South Africa: Playing it by the Book

Last Updated: 24 October 2010
Article by Neil MacKenzie

Contraventions of section 4(1)(b) of the Competition Act are not capable of justification. This creates problems when advising clients in situations where infringement appears technical: no harm or inefficiency results from the conduct and there are rational explanations. This article describes this problem in more detail and proposes solutions.

Introduction
The wording of section 4(1)(b) of the Competition Act is restrictive. An "agreement" between, or "concerted practice" by competitors is prohibited if it involves:

  • directly or indirectly fixing a purchase or selling price or any other trading condition;
  • dividing markets, by allocating customers, suppliers, territories, or specific types of goods or services; or
  • collusive tendering.

The anticompetitive effect of the conduct is presumed and no justification is provided for. In the words of the Competition Tribunal,

"Section 4(1)(b) constitutes an offence for which no justification grounds are admissible. Once the Tribunal has found that an agreement or concerted practice between or among competitors exists as contemplated in section 4(1)(b) that is the end of the matter. There is no further enquiry as to the effect of the conduct on the market or whether it was justified or not."


International comparison
Other competition jurisdictions have recognised that there are situations where conduct may fall to be classified under the prevailing anti-cartel provisions, but may be neutral in its effect and have justifiable efficiency motives.

In the United States, for example, section 1 of the Sherman Act, which prohibits cartel conduct, is broadly worded. Antitrust law has been developed by judicial application and interpretation of the relevant provisions rather than statutory enactment. Concepts such as "per se prohibitions" and "rule of reason defences" have their roots in jurisprudence rather than legislation.

In BMI v CBS , the US courts softened the 'per se rule'. In that case , the court drew on the liberal approaches towards the per se rule laid out in National Society of Professional Engineers v United States , Continental TV Inc v GET Sylvania and Northern Pac R Co v United States , where the rule was held to apply to those agreements and practices which are,

"so plainly anticompetitive... and so often lack any redeeming virtue that they are conclusively presumed illegal without further examination under the rule of reason generally applied in Sherman Act cases."

The Court cited United States v Topco Associates,

"it is only after considerable experience with certain business relationships that courts classify them as per se violations"

It was essentially decided that these cases created sufficient scope for avoidance of the per se rule against price fixing in that case, despite the clear existence of a price fixing arrangement.

The result is flexibility. In certain circumstances the competition authorities and respondents in antitrust cases have scope to argue on the effect of the conduct instead of being limited to its form. To secure a conviction in any antitrust case, a sound "theory of harm" must be advanced.

Section 4(1)(b) of the South African Competition Act is narrowly framed and does not deal with either the harmful effects of the conduct or any potential justifications. This rigidity of drafting has resulted in legal uncertainty in particular situations.

Example: Joint procurement agreements
The example of strictly applying section 4(1)(b) to efficiency enhancing joint venture arrangements has received considerable attention. While the solution in such cases is far from clear, it is submitted that still greater concern prevails over situations where no separate entity or vehicle is established to facilitate the coordinated conduct.

A common example is around joint procurement agreements. Take the situation where a critical input to a particular end product or project must be imported. Each firm could import the input separately, by each chartering a suitably sized ship, but could only fill one relatively small vessel each month. A more efficient solution would be for the competing firms to join together and import the product by chartering a single, larger vessel. The parties could take turns to arrange the charter and the costs could be split between them on an agreed basis. The arrangement would allow significant economies of scale to be realised.

This would be different in effect to a 'buying cartel' or joint purchasing agreement where firms use collective force to bargain down the price of a particular input below the market level. The effect of the arrangement on competition in the upstream market would be neutral. Competition at the production and retail levels remains active and unaffected. End consumers may be better off too.

A strict application of section 4(1)(b)(i) may find that this arrangement constitutes and agreement between competitors involving fixing of a purchase price. Unlike the case of joint venture arrangements, no recourse is available under the merger provisions of the Act.

A complainant would not be required to show that harm has been suffered by suppliers, competitors or customers. No opportunity would be provided for the firms involved to produce evidence of any efficiency gains which may be passed on to the end user as a result of the arrangement. The firms involved would stand to be fined up to 10% of annual turnover as a result.

Resulting uncertainty
It is possible that if faced by such a case, the Tribunal would be sympathetic. A finding that the arrangement was not what is contemplated by the "anti-cartel" provisions of the Act is possible. However, until there is a precedent to this effect, firms are left in an uncertain position.

To remedy this uncertainty, one option would be to apply for exemption under section 10 of the Act. While this may be possible in certain instances, many cases would not fall within the slender ambit of section 10.

Even if exemption was available to firms seeking to continue with the arrangement, exemption would only be available for a certain period and risk would remain in respect of past implementation of the arrangement.

Firms in such a situation are often (quite rightly) reluctant to admit to any wrongdoing, which makes applying for leniency under the Competition Commission's Corporate Leniency Policy difficult. Advisory opinions from the Commission would provide little comfort due to their non-binding nature, and may serve only to alert the Commission to the potential issue.

Firms should not be expected or advised to continue conducting "business as usual" in the face of an identified risk. There appears to be no viable option available to firms in these situations.

The resulting uncertainty has a chilling effect on potential efficiency enhancing conduct which is neutral in its effect on competition and results in scarce state resources being misdirected.

Proposed solution
It is submitted that the cause of this concern is not the manner in which the law is enforced by the competition authorities. Rather, it is the law itself. Section 4(1)(b) goes too far in presuming an anti-competitive effect and providing no opportunity to justify the conduct.

However, it is submitted that there should at least be a requirement that in prosecuting a case under section 4(1)(b), that a coherent theory of harm be advanced by the complainant. This would ensure that the policy reasons underlying the per se prohibition of particular conduct could be preserved, while innocuous conduct is not caught in the enforcement net.

It is unlikely that a precedent to this effect will be set by the Tribunal. Respondents who know that they have committed a technical breach of the law are unlikely to oppose the allegations. The likely outcome of an investigation by the Commission in such a situation is that some settlement is reached.

It is therefore submitted that the development of South Africa's competition policy in this regard should be implemented by the Commission. The problem may be helped by a policy statement or guidelines:

  • establishing that in cases involving a potential contravention of section 4(1)(b) the Commission will focus its attention exclusively on those instances where firm conduct results in harm to competition (or to suppliers, competitors, customers or end-consumers), and
  • setting out the extent and examples of competitive harm which will be deemed significant for purposes of an investigation and potential prosecution by the Commission.

In assessing such cases in Europe and the US, the practice is to examine the counterfactual situation where the agreement did not exist in order to assess the harm which it causes.

An alternative to this solution may be for parliament to amend the Act to expand the grounds on which exemption may be sought. This may at least allow for certainty regarding ongoing conduct.

Until South Africa's competition regulators begin to "read in" a theory of harm requirement into section 4(1)(b)'s stark terms, or the Act is amended appropriately, situations of uncertainty and misplaced resources will continue. Firms will be left facing "risk", but have little recourse to practical solutions.

Common sense dictates that this may be the next step in the development of our competition policy.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions