Kenya Corporate Leniency Policy: Immunity for both Administrative and Criminal Liability on the Table

By Michael-James Currie

The Competition Authority of Kenya (CAK) has finalised its Leniency Policy Guidelines (Guidelines) as published in the Government Gazette in May 2017. This follows amendments to the Kenyan Competition Ac which now caters for the imposition of a maximum administrative penalty of 10% of a respondent’s turnover if found to have engaged in cartel conduct.

Unlike its South African counter-part, the CAK has sought to provide immunity to whistle-blowers who are “first through the door” from both criminal and administrative liability. A key proviso in respect of obtaining immunity from criminal liability, however, is that the Director of Public Prosecution must concur with the CAK.

The South African Competition Commission’s Corporate Leniency Policy only offers immunity in respect of administrative penalties. Accordingly, directors who caused or knowingly acquiesced in cartel conduct may be criminally prosecuted under South Africa’s leniency policy despite being the whistle-blower.

It should be noted that the CAK will only engage the Director of Public Prosecution when granting conditional immunity. At this stage of the leniency application, the applicant would already have had to disclose its involvement in the cartel conduct and provide the CAK with substantial evidence of the relevant conduct sufficient to establish a contravention of the Competition Act.

Accordingly, the Guidelines do not cater for the possibility that the Director of Public Prosecution may not be willing to forego criminal prosecution in respect of the leniency applicant. It is, therefore, not clear whether the evidence which was disclosed to the CAK as part of a leniency application may be used against the applicant should the Director of Public Prosecution not grant immunity in respect of criminal liability.

In this regard, it would have been useful if the Guidelines catered for this risk. For instance, by expressly affirming that the Director of Public Prosecution would abide by the CAK’s recommendations unless there are compelling reasons not to. Absent this assurance, potential leniency applicants may be reluctant to approach the CAK for leniency until there is, at the very least, a clear indication of the Director of Public Prosecutions involvement in this process.

A welcome feature of the CAK’s Guidelines, however, is that fact that the Guidelines specifically extend leniency to a firm as well as to the firm’s directors and employees. The inherent conflict which may arise between the interests of the company versus the interests of the relevant directors, therefore, has been removed.

A further significant aspect of the Guidelines is that the Guidelines do not limit the granting of leniency (in respect of administrative penalties) to the respondent who is ‘first through the door’ only. A second or third respondent would also be eligible for a reduction of the administrative penalty of 50% and 30% respectively, provided the CAK is provided with material “new evidence”. Only a respondent who is ‘first through the door’, however, will qualify for immunity in respect of criminal liability – provided the respondent is not the “instigator” of the cartel.

The Guidelines also provide a framework which sets out the process which must be followed in applying for leniency including the steps which must be taken in respect of ‘marker’ applications.

As to who may apply for leniency, it is noteworthy that while a parent company is entitled to apply for leniency on behalf of its subsidiary, the reverse is not true on the basis that a subsidiary does not control the parent company. Accordingly, in fully fledged joint ventures for example, only one of the parties to the JV may apply for leniency (to the extent that the JV contravenes the Competition Act) and, therefore, the parent company should be the entity applying for leniency and not the legal entity which is in fact the party to the JV.

[Michael-James Currie is a competition law practitioner practicing in South Africa as well as the broader African region]

South African Market Inquiries: What Lies Ahead and is it Justified?

By Michael-James Currie

The South African Competition Commission (SACC) recently announced that it will be conducting market inquiries into both the Public Passenger Transport sector (Transport Inquiry) as well as investigate the high costs of Data (Data Inquiry).

These inquiries are in addition to the SACC’s market inquiries into the private healthcare sector and grocery retail sector (which are still on-going) and the recently concluded LPG market inquiry.

There are mixed feelings about the benefits of market inquiries in South Africa. Market inquiries are extremely resource intensive (both from the SACC’s perspective as well as for the key participants in the inquiry) and the outcomes of the inquiries which have been concluded (including the informal inquiry in the banking sector) are lukewarm at best. There is little evidence available which suggests that the resources incurred in conducting market inquiries in South Africa are proportional to the perceived or intended pro-competitive outcomes.

