COMESA member state, the Comoros, recently adopted its own competition, (Loi No.13 -014 /AU – Relative à la concurrence en Union des Comoros (the Competition Act)) which will apply to all entities (public and private) who conduct business which has an “effect” in the Comoros.

The Act prohibits restrictive practices and abuse of dominance practices, although caters for a rule of reason defence. Parties may also apply for exemptions from either the Government or the Commission Nationale de la Concurrence (“CNC”). The CNC is responsible for enforcing the provisions of the Act, but has not yet been established.

Firms that are currently active in Comoros should take particular note of this legislative development due to the substantial administrative penalties which may be imposed for contravening the Competition Act.

Potential penalties for engaging in restrictive practices in contravention of the Competition Act can result in firms being fined a maximum of 5% of global turnover and 20% local turnover. These potential maximum penalties are significantly higher than the commonly prescribed maximum administrative penalty of 10% of domestic turnover only.

Interestingly, the Competition Act does not provide for merger notification. There is, however, a provision which provides for the imposition of an administrative penalty if incorrect information is provided to the CNC in relation to a merger. Primerio Founder, John Oxenham, mentions “This discrepancy needs to be clarified and it is likely that this provision applies in circumstances where the CNC calls upon merging parties to provide it with information in relation to a specific transaction”.

Primerio Director, Andreas Stargard, confirmed that the Competition Act will be subject to COMESA and is in line with COMESA’s framework which Stargard mentions “envisages that each member state must have its own domestic competition regime”.

By Michael-James Currie

On 18 February 2016, an objection was filed at the NaCC in relation to the Lewis Stores and Bears Stores merger, two furniture retailers who are set to merge in Namibia.

Lewis Stores operates mostly out of South Africa and has recently appeared in the financial press in South Africa as a result of various adverse allegations in relation to its micro-lending policy.  The allegations against Lewis Stores include claims that Lewis targets individuals whom they are ‘aware’ of will not be able to afford the credit instalments and then subject those individuals to high interest rate penalties – An allegation which Lewis denies.

Irrespective of the merits of the allegations against Lewis, it is a very interesting complaint which has been brought before the NaCC. In essence, the complainant’s objection is based on the argument that the businesses practices of Lewis will “be detrimental to the public” as the Namibia Financial Institutions Supervisory Authority (“NAMFISA”), the regulator of micro lenders (including in-store credit providers), has not proven its effectiveness in adequately protecting consumers from the type of harm envisaged by the complainant in respect of Lewis’ business practices.

The complaint immediately raises a number of interesting considerations.

• Firstly, from a policy perspective, it would appear highly unusual for a regulator such as the NaCC to so assume the duties of another regulator, NAMFISA. The complainant in this matter argues that the NaCC should take NAMFISA’s inadequacy into account when considering the impact of the merger on public interest grounds. Whether the NaCC is prepared to entertain such a complaint remains to be seen, however, it would seem unlikely given that in terms of the Namibian Competition Act, there are specified public interest grounds which the NaCC may consider when evaluating the impact of the proposed merger on public interest grounds. It should be noted, however, that the list of grounds, although identical to the public interest grounds contained in the South African Competition Act, is not exhaustive and the NaCC is entitled to consider broader public interest grounds.

 

• Secondly, and somewhat bizarrely,  the Namibian Competition Act states that “a merger must either be approved or rejected” (without express wording that it can be approved subject to conditions).  Despite this, the MassMart/Wal-Mart merger was, however, approved subject to conditions which were largely a replication of the public interest conditions imposed by the South African Competition Authorities in respect of the same merger.

The existence of public interest provisions in a number of African jurisdictions’ competition law legislation has been subject to extensive debate, largely due to the uncertainty with which competition authorities approach the evaluation of such public interest considerations when compared to the more traditional competition law objectives.

Accordingly, the NaCC should guard against entertaining a complaint which will jeopardise ‘merger control certainty’ which is pivotal to all good merger control regimes.

ZNBC reported on 30 October 2015 that the Zambian Competition and Consumer Protection Commission (CCPC) conducted dawn raids on three milling companies, namely National Milling Corporation, Superior Milling Company and Simba Milling Company, as well as the Miller’s Association of Zambia.[1]

The Raid follows the CCPC’s investigation into the alleged fixing of maize and flour prices in contravention of the Competition and Consumer Protection Act, 24 of 2010 (Act).

