In an interesting twist, a representative of the last properly remaining centralised economy (the People’s Republic of China) has admonished African nations (specifically South Africa, where he acts as Ambassador) to enhance competition-law enforcement against dominant firms, including Western tech giants.
We observe that his statement is an “interesting” twist, because the Editor was taught over the years in several (perhaps faulty?) history lessons that the PRC itself had been inarguably heavily reliant on government-run monopoly companies for decades.
But let’s cut to the chase of what Mr. Xiaodong is actually saying: his thesis, not exactly ground-breaking in antitrust circles, can be summarised succinctly as “excessive power and influence of technology giants hinder innovation and competition and increases economic inequality.” There!
With regards to the applicability of his thesis to South Africa, the ambassador notes that “Antimonopoly practices also exist in SA. The control over data fees and food prices imposed by big corporations here has safeguarded consumers’ rights and interests. Monopolistic actions in the platform economy is also a matter of grave concern for SA’s Competition Commission. No country can turn a blind eye to the negative externality of the emerging digital economy.”
“Negative externalities…” sound very much like proper Western antitrust-economics-speak. Interesting. However, there is of course an ulterior motive behind this little lesson in competition economics from his excellency, the honorable ambassador. It comes at the end of his “opinion” piece: China would like to do more business in Africa, strengthen its ties, and deepen its influence (including in the area of education – beware!)… In the diplomat’s own words: “China’s high quality economic development brings greater opportunities for Africa’s development. … And China’s current cumulative investment in SA has exceeded $25bn, creating more than 400,000 jobs directly and indirectly in the region and making big contributions to SA’s economic and social development.”
Curious news, perhaps not so much any more after digging deeper. Especially when the interested reader googles (oh yes, coincidentally using that same FAANG company’s services that Mr. Xiadong’s diatribe indirectly disparages here) the simple search term “China – Africa“, the latest news from today’s South China Morning Post is that “China seeks to expand influence in Africa with more digital projects…” — nice coincidence.
Well, now readers of AAT know.
China wants to “share the achievements of digital technology with Africa to promote interconnectivity”
On the 1 June 2021, the South African Competition Commission (SACC) released its media statement announcing the prohibition of ECP Africa’s proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant Pty (Ltd) from Grand Parade Investments. AAT published a note on this precedent-setting decision here.
Despite finding that the acquisition would not have any likely effect of substantially lessening or preventing competition, the transaction was prohibited as it would result in the merged entity having no ownership by historically disadvantaged persons (HDPs) and workers. In its media statement, the SACC states that both Burger King SA and Grand Foods Meat Plant form part of an empowering entity in which HDP’s have 68% ownership. This ownership stake would decrease to 0% if the transaction were to be approved. In this regard, Tembinkosi Bonakele, chairperson of the SACC, states:
“You had an entity that had quite an impressive transformation profile, and all of that was going to disappear at the stroke of a pen with this transaction.”
Unsurprisingly, Grand Parade Investments, as well as the general public, have responded to the SACC’s decision with discontent.
The topical concerns regarding the prohibition of the acquisition include:
The unintended, prejudicial impact upon black shareholders of sellers / target companies; and
The equally detrimental deterrence of foreign direct investment (FDI) into the Republic of South Africa.
i. Harm to HDP shareholders
Grand Parade Investments had supposedly been attempting to sell Burger King and Grand Foods Meat Plant for a period of 18 months in order to settle debts and pay dividends to its black shareholders, whom had reportedly not received dividends for a number of years. Furthermore, the shareholders would incur even greater harm upon the SACC’s media statement as Grand Parade Investments share price would plummet by 10%, making future dividend payouts ever less likely.
Bonakele argues that the Competition Act cannot waiver in its goal of transformation purely because of the prejudicial impact that a decision may have on individuals.
“This is about the system, it is not about individual shareholders. We are not really concerned about the immediate impact on Joe Soap today, that’s not the criteria.”
ii. Deterring FDI
The decision of the SACC raises varying concerns for foreign investors, and understandably so. The key concerns can be encapsulated into the following: certainty, timing and costs.
Firstly, merger review is subject to ever-evolving standards. In this regard, foreign investors cannot approach a merger with full certainty as to whether it will be approved or not. Moreover, continually changing standards presents increased opportunities of opposition from competition authorities which furthers investor uncertainty. Secondly, subsequent to changing standards and increased opposition, the timing of proposed mergers is significantly lengthened. Lastly, the imposition of non-competition conditions on transactions incurs significant costs on the burden of investors.