Leaving aside this debate for now, the SACC’s most recent market inquiries are particularly interesting for a variety of additional reasons.

Firstly, in relation to the Transport Inquiry, the Terms of Reference (ToR) set out the objectives and the key focus areas of the inquiry. In this regard, the ToR indicate that pricing regulation is one of the key factors which allegedly creates an uneven playing field between metered taxis for example and app-based taxi services such as Uber.

It should be noted that the metered taxi association of South Africa had previously and unsuccessfully submitted a complaint to the SACC against Uber for alleged abuse of dominance. The success of Uber in South Africa has widely been regarded as pro-competitive.

Both prior and subsequent to the complaint against Uber, however, an overwhelming number of metered taxi drivers (both legal and illegal) have resorted to deliberate violent tactics in order to preclude Uber drivers from operating in key areas (i.e. at train stations). In fear of having themselves, their passengers and their vehicles harmed, many Uber drivers oblige. It would be most interesting to see how the SACC tackles this most egregious forms of cartel conduct, namely market allocation (albeit entered into under duress).

Over and above the ‘metered taxi v Uber’ debate, there are additional issues which the Transport Inquiry will focus on – including alleged excessive pricing on certain bus routes, regulated route allocation and ethnic transformation within the industry.

What will likely become a topic (directly or indirectly) during the Transport Inquiry are the allegations, as African Antitrust (AAT) had previously reported, that ‘the “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”’.

In this regard, the ToR indicates that “between 70% and 80% of the South African population is dependent on public passenger transport for its mobility”. The majority of these individuals would make use of ‘minibus taxis’.

The Transport Inquiry ToR do not mention this seemingly most blatant violation of competition law principles and it remains to be seen to what extent the SACC’s is prepared to investigate and assess hardcore collusion in the industry.

In relation to the second market inquiry, the SACC will also conduct an inquiry in relation to the high data costs in South Africa.

The High costs of data in South Africa seems to be key issue from the government’s perspective and the Minister of Economic Development, Mr Ebrahim Patel called for the SACC to conduct an inquiry into this sector. Further, the high costs of data in South Africa seems so important to economic growth and development that the Minister of Finance, Mr Malusi Gigaba, not only echoed Minister Patel’s calls for a market inquiry into high data costs, but identified such a market inquiry as part of his ‘14 point action plan’ to revive the South African economy.

Given that the three formal market inquiries which the SACC has commenced with to date have, only one (the LPG inquiry) has been finalized. Even the LPG inquiry took nearly three years to conclude. The private healthcare inquiry and the grocery retail inquiry which commenced in 2014 and 2015 respectively, still seem someway off from reaching any finality.

The length of time taken to conclude a market inquiry is, however, not the end of the matter from a timeline perspective. Following a market inquiry, recommendations must be made to Parliament. These recommendations may include legislative reforms or other remedies to address identified concerns with the structure of the market. Parliament may or may not adopt these recommended proposal.

Accordingly, it seems unlikely that from the date a market inquiry commences, that there will be any pro-competitive gains to the market within 5-7 years. That is assuming that the market presents anti-competitive features which can be remedies through legislative reform

While there appears to be consensus among most that data costs in South Africa are disproportionately high when compared to a number of other developing economies, the positive results envisaged to flow from a market inquiry is not only difficult to quantify, but will only be felt, if at all, a number of years down the line. Hardly a first step to revive the economy on a medium term outlook (let alone the short term).

Furthermore, and entwined with the SACC’s market inquiry into Data Costs, is that the Independent Communications Authority of South Africa (“ICASA”) decided to also conduct a market inquiry into the telecommunications sector, which includes focusing on the high costs of data.  ICASA has indicated that it will liaise with other regulatory bodies including the SACC.

It is not clear what level of collaboration will exist between the SACC and ICASA although one would hope that due to the resource intensive nature of market inquiries, there is minimal duplication between the two agencies – particularly as their objectives would appear identical.