Importantly, in terms of the Act, a person who engaged in price fixing (as well as other traditional types of cartel conduct such as market allocation and collusive tendering) may be subjected not only to a fine, but imprisonment to a maximum of five years. Furthermore, price fixing is prohibited per se, consequently there is no rule of reason or justification defence available to a respondent who has been found to have directly or indirectly fixed prices.[2]

The raids carried out in the milling industry are the first to be conducted by the CCPC since 2013, when raids were carried out in relation to the fertilizer industry.[3]

We have previously reported on African Antitrust that the South African competition authorities have, since mid 2014, carried out an unprecedented number of dawn raids on a variety of industries. Furthermore, that the flour and maize milling industry has also been under scrutiny by the South African authorities.

John Oxenham, a founding director of Pr1merio African advisors, notes that “it is evident that a number of African competition agencies have identified the food industry, especially in so far as it affects lower LSM groups as a priority sector.”

This has led to a number of competition agencies, as previously reported on AAT, to announce that they will be conducting market inquiries into the grocery retail sector. Included amongst these agencies are the competition authorities of South Africa, Botswana and COMESA, the latter which will conduct a market inquiry into the industry across all member states.

It remains to be seen whether the CCPC, who is empowered to conduct market inquiries in terms of the Act, will follow suit.

[1] http://www.znbc.co.zm/?p=24472 (accessed 03-11-2015).

[2] See section 9 of the Act.

[3] http://www.polity.org.za/article/competition-and-consumer-protection-commission-gears-up-to-fight-cartels-in-zambia-2013-07-23 (accessed 03-11-2015).

The South African Competition Commissioner, Tembinkosi Bonakele, has authored a very important opinion piece in the country’s leading business news publication (http://www.bdlive.co.za/opinion/2015/10/12/sa-needs-to-empower-economic-and-policy-experts).  In the piece, Bonakele laments a number of issues in particular the lack of policy direction within the state and the lack of recognition for experienced in house (state) experts.

Bonakele’s views are well made and echo some concerns raised previously by AAT.  It will be interesting to observe the developments in this regard, particularly, given the statements made by the ruling party apropos the role it envisages for the competition authorities.

The South African Competition Commission (SACC) has conducted a search and seizure (dawn raid) operation at the premises of Human Communications (Pty) Ltd, Kone Staffing Solutions (Pty) Ltd and JobVest (Pty) Ltd.

The firms are recruitment agencies specialising in recruitment advertising services who place job advertisements in media platforms on behalf of clients. The agencies also receive and process responses to the job advertisements on behalf of their clients, which are mainly government departments, agencies and municipalities.

The SACC has indicated that the dawn raid operation forms part of the SACC’s investigation into alleged collusive conduct in the market for the provision of recruitment advertising services.

The SACC alleges that the firms collude when bidding for tenders by discussing responses to requests for quotations and decide on the price at which each would tender for its services.  Finally, the SACC alleged that the agencies agree on how to rotate advertising work amongst them.

The alleged conduct is prohibited by the South African  Competition Act as it amounts to price fixing, market division and collusive tendering.

The Competition and Consumer Protection Commission (“CCPC”) recently published the CCPC Guidelines for Merger Regulations 2015 (the “Guidelines”).[1]

The Guidelines are binding on all “persons” regulated under the Competition and Consumer Protection Act, No 24 of 2010 (the “Act”) insofar as the provisions of the Guidelines are not “inimical” to the Act.

An extensive definition of what constitutes a “merger”

In terms of the Act, a merger is defined as “a transaction between two or more independent parties which results in one party acquiring an interest in the other party”.[2]An “interest” may be acquired through the acquisition of shares, assets or through an agreement such as a joint venture.

The Guidelines confirm that the acquisition of a ‘material interest’ is likely to be considered as a merger. Furthermore, the acquisition of “control” can include indirect control such as the case where minority shareholders are able to exercise veto rights or in the case where a supplier may exercise control over a downstream customer as a result of a long term supply agreement.

The Guidelines have also confirmed that for purposes of establishing an “acquisition”, even a lease agreement over an asset can be considered to be an ‘acquisition’ in certain circumstances. The lease over the asset must, at a minimum, change the competitive situation in the relevant market.

The Guidelines have, therefore, caste the Zambian merger control net broadly in respect of establishing whether control has been acquired (or relinquished).

Clarification regarding joint ventures (“JVs”)

Notably, the Guidelines dedicate a substantial portion to agreements such as JVs. The CCPC has taken a robust approach to JVs and generally JVs will, if the financial thresholds are met, be required to be notified, unless they are “auxiliary” to the activities of their parent enterprises.

