Are the 2017 PPPFA Regulations Misaligned? Can Competition Law Assist?

By Mitchell Brooks, AAT guest author

If one looks at the 2011 Preferential Procurement Policy Framework Act (PPPFA) Regulations, the Regulations provide two ratios to be used in determining a tender award. The two point systems are the 90/10 and the 80/20 ratios. The 90/10 ratio indicates that 90 out of 100 points are to be awarded based on the price of the bidder and 10 out of 100 points are to be awarded based on “special goals”[1]. Since the commencement of the 2011 PPPFA Regulations, special goals have primarily been allotted to BEE status levels.

slide_1Turning to the 2017 PPPFA Regulations, in which the above-mentioned ratios have been maintained, regulation 4 provides for pre-qualification criteria for preferential procurement. Interestingly, according to regulation 4(1)(a) of the 2017 Regulations, an organ of state may stipulate a minimum B-BBEE status level for tenderers. Furthermore, regulation 4(2) deems any tender in contravention of pre-qualification criteria unacceptable. In essence, the pool of bidders can be reduced significantly by requiring all bidders to possess as a B-BBEE Contribution level 1 despite primary legislation only allowing B-BBEE to be taken into account at a maximum threshold of 80/20. Therefore, it is hard to understand why the allocation of points to special goals is capped at 20 points whereas there is no maximum level allocated to the minimum pre-qualification criteria. Arguably, pre-qualification criteria in this regard are open to abuse in oligopolistic markets with few suppliers.

If one views this legal framework holistically, it may seem that the points allocation in the PPPFA is capable of being somewhat circumvented. In other words, the importance attached to a tenderer’s B-BBEE status level may be increased immensely if a level 1 or 2 B-BBEE status level is stipulated as a minimum pre-qualification criterion. On the other side of the coin, the significance of price may be undermined, rendering a competitive tendering process ineffective in securing value-for-money. This suggests the 2017 Regulations are misaligned in that the purpose of the 80/20 split is unclear when read with regulation 4.

In an effort to restrain pre-qualification criteria restricting a large pool of bidders, a bidder may ask whether a dominant public entity, for example, a monopolistic entity such as Eskom, would contravene section 8(c) of the Competition Act if the pre-qualification B-BBEE status level is set too high. Does it qualify as an exclusionary act which is likely to affect competition in the particular market? This falls part of a larger looming question, at what point does pre-qualification criteria by dominant parastatals become anticompetitive in terms of the Competition Act and how will Competition Law interact with procurement? Section 217 of the Constitution of South Africa does not provide a clear answer but it does suggest that competition may have an important role to play going forward.

[1] section 2(1)(e) of the Preferential Procurement Policy Framework Act Regulations 2011

[2] Competition Act 89 of 1998

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Beyond the DOJ: Criminal liability for cartel conduct in Africa

South Africa: Driving Force behind Enforcement of Criminal Sanctions for Cartelists?

By AAT Senior Contributor, Michael-James Currie

In May 2016, precisely a year ago, criminal liability for directors or persons with management authority who cause a firm to engage in cartel conduct was introduced in South Africa by way of amendments to the Competition Act.

The introduction of criminal liability caught most of the South African competition law community off-guard, including the competition authorities, despite the relevant legislative provisions having been drafted and presented to Parliament for approval in 2009.

A major reason why there was such a delay in the enactment of the relevant legislation were concerns raised about the practicality and legality in enforcing the criminal liability provisions, at least in the manner currently drafted. These concerns, however, were never addressed and the Minister of Economic Development, Minister Patel, proceeded to bring into effect the criminalising provisions. The Minister has openly taken a view that current administrative penalties, which to date have been the most prominent form of sanctions imposed on firms for engaging in cartel conduct, do not provide a sufficient deterrent.

Criminal sanctions are, however, by nature a rather retributive liability, and there have been limited instances in which firms that have previously found to have contravened the Competition Act are repeat offenders. Administrative penalties coupled with reputational damage would appear to be a substantial deterrent.

Regardless, the sentiments of Minister Patel were recently echoed by the head of the National Prosecuting Authority, Shaun Abrahams, who recently indicated that anti-corruption task team (ACTT) has been briefed to treat ‘collusion’ in the same vein as corruption. The ACTT was formulated in 2010 to target high profile cases of corruption.