As a concluding remark, absent evidence which convincingly supports the beneficial outcomes of market inquiries in South Africa, perhaps a key priority for the authorities is to conclude the current inquiries as expeditiously as possible and conduct an assessment of the benefits of market inquiries (particularly in the manner in which they are presently being conducted), before initiating a number of additional market inquiries.

The South African Competition Commission: Two Investigatory Records in One Week

Charl van der Merwe

A day after the South African Competition Commission (SACC) formally charged Stuttaford Van Lines, a furniture removal company, with a record breaking 649 counts of collusive tendering relating to hundreds of tenders in respect of government bids, the SACC on Thursday, 3 August 2017, carried out search and seizure raids (Dawn Raids) at the premises of the Automatic Sprinkler Inspection Bureau (ASIB), as well as 25 fire control and protection services companies across four provinces.

This is the largest search and seizure operation carried out by the SACC which was conducted across the country at the respondents premises situated in Athlone, Milnerton, Stellenbosch, Century City, Westlake, Bellville, Brackenfell, Montague Gardens, (WC) Pinetown, Springfield, Chatsworth, Stamford Hill, Windemere, Morningside (KZN), East London, PE (EC) and Houghton (GP).

The SACC alleges that the ASIB and its members have engaged in price fixing, market allocation and collusive tendering through its adherence to various (legally accepted) rules and standards which essentially constitutes an agreement to exclude non-members from the market.  The SACC, in its media statement indicated that “this is investigation is particularly concerning because of the seemingly prominent role played by consulting engineering companies in facilitating this cartel as well as the confirmation of pervasiveness of cartels in the construction sector.”

Notably, these Dawn Raids form part of the SACC’s ongoing investigation in this sector which has already culminated in several Gauteng companies admitting to collusion and settling with the SACC by way of a consent order.

Consent Orders general impose obligations on respondents to provide on-going assistance to the SACC in its investigation of other respondents. Broadening the scope of the investigation from Gauteng to a national region may be as a result of the evidence which the SACC obtained from those respondents who have already concluded settlement agreements with the SACC.

The Companies raided are: ANS Fire Protection Services CC; Arksun Fire Equipment CC t/a Fire Equipment; BH Fire Protection Services CC; Belfa Fire (Pty) Ltd (Belfa Coastal Cape); Belfa Fire (Pty) Ltd (Belfa Coastal Natal); Bhubesi Fire Projects (Pty) Ltd; Chubb Fire and Security (Pty) Ltd (KwaZulu Natal); Country Contracts CC; Cross Fire Management (Pty) Ltd; Eagle Fire Control CC; Fire and General CC; Fire Check CC; Fire Control Systems KwaZulu-Natal CC; Fire Design CC; Fire Sprinkler Installations CC; Fire Sprinkler Installations CC; FireCo (Pty) Ltd (FireCo Cape); FireCo (Pty) Ltd (FireCo KZN); Jasco Fire Solutions (Pty) Ltd (Jasco Cape); OVG Fire Management (Pty) Ltd (OVG Cape); QD Fire Cape CC; Specifire (Pty) Ltd; Whip Fire Projects (Pty) Ltd; and Ramsin Industrial Supplies CC t/a Fire Unlimited.

 

South African Competition Commission charges furniture removal company with record number of charges

by Meghan Eurelle

The South African Competition Commission has charged Stuttaford Van Lines, a furniture removal company, with 649 counts of collusive tendering related to hundreds of tenders to transport government furniture. This the largest number of charges faced by a single company in the history of anti-cartel enforcement by the Commission.

The tenders include those issued by the Presidency, Parliament, the National Prosecuting Authority, the South African Secret Service, the South African Police Service, the South African Revenue Services and the Public Protector, among others.

It is likely that the case emanates from the 2010 complaint against the industry that uncovered widespread and deep rooted anti-competitive and collusive conduct in the furniture removal market. The Commission’s investigation revealed Stuttaford colluded with its competitors from at least 2007 through cover quotes.

All the companies alleged to have colluded with Stuttafords, such as JH Retief Transport, Cape Express Removals, Patrick Removals and De Lange Transport, have subsequently settled with the Commission but the case against Stuttaford has been referred to the Tribunal for adjudication.

