All questions

Cartels

Since the inception of the Competition Act, a very broad interpretation of the prohibition of any form of direct or indirect price fixing, market allocation or collusive tendering by competitors in South Africa has been imposed.

The Commission has repeatedly emphasised that it regards hardcore cartel conduct as the most egregious violation of the Competition Act, and the Tribunal has similarly observed that 'cartels are viewed as the most abhorrent antitrust practices' and 'a cancer to competition and harmful to consumers and economic development'.

One reason for the Commission's success in prosecuting cartel conduct is its exceptionally effective Corporate Leniency Policy (CLP). While the number of leniency applications is decreasing, it has supplied the Commission with substantial (and frequently damning) evidence with which to build strong complaints. This, together with the Commission's practice of seeking the maximum fine of up to 10 per cent of annual turnover in virtually all of the cases that it refers for adjudication by the Tribunal, has meant that the vast majority of complaint respondents have elected to settle complaints about hardcore cartel conduct by way of the consent order procedure in Section 49D of the Act rather than risk protracted, and uncertain, litigation.

i Significant cases

Penalties were imposed in 26 matters during the 2017/2018 financial year and totalled approximately 354 million rand. This was a decrease from the approximately 1.63 billion rand imposed in the 2016/2017 financial year. Of the penalties imposed in the 2017/2018 financial year, 70.33 per cent were imposed in the manufacturing sector, 19.61 per cent in the financial and insurance activities sector, 8.85 per cent in the professional scientific and technical activity sector and 10.06 per cent in the construction, information and communication, mining and quarrying and transportation and storage sectors.

As mentioned above, a large proportion of cartel cases are settled by way of consent orders, and as such, the merits of very few cases are finally adjudicated upon by the Tribunal, or the Competition Appeal Court, as the case may be.

Bicycles

The Bicycles case involved an alleged cartel to fix prices and trading conditions of bicycles and cycling accessories. The case was referred by the Commission to the Tribunal against 20 respondents that are either wholesalers or retailers of bicycles or accessories. By the time the hearing proceeded in May 2015, 18 of the respondents had settled the matter with the Commission in terms of a consent order. The Tribunal referral hearing therefore proceeded only in respect of two respondents.

The Commission alleged that at meetings attended by both wholesalers and retailers, an agreement was reached to fix the selling price of bicycles and cycling accessories by using the recommended retail price (RRP) as a mechanism by which downstream prices could be increased from October 2008 onwards. The recommended retail price was set by wholesalers but was subject to a known uniform mark-up. At a meeting of 10 September 2008, a proposal was made that the recommended retail price for bicycles be increased from 35 to 40 or 50 per cent, and from 50 to 75 per cent for bicycle accessories.

Interestingly, many wholesalers and retailers raised concerns that this would amount to price fixing, but they were reassured at the meeting by a representative from Fritz Cycles (one of the respondents) that the conduct was not illegal.

While this decision is not new, it provides some important insights into the Tribunal's approach to analysing whether a firm has entered into an agreement or engaged in a concerted practice, in contravention of Section 4(1)(b). While this decision does not develop the law as the principles upon which it was based have been applied in a number of previous cases, this case is useful in summarising some of these principles:

The form of an agreement between competitors is not relevant

The Tribunal has confirmed that consensus is sufficient to constitute an agreement under the Competition Act. Furthermore, the Competition Act does not require monitoring or even implementation of an agreement to fall foul of Section 4(1)(b) of the Competition Act. The Tribunal quoted MacNeil, which states that 'consensus sufficient to constitute agreement under the Act need not amount to a contract at private law, need not be enforceable, punishable or even have a level of precision that the arrangement could defeat an argument that it is void for vagueness'.

Firms that intend to deviate from a cartel agreement or have actually cheated on an agreement may contravene Section 4(1)(b)

A common feature of cartels is the intention to cheat on an agreement. The Tribunal in the Bicycles case confirmed the position that the intention to cheat on an agreement does not undermine the finding that an understanding or arrangement was reached.