These principles of certainty, timing and costs can be considered as the essential elements of a sound merger regime. Ultimately, the SACC’s decision of prohibition strikes at the balance of South Africa’s merger regime by introducing great uncertainty, prolonged timing and greater costs – all of which present themselves as significant areas of concern for foreign investors.
In response to these FDI concerns, Bonakele states that South Africa’s democratic sustainability is of paramount importance and that foreign investors must consider the long-term effects that exclusionary investments would have on the Republic, particularly in regard to transformation and empowerment:
“But it’s not like empowerment imperatives are less important than FDI.”
A potential for reconsideration?
A window for reconsideration of the proposed acquisition presents itself where the merging parties present a better offering of HDP ownership. Bonakele suggests that this is potentially on the table as the parties to the agreement have continued engagement despite the SACC’s decision.
Therefore, the proposed acquisition may eventually find approval where ECP Africa and Grand Parade Investments agree on an improved HDP empowerment plan, of which the SACC is satisfied.
Conclusion
In essence, the SACC’s decision to prohibit the proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant by ECP Africa has had prejudicial effects upon the seller’s black shareholders.
Further, the decision presents concern for foreign direct investment by striking at the essential elements of a sound merger regime, namely: certainty, timing and costs.
However, the chairperson of the SACC has now noted that the SACC may change its initial decision upon the improvement of empowerment considerations between the parties to the transaction.
Speakers include South African enforcer Hardin Ratshisusu, COMESA chief Willard Mwemba, the OECD’s competition expert Frederic Jenny, Mahmoud Momtaz, head of the Egyptian competition authority, Lufuno Shinwana, senior legal counsel on competition issues for Anheuser-Busch Inbev, Ntokozo Mabhena, Anglo American’s Legal Advisor, and Maureen Mwanza, head of legal for the Zambian CCPC.
Primerio partner, Andreas Stargard, will host the afternoon panel on Vertical Restraints, interviewing Okikiola Litan, Senior Counsel, Commercial and Competition Law, with Coca-Cola Hellenic Bottling Company.
The South African Competition Commission (SACC) made headlines with its first prohibition of an intermediate merger that was based solely on public-interest grounds.
Emerging Capital Partners (ECP), a private equity firm founded in the US, was to acquire all Burger King assets from South African Grand Parade Investments, a South African majority black owned entity.
The SACC, while finding that the proposed transaction will have no actual impact on competition, prohibited the transaction on the basis that the transaction will have a substantial negative effect on “the promotion of greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons” (HDPs).
The SACC found that the merger would lead to a 68% reduction in the shareholding of HDPs in the target entity.
As John Oxenham, director at Primerio points out, “public interest” considerations have long been a feature of competition law in South Africa, particularly in relation to merger control. In this regard, mergers, which may otherwise be deemed problematic, could be ‘justified’ on public interest grounds. Public interest, while initially limited to employment, was first informally expanded through notable mergers such as Walmart/Massmart (2011) and AB Inbev/SAB (2016) where public interest conditions were imposed related to empowerment and ownership, through agreement by the merging parties.
The Competition Amendment Act, which largely became effective in 2019, formally expanded the recognised public-interest factors contain in Section 12A(3) of the Competition Act to include the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. Further, the public-interest element was elevated to a separate and self-standing assessment, which must be assessed as an integral part of the merger assessment.
While the Competition Act, as amended, has made provision for mergers to be assessed and prohibited on pure public interest grounds since July 2019, the Burger King merger is the first merger to be prohibited on this basis.
SACC Commissioner, Tembinkosi Bonakele noted that the SACC had no choice but to recommend that the merger be prohibited as, clearly, the merger would result in a reduction of HDP ownership from 68% to 0%, which the SACC believes is substantial. This concern was raised with the merging parties, who were unable to address the concern in a suitable manner.
Regarding the broader impacts of the decision on investment and merger control in South Africa, Bonakele noted that the SACC is merely a statutory agency obliged to impose the law as it currently stands and, according to the Bonakele, there is no uncertainty regarding the transformation objectives which had been introduced to the Competition Act. The SACC is clear on its mandate in terms of the Competition Act, as amended, and will continue to implement such mandate.
The legal basis for the decision is clear, however, as is the case with any new legislation, implementation thereof less so. At the time of the enactment of the amendments to the Competition Act, it was well recognised that the practical implementation of these provisions will be critical and that it may lead to significant unintended consequences – including adverse effects on consumer welfare and even broader public interest. Primerio director, Michael-James Currie points out that, ironically, HDP-owned target firms might be negatively prejudiced by this criterion, as the pool of potential buyers is limited (and hence the value) if non-black owned firms are not able to successful acquire the target’s business.