The Commission is asking the Tribunal to fine the furniture removal company 10 percent of its annual turnover on each of the 649 charges. The Commission’s approach of seeking an administrative penalty in respect of each alleged contravention means that the 10% statutory cap will be applied, on the Commission’s version, for each contravention.

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

By AAT contributors Charl van der Merwe and Aurelie Cassagnes

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

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

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

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

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

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

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

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

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

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

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

AFRICANANTITRUST UPDATE: Recent referrals and merger prohibitions by the South African Competition Commission

by Michael-James Currie

The mid-year months of June and July has been a particularly eventful one from the South African Competition Commission’s (SACC) perspective. Following the referrals of two separate abuse of dominance cases in the pharmaceutical and rooibos tea industries respectively, the South African Competition Commission has also referred a number of respondents to the Competition Tribunal for allegedly engaging in ‘cartel conduct’ and conducted a further set of dawn raids – this time on a number of feedlot and meat suppliers.

Most notably, however, the SACC has in a space of three weeks, prohibited four intermediate mergers outright and also recommended the outright prohibition of one large merger. Although it is not altogether uncommon that the SACC prohibits an intermediate merger, the SACC usually approves such mergers subject to suitable conditions in order to remedy any competition or public interest concerns. Typically only a nominal number of intermediate mergers are outright prohibited during any given year. It is, therefore, particularly noteworthy that four intermediate mergers have been prohibited in such a short space of time.

Cartels

Referral of the ‘Brick Cartel’

The South African Competition Commission (SACC) has decided to refer its investigation in respect of the ‘brick cartel’ to the Competition Tribunal for adjudication.

The SACC’s referral includes the following brick manufacturing companies: Corobrik, Era Bricks (Pty) Ltd (Era Bricks), Eston Brick and Tile (Pty) Ltd (Eston Brick), De Hoop Brickfields (Pty) Ltd (De Hoop), Clay Industry CC (Clay Industry) and Kopano Brickworks Ltd (Kopano). It is alleged that Corobrick has entered into separate bilaterial agreements with each of the respondents the terms of which amounts to price fixing or market allocation in contravention section 4(1)(b) of the Competition Act, a per se prohibition.

Corobrick has expressed its surprise that the SACC has referred the matter and has indicated that the SACC has misconstrued the nature of the various agreements.

The SACC appears to have concluded its investigation particularly expeditiously given that the investigation commenced in April 2017 and was referred to the Competition Tribunal three months later. Furthermore, it appears as if the SACC has based its case purely on the SACC’s interpretation of the wording of the relevant agreements. The per se nature of a ‘section 4(1)(b)’ contravention necessitates that firms are particularly cognisant of the wording and terms used in any agreement. Particularly if there is conceivably a horizontal relationship between the contracting parties.

Collusive tendering referrals

The SACC also investigated and referred two separate cases to the Competition Tribunal for alleged collusive tendering.

The first was in relation to the stationary industry. The SACC referred eight respondents to the Competition tribunal for allegedly engaging in collusive conduct in relation to the supply of certain stationary products. The SACC found that the respondents colluded in respect of a tender issued by the Free State Provincial Government based on the respondents quoting the same price for the various products as per their respective bill of quantities.

In a separate investigation, the SACC referred four companies for coordinating their bids in relation to a tender issued by the City of Cape Town for the provision of padlocks for high, medium and low voltage access.

Merger control

The SACC has recently decided to prohibit three intermediate mergers based on concerns relating to coordinated effects and one intermediate mergers on the grounds that the merger would likely lead to a substantial lessening of competition in the market. In addition to these intermediate mergers, the SACC also recommended the prohibition of a large merger in its referral to the Competition Tribunal.

Coordinated conduct

The first was in relation to the Jasco Electronic Holdings (Jasco) and Cross Fire Management (Cross Fire) merger. Notably, the SACC prohibited this merger principally on the basis that the merger was likely to reduce the number of firms operating in the relevant markets which would lead to increased coordinated effects. Importantly, a number of respondents in the fire protection sector, including Cross Fire, are embroiled in an investigation by the SACC in respect of alleged cartel conduct. The investigation follows dawn raids which were conducted on the premises of five fire control and protection services companies in March 2015. Two years later, the SACC referred seven respondents to the Competition Tribunal seeking the imposition of an administrative penalty of 10% of each of the respondent’s respective annual turnover.