A JV will be considered to “auxiliary” if the JV fulfils a specific purposes for their parent company, as opposed to a “full function” JV which operates as an autonomous economic entity on an indefinite basis.

 

Confusion regarding transactions involving foreign enterprises

As far as transactions involving foreign entities are concerned, there appears to be some anomalies in the Guidelines as illustrated by the two scenarios envisaged below.

In the first scenario, the Guidelines state that when a domestic (Zambian) enterprise “falls within the control of a foreign enterprise”, notification will only be required if the “operation has an effect on competition in Zambia”. This requirement seems to place the cart before the horse to some extent in the sense that a competition analysis needs to be performed simply to establish whether the transaction should be notified in the first place. In other words, it appears that if a foreign parent company acquires a domestic company, the merger will not have to be notified (despite meeting all other requirements of a mandatorily notifiable merger), if the proposed transaction would not have an impact on the competitive environment in Zambia.

The second scenario envisaged by the Act, is when a foreign company acquires another foreign company, but where at least one of the parties to the proposed transaction has a “local connection” to Zambia. For instance, a local connection may exist if the foreign entities have subsidiaries based in Zambia or derive at least 10% of its sales in Zambia for a period of at least three years.

In the latter scenario, the mere existence of a local connection is sufficient to trigger a merger notification requirement and no evaluation on the impact of the proposed transaction on competition needs to be considered.

It is likely that the two scenarios should be interpreted simply to confirm that there must be an effect on Zambian commerce before a merger notification requirement is triggered.

Possibility of pre-notification

The Guidelines also make provision for a pre-notification consultation with the CCPC for purposes of clarifying matters such as whether a transaction constitutes a merger or should be notified, as well as obtaining advice in relation to calculating annual turnover, value of assets or market shares.

Risks of prior implementation

Importantly, the Guidelines expressly state that prior implementation of a mandatorily notifiable merger may be result in the firms being liable to a fine of up to 10% of their annual turnover. In this regard, the Guidelines do not limit the ‘10%’ to turnover derived in, into or from Zambia.

The Guidelines further provide for a number of procedural aspects to merger notifications including, inter alia, timelines and the forms required to be completed.

 

Details on the assessment of a merger by the CCPC

As to the substantive evaluation of a merger the Guidelines provide significant guidance.

As a point of departure, the Guidelines recognise the types of mergers and theories of harms which are common to most established competition regulatory regimes.

The Guidelines recognise that most vertical and conglomerate mergers do not raise competition concerns, although there are of course exceptions, especially when a merger can give rise to foreclosure effects.

Importantly, like many African jurisdictions, the CCPC will assess the public interest impact of a proposed merger when deciding whether to approve the merger or not.

The public interest provision is drafted slightly differently to many other legislative instruments containing similar provisions.

In terms of the Guidelines, the CCPC will evaluate whether a merger, which has failed the competition test, should proceed on the basis that there are public interest grounds which justify the approval. The Guidelines do, however recognise that even a pro-competitive merger could be prohibited on public interest grounds. The Guidelines give no more guidance as to how public interest grounds will be considered or evaluated.

The Guidelines provide substantial additional information in relation to how the CCPC will evaluate the various factors taken into account when evaluating the impact of a merger. Some of these factors include:

• market definitions;
• market concentrations;
• counter-factual;
• market entry, import competition;
• counter veiling buying power;
• removal of a vigorous and effective competitor; and
• and effective remaining competition post merger

The Financial thresholds

On a final note and of considerable importance, the Guidelines, together with the Annexure to the Guidelines, prescribe low financial thresholds for mandatorily notifiable mergers.  In terms of the Guidelines, the combined asset value or turnover figures for merging parties must be at least 50 million fee units to constitute a mandatorily notifiable merger.

The Annex to the Guidelines indicates that 15 million Kwatcha would amount to 50 million fee units, 15 million Kwatcha being approximately (US $ 1 470 000).

The Guidelines also cater for the calculation of filing fees.

[1] See the CCPC’s Guidelines: http://www.ccpc.org.zm/wp-content/uploads/2015/09/CCPC-MERGER-GUIDELINES-FINAL-DOCUMENT-CONSOLIDATED-FINAL-VIEW.pdf

[2] See Section 24 of the Act.

South African Competition Authorities on Joint Ventures – Shipping Liners in the limelight once again

By Michael Currie

The recent investigation into the shipping cartel brought to the fore an important issue as far as competition regulation and commercial practice is concerned, namely joint ventures.  (AAT previously reported on the container-shipping cartel updates here, here and here).

