Per­sonal spin to ad­mis­sion of guilt pleas

Ad­mit­ting con­tra­ven­tion of Com­pe­ti­tion Act may lead to crim­i­nal pros­e­cu­tion

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - AL­BERT AUKEMA & LEANA EN­GEL­BRECHT

THE South African busi­ness en­vi­ron­ment has ex­pe­ri­enced some ma­jor changes in the law over the past few years. Most notably, the en­act­ment (and con­fu­sion) re­lat­ing to the Com­pa­nies Act, and the pass­ing of the Com­pe­ti­tion Amend­ment Act, which will come into ef­fect on a date still to be pro­claimed by Pres­i­dent Ja­cob Zuma.

The re­la­tion­ship be­tween these two pieces of leg­is­la­tion is not ob­vi­ous yet and may there­fore not be fully ap­pre­ci­ated at this stage. How­ever, di­rec­tors and man­age­ment of com­pa­nies should be awake to the re­al­ity that once the Amend­ment Act is en­acted a con­tra­ven­tion of sec­tion 4(1)(b) of the Com­pe­ti­tion Act, (that is the anti-col­lu­sion pro­vi­sions) could lead not only to a hefty fine be­ing levied against the com­pany and the crim­i­nal pros­e­cu­tion of those di­rec­tors and man­age­ment em­ploy­ees in­volved, in or aware of, the car­tel be­hav­iour, but also to their dis­qual­i­fi­ca­tion from hold­ing of­fice un­der the Com­pa­nies Act.

In this ar­ti­cle we ex­am­ine this in­ter­play be­tween the rel­e­vant pro­vi­sions of the Com­pa­nies Act and the Com­pe­ti­tion Amend­ment Act and the cir­cum­stances where a con­tra­ven­tion of the Com­pe­ti­tion Act could lead to the dis­qual­i­fi­ca­tion of a di­rec­tor as a re­sult of a firm’s car­tel be­hav­iour un­der the Com­pa­nies Act.

Sec­tion 4(1)(b) of the Com­pe­ti­tion Act con­tains an out­right pro­hi­bi­tion on firms en­gag­ing in con­duct that amounts to price fix­ing, mar­ket di­vi­sion or col­lu­sive ten­der­ing. These pro­hib­ited forms of con­duct are widely con­sid­ered to be the most egre­gious of com­pe­ti­tion law of­fences. Un­der the Com­pe­ti­tion Act, firms which are found to be guilty of en­gag­ing in per se pro­hib­ited con­duct face the risk of be­ing li­able for ad­min­is­tra­tive penal­ties of up to 10% of their an­nual turnover for first-time con­tra­ven­tions.

The Com­pe­ti­tion Amend­ment Act, in recog­ni­tion of the grav­ity of these of­fences, cre­ates a statu­tory of­fence in terms of which di­rec­tors and man­age­ment of con­tra­ven­ing firms can be pros­e­cuted for per­sonal in­volve­ment in col­lu­sive con­duct. By the planned in­ser­tion of sec­tion 73A into the Com­pe­ti­tion Act, the Amend­ment Act ex­tends the range of of­fences for which in­di­vid­u­als can be pros­e­cuted un­der the Com­pe­ti­tion Act, plac­ing di­rec­tors and man­agers at risk of in­cur­ring per­sonal li­a­bil­ity for the col­lu­sive con­duct of their firms in cer­tain in­stances.

In terms of sec­tion 73A it will be an of­fence to cause or know­ingly ac­qui­esce to a firm en­gag­ing in a pro­hib­ited prac­tice in terms of sec­tion 4(1)(b) of the Com­pe­ti­tion Act. Know­ingly ac­qui­esce means “hav­ing ac­qui­esced while hav­ing ac­tual knowl­edge of the rel­e­vant con­duct by the firm”. The pros­e­cu­tion of in­di­vid­u­als un­der this sec­tion hinges on the firm in ques­tion en­ter­ing into a con­sent or­der with the Com­pe­ti­tion Com­mis­sion in which it ad­mits a con­tra­ven­tion or on the Com­pe­ti­tion Tri­bunal or Com­pe­ti­tion Ap­peal Court mak­ing a find­ing that the firm has con­tra­vened sec­tion 4(1)(b).

It is in­ter­est­ing to note that this pro­vi­sion may be ca­pa­ble of be­ing chal­lenged con­sti­tu­tion­ally, as it may lead to an in­fringe­ment on an ac­cused per­son’s right to a fair trial in terms of sec­tion 35 of the con­sti­tu­tion, in par­tic­u­lar an ac­cused per­son’s rights to be deemed in­no­cent un­til proven guilty.

This is due to the fact that the Com­pe­ti­tion Tri­bunal’s find­ing of a con­tra­ven­tion by a firm of the Com­pe­ti­tion Act (for which a lower stan­dard of proof is re­quired when com­pared to crim­i­nal pro­ceed­ings) could serve as re­but­table proof in sub­se­quent crim­i­nal pro­ceed­ings that a di­rec­tor of that firm is guilty of a con­tra­ven­tion of sec­tion 73A. There is also the fact that such re­but­table proof places a re­verse onus on the ac­cused di­rec­tor to prove his in­no­cence.

