31 July 2012 by Cliffe Dekker Hofmeyr

Price Fixing – Consensus may be inferred by you presence

An agreement for purposes of the Competition Act, by definition includes but extends beyond a contract, and need not be legally enforceable. The Competition Appeal Court (CAC) made this point recently in the Netstar case, when it was noted that, at the least, the colluding firms must have reached consensus or regard a form of arrangement as binding on them, whether by moral suasion or commercial interest. 

According to Petra Krusche, Director in the Competition practice at Cliffe Dekker Hofmeyr, “ “The difficulty is to determine when such consensus is reached. It is clear that the level of commitment to such agreement is less in competition law than in the law of contracts; and in some cases it is also difficult to distinguish such agreements from collusive collaborative action, which is prohibited behavior.

Various recent decisions by the Competition Tribunal endorsed the approach by competition authorities in England and the United States, that the requisite consensus with regards to collusion can be inferred from the mere presence of the competitors at a meeting where the collusive deal is struck, unless a firm unambiguously objects to the proposed cartel and expressly distances itself from any ensuing discussions.

“This is akin to the situation well known in the law of contract and delict, that in certain circumstances a failure to dispel a relevant illusion, can have binding consequences,” says Krucshe.

The recent decision of the Tribunal in the so-called PVC pipe cartel published at the beginning of July 2012, assessed different messages by unwilling cartelists for their adequacy as effective repudiation of a cartel that had existed in various guises at least since 1969 and in its most recent form, since the early 1990's.  

For example, one firm did not give any indication that it would not associate itself with the agreed prices. It may not have implemented the agreed prices, but it continued to be invited to and attended further price fixing meetings. It was found to be guilty of price fixing as if it were actively involved, although the fact that it did not implement the agreed price fixes was regarded as a mitigating factor in determining the amount of its penalty.

Another firm was invited to a meeting by a supplier/competitor with whom it was involved in a toll manufacturing agreement and innocently assumed the meeting was about that relationship. It was surprised when another competitor was also present at the meeting.  As one of the parties in the room was a substantial customer and both of them were suppliers, the firm did not object to the meeting, but let it be known that it would discuss the suggested fix with its sales force.

Later, when questioned about its apparent cheating on the price deal, it excused its dissidence by virtue of its decentralised pricing policy.  The firm's reticence to cross its customer and suppliers at the time of the price fix and two later opportunities, did not excuse it from being party to the price fix.  However, the firm's consistent competitive and independent market conduct indicated that it did not apply the price fix, which contributed to a finding that an administrative penalty would not be levied.

The Tribunal termed as remarkable and effectively destabilizing the cartel, the steps taken by the young CEO, who called a meeting with her more senior counterparts of her firm's competitors to tell them that her firm would no longer be party to the cartel, and then also warned her firm's staff that contact with competitors would be subject to disciplinary action.  This brave and direct message terminating the cartel was also considered as an important mitigating factor in determining the penalty.  Said the Tribunal that the CEO's actions in declaring her firm's non-adherence with the collusive arrangements then in existence, did more on the facts of this case to end the collusion than did the later actions of the leniency applicant.

“The PVC cartel case illustrates the clear distinction under the Competition Act, between the events that constitute the price fix, how it is established without regard to its effect and  any excuses, and the consequences following on such findings to which the impact and the motivation for the price fix are relevant for example, to the assessment of an administrative penalty, if at all.

“ It must follow that if firms find themselves in a situation in which collusion becomes topic, they should immediately take memorable steps to show their competitors that they will not be party to the collusion.  To give a clear message immediately is the most  effective way of avoiding being accused of collusion or terminating a cartel. And nothing is clearer than actually saying no to collusion per the example of the CEO mentioned."

 

 

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