The lure of a lower penalty is a double-edged sword
It should not prevent companies from mounting a defence of their actions
PROMPT and substantial cooperation with the competition authorities at the start of an investigation into alleged anticompetitive practices has yielded substantial discounts in administrative penalties in a number of recent cases.
As soon as companies learn of an investigation they should contact their legal advisers and carry out a thorough internal investigation to establish whether the Competition Act has been contravened. This places them in the best possible position to apply for leniency in terms of the Commission’s Corporate Leniency Policy, or to offer crucial documentary or oral evidence to the commission. The commission may then be prepared to grant a substantial reduction in the harsh administrative penalties payable by firms found to have contravened the act.
In a recent cement industry case the commission agreed that Afrisam could pay a penalty of only 3% of its cement turnover (amounting to about R124m) in terms of a consent order, instead of the fines of between 5% and 8% paid by cartel members in several other recent cases. The commission emphasised that although Afrisam had admitted that it and its competitors had exchanged sensitive competitive information to maintain and monitor targeted market shares in contravention of the outright prohibition in section 4(1)(b) of the act, a 3% fine was appropriate.
The commission indicated in its submission to the tribunal that in deciding on the appropriate penalty it had taken into account that Afrisam had conducted its own thorough internal investigation and provided the commission with detailed submissions, including copies of all relevant documentation in its possession and statements from current and former representatives of the company that were compiled in the course of its investigation. The commission stated that it “has adopted the approach that early and substantial co-operation should be recognised and rewarded with less stringent penalties, an approach that the tribunal has confirmed”.
In the white maize milling investigation, the commission similarly rewarded Keystone Milling for early cooperation after a representative of Keystone called the commission to provide information regarding alleged collusion in the industry before realising that Keystone was already a respondent in the investigation.
Keystone cooperated fully with the investigation. This included making available another Keystone employee who was able to corroborate the information that had already been provided. The commission recognised that his evidence was particularly valuable because previously he had worked for various other milling companies who were also cited as respondents. As a result the commission agreed that Keystone should pay an administrative penalty of only R6,7m, or 3% of its total turnover for the 2009 financial year. This consent order was confirmed by the tribunal.
However, other respondents in the investigation who have subsequently negotiated consent orders with the commission have been required to pay 5% of their total 2009 turnover.
Because consent orders are ultimately a form of negotiated settlement that may take into account a range of factors such as the costs of ongoing litigation and a shift in the commission’s enforcement priorities, it is difficult to tell from these recent cases whether the commission has gone so far as to adopt the view that firms who initially opt to defend referrals to the tribunal, and then only later decide to reach a settlement, should be penalised and pay higher fines than they would if they had settled in the early stages of an investigation. While applying this principle might make the commission’s work easier and facilitate the expeditious closing of cases, it would clearly be unfair to penalise firms merely because they elect to mount a bona fide defence rather than admit to a contravention of the act and conclude a settlement agreement as soon as a complaint is initiated. Few cases involving the section 4(1)(b) prohibition on price fixing and market division have been heard to date by the tribunal, and as a result there is considerable uncertainty about the precise nature and scope of the prohibition.
There may well be borderline cases involving joint ventures or information sharing between competitors, for example, where companies may believe genuinely that they have not contravened the act or that their conduct should be characterised as falling outside the scope of the prohibition.
In a jurisdiction where competition law is new and still developing, companies should not be discouraged by the risk of increased administrative penalties from ventilating these issues in a tribunal hearing.
Heather Irvine is a director at Norton Rose SA.