11 March 2011

The high toll payable for use of the low road

The Competition Act, 1998 has been in force for over eight years, yet many firms still purposefully or negligently conduct their business in contravention of the Act. This is becoming an increasingly dangerous proposition for several reasons: the Competition Commission is becoming more adept at investigating anticompetitive behaviour and prosecuting offenders before the Competition Tribunal; with each decision handed down, the Tribunal warns that it is going to take more stringent steps against offenders. There is also talk of impending legislative amendments which will allow greater censure of offending firms (and their directors) and give greater efficacy to the Commission to investigate anticompetitive conduct.

In September 2007, the Competition Tribunal fined Arcelor-Mittal South Africa nearly R700 million for abusing its super-dominant market position by charging excessive prices. The fine was unprecedented in South African terms both in Rand value and as a percentage of turnover. Fines for anticompetitive behaviour are levied as a percentage, to a maximum of 10%, of the turnover of the firm concerned in the previous financial year. The Arcelor-Mittal fine represented just 5.5% of its turnover for flat steel products only for the 2003 financial year. This may seem relatively light given the egregious nature of Mittal's offence, but R700 million taken out of shareholders' pockets is bound to cause discomfort for any firm.

Internationally, the British Office of Fair Trading has handed British Airways a record £121.5 million fine for colluding with Virgin Atlantic in imposing fuel levy surcharges on passenger ticket prices. Virgin escaped without a fine as it had "blown the whistle" on the conduct and therefore qualified for immunity from prosecution. BA has also been fined $300 million for similar offences by the US Department of Justice and is under investigation for fixing cargo fuel surcharges in Europe, Australia, Canada, New Zealand and South Africa.

Microsoft recently lost its appeal to the European Union Court of First Instance in respect of a €497 million fine imposed by the EU Competition Commission. The decision sets "an important precedent in terms of the obligations of dominant companies to allow competition."

In South Africa, SAA, Telkom and Sasol (among others) are dominant firms accused of abusing their market positions, either by way of exploiting consumers, excluding competition or causing substantial reductions in competition. Firms of this ilk have, up to now, been in the spotlight in terms of prohibited practice enforcement by our competition authorities, but it is not only dominant firms that need to asses and curb their behaviour. Cartels in the dairy and bread industries (to name just two) are currently under investigation for a variety of collusive offences. Other primary supplier firms did not learn from the fines (some R40 million in total) imposed in 2005 on the automotive industry players found guilty of minimum resale price maintenance. Oakley South Africa paid a R212, 000 fine last year for imposing a minimum resale price on purveyors of their sunglasses. A y small firm in the water heating industry paid a R78, 500 fine for trying to enforce a restraint of trade provision in a distribution agreement in circumstances where the distributor had become a competitor. Conduct that firms and their employees may have been engaging in for years might actually offend the provisions of the Act and come under scrutiny when least expected.

Our competition officials say they aim to ensure that penalties imposed for anticompetitive conduct are sufficiently stringent to ensure that it is not worth the while of any firm to engage in such conduct, whether it be collusive behaviour, abuse of a dominant position or some other form of prohibited conduct. It is also likely that imminent amendments to the Act will make cartel behaviour a criminal offence for the directors and officers of the firms concerned. It is conceivable that individual directors could face jail time or punitive fines for steering their firms into cartels.

Firms of any size, whether dominant or not, are well advised to take steps to ensure that they are compliant with competition law. Decision makers should be trained to understand the provisions of the Act and how to apply them to their businesses. Lawyers should be consulted in respect of any behaviour (intended, current or past) which might contravene the Act and firms that have engaged in cartel behaviour should consider applying for leniency (our Competition Commission has a Corporate Leniency Policy that, successfully used, can result in immunity from prosecution).

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