Body uses power creatively in Sa­sol car­tel case

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

THE South African com­pe­ti­tion au­thor­i­ties have been man­dated with the task of the main­te­nance and pro­mo­tion of com­pe­ti­tion within SA. To this end, the Com­pe­ti­tion Act, 1998, has been gen­er­ous in the pow­ers it gives to the au­thor­i­ties. While it makes pro­vi­sion for pow­ers of re­fer­ral, search and seizure, the abil­ity to au­tho­rise or pro­hibit merg­ers, the abil­ity to in­sti­tute, in­ves­ti­gate, ad­ju­di­cate and im­pose reme­dies in in­stances of al­leged con­tra­ven­tions of the act, it also con­fers a con­sid­er­able dis­cre­tion upon the au­thor­i­ties in ques­tion.

An ex­am­ple of this is high­lighted in the Com­pe­ti­tion Com­mis­sion’s abil­ity to ne­go­ti­ate and agree upon the terms of a set­tle­ment agree­ment with a re­spon­dent (a firm against which a com­plaint of a pro­hib­ited prac­tice has been ini­ti­ated), thereby avoid­ing the need for con­tested lit­i­ga­tion be­fore the Com­pe­ti­tion Tri­bunal.

The leg­is­la­tion does not pre­scribe pa­ram­e­ters re­gard­ing the con­tent re­quired prior to the con­fir­ma­tion of such an agree­ment — the dis­cre­tion to con­firm same as an or­der falls squarely within the tri­bunal’s dis­cre­tion.

This dis­cre­tion was re­cently high­lighted in two com­plaints (which were ini­ti­ated dur­ing 2003 and 2004) in the mar­kets for the sup­ply of fer­tiliser prod­ucts and the sup­ply of am­mo­nia-based fer­tiliser prod­ucts re­spec­tively.

The com­plaints al­leged that Sa­sol Chem­i­cal In­dus­tries (Sa­sol) and oth­ers had, among other things, en­gaged in col­lu­sive con­duct, price dis­crim­i­na­tion and ex­clu­sion­ary con­duct. Or­di­nar­ily, con­tra­ven­tions of this na­ture would ren­der a guilty firm li­able to the im­po­si­tion of an ad­min­is­tra­tive penalty, in an amount de­ter­minable by the tri­bunal, but not ex­ceed­ing 10% of the firm’s an­nual turnover in its im­me­di­ately pre­ced­ing fi­nan­cial year.

Dur­ing May 2009, the tri­bunal con­firmed a set­tle­ment agree­ment con­cluded be­tween the com­mis­sion and Sa­sol, in terms of which Sa­sol agreed to pay a fine ex­ceed­ing R250m, as a re­sult of its ad­mis­sion of in­volve­ment in car­tel con­duct (the “first con­sent agree­ment”).

Pur­suant to the con­fir­ma­tion of the first con­sent agree­ment, the tri­bunal, on July 20, con­firmed the con­tents of a sec­ond agree­ment to set­tle the out­stand­ing abuse of dom­i­nance (ex­clu­sion) and price dis­crim­i­na­tion com­plaints (the “sec­ond con­sent agree­ment”).

Prior to the con­fir­ma­tion of the sec­ond con­sent agree­ment, two ob­jec­tions were raised. The first, by African Ex­plo­sives (AE), re­sulted in Sa­sol and the com­mis­sion aug­ment­ing the terms of the sec­ond con­sent agree­ment by the ad­di­tion of an ex­press term en­sur­ing that Sa­sol’s am­mo­nia sup­ply obli­ga­tions to AE would re­main in­tact, not­with­stand­ing the terms of the sec­ond con­sent agree­ment.

The sec­ond ob­jec­tion came from Om­nia Fer­tiliser (Om­nia), a com­peti­tor of Sa­sol. Om­nia expressed the con­cern that, ab­sent an ex­press ad­mis­sion of li­a­bil­ity con­tained therein, its abil­ity to in­sti­tute a claim for civil dam­ages against Sa­sol would be negated. It there­fore re­quested that the tri­bunal ei­ther oblige Sa­sol and the com­mis­sion to in­sert into the sec­ond con­sent agree­ment an ad­mis­sion of guilt, in­sert such a clause mero motu or refuse to con­firm the sec­ond con­sent agree­ment in its en­tirety.

The tri­bunal re­fused Om­nia’s re­quests, say­ing that the ac­cep­tance of the sec­ond con­sent agree­ment ab­sent an ad­mis­sion of li­a­bil­ity could not de­prive a per­son in the po­si­tion of Om­nia from in­sti­tut­ing a claim for civil dam­ages. In­ser­tion of such an ad­mis­sion would not aug­ment the ef­fec­tive­ness of the rem­edy, which was de­signed to ad­dress com­pe­ti­tion con­cerns in the rel­e­vant mar­kets, and not to pro­tect the com­peti­tors therein.

The sec­ond con­sent agree­ment does not sub­ject Sa­sol to the im­po­si­tion of an ad­min­is­tra­tive penalty; in­stead, for the first time, it de­mands com­pli­ance with ex­ten­sive un­der­tak­ings, in­clud­ing the re­struc­ture of cer­tain of its di­vi­sions, and with­drawal from var­i­ous down­stream op­er­a­tions, in­clud­ing a di­vesti­ture of five of its fer­tiliser blend­ing fa­cil­i­ties.

Fur­ther, Sa­sol is obliged to cease im­por­ta­tion of am­mo­nia on be­half of third par­ties for a stip­u­lated pe­riod, and is sub­ject to the im­po­si­tion of re­stric­tions on its abil­ity to sell am­mo­nium-based fer­tilis­ers.

These re­quire­ments will re­main in force for a min­i­mum pe­riod of 10 years af­ter con­clu­sion of the sec­ond con­sent agree­ment, and Sa­sol will be obliged to re­port on its com­pli­ance with the sec­ond con­sent agree­ment, at least an­nu­ally.

It is clear that these struc­tural reme­dies, fash­ioned by virtue of the com­pe­ti­tion au­thor­i­ties’ dis­cre­tionary pow­ers, are far more ex­ten­sive (and ef­fec­tive) than the obli­ga­tion to pay a once-off ad­min­is­tra­tive penalty. As such, com­pe­ti­tion in this mar­ket will be pro­moted by en­sur­ing greater par­tic­i­pa­tion therein, the as­sur­ance of bet­ter and more com­pet­i­tive prices for farm­ers, as well as the po­ten­tial cre­ation of new dis­tri­bu­tion op­por­tu­ni­ties.

It is clear that the con­fir­ma­tion by the tri­bunal of the sec­ond con­sent agree­ment fo­cuses on achiev­ing more ef­fec­tive com­pe­ti­tion within the rel­e­vant mar­kets. The au­thor­i­ties ap­pear to have utilised their dis­cre­tion creatively, in a man­ner most likely to ful­fil their man­date of achiev­ing ef­fi­cient and ef­fec­tive com­pe­ti­tion in the South African econ­omy.

Amy van Bu­uren is a can­di­date at­tor­ney and Lee Men­del­sohn is a di­rec­tor in the com­pe­ti­tion law depart­ment at ENS.

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