Deloitte Legal – Representing Tomorrow

We strive to be at the forefront of Competition Law in South Africa by providing current and innovative insights to our clients’ Competition Law issues. By definition, Competition Law seeks to ensure the efficient allocation of scarce economic resources through the protection of free market competition, thus enhancing productive and allocative efficiency, leading to improved consumer welfare. The importance of Competition Law in an emerging economy such as ours cannot be overstated. With the markets in such economies generally being concentrated, characterised by high barriers to entry and significant levels of state ownership in the form of state-owned monopolies, Competition Law should be on everyone’s risk radar.

Largest administrative penalty imposed by the Competition Commission 

In November 2016, the Competition Tribunal (“Tribunal”) confirmed, as an order of the Tribunal, a settlement agreement between one of South Africa’s largest steel producers and the Competition Commission.

The producer agreed to pay an administrative penalty of R1.5 billion in relation to six separate antitrust complaints. This is the largest penalty imposed on a single firm in the history of Competition Law enforcement in South Africa. The six complaints all involved various facets of pricing conduct. The complaints included both collusive conduct and unilateral pricing conduct.

In agreeing to pay the administrative penalty, it was admitted that the steel producer had engaged in collusive activities by fixing prices and discounts, allocating customers and sharing commercially sensitive information through industry bodies. The steel producer further admitted that it had differentiated between customers by offering varying discounts and that such amounted to price discrimination.

Penalties and criminal sanctions for cartel activity

1 May 2016 saw the criminalisation of cartel conduct in South Africa under the Competition Act, by way of the introduction of section 73A.

Cartel activity is conduct which constitutes price-fixing, market division or collusive tendering between competitors, all of which are strictly prohibited by the Competition Act.

The new section makes it an offence for a director of a firm or a person having or purporting to have management authority in a firm, to cause the firm to engage in, or to knowingly acquiesce to the firm engaging in prohibited cartel activities.

It is important to note that the new section not only criminalises the conduct of those who actually cause a firm to engage in cartel activity, but also criminalises the conduct of those individuals who have actual knowledge of the conduct, yet choose to do nothing about it. It is therefore incumbent on those who are in a position of authority within a firm, and who can take decisive action, to take such action, should they become aware of any cartel activity on the part of the firm.

The Competition Act now provides for the imposition of a fine not exceeding R500 000, or imprisonment for a period not exceeding 10 years, or both such fine and imprisonment on individuals within a company.

Directors, offices and managers of companies would therefore be well advised to ensure that their respective firms do not engage in any form of cartel activity.

Hospital Groups cough up for missed merger filing

On 7 April 2016, the Competition Tribunal imposed a record fine of R10 million on a hospital group and a health care provider holding company, jointly and severally, for their failure to notify the Competition Commission of their merger.

The Commission found that certain changes in the degree of control of the one over the other constituted a merger in terms of Section 12(1) of the Competition Act. Due to the Commission finding that the threshold for a larger merger, as defined in the Competition Act, was met. Accordingly, the merger ought to have be notified to the Commission

All transactions involving a potential change in control, in the whole or part of a business, should be carefully examined and advice sought in an effort not to miss any merger filings.

A word of caution pertaining to Dawn Raids

Since 2015, the Commission has slowly but surely increased the number of dawn raids it has conducted on an annual basis. In the wake of the Commission’s increased reliance on dawn raids, it has become more important than ever for firms and their employees to be aware of their rights and duties as well as best practices that should be applied in anticipation or response to a dawn raid.

A dawn raid is an unannounced investigative search by the Commission at a company’s premises and gets its name from the investigators’ habit of arriving at the beginning of the business day, when firms are likely to be least prepared for the unexpected raid.

No firm or industry is immune to such raids, with raids being conducted in various industries in South Africa.

Dawn raids are conducted unannounced, usually in conjunction with the police, and are aimed at gathering and preserving evidence of collusion. Preparation is therefore critical. Every firm should know its rights if and when it is raided, who to contact and how to deal at a practical level with a dawn raid. At a minimum, this means having a dawn raid protocol, and properly trained staff with knowledge of who to contact, namely mangers and legal representatives.

Dawn raids are an intrusive and disruptive event in the life of your business, which merit careful preparation. Do not allow yourself to be caught on the back foot.
 

How can Deloitte Legal assist you?

If you are concerned about any of the aspects covered in this edition, particularly dawn raids, merger filings and cartel conduct, please feel free to contact our Subject Matter Experts.