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INDUSTRY NEWS: NEW COMPETITION LAW THREATENS ERRANT DIRECTORS WITH 10 YEAR JAIL TERM

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Directors found guilty of anti-competitive behaviour could face up to 10 years in prison, warns Jean Meijer, competition lawyer at commercial law firm Bowman Gilfillan.

“These are among several profound implications to emerge from the new Competition Bill.”

Meijer says that the Bill creates criminal liability for price fixing, market division and collusive tendering.

Thus: “A person commits an offence if, while being a director or manager of a firm, the person was responsible for causing the firm to engage in price fixing, market division or collusive tendering or knowingly acquiesced in the firm engaging in these practices.”

“If found guilty of this offence (either after a hearing or by way of a settlement), the person is liable to a fine of R500 000 or to imprisonment for 10 years or both a fine and imprisonment.”

Meijer regarded as a “fundamental difficulty” the fact that after 10 years of the new competition regime there is still no clarity on what constitutes price fixing in South Africa.

“The Supreme Court of Appeal has stated that the scope of the prohibition is not self-evident. The competition authorities have suggested that it is applicable to joint ventures and other efficiency enhancing collaborative arrangements between competitors.”

Under such circumstances, Meijer suggests it is premature to introduce criminal sanctions, as they are likely to have the unintended consequence of disincentivising firms from settling with the Commission.

She notes that a number of the large fines that have been imposed in South Africa recently have been imposed by agreement. In each of these cases the Commission has insisted on an admission of liability as a pre-requisite to settlement.

Meijer fears that the directors and management of firms will not be inclined to settle if the consequence may be a criminal record and imprisonment. “In addition, the way in which the criminal liability has been introduced is likely to give rise to constitutional challenges.”

Complex Monopolies

The new Bill introduces the concept of a complex monopoly into South African law; provisions that originate in the now repealed United Kingdom Fair Trading Act, 1973.

Meijer points out that this concept is not used in any of the key competition jurisdictions around the world. She maintains it is the result of DTI’s frustration at the lack of progress in dealing with pricing practices in concentrated industries such as the steel industry.

The Bill provides that a complex monopoly subsists within a market if:

  • at least 45% of the goods or services in the relevant market are supplied by two or more firms; and
  • the firms supplying the market conduct their affairs in a co-ordinated manner, irrespective of whether those firms do so voluntarily or not, or with or without agreement among themselves, or as a concerted practice.

Meijer says that most capital intensive markets where there are only a few players would fall within the definition.

She elaborates that, in order for participation in a complex monopoly to be prohibited; the following two further requirements must be met:

  • The market in which the complex monopoly subsists must be characterised by restrictions on supply, a lack of innovation, exploitative pricing, exclusionary acts, high entry barriers, uniform pricing, similar trading conditions or other indicators of parallel conscious conduct, or other similar characteristics.
  • The complex monopoly has the effect of substantially preventing or lessening competition.

“The provision enables the competition authorities to interfere in markets where there have been no contraventions of the Competition Act just because they don’t like the structure of the market,” says Meijer, who is critical of the complex monopoly prohibition on the basis that it doesn’t prohibit any specific conduct.

“It may arise without any voluntary conduct on the part of the firm that is the subject of the prohibition. All of the circumstances giving rise to the prohibition may be beyond the control of the firm and there may be no action available to the firm to bring it into compliance with the Competition Act, except, ironically, to exit the market.”

“It will be practically impossible for firms to know whether or not they are operating in a prohibited complex monopoly.”