It is not clear, at this stage, what the assessment in the Burger King merger entailed, what evidence was put forward by the parties and what the relevant counterfactual may have been. It is also not clear whether the transaction presented pro-competitive elements which outweigh the adverse effect on public interest – similar to what is required in terms of public interest where a merger may have an adverse impact on competition. The SACC confirmed, however, that the transaction was ultimately prohibited after ECP failed to adhere to requests to proffer conditions relating to shareholding and empowerment.
The SACC has the power to assess and prohibit intermediate mergers. Accordingly, the SACC’s prohibition can only be challenged by way of a request for consideration, to be filed by the merging parties, to the South African Competition Tribunal. The SACC opined, however, that unless the acquiring firm is prepared to make concession to remedy the public interest concerns, the decision is unlikely to be overturned.
Grand Parade has been vocal in its dissatisfaction of the prohibition. The matter will be highly contested, and it is not uncommon for transactions to be approved on a request for consideration to the Tribunal. Furthermore, any decision by the Tribunal is likely to be taken on appeal to the Competition Appeal Court and likely also the Constitutional Court.
The Burger King decision, regardless of its eventual outcome, will leave a lasting precedent and shape merger control proceedings in South Africa going forward.
On the 25th of April 2021 the Competition Commission (“Commission”) released a media statement pertaining to its now final report titled “the impact of the COVID-19 block exemptions and commissions enforcement during the pandemic” (“Report”).
At the onset of the pandemic, the Minister of the Department of Trade, Industry and Competition (“DTIC”) established block exemptions, which would exempt practices usually falling foul of section 4 and 5 of the Competition Act 89 of 1998 (“Act”). The block exemptions were granted to the Healthcare Sector, the Retail Property Sector, and the Banking Sector. Further, the Commission noted that the pandemic required a particular focus on potential price-gouging by enhancing the advocacy, investigation and prosecution thereof.
The DTIC was empowered to create the block exemptions by Section 78 read with section 10(10) of the Competition Amendment Act 18 of 2018 (“Amendment Act”) which states that “The Minister may, after consultation with the Competition Commission, and in order to give effect to the purposes of this Act as set out in section 2, issue regulations in terms of section 78 exempting a category of agreements or practices from the application of this Chapter”. Further the Commission had a chance to test Section 8 of the Amendment Act which provides a broader discretion to the Commission in testing whether there has been a violation of the Act through excessive pricing.
The Report highlights that due to the uncertainty of the pandemic and the need to act quickly, the block exemptions created the possibility for unpredictable results. As such, to limit the scope of the block exemptions, collaboration needed to be at the request of the Ministers and only granted, upon motivations to respond to the pandemic.
These block exemptions showed their benefits in the Health Care Sector, which allowed cooperation and discussions regarding, inter alia, medical supplies, capacity for testing, sharing of resources, testing cost reduction and coordination of pharmaceuticals and other PPE resources.
Through these collaborative efforts the price of testing became a standardised R850, as opposed to ranging from R1 000-R1 500. As the pandemic started, hospital capacity became a forefront of concern. To this end, the Report states that private hospitals and public hospitals shared data which related to capacity, enabling hospital beds and staff in all the respective hospitals to be known. Accordingly, the Report states that “South Africa managed the pandemic effectively such that the health system was not overwhelmed in the first wave of the pandemic. As such, very few public sector patients were treated at private facilities”. This cooperation will be beneficial in aiding in a potential third wave of the pandemic, which may very well require more hospital beds, of which, availability between the various hospitals is now known.
However, stakeholders with less bargaining power were bound to those with bigger bargaining power and found that they had little choice on the agreed prices by the larger players. Further, according to the Report “certain provincial departments of health and public sector hospitals” refused to collaborate due to the voluntary nature of the exemptions and therefore, the Report notes suggestions for compulsory exemptions in future. Further, criticism has been levied in that block exemptions could have been granted to enable medical aid schemes to participate in the COVID-19 roll out discussions through agreements on prioritisation, access, sourcing and side-effect reporting. The Report notes that in the future advocacy work will be increased to ensure that smaller stakeholders who feared a violation of the Competition Act, are informed and encouraged to participated in these collaborative efforts.
