Of­fi­cials’ no-non­sense ap­proach to competition

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Natalia Lopes & Amy van Bu­uren

A num­ber of re­cent de­ci­sions sup­port ef­forts by authorities to en­sure that the pro­vi­sions of the Competition Act are pro­tected and pre­served

FROM the in­cep­tion of the Competition Act, the South African competition authorities have been charged with the task of main­tain­ing and pro­mot­ing competition in SA.

The Competition Act dic­tates that this task would, among other things, fa­cil­i­tate the eq­ui­table par­tic­i­pa­tion of small and medium-sized en­ter­prises in the econ­omy, the pro­mo­tion of em­ploy­ment, the pro­vi­sion of com­pet­i­tive prices and prod­uct choices for con­sumers and the pro­mo­tion of ef­fi­ciency, adapt­abil­ity and de­vel­op­ment of the econ­omy.

While these as­pi­ra­tions are ad­mirable, it may ap­pear im­plau­si­ble to some that the competition authorities are ca­pa­ble of wield­ing such in­flu­ence over the South African eco­nomic ter­rain. How­ever, sev­eral re­cent de­ci­sions em­a­nat­ing from the of­fices of the authorities seem to dis­play the adop­tion of a for­mi­da­ble “no-non­sense” stance to en­sure that these pro­vi­sions of the Competition Act are pro­tected and pre­served.

While the competition authorities have his­tor­i­cally only im­posed ad­min­is­tra­tive penal­ties for con­duct that is found to have con­tra­vened the pro­vi­sions of the Competition Act, it would ap­pear as if the authorities now pre­fer to craft in­no­va­tive sen­tences (which may or may not in­clude ad­min­is­tra­tive penal­ties) to ac­count for the re­tribu­tive needs of each of­fender and achieve its man­date stip­u­lated in the Competition Act.

By way of ex­am­ple, in the set­tle­ment agree­ments con­cluded be­tween the Competition Com­mis­sion and Sa­sol Chem­i­cal In­dus­tries Lim­ited (“Sa­sol”) dur­ing 2009 and 2010, an ad­min­is­tra­tive penalty of about R250m was payable by Sa­sol. Fur­ther, it was agreed that Sa­sol would com­ply with sev­eral ex­ten­sive un­der­tak­ings in­clud­ing the re­struc­ture of cer­tain of its di­vi­sions, its with­drawal from var­i­ous down­stream op­er­a­tions, as well as a di­vesti­ture of five of its fer­tiliser blend­ing fa­cil­i­ties, which would pre­sum­ably al­low small and medium-sized en­ter­prises a more eq­ui­table op­por­tu­nity to par­tic­i­pate in the econ­omy.

In ad­di­tion, Sa­sol is pro­hib­ited from im­pos­ing any form of re­stric­tion on its cus­tomers as re­gards the re­sale of cer­tain of its fer­tiliser prod­ucts, en­gag­ing in dif­fer­en­tial pric­ing and is obliged to con­duct it­self in a par­tic­u­lar pre­scribed man­ner as re­gards its ac­tiv­i­ties re­lat­ing to am­mo­nia.

Sim­i­larly, while the con­sent and set­tle­ment agree­ment con­cluded

The authorities pre­fer to craft in­no­va­tive sen­tences to ac­count for the re­tribu­tive needs of each of­fender

to the at­ten­tion of the competition authorities, taint­ing al­most 70 con­struc­tion projects worth an es­ti­mated R29bn. In Fe­bru­ary this year, the com­mis­sion de­vel­oped a fast-track pro­ce­dure in which it in­vited firms that were in­volved in such col­lu­sive con­duct to en­gage in set­tle­ment ne­go­ti­a­tions with it.

It is an­tic­i­pated that this process will in­cen­tivise firms to ad­mit to in­stances of col­lu­sive con­duct in which they were in­volved in a cost­ef­fec­tive and efficient man­ner thereby plac­ing the con­struc­tion in­dus­try on a new com­pet­i­tive tra­jec­tory to pro­mote ef­fi­ciency, adapt­abil­ity and de­vel­op­ment of the con­struc­tion sec­tor and the econ­omy as a whole.

The com­mis­sion has cau­tioned that fail­ure by a cartelist to take ad­van­tage of this op­por­tu­nity will re­sult in the im­po­si­tion of max­i­mum penal­ties, which for a com­pany such as Group Five Lim­ited could amount to about R1,2bn in ad­min­is­tra­tive penal­ties alone.

Con­sid­er­ing the ex­pan­sive na­ture of the penal­ties be­ing im­posed for col­lu­sive con­duct, it re­mains to be seen what kind of ret­ri­bu­tion faces those firms fail­ing to ac­cept the com­mis­sion’s in­vi­ta­tion.

In this same vein, in re­port­ing back on pre­lim­i­nary find­ings in the re­tail in­dus­try in­ves­ti­ga­tion, the com­mis­sion ad­vo­cated the pre­emp­tive de­vel­op­ment of an ef­fec­tive competition law com­pli­ance pro­gramme by firms in or­der to erad­i­cate competition law in­fringe­ments in the work­place and achieve the afore­men­tioned as­pi­ra­tions. The com­mis­sion there­fore seems to be ad­vo­cat­ing that firms en­gage in a more proac­tive ap­proach in or­der to shift the com­pet­i­tive par­a­digm in cer­tain key in­dus­tries.

Firms in the South African econ­omy would do well to heed this when con­sid­er­ing the re­cent spate of un­pre­dictable and far-reach­ing penal­ties im­posed by the South African competition authorities — ul­ti­mately a lit­tle preven­tive ac­tion may well re­sult in a big sav­ing on the bot­tom line.

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

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