Two of the respondents settled their case with the SACC by way of a consent order in in June 2017.

In assessing the merger, the SACC noted that Jasco was not implicated in the cartel but concluded nevertheless that “Jasco Fire will be incorporated into the cartel and the consolidation of the market will enhance or strengthen coordinated effects post-merger”.

The prohibition of the Jasco/Fire Cross merger follows soon after the SACC also prohibited the proposed joint venture between Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines Ltd (MOL) and Kawasaki Kisen Kaisha Ltd (KL). In June 2017, the SACC found that the joint venture would likely create a platform for collusion and increase co-ordinated conduct in an industry which is being investigated by a number of competition agencies across the globe. The SACC itself is investigating the shipping line industry and NYK were one of two respondents who settled their case with the SACC by way of a consent order in 2015 for approximately R100 million (US$ 8.3 million).

The third merger which the SACC prohibited was the Timrite and Tuffbag intermediate merger. The SACC found that the proposed transaction in polypropylene-mining based support bags industry would facilitate and enhance potential co-ordinated effects and market allocation arrangements in the manufacturing and distribution of PBMS bags.

Andreas Stargard of Primerio states that “firms looking to merge in a sector which has previously or currently been subject to an investigation for collusion, may already be on the ‘back foot’ and will need to be proactive in assuaging the SACC that the transaction will not increase levels for potential coordination”.

Substantial lessening of competition in the market

The first of the two intermediate mergers prohibited on the grounds that they are likely, from the SACC’s perspective, to lessening competition in the market, was the Greif International BV (Greif) and Rheem South Africa (Pty) Ltd (Rheem) merger in the steel drum manufacturing sector. The SACC found that the merger would effectively be a merger to monopoly and that the pro-competitive efficiencies did not outweigh the likely anticompetitive effects.

In addition to the prohibition of the two intermediate mergers (which may be submitted to the Competition Tribunal for re-consideration), the SACC has also recommended that the proposed large merger between Mediclinic and Matlosana Medical Health Services be prohibited by the Competition Tribunal. The SACC is of the view that the proposed transaction would lead to a substantial lessening of competition in the provision of private healthcare services in the relevant geographic region.

In each of the three mergers, the SACC considered potential remedies but concluded that none of the remedies proposed by the merging parties were suitable.

Stargard points out that the “assessment of mergers in terms of both traditional competition tests as well as from a public interest aspect requires, at times, robust and innovative remedies in order to get the deal through in South Africa”.

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

South Africa: Pharmaceutical Companies in the Spotlight after Excessive Pricing Investigation Announced

On 13 June 2017, the South African Competition Commission (SACC) announced that it would be investigating three pharmaceutical companies namely, Roche Holding AG (Roche), Pfizer Inc (Pfizer) and Aspen Pharmacare Holdings Ltd (Aspen), for allegedly abusing their dominance in relation to certain lung cancer medication.

In the SACC’s press statement, the SACC indicated that it would be investigating the firms for allegedly engaging in “excessive pricing, price discrimination and/or exclusionary conduct”.

The decision to investigate the pharmaceutical companies comes shortly after the BRICS competition agencies apparently agreed to investigate the pharmaceutical companies who conduct business in the BRICS member states. A World Bank Report, which prompted the BRICS agencies to investigate this sector, indicated that the pharmaceutical industry is prone to “cartel like” behavior.

In relation to the SACC’s current investigation, the SACC appears to have identified primarily two areas of concern. Firstly, that the relevant companies are charging ‘excessive prices’ and secondly, that there is a discrepancy between the prices charged to the public versus private healthcare sector – which may amount to price discrimination or exclusionary conduct.

Importantly, neither a contravention in relation to ‘price discrimination’ nor ‘general exclusionary conduct’ carries with it an administrative penalty for a first time offence. In relation to ‘excessive pricing’, however, a firm could be fined an administrative penalty of up to 10% of its annual turnover if found to have contravened section 8(a) of the South African Competition Act.

