South Africa: Amendments To The Competition Act
The Competition Act, 1998 ("the Act") introduced a widely heralded new era in the management and conduct of South African competition policy. However, in the 16 months since it came fully into effect, difficulties encountered with the interpretation and implementation of the Act revealed a need for review. As a result, the Competition Second Amendment Act, 2000 ("the Amendment Act") was enacted and came into effect on 1 February 2001. (The First Amendment Act dealt with procedural issues).
Most Significant Changes
The most important changes brought about by the Amendment Act are:
- Competition Authorities will have jurisdiction in respect of competition issues in all sectors;
- a new category of mergers has been introduced, namely "small mergers";
- the definition of a merger has been changed so that control is the test;
- changes to the thresholds are allowed at any time instead of once every five years;
- an amendment regarding the granting of exemptions in respect of prohibited practices;
- the level of proof for the granting of interim relief to complainants has been changed; and
- a process for determining confidentiality of information has been introduced.
Although not contained in the Amendment Act itself, there have also been substantial amendments to the thresholds and the filing fees for notification of a merger. These changes have been made in response to the ongoing dissatisfaction expressed by business and others with low thresholds and high filing fees.
This willingness of the authorities to respond to constructive criticism is laudable.
Public Regulation - Section 3(1)(d)
In terms of Section 3(1) of the Act, all economic activity within, or having an effect within, South Africa is subject to the provisions of the Act, save for a few exceptions.
Previously, section 3(1)(d) excluded from the jurisdiction of the Act "[a]cts subject to or authorised by public regulation". This created uncertainty and confusion about the jurisdiction of the Act over entities which are subject to industry specific regulation in terms of other legislation. This situation made consistent application of the Act and the Rules virtually impossible. The debate over the appropriate demarcation between Competition Authorities and sector-specific Regulators was highlighted in the high profile Nedcor/Stanbic case, but arose in other cases as well.
The Amendment Act removes Section 3(1)(d) from the Act altogether. As a result, the Competition Authorities now have jurisdiction over all matters pertaining to competition in all sectors, whether the parties involved are subject to the jurisdiction of a sector-specific Regulator or not. Where there is a sector-specific Regulator, the Competition Authorities will now also have to approve the transaction or practice in question.
A New Category Of Mergers
The Act created two categories of notifiable mergers, "intermediate mergers" and "large mergers". The thresholds established for purposes of determining the categories of mergers were, however, very low, causing the Competition Commission ("the Commission") to have to consider a large number of mergers that posed no significant competition policy concerns.
The Amendment Act rectifies this by introducing the concept of a "small merger", being any merger which falls below the threshold for an intermediate merger. A small merger does not have to be notified to the Commission, and the parties to such a merger may implement it without seeking approval from the Commission. However the Commission may, for a period of six months after the merger, require the parties to a small merger to submit a notification in the usual manner if it is of the view that the transaction raises competition concerns or cannot be justified on public interest grounds. The parties may then not further implement the merger until it has been approved, which may have seriously adverse practical consequences.
A party to a small merger may voluntarily notify the Commission of that merger at any time. No filing fee is payable for such notification. As the Commission has the power to set aside a small merger if it restricts competition or if it operates against the public interest, it is advisable to notify the Commission of a small merger if it raises any competition or public interest concerns. If the Commission agrees, it will deal with the notification as usual.
Definition Of A Merger Revisited
Until now, "a merger" has been defined as:
"The direct or indirect acquisition or direct or indirect establishment of control, by one or more persons over all significant interests in the whole or part of the business of a competitor, supplier, customer or other person...".
The interpretation of "all significant interests" has proved problematic. It has been noted that the inclusion of this phrase arose as a result of a wrong rendition of the Canadian definition (on which our definition was based). The intention was that a merger would occur when one party obtained control over, or a significant interest in, another party.
As a result of intensive lobbying, all reference to the concept of "significant interest" has been deleted. The relevant portion of the new definition of a merger reads as follows:
"A merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm ...".
A further significant change to the definition is the abandonment of the reference to a competitor, supplier, or customer. This reference caused confusion, with parties maintaining that the meaning of the phrase "or other person", which followed these words, should be restricted to parties similar to a competitor, supplier or customer. However, the Commission always interpreted the phrase widely, to mean any other person.
The new definition clears the uncertainty: if control over the business of "another firm" is established, the transaction is notifiable. A firm includes a person, partnership or trust, ie any business entity.
Change Of Thresholds
In terms of the Act, the Minister was required to determine thresholds for intermediate and large mergers below which the merger notification provisions did not apply, as well as a threshold below which the prohibited practice provisions relating to abuse of dominance would not apply. Once a threshold had been established, five years had to elapse before it could be changed. This five year period was considered to be too inflexible, and the Amendment Act removes the five-year waiting period. The Minister may now change the thresholds at any time. The exercise of the Minister's power is subject to
- Up to six months public notice of a proposed change; and
- An invitation to the public for submissions on any proposed change.
