Namibian Competition Commission Seeks N$ 51 million penalty imposed on Namib Mills for Abuse of Dominance

By Sr. Contributor Michael-James Currie

The Namibian Competition Commission (NaCC) recently referred Namib Mills to the Windhoek High Court for the imposition of a N$ 51 million (approx. USD 3.5 million) administrative penalty following the NaCC’s finding that Namib Mills has abused its dominance in the market by contractually requiring 54 bakeries to exclusively procure flour from Namib Mills.

In terms of the contractual arrangements, Namib Mills loaned capital to the bakeries for, inter alia, purchasing baking equipment. The tying provisions in the contractual arrangements at the heart of the dispute essentially preclude the respective bakeries from acquiring flour from any flour supplier other than Namib Mills for a period of 5 years. Any breach of this provision enables Namib Mills from calling for the immediate repayment of the loan amount in full (including repossessing the baking equipment if required).

The NaCC has alleged that this contractual restriction precludes other flour suppliers from entering into the market due to Namib Mills’ high market share.

The penalty which the NaCC has requested the High Court impose translates to approximately 2.6% of Namib Mill’s turnover for the previous financial year.

The case is unlikely to be finalised this year. It will, however, be a landmark judgment in relation to the assessment of the abuse of dominance provisions in terms of the Namibian Competition Act (Act).

namibmillsAndreas Stargard, an antitrust attorney with Primerio Ltd. points out that, to date, there has been a “dearth of precedent in Namibia relating to the manner in which the provisions of section 24 of the Act should be interpreted and specifically what thresholds and criteria the authorities should consider in determining whether a dominant firm has in fact ‘abused’ its dominance or monopolised any relevant market.”  He notes that the company is in fact the largest grain processor in Namibia, with a reported market share of well above 60%, a fact that will “almost certainly play a determinative role in the ultimate decision in the matter.  Foreclosure of rivals, which is clearly the main theory of harm here, requires a degree of market power that the NaCC appears to have found exists in this market, and a two-thirds share is generally accepted in antitrust law as sufficient to establish a risk of foreclosure, when taken together with anti-competitive acts, such as those alleged by the Commission here.”

Unlike its South African counterpart, the Namibian Competition Act does not clearly permit for a rule of reason defence for abuse of dominance conduct (unless specifically excluded, the South African Competition Act does permit for a rule of reason defence). In other words, it is not clear to what extent a complainant must demonstrate actual anti-competitive effects (i.e. foreclosure or consumer welfare effects) and whether pro-competitive, technology or other efficiency arguments are taken into consideration. Furthermore, as John Oxenham, director of Primerio points out, “it is also not clear who bears the onus and what level of proof is required to make a successful showing of an anti-competitive effect”.

Section 24 of the Act expressly prohibits dominants firms from:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; or
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress

Without a clear framework in place, the abuse of dominance provisions could be extremely far reaching. For instance, a dominant firm would clearly need to, from time to time, place certain restrictions on third parties, particularly if the dominant firm has invested or assumed a certain amount of risk on behalf of that third party. Ensuring that a firm is able to safeguard and recoup its investment is inherently pro-competitive as this ensure continuous investment which brings with it innovation, better quality and ultimately lower prices for consumers.

In terms of the broad wording of the Act, however, a key challenge which the authorities face is assessing where one draws the line between exclusionary conduct which is justified by rule of reason arguments and at what point such exclusionary practices constitutes an abuse.

As a general observation, Andreas Stargard notes that “abuse of dominance cases are particularly challenging from an evidentiary point of view and typically require robust economic evidence when grappling with the various theories of harm and rule of reason justifications”.

Accordingly, a further difficulty which both Namib Mills and the NaCC face is that to the extent the High Court permits evidence to be led demonstrating the pro versus anti-competitive effects of the alleged conduct, the High Court may not be best placed to assess the evidence.

Regardless, the outcome of this case will be likely have far reaching consequences for firms who may be considered to be dominant in the Namibian market.

 

[Michael-James Currie is a practicing competition lawyer assisting clients with competition related matters in a number of African jurisdictions. Should you wish to contact Michael-James or any of the AAT contributors, kindly contact us at editor@africanantitrust.com and the AAT team will put you in touch with the relevant individuals]

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Namibian Competition Commission Conducts Dawn Raid in the Oil & Gas sector

namibiaBy AAT Senior Contributor, Michael-James Currie.

