On 28 August 2009, President Zuma signed the Competition Amendment Act into law (Act No. 1 of 2009). The Amendment Act will come into force on a date to be proclaimed by the President. The signing of the Amendment Act concludes a legislative process which lasted no less than a year since it was first tabled in June 2008 and finally passed by Parliament in October 2008. However, President Motlanthe was concerned that certain provisions in the Amendment Act were unconstitutional and sent it back to Parliament for reconsideration, which returned it to him unchanged.
The Amendment Act aims to introduce a number of new provisions and amend certain existing provisions in the Competition Act.
The main provisions of the Amendment Act are discussed below. A number of these provisions are anticipated to be contentious.
# Firstly, various questions arise regarding the scope and application of several of them and those questions are likely to lead to litigation on their interpretation.
# Secondly, as many of the provisions require the competition authorities to act reasonably and in accordance with certain criteria, administrative justice disputes are likely to result from the exercise of these new functions.
# Finally, some of the provisions may lead to constitutional challenges.
The Amendment Act amends the provision in the Competition Act which establishes concurrent jurisdiction between the Competition Commission and industry specific regulators in order to clarify and provide certainty regarding the authority of the Commission and industry regulators respectively.
The amendment was needed to re-establish the jurisdiction of the Commission after the Electronic Communications Act purported to oust the Commission's jurisdiction in respect of the electronic communications industry.
The amendment makes it clear that the Commission has primary authority to detect and investigate prohibited practices and review mergers in any industry. By comparison, the relevant industry specific regulator has primary authority to establish conditions in the industry to give effect to its empowering legislation. The amendment provides that the details of the administrative manner in which the concurrent jurisdiction is to be exercised are to be determined by an agreement between the Commission and the relevant industry regulator.
The Amendment Act introduces the concept of a 'market inquiry' to deal with the new competition policy focus on the inadequate performance of markets from a competition perspective. A market inquiry is a formal inquiry into the general state of competition in a market as opposed to enforcement action that is focused on the conduct of a particular firm.
The Commission used a similar approach to conduct the Banking Inquiry last year, but because there were no provisions in the Competition Act in terms of which the inquiry could be conducted, the Commission was not able to use its normal powers of investigation to conduct the inquiry.
In terms of the Amendment Act, the Commission may conduct a market inquiry on its own initiative or at the request of the Minister of Trade and Industry, if it reasonably believes that any feature of a market prevents, distorts or restricts competition, or if it believes that the inquiry will achieve the purposes of the Competition Act. The establishment, terms of reference and invitation to provide information to the market inquiry must be published in the Government Gazette.
The Commission will have extensive investigative powers in terms of the market inquiry provisions, including the power to summons individuals to answer questions on oath and deliver or produce documents to the Commission. The Commission will not, however, have the power to enter and search the premises of firms.
Another manifestation of the new competition policy focus on the performance of markets is the introduction in the Amendment Act of a provision which empowers the competition authorities to investigate and impose remedies to address market failure in concentrated markets. Concentrated markets often result in parallel behaviour in relation to pricing and other variables that is similar to the behaviour of a cartel, but without there being any form of concerted conduct (e.g. an agreement or concerted practice) between the market participants. Such conduct is referred to in the Amendment Act as 'complex monopoly conduct'.
In terms of the Amendment Act, complex monopoly conduct subsists if two or more firms in a concentrated market (where at least 75% of the products in that market are supplied to or by five or fewer firms) conduct their business in a conscious parallel manner, without discussion or agreement between them, and this has an anti-competitive effect which is not outweighed by any resulting pro-competitive gains.
If the Commission reasonably believes complex monopoly conduct is occurring in a market, it may investigate this conduct without initiating or receiving a complaint.
Once the Commission has concluded its investigation it may apply to the Competition Tribunal for an order against the firms involved that reasonably requires, prohibits or sets conditions to mitigate or ameliorate the effect of the complex monopoly conduct. In this regard, the Commission has to prove: that at least one of the firms involved in the conduct has at least 20% of the market; that the firms concerned engaged in complex monopoly conduct; and the conduct resulted in high entry barriers, exclusion of other firms, excessive pricing, refusal to supply or other indications of coordinated conduct.
Complex monopoly conduct is not a prohibited practice in terms of the Amendment Act - engaging in it merely allows the Competition Tribunal to impose corrective remedies to address the market failure that gave rise to it. However, non-compliance with the Tribunal's order in respect of the complex monopoly does constitute a prohibited practice.
The Amendment Act introduces a new provision aimed at holding those individuals who cause firms to engage in cartel conduct personally accountable. In terms of the new provision, a director or manager of a firm commits an offence if: he/she causes the firm to engage in cartel conduct (fix prices, allocate markets or engage in collusive tendering); or knowingly acquiesces in the firm's engagement in cartel conduct whilst having actual knowledge of such conduct.
A director or manager found guilty of contravening this provision is liable to -
# a fine not exceeding R500 000; or
# imprisonment for a period not exceeding 10 years; or
# both a fine and imprisonment.
A firm may not directly or indirectly pay a fine imposed on a director or manager convicted of such offence. This includes indemnifying, reimbursing, compensating or otherwise defraying the expenses of a director or manager in defending a prosecution unless the prosecution is abandoned or he/she is acquitted.
In terms of the Amendment Act, a finding by the Tribunal or the Competition Appeal Court that a firm engaged in cartel conduct or an acknowledgment by the firm in a consent order that it engaged in cartel conduct, will serve as prima facie evidence of the fact that the firm engaged in such conduct against an accused director or manager of the firm in a subsequent criminal trial. It is this aspect of the Amendment Act that has resulted in widespread concern in the legal fraternity on the basis that the section might be unconstitutional as it is seen to impose a type of reverse onus on the accused. It is highly likely that an accused person, prosecuted under this section of the Competition Act, will challenge the constitutionality of this provision.
This provision does not have retrospective effect - i.e. only directors and managers that are involved in cartel conduct or knowingly acquiesce to such conduct that continues or commences after the Amendment Act comes into force can be held criminally liable for their conduct.
The Commission's Leniency Policy
In May 2008, the Commission published its revised Corporate Leniency Policy (CLP). The CLP outlines a process through which the Commission may grant a self-confessing cartel member, which is first to approach the Commission, immunity for its participation in cartel conduct if it complies with the CLP. However, the CLP was not sanctioned by the Competition Act.
The Amendment Act will now formally empower the Commission to grant immunity to a cartel member if it assists in the detection and investigation of cartel conduct. The Amendment Act makes it clear though that the granting of immunity does not preclude a complainant from applying to the Tribunal for a declaration that the conduct engaged in by the cartelists is a prohibited practice or an order declaring the whole or part of such an agreement void. In addition, a complainant may still pursue an action for civil damages against the cartelists.
The Commission may also certify a director or manager of a cartel member that provides information to the Commission or otherwise co-operates with the Commission's investigation into cartel activity as being deserving of leniency. The Commission may not seek or request criminal prosecution of a director or manager that has been certified as being deserving of leniency. The Commission may also make submissions to the National Prosecuting Authority regarding leniency towards such a director or manager
Written by: Webber Wentzel Competition Practice Group