While it is understood that the Competition Commission (SACC) and the National Prosecuting Authority (NPA) having been working on a memorandum of understanding between the two enforcement agencies for over a year, it appears that such a MoU is still some way off from being finalised.

It is not yet clear whether the NPA envisages a more active role in cartel investigations with a view to institute criminal proceedings in terms of the Competition Act, or whether Mr Abrahams envisages holding those accountable by other pieces of anti-corruption legislation such as the Prevention and Combatting of Corrupt Activities Act (PACCA).

Mr Abrahams has indicated that he has been trying to set up a meeting with the Commissioner of the South Africa Competition Commission, Tembinkosi Bonakele, in order to discuss recent investigations by the SACC, most notably in the banking sector.

Of particular interest is that the Black Empowerment Forum (BEF) had laid criminal charges at the South African Police against Citibank following Citibank’s R69 million settlement agreement with the SACC. The BEF had indicated that they would write to the President and the NPA in an effort to elevate and expedite this case.

The recent banking referrals have been politically charged with many of the view that there has been political interference in the manner in which the banking investigation has been handled. A number of reports have linked the BEF which was allegedly only established in April 2017, to the President’s son, Edward Zuma.

This does raise queries as to the motivation behind the BEF’s criminal complaint and also whether it was the BEF’s criminal complaint that has sparked Mr Abrahams’ recent comments.

The timing of the BEF criminal complaint and Mr Abrahams’ expressed interest in pursuing cartelists for criminal liability, the allegations of political interference in the banking referrals and the lack of any formal arrangement between the SACC and the NPA regarding the enforcement of the criminal sanctions (as far as we are aware) may all be unrelated issues. This, however, seems doubtful.

View from the Jump Seat: the SAA/Mango Merger

By Mitchell Brooks, AAT guest author

The recent proposal of a SAA/Mango/Express merger has sparked debate throughout the aviation industry. A good friend of mine has gained incredible experience in the private jet charter industry based in London, but more importantly, he also doubles as keen aviation blogger. And so, it only felt right to join the debate, as a team. What you are about to read is a merger between two SAFFAS with a passion for aviation. – A big thanks to Nick Combes (from The Aisle View)Flugsimulator_DASA_Dortmund

In late 2016 it was announced that SAA, SA Express and Mango airlines would undergo a merger. The merger is said to be overseen by an American 3rd party organisation, Bain & Co, a management consultant firm. The reported fee agreed for Bain’s oversee was in the region of R12 million.

From an operational aspect, Mango is already operating under SAA’s AOC (Air Operating Certificate) and its fleet is maintained by SAA’s technical department. This means that no real change would be felt across airline operations, however as discussed below, the legal structure of its fleet changes quite drastically.

When looking at the structures of these airline companies, one can become quite skeptical of the underlying rationale for the proposed merger between SAA and Mango. Mango is a 100% subsidiary of SAA, meaning that SAA holds the entirety of Mango’s shares. The financial integration should be straight forward. But it is the restructuring of the company that interests us.

With that said, SAA does not stand to reap profits greater than the existing dividends it already receives. I am no tax expert but, if anything, SAA may be attempting to avoid dividends tax of up to 20% by becoming one single entity.

But it is admittedly difficult to see why a state-owned entity would take on the cost of this merger, simply to avoid the same tax that it enjoys the benefit of!

For those even remotely aware of South African Airways’ financial history, you will remember that the state airline has already been rescued by various state bail outs (thanks, taxpayer). South African Airways still reported a 2015 loss of R5.6 billion or $485 million. Mango is currently the only profitable subsidiary of the 3 merging companies. (It has done well to remain so against the might of Comair’s low-cost subsidiary, Kulula.)

The merger proposes a streamlining of SAA as a parent company to maximise profitability. But if Mango is doing well shouldn’t they be left alone to continue just this? If the SAA board cannot return a flagship carrier to profitability, then taking on another two airlines is not going to make their jobs any easier. Adding two bad eggs with one good egg still makes a horrible pancake.

Mango’s relatively small yet successful operation is not going to be offering any lifelines for SAA parent. SAA is a sinking ship that ultimately threatens to pull Mango down with it.

So what really is the motive for this merger?

