Friday, April 17, 2009

The amendments envisaged in the Competition Amendment Bill,  (the Bill) will leave few, if any, stones unturned.
If passed, the Bill will fortify and extend the investigatory powers of the Commission , encompass other practices currently not covered by our Competition Act  and criminalise prohibited cartel conduct. 
The provision with the most serious repercussions for how firms choose to do business in future relates to complex monopoly conduct, which requires no agreement or contact between firms. It appears to be targeting concentrated markets in which the co-ordinated behaviour of firms has had an anti-competitive effect and empowers the competition authorities to intervene even where the conduct may be a rational business response to normal market conditions.
More striking is the criminalisation of cartel conduct, even where a director or manager did not cause such conduct but merely knew of its occurrence.
Although widely criticised, these proposed amendments will likely be retained when the Bill is passed into law.
The provision on complex monopoly conduct will apply to markets in which:
(1) at least 75% of the goods or services are supplied to or by five or fewer firms that
(2) conduct their respective business affairs in a “conscious parallel manner”  or co-ordinated manner, without agreement, in a way that
(3) has had the effect of substantially preventing or lessening competition, unless a firm engaging in the conduct can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect.
These factors collectively define complex monopoly conduct.
The Commission is empowered to conduct an investigation if it believes that complex monopoly conduct subsists in a market and may apply to the Tribunal  for a declaratory order  .
The Tribunal is required to hold a hearing prior to granting a declaratory order, after which it is empowered to make an order requiring, prohibiting, or setting conditions upon any particular conduct of the firm to the extent justifiable to mitigate or ameliorate the effect of the complex monopoly conduct on the market. A contravention by a firm of a declaratory order constitutes a prohibited practice.
The Bill introduces a market inquiry provision which empowers the Commission to conduct an inquiry at any time to achieve the purposes of the Act or if it has reason to believe that any feature or combination of features of a market “prevents, distorts or restricts” competition. The latter test is notably different from the “substantially prevents or lessens” (SPL) competition test that is currently used to assess prohibited practices and merger transactions in terms of the Act. As such, one wonders whether “prevents, distorts or restricts” competition is meant to be synonymous or distinct from the SPL test.
The former appears to have been borrowed, without adaptation, from the UK’s market investigation provisions. It is unclear why the legislature considered it necessary to apply this particular test to market inquiries, especially since the Commission is empowered to initiate a complaint on the basis of information obtained during a market inquiry, which complaint will be assessed in terms of the SPL test and not the “prevents, distorts or restricts” competition test.
The Commission has recently conducted a market inquiry into competition in banking. However, it did so in terms of section 21(2)(b) of the Act, which empowers the Commission to inquire into and report on any matter concerning the purposes of the Act. The new market inquiry provision goes further than section 21 by clearly setting out the trigger test and the procedure for conducting market inquiries, together with the related powers of the Commission. These include the power to summons oral or documentary evidence and the power to question any person under oath; but exclude the power to search premises or persons and seize documents.
In terms of the Bill, it will be a criminal offence for a director or manager to cause his or her firm to engage in prohibited cartel activity or to knowingly acquiesce in the firm engaging in such activity. The definition of “knowingly acquiesced” refers to directors who acquiesced while having actual knowledge of the prohibited cartel activity.
The Bill states that in criminal proceedings against a director or manager, a consent order agreement admitting liability, or a finding by the Tribunal or Competition Appeal Court against a firm is prima facie proof that the firm engaged in prohibited cartel activity. It creates a reverse onus which imposes a burden on an accused director or manager to disprove the findings of the competition authorities, failing which the findings may be considered conclusive evidence against an accused director or manager. The burden on the prosecution will, in turn, be lightened by this provision. This may create constitutional issues and affect the accused’s constitutional rights to be presumed innocent and to remain silent .
Not surprisingly, the President has refused to sign the Bill because of concerns that the reverse onus provision may not survive constitutional scrutiny. On 27 January 2009 the President referred the Bill back to Parliament for reconsideration in terms of section 79(1) of the Constitution. Parliament has made it clear that it does not share the President’s concerns and has referred the Bill back to the President unchanged.
A firm which employs a director or manager facing criminal charges may not pay any fine on his or her behalf or indemnify, reimburse, compensate or otherwise defray the expenses of that person in defending against a prosecution. This significantly increases the personal risk for directors or managers of firms that engage in cartel activities.
The Commission may not seek or request the prosecution of a person whom it has certified to be “deserving of leniency”  and may make submissions to the NPA  in support of leniency for such person. Certifying a person as “deserving of leniency” appears to be based on the Commission’s subjective view of whether or not a person co-operated with the Commission to its satisfaction. Nevertheless, it appears that the NPA has the final discretion to prosecute a director, including one that has been certified to be “deserving of leniency”.
A director or manager may be fined R500 000, face imprisonment of up to 10 years, or both, as a result of his or her conduct or knowledge regarding the prohibited cartel activity.
Clearly, firms and their directors and managers face significant competition risk. Once the Bill has been passed into law, the Commission will have far greater powers to proactively root out practices, whether or not engaged in by agreement, that may be constraining competition in any market. More than ever, firms do well to adopt effective competition compliance programmes to minimise the risk of contravening the Act.
 Gomolemo Kekesi is a senior associate in the Corporate Law Department at Bowman Gilfillan
 Competition Amendment Bill, B31D-2008
Competition Commission
Competition Act 89 of 1998, as amended.
At the time of writing this article, the Bill had not yet been passed into law. It had been accepted by the National Assembly and was provisionally scheduled for consideration by the National Council of Provinces ("NCOP") on 25 September 2008. If passed by the NCOP, the Bill will be sent back to the National Assembly for consideration of the NCOP's proposed amendments. After the National Assembly has accepted, or rejected, these amendments, the Bill will then be sent to the President for assent.
According to the Bill, “conscious parallel conduct” occurs when two or more firms in a concentrated market, being aware of each other's action, conduct their business affairs in a co-operative manner without discussion or agreement.
Competition Tribunal

The Commission may apply for a declaratory order if at least one of the firms has 20% of the relevant market; the firms in question have engaged in complex monopoly conduct as defined and the conduct has resulted in: the exclusion of other firms from the market; excessive pricing; refusal to supply other firms; or other market characteristics that indicate co-ordinated conduct.
Constitution of the Republic of South Africa, 1996.
The President is entitled to refer the Bill to the Constitutional Court in terms of section 79(4)(b) of the Constitution for a decision on the constitutionality of the reverse onus provision.
“Deserving of leniency” is defined as a firm or person who has provided information to the Commission or has otherwise co-operated with the Commission’s investigation of a cartel activity to the satisfaction of the Commission.
National Prosecuting Authority