NYK Agrees To Pay R104 Million In Settlement Agreement
On 1 June 2015, it was announced that Japanese Shipping liner, NYK, had concluded a settlement agreement with the Competition Commission (the “Commission”) in the amount of R104 million (approximately $8 600 000), for contravening Sections 4(1)(b)(i),(ii) and (iii) of the Competition Act (“Competition Act”), 89 of 1998.
The listed sections relate to collusive conduct, including:
directly or indirectly fixing a purchase price or other trading condition;
dividing markets by allocating customers, suppliers or territorial or specific types of goods or services; and/or
collusive tendering.
The settlement follows an investigation by the Commission into the collusive behaviour of a number of shipping liners, namely Mitsui O.S.K Lines; Kawasaki Kisen Kaisha Ltd; Compania Sud Americana de Vapores; Hoegh Autoliners Holdings AS; Wallenius Wilhelmsen Logistics; Eukor Car Carriers; and NYK, in relation to allegedly fixed prices, divided markets and tendering collusively in respect of the provision of deep sea transportation services.
In terms of Competition Act, a settlement agreement must be made an order by the South African Competition Tribunal. The Order will of course also be made public.
It will be interesting to note that the new guidelines recently adopted by the Competition Commission, on the Calculation of Administrative Penalties is still relatively novel, and it will be interesting to see how and to what extent the Commission followed the Guidelines in reaching the settlement quantum. As AAT has written previously on the topic:
The Guidelines set out a six step process to be used by the SACC to calculate administrative penalties. The six steps are summarised below:
An affected turnover in the base year is calculated;
the base amount is a proportion of the affected turnover ranging from 0-30% depending on the type of infringement (the higher end of the scale being reserved for the more serious types of prohibited conduct such as collusion or price fixing);
the amount obtained in step 2 is then multiplied by the number of years that the contravention took place;
the amount in step 3 is then rounded off in terms of Section 59(20 of the Act which is limited to 10% of the firms turnover derived from or within South Africa;
the amount in step 4 can be adjusted upwards or downwards depending on mitigating or aggravating circumstances; and
the amount should again be rounded down in accordance with Section 59(2) of the Act if the sum exceeds the statutory limit.
It is important to note in the case of bid-rigging or collusive tendering, the affected turnover will be determined by calculating the value of the tender awarded. Thus, even where a firm deliberately ‘loses’ a tender, the firm will be subjected to an administrative penalty which calculates the value of the tender in the hands of the firm who ‘won’ the tender.
Discarding any objectivity and international best practice, the Minister of Economic Development, Mr. Ebrahim Patel, has once again expressed his desire to use the South African Competition Commission (“SACC”) as an agency to actively promote the government’s industrial policies.
Speaking at a media briefing, Patel told journalists that the focus of the Economic Development Department would be to grow “black ownership of new industry in South Africa and using state funding to grow the work of black entrepreneurs”.[1]
Minister Patel
Patel said the intention of using the SACC to launch a market inquiry into the retail sector was to “ensure that we’ve got a competitive sector, but also an inclusive sector”. This statement and the decision to institute a market inquiry into the retail sector is, at least at this stage, problematic for two reasons. Firstly, the retail sector is arguably one of the most competitive sectors in South Africa, and any barrier to entry into the sector is a natural consequence of a highly competitive market. Furthermore, Patel identified exclusivity clauses (which are popular provisions inserted into lease contracts between mall anchor tenants and the developers) will be one of the issues that the inquiry will look into. Patel, unfortunately, overlooked the fact that there has already been an investigation relating to these clauses. At the conclusion of the investigation, the SACC found that there is not sufficient evidence of anti-competitive impact, resulting from these clauses, and thus the SACC refrained from referring the matter to the South African Competition Tribunal (“SACT”).[2] This thus begs the question, whether it is necessary to institute a market inquiry with regard to the issue of exclusivity clauses and expose the industry to intensive and unnecessary costs?
In an article written by Mfundo Ngobese in the official newsletter of the SACC, Ngobese responds to an article written by John Oxenham and Patrick Smith, presented at the Eighth Annual Conference on Competition Law, Economics and Policy titled “What is Competition Really Good For?”. The main focus of Ngobese’s article is evaluating the merits of an argument put forward by Oxenham and Smith: that the Competition Authorities should engage in a balancing exercise between the short term impact on public interest issues (such as employment) versus the long term benefits that are associated with effective competition (such as increased economic growth which leads to more jobs created).
