issue, it has also remained unhelpfully vague what it means for a business to “operate” within COMESA – e.g., are mere import sales sufficient?  How many of the parties to the transaction must be commercially active in the common market?  Does a COMESA notification discharge all filing obligations vis-à-vis member-state competition authorities, even those whose markets are primarily affected by a given transaction (i.e., is the CCC a true one-stop-shop)?  Are acquisitions of minority shareholdings out of scope?  How is the (seemingly unduly steep) filing fee actually calculated?

In brief, the need for significant clarification was abundantly clear early on.  To its credit, the CCC did follow international best practices and released its explanatory Guidelines in draft form for public comment in April.  The Guidelines cover not only the procedural steps and substantive analysis applied by the agency, but also some of the uniquely regional topics, e.g., the “public interest criterion” under Article 26 of the Regulations – an additional analytical (most would say solely socio-political) criterion that goes far beyond orthodox antitrust principles, muddying the waters of pure merger-control assessment and arguably diluting outcome predictability to the point of a “black box.”  In response, commentators from across the globe (including the American Bar Association) provided their critical response during the summer, in the hopes of ensuring the young agency’s smooth evolution from blank slate to rational and proportionate merger enforcer.

It is now – almost one year into the COMESA competition saga – ever more evident that significant confusion (and parties’ resulting aversion to filing) remains.  One piece of readily available empirical evidence demonstrating this fact is the lack of any meaningful number of merger notifications.  It is no secret that many private practitioners follow the rule that, in the absence of clarity and meaningful thresholds, COMESA simply constitutes “no-go territory” for merging firms.  Such advice has led not only to an instinctive discounting of COMESA’s relevancy, but also directly to the CCC’s subdued statistics: the agency has received only nine ten notifications in the first ten eleven months of its existence.  Compare this rate (which averages less than one per month) to the estimated number of filings received by another relatively young antitrust watchdog in a developing economy, the Indian Competition Commission (which has received more than 5 notifications per month).

In short, the view persists among global competition counsel that parties can, in commercial practice, simply dispense with a CCC filing that would otherwise be technically required.  Weighing the risk of non-notification (“Is the CCC willing to bring an enforcement action for failure to notify?” – “Does it have adequate resources to sue?”) against the costs, burden and unpredictability of doing so has, in practice, often resulted in a decision not to notify.

This attitude, in turn, revives the dilemma of the “missing policeman”: even if he is physically present, an enforcer who lacks authoritative presence will remain ineffectual – a danger that is only aggravated if the rules he is to apply are not clearly laid out.

The lackluster statistics also raise the further question whether COMESA simply “bit off too much” on the merger-control front, especially when one considers its zero-dollar thresholds, small staff, fragmented supra-national infrastructure, and other factors that call into question its viability (e.g., jurisdictional disputes with some of its member states).  In 2012, senior outside advisers had warned the CCC that – with a zero-dollar threshold and almost no nexus requirement – it was either going to be flooded with de minimis notifications or receive virtually none whatsoever, as parties would simply ignore the mandate.  Thus far, the latter has turned out to be the case.

COM$0, No Nexus, and a Hefty Price Tag – Recipe for Disaster?

The zero-threshold dilemma ranks perhaps as the most significant among the criticisms leveled at the CCC.  Yet, it does not stand alone in the confusing arsenal of statutory language that routinely perplexes counsel advising merging parties with commercial activities in the region.

Lack of Clear Jurisdictional Nexus

At present, a merger transaction[10] is technically notifiable where only one of the parties operates within more than one member state of the common market.  This sets the stage for perverse possibilities: a transaction with a target jurisdiction that, to this day, does not have a domestic antitrust law will nonetheless require a CCC notification with its attendant colossal filing fee.  Worse, the same goes for the acquisition of a target that has no operations whatsoever within COMESA, but where the acquirer alone operates in two member states.