In the Retail Sector, collaborative rental arrangements were required due to Level 5 Lockdown, which necessitated the closing of non-essential retail outlets. Collaboration was allowed by limiting evictions, payments holidays and adjusted lease agreements. However, only payment holidays were utilised. These payment holidays were not uniformly agreed between landlords, but rather agreed individually between landlords and their tenants. Nonetheless, the Report notes that the block exemptions purpose of “relief” was met by creating the “platform for discussions” as opposed to landlords agreeing upon a coordinated relief. Further, all retailors were able to benefit from the payment holidays, regardless of their size.
Michael Currie, a partner with competition boutique firm Primerio Ltd., highlights that the Report notes criticism in that the lack of uniformity in the granting of payment holidays, created an opportunity for potential anti-competitive tactics and “cartel-like” behaviour from landlords who “collectively decided to require 100% rental payment in one instance and to require 70% rental payment in another instance”. Accordingly, the Report notes from the minority feedback received, that in the future, frameworks for negotiation “should have been coupled with tools for mediation between landlords and retailers, to ensure synergy”.
Similarly to the Retail Sector, in the Banking Sector the Report notes that collaboration was only found in bilateral agreements between banks and debtors in the granting of debt relief or payment holidays, as opposed to blanket relief for all debtors. Stakeholders recommended that “future exemptions or industry solutions that target the sector must not be limited to banks only but include all lenders to ensure a level playing ground” and further that “some of the conditions set should be maintained post the pandemic” as debtors may need longer to recover from the adverse economic effects of the lockdown.
Importantly, the pandemic created opportunities for price-gouging of hygiene, food and medical products. To this end, the Consumer and Customer Protection and National Disaster Management Regulations and Directions (“Regulations”) were published by the DTIC. According to the Report, the Commissions initiatives included advocacy initiatives through “enforcement letters” and visible enforcement, which ensured that suppliers susceptible to price-gouging were aware of the possible prosecution and penalties thereof. Further, price-gouging reporting initiatives were increased by the establishment of a consumer hotline, which created the opportunity for consumers to report via SMS/Whatsapp, which yielded a total of 1199 investigations.
Importantly, the Report highlights the precedent set by the decisions in Competition Commission v Babelegi Workwear and Industrial Supplies CC (“Babelegi”) and Competition Commission of South Africa v Dis-Chem Pharmacies Limited (“Dis-Chem”) where it was held by the Competition Tribunal (“Tribunal”) that price-gouging in terms of section 8(1)(a) of the Amendment Act can be determined in cases where market power is not sustained over a longer period of time. The Tribunal found that firms who were seen to have temporary market power had engaged in price-gouging. The Report states that it “established precedent for a simplified test to determine whether price gouging occurred”. Accordingly, The South African team at Primerio International is of the view that this application of Section 8(1)(a) of the Amendment Act is flawed in that the traditional economic tests in establishing excessive pricing were watered down to provide for the circumstances of the pandemic, without relying on the Regulations, but rather the legislation. Thus, as noted in the Report, creating precedent of a now simplified price-gouging test. [For an in depth discussion click here: https://academic.oup.com/jeclap/article/11/9/524/5917388 ]
Further, the Competition Appeal Court (“CAC”) in Babelegi went to great lengths to emphasis the flaws in the Tribunals decision. The CAC emphasised the competition law principle of durability, which requires that for a determination of market power to be reasonable, the pricing must be sustained for a long period of time. Durability is an important factor, because it becomes inevitable that other firms will display opportunistic behaviour during a crisis such as COVID-19, which will then create a new equilibrium as competitors once again become constrained to have better prices than their competitors. Accordingly, the context of the pandemic does not warrant short cuts in decision making, such that a small firm, who sold a few masks at an excessive price, should be considered to be dominant. The CAC decided that the consumers were still capable of purchasing masks from other firms, therefore, although the pricing was excessive, consumer harm cannot be assumed simply because the excessive prices were in the context of a health crisis. Following the CAC’s criticism of the Tribunal’s decision, The CAC did not overturn the Tribunal’s decision. This bazar decision potentially finds reasoning in the Report which states that “A failure to uphold these judgements would have hindered the Commission’s ability to respond to the conduct in question, making price gouging more widespread”. This statement is concerning as it alludes to decision making which was made to fit a desired outcome of low prices for consumers, potentially creating unnecessary intervention in competition, which would have naturally found an equilibrium. To this end, the Report states that “a total of R16 532 105 was paid in fines”, which, coupled with advocacy initiatives, deterred price increases.
To conclude, although the Tribunal may have erred in its utilisation of Section 8(1)(a) of the Amendment Act instead of utilising the Regulations, as a whole, and according to the Report the block exemptions granted served their purpose and had an overall positive effect in mitigating against the harsh effects of the pandemic.