Public Interest Test
This brings us back to Patel’s decision to use public interest as the main ground on which a market inquiry into the retail sector should be instituted. The decision to launch a market inquiry based on the anti-competitiveness of exclusivity clauses is simply untenable in light of the SACC’s findings in respect of a previous investigation into the issue, as well as the fact that the retail industry is highly competitive.[4] Using any ‘anti-competitive’ argument as justification for launching this particular market inquiry, would amount to nothing more than a ‘fishing expedition’ by Patel and the Authorities.
The broad public interest grounds which are increasingly becoming prevalent as Patel transcends into the competition arena, coupled with the ill-defined rationale, guidelines and justifications behind the use of public interest grounds in competition review, is contributing significantly to uncertainty in the South African economy.
This ‘uncertainty’, that surrounds doing business in South Africa was recognised by African National Congress (ANC) stalwart Mathews Phosa. The former ANC Treasurer and Mpumalanga premier identified corruption, inconsistent government policies, and other factors as root causes of investors’ growing reluctance to invest in South Africa:
Policy stability leads to political, social and economic uncertainty. Policy stability in contrast created an “investment friendly culture where every investor feels protected and free to do business”.
While businesses in the retail industry (and indeed businesses across the board) in South Africa, are desperately seeking certainty, Patel is seeking a ‘second bite of the cherry’.
The second issue with Patel’s reason for instituting the market inquiry relates to him wanting to achieve an “inclusive retail sector” and how to bring more “black South Africans into the sector”. While transformation in the economy is certainly an important issue that needs to be addressed in South Africa, it is the manner and form in which such transformation takes place, which is concerning. In this regard, the SACC is patently not the appropriate institution to ensure that there are sufficient black-owned businesses in the retail sector.
Confused Motives
Patel seems to have, unfortunately, conflated the objectives and role of his own department, with the objectives and purpose of the SACC. This comes at a time when other political meddling has led to the resignation of the National Director of Public Prosecutions, Mxolisi Nxasana, who quit his post on Sunday, after almost a year of politically-motivated wrangling and formal investigations being initiated and ultimately dropped by President Jacob Zuma.
Former NPA head Mxolisi Nxasana, forced to resign due to political pressure.
The influence that Minister Patel has had on the SACC’s policy is undoubtedly evident when one evaluates the increased reliance of the South African Competition Authorities to impose stringent conditions in approving mergers.[5]
In justifying the use of public interest grounds in competition law, the Competition Authorities may point out that South Africa’s Competition Act, 89 of 1998 (the “Act”) permits and requires public considerations to be taken into account. However, the use of public interest grounds should not, as seems to be the case, be seen as independent issues unrelated to competition which is to be considered in isolation of the purpose of the Act.[6] The Competition Authorities’ purpose, as set out in Section 2 of the Act is to “promote and maintain competition in the Republic…”. It is likely that Patel views the following two subsections which state that competition must be maintained or promoted to:
“promote employment and advance the social and economic welfare of South Africans” (Section 2(c)); and
“promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons” (Section 2(f))[7]
as the basis for his increased reliance on pushing his Department’s policy objectives through the channels of the SACC. However, placing an overly zealous reliance on these two subsections, fundamentally misconstrues the purpose and function of competition law.
Subsections (c) and (f) quoted above are not self-standing provisions; they are qualified by the general purpose of the Act. Furthermore, by viewing or placing greater reliance on these provisions as self-standing provisions, one would run into an inconceivable difficulty when considering section 2(a), which states as a further objective of the Act (and the purpose of the promoting competition) is to promote the “efficiency, adaptability and development of the economy”. At least from a Section 2 perspective, public interest considerations, at best, have to be reconciled with competition issues.
Market inquiries have often been used very successfully as an investigative tool by a number of competition agencies, especially in Europe. However, a market inquiry requires significant resource expenditure by both the SACC and the market participants and often casts a bad shadow over the relevant industry to the detriment of companies who have not engaged in any anti-competitive conduct. Market inquiries should thus be used sparingly and only when there is significant concern that a particular market is not functioning in a competitive manner. A market inquiry should certainly not be used as a means to affect change in the industry in order simply to suit the objectives of the Government.
There is a further institutional concern which must be noted, and that is that the SACC has, like all institutions, limited resources. In order to function as an efficient and formidable competition law agency, the SACC should ensure that what limited resources are available, is best utilised to achieve a competitive market environment in South Africa.