A prime real-life example is the recent COMESA approval of Total’s acquisition of Shell’s Egyptian gas operations.[11]  Pursuant to the terms of the published decision – which is marred by the omission of crucial terms, thereby rendering a meaningful interpretation difficult – the CCC determined “that the transaction has a regional dimension in that both [sic!] the acquiring firm operate [sic!] in more than one COMESA Member State.”[12]  Is it both or just one?  The decision proceeds to identify only the states in which the acquirer is active and does not mention those in which the target has any cognizable operations.  In yet another notified transaction, only the acquiring party had operations in three member states, whereas the target was admittedly “only active in Nigeria, and has no operations in any of the COMESA Member States.”[13]

In essence, under the present regime, even transactions with a de minimis nexus to the region are subject to notification – a rather blatant jurisdictional overreach when compared to international best practices, as enunciated for instance by the ICN in its Recommended Practices for Merger Notification Procedures or in the OECD’s counterpart guidance.  These provide for the generally accepted principle that the parties’ commercial activities on the relevant market must have a material nexus to the reviewing jurisdiction, i.e., the merger must be likely to cause an appreciable competitive effect within the territory of the reviewing jurisdiction, such that notifications are only required for “those mergers that have an appropriate nexus with their jurisdiction.”[14]

In its present form, the net cast by the COMESA merger regulations is woven far too finely, as it catches transactions in which only the acquirer operates in the Common Market.  Should the status quo persist through the next iteration of the merger rules’ amendments, the CCC will entrench itself as being out of sync with accepted best practices and will have cemented an inopportune example of extraterritorial overextension in global merger enforcement.

A (Pricey) Tollbooth on the African Merger Interstate

Other areas of criticism may sting even more, however.  A two-fold key problem of the young merger regime has been (1) its confusingly worded filing-fee provision and (2) the perceived exploitation thereof by the CCC.  Tackling these briefly in turn, it is almost an understatement to call the fee provision[15] ambiguous or unclear – its indiscriminate use of “higher of” vs. “lower of,” with no transparent identification of the relevant reference points, is a prime example of avoidably poor legislative drafting.

The publication of a barrage of (incorrect, as it turns out) news flashes and client alerts by law firms prompted the CCC, to its credit, to issue corrective guidance shortly after its inception: on February 26, 2013, it clarified that the half-million-dollar figure was in fact the maximum filing fee.[16]  In the words of the CCC: “When a merger is received, the [CCC] will first calculate 0.5% of the combined turnover of the merging parties.  [It] will then calculate 0.5% of the combined value of assets of the merging parties. [It] will then compare results in 1 and 2 above and get the higher value.  [It] will then compare this higher value to the COM$500,000.”[17]

As a practitioner’s rule of thumb, if the combined annual revenues or asset values of the notifying parties are (U.S.) $100 million or more, the administrative fee will be the maximum $500,000.

The agency’s clarification notwithstanding, it goes without saying that the resulting fees (including miscellany)[18] will nonetheless be exorbitant.  The filing fee alone is vastly disproportionate to the deal values of all but the largest transactions.  Indeed, it constitutes by far the highest merger notification fee in the world (keeping in mind that the global filing-fee scale ranges from the EU’s €0 fee to the United States’ $280,000 maximum).

According to a March 2013 CCC letter, the agency undertook a “preliminary assessment” of expected notification fees, concluding that the cost of a (presumably one-stop-shop) COMESA filing would be “much lower than that of the national competition authorities and this has resulted in the cost of doing business (notifying using the COMESA route) being reduced by about 43.4%.”[19]  It admits, however, that this early estimate was just that – a guess, as it had “not yet concluded any merger investigation for one to have a basis for any comparisons.”[20]

Since then, the CCC has nonetheless taken full advantage of its “tollbooth” role.  For instance, as reported in various business journals,[21] it billed the parties to the pharmaceutical Cipla transaction at the maximum level possible, cashing in half a million U.S. dollars in the process.  It is difficult to recreate the CCC’s unstated methodology of its “preliminary assessment,” but under no hypothesis would the Cipla parties’ national filing fees have matched, much less exceeded, the COMESA fee.

Recalling that one of the stated goals of COMESA is to create a “more competitive market,” one may ask whether the organization has lost its way?  Is it spitefully naïve or rather sadly perceptive to view the creation of the CCC as a short-sighted attempt by a developing region to extract a de facto tax on local businesses and foreign corporations interested in acquiring them – in effect thereby stifling regional growth and outside investment?