Dawn raids are gaining significant traction throughout the African agencies following the Namibian Competition Commission (NaCC) very recent (16 September 2016), raid conducted at the operations at Puma Energy in Windhoek. The raid follows the NaCC having received numerous third party complaints alleging that Puma Energy was abusing its dominance by engaging in excessive pricing practices in the aviation fuel supply market.

The NaCC had recently published Guidelines in relation to Restrictive Practices. The Guidelines focus primarily on the NaCC’s investigative powers and in particular, search and seizure operations. Africanantitrust suspected that the Guidelines would result in a move by the agency to be more proactive in its efforts to detect, prosecute and ultimately combat anti-competitive practices.

Africanantitrust had noted that search and seizure operations by competition law agencies across Africa were on the rise. The South African Competition Commission has drastically increased its utilisation of dawn raids as an investigative tool in its arsenal. The SACC has, furthermore, provided guidance and training to a number of other African jurisdictions respective agencies on search and seizure operations and how to conduct effective dawn raids under the auspices of the African Competition Forum.  Says John Oxenham, competition practitioner with Pr1merio: “2016 saw Kenya conduct its first dawn raid in the fertiliser sector as well as Zambia increasing the number of dawn raids conducted.”

The South African Competition Commission’s advocacy efforts should be considered in light of the number of recently concluded Memoranda of Understanding which the SACC has entered into with other regional agencies as well, including the NaCC.

In terms of the MoU with Namibia, it is envisaged that there will be greater cooperation in relation to information exchanges and assistance with common investigations between the NaCC and the SACC.

The NaCC is yet to prosecute an abuse of dominance case and we will ensure that Africanantrust continues to monitor this case and provide our followers with timeous updates should any significant further developments take place.

Namibia: NaCC issues Guidelines on Restrictive Practices

By Michael-James Currie

In April 2016, the Namibian Competition Commission (NaCC) finalised its guidelines on restrictive practices (Guidelines) in terms of chapter three of the Namibian Competition Act. The Guidelines focus in particular on the investigatory powers and procedures to be utilised by the NaCC during its investigations into restrictive practices.

The Namibian Competition Act contains most of the traditional antitrust prohibitions in relation to restrictive conduct. These include ‘agreements’ or ‘concerted practices’ between firms in a horizontal or vertical relationship which have the “object” or “effect” of substantially lessening competition in the market.

The Competition Act does not, from a plain reading of the language, impose a per se prohibition for ‘hardcore’ cartel conduct. The Guidelines, however, confirm that certain practices such as ‘hardcore cartel conduct’ and ‘minimum resale price maintenance’ will be considered per se to be anticompetitive. It is unclear, however, whether this per se contravention should rather serve as a presumption that the conduct is anti-competitive which may affect the onus of proof, rather, as in the South African context where the Act makes it clear that the effect of hardcore cartel conduct is irrelevant.

Furthermore, there is no express provision which deals with ‘rule of reason’ defences, however, the Guidelines confirm that efficiency or pro-competitive features of the alleged anti-competitive conduct, may outweigh any anti-competitive effect. It should be noted, however, that even if there was no anti-competitive effect, if the objective of the conduct was to engage in an anti-competitive agreement or concerted practice, a respondent may still be liable. Accordingly, conduct must not only be shown not to have an anti-competitive effect, but must also be properly ‘characterised’ as not being anti-competitive, in order to avoid liability.

The Namibian Competition Act also prohibits abuse of dominance conduct. The Act does not contain thresholds or criteria for deterring when a firm would be considered ‘dominant’, however, in term of the Competition Commission’s Rules, a firm:

  • will be considered dominant if it has above a 45% market share;
  • will be presumed dominant if it has between 35-45% market share (unless it can show it does not have market power); or
  • has a market share of less than 35%, but has market power.

Although the abuse of dominant provision is intended to prohibit a broad range of potential anti-competitive conduct, the Act in particular, notes the following conduct which, if a firm is dominant, is restricted:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress;
  • applying dissimilar conditions to equivalent transactions with other trading parties; and
  • making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.”

Importantly, the Namibian Competition Act does not state that the conduct identified above must lead to a substantial-lessening of competition in the market. Furthermore, in terms of the Guidelines, the NaCC not only considers the conduct of and individual firm, but also considers the conduct of a “number of connected undertakings acting collectively” for purposes of considering whether there has been an “abuse of dominance”.