The South African Competition Tribunal (the “Tribunal”) has been called to consider a complaint of abuse of dominance against Whatsapp, arising out of its notice to terminate its contract with “GovChat” and off-board GovChat from the Whatsapp platform. GovChat is a chatbot service that allows the government to engage with citizens and provide government services such as health and education.
GovChat approached the Tribunal, alleging that due to the high market shares of Whatsapp in South Africa, competing platforms do not have sufficient scale (consumer numbers and reach) to provide alternatives on their own separate platform (such as WeChat in China). Smaller platforms are forced to make use of the Whatsapp network where Whatsapp’s terms of service do not allow for the expansion of the GovChat business model to become a competitor to Whatsapp. GovChat stated that its “entire existence will be materially prejudiced” if removed from the platform. It was alleged that the decision to off-board GovChat would put GovChat out of business and affect millions of citizens who benefit from the platform. CEO of GovChat, Eldrid Jordaan stated that “GovChat’s case is that Whatsapp/Facebook have abused their dominance because off-boarding GovChat has an exclusionary effect, preventing GovChat from operating in the relevant market.”Exclusionary acts are prohibited by Section 8(1)(c) of the Competition Act 89 of 1998 (“Act”) which states that a firm is prohibited from engaging in an exclusionary act if the “anti-competitive effect of that act outweighs its technological, efficiency or other pro-competitive gain”. In this matter, Whatsapp/Facebook would have to prove that the exclusionary act has a pro-competitive gain. The respondent has to discharge the allegation that refusing consumers access to an essential facility or a scarce service is an abuse of dominance according to sections 8(1)(b) and/or 8(1)(d)(ii) of the Act.
The alleged breach of the terms of service lies in the use of GovChat as a de facto communications platform for the government, when it is in fact not a government owned entity and WhatsApp stated of concern that “GovChat seeks to intermediate itself between government and citizens as a profit-making entity. It seems to aspire to become the official communication channel for the South African Government and effectively be the gateway through which citizens access government through Whatsapp”, where GovChat monetises confidential information of citizens through the use of the Whatsapp platform. Accordingly, citizens share confidential information which is monetized by a private entity, of which practice Whatsapp believes to be prejudicial to its platform and its terms of use, and therefore in breach of its terms of service.
GovChat logo
The competitive harm towards GovChat lies in the manner in which Whatsapp made use of its dominance through the unilateral off-board of GovChat. Whatsapp argues that its conduct cannot be anti-competitive as Whatsapp and GovChat do not provide the same facilities and are therefore not direct competitors. To this end, representing GovChat, Advocate Paul Farlam stated that “Facebook founder and CEO Mark Zuckerberg intends to introduce a payment system, as such, locking GovChat out of Whatsapp would give Whatsapp an advantage as being locked out of the market for an indefinite period would stop GovChat from entering the market first, allowing Whatsapp to keep customers away from GovChat while Whatsapp enters that market”. If this is the case, Facebook is hiding under the guise that the offboard is due to a breach in its terms of service, in order to remove the potential competition from GovChat in the same market.
On the 25th of March 2021, the Tribunal issued an interim interdict to restrain Whatsapp from removing GovChat from its platform, pending the outcome of the complaint that GovChat has lodged against Facebook with the Competition Commission. The interim interdict has been granted in favour of GovChat as it established a prima facie case demonstrating the alleged exclusionary conduct and anticompetitive effects that the off-board would have on GovChat. Facebook failed to rebut the prima facie case by providing pro-competitive gains that outweigh the alleged anti-competitive effects of the off-board. Due to the nature of the GovChat platform being in the public interest during the COVID-19 pandemic, the Tribunal held that “the balance of convenience favours the granting of interim relief to the applicants who provide an invaluable service.”
Importantly, the relief is only interim in nature. Accordingly, the Competition Commission has not yet made a finding that Facebook has indeed contravened the Competition Act 89 of 1998 through an abuse of dominance.
South Africans have been left with dropped jaws at the news that Mr Price Group has entered into an agreement to acquire the local Yuppiechef, known for their quirky, luxury kitchenware.
The owners of Yuppiechef are certainly pleased with their agreement with Mr Price Group to have 100% of their issued share capital acquired in cash for around R470 million and stated that “the timing is right for Yuppiechef to move forward with its growth ambitions with a partner who has a shared vision and the resources to help achieve this. I am excited about our future as a part of the Mr Price Group. They are a business which prides themselves on innovation and growth and we are strategically aligned in our plans. We share similar cultures and values which will make this an easy fit for both parties.”