Let us back track to the restructuring of the boards of the entities and simplify things. As it stands, an unsuccessful SAA has a board of directors, with its highly criticised Dudu Myeni as its chair. On the other hand, a successful subsidiary, Mango, has its own independent board of directors. What should be noted is that, notwithstanding the MOI of the Companies, the Companies Act 71 of 2008 requires the shareholders of a company to elect a minimum of 50% of the board. This means that the SAA parent already has the power to appoint the majority of its subsidiary’s board.

Based on the endless corruption allegations and financial shortfalls of SAA, is it not plausible that the proposed merger serves the purpose to concentrate power towards one individual, whose purpose to date has clearly not been the success of a company, the chairperson – Dudu Myeni.

Another prominently possible reason for the merger would be to restructure the ownership of the fleet. One may then ask, why? Well SAA has found itself being investigated by the Competition Commission quite often, in fact, state entities are the most frequent transgressors of the Act which has caused quite a lot of speculation surrounding its possible amendment to relieve state entities altogether. Furthermore, our President did hint towards this amendment at SONA 2017, which indicates that there is certainly an intention for the state to relieve itself from this Act to some degree.

This may seem quite deceptive, as the merging of the entities may be for the purpose of avoiding the red tape surrounding the Competition Act. In June 2016 SAA conceded to sub-chartering aircraft to SAA at discounted rates. In fact, the SAFAIR CEO indicated that SAA would have been subsidising almost 40 percent of Mango’s costs through the arrangement.

Of course, such an arrangement drew attention from Mangos biggest rival Kulula, who laid a complaint to the competition commission on grounds of collusion. Unfortunately, the channel chosen by Kulula was slightly flawed and perhaps would have been better suited under a predatory pricing argument.

Firstly, the problem with pursuing the horizontal collusion argument is that the relationship between SAA and Mango is distinctively more vertical than horizontal because, as mentioned earlier, SAA amounts to a supplier of aircraft to its 100% wholly owned subsidiary. It would be quite difficult to argue that SAA competes with its sub in the domestic, low-cost airline market. Arguably, that is where the collusive approach falls flat. A more reasonable approach would be to argue that SAA was abusing its dominance in the domestic airline market, gained by means of historical state funding, by sub-chartering aircraft (a service) to its subsidiary at prices below their marginal or average variable cost. Furthermore, the only intention that can reasonably be inferred from this arrangement is that SAA, and by implication Mango, sought to remove Kulula from the market – hence the term predatory pricing. Think about it, why else would a bleeding parent company sublease aircraft, at a loss, to a succeeding sub?

The point is if Mango and SAA become one entity they no longer need to formally lease aircraft between each other, meaning that Mango benefits from the use of the aircraft at low costs which allows it to undercut Kulula and squeeze their margins, eventually squeezing them out of the low-cost market. The biggest effect of the restructuring is that without a leasing arrangement the Competition Act is circumvented. However, the merger will have to pass the muster of the Competition Tribunal in order to merge and I am quite hopeful that the merger will be rejected on the grounds that it would lead to extremely anti-competitive consequences in an already struggling market. One could say the merging parties have exceeded their maximum take-off weight (“MTOW”), and even if cleared would unlikely reach their VR speed “rotation speed.”

Ultimately, there are only two parties that may benefit from this merger, Dudu Myeni and allegedly a number of SAA pilots. An anonymous insider has suggested that currently, the policies within the two companies are different in regulating the years of experience required to jump over to the left seat, with the SAA policy requiring over a decade. The question arises as to whether SAA pilots may demand a threshold more akin to their orange comrades.

Cabin-crew, disarm doors and cross-check”

A new era of antitrust in Zimbabwe: National Competition Policy moves ahead

Having recently hosted a national sensitisation workshop on COMESA competition policy in Harare, as we reported here, Zimbabwe is expected to enact a revised competition law.  The country’s Cabinet has reportedly approved the National Competition Policy.  One element of the NCP is to reduce the time it takes the Zimbabwean Competition and Tariff Commission (CTC) to review mergers and acquisitions from 90 to 60 days, thereby encouraging “brownfield” investments, according to a minister.

Zimbabwean Industry and Commerce Minister Dr. Mike Bimha spoke at the mentioned workshop, emphasising the need for “a level playing field”: “We are now working to ensure that we have a new Competition Law in place which will assist the CTC in dealing more effectively with matters related to abuse of dominant positions and cartels,” he said.

The NCP is part of a larger project to encourage investment and is closely linked with the country’s industrial and trade policies, known as Zimbabwe Agenda for Sustainable Socio-Economic Transformation (a.k.a. “Zim-ASSET”).