On 12 August 2015, the South African Competition Tribunal (the “Tribunal”) was asked to make a consent agreement, an order of the Tribunal.  The relevant parties involved were Nison Yupen Kaisha Shipping Logistics and BLG Logistics (the “Parties”), who both signed consent agreements with the South African Competition Commission (the “Commission”) in relation to having contravened Section 4(1)(b) of the South African Competition Act, 89 of 1998 (the “Competition Act”). The Parties had entered into a joint venture agreement (“JV”) which contained a number of clauses which the Commission found would essentially prohibit the Parties from competing with one another. The Parties were the only two shareholders whose shareholding was 49% and 51% respectively.

The administrative penalties which the parties agreed to pay were less than US$100 000, which seems nominal compared to the approximate US$8 750 000 administrative penalty which NYK had agreed to pay in respect of the shipping cartel investigation (previously reported on by African antitrust).

Regardless of the quantum of the penalty imposed on the parties, the authorities provided some useful points to consider when deciding to embark on a joint venture.

John Oxenham, with Nortons and Africa consultancy Pr1merio, observes that, “[e]ssentially, the Commission confirmed that joint ventures will be scrutinised and evaluated against the competition regulatory environment with the same degree of scepticism as any other agreement/conduct between competitors. In this regard, it is evident that despite the well-recognised advantages and efficiencies that often flow from joint ventures, the questions and considerations essentially remain the same as far as the competition authorities are concerned.”

In other words, if a joint venture is concluded between competitors that leads to a fixing of the price (or any other restrictive cartel practice), then the parties will be liable to an administrative penalty and there are no ‘rule of reason’ defences available to the parties.

Andreas Stargard, an attorney advising clients on competition law and African legal issues, notes:

“Enforcement agencies must be sure to be careful in their analysis of the JV (including its structure, the degree of integration and actual sharing of manufacturing resources, IP portfolio, and the like) in order not to arrive at a ‘false-positive’ result.  Conversely, companies that do decide to form a JV should consult antitrust counsel in order to ensure compliance with the authorities’ requirements for what constitutes an antitrust-immune joint venture, and which conduct falls outside the scope of protection.”

For in-house counsel advising their corporate clients on JV formation and/or conduct with their joint partners, Pr1merio‘s Stargard suggests some of the following relevant questions to ask outside antitrust experts:

• What matters most to the legal risk analysis?  (Hint: function matters more than form.  You can call your cooperation with your competitor a “joint venture” on letterhead, corporate registers, and web sites, but it still may not be immune to conspiracy allegations.  The U.S. Supreme Court has held in American Needle v. National Football League that it “eschewed such formalistic distinctions in favor of a functional consideration of how the parties involved in the alleged anticompetitive conduct actually operate.”)
• Is it advantageous for our business model to withdraw from an existing JV, based on an antitrust audit and/or risk assessment of the JV’s functions, its actual level of integration, and the benefits derived from the joint nature of the business?
• Should we re-evaluate our information-sharing practices with our JV partners?  (Probably yes)
• Does our business constitute a “full-function joint venture,” as the EU calls those highly-integrated types of JVs that become wholly independent of their original JV partners as separate economic undertakings (and therefore could in theory be found to conspire with their shareholders, as they are independent economic actors on the market, and also fall under full merger-notification scrutiny).
• How else could we recognise the significant efficiencies we currently derive from joint conduct with our manufacturing/research & development/or other partner?  Are there other options?

The M/V Thalatta, a WWL High Efficiency RoRo vessel (image (c) WWL)

An interesting point to note from the South African Shipping case is that the authorities were not only concerned with the JV itself, but analysed whether the JV itself could be used as a mechanism or a vehicle which would enable the Parties to share information with one another. The authorities concluded that that is exactly what the current JV allowed.

In this regard, the Commission stated that they found it “difficult to divorce the conduct of the Parties outside the Joint Venture, with their conduct within the Joint Venture”. Accordingly, the Parties were able to share information within the JV which would lead to a distortion of competition outside the JV.

In other words, the Commission found that the Parties were competitors outside the JV, but through the JV, they became ‘one’.

Ultimately the Parties’ fines were calculated at 3.5% of the JV’s annual turnover in the preceding financial year. Interestingly, however, the penalty was not imposed on the JV itself, but imposed on the Parties, in proportion to their respective shareholding.

The Joint Venture itself, however, was not penalised as the Commission held that this would amount to double-jeopardy considering that the only two parties to the JV were already fined.