Before even engaging in policy discussions, as those that Patel is pushing for, it would firstly be necessary to ensure that the SACC has the requisite expertise to deal with policy agenda’s which are far broader than pure competition law. There are already institutions, as Patel has recognised, whose responsibility it is to promote economic growth and to address transformation within the economy.[8] It is not the responsibility of the Competition Authorities to address these issues as directly as has been the case in recent years.[9]
The need for transformation and the promotion of black industrialists is an issue to be addressed by the Government, however, it seems that there is a general lack of regard to competition concerns when Government departments form their policies. A good illustration of this is the significant criticism levelled at the new agreement struck between South African Airways (“SAA”) and the Department of Trade and Industry (“DTI”), which will see SAA redirect R10 billion rand of procurement spending to “black industrialists” (“SAA Agreement”).[10]
While this may appear to be a noble policy, the question remains whether new “black industrialists” are coming into existence, or whether existing “black industrialists” are simply going to make substantial profits at the expense of true development.
The SAA Agreement, which requires, without anything more, that a certain amount of supplies (fuel) be purchased from specific suppliers (‘black suppliers’) strikes at the heart of competition. Effectively certain existing competitors are being excluded in order to favour other competitors. In no way does this promote ‘transformation’ within the industry as the existing barriers to entry remain.
From a competition point of view, the benefit of having healthy competition in the commercial aviation market seems to have been overlooked by the DTI. Apart from the direct benefit that flows from actual cheaper air tickets, the knock-on benefits of stimulating the leisure tourism seems to have been overlooked.
While acknowledging that the SAA decision taken by the DTI is not directly linked to competition law, the disregard that the DTI appears to have to competition in the aviation industry is in stark contracts to the to the Competition Authorities in Botswana who have launched a market inquiry into the aviation sector (although notably with the focus being on unscheduled flights), due to having recognised the importance that the price of flight tickets may have on the tourism industry and the benefits that would flow from boosting the tourism industry.
Considering that SAA is battling financially, and is highly dependent on State bailouts, it is baffling that the State’s primary objective is not to ensure that SAA operates viably and competitively, before risking such competitiveness in favour of a policy which is quite frankly, difficult to justify as there is no evidence that such policies actually achieve genuine transformation or promote economic growth.[11]
One can’t help but notice the irony when it comes to the Government’s social and transformation policies. The Government, and Patel in particular, consistently ignore well established economic principles and the benefits that flow from healthy competition in the economy, in favour of promoting short-sighted top-down “transformative industrial policies”, rather than spending the scarce resources on promoting and developing South Africa from a bottom-up approach.
For instance, poor service delivery in South Africa has a significant detrimental economic and social impact on South Africa. Why improving service delivery does not appear to be high on the radar of the Department of Economic Development or the DTI, is surprising if the objectives of these departments are to promote ‘black businesses’, as the areas which are most severely affected by poor service delivery are generally areas where there is a high percentage of black persons living, who form part of the lower income brackets. In other words, areas where the promotion of small businesses and healthy competition would be most valuable to any social development objectives.
Unfortunately, however, a recent report issued by the Institute of Race Relations stated that the highest incidence of recent public protests in relation to poor service delivery, took place in areas were the most “fruitless and wasteful government expenditure” took place.[12]
Recent statistics show that South Africa’s unemployment rate is increasing, bringing into question whether the policy intervention that Patel has been championing over the past 6 years, is indeed yielding the positive results envisioned by the Government. While the purpose of this article is not to evaluate and criticise all policy interventions, the point to be made is that the effectiveness of policy intervention to advance socio-economic interests in the South Africa is in no way proving effective. While there may be a number of reasons for failing policies, it appears worrying that politicians such as Patel are prepared to risk the independence, efficient functioning and objectives of the Competition Authorities, which are ultimately to promote competition in the market, in order to promote industrial policies when there is so much uncertainty whether such policies will truly ensure long term benefits for the Country as a whole.
Two recently issued reports, namely, the Boston Consulting Group (BCG) Report and the IMD World Development Report, succinctly confirm the concerns and issues which are addressed in this article.
The BCG Report evaluates the reasons for South Africa’s stagnant economic growth. The report acknowledges that it is a necessity to improve education and healthcare and reduce unemployment to advance growth; however, the report importantly states that:
“There is no hiding from the fact that short-term self-interested behaviour has been prevalent; that the emphasis in South Africa has been on cutting the pie rather than growing it.”[13]
This statement could not be truer if one considers Patel’s disregard of well established benefits that flow from a competitive environment, in favour of promoting industrial policies. The following statement by Adam Ikdal on the poor leadership in South Africa, corroborates this papers view:
“a concerted program of execution is essential. In many instances this may mean putting the greater good ahead of the individual or institutional interests.”[14]
The IMD World Competitiveness Report (IMD Report) not only complements the BCG Report, but essentially confirms the views of this paper, with empirical evidence. The IMD Report indicates that South Africa has dropped from a ranking of 37 in 2012 to 53 in 2015 on a list of the world’s most competitive countries. The IMD Report not surprisingly, identified South Africa’s infrastructure shortfall, poor service delivery and lack of education and skills as some of the major contributors to South Africa’s slip down the rankings.