According to Mr Price Group, the acquisition will provide the opportunity for Mr Price Group to expand their market share by reaching a high-end customer base in the kitchen appliance department, as well as expand their product variety from that which is already part of the Mr Price Group offering. Yuppiechef has a larger online presence than Mr Price Group, as such, Mr Price Group will reap competitive benefits from the online presence of Yuppiechef, which will enable them to become a more effective competitor with the likes of inter alia, Takealot.
According to the voluntary announcement from Mr Price Group regarding the acquisition of Yuppiechef, “the targeted effective date is subject to the fulfilment of both regulatory and commercial suspensive conditions which includes competition authority approval.” As such, it is important to note that section 13(3) of the Competition Act 89 of 1998 (“Act”) states that “the parties to an intermediate or large merger may not implement that merger until it has been approved, with or without conditions, by the Competition Commission.” Thereafter, according to section 12A(2) of the Competition Amendment Act 18 of 2018 (“Amendment Act”), a proposed merger must be evaluated on both competition and public interest grounds.
Accordingly, although South Africans are excited about the success story of the local Yuppiechef start-up, it is important to note that the proposed acquisition is still subject to scrutiny from the competition authorities before implementation of the merger can take effect.
Further, Yuppiechef is not the only home-grown retail store that Mr Price Group has sunk it’s teeth into as they seem untouched by the COVID-19 pandemic in their acquisition of Power Fashion, which was approved by the Competition Tribunal in March 2021. The acquisition of Power Fashion, with 170 retail stores, places Mr Price Group in an even stronger competitive position against the likes of Pep and JAM Clothing. According to the South African Primerio team, this acquisition places Mr Price Group in a strategic position to compete more vehemently with the lower end market, while Mr Price Group’s proposed acquisition of Yuppiechef places Mr Price Group in a position to access the higher end market. It seems that Mr Price Group intends to diversify its market share to such an extent that they are able to access the entire market, being both the lower end and the higher end consumer through the acquisition of Power Fashion and proposed acquisition of Yuppiechef respectively. The large scope of retail outlets provided by Power Fashion allows Mr Price Group to expand their physical store offering, while the online retail side will soon be catered for by the acquisition of YuppieChef.
According to Moneyweb the Mr Price Group’s JSE listing is “around 64% up on a year ago when South Africa went into its first Covid-19 lockdown”. Accordingly, Mr Price Group’s diversification and broader acquisition of market share may be one of the reasons that Mr Price Group finds itself at a stock high, unfettered by effects of the COVID-19 pandemic.
The South African Competition Act and the re-emergence of non-binding advisory opinions: Draft regulations published for comment
By Jemma Muller and Estelle Naude
After the suspension of the Competition Commission’s (“Commission”) advisory service in 2018, following the Constitutional Court’s decision in Hosken Consolidated Investments Limited v The Competition Commission, the regulation of non-binding advisory opinions is once again on the Commission’s agenda.
On the 23rd of March 2021, the Proposed Regulations on Non-Binding Advisory Opinions (“Proposed Regulations”) were published for comment by the Department of Trade, Industry and Competition (“DTIC”) in Gazette 44310 GoN 248. The public have been afforded until 23 April 2021 to provide their comment on the Proposed Regulations.
These Draft Regulations are centered around three important aspects of non-binding advisory opinions, namely:
How one can request a non-binding advisory opinion from the Commission;
The legal status of a non-binding advisory opinion; and
The fees payable if one requests a non-binding advisory opinion.
When requesting a non-binding advisory opinion, the requesting party will have to provide the Commission with a fairly comprehensive set of information, including, inter alia, the requesting party’s name, the market(s) in which it operates, the reasons for seeking a non-binding advisory opinion, the nature of the legal advice requested, appropriate information to allow the Commission to determine whether the requesting party falls within one of the entities exempt from paying a fee, and any other facts, information and documents which would enable to the Commission to provide a non-binding advisory opinion.
The Proposed Regulations serve as a vital tool for parties to receive guidance from the Commission pertaining to their compliance with the Competition Act No. 89 of 1998, as amended (the “Act”). Obtaining guidance from the Commission, for example on whether a proposed merger is notifiable, could not only prevent the party concerned from facing penalties for contravening the Act, but also save time and resources and negate the need for paying a filing fee (although requesting a non-binding advisory opinion does attract a fee in certain circumstances, which is discussed more fully below).