Sources who were present during preparatory meetings between CCC staff and international advisors from other enforcement agencies and academia confirm that, even prior to its becoming operational, the CCC affirmatively counted on taking full advantage of the high fees, perceiving them to be a source of funding elementary to the agency’s existence.  This anticipated revenue stream was viewed as so significant that members of the Kenyan Competition Authority (“CAK”) and the CCC engaged in an open quarrel over the ultimate recipient thereof and whether there would be any fee split among NCAs and the CCC.  This type of internal common-market discord eventually led to a “revenue-sharing agreement” of sorts.[22]  Yet, Kenya and COMESA have subsequently continued to disagree on whether COMESA has jurisdiction over certain notifiable transactions – leading to further ambiguity over whether COMESA will be a true “one-stop-shop”.  It stands to reason that the agencies’ prior fee dispute is but one reason for the CAK’s formal request for a “cooperation framework” between the authorities, in order to “operationalize” the two agencies’ joint mandate and to “actualize the interface.”[23]

Going Forward – Mixed Signs of Hope, But the Window is Closing

The silver lining amid clouds of confusion and disagreement surrounding COMESA’s merger-control provisions consists of universal anticipation of revamped legislation and guidance papers.  Since it is the most obvious shortcoming, the glaring zero-threshold provision will likely take center stage at the upcoming annual meeting of the COMESA Council, slated for December, which unites cabinet-level emissaries from all 19 member states.  The Council alone can amend the rules and regulations governing the CCC.  The agency, however, is presumptively in sole charge of its interpretive guidance relating to the legislation.  To date, the agency has not published a final version of its Guidelines.  It is therefore too early to conclude whether the submission of comments on the drafts by experienced practitioners and other experts has borne fruit.

In addition, while the public consultation procedure on the Regulations is well-intentioned in principle, its delayed start and lengthy duration indicate a protracted period of uncertainty and, thus, the continuing validity of inadequate legislation, i.e., the status quo.  The consultation’s implementation, effectiveness, and quality of outside advisers also remain to be determined.

In sum, COMESA’s competition enforcement has left many questions unanswered.  The low number of actual merger notifications is a direct reflection of parties’ and practitioners’ unease at dealing with the CCC.  Crucial elements of the agency’s ultimate success will almost certainly include the clarification of its existing rules as well as the adaptation of its merger legislation to real-life exigencies, such as fundamentally inverting the current ratio of high filing fees and low thresholds.


[1] Andreas Stargard is a partner in the Brussels office of Paul Hastings.

[2]Common Market for Eastern and Southern Africa,” of whose 19 members only a minority of jurisdictions currently have domestic antitrust laws (Egypt, Kenya, Malawi, Mauritius, Seychelles, Swaziland, Zambia and Zimbabwe).  Notably, COMESA excludes South Africa, by far the largest economy in the region, which has its own merger control regime.

[3] The COMESA Regulations do not clearly provide for a prohibition on closing prior to clearance, although the formal Notification Form (No. 12) contains language indicating suspensory effect.  CCC’s staff has made informal comments at various conferences stating that the regime was not suspensory.  However, the last legislative word has not been spoken on the issue, or if it has, it remains ambiguous.

[4] This article focuses on the merger-control aspect not only because it is the Threshold’s topical focus.  COMESA’s broader antitrust rules (on abuse of dominance or cartel prohibition) are not yet fit subjects for comment, as they have simply not seen any application in practice as of this writing.

[5] See, e.g., COMESA Treaty Art. 55 (establishing a regional competition law framework and foreshadowing implementing Regulations); Art. 52 (prohibiting certain types of state aid, “which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods”); Art. 54 (anti-dumping); see also Arts. 76, 85, 86, 99, 106.

[7] SeeCrossing the Competition Rubicon: Internationalising African Antitrust through COMESA,” Concurrences Law Journal, Vol. 3-2013, co-authored with John Oxenham.

[8] A so-called “COMESA dollar” is a monetary accounting unit pegged (since May 1997) to the U.S. dollar at a fixed 1-to-1 exchange rate.

[9] Draft Merger Assessment Guideline, §1.3.

[10] That is, the “direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person.”  Art. 23 COMESA Competition Regulations

[11] CCC Decision, Total Outre Mer S.A / Shell Marketing Egypt and Shell Compressed Natural Gas Egypt Company, October 18, 2013 (public version), available online at http://www.comesacompetition.org/images/Documents/MergerCases/order%20no.%203%20total%20shell.pdf

[12] Id.

