South Africa: Prohibited Practices

Last Updated: 22 February 2012
Article by Webber Wentzel's Competition Practice Group

From a prohibited practices perspective, some of the main legal developments in South Africa were (i) the CAC and the Supreme Court of Appeal's (SCA) scrutiny of the Commission's initiation of complaint investigations, (ii) the Commission's introduction of a fast-track settlement process in respect of its cartel investigations in the construction sector, (iii) new guidance from the CAC on the method of calculating penalties for prohibited cartel conduct; and (iv) the dismissal of an attempted class action damages claim pursuant to a finding of anti-competitive conduct.

The Commission came under significant scrutiny by the courts in a number of cases regarding its initiation and referral of complaint investigations to the Tribunal, following the SCA's Woodlands decision in 2010. In particular, the CAC and the SCA have now ruled in the Woodlands, Loungefoam and Yara & Omnia cases that a complaint referred to the Tribunal by the Commission cannot extend beyond the scope of the complainant's original complaint. The CAC held that it is improper for a party which was not initially cited in a complaint to be brought within the ambit of a complaint by an amendment of the Commission's complaint initiation or a referral. If new evidence comes to light during the course of an investigation that other parties were involved in alleged prohibited conduct, the Commission must initiate new investigations in respect of each additional party not covered in the original complaint. In this regard, the CAC emphasised that the Competition Act requires that the sequence of events in the process must be (i) a complaint into alleged prohibitions is initiated with the Commission; (ii) that complaint is then investigated by the Commission; and (iii) the complaint is referred to the Tribunal. This approach was also followed by the Tribunal in the Commission / SAB case, as the Tribunal considered itself bound by the decisions of the higher courts. The Commission has subsequently brought an appeal of the SCA's decision in the Yara & Omnia case before the Constitutional Court. The Constitutional Court's judgment is pending and it will be interesting to see whether the Constitutional Court will agree with the SCA and CAC's restrictive approach to the Commission's powers in complaint investigations.

Following the Commission's prioritisation of cartel enforcement in the construction sector, the Commission also introduced a "fast-track settlement" procedure to entice construction firms to come forward with information on collusive tendering. The purpose of the process was to allow the Commission to fast-track investigations and their resolution by inviting firms that were involved in bid-rigging to apply and engage in "bulk" settlement of complaints. The Commission's hope was that construction firms would be encouraged to come forward in order to settle on financially advantageous terms and in the process the Commission would obtain information on those firms that did not use the process. This process was in line with the use of similar fast-track settlement procedures in other jurisdictions, such as those introduced by the European Commission in 2008 and other national authorities in Europe. The Commission required firms to submit applications in which they disclosed their involvement in bid-rigging, the projects and the other firms involved, as well as provide undertakings to co-operate with the Commission and cease anti-competitive conduct. Penalties imposed on firms that came forward are to be calculated in accordance with the number of contraventions, whether the applicant had won or lost the bids, the size of the contracts and whether the applicant had settled any claims for damages. A number of construction firms have made use of the Commission's fast-track settlement process and finalisation of these matters is still in process.

In 2011 the Southern Pipeline cases resulted in the setting a new guidance on the method of calculating administrative penalties for price-fixing contraventions. In summary, the methodology adopted by the CAC for calculating an administrative penalty is as follows:

  • as a starting point for the initial calculation of the penalty, regard should be had to the "affected turnover" of the firm. This refers to the turnover in the relevant product market affected by the anti-competitive conduct;
  • the affected turnover figure is then multiplied by the number of years the firm was engaged in the cartel arrangement(s);
  • this product is adjusted (up or down) with reference to the various factors set out in section 59(3) of the Competition Act (for example, the nature, gravity and extent of the contravention, loss or damages suffered as a result of the conduct, profit derived from the conduct, the degree to which the firm co-operated with the Commission, etc.); and
  • if the adjusted total exceeds 10% of the firm's total annual turnover in the financial year preceding that in which the administrative penalty is imposed, the final penalty is then limited to a 10% cap.

While the CAC's methodology provides some greater clarity on the calculation of administrative penalties for cartel contraventions, it does however leave a number of important questions unanswered. For instance, it is still not clear what constitutes a relevant "firm" for purposes of applying the 10% cap. This may have significant implications where the "firm" involved in cartel conduct is an unincorporated division of a large parent company - i.e. would the 10% cap apply only to the turnover of the division involved in cartel behaviour, or would it apply to the turnover of the parent company, which may include turnover of other subsidiaries and divisions that were not involved in the cartel? It is also not clear how one converts into a percentage of turnover the various factors in section 59(3) to be taken into account. This uncertainty may well result in further litigation on the appropriate methodology for calculating administrative penalties in future.

We also foresee further developments in the law regarding civil damages claims pursuant to findings of anti-competitive conduct, potentially in the form of class action claims against firms that contravene the Competition Act. Last year, the Western Cape High Court denied several groups leave to appeal a decision to deny them a class action suit against the major bread companies for their role in price-fixing of bread products. While South Africa currently does not have a great tradition of class action litigation, in future class actions could become more important regarding civil damages claims pursuant to anti-competitive conduct.

In addition, the CAC's recent dismissal of SAA's appeal in the SAA / Comair & Nationwide matter (against the Tribunal's finding of an abuse of dominance by SAA in providing override incentives to travel agents) provided a platform for affected parties to institute civil proceedings in respect of damages suffered as a result of SAA's conduct. Comair has subsequently filed a damages claim against SAA in the High Court. This follows Nationwide's damages claim in 2006 against SAA for a previous abuse, which was ultimately settled. Further successful damages claims against firms that contravene the Competition Act will certainly fuel this area of litigation in future, particularly for firms that suffer loss as a result of anti-competitive conduct, and also for contraveners that will have to oppose damages claims.

All in all, 2011 was an eventful year in the competition law arena in South Africa. We are looking forward to another interesting year ahead and we thank you for your continued support.

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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