South Africa: Competition Appeal Court Sends Strong “Passive Participation” Message

Competitors Beware of Industry Gatherings

By Charl van der Merwe

On 19 December 2016, the South African Competition Appeal Court (CAC) handed down judgment in the Omnico (Pty) Ltd; Cool Heat Agencies (Pty) Ltd vs The Competition Commission & Others matter.

The judgment details an application brought by two respondents who sought to challenge the Competition Tribunal’s finding that their participation at industry association meetings amounted to cartel conduct, despite the appellants’ contention that they did not actively participate in any anticompetitive discussions and were effectively passive participants at the meetings.

The CAC had to decide on whether or not silent participation by firms at an industry  meeting or forum of competitors where cartel activity was discussed amounts to a contravention in terms of section 4(1)(b)(i) of the Competition Act, Act 89 of 1998 (“the Act”).

south_africaSection 4 of the Act provides that “An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if – (a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect”.

The Appellants are wholesalers that supply bicycle and bicycle accessories to the retail trade. The appellants attended a series of industry meetings together with various retailers and wholesalers of bicycles and bicycle accessories to discuss ways in which retailers could increase retail margins. This the CAC found was achieved by the wholesalers agreeing to increase the Recommended Retail Price, (“RRP”) for the various products sold.

In this particular case, the RRP increase was scheduled to take place on the 1st of October.

Though the appellants both increased their RRP on the effective date, the crux of the matter and the point the appellants placed great reliance on was the contention that they never actively participated in the industry meetings.

smoke_filled_room_smallThe CAC in dismissing the appeal held that it was clear that there was a cartel and that due to the complex and clandestine nature of cartel conduct, the Commission merely had to show sufficient evidence that in its entirety proves that the appellants were part of that cartel. The Commission was not required to scrutinise and evaluate each and every activity or discussion at the various meetings, and it was up to the appellants to put forward rebuttal evidence to establish that their participation at the meetings lacked any intention on their part to be a party to the collusive conduct.

Andreas Stargard, a competition lawyer with Primerio Ltd., notes that, “importantly, the CAC confirmed that the standard of proof in competition law cases is lower than that of contract and common law — a wink and a nod may in the smoke-filled-room, under the right circumstances, be sufficient proof to show collusion among competitors.  To prove a cartel, there is no need to apply the rigid principles of contract law, determining whether a meeting of the minds was reached, or to prove formal offer and acceptance in order to show that a collusive agreement was reached.”

Furthermore, he says,“the CAC found that the evidence put forward by the Commission need only be ‘sufficiently precise, consistent and convincing’ — not necessarily the ‘clear and convincing‘ evidentiary standard generally required in terms of common law.”

In addition, the CAC noted that there is no need for a single pressing piece of conduct to show that an anticompetitive arrangement has been entered into, but that the authorities will consider the cumulative effect of conduct whether active or passive in order to determine whether, on a holistic approach, the respondents had entered into a collusive agreement.

The CAC held that although the appellants did not express agreement at the meeting, the appellants did not ‘publicly’ distance themselves from the collusive proposals put forward at the meetings.

Accordingly, the CAC found that:

  • there was consensus reached at the meeting and the appellants failed to distance themselves from the discussions;
  • neither appellants gave any indication that they disagreed with the consensus reached at the meeting nor that they would not proceed along the lines as agreed during the meeting;
  • that at the very least (without even increasing their prices on the effective date) the appellants would have passively benefitted from the conduct resulting from that collusive arrangement; and
  • that neither of the appellants placed any evidence before the CAC to prove that they priced independently.

In conclusion, therefore, it is clear that firms who attend industry association meetings, forums or the like, are obliged to take active steps to denounce any anticompetitive discussions which may have taken place at such meetings.

Once a firm is party to any anticompetitive discussions, the onus rests on that firm to actively distance itself from such discussions – this is so irrespective of whether a collusive arrangement is implemented or not. It is not clear what steps need to be taken to satisfactorily distance oneself from such discussions, although it must be a ‘public’ denouncement. This could be interpreted as indicating that firms may be obliged to report to the authorities any collusive arrangements which they wish to actively distance themselves from.

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Appellate competition body questions authority’s lenient fine

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Tribunal expresses doubts as to lenient fining level of Premier Fishing

The chairman of the South African Competition Tribunal, Takalani Madima, has asked the South African Competition Commission and Premier Fishing for ‘detailed substantial submissions’ on the settlement agreement reached between them, which lets the fishing company “off the hook” for an administrative penalty of a mere R2.1m (or 2% of its revenues).

