The African WRAP – SEPTEMBER 2017 Edition

Since our June 2017 Edition of the African WRAP, we highlight below the key competition law related topics, cases, regulatory developments and political sentiment across the continent which has taken place across the continent in the past three months. Developments in the following jurisdictions are particularly noteworthy: Botswana, Kenya, Mauritius, Namibia, Tanzania and South Africa.

[AAT is indebted to the continuous support of its regular contributors and the assistance of Primerio’s directors in sharing their insights and expertise on various African antitrust matters. To contact a Primerio representative, please visit Primerio’s website]


Botswana: Proposed Legislative Amendments

Introduction of Criminal Liability

The amendments to the Competition Act will also introduce criminal liability for officers or directors of a company who causes the firm to engage in cartel conduct. The maximum sanctions include a fine capped at P100 000 (approx. US$10 000) and/or a maximum five year prison sentence.

Fines for Prior Implementation

Once finalised, the legislative amendments will also introduce a maximum administrative penalty of up to 10% of the merging parties’ turnover for implementing a merger in contravention of the Act. This would include ‘gun-jumping’ or non-compliance with any conditions imposed on the merger approval.

Restructuring of the Authorities

Proposed legislative amendments to the Botswana Competition Act will likely result in the Competition Commission’s responsibilities being broadened to include the enforcement of consumer protection laws in addition to antitrust conduct.

Furthermore, there is a significant restructuring of the competition agencies on the cards in an effort to ensure that the Competition Authority – which will become the Competition and Consumer Authority (CCA) – is independently governed from the Competition Commission. Currently, the Competition Commission governs the CA but the CA is also the adjudicative body in cases referred to the Commission by the CA.

The proposed amendments, therefore, seek to introduce a Consumer and Competition Tribunal to fulfil the adjudicative functions while an independent Consumer and Competition Board will take over the governance responsibilities of the ‘to be formed’ CCA.

South Africa

Information Exchange Guidelines           

The Competition Commission has published draft Guidelines on Information Exchanges (Guidelines). The Guidelines provide some indication as to the nature, scope and frequency of information exchanges which the Commission generally views as problematic. The principles set out in the Guidelines are largely based, however, on case precedent and international best practice.

The fact that the Commission has sought to publish formal guidelines for information exchanges affirms the importance of ensuring that competitors who attend industry association meetings or similar forums must be acutely aware of the limitations to information exchanges to ensure that they do not fall foul of the per se cartel conduct prohibitions of the Competition Act.

Market Inquiry into Data Costs

The Competition Commission has formally initiated a market inquiry into the data services sector. This inquiry will run parallel with the Independent Communications Authority of South Africa’s market inquiry into the telecommunications sector more broadly.

Although the terms of reference are relatively broad, the Competition Commission’s inquiry will cover all parties in the value chain in respect of any form of data services (both fixed line and mobile). In particular, the objectives of the inquiry include, inter alia, an assessment of the competition at each of the supply chain levels, with respect to:

  • The strategic behaviour of by large fixed and mobile incumbents;
  • Current arrangements for sharing of network infrastructure; and
  • Access to infrastructure.

There are also a number of additional objectives such as benchmarking the standard and pricing of data services in South Africa against other countries and assessing the adequacy of the regulatory environment in South Africa.

Mauritius

Amnesty re Resale Price Maintenance

The Competition Commission of Mauritius (CCM) has, for a limited period of four months only, granted amnesty to firms who have engaged in Resale Price Maintenance. The amnesty expires on 7 October 2017. Parties who take advantage of the amnesty will receive immunity from the imposition of a 10% administrative penalty for engaging in RPM in contravention of the Mauritius Competition Act.

The amnesty policy followed shortly after the CCM concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

Please see AAT’s featured article here for further information on Resale Price Maintenance under Mauritian law

Tanzania

Merger and Acquisition Threshold Notification

The Fair Competition Commission has published revised merger thresholds for the determination of mandatorily notifiable thresholds. The amendments, which were brought into effect by the Fair Competition (Threshold for notification of Merger) (Amendment) Order published on 2 June 2017, increases the threshold for notification of a merger in Tanzania from TZS 800 000 000 (approx.. US$ 355 000) to TZS 3 500 000 000 (approx.. US$ 1 560 000) calculated on the combined ‘world-wide’ turnover or asset value of the merging parties.

Kenya

            Concurrent Jurisdiction in the Telecommunications Sector

In June 2017, Kenya’s High Court struck down legislative amendments which regulated the concurrent jurisdiction between the Kenya Communications Authority and the Competition Authority Kenya in respect of anti-competitive conduct in the telecommunications sector.

In terms of the Miscellaneous Amendments Act 2015, the Communications Authority was obliged to consult with the Competition Authority and the relevant government Minister in relation to any alleged anti-competitive conduct within the telecommunications sector, prior to imposing a sanction on a market player for engaging in such anti-competitive conduct.

The High Court, however, ruled that the Communications Authority is independent and that in terms of the powers bestowed on the Communications Authority by way of the Kenya Communications Act, the Communications Authority may independently make determinations against market participants regarding antic-competitive conduct, particularly in relation to complex matters such as alleged abuse of dominance cases.

Establishment of a Competition Tribunal

The Kenyan Competition Tribunal has now been established and the chairperson and three members were sworn in early June. The Tribunal will become the adjudicative body in relation to decisions and/or taken by the Competition Authority of Kenya.

The Operational Rules of the Tribunal have not yet been published but are expected to be gazetted soon.

Introduction of a Corporate Leniency Policy

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines, which provide immunity to whistle-blowers from both criminal and administrative liability. The Guidelines specifically extend leniency to the firm’s directors and employees as well as the firm itself.

Only the “first through the door” may qualify for immunity in respect of criminal liability, but second or third responds would be eligible for a 50% and 30% reduction of the administrative penalty respectively, provided that provide the CAK with new material evidence.

It should be noted, however, that receiving immunity from criminal prosecution is subject to obtaining consent from the Director of Public Prosecution as well. As per the procedure set out in the Policy Guidelines, the Director pf Public Prosecutions will only be consulted once a leniency applicant has already disclosed its involvement in the cartel and provided the CAK with sufficient evidence to prosecute the other respondents.

It is not clear what powers the Director of Public Prosecutions would have, particular in relation to the evidence which has been provided by the leniency applicant, should either the CAK or the Director refuse to grant immunity from criminal prosecution.

Namibia

Medical aid schemes

In a landmark judgment, the Namibian Supreme Court overturned the High Court’s decision in favour of the Namibian Association of Medical Aid Funds (NAMAF) and Medical Aid Funds (the respondents) finding that the respondents did not fall within the definition of an “undertaking” for the purpose of the Namibian Competition.

Despite the substantial similarities between the Namibian and the South African Competition Act, Namibia’s highest court took a very different interpretative stance to its South African counter-part and held that because the respondents did not “operate for gain or reward” they could not be prosecuted for allegedly having  engaged in collusive behaviour in relation to their ‘tariff setting’ activities in terms of which the respondents collectively  determined and published recommended bench-marking tariffs for reimbursement to patients in respect of their medical costs.

 

 

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Mauritius Competition Commission announces Amnesty for Resale Price Maintenance

By AAT guest contributor Sanjeev Ghurburrun of Geroudis

The Competition Commission of Mauritius has just launched an amnesty program open from 5th June to 5thOctober 2017 for companies which consider they have practices which may amount to resale price maintenance (see here for a recent example of RPM resulting in fines in Mauritius).

Why bother?

In Mauritius, resale price maintenance (RPM) is a per se prohibition and any agreement which provides for it is void and prohibited to that extent. There is comparatively no justification which is allowed under our law to justify RPM.

In RPM cases, the Competition Commission of Mauritius (CCM) can impose financial penalties, for intentional or negligent breaches, which go up to 10% of turnover of offending party, and can extend back for a period of 5 financial years.

What does RPM mean and include?

The CCM defines RPM as “an agreement between a supplier and a dealer with the object or effect of directly or indirectly establishing a fixed or minimum price or price level to be observed by the dealer when reselling a product or service to his customers.” In short, Suppliers should not require resellers to stick to an agreed price or even to the price printed on the product packaging or to sell above a certain price.