Crucially the director of the IMD World Competitiveness Centre, Arturo Bris, identified what sets the top performing countries apart from the others. This is what Bris had to say, which is essentially, the basis upon which the criticism identified in this paper is levelled at Patel’s policy objectives:
“Productivity and efficiency are in the driver’s seat of a competitiveness wagon. Simply put, business efficiency requires greater productivity and the competitiveness of countries is greatly linked to the ability of enterprises to remain profitable over time”.[15]
In conclusion, we note that both transformation and fostering economic growth is an objective of the South African Government. This is, however, no justification for abandoning the tried and tested benefits that flow from a competitive market, in favour of promoting short-term industrial policies such as Patel is doing. Should the SACC adopt Patel’s industrial policies as part of their policy objectives, the SACC ultimately risks its independence and may effectively become an ‘umbrella institution’ under which any industrial policy agendas are driven. This would be an undesirable and intolerable outcome, and one which the South African Competition Authorities need to carefully guard against.
[5] We have dealt with this aspect of merger control in more depth in previous articles, please see the following link.
[6] To illustrate the extent that public interest considerations are used by the Competition Authorities, the last intermediate merger that was approved unconditionally was in 2008. Since then, there have been 14 mergers that have been approved subject to conditions. As to large mergers, approximately 10 of the most recent 40 mergers that have come before the Competition Tribunal, 5 have been approved subject to conditions. It should be noted that it is the SACC that reviews intermediate mergers, while large mergers are reviewed bu the Competition Tribunal.
[7] Sections 2(c) and (f) of the Competition Act, 89 of 1998.
[8] For example the Industrial Development Corporation.
[9] See the AfriGroup Holdings (Pty) Ltd and Afgri Ltd merger where the South African Competition Tribunal (“SACT”) Acknowledged that the merger poses no horizontal or vertical competition law concerns. Despite reaching such a conclusion, the SACT, approved the merger on condition that an agreement reached by the parties in terms of which Afgri would contribute R90 million over four years, to a development fund for small farmers via the provision of loans, training and grain storage discounts. Similar burdensome conditions are becoming all the more prevalent in merger control, and are often self-imposed by the SACT and are not agreed upon by the parties as was the case in Afgri.
Banks in hot $$$: Another regulator investigates currency manipulation
The South African Competition Commission (“SACC”) has recently commenced an investigation into several banks and financial institutions for allegedly price-fixing in relation to the ‘Bid and Ask’ amounts, and consequently the ‘Bid-Ask spreads’, which the institutions allegedly make available make available for foreign exchange currency trading derivatives; specifically: Spot Trades; Forwards and Futures.
The SACC stated that the banks and financial institutions named, BNP Paribas SA, Barclays Plc’s African operations, JP Morgan South Africa, Investec and a unit of Standard Chartered Plc provided, have allegedly colluded to synchronize trades when quoting prices to customers seeking to buy or sell foreign currencies through the use of electronic messaging software utilized for currency trading.
The SACC investigation currently relates only to currency exchange trades involving South African Rand (ZAR). the SACC alleges that the conduct has the consequence of devaluing the ZAR with the following concomitant effects:
Foreign currencies exciting the country;
Local inflation in South Africa increasing as the cost of foreign imports into the Republic of South Africa increases e.g., oil; raw materials; steel etc.
The Potential Impact on Public Interest Considerations of the Labour Relations Amendment Act
The recently enacted Labour Relations Amendment Act, 6 of 2014 (the “LRAA”) has potentially increased the scope and role employment, as a specified public interest ground listed in Section 12A of the Competition Act, 89 of 1998 (the “Act”), could have on merger reviews in South Africa.
Section 12A of the Act places an obligation on the South African Competition Authorities to (the “Authorities”), when evaluating a merger, to consider the impact that a proposed merger will have on a number of public interest grounds which are listed in the Act.
The Authorities have become increasingly proactive in imposing conditions on approved mergers, which aims to alleviate their concerns in relation to the potential impact that a proposed merger may have on any of the public interest grounds.
The most often relied upon public-interest ground is employment. In 2015 alone there have been five large mergers that have been approved, subject to conditions in relation to employment. [1]
When assessing the impact that a proposed merger will have on employment, the most crucial factor is the potential immediate retrenchments that may result from the merger.
Previously, the impact that a merger may have on employees who were on ‘fixed term’ employment contracts would not be a significant factor as the employment contract, it could be argued, was in any event to come to an end. However, the LRAA has now changed the position somewhat in this regard, as an employer may no longer conclude fixed term contracts with employees for a period of 3 months, unless the nature of the work to be performed is for a definite or limited duration, or there is another justifiable reason for concluding a fixed term contract.
