This article examines the elements of 'cartel
conduct' in light of the Competition Tribunal's decision in
Competition Commission / Pioneer Foods.
Introduction
The last two years have seen a significant shift in the application
of resources and energies of the South African Competition
Commission. The merger thresholds that trigger the statutory
notification requirements were substantially increased. These
circumstances coincided with the imminent threat of criminal
sanctions arising from the amendments to the Competition Act. Focus
moved to the detection, investigation and prosecution of cartel
conduct in the South African economy under section 4 of the
Competition Act.
The consequent increase in the number of cartel cases being dealt
with by the Commission has given rise to the need for more detailed
interpretation of the how the provisions of section 4 of the Act
may apply in different scenarios. The case of Competition
Commission / Pioneer Foods developed a sound conceptual framework
for assessing when cartel conduct subsists under the South African
competition law.
All that is required by the wording of section 4(1)(b) itself is an
agreement or concerted practice between or decision by an
association of firms between competitors which involves price
fixing, market division or collusive tendering.
An 'agreement', for purposes of section 4 "includes a
contract, arrangement or understanding, whether or not legally
enforceable". A 'concerted practice' is defined as
"co-operative or co-ordinated conduct between firms, achieved
through direct or indirect contact, that replaces their independent
action, but which does not amount to an agreement."
However, the section requires further examination to ascertain the
necessary elements which must be proved to sustain an allegation of
'cartel conduct'. Some analysis of the prevailing case law
is therefore required.
Competitor contact
The Tribunal has referred to international case law in interpreting
section 4(1)(b):
"In Thuysen Steel v Commission the CFI found that
attendance of meetings that involved anti-competitive activities
was enough to establish participation in the cartel, in the absence
of proof to the contrary."
This emphasises the (possibly obvious) requirement of contact
with competitors as a key factor in establishing cartel
behaviour. Competitor contact may be direct or indirect, does not
need to be ongoing and may take many forms, including formal or
informal meetings, telephone calls, email correspondence or the
exchange of information.
Underlying intention and concurrence of
wills
Citing the British Sugar case, paragraph 35 of the Pioneer Foods
judgment provides:
"...an agreement does not have to be made formally or in
writing, and no expressed sanction or enforcement measures need be
involved, it is enough that the undertakings in question should
have expressed their joint intention to conduct themselves in the
market in a specific way."
In the same paragraph, the Tribunal quotes directly from the Adalat
case where:
"…it was not important what form a
cartel agreement took on, i.e. whether the agreement was formal,
informal or a gentleman's agreement, so long as there was
'... the existence of a concurrence of wills between at least
two parties, the form in which it manifested being unimportant so
long as it constitutes the faithful expression of the parties'
intention.'"
The necessary element in establishing the existence of a cartel
arrangement or understanding is therefore the underlying joint
intention of the parties to collude. The means by which the
concurrence of wills is achieved is not relevant. For as long as
the concurrence of wills continues, so does the cartel.
Conduct in the market
The third element of cartel conduct is implementation of the
agreement reached between participating firms by their conduct
in the market. Importantly, in paragraph 97, the Tribunal
reasons that:
"Furthermore, Pioneer's case is not helped when it claims
that it no longer considered itself bound to the arrangement. As
long as its competitors understood the agreement to be in place and
on that basis did not compete with Pioneer in designated
territories, Pioneer continued to benefit from the market division
agreement in the form of reduced competition. As long as that
competitor abided by the agreement and omitted to compete with
Pioneer in an identified territory to any appreciable extent, and
not by an occasional act of cheating, so long was the agreement
in place."
Accordingly, ongoing contact with competitors and a concurrence of
wills is not required to sustain the allegation that cartel conduct
persists. The agreement may be continued by behavior in the market
which accords with the objects of the agreement.
This may be regarded as the most important element. In the Pioneer
Foods case, in relation to market division in particular, the
Tribunal went on to state that:
"For as long as the respondents stayed out of the
territories they had previously been present in, for as long as
they, in fact, continued not to compete in those areas so did the
agreement remain in force."
Pioneer - elements not exhaustive
Importantly, these elements are not necessarily exhaustive.
"The evidence that a court will have regard to in order to
determine whether or not an agreement or understanding between
competitors constitutes a restrictive horizontal practice will
depend on the nature of the case and the manner in which parties
have structured their arrangements."
However, these three elements provide a useful framework for
assessing whether cartel conduct subsists.
Interaction of the elements
The elements of cartel conduct set out above may be summarised
as,
- Contact with competitors;
- The concurrence of wills amongst the conspiring firms, and
- Market behaviour which facilitates the objects of the agreement.
While all three of these elements coexist, a fully operational,
'hard-core cartel' exists. This may seem simple enough.
However, there are a number of qualifications relating to how these
elements interact which are relevant and require explanation.
First, as noted above, in certain circumstances attendance at
meetings alone may be sufficient to establish participation in the
cartel.
Second, contact with competitors is required to establish the
existence of a cartel. However, ongoing contact is not required for
existence of the cartel to persist. It is easy to conceive of a
situation where, after having established a particular pattern of
behaviour, participants in a cartel agree to cease all contact in
order to avoid detection by the competition agency. The concurrence
of wills and implementation of the agreement by conduct in the
market continue. In such a scenario, the restriction of competition
and harm to consumers continues, and therefore, quite rightly, an
authority would likely find that participation in the cartel also
continues.
Third, section 4(1)(b) already caters for a situation where
coordinated behaviour is established by direct or indirect contact
between competitors but no agreement can be shown. The weaker
standard of conduct which 'replaces their independent action
but does not amount to an agreement' would allow for a finding
that a concerted practice exists. This is punishable on the same
basis as an overt cartel agreement. However, presumably the
authorities would take a more lenient view of such conduct when the
appropriate remedy is determined.
Fourth, the third requirement of 'conduct in the market' is
not necessarily required to establish participation in a cartel.
This would merely amount to implementation of the cartel agreement.
While implementation may be a useful way for the authority to prove
existence of the agreement, it is the agreement which is prohibited
rather than the implementation of it. At paragraph 125, the
Tribunal found that the intention of the parties to collude is
sufficient:
"That Sasko may in fact have been able to do so is merely
proof of implementation of that agreement."
Finally, a complex situation exists where contact between
competitors has ceased, the intention to participate in the cartel
has ceased, but the firm's conduct in the market continues to
resemble implementation of the cartel agreement. In terms of the
Pioneer Foods decision, a cartel may be deemed to continue in such
situations. The market outcomes associated with the cartel prevail,
and, therefore, so do the presumed harm to consumers and benefit to
the firms involved. Policy incentives appear to support this
approach. However, there are a number of arguments in support of
that situation falling outside of the scope of section 4(1)(b).
Firms may therefore be at risk if the effects of historical cartel
agreements continue to be seen in the market.
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.