There has for many years been a vigorous debate on how the
Competition Tribunal ("the Tribunal") should determine
the appropriate penalty to be levied on firms which contravene the
Competition Act, 89 of 1998 ("the Act"), in particular on
cartel offenders. The Competition Tribunal has in previous cases
applied a single percentage (up to a maximum of 10%) of the
offending firm's annual turnover in the line of business or the
market in which the contravention has taken place, the so-called
affected turnover. The Competition Commission has however argued
that the firm's total turnover should be used as the benchmark
but has regrettably not issued any sentencing guidelines. This has
made it difficult for offending firms to negotiate settlements with
The Competition Appeal Court ("CAC") ruled earlier
this week that the fines imposed by the Tribunal on Southern
Pipeline Contractors and Conrite Walls were incorrectly determined
and lowered the imposed fines significantly. In the course of its
decision, the Court set out a new approach to be followed in
respect of sentencing, which may have far reaching consequences for
large multi-product firms which contravene the Competition Act over
a number of years. The fines imposed on these firms may in future
exceed 10% of their affected turnover.
In reaching its conclusion on the initial fines imposed of R 16
882 597 (10% of annual turnover) and R6 192 457 (8% of annual
turnover) levied respectively for cartel activities including price
fixing and allocation of tenders in the supply of storm water
pipes, culverts and manholes over a 13 year period, the CAC found
that the Tribunal failed to robustly consider relevant factors and
incorrectly applied the concept of annual turnover as stipulated by
the Act. By incorrectly determining which amounts should be
included in turnover and not taking into consideration the factors
listed in section 59(3) of the Act, the Tribunal levied fines
higher than appropriate against Southern Pipeline Contractors and
Conrite Walls. Their fines were accordingly reduced to R8 720 000
(20% of affected turnover) and R2 037 070 (7% of affected turnover)
The new approach can be summarised succinctly as follows
the Tribunal must first consider in depth how each of the seven
factors set out in section 59(3) of the Act relate to the
particular offence and offender, namely the nature, duration,
gravity and extent of the contravention, the loss or damage
suffered as a result of the contravention, the market circumstances
in which the contravention took place, the level of profit derived
from the contravention, the behaviour of the offender, the degree
to which the offender cooperated with the Competition authorities
and whether it has previously been found guilty of a contravention
of the Act;
in this process it will use as a baseline the affected annual
turnover but will adjusted it to take account of the number of
years during which the offence was committed;
the Tribunal must apply the principle of proportionality
between the nature of the offence and benefit derived therefrom,
the interest of the consumer community and the legitimate interests
of the offender;
the sentencing guidelines of the European Commission will
provide useful guidance in this process;
once the Tribunal has determined an appropriate amount, it will
then check whether it falls within the cap of 10% of the firm's
annual turnover for its entire business (as set out in section
59(2)) and, if not, it will reduce the penalty to the cap;
the reference year for determining turnover is the financial
year before the penalty is imposed.
Firms which are involved in settlement negotiations with the
Commission will be well advised to re-examine their settlement
proposals to determine whether it is line with the above
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.
The Competition Commission recently found a dual distribution restraint to amount to a market allocation agreement between competitors, which is outright unlawful under the Competition Act, 89 of 1998.
Sub-Saharan Africa is primed for an era of sustainable growth. As other markets across Latin America and Asia face short-term challenges and many advanced economies decelerate, the outlook remains encouraging for sub-Saharan Africa to gather speed and create greater opportunities for its rapidly growing population.
Previous updates summarised the main provisions of the United Arab Emirates Federal Competition Law (Federal Law No. (4) of 2012) which came into force on 23 February 2013.
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”
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).