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At the end of August last year the President assented to the 2009 Competition Amendment Act. All that now remains for the amendments to come into effect is promulgation of the date of commencement.

Are these amendments necessary and will they have the desired effect? When proposed amendments to the Act were first announced in 2008, it was indicated that these changes were to be implemented "to enable the State to pro-actively address anticompetitive outcomes". At the time there was a concern that the Commission needed more teeth to prosecute anticompetitive firms. For example, there was a strong political lobby to introduce criminal sanctions. High profile fines levied in relation to companies involved in the food sector, which particularly affects the poor and vulnerable, led to calls for heavier penalties on parties engaged in collusive activities.

This call has been answered by the legislature. The Amendment Act now envisages fines of up to R500,000.00, or prison sentences of up to ten years or both for individuals who are involved in price fixing, market division or collusive tendering.

There are valid concerns that the proposed amendments are unconstitutional insofar as the company's acknowledgement of prohibited conduct is prima facie evidence against the individual, and will lead to firms accused of the conduct to become more litigious rather than concluding consent orders with the Commission, which has been the norm to date. This is likely to tie the Commission into costly and lengthy litigation, rather than having the quick fix alternative of the consent order.

Furthermore, many commentators have indicated that in their view this amendment risks sending cartelists to ground rather than bringing their anticompetitive conduct to the fore. Whilst the Commission may in the past have had difficulty in prosecuting anti-competitive conduct, it has more recently had significant successes as a result of companies taking advantage of the corporate leniency policy, in terms of which they can blow the whistle on other members of a cartel in exchange for immunity from prosecution. With individual managers facing the possibility of a jail sentence despite coming forward, they are likely to think twice before confessing to their employers and the Commission regarding cartel behaviour.

Therefore, although the amendment was introduced to punish individuals engaged in cartel activities, increasing individual risk might well have the effect of keeping their behaviour well below the radar and beyond the reach of the Commission, with the result that the conduct may go unseen and unpunished.

Amongst other amendments, the Amendment Act introduces the concept of complex monopoly conduct. The amendment applies to markets where at least 75% of the goods or services in that market are supplied to or by five or fewer firms and those firms conduct their business affairs in a "conscious parallel" or "coordinated" manner, but without reaching any anticompetitive agreement. The intention is to assist the Commission to tackle anticompetitive conduct in markets where it cannot show that there is formal agreement amongst the competitors, but the market shows anticompetitive outcomes.

In South Africa many industries are oligopolies, i.e. industries with only a few competitors. The market structure makes it rational for competitors to observe one another very closely in order to remain competitive thus making them interdependent. In such a situation behaviour which is economically completely logical and pro-competitive might be considered to be a form of conscious parallel conduct. If one competitor increases or drops its prices, it would be logical, and not necessarily consciously parallel conduct, for other competitors to follow suit. In concentrated markets, firms frequently know their competitors' movements and react to them. This is merely a manifestation of normal competition, and yet the Commission might attack it under this amendment.

It is also not clear why this amendment is necessary. The current Act refers to not only written and oral agreements between firms (which includes a "contract, arrangement or understanding") but also "concerted practices" which encompasses "co-operative, or co-ordinated conduct between firms ...". One would have thought that this definition was wide enough to include the concept of complex monopoly conduct.

It is debatable whether either of these amendments is necessary or desirable, and they may merely lead to a chilling of true competition. Certainly they are likely to have a chilling effect in relation to applications for corporate leniency.

Written by: Lesley Morphet, Director and Head: Competition Team
Deneys Reitz Inc.

 

 

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