Determining precisely when an anti-competitive practice ends has critical implications for the firms involved. Infractions of long duration attract larger fines and damages claims, whereas proving that an infringement stopped before expiry of a defined prescription period may provide a complete ‘time-bar’ defence, allowing the respondent firm to get off scott-free.
The South African Competition Appeal Court gave guidance recently in the case of Videx Wire Products on when a cartel will be deemed to have ceased under South African competition law. The critical issue was whether a long-running collusive tendering cartel involved a numerous separate offences over time, or constituted one single, continuing overarching agreement, with the various incidents of bid rigging being merely acts of implementation.
The court held that because the understanding between cartel members is directed at achieving outcomes prohibited in terms of the Act, the conduct which is prohibited is the underlying understanding that holds it together, not merely isolated incidents of its implementation. So for instance a continuing understanding between rival firms to share markets more or less equally is prohibited even without a specific agreement to do so in a particular tender.
An important take away from the decision of the Appeal Court, once again, is that firms which have been members of a cartel based upon a continuing understanding of the sort must very actively distance themselves from the cartel and communicate that fact to the other members before they are able to claim it has ended, if they wish to rely upon time-barring as a defence.
The Appeal Court even went so far as to require that in order to terminate an agreement, the colluding firms must tell the customer of the illegal behaviour that led to prevailing prices, and offer the customer an ‘opportunity to reassess their position’. This is on the premise that:
Customers are entitled to deal with their suppliers on the assumption that the latter have not colluded to fix prices. A colluding supplier who concludes a contract with an unsuspecting customer at a fixed price is withholding information which would be of importance to the customer, namely that the price has not been arrived at through independent competition.
The court said that for as long as the cartel members give effect to the contracts with their customers without disclosing the true facts to them, they are by their conduct and silence continuing to collude.
This principle may have far-reaching implications for firms in South Africa accused of cartel conduct, and also international cartel agreements which have an effect in South Africa.