The implications of a parties' passive attendance at meetings where collusive arrangements were discussed has also been dealt with in MacNeil and Videx. In this regard, the Competition Appeal Court stated that where a party does not wish to be bound by collusive activity, such party has a 'duty to distance himself from the proposals under discussion, either by leaving or by stating that he wants no part of them'. The Competition Appeal Court in Videx went on to say that 'a loss of trust, even a significant breakdown in trust, is not sufficient if unaccompanied by other actions which clearly signal withdrawal from the cartel.'

The Tribunal therefore confirmed the MacNeil decision, which states that a representative would be under a duty to distance itself from the proposals under discussion, either by leaving a meeting or by stating that he or she wants no part of the discussion. Being silent and not distancing oneself is therefore not a defence.

Agreements in contravention of Section 4(1)(b) need not be ratified by senior representatives of a company

As noted above, the Tribunal took the view that the term 'agreement' in the Competition Act does not have the same meaning as it does in a contract. The Tribunal noted that the 'Act has extended the ordinary definition of the term agreement when used in relation to a prohibited practice to include '. . . a contract, arrangement or understanding, whether or not legally enforceable''.

In the Bicycles case, the Tribunal confirmed that the lack of authority defence may have application in private contract law, but does not assist in the context of competition law. A lack of mandate can therefore not assist where competition harm to the public consumer is concerned.

Two of the respondents, Omnico and Cool Heat Agencies, appealed the decision to the Competition Appeal Court on the narrow issue of whether the silent participation of firms at a meeting where cartel activity was discussed amounts to a contravention of Section 4(1)(b)(i) of the Competition Act.

The Competition Appeal Court found that both Omnico and Cool Heat Agencies did contravene the Competition Act. It was found: 'The principle of passive attendance at meeting to listen to 'gossip' among companies cannot excuse an undertaking. Consistent with European competition jurisprudence, as it has now developed, there is a duty to speak or to report to authorities or publicly distance oneself from any anticompetitive behaviour.'

In reaching its finding, the Competition Appeal Court stated that the Commission had provided sufficient evidence that:

  1. both appellants failed to distance themselves from the consensus reached at the meeting to increase the RRP from October 2008 so as to afford greater margins to the retailers;
  2. both appellants gave no indication – either at the September meeting or thereafter in any forum – that they disagreed with the increase and that they would not proceed on that basis; and
  3. neither appellant had placed evidence before the Tribunal that their pricing, and increased RRP in particular, following the September meeting was the result of independent decision making rather than a result of the unlawful agreement reached at the September meeting.

While the Competition Appeal Court ultimately came to the same decision as the Tribunal, it did reduce the administrative penalties to be paid by both Omnico and Cool Heat Agencies on the basis of mitigating factors.

Tulisa Cables

The Cables case is the first of its kind in South Africa demonstrating the difference (on the evidence) between a collusive agreement between competitors and lawful rational behaviour by a rival in an oligopolistic market.

In this decision, the Tribunal was only required to make a decision in respect of alleged conduct on the part of Tulisa Cables (Pty) Limited (Tulisa) as the first and second respondents, Alvern Cables (Pty) Limited (Alvern) and South Ocean Electric Wire Company (Pty) Limited (SOEWC), had entered into a settlement agreement with the Commission and the fourth respondent, Abedare Cables (Pty) Ltd (Abedare), had applied for and was granted leniency.

On the facts, the Commission was unable to establish that Tulisa had attended any meetings in which the parties had agreed to directly or indirectly fix the selling price of power cables, nor was there evidence that Tulisa had been informed of the price-fixing agreement by SOEWC, as alleged by the Commission. The Tribunal was therefore required to consider whether there was evidence of a concerted practice. In this regard, the Tribunal considered whether Tulisa conducted itself in a manner indicative of it being a member of a cartel by basing its prices (as the other respondents' did) on the price list circulated by Abedare on the first of each month notwithstanding that the price lists were not sent by Abedare to Tulisa.