This prohibition includes and extends to imposing conditions preventing resellers from discounting or making special offers or, for example, having agreed maximum discounts applicable between supplier and reseller.

Examples of situations which could, in general, be considered as RPM:

  1. The retailer shall apply a shelf price of MUR 77.50 for the first quarter and the corresponding promotional price shall not be below MUR 70.50
  2. The retail price consists of the purchase price plus a minimum mark up of 18%
  3. Supplier X sends an email to dealers A, B, C “as agreed during our last negotiations, the minimum retail price of MUR 227,50 will not be undercut as long as main competitors A, B and C stick to the said price”
  4. A supplier informs its resellers that it will affix the resale price of its product on the product label. Neither does the product label mention that the affixed price is a ‘Recommended price” nor do resellers negotiate the resale price with the supplier individually. Dealers purchase the products with the affixed resale price and do not show any resistance to supplier’s pricing policy.
  5. A supplier agrees with a reseller to grant the latter a 1.5 % rebate or ‘ristourne’ on the wholesale price provided that the retailer adheres to the recommended minimum resale price. The rebate will be deducted from the amount invoiced to the retailer on a quarterly basis upon proof of implementation of the recommended resale price.

When does RPM not apply?

There are two situations where RPM may not apply:

  • A supplier may recommend resale prices to its resellers provided there is no mechanism to entice or make sure that the reseller sticks to the resale prices recommended, and pricing expressly contains the RRP notice.
  • RPM may be permissible within an agency agreement or arrangement, in which one enterprise acts on behalf of another but does not take title of the goods or services. Care should be taken to make sure that the agency infrastructure is not such as made only to bypass the restrictions provided on law.
  • Agreements may set a pricing ceiling preventing resellers from raising prices, are permitted.

Clarification: RPM restrictions apply to all companies, and not only to monopolies (e.g. those with more than 30% market share in their respective markets)

Criteria for Amnesty:

In order to benefit from the amnesty, a company needs to:

  • Admit its participation in an agreement involving RPM
  • Provide to the CCM all information, documents, and evidence available to it regarding the RPM, and as required by the CCM;
  • Maintain continuous and complete co-operation until the conclusion of any action by the CCM in relation to the matter;
  • Offer undertakings that satisfactorily address the competition concerns of the CCM

Essentials:

Should a company consider amnesty, it should also consider the following risks:

  1. For the Amnesty application:
    • Whether there is an RPM issue;
    • A proper impact assessment review of extent and scope of the RPM
    • Full information and issues pack creation
    • Undertakings to propose to the CCM as part of the solution and its impact on the business as well as likelihood of acceptance or amendment by the CCM
  1. In addition to making the application, do consider:
    • The risk of any third-party claims against the company for having to admit liability in order to obtain the amnesty.
    • What else the CCM may find from the information required to be disclosed to them – e.g. the company is to make sure its house is in order.
    • Some restraints contain both vertical and horizontal elements, such as a when a supplier also sells to customers directly making it a competitor and a supplier to the reseller. In such cases, assess and consider how the CCM may analyse this and risks for the company.

Namibia Competition Commission: New Franchise Laws to Address Anti-Competitive Concerns

By AAT Senior Contributor, Michael-James Currie

The CEO of the Namibian Competition Commission (NCC), Mr. Mihe Gaomab II, recently announced that the NCC has made submissions to the Minister of Trade and Industry in relation to proposed legislation which will regulate franchise models in Namibia.

Currently, there is no specific ‘franchise law’ in Namibia and moreover, franchisees are not required to apply to the Minister of Trade and Industry for registration of an ‘approval’ licences. Accordingly, there is minimal regulatory oversight in respect of franchise models.

While recognising the benefits of franchise models, the NCC is, however, concerned that there are a number of franchises in Namibia which may be anti-competitive in that the franchisor-franchisee relationship creates certain barriers to entry.

The NCC has specifically identified the practice, by way of an example, whereby certain franchisors deliberately ensure that there is a lack of competition between franchisees in the downstream market. The rationale behind this commercial strategy is allegedly so that the franchisor may extract greater royalties or franchise fees from the respective franchisees, as the franchisee is assured of a lack of competition.

The NCC views this practice as well as a various similar practices as potentially anti-competitive as the structure of certain franchise models may result in collusion between franchisees.

Unlike a number of jurisdictions, including South Africa, however, collusive conduct is not prohibited per se and a franchise agreement or model will, therefore, only amount to a contravention of the Namibia Competition Act if there is (or likely to be) an anti-competitive effect which cannot be justified or outweighed by other pro-competitive or efficiency arguments (i.e. rule of reason arguments).

The rule of reason analysis also extends to ‘minimum resale price maintenance’ (MRPM) under Namibian competition law. Again, unlike the position in South Africa, MRPM is not a per se prohibition (i.e. there is rule of reason defence available to a respondent). MRPM in terms of the South African Competition Act is a controversial topic as in many instances, the very success of a franchise model is dependent on uniformity in pricing across all franchisees. Furthermore, issues such as protecting brand reputation are also generally acceptable commercial practices which may amount to a contravention due to the strict application of the MRPM provisions under South African law.

In Namibia, franchisors therefore have somewhat more flexibility when recommending minimum resale prices than their South African counterparts. It should be noted, however, that the NCC is monitoring franchise models closely to ensure that franchisors do not overstep the mark by implementing a franchise model which has as its object or effect, the lessening of competition in the market.

MAURITIUS COMPETITION AUTHORITY PENALIZES FIRM FOR ENGAGING IN RESALE PRICE MAINTENANCE

By AAT Senior Contributor, Michael-James Currie

In a landmark judgment, the Competition Commission of Mauritius (CCM) recently concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and 4 007 110.00 respectively for each contravention.

The judgment is important as it not only demonstrates the CCM’s increasing enforcement efforts and risk of non-compliance with the Competition Act (this decisions follows on CCM’s recent findings against firms for engaging in abuse of dominance conduct) but has created a particularly strict threshold on firms in relation to what constitutes price maintenance in terms of Mauritius competition law. RPM is a prohibited vertical practice, in which suppliers restrict or prescribe the manner in which customers resell the relevant products or services. Minimum resale price maintenance is prohibited in most jurisdictions. Whether the contravention is a “per se’ contravention (i.e. that there is no rule of reason defence available to a respondent) or whether proving an anti-competitive effect is a necessary requirement to prove a contravention is generally the key difference in the manner in which competition agencies enforce RPM.

In relation to Panagora,  the company was found to have contravened the Competition Act as a result of having affixed the resale price on two of its ‘Chantecler’ branded chicken products (chilled and frozen), without affixing the words ‘recommended price’ next to the stated price.

In addition, Panagora engaged in promotional sales to dealers  utilising a ‘deal sheet’ which contained the following clause “Le fournisseur se reserve le droit d’annuler le tariff promotionnel au cas ou certains produits sont vendus en dessous du prix normal” (the supplier reserves the right to cancel the promotional price in the event that certain products are sold below the normal price).

Importantly, in reaching its determination, the Executive Director held that although foreign case law, particularly Australian, UK and EU legal precedent serves as a useful guideline. The Mauritius Competition Act (in so far as it relates to RPM), differs vastly from its international counter-parts. In this regard, the Competition Act merely requires evidence supporting the contention that there was an object or effect of directly or indirectly establishing a fixed or minimum price or price level to prove a contravention. The Mauritius Competition Act  does not require that the conduct in any way prevented, restricted or distorted competition in the market.

Andreas Stargard, a competition practitioner with Africa boutique firm Primerio Ltd., notes that ‘[a] further important aspect of the CCM’s ruling is that sanction (or threat of a sanction) is not a requirement to prove a contravention of the RPM prohibition. Accordingly, the inquiry did not consider whether the downstream customer retained the discretion to price below the “stated price”.’

The legal precedent created by the CMM’s ruling provides much needed clarity as to how the CMM will evaluate resale price maintenance cases and firms need to be particularly cautious in relation to the terms of engagement with customers who on-sell their products.