Strat­egy doc­u­ments pose com­pe­ti­tion law risk

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - TESSA STU­ART

HOW many of your com­pany’s in­ter­nal doc­u­ments and re­ports would you be happy to put in front of the Com­pe­ti­tion Com­mis­sion? Re­ports on mar­ket developments and com­pet­i­tive ob­jec­tives lit­tered with state­ments of how your busi­ness has the lion’s share of the mar­ket and is wip­ing out the com­pe­ti­tion with its ag­gres­sive strate­gies may im­press share­hold­ers, but they cer­tainly will not find favour with com­pe­ti­tion au­thor­i­ties.

In the re­cent case be­tween the Com­pe­ti­tion Com­mis­sion and Telkom SA Lim­ited, much of Telkom’s de­fence was de­stroyed by an in­ter­nal mem­o­ran­dum and a doc­u­ment ti­tled “WAR Strat­egy”.

The strat­egy doc­u­ment was drafted in re­sponse to a per­ceived threat posed by com­pe­ti­tion from value added net­work ser­vice providers.

It con­tained a num­ber of damn­ing state­ments, some of which con­tra­dicted the de­fences that Telkom sought to rely on and con­firmed Telkom’s ob­jec­tive to avoid the risk of val­ueadded net­work ser­vice providers switch­ing cus­tomers from Telkom to its com­peti­tor in the fu­ture.

In ad­di­tion, an in­ter­nal mem­o­ran­dum stat­ing that it was ar­guable that the ser­vices pro­vided by value-added ser­vice providers were “due and proper” cer­tainly did not as­sist Telkom in try­ing to prove its cen­tral de­fence that these ser­vices were il­le­gal.

Why do doc­u­ments end up with the au­thor­i­ties?

Al­though in­ter­nal doc­u­ments are confidential, they are not al­ways con­sid­ered to be priv­i­leged.

In all lit­i­ga­tion, par­ties are obliged to pro­duce for in­spec­tion all doc­u­ments rel­e­vant to the dis­pute, even confidential doc­u­ments. These doc­u­ments are made avail­able to all op­po­nents. Only legally priv­i­leged doc­u­ments may be with­held.

Priv­i­leged doc­u­ments in­clude cor­re­spon­dence be­tween par­ties and their le­gal ad­vi­sors, but only to the ex­tent that the cor­re­spon­dence was en­tered into in con­tem­pla­tion of lit­i­ga­tion or for tak­ing confidential le­gal ad­vice. Cor­re­spon­dence be­tween par­ties en­gaged in bona fide set­tle­ment ne­go­ti­a­tions is also priv­i­leged.

In­ter­nal doc­u­ments and re­ports are not priv­i­leged. They have to be pro­duced no mat­ter how detri­men­tal to your case they may be. This is so in merger hear­ings and in com­plaints about anti-com­pet­i­tive prac­tices like price fix­ing or abuses of dom­i­nance.

In ad­di­tion, the Com­pe­ti­tion Com­mis­sion is en­ti­tled to re­move and copy doc­u­ments that are not priv­i­leged found dur­ing dawn raid in­spec­tions. What should you do? It is vi­tally im­por­tant that you care­fully con­sider the way in which your in­ter­nal doc­u­ments are drafted.

Where they are priv­i­leged, and you are seek­ing ad­vice from your le­gal ad­vi­sors in re­la­tion to po­ten­tial non- com­pli­ance, make sure they are marked priv­i­leged and are stored sep­a­rately in a man­ner that en­sures that it is ap­par­ent that they are priv­i­leged.

Where they are not priv­i­leged, choose your word­ing care­fully. In many in­stances, the con­tent of the doc­u­ment is not, in fact, con­tentious or in con­tra­ven­tion of the Com­pe­ti­tion Act, but the way in which it is drafted sug­gests that there is cause for con­cern. For ex­am­ple, avoid use of the words such as “mar­ket leader” or “dom­i­nant player”. Rather re­port strate­gies for gain­ing mar­ket share ob­jec­tively. Do not try to im­press share­hold­ers to the detri­ment of the com­pany.

Re­mem­ber, what ar­rives on your desk may also arrive on the desk of the com­pe­ti­tion au­thor­i­ties.

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