The Zimbabwean NCP is not merely domestically focussed, however.  Andreas Stargard, a competition-law practitioner, highlights the more international aspects that also form part of the revised competition bill awaiting enactment by the President:

Not only does the NCP contain the usual  focus of levelling the playing field among domestic competitors under its so-called Zim-ASSET programme.  It also undergirds the so-called ‘domestication’ of the broader regional COMESA competition rules, as well as the Ministry’s bilateral agreements.  For example, Zimbabwe recently entered into a Memorandum of Understanding with the Chinese government, designed to enhance cooperation on competition and consumer protection issues between Zimbabwe’s CTC and the PRC’s MOFCOM.

The risks of seeking antitrust leniency

‘Excusing yourself from the dinner table’ – the risk in applying for immunity in terms of the Competition Act

By Mitchell Brooks, AAT guest author

cutlery (1).jpg

After reading David Lewis’ ‘Thieves at the Dinner Table’, a must read for any aspiring competition lawyer, Lewis refers to his negotiations with various cartel members as the head of the Competition Commission. Highlighting that anticompetitive conduct essentially robs the consumer of competitive pricing, hence the reference to thieves, and often this is done during informal dinners between top execs.

The question begs, what are some of the inherent risks in applying for immunity for contravening the Competition Act (“the Act”) and, in essence, excusing yourself from the dinner table.

In Brief

For purposes of this discussion, the composition of the Competition process can be described as follows:

  • The Competition Commission (“the Commission”) investigates anticompetitive conduct in contravention of the Act
  • The Commission then refers the potential perpetrator to the Competition Tribunal (“the Tribunal”);
  • The Tribunal adjudicates the matter and determines whether the Act is contravened and whether a fine is imposed.
  • In order for the Commission to investigate a potential perpetrator, either an outside party (like you and I) must submit a complaint to the Commission or the Commission must initiate a complaint itself.

What is the Corporate Leniency Policy “CLP”?

The CLP is a mechanism utilised by the Commission to uncover cartel practices, the most notorious form being price fixing. The CLP is a policy developed by the Commission and possesses no legal status. Rather, it is an expression of how the Commission will handle leniency applications. In brief, the CLP provides for the granting of “immunity” by the Commission to perpetrators who contravene the Competition Act. However, the CLP operates on a “first to the door” principle meaning that only the first member of the cartel to come clean will qualify for immunity. However, in my humble opinion this principle might not find much support in the context of hub-and-spoke collusion whereby the supplier in the upstream market facilitates collusion between competitors in the downstream market (an increasing phenomenon globally). In other words, is it acceptable that the facilitator qualifies for immunity despite being the orchestrator of the collusion?

What does immunity entail?

According to the CLP, “immunity” means that a successful applicant (otherwise a perpetrator) will not be subject to adjudication or a fine. In turn, “adjudication” entails a referral of a contravention of a chapter two provision (cartel conduct for example) by the Commission. However, Wallace JA in AgriWire (Agri Wire (Pty) Ltd and Another v Commissioner of the Competition Commission and Others (660/2011) [2012] ZASCA 134) stressed that immunity is a much broader concept insofar as the successful applicant would not be referred to the Tribunal along with the other cartel members. In essence, an agreement is concluded between the Commission and the applicant to not refer the applicant to the Tribunal. In other words, the Tribunal has no discretion to impose a fine and the Tribunal does not grant a consent order in terms of the Act (my emphasis added).

What are the risks involved?

Higher fines

First, the applicant is still exposed to adjudication despite not being subject to the discretion of the Tribunal. If the Commission decides against referring a complaint brought by an outside party, the outside party may refer the complaint to the Tribunal itself and bypass the requirement that the Commission make a referral.

Furthermore, if the Commission decides against taking a self-initiated complaint further, nothing in the Competition Act prevents an outside party from submitting a new complaint and referring the matter themselves. This means that there is still a risk of a higher fine being imposed on the perpetrator. In order to achieve greater certainty, the applicant should seek a Consent Order by the Tribunal, which will ensure no outside party may refer the matter for adjudication. This Consent Order should reduce the risk of a fine, greater than the agreed amount as per the immunity agreement, being imposed.

Civil damages

Second, the CLP does not provide leniency against civil damages, however the process as explained in Agriwire creates the perception that immunity is granted against civil claims as well. This perception is apparent in Premier Foods v NormanManoim 2015 (SCA).