Should the requirements for concluding a fixed term contract for a period of longer than three months not be met, such an employee will be deemed to be employed for an indefinite term.
Thus, for companies who make use of fixed term employment contracts (that are concluded for a period longer than three months), the scope and the potential negative impact (in the eyes of the Authorities) that a proposed merger will have on employment, could be significantly broader than previously the case.
[1] Delatrade 83 (Pty) Ltd and The JHI Retail Division of JHI Properties (Pty) Ltd and LP Manco, The Property Management Business of Liberty Holdings Ltd; Sasfin Bank Limited and Fintech (Pty) Ltd; Bytes People Solutions a Division of Bytes Technology Group South Africa (Pty) Ltd and Inter-Active Technologies (Pty) Ltd; Dimension Data (Pty) Ltd and The Following Three Business Divisions of Mweb Connet (Pty) Ltd: Mweb Business, Optinet Networks and Optinet Services; Shoprite Checkers (Pty) Ltd and The Assignment of Certain Leases and the Employment of Employees of Final Selected Stores OR Ellerines Furnitures (Pty) Ltd
On 17 April 2015, the new Guidelines were published in the Government Gazette (No. 38693). The Guidelines will come into effect on 1 May 2015.
The Guidelines have been adopted in response to criticism that there is a lack of transparency, certainty and consistency when imposing administrative penalties on firms for prohibited conduct.
Notably the Guidelines are virtually identical to the guidelines which were published in November 2014 for comment (“draft guidelines”). Despite a number of individuals and entities submitting proactive and substantive comments to the South African Competition Commission (“SACC”) in relation to the draft guidelines, it is somewhat remarkable that the only material change effected by the SACC is to be found in the Guidelines is in 5.19.4., which deals with repeated conduct in terms of Section 59(3)(g) of the Competition Act, 89 of 1998 (the “Act”). The Guidelines now requires that a firm must have engaged in conduct which is substantially a repeat, of conduct previously found by the Competition Tribunal to be a prohibited practice. Previously, the word “substantially” was omitted from the draft guidelines. Beyond this the Guidelines mirror the draft guidelines of 2014.
The Guidelines set out a six step process to be used by the SACC to calculate administrative penalties. The six steps are summarised below:
An affected turnover in the base year is calculated;
the base amount is a proportion of the affected turnover ranging from 0-30% depending on the type of infringement (the higher end of the scale being reserved for the more serious types of prohibited conduct such as collusion or price fixing);
the amount obtained in step 2 is then multiplied by the number of years that the contravention took place;
the amount in step 3 is then rounded off in terms of Section 59(20 of the Act which is limited to 10% of the firms turnover derived from or within South Africa;
the amount in step 4 can be adjusted upwards or downwards depending on mitigating or aggravating circumstances; and
the amount should again be rounded down in accordance with Section 59(2) of the Act if the sum exceeds the statutory limit.
It is important to note in the case of bid-rigging or collusive tendering, the affected turnover will be determined by calculating the value of the tender awarded. Thus, even where a firm deliberately ‘loses’ a tender, the firm will be subjected to an administrative penalty which calculates the value of the tender in the hands of the firm who ‘won’ the tender.
The Guidelines are not, however, clear as to how the affected turnover will be calculated when the value of the tender is not readily ascertainable.
Part of the objectives of the Guidelines is to encourage settlement proposals and outcomes. The SACC may at its sole discretion, offer a discount of between 10-50% of a potential administrative penalty as calculated in terms of the six steps identified. There are a number of factors that will determine what discount percentage will apply, including the timing, pro activeness and co-operation of the firm, during the settlement discussions.
Importantly, in terms of the Guidelines, a holding company (parent company) may be held liable for an administrative penalty imposed on one of the holding company’s subsidiaries (the proviso is that the holding company must directly control the subsidiary company). This is a noteworthy development and certainly raises constitutional concerns. The disregard of separate juristic personality, which is a well established principle in South African law, is problematic. These concerns, which were initially addressed by various parties with the SACC, have seemingly been ignored.
While the Guidelines are binding on the SACC, the Guidelines also afford the SACC the use of its discretion to impose administrative penalties on a case-by-case basis. Furthermore, the Guidelines are not binding on the Competition Tribunal or the Competition Appeal Court, who may also use their discretion to impose administrative penalties on a case-by-case basis.