The seminal case on excessive pricing was the recent Sasol case in which the Competition Appeal Court ultimately over turned the Competition Tribunal’s finding the Sasol had engaged in ‘excessive pricing’. AAT published a paper by John Oxenham and Michael-James Currie which provides an in depth evaluation of the Sasol case and the criteria which must be met by the SACC in order to sustain a case of excessive pricing. AAT followers can access the full article here.

The timing of the SACC’s decision is also particularly noteworthy. As Andreas Stargard, director at Primerio, states “the SACC is currently conducting a market inquiry into the private healthcare sector and the SACC has far reaching powers to obtain information and evidence from third parties – which includes pharmaceutical companies. Whether the SACC’s decision to investigate these companies sprung from submissions received during the market inquiry is not yet clear, but cannot be ruled out at this stage”.

Stargard, however, also points out that “the cost of private healthcare and certain medicinal products has been the focus of a number of agencies worldwide. The Italian, Spanish and UK authorities have recently launched investigations in relation to the prices of certain cancer treatment products. The SACC’s investigation may well be a shaped by broader collaboration between the various competition law agencies”.

As the investigation unfolds, so it will become clearer what the catalyst was for the SACC’s decision to launch this particular investigation.

A particularly noteworthy comment expressed by the Commissioner of the SACC is that the use of patents has potentially resulted in the relevant companies having created monopolistic positions in the market. The interplay between competition and intellectual property law is no doubt going to play a key role in this investigation and the outcome of the SACC’s investigation may have far reaching consequences not only in the pharmaceutical sector but in a number of industries where patents are particularly prevalent.

Although it will be some time before more light is shed on this investigation from the authority’s perspective, the SACC indicated that additional resources have been allocated to this investigation as it has been categorized as a ‘priority’ investigation by the SACC.

South Africa- Market Inquiry Transport Sector

The amendments to the South African Competition Act, (the Act) in 2009 granted the South African Competition Commission (SACC) formal powers to conduct market inquiries. Since then South African business has witnessed a sharp increase in market inquires including: private health care sector, liquefied petroleum gas sector (LPG) as well as the grocery retail market sector.

Fresh off the SACC’s recent conclusion of its market inquiry into the LPG sector, the SACC published a notice in the Government Gazette on 10 May 2017, indicating that it will conduct an inquiry into the Public Passenger Transport sector (PPT Inquiry) which is scheduled to commence on 7 June 2017.

The PPT inquiry, is expected to span two years and will involve public hearings, surveys and meetings with stakeholders which will cover all forms of (land-based) public passenger transport. The SACC indicated in its report that “…it has reason to believe that there are features or a combination of features in the industry that may prevent, distort or restrict competition, and / or to achieve the purpose of the Competition Act”.

Andreas Stargard, who has followed the sector closely since 2013 (when Uber first entered the market), notes that the “SACC’s decision to initiate an inquiry into the PPT sector comes as no surprise”..

As African Antitrust (AAT) had previously reportedthe “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”’.

From the SACC’s perspective, conducting the PPT inquiry without “fear favour or prejudice” will certainly present its challenges as the sector is renowned for its aggressive operators in what is considered to be a “conflict ridden” industry.

Although the SACC has identified various concerns within this sector, which is complex, there can be no doubt that the SACC’s investigation will have to deal with Uber’s entry into the sector and the hostile and violent resistance which Uber has faced from the ‘metered taxi industry’. Accordingly, it will be most interesting to see how the SACC deals with the broader socio-political issues culminating in physical intimation and violent protests which have plagued the taxi industry.

Andreas Stargard notes further, “this inquiry will be crucial within the current South African context as the effects of rising public transport costs is largely experienced and absorbed by the most marginalized members of the South African society”. It is reported that the costs of public transport is estimated to have more than doubled between 2003 and 2013, with half of the workers using public transport suffering a 40% or more reduction in their hourly wage due to transport costs.