In brief, Premier Foods received immunity for its involvement in the notorious bread cartel. Subsequently, private parties sought civil damages. However, section 65(6) of the Competition Act only allows civil damages claims if the party is found in contravention of the Act. A certificate was issued by the Tribunal on the basis that Premier Foods’ conduct had been referred to the Tribunal and thus a finding was made. However, the SCA in Premier Foods disagreed with this finding, instead the SCA held that Premier Foods was not a party to proceedings in the Tribunal, it had not been referred and therefore the certificate was unlawful. As a result, the private parties were barred from a civil claim.

Therefore, according to Premier Foods, a successful applicant would not be exposed to civil damages because there can be no finding against a perpetrator who is not referred to the Tribunal. In summary, the granting of immunity guards the perpetrator against a civil damages claim, even though the CLP’s objective is not to prevent civil damages.

Contrary to the perception created by this unfortunate precedent, successful applicants are arguably still exposed to civil damages by means of a section 58(1)(a)(v) declaration by the Tribunal that the Act was contravened despite the granting of leniency. Nothing in the Act suggests that a complaint procedure be followed in order to obtain a declaration. A private party should be able to approach the Tribunal to ask for a declaration that the Act was contravened based on the immunity agreement, which will not amount to an adjudication as per Judge Wallace’s interpretation but will still amount to a finding. Although there have been no cases relying on 58(1)(a)(v) since Premier Foods, nothing suggests that this avenue cannot be re-opened.

Criminal prosecution

Lastly, a new amendment to the Companies Act provides for criminal liability against directors who engage in cartel conduct. The CLP and the Competition Act are completely silent on the impact of the CLP on criminal liability. It might well be possible for a managing director to be exposed to criminal prosecution despite the granting of immunity to the perpetrating company. Therefore, the directors would need to communicate with the National Prosecuting Authority and coordinate accordingly.

Conclusion

In light of the above, the CLP will be less effective until the above uncertainties are addressed and it is advisable that when one is faced with cartel conduct, it is important that one seek professional legal advice due to the complexity of the immunity application process.

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.

 

New Frontiers of Antitrust – Paris conference

Concurrences Review will hold the 8th edition of its annual conference “New Frontiers of Antitrust” on Monday 26 June, from 8:30am to 7:00pm, at the Maison du Barreau, Rue de Harlay, Paris, France.

Marc van der Woude, Judge, Vice-President, General Court of the European Union, Luxembourg, will deliver the opening keynote speech.

AAT readers can use the following promotional code to sign up: NFA2017PartnersBlogs at the following site: https://newfrontiersofantitrust2017.eventbrite.fr


 Speakers include:

– Eric Barbier de La Serre, Partner, Jones Day

– Cristina Caffarra, Vice President, Head of European Competition Practice

– Andrea Coscelli, Acting Chief Executive, Competition & Markets Authority

– Isabelle de Silva, Chairperson, Autorité de la concurrence

– Kaarli Eichhorn, Global Executive Counsel – Competition Law & Policy, General Electric

– Carles Esteva Mosso, Deputy Director-General for mergers, DG COMP

– Justus Haucap, Director, Institute for Competition Economics

– Mathew Heim, Vice President and Counsel, Qualcomm

– Laurence Idot, Professor, University Paris II Panthéon-Assas

– Gert-Jan Koopman, Deputy Director-General State aid, DG COMP

– Frédéric Jenny, Chairman, OECD Competition Committee

– Cecilio Madero, Deputy Director-General Antitrust, DG COMP

–  Franck Maier-Rigaud, Professor, IÉSEG School of Management, Paris | Head of Competition Economics Europe, NERA,

– Robert McLeod, Co-Founder & Chief Executive Officer, MLex

– Damien Neven, Senior Consultant, Compass Lexecon

– Mélanie Thill-Tayara, Partner, Dechert

– Wouter Wils, Hearing Officer, European Commission, Visiting Professor, King’s College London

The conference will focus on 4 topics:

– Competition authorities: Towards more independence and prioritisation?
– Mergers and innovation: Do mergers foster innovation?
– State aid and tax ruling: Is there really a competition issue?
– Exploring the politics of competition regulation: How political is competition law?

 

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.

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

By AAT Senior Contributor, Michael-James Currie

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

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

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

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

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

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

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

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