12 August 2020 by , and Competition Alert

Excessive pricing during COVID-19 and beyond: Key considerations (Part 1)

Just three days after the declaration of a national state of disaster on 15 March 2020, the Minister of Trade and Industry published the Consumer and Customer Protection and National Disaster Management Regulations and Directions (Regulations). Regulation 4 provides a mechanism in terms of which the Competition Commission (Commission) is able to establish prima facie that a price is excessive or unfair, which in turn can lead to a finding that the excessive pricing provisions of the Competition Act 89 of 1998 (Act) have been contravened.

Since 19 March 2020, the Commission has investigated over 800 complaints of excessive pricing, successfully prosecuting two firms after contested hearings (which may still be subject to appeals) and reaching settlements with 32 companies. As at the date of this alert, this has resulted in fines in excess of R15.4 million being imposed, of which just short of R5.6 million has been donated to the Solidarity Fund. There have also been donations of essential goods to affected communities to the value of some R551,887. However, rather curiously, reliance on the Regulations in securing the prosecutions has been limited.

This article will explore the applicability of the Regulations, as recently discussed by the Competition Tribunal (Tribunal) in the two COVID-19 excessive pricing contested cases to date, namely Babelegi Workwear Overall Manufacturers and Industrial Supplies CC (Babelegi) and Competition Commission and Dis-Chem Pharmacies Limited (Dis-Chem).

For the Regulations to be triggered, a dominant firm must apply a material price increase in relation to certain goods and services that fall within its ambit, namely “basic food and consumer items; emergency products and services; medical and hygiene supplies; [and] emergency clean-up products and services”. The Regulations create a rebuttable presumption that a price increase is prima facie excessive or unfair if it “does not correspond to or is not equivalent to the increase in the cost of providing that good or service; or increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three-month period prior to 1 March 2020” (the so-called ‘Rebuttable Presumptions’).

To date, the vast majority of the aforementioned settlement agreements and the two contested hearings have involved medical and hygiene supplies. There have, however, been three recent settlement agreements implicating basic food and consumer items, namely raw ginger, maize meal and eggs.

The Regulations self-proclaim to be of no force and effect when the COVID-19 outbreak is no longer declared a disaster. It is now confirmed that the Regulations also have no application to price increases which took place prior to the proclamation of the Regulations. First, the Tribunal in Babelegi held that, when assessing the merits of that case, it would have no regard to the Regulations on the basis that the complaint period preceded the publication of the Regulations. The Tribunal reinforced this approach in Dis-Chem, highlighting that it is a fundamental principle of the rule of law that legislation, whether subordinate or not, cannot apply retrospectively. Based on this and the principle of fairness, the Tribunal confirmed that the courts would not lightly dispense with the presumption against retrospectivity.  

This does not mean that dominant firms who implemented excessive price increases before 19 March, or who do so after the national state of disaster ends, acted or will act, with impunity. Notwithstanding the inapplicability of the Regulations to such conduct, price increases related to COVID-19 are now, based on the Tribunal’s interpretation in the Babelegi and Dis-Chem cases, fairly easily caught under the excessive pricing provision in section 8(1)(a) of the Act, despite this prohibition having historically been rarely applied.

As confirmed in Dis-Chem, the inapplicability of the Regulations means there can be no application of the Rebuttable Presumptions in the Regulations. However, the severity of this consequence is tempered by the Tribunal’s confirmation that, despite the Regulations being inapplicable, the economic tests underlying Regulation 4 can still establish a prima facie case of excessive pricing in terms of the Act. Simply put, one such test is whether prices increase significantly without any increases in costs. Further, in terms of recent amendments to the Act, there is now also a reverse onus in terms of which the evidential burden to show reasonableness of a price increase shifts to the dominant firm if a prima facie case of an excessive price has been shown. Viewed collectively, these developments render it significantly easier to prosecute an excessive pricing complaint.

During these unprecedented times, the excessive pricing provisions, whether in terms of the Act or the Regulations, remain an important consideration. Firms are encouraged to remain vigilant of their pricing conduct, particularly in the light of the Tribunal’s seminal and generous interpretation of key aspects of the Act in Babelegi and Dis-Chem, which will likely have profound precedential value going forward in evaluating market power and dominance generally as well as excessive pricing complaints, as detailed in Part 2 of this article, found here.

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