Furthermore, the SACC pointed out, in its report, that only 29.8% of South African households own a motor vehicle, which means that the majority of the population (between 70% and 80%) relies on the PPT sector to get them to and from work, school etc. Accordingly, the PPT sector plays an imperative role in providing meaningful mobility to the majority of the population, which is essential in promoting the broader South African development plan of inclusive economic participation.

Although only the LPG market inquiry is the only formal inquiry to have been concluded to date, a question mark remains over whether market inquiries are yielding effective results sufficient to justify the significant resources which accompany such an inquiry.

Market inquiries are extremely burdensome on the relevant market participants and there does appear to be a risk that market inquiries and the SACC’s resources are being used to promote industrial policies at the expense of promoting competition in the market.

South African Competition Commission Publishes Draft Penalty Guidelines for Prior Implementation

  • By Michael-James Currie

The South African Competition Commission (SACC) recently published draft guidelines  for determining the administrative penalty applicable for prior implementing a merger in contravention of the South African Competition Acts’ merger control provisions (the Draft Guidelines).

Although the SACC has published guidelines for the determination of administrative penalties in respect of cartel conduct, the SACC has recognised that different considerations apply when calculating the appropriateness of a penalty for ‘gun-jumping’.

South Africa has a suspensory merger control regime and transactions which fall within the ambit of the Competition Acts merger definition, and which meet the mandatorily notifiable financials thresholds, may not be implemented until approval has been obtained by the Competition authorities.

The financial thresholds distinguish between intermediate mergers and large mergers. Both are mandatorily notifiable. Transactions which do not meet the notification thresholds are considered small mergers and may either be voluntarily notified or must be notified at the insistence of the SACC.

In relation to ‘intermediate mergers’ the Competition Commission is mandated with considering and approving (or prohibiting) an intermediate merger whereas in the case of large mergers, the Competition Tribunal is tasked with evaluating the proposed transaction.

Regardless of whether the merger is an intermediate or large merger, the Competition Act provides for an administrative penalty of up to 10% of the firms’ respective South African generated turnover to be imposed on the merging parties for failing to notify the merger.

In terms of the penalty calculations, the Draft Guidelines prescribe a minimum administrative penalty of R5 million (USD 384 615)  for the prior implementation of an intermediate merger and a R20 million (USD 1.5 million) penalty for implementing a large merger prior to being granted approval. The Draft Guidelines cater further for a number of aggravating or mitigating factors which may influence the quantum of the penalty ultimately imposed.

The Draft Guidelines also provide useful guidance as to when a transaction may amount to a ‘prior implementation’. Some of the examples listed in the Draft Guidelines include:

  • The acquisition of 49% of the issued share capital of a company coupled with control in the form of section 12(2)(c) i.e. the right to appoint the majority of the directors in the company.
  • The acquisition by two wholly-owned subsidiaries of certain properties and the failure to notify those acquisition due to the mistaken belief that the transactions amounted to two small mergers.
  • Where a senior executive of the acquiring firm had been engaging in the day-to-day operations of the target firm and the merging parties were already marketing themselves as a single entity.
  • Where the acquiring firm becomes involved in the strategic planning of the target firm, identifies target markets, develops new products or services, takes charge of ordering raw materials, amends procurement policies or becomes involved in customer relations.
  • Where the merging firms cease marketing in order not to compete with each other.
  • Acquiring firms appointing directors to the board of the target firm as the appointment of even one or two directors might give material influence and thus control.

The above instances are only a few of the examples listed and are based mostly on case precedent before the Competition Authorities. This list is, however, in no way exhaustive.

Importantly, the Draft Guidelines, in their current form appears to draw a distinction between “prior implementation” and a “failure to notify”. In relation to latter, the Draft Guidelines indicate that:

A contravention of failure to notify is committed where:

  1. the transaction constitutes a merger under the Act;
  2. the transaction meets the thresholds for notification under the Act; and
  3. the parties have failed to notify the Commission of the transaction.

Technically, a failure to notify does not amount to a contravention in of itself. A contravention only arises if the transaction was not notified and the transaction was subsequently implemented. In other words, merging parties would not be in breach of the Competition Act if a merger agreement has been concluded, but the parties are yet to notify the SACC thereof. Unlike a number of other jurisdictions, there is not a specified time period in which a transaction which meets the thresholds must be notified. A contravention only arises in the event that such a transaction is implemented prior to approval having been granted. We trust that this technical anomaly will be addressed in the final draft.