Interview with Professor Moodaliyar marks second in AAT interview series highlighting African enforcers
In the second instalment of our Meet the Enforcers series, we speak with Prof. Kasturi Moodaliyar. An Associate Professor of Competition Law, she is part-time member at the Companies Tribunal; ICASA’s Complaints and Compliance Committee; and the Film and Publication Board Appeal Tribunal. She holds a B.Proc. LLB.LLM.(Natal), M.Phil (Cambridge), and Prog. Economics and Public Finance (UNISA)
As an academic in South Africa, focussing on competition law, how do you perceive the major differences and challenges that developing or younger antitrust-law jurisdictions are faced with, compared to more established ones? Specifically with regards to the Competition Commission, what is your assessment of its strengths and weaknesses?
The Commission has established a credible reputation in the area of anti-cartel enforcement and merger regulation. However, it has been less effective in addressing abuse of dominance. This is a risk as there is increasingly an expectation that the Commission address problems of single firm dominance in concentrated markets in the South African economy. If performance continues to lag in this area it will impact negatively on the perceived effectiveness of the Commission. While under-deterence of abuse of dominance reflects some limitations in the legislation it also highlights the challenge of resource constraints faced by the Commission. Such cases demand extensive legal and economic expertise – a shift of priorities to this area may impact performance of the Commission in areas in which it has traditionally had more success (cartel busting, mergers). The use of complementary tools like market inquiries and advocacy will be important and can asset the Commission – but also places a burden on resources.
Regarding staff turnover: Do you see the personnel turnover in recent history to be of sufficient magnitude to have an impact on the performance of the enforcement agency?
It is a worrying development although there are signs that it is starting to stabilise. Although key executives were lost there are still a number of highly experienced staff at the middle management level within the institution that must be nurtured and developed. Some have moved into executive level positions. This is a positive development but also points to a level go juniority in the executive which may impact on effectiveness. Will watch this space.
On Leadership: Do you consider it a benefit or a hindrance if leadership want to introduce their own philosophy of what competition law should seek to achieve on the agency’s activities during their tenure, or do you think that the law is sufficiently clear, such that leadership should focus on efficient and effective delivery of the service, and leave the interpretation to the Tribunal/courts.
It is natural that any leader will bring their own perspective to the role – this cannot be avoided. However, it will be important for the leadership to ensure that such perspectives do not undermine their objectives in giving effect to the mandate of the Commission – which is set down in the Competition Act. Fortunately there are checks and balances in the adjudicative process (Tribunal, rights of appeal) to ensure that these objectives are not contradicted.
Prioritisation: Every agency has budgetary constraints. What are the factors that you think should be most important in how cases are prioritised, should this be based on the developmental needs to society, particular sectors, or even particular areas of the law. What do you think of the prioritisation of recent Section 8 cases, SAB (10 years on an issue that has been extensively sanitised by foreign agencies), Gold Reef News (de minimis), and Sasol Polymers (niche, with limited potential for downstream beneficiation)?
The Commission’s stated prioritisation principles seem reasonable (as they appear in annual reports). However, there is somewhat of a disjuncture between the principles and the outcomes – particularly with respect to abuse of dominance cases. In fact, the outcomes in respect of anti-cartel enforcement have been largely consistent with the application of the Commission’s prioritisation principles – so credit is deserved here. However, new thinking around prioritisation is needed for abuse of dominance cases. In this regard there needs to be a better integration between the Commissions’s policy and research activity, the use of market inquiries and its advocacy with its planning and actions around enforcement against abuse of dominance.
Do you believe that the Competition Tribunal has a role in relation to broader competition advocacy initiatives in South Africa by way of the decisions made?
Advocacy is primarily a function of the Competition Commission, not the Tribunal. The Tribunal must first and foremost safeguard the integrity of its adjudicative function by ensuring impartiality in its decision making processes. There is no harm done though if the Tribunal makes a contribution to the such initiatives as a bi-product of good decisions.
How important, in your view, is the political independence of competition enforcers?
It is very important if the integrity and effectiveness of the agency is to be upheld.
Comparing merger review in an African jurisdiction (any jurisdiction) with that of other competition enforcement agencies worldwide, where do you see the key differences?
A significant difference does appear to be the elevated status of public interest issues in merger proceedings.
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?
It is not a problem in and of itself, and is to be expected given various developmental challenges. However, public interest considerations should not trump core competition concerns. In other words, agencies should strive to achieve consistency between the ‘pure’ competition policy objectives (competitive market structures, efficient outcomes etc) and public interest considerations. However, significant dangers arise when public interest objectives conflict with competition policy objectives. Where there are conflicts, alternative policy mechanisms should be considered so that agencies can focus on core non-conflicting objectives. Otherwise they may end up achieving nothing by trying to please everyone. This also means that the public interest considerations that do fall within the mandate of competition agencies should be carefully circumscribed.