[13] CCC Merger Inquiry Notice No. 7 of 2013, Notice of Inquiry into the Transaction involving the Acquisition of Provident Life Assurance Company Limited by Old Mutual (Africa) Holdings Proprietary Limited, available online at http://www.comesacompetition.org/images/Documents/MergerCases/omah%20and%20provident%20statement%20of%20merger.pdf

[14] OECD Recommendation of the Council on Merger Review I.A.1.2.i.

[15] Rule 55(4) of the amended COMESA Competition Rules reads as follows: “Notification of a notifiable merger shall be accompanied by a fee calculated at 0.5% or COM$500000, or whichever is lower of the combined annual turnover or combined value of assets in the Common Market, whichever is higher.”

[16] The “greater of” calculus in the provision instead refers to the half-percent of “assets” versus “revenues,” according to the CCC.

[17] “Interpretive Meaning Of The Notification Fee Pursuant To Rule 55(4) Of The Amended COMESA Competition Rules,” available online at: http://www.comesacompetition.org/documents/english/29-notification-fee-pursuant-to-rule-55-amended-comesa-competition-rules

[18] Fees for notifications are not the only party-sponsored revenue source, as the November 2012 amendments to the Competition Rules also prescribe a $10,000 fee each for applications for authorization and for exemption orders.  See Amended Rules 63(1) and 77(4).

[19] Letter from CCC, dated 22 March 2013, at §17, available online at https://africanantitrust.com/2013/05/14

[20] Id. at 16

[21] See, e.g., “Regional competition body for COMESA under fire for inflated merger filing fees,” Business Day (8/20/2013), available online at: http://www.bdlive.co.za/africa/africanbusiness/2013/08/20/news-analysis-regional-competition-body-for-comesa-under-fire-for-inflated-merger-filing-fees

[23] February 14, 2013 letter from CAK Director-General Kariuki to the CCC’s Mr. Lipimile.  The Kenyan Attorney General subsequently issued a ruling against COMESA jurisdiction over certain Kenyan transactions in March 2013.  See https://africanantitrust.com/2013/03/15/

South Africa- Supreme Court of Appeal upholds Competition Commission appeal relating to investigatory powers

The Supreme Court of Appeal (the “SCA”) upheld an appeal against a judgment of the Competition Appeal Court invalidating a complaint referred to the Competition Tribunal (the “Tribunal”) by the Competition Commission (the “Commission”) against cartel activity allegedly entered into by Yara South Africa (Pty) Ltd (“Yara”) and Omnia Fertilizer Ltd (“Omnia”).

The dispute in this matter arose out of a complaint lodged with the Commission, citing Sasol Chemical Industries Proprietary’ (“Sasol”) for imposing unfair price increases in respect of certain raw materials it supplied to the complainant company. The complainant elaborated upon its complaint by way of an affidavit which explained the price increases with reference to a cartel which Sasol was alleged to have entered into with Yara and Omnia. Pursuant to the complaint, the Commission conducted an investigation which confirmed both the price increase allegations made against Sasol and the claims of cartel activity made against Sasol, Omnia and Yara. As a result, the Commission referred the complaints relating to both price increases and cartel activity to the Tribunal for adjudication.

The legality of this referral formed the substance of the dispute. Omnia argued that the initial complaint brought to the Commission was directed against Sasol alone and, further, was limited to Sasol’s conduct as it related to price increases. Omnia disputed the lawfulness of the referral insofar as the Commission had, under the auspices of the original complaint directed at Sasol, sought to refer Omnia’s conduct to the Tribunal absent a separate complaint initiation. Omnia contended that, in order for the referral of this further complaint to have been lawful, it ought to have been separately initiated by the Commission.

The SCA confirmed Omnia’s position, and that the complaint referred to the Tribunal indeed extended beyond the cause of action raised by the original complaint. However, the SCA went further and stated that complaints made by private persons may well trigger separate complaints and, in such cases, the Commission need only decide to initiate a new complaint, investigate that complaint and, if appropriate, refer that complaint to the Tribunal. The SCA confirmed that the process may be both informal and tacit. Further, should the Commission already have enough information to warrant a referral, the intervening investigation can be cursory. The SCA found that the requirements for valid initiation and referral had been satisfied on the facts of this case.

The SCA’s decision will embolden the Commission to proceed with a number of complaint referrals which were left pending the outcome of the matter.