2% fine not sufficient deterrent to anti-competitive conduct

According to a BDlive report, Mr. Madima is quoted as saying: ‘I am personally not too happy (with the agreement). I am still to be persuaded.’

The underlying conduct involves a cartel between Premier Fishing and others, in which the competitors shared information and pricing regarding the pelagic fish industry.  The Commission’s July 2008 investigation included the following companies as targets: Oceana, Foodcorp (note: the two former cartelists recently decided to merge and the competition authorities imposed conditions on the planned transaction), Premier Fishing, Gansbaai Marine, the SA Pelagic Fish Processors Association, Pioneer Fishing, Saldanha Bay Canning and others.

As the leniency applicant, Pioneer Fishing obtained full immunity from prosecution.  Others, such as Oceana, settled for approximately 5% of their fishing turnover.

Commissioner calls agency’s work “reactive”, will appeal SABMiller case, counters “toothless dog” moniker

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Revelations from Bonakele’s interview with CNBC Africa

South African interim Competition Commissioner Tembinkosi Bonakele called his agency, the Competition Commission (“Commission”), a “kind of reactive” enforcement body, aiming primarily to uncover cartel conduct.  In an interview with CNBC Africa‘s “Beyond Markets” segment, journalist Nozipho Mbanjwa asked the acting Commissioner tough questions on the Commission’s enforcement tactics, legislative mandate, fines imposed, the adequacy of the Commission’s capitalization, and whether the South African antitrust watchdog was, in fact, a “toothless dog.”

Bonakele held his ground, referring multiple times to the Commission’s recent successes, including the construction cartel, the bread case, cooking oils, and other “basic products” matters on which he said his agency would place the largest focus going forward.

The Acting Commissioner

The Acting Commissioner

Some of the highlights from the interview:

  • Bonakele is “quite satisfied” with the agency’s funding and performance of its 180 staff, but may ask for “more funding” specifically for the Commission’s sectoral health-care inquiry.
  • The Commission will focus its cartel-busting efforts on sectors in the basic products category such as foods and health-care.
  • The Commission will “definitely appeal” its loss of the SABMiller abuse-of-dominance matter, a “very tricky kind of offence in terms of competition law” according to Bonakele.  He said he did “not like” the 7-year long duration of the SABMiller saga, but felt compelled to extend the matter by bringing the case before the Competition Appeal Court.
  • “No comment” on the “classic” Unilever investigation.
  • On the much-maligned MultiChoice broadcaster, Bonakele called the company a “monopoly created by legislation” in a regulated market, and deferred to parliament to rectify the situation.
  • The Commission receives approximately 30% of its funds from revenues that are the result of merger filing fees.

SA competition enforcer’s distribution monopoly case dismissed by Tribunal

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South African Breweries distribution case dismissed

The Competition Tribunal of South Africa has dismissed a monopolization case brought by the Competition Commission against South African Breweries (“SAB”). The Tribunal held that the Commission brought insufficient evidence to find that SAB acted in violation of the Competition Act.  Particularly in light of the significant resources which the Commission expended on the matter, it is a disappointing loss for the agency.

The Commission had alleged that SAB’s distribution system prevented competition between firms that distributed SAB-branded beers, but the Commission made no case against 90 per cent of SAB’s distribution and focused its case on the system of appointed distributors. This would account for only 10 per cent of SAB’s method of beer distribution. The Commission claimed that SAB has a market share of about 90% of ‘clear beer’ in South Africa. It went on to claim that SAB restricted competition between its distributors as SAB would appoint distributors and allocate exclusive territories.

The Tribunal held that the distributors appointed by SAB were not adequately independent to be in competition with each other and therefore their conduct could not be seen as being restricted. The Tribunal held that SAB’s conduct did not amount to unjustified discrimination.

The decision marks the first occasion that the Tribunal has dealt with the treatment of non-compete restraints in dual distribution arrangements in South African competition law. In deciding the matter, the Tribunal also introduced the novel concept of a “separate basic economic unit.  This concept operates as a measure used to assess the level of independence distributors have from their suppliers, which means that there must be a certain level of independence between a supplier and a distributor in order to contravene the Act.

There has been no indication that the Commission intends to appeal the Tribunal’s dismissal.