Sec­tion 69 of the Com­pa­nies Act does not fun­da­men­tally change the con­tent of the di­rec­tor dis­qual­i­fi­ca­tion pro­vi­sions con­tained in sec­tion 218 of the Com­pa­nies Act of 1973. How­ever, a more for­mu­laic ap­proach is adopted in set­ting out the dis­qual­i­fi­ca­tion grounds and pro­ce­dural mat­ters re­lat­ing to di­rec­tor dis­qual­i­fi­ca­tion.

Sec­tion 69 of the Com­pa­nies Act pro­vides, amongst other things, that a per­son will be dis­qual­i­fied to act as a di­rec­tor where that per­son has “been con­victed, in the Repub­lic or else­where, and im­pris­oned with­out the op­tion of a fine, or fined more than the pre­scribed amount … in con­nec­tion with the pro­mo­tion, for­ma­tion and man­age­ment of a com­pany…”

The pre­scribed amount in the Com­pa­nies Act is set at R1 000. In terms of sec­tion 74 of the Com­pe­ti­tion Act, a per­son suc­cess­fully pros­e­cuted un­der sec­tion 73A of the Com­pe­ti­tion Act af­ter the Amend­ment Act is in force will be li­able for a fine not ex­ceed­ing R500 000 and/or im­pris­on­ment for a pe­riod not ex­ceed­ing 10 years.

Suc­cess­ful pros­e­cu­tions un­der sec­tion 73A of the Com­pe­ti­tion Act are there­fore in many cases likely to meet the pros­e­cu­to­rial dis­qual­i­fi­ca­tion re­quire­ments set out in the Com­pa­nies Act. In­so­far as the sub­stan­tive na­ture of such pros­e­cu­tions are con­cerned, there can be lit­tle doubt that they re­late to the man­age­ment of a com­pany (that of the con­tra­ven­ing firm in this case).

In those in­stances where di­rec­tors (for pur­poses of sec­tion 69, the Com­pa­nies Act uses the term “di­rec­tor” to re­fer to di­rec­tors, pre­scribed of­fi­cers and mem­bers of board and au­dit com­mit­tees col­lec­tively) or em­ploy­ees with man­age­ment au­thor­ity (i) caused a firm to en­gage; or (ii) know­ingly ac­qui­esced in the firm en­gag­ing in car­tel con­duct in con­tra­ven­tion of sec­tion 4(1)(b) of the Com­pe­ti­tion Act, care­ful con­sid­er­a­tion must be given to the ba­sis on which set­tle­ment pro­ceed­ings and ne­go­ti­a­tions are en­tered into with the Com­pe­ti­tion Com­mis­sion.

Sim­i­larly, ad­mis­sions re­gard­ing car­tel be­hav­iour in com­plaint pro­ceed­ings be­fore the Com­pe­ti­tion Tri­bunal must be ap­proached with cau­tion, as in both in­stances ad­mis­sions of guilt could lead to not only the crim­i­nal pros­e­cu­tion but also the dis­qual­i­fi­ca­tion of key com­pany em­ploy­ees or of­fi­cers from serv­ing as di­rec­tors, pre­scribed of­fi­cers or mem­bers of the board or au­dit com­mit­tee of a firm.

This con­sid­er­a­tion is par­tic­u­larly im­por­tant con­sid­er­ing that it is com­mon prac­tice to ad­mit a con­tra­ven­tion of the Com­pe­ti­tion Act as the Com­pe­ti­tion Com­mis­sion con­sid­ers such an ad­mis­sion as co­op­er­a­tive con­duct by a re­spon­dent. The Com­pe­ti­tion Tri­bunal ac­cepts this as a fac­tor when de­ter­min­ing the ad­min­is­tra­tive penalty that will be im­posed on the firm for con­tra­ven­tion of the Com­pe­ti­tion Act.

Once the Com­pe­ti­tion Amend­ment Act comes into force, prac­ti­tion­ers and com­pa­nies alike will, there­fore, have to be cog­nisant of the fine bal­anc­ing act that will be re­quired when deal­ing with com­plaint re­fer­rals re­lat­ing to con­duct in al­leged con­tra­ven­tion of sec­tion 4(1)(b) of the Com­pe­ti­tion Act.

The col­lec­tive ef­fect of sec­tion 73A of the Com­pe­ti­tion Act (once the Amend­ment Act comes into force) and sec­tion 69 of the Com­pa­nies Act, may cause com­pa­nies to be reluc­tant to en­gage will­ingly with the Com­pe­ti­tion Com­mis­sion, in terms of the Com­mis­sion’s Cor­po­rate Le­niency Pol­icy. This is be­cause the decision mak­ers in firms who are in pos­si­ble con­tra­ven­tion of the anti-col­lu­sion pro­vi­sions of the Com­pe­ti­tion Act may be reluc­tant to seek le­niency on be­half of their firms in the knowl­edge that any ad­mis­sion of a con­tra­ven­tion of sec­tion 4(1)(b) of the Com­pe­ti­tion Act could lead to their own crim­i­nal pros­e­cu­tion and dis­qual­i­fi­ca­tion from hold­ing of­fice.

Con­tra­ven­tion of the Com­pe­ti­tion Act could lead to the dis­qual­i­fi­ca­tion of a di­rec­tor as a re­sult of a firm’s car­tel be­hav­iour un­der the Com­pa­nies Act

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