Notwithstanding the above, the information that the requesting party is required to disclose to the Commission may have the unintended consequence of discouraging parties from utilizing the advisory function for fear of confidentiality concerns. In this respect, section 44 of the Act is relevant and states the following:
“1(a) A person, when submitting information to the Competition Commission or the Competition Tribunal, may identity information that the person claims to be confidential information.
…
(2) The Competition Commission is bound by that a claim contemplated in subsection (1), but may at any time during its proceedings refer the claim to the Competition Tribunal to determine whether or not the information is confidential information” (our emphasis)
On the 23rd of March 2021, the DTIC also published for comment amendments to forms, rules and regulations of the Commission in Gazette 44309 GoN 247 (available at https://www.gov.za/sites/default/files/gcis_document/202103/44309gon247.pdf) which deals with, inter alia, an amended Rule 15A which pertains to access to confidential information submitted to the Commission. Rule 15A states:
“(1) Before the Commission makes the determination contemplated in section 44(3) of the Act in respect of information submitted to the Commission under a confidentiality claim, the Commission must:
(a) issue a Notice of intention to make a determination in Form CC 23 to the claimant and the Respondent; and
(b) allow the claimant and the Respondent 5 business days to make representations to the Commission.
(2) Within 5 business days after the Commission makes its determination in terms of section 44(3), an aggrieved person may refer the Commission’s decision to the Tribunal in accordance with the Tribunal’s rules.” (our emphasis)
According to the Proposed Regulations, the Commission is permitted, upon receipt of a request for a non-binding advisory opinion, to determine whether the issues subject to the request should be dealt with in an investigation or any other process under the Act. Additionally, a non-binding advisory opinion cannot fetter the discretion of the Commission while it exercises its functions in terms of the Act. As with the information the requesting party is required to disclose to the Commission, this provision may serve to deter businesses from utilizing this advisory function for fear that information disclosed may later be used by the Commission in an investigation. In this regard, section 45A of the Act states:
“1(a) When making any decision in terms of this Act, the Competition Commission, subject to paragraph (b), may take confidential information into account in making its decision.”
This also raises the question on the status of confidential information submitted to the Commission pursuant to a non-binding advisory opinion, which the Commission later declines to issue an opinion on. According to the Proposed Regulations, if the Commission declines to issue an opinion, it must refund the fee paid by the requesting party if it appears the issues underpinning the advisory opinion will undermine the objectives of the Act.
Importantly, a request by medium enterprises and other market participants for a non-binding advisory opinion must be accompanied by a fee of R20 000 and R50 000 respectively. This is a notable increase from the fees the Commission previously charged under Rule 10.4 of the Conduct of Proceeding in the Competition Commission, which was a fee of R2500 payable by the requesting party.
While the proposed fee structure is a noticeable increase from the fees previously payable under Rule 10.4, the penalties for contravening the Act as well as merger filing fees prescribed by the Act can be far more costly than the cost of requesting a non-binding advisory opinion. It is also noteworthy that the Proposed Regulations expressly exclude certain entities from paying a fee, namely:
Constitutional institutions;
Departments;
Major public entities;
Micro enterprises;
Non-profit organizations;
Other public entities; and
Small enterprises.
It could be argued that the exclusion of the abovementioned entities from paying a fee may open the floodgates for requests for non-binding advisory opinions to the Commission, which could overburden an already inundated Commission.
In terms of the legal status of non-binding advisory opinions, the Proposed Regulations make it clear that the opinion has no binding legal effect on the Commission, the Competition Tribunal or the Competition Appeal Court.
The Proposed Regulations, while still in draft form, represent an important competition law development in South Africa and provide parties with much needed guidance, particularly in light of the complexities and legal nuances brought about by the recent amendments to the Act. Furthermore, the Proposed Regulations are largely in line with recent trends in promoting competition law compliance through competition advocacy as opposed to enforcement mechanisms.
By Jemma Muller & Gina Lodolo/ edits by Charl van der Merwe
The South African Competition Commission (SACC) indicated its intent to formally initiate a market inquiry in the Online Intermediation Platforms Market (Inquiry), in terms of section 43B(1)(a) of the Competition Act 89 of 1998 (as amended) (CompetitionAct).
In terms of the amended Competition Act, the SACC has the power to conduct a market inquiry at any time, “if it has reason to believe that any feature or combination of features of a market or any goods or services impedes, distorts or restricts competition within that market.
The SACC published its draft Terms of Reference (ToR), allowing members of the public until 12 March 2021 to submit their comments on the scope of the Inquiry.