It should be noted that the Namibian Competition Act does cater for exemptions from the application of Chapter 3 (i.e. restrictive practices) and sets out in some detail the requirements and terms upon which an exemption may be granted.

As noted above, however, the most elements contained in the Guidelines relate to the NaCC’s investigatory powers.

In terms of the Namibian Competition Act, the NaCC may initiate a complaint or may elect to investigate a third party complaint.

The NaCC‘s investigatory powers include the power to conduct search and seizure operations. Importantly, the NaCC may take into possession any evidence which, in its opinion, will assist in the investigation. This is so even if such evidence would not be admissible as evidence in a court of law. For purposes of obtaining witness statements, however, a witness has the same rights and privileges as a witness before a court of law.

The Guidelines also confirm that the NaCC is not entitled to peruse or seize “legally privileged” documents unless privilege is waived. Interestingly, the Guidelines do not appear to protect communication between in-house legal and the firm and refers to legally privileged communication as that between “lawyer and client” only.

Search and seizure operations must be conducted in terms of a valid search warrant.

The Guidelines also contains further guidance on various topics and caters for a number of procedural aspects which must be adhered to (as well as the prescribed forms which should be utilised in certain circumstances) in relation to, inter alia the following:

  • initiating complaint;
  • applying for an exemption;
  • requesting an advisory opinion;
  • handling and the use of ‘confidential information’;

The Guidelines is no doubt a stern indication that the NaCC is preparing to heighten its intensity in terms of investigating and prosecuting restrictive practices. Since inception, the NaCC has dealt with over 450 merger cases, but has only handled approximately 40 restrictive practice complaints.

Furthermore, and in line with the NaCC’s newly adopted 5 year ‘Strategic Plan (2015-2020), the NaCC is growing in confidence and competence and firms should be aware that the NaCC will look to utilise the dawn raids provisions when necessary.

Namibian Competition Act to be Amended

By Michael-James Currie

The Namibian Competition Commission (“NaCC”) has recently confirmed that the NaCC has submitted proposals to the Ministry of Industrialisation, Trade and SME Development (“Ministry”) relating to possible amendments to the Namibian Competition Act.

namibiaAAT does not yet know exactly what the nature and scope of the proposed amendments are, although the NaCC has indicated that the current Act, which was promulgated in 2003, is out of date and does not sufficiently cater for Namibia’s context (relating both to Namibia’s economic and socio-economic environment).

Furthermore, the NaCC has indicated that the amendments are aimed at increasing the NaCC’s enforcement capabilities and address ‘loopholes’ in the current Act.

In this regard, Minister Calle Schlettwein under whose portfolio the NaCC falls, stated that: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.  To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.

As Andreas Stargard notes, ‘[i]t would not be surprising if the proposed amendments related to “complex monopolies” and the introduction of criminal sanctions for cartel conduct,’ as this would be in line with the amendments made to the South African Competition Act (although not yet in force).  “Moreover, the Namibian commission will also likely cater for so-called ‘public interest’ elements in its enforcement strategy, as we have seen in several African jurisdictions.”  Stargard’s law partner at Pr1merio, John Oxenham, likewise emphasises “the strong ties between the two respective competition authorities” in southern Africa:

“The NaCC has often taken the lead from the South African competition authorities in respect of the interpretation and enforcement of competition law matters. The Namibian Competition Act is also largely moulded around the South African Competition Act.”

The strong links between the two respective authorities culminated in the signing of a Memorandum of Understanding under the heading, “In the field of competition law, enforcement and policy”MOU-COMPETITION-COMMISSION-SOUTH-AFRICA-and-NAMIBIAN-COMPETITION-COMMISSION

The spokesperson for the NaCC has said that “the aim of the review is to strengthen the enforcement capabilities and machinery of the commission and to close loopholes that exist within the current law.  Our Competition Act is similar, in many ways, to that of South Africa and the amendment thereof will only raise our standards to international best practices but within the context of Namibia.”

Schlettwein is on record as saying: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.

“To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

In sum, given that the proposed introduction of a “complex monopolies” offence and criminal sanctions in South Africa has led a number of practioners in that country questioning the constitutionality or the practicality of the these amendments, it will be interesting to see whether the NaCC takes these concerns into consideration assuming we at AAT are indeed correct that these are the amendments which the NaCC is also proposing to introduce.