By Julie Tirtiaux

On Tuesday 14 July 2015, the Swaziland Competition Commission (the “SCC”) Board heard the substantive issues related to the anticompetitive behavior of Eagles Nest and Usuthu Poultry Farm (the “Parties”). The hearing followed the decisions of the Swaziland High Court and Supreme Court respectively regarding the procedure. The hearing deserves attention as it triggered questions about the SCC’s power to impose administrative fines.

The penalties that were imposed on the Parties

In November 2010, the Parties entered into a supply agreement whereby they agreed to restrict output and allocate customers. Following a complaint raised by the Minister for Commerce, Industry and Trade, the SCC Secretariat, which is the investigative and administrative arm of the Commission, initiated an investigation into this alleged anticompetitive conduct.

In 2013, the SCC Secretariat required the imposition of a fine on the Parties. The SCC Secretariat recommended a fine fixed at 10 percent of Eagles Nest’s affected turnover, while Usuthu Poultry Farm would be fined five percent of its affected turnover. The affected turnover for each company would amount to the total turnover of the companies for the three years that the Parties had allegedly contravened the Swaziland Competition Act, 8 of 2007 (the “Competition Act”).

On 15 July 2013, an appeal was launched by the Parties before the High Court based on procedural grounds as they were denied access to the full record of the SCC Secretariat’s investigations and the hearing suffered from procedural fairness problems.[1] This dispute carried on before the Supreme Court which confirmed the High Court decision by dismissing the appeal. The Supreme Court held that the SCC Board “had not taken real decision on the substantive matter of anticompetitive conduct”.[2]

Consequently, during the hearing on 14 July 2015 the substantive matters were before the SCC Board for determination. Surprisingly, however, the SCC Secretariat, chaired by Nkonzo Hlatjwayo, introduced new issues which were not raised in the first place by requesting the imposition of one of two proposed sanctions;

1. either both of the egg producers would be required to pay 10 percent of their annual turnover for the period whereby the anti-competitive behavior was occurring; or
2. alternatively they would be liable to a fine of E250 000 or to five years imprisonment.

In addition, the SCC referred the matter to the director of public prosecution.

What does the Swaziland Competition Act state?

The SCC is empowered to impose the fine of E250 000 or five years imprisonment since Section 42(1)(a) of the Competition Act states that “Any person who contravenes or fails to comply with any provision of this Act (…) commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand Emalangeni or to imprisonment to a term not exceeding 5 years or to both”.

The first option imposing a fine of 10 percent of the Parties turnover, however, is problematic since in terms of Sections 11(2)(a) and 40 of the Competition Act, the SCC has the power “to issue orders or directives it deems necessary to secure compliance with this Act” (our emphasis). There is therefore no specific provision which empowers the SCC to impose administrative fines or to refer the matter for prosecution.

How should the Swaziland Competition Act be interpreted?

Different interpretations are given to these public enforcement provisions of the Competition Act.

From the SCC’s perspective, Section 11(2)(a) read with Section 40 of the Competition Act provides the SCC with a wide range of powers in so far as the enforcement of the provisions of the Competition Act was concerned. Thus, the Secretariat of the SCC deduces from a teleological approach, based on the effective enforcement of the Competition Act, that the Board has the power to impose administrative fines.

As far as the Parties are concerned, if regard has had to the text of the Competition Act, none of the provisions confer the SCC with the authority to impose administrative penalties.

Why can’t the SCC grant itself a power which was not given by the legislator?

Imposing administrative fines without having the power triggers two main concerns.

Firstly, it leads to unpredictability as to how the factors which determine how the penalties are calculated are to be considered. Accordingly, the silence of the Competition Act and the lack of guidelines in that respect undermine the rights of companies who cannot accurately contest a fine. You cannot contest a fine if you don’t know how it was determined. The lack of clarity would make it challenging for companies to contest the imposition of a fine, if there is no guarantee as to how the fine was calculated.

Secondly, allowing the SCC the power to impose administrative penalties while the Competition Act only empowers the SCC to issue orders or directives to ensure compliance leaves the door open to the SCC to assume other powers, which they would not be entitled to do so without overstepping its bounds defined by the legislature.

We will continue to monitor this matter and eagerly await the decision of the SCC Board expected for the first week of September.

[1] Eagles Nest (Pty) and 5 others v Swaziland Competition Commission & Another (1/2014) [2014] SZSC 39 (30 May 2014, see pages 15-16.

[2] Ibid, see page 60 paragraph 8.