Tulisa relied on evidence to argue that it never received the Aberdare price lists from any of the respondents and instead received its competitors' prices from customers. According to Tulisa, it would use the Aberdare price list (which it obtained independently) as a basis off which it would offer further discounts to customers.

The Tribunal held that there was no evidence before it that Tulisa was in agreement with the other respondents. This is because Tulisa was not in attendance at meetings with the other respondents, nor did it receive the price lists directly from the respondents. On the facts, the Tribunal stated that 'Tulisa's actions appear to be consistent with those of a player in an oligopoly market acting rationally and independently of its competitors but well alive to the actions of the competitors (referred to in literature and case law as 'conscious parallel behaviour' or 'conscious parallelism')'.

The Tribunal therefore found that on the facts, there was insufficient evidence of Tulisa acting in concert with the other respondents in furtherance of a cartel and the complaint against Tulisa was dismissed.

This case demonstrates that a firm will not automatically be found to have participated in a cartel simply by following a competitor's price lists if it can be shown on the facts that reference to the price lists is simply as a result of market structure and not concerted action to participate in a cartel.

DSTV Media Sales

This complaint involves allegations of price fixing against 33 respondents in the media industry. Thus far, four have paid (by way of consent orders) administrative penalties.

The Commission alleged that through Media Credit Co-ordinators (MCC), a non-profit organisation, the respondents agreed to offer similar discounts and payment terms to advertising agencies that place adverts with MCC. For accredited agencies, the discount offered was 16.5 per cent for all payments made within 45 days of the date of the invoice statement, while for the most part the discount offered to non-accredited agencies was 15 per cent.

The Commission also alleged that the respondents employ services of an intermediary to perform risk assessments on advertising agencies for purposes of imposing the above-mentioned discount structure.

The Commission found that the above-mentioned conduct gave rise to a restriction of competition among competing media groups in that they did not independently determine an element of their pricing and trading terms. The Commission found that these practices amounted to price fixing and the fixing of trading conditions.

One of the respondents, DSTV Media Sales, entered into a consent agreement with the Commission, which was confirmed by the Tribunal in which it admitted that it had engaged in the conduct as alleged by the Commission in contravention of Section 4(1)(b)(i) of the Competition Act.

In reaching settlement, DSTV Media Sales agreed to pay not only an administrative penalty but to also be bound by a number of non-conventional remedies which resulted in an effective total of 180 million rand being levied as a penalty. Apart from the administrative penalty imposed (22 million rand), the following innovative remedies were also agreed to:

  1. DSTV Media Sales undertook to contribute 8 million rand to the Economic Development Fund over three years from the date of confirmation of the consent agreement to enable the development of black-owned small media or advertising agencies requiring assistance with start-up capital and to assist black students requiring bursaries to study media or advertising, among others.
  2. DSTV Media Sales further agreed to provide 25 per cent in bonus airtime for every rand of airtime bought by qualifying small agencies. This is intended to help smaller agencies participate in the market. The bonus airtime would be provided for a period of three years with a total annual airtime cap of 50 million rand.
ii Trends, developments and strategies

The competition authorities continue to regard cartel enforcement as a major priority, as indicated by the Commission's initiation of 28 new cases in the 2017/2018 financial year. The Commission has furthermore indicated its intention to clamp down on cartel conduct, having conducted four dawn raids in the 2016/2017 financial year. This trend continued into the first half of the 2017/2018 financial year, with the Commission having conducted a further three dawn raids. This trend has, however, slowed down as a result of the Commission's budgetary constraints.

Following a dawn raid conducted in the edible oil industry, FR Waring and Willowton applied for a reconsideration and setting aside of the ex parte order that the Pietermaritzburg High Court issued on 6 December 2016 on an urgent basis. The court found that the Commission had not made out a case for the issuing of the warrant. In particular, the court found that the Commission's allegations in the application for the ex parte warrant as to the alleged prohibited practice was based on double hearsay and accordingly could never ground 'reasonable belief' that there were collusive dealings in the market. The court therefore set aside the search warrant. The Commission applied for leave to appeal this decision but leave to appeal was denied by the High Court on 20 February 2019.

