Uncertainty has recently arisen as to the future treatment of agreements between competitors following the decision of the Supreme Court of Appeal (SCA) in the matter between the American National Soda Ash Corporation (Ansac) and Botswana Ash (Pty) Ltd (Botash).
Most of the prohibited practices set out in the Competition Act depend on a showing of net anti-competitive effect. In competition law parlance, such prohibitions are based on the ‘rule-of-reason’, so that conduct can be justified by showing that pro-competitive, technology or efficiency gains outweigh any anti-competitive effect. However, certain conduct is presumed to have negative market effects and is prohibited outright, without an examination of actual effects on competition or permitting a showing of net efficiency. In other words, such conduct is per se prohibited.
Section 4(1)(b)(i) of the Competition Act contains a per se prohibition against any agreement, concerted practice or decision by an association of competitors that involves directly or indirectly fixing a purchase or selling price.
To date, the competition authorities have been unequivocal in their attitude to price fixing, prohibiting outright any arrangement between competitors that results in products reaching the market at a set price. The classic case in this regard involves Ansac.
Ansac was formed by five American-based producers of soda ash for the purpose of jointly selling soda ash into foreign markets. Since the price of soda ash produced by the individual members was determined through the joint venture, the competition authorities have steadfastly taken the view that the joint venture gives rise to price fixing in terms of section 4(1)(b)(i) of the Competition Act.
Despite the fact that Ansac was a cost-saving, efficiency-producing joint venture, whose savings allowed it to market North American soda ash more cheaply than local competitors in South Africa, Ansac was precluded from leading such evidence as the Tribunal ruled that "evidence concerning any technological, efficiency, or other pro-competitive gain… is inadmissible in terms of section 4(1)(b)". This finding, amongst others, eventually went on appeal to the SCA
While the SCA confirmed that the per se nature of the prohibition precluded evidence aimed at justifying the conduct described in section 4(1)(b), it indicated that it was nevertheless appropriate to allow evidence aimed at ‘characterising’ the conduct complained of to determine whether it coincides with that contemplated in the prohibition.
The SCA stated that "it does not follow that price fixing has necessarily occurred whenever there is an arrangement between competitors that results in… goods reaching the market at a uniform price. The concept of 'price fixing', both in lay language and in the language that the Act uses, may, for example, be limited to collusive conduct by competitors that is designed to avoid competition, as opposed to conduct that merely has that incidental effect." In other words, price fixing (according to the SCA) is a means to avoid, through collusion, the effects of market competition on prices.
The SCA has indicated to the Tribunal that it should consider whether the scope of the per se prohibition may be narrowed to encompass only agreements that can be characterised as hardcore attempts to limit price competition and to exclude agreements which do not have as their primary aim the elimination of price competition.
It is to be hoped that this matter will see the Tribunal allowing the characterisation of the agreement concerned before determining whether it then contravenes the provisions section 4(1)(b). Unless and until such a ruling is made, competitors are well advised to continue to ensure that any joint venture with a competitor does not include the fixing of a price.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.