The threshold relating to abuse of dominance has not changed (ie it applies to firms whose annual turnover or assets in South Africa are valued at or above R5 million). However, those relating to mergers have changed substantially (see below). Although in terms of the Amendment Act, public notice of proposed threshold changes must be given, the Amendment Act provides for transitional arrangements in terms of which the Minister of Trade and Industry may, at the commencement of the Amendment Act, publish new thresholds which will apply immediately. These new thresholds were published on 1 February 2001 and took effect on the same date.
The new thresholds are applicable to any proceedings that were pending before the Competition Commission, the Competition Tribunal or the Competition Appeal Court immediately before commencement of the Amendment Act and the new thresholds. Thus if a transaction which has already been notified does not meet the new thresholds, the Competition Commission will discontinue the investigation if the transaction does not raise competition or public issue concerns. Any filing fees paid in excess of the new amounts payable will be reimbursed.
As discussed, a small merger is one which falls below the threshold for an intermediate merger.
Merger thresholds refer to "combined figures".
The "combined figure" is the highest of:
- the combined annual turnover of the parties in, into or from the Republic; or
- the combined assets of the parties in the Republic; or
- the annual turnover of the one and the assets of the other.
An intermediate merger is one in which:
- the "combined figure" is R200 million or more; and
- the turnover/assets of the target firm is more than R30 million.
The threshold for a large merger remains unchanged as follows:
- the combined figure is R3,5 billion or more; and
- the annual turnover or assets of the target firm is more than R100 million.
Filing Fees In Respect Of Mergers
The authorities have taken note of the dissatisfaction of parties at the high filing fees. Filing fees for mergers have been adjusted as follows:
- No fee is payable for filing a merger notice for a small merger.
- The filing fee for an intermediate merger is no longer set on a sliding scale but is now set at R75 000, whereas before it could have been as high as R250 000.
- The fee for a large merger has been substantially reduced, and is now R250 000.
Note however that the above filing fees are exclusive of VAT.
The Amendment Act brings about minor changes in the time periods prescribed by the Act. Until now, the Commission had 30 days in which to approve or prohibit an intermediate merger. This has now been changed to 20 business days. This review period could be extended for further consideration by the Commission for a period of 60 days. Now the extension period is 40 business days.
In respect of large mergers, the Amendment Act allows the Commission an initial period of 40 business days, as opposed to 60 days as prescribed in the Act, to consider such a merger. Instead of granting 20 day-extensions at a time, the Act now allows for 15 business days' extension at a time, but the extension period is no longer open-ended.
"Business days" in terms of the Act excludes weekends and public holidays. In practical terms, the change in these periods will make little difference in most instances, and boils down to a tidying up of the provisions of the Act.
The time constraint for notification of a merger transaction has been removed. In terms of the old provisions contained in Section 13 of the Act, a party to a merger was required to notify the Commission of the transaction within seven days of the earlier of the conclusion of the agreement, the public announcement of a proposed merger bid or the acquisition of a controlling interest by one party. The Amendment Act deletes the time constraint. Accordingly, notification may be made at any time. It is, however, advisable to notify as soon as possible, since the clock only starts ticking for the Commission once it has received the complete merger notification.
"Advice Letters" And Exemptions
Until now, when application was made to the Commission to exempt agreements or practices from the prohibited practices provisions of the Act, the Commission could, without actually granting an exemption, advise an applicant in writing that a particular practice was not prohibited under the Act. This could amount to a legally binding opinion, despite the fact that the Commission might not have had knowledge of all the relevant facts.
Under the Amendment Act, the above so-called "advice letter" is done away with. Instead, the Commission must either grant a conditional or unconditional exemption for a specified term or refuse to grant an exemption.
Complaints: Interim Relief And The Standard Of Proof
A complainant seeking interim relief from a prohibited practice under the Act was hitherto required to wait for the Commission to accept the complaint before proceeding to the Tribunal for an interim relief order. This delay placed complainants at a disadvantage.
The Amendment Act now makes it possible for a complainant to seek interim relief immediately upon filing a complaint.
Until now, in terms of the Act an applicant for interim relief before the Competition Tribunal was required to show that the prohibited practice occurred on a balance of probabilities, in other words there was a higher standard of proof than that required in terms of the common law relating to interim interdicts. In terms of the Amendment Act the standard of proof for interim relief is the same as at common law. In future, along with the other common law requirements for obtaining an interim interdict, an applicant for interim relief will have to show a prima facie right in order to obtain relief.
When Is Information Confidential?
The Act protects confidential information. Before the Amendment Act came into effect, however, the Act did not provide a process for determining a claim that information is confidential. The new Section 44 provides that a claim of confidentiality by any person submitting information to the Competition Commission or the Competition Tribunal binds the Competition Commission. However, the Commission may at any time during its proceedings refer the claim to the Competition Tribunal to determine whether or not the information is confidential information. The Competition Tribunal must make such a determination and if it finds that the information is confidential, make any appropriate order concerning access to that information.
These amendments to the Act materially affect the reach and application of the Act. It is also clear that the Competition Authorities and the Department of Trade and Industry have, to a certain extent, taken cognisance of the difficulties encountered with the Act until now. The increase in the thresholds, and the lowering of the filing fees in relation to mergers, must in particular be welcomed.
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.
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