What skills would you encourage regional African practitioners focus in on for purposes of developing antitrust advocacy in the region?
They should build a technocratic and professional staff with strong legal and economic skills. These core functions should also be supported by strong policy research and analysis skills – also of the technocratic professional (rather than political) variety. As an academic in this field I would also encourage ongoing training to strengthen those research, investigative and analytical skills.
Ms. Zulu proposes foreign competitors share trade secrets with SA counterparts
Perhaps it is time for increased advocacy initiatives within the South African government, or at a minimum a basic educational program in competition law for all its sitting ministers.
In what can only be described as startling (and likely positively anticompetitive), Lindiwe Zulu, the S.A. Minister of Small Business, has demanded foreign business owners to reveal their trade secrets to their smaller rivals.
The South African Competition Commission, and perhaps one of the Minister’s own fellow Cabinet members, minister Ebrahim Patel, who is de facto in charge of the competition authorities, can see fit to remind Ms. Zulu that fundamental antitrust law principles (and in particular section 4 of the South African Competition Act), preclude firms in a horizontal relationship from sharing trade secrets that are competitively sensitive – i.e., precisely those types of information Ms. Zulu now proposes to be shared mandatorily amongst competitors.
While SACC has utilized this provision with much success against big business in South Africa, it would be remiss not enforce the provisions of the Act without fear or favor should the traders act out on the instruction of the Minister. It is also time that the Cabinet seeks to enforce business practices which comply with South African legislation.
BDLive‘s Khulekani Magubane reports in today’s edition (“Reveal trade secrets, minister tells foreigners“) that “foreign business owners in SA’s townships cannot expect to co-exist peacefully with local business owners unless they share their trade secrets, says Small Business Development Minister Lindiwe Zulu.”
Lindiwe Zulu. Picture: PUXLEY MAKGATHO
“In an interview on Monday she said foreign business owners had an advantage over South African business owners in townships. This was because local business owners had been marginalised and been offered poor education and a lack of opportunities under apartheid.
“Foreigners need to understand that they are here as a courtesy and our priority is to the people of this country first and foremost. A platform is needed for business owners to communicate and share ideas. They cannot barricade themselves in and not share their practices with local business owners,” Ms Zulu said.”
Research fellow at the SA Institute for International Affairs Peter Draper said Ms Zulu’s remarks, underscored government’s mistrust of foreign investors which was also reflected in business regulations. “If you connect this to the broader picture, essentially this is part of a thrust to single out foreign business, which is contrary to the political message President Jacob Zuma went to portray in Davos. We are at a tipping point and we are going beyond it. You can only push foreign business so far before they disengage,” he said.Mr Draper agreed with Ms Zulu’s remarks on the effect of apartheid on local business owners in townships but said foreign business owners had to confront their own challenges with little state support.
“Apartheid did disadvantage black people and over generations it inhibited social capital. Many foreigners have trading entrenched in their blood. Wherever they go they bring social capital, networks and extended family. Is that unfair? I don’t think so. That’s life,” he said.
Ms Zulu’s comments show the about-turn in the African National Congress’ (ANC’s) ideology of Pan Africanism and in line with remarks by party leaders.
After a week of looting in Soweto last week, ANC secretary-general Gwede Mantashe told residents in Doornkop that immigration laws needed to be strengthened to protect the country from terror.
The connection of this antitrust case with now-infamous Olympic runner Oscar Pistorius is obviously only a family link (based on some quick research, it seems as though one of Oscar’s cousins is involved, namely Arnoldus Pistorius, the son of yet another respondent, Leo Pistorius who is apparently known as an elephant hunter).
It is interesting to note that the Commission requests a 10% penalty, however, they do not explicitly state that it is for the period of the contravention (page 10).
On 16 January 2015, the South African Competition Commission filed a complaint against Hendrik Wilhelm Carl Pistorius N.O., Leo Constantin Pistorius N.O., Hermine Pistorius N.O., Arnoldus Kurt Pistorius, Kalkor (Pty) Ltd, CHL Taljaard & Son (Pty) Ltd, PBD Boerdedienste (Pty) Ltd, Grasland Ondernemings (Pty) Ltd and Fertiliser Society of South Africa.
The Commission alleges that the respondents were engaged in a prohibited practice from 1995 until 2008, by agreeing or entering into a concerted practice to fix the commissions payable by each of them to fertiliser companies who employ agents to market, sell and distribute agricultural lime, which is crushed / pulverised limestone or dolomite used for soil treatment in order to reduce the acidity of the soil. This alleged practice is in contravention of section 4(1)(b)(i) of the South African Competition Act, which provides the following:
“An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if –
(a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect; or
(b) it involves any of the following restrictive horizontal practices:
(i) directly or indirectly fixing a purchase or selling price or any other trading condition;
(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or
It in what AAT regards as a highly commendable step, the South African Competition Commission (“Commission“) has recognised that there has been a need voiced by the Competition Tribunal (“Tribunal”), the Competition Appeal Court (“CAC”) and corporate South Africa for the Commission to develop guidelines for determining administrative penalties.
The Commission has published Guidelines for the Determination of Administrative Penalties for Prohibited Practices (“November Guidelines”), which set out a proposed methodology which the Commission will (consistently) follow when concluding consent agreements, settlement agreements and when recommending an administrative penalty in a complaint referral before the Tribunal. The Commission’s methodology is nothing new, it is based on the Tribunal’s six-step approach set out in Competition Commission v. Aveng (Africa) Limited t/a Steeledale, Reinforcing Mesh Solutions (Pty) Ltd, Vulcania Reinforcing (Pty) Ltd and BRC Mesh Reinforcing (Pty) Ltd and confirmed by the CAC in Reinforcing Mesh Solutions (Pty) Ltd and Vulcania Reinforcing (Pty) Ltd v. Competition Commission. However, the Commission has now listed factors, which are not explicitly included in the Competition Act, which should be taken into account, such as whether the firm has in any way delayed, obstructed, and/or assisted in expediting the investigation and litigation process and the Commission is also proposing an elaboration of the factors provided for in the Competition Act. One such example is section 59(3)(c), which deals with the behaviour of the firm in the market during the period of the contravention. In the November Guidelines, the Commission has provided a list of factors to be taken into account, such as the involvement of directors and/or senior management in the contravention and the firm’s encouragement of staff to participate in the contraventions for example. through personal incentives linked to the success of the contravention. In addition, the Commission has proposed in its November Guidelines, that it “may impute liability for payment of the final administrative penalty on a holding company (parent company) where its subsidiary has been found to have contravened the Act.”
The November Guidelines have been made available to the public for comment by Friday, 30 January 2015. Written comments on the guidelines can be e-mailed to: NellyS@compcom.co.za.
Ending off a year of numerous dawn raids, the Commission announced yesterday in a press statement that it had conducted a search and seizure / dawn raid operation at the offices of InvestChem (Pty) Ltd (“InvestChem”) and Akulu Marchon (Pty) Ltd (“Akulu Marchon”) in Kempton Park, Johannesburg. The firms manufacture and supply a range of surfactant products. Surfactants may act as detergents, wetting agents, emulsifiers, foaming agents, dishwashing liquids, soaps, car cleaning products and dispersants.
InvestChem is the South African subsidiary of Inchem Holdings Ltd, which is a Bermuda-based company which has other subsidiaries based in the USA and Portugal. InvestChem develops, manufactures and supplies a range of surfactant products which are used in the detergent and toiletry industries.
Akulu Marchon, which is one of the businesses of AECI Chemicals, supplies chemical raw materials for cosmetics, toiletry and detergent products in Southern Africa. These products include petroleum jelly and white mineral oils for the South African ethnic skin and hair care markets, locally produced and imported specialty surfactants for household, personal care products and chemical specialties for the personal care and cosmetic industries.
The Commission indicated that the dawn raid formed part of the Commission’s ongoing investigation into collusive conduct in the market for the production and supply of a range of surfactants products used as input materials in the manufacture of blended household detergents, cosmetics and toiletry products.
According to the Commission, from 2003, the parties held meetings and agreed to fix the prices for surfactants and allocated customers between each other which is prohibited by the South African Competition Act and the Commission understands the alleged conduct is currently ongoing.
The Commissioner, Tembinkosi Bonakele stated the following in relation to the dawn raid, “I believe that the information that will be obtained from today’s operation will enable the Commission to determine whether or not the parties have indeed engaged in collusive conduct. However, as part of any investigation, we also wish to urge anyone, be it business or individuals with further information to come forward and assist the Commission in concluding this investigation”.
Following a four year dawn raid “drought”, the Commission had conducted a dawn raid in July 2014 at the offices of Precision and Sons (“Precision”), Eldan Auto Body (“Eldan”) in Pretoria West, as well as the Vehicle Accident Assessment Centre (“VAAC”) in Centurion. Precision and Eldan’s business activities include panel beating, spray painting and towing of vehicles and they are approved auto body repairers to Original Equipment Manufacturers. In April 2014, the Commission conducted a dawn raid at the offices of Unilever South Africa (Pty) Ltd and Sime Darby’s respective South African offices, in relation to the Commission’s investigation into alleged collusive conduct in the product markets for the manufacture and supply of edible oils and baking fats to both wholesale and retail customers.