The ToR envisage a limited scope of assessment, to include only online intermediation services and, in particular, eCommerce marketplaces; online classifieds; travel and accommodation aggregators; short term accommodation intermediation; food delivery; app stores (with the notable exclusion of ‘fintech’).
The Inquiry will be focused on both competition and public interest factors and will aim to consider:
market features that may hinder competition amongst the platforms themselves;
market features that give rise to discriminatory or exploitative treatment of business users; and
market features that may negatively impact on the participation of SMEs and/or HDI owned firms
According to the SACC in the ToR, these platforms have been flagged as they have the potential to self-preference and distort markets through algorithms, which is harmful to businesses who rely on these platforms to reach consumers.
The Inquiry follows shortly on the back of the SACC’s “Competition in the Digital Economy” report (Report), which was published for public comment in the final quarter of 2020. In the Report, the SACC specifically identified market inquiries are an effective tool to address market barriers (especially for Small Medium Enterprises (SME) and historically disadvantaged individuals (HDP)) and to address market feature concerns which may lead to reduced competition.
Allied to this, the ToR goes on to state, in support of the Inquiry, that the use of intermediation services can provide a manner of entry into a market for SMEs/ HDPs, but due to the potential distortions of the market, may also discriminate against them. As a result of the COVID-19 pandemic, domestic online business opportunities are vital in ensuring economic recovery as well as inclusive growth of SMEs and HDPs.
The Inquiry will be the first inquiry in terms of the Competition Act as amended. In this regard, the amended Competition Act empowers the SACC to “take action to remedy, mitigate or prevent the adverse effect on competition”. This includes imposing structural or behavioural remedies.
It is also notable that the standard of assessment for market inquiries is a lower standard that that required in complaint proceedings. The SACC need only find that certain elements of the market may have “adverse effect on competition” (as opposed a substantial lessening of competition).
In light of these facts, firms in the relevant market cannot afford to remain passive participants in market inquiries and, instead, must consider and respond to the inquiry, as a respondent.
Africa is a continent of 1.2 billion people. From a consumer potential standpoint it matches China or India. Yet historically, it has suffered from the lingering shadows of its colonial past, in addition to its current fractures, hostility, and ever-present corruption.
The continent is emerging fast, however, and is quickly accelerating into the 21st Century marketplace both from an investment and growth opportunity. From the digital revolution and increased free trade, to innovation in various industries, Africa may be the next market frontier to unfold into accelerated multinational presence.
In this podcast episode (available gratis on Apple, Spotify, and Sheppard Mullin‘s web site), Michael P.A. Cohen is joined by Africa competition and markets expert, Andreas Stargard, as he shares his insight to help multinationals navigate the African landscape.
What do the Africa markets look like from a multinational business opportunity perspective?
Which countries in Africa have established markets? Which ones have growth potential?
How and why has China’s investment and influence across Africa intensified over the last couple of decades?
What type of digital revolution is taking place in Africa?
Is there a huge opportunity for mobile money on the continent?
How is free trade shaping up across the African continent? How do the AfCFTA’s goals tie in?
What Free Trade cooperation agreements exist among the East, West and South African nations? Will they succeed?
Where is Africa leading innovations?
How will African wars and corruption impact its ability to grow a multinational marketplace?
Who’s speaking:
Michael Cohenis the creator of the Nota Bene podcast. He began his career as an Assistant Special Prosecutor, investigating and prosecuting organized crime involvement with the failure of local financial institutions in the early 1990s, and has since practiced globally at several top law firms. In 2015, Michael joined Sheppard Mullin’s storied antitrust practice with a goal of putting his 25 years experience to work to complement the firm’s longstanding antitrust litigation group, helping to bridge government antitrust enforcement in Washington, D.C. to the firm’s strengths in Brussels, San Francisco and Los Angeles.
A co-founding senior member of Primerio, a business advisory firm helping companies do business within Africa from a global perspective, Andreas Stargard is legal, strategic, and business advisor to companies and individuals across the globe. He focuses on antitrust and competition advice, white-collar counseling, contract dispute and negotiation, and resolution of global business disputes, including cartel work, corruption allegations and internal investigations, intellectual property, and distribution matters. He has written and spoken extensively on these topics and many others. Andreas also advises clients on corporate compliance programmes that conform to local as well as global government standards, and has handled key strategic merger-notification questions, including evaluation of filing requirements, avoidance strategies, cross-jurisdictional cooperation, and the like.
African Antitrust & Competition Law 