The lure of a lower penalty is a dou­ble-edged sword

It should not pre­vent com­pa­nies from mount­ing a de­fence of their ac­tions

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

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.

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