This is the first dawn raid to be set aside since the SCA ordered, in May 2002, the setting aside of the raid conducted on Pretoria Portland Cement.

The trend to impose substantial administrative penalties on parties who have been found to contravene the Competition Act is likely to increase, which is evident from the ArcelorMittal consent agreement reached on 16 November 2016, in which an administrative penalty of 1.5 billion rand was imposed. While the consent agreement was entered into to settle a number of complaints, the considerable penalty imposed is an indication that the competition authorities are seeking to impose substantial penalties on firms that collude.

The Minister of Economic Development, under whose department the Commission falls, also publicly stated in November 2016 that he is of the view that the administrative penalties have not been high enough to date, and that he would encourage the imposition of even steeper penalties.

On 1 December 2017, the Minister of Economic Development published the Competition Amendment Bill for public comment. It is noted in the Competition Amendment Bill's preamble that the Competition Amendment Bill 'focuses on creating and enhancing the substantive provisions of the Act aimed at addressing two key structural challenges in the South African economy: concentration and the racially skewed spread of ownership of firms in the economy'.

For purposes of the amendments to the Competition Act, five priority areas were identified:

  1. the provisions of the Competition Act relating to prohibited practices and mergers must be strengthened;
  2. special attention must be given to the impact of anticompetitive conduct on small businesses and firms owned by historically disadvantaged persons;
  3. the provisions relating to market inquiries must be strengthened so that their remedial actions effectively address market features and conduct that prevents, restricts or distorts competition in the relevant markets;
  4. it is necessary to promote the alignment of competition-related processes and decisions with other public policies, programmes and interests; and
  5. the administrative efficacy of the competition regulatory authorities and their processes must be enhanced.

Following rounds of public comment in 2018, the Competition Amendment Bill was passed by Parliament on 5 December 2018 and was signed by the President of South Africa on 13 February 2018. The Amendment Act will come into operation on a date to be proclaimed by the President.

iii Outlook

The introduction of criminal liability creates some uncertainty for individuals who may have participated in collusive conduct that was ongoing after 1 May 2016. The introduction of criminal liability seemingly will have a negative impact on the Commission's CLP if individuals are no longer willing to blow the whistle, as leniency is currently only provided for in the CLP for firms that confess to cartel conduct in certain circumstances. The introduction of criminal liability seems to have had an impact on the number of leniency applications received as there has been a decrease in the number of leniency applications received over the past few years. In the 2017/2018 financial year, the Commission received a total of two leniency applications, which is down from the six applications for leniency received in 2016/2017 and a decrease from the 10 applications received in the 2015/2016 financial year.

While the Competition Amendment Act 2009 (2009 Amendment Act) does make provision for the Commission to certify a person as being 'deserving of leniency', it is unclear how this certification would operate in practice, since the National Prosecuting Authority, which is tasked with prosecuting individual criminal conduct, could pursue individuals despite their having obtained the Commission's leniency certification.

There has been no prosecution of an individual for his or her participation in collusive conduct to date. The Commissioner has, however, on 29 June 2018, called for criminal liability following an order by the Tribunal confirming the consent agreement with three vessel owners who ferry passengers between the Robben Island Museum and the V&A Waterfront in Cape Town for charges of price fixing and collusive tendering. The Commissioner stated that:

Robben Island is an iconic site that represents the saddest and richest history of this country dating back centuries. The museum deserves to be treated with great pride and respect as it symbolises the peak of courage and triumph of human spirit. The actions of these vessel owners exhibited distain for this country's history and utter disrespect for the people. Those who show neither remorse nor shame must be considered for criminal prosecution.

It remains to be seen how the provisions will be implemented.