In light of recent case precedent, the South African Competition Authorities are increasingly less sympathetic to firms who ‘inadvertently’ fail to notify a mandatorily notifiable merger. The SACC’s decision to adopt specific guidelines for contravening the merger control provisions is clear affirmation that the competition authorities expect firms to familiarise themselves with the precise ambit and scope of the Competition Act.

 

CITIBANK EXECUTIVES FACE CRIMINAL CHARGES IN SOUTH AFRICA FOR ALLEGEDLY ENGAGING IN “CORRUPT” COLLUSIVE CONDUCT

In the wake of Citibank entering into a R69 million settlement agreement with the South African Competition Commission (SACC), the Bank’s executives now face the threat of criminal sanctions as well.

Citibank’s settlement follows the SACC’s complaint referral in which it is alleged that up to 18 banking entities had engaged in collusive conduct in contravention of the Competition Act by allegedly manipulating the Rand/Dollar exchange rate through forex trading.

Citibank was one of the first respondents to settle their case with the SACC, however, on 21 April 2017, an independent organisation, the Black Empowerment Foundation (BEF), formally laid criminal charges against Citibank’s top executives at a South African Police station.

The allegations by the BEF include, inter alia, that Citibank had engaged in corrupt activities resulting in Citibank having “generated profits at the expense of ordinary South Africans”.

The BEF have also indicated that they would write to the President and the National Prosecuting Authority in an effort to elevate and expedite this case.

Importantly, as of 1 May 2016, the Competition Act was amended in order to criminalise cartel conduct – as prohibited in section 4(1)(b) of the Competition Act. It is not yet clear whether the criminal complaint laid by the BEF is based on a section 4(1)(b) contravention or a broader complaint of ‘corruption’ which is dealt with by other legislation, such as the Prevention and Combatting of Corrupt Activities Act.

The introduction of criminal liability for contravening the Competition Act has, however, been contentious. There have been a number of concerns raised by competition law practitioners regarding the manner in which a criminal investigation would be conducted. In this regard, it is important to note that the competition authorities are not responsible for investigating or adjudicating criminal matters. This function is reserved for the National Prosecuting Authority and the criminal courts (i.e. the High Courts).

Furthermore, section 4(1)(b) of the Competition Act prohibits cartel conduct per se (meaning that there is no rule of reason defence available to a respondent) which means that the threshold of contravening the Competition Act is relatively low. It is unlikely that this low threshold would suffice in respect of a criminal case.

It is further unclear to what extent any evidence gathered by the SACC may be used by the National Prosecuting Authority in a subsequent criminal complaint.

It is understood that there is currently a Memorandum of Understanding that is busy being drafted between the SACC and the National Prosecuting Authority which may provide greater clarity in relation to certain of the procedural aspects surrounding a criminal prosecution. To date, however, this MoU has not been published and little guidance has been provided by the respective agencies as to how they intend conducting criminal investigations and prosecutions.

Although it remains to be seen whether the criminal charges laid by the BEF will ultimately be prosecuted by the National Prosecuting Authority, the case is likely to take centre stage in the next few weeks as the entire investigation and referral of the banks by the SACC has been questioned and concerns regarding political influence has dogged the SACC since the decision was taken to refer the matter earlier this year.

It is also not yet clear why the BEF elected only to lay criminal charges against Citibank and not the other respondents. Collusive conduct by its very nature necessitates more than one party to be implicated.  The BEF may simply be waiting until additional banks enter into settlement agreements (in which an admission of liability is generally a requirement) with the SACC before laying further complaints. Regardless, the BEF’s complaint is likely to have a significant impact on other respondents who may be considering settling with the SACC.

With the threat of a maximum prison sentence of up to 10 years and/or a fine of up to R500 000, this complaint will not be taken lightly by Citibank and all eyes will not only on Citibank, but also on the respective enforcement agencies to see how they will respond to the criminal charges brought by the BEF.