Determination of administrative penalties in settlements

1 Dec 2014 2 min read Competition Matters Article

The Competition Tribunal is empowered to impose administrative penalties for various offences, including collusive tendering or cover pricing which is prohibited by s4(1)(b) the Competition Act, No 89 of1998 (Act).

Cover pricing entails the act of tendering artificially high prices for a contract on the assumption that the tender will not be accepted, in this way ensuring that a competitor with whom an agreement to this effect has been struck becomes the successful tenderer.

It is for the Tribunal to determine whether or not a penalty is appropriate, having taken into account the factors listed in s59 of the Act which include considerations of the nature of the contravention, loss or damage suffered, the behaviour of the contravening party, market circumstances, profit derived, the degree of co-operation of the respondent with the competition authorities and whether the respondent has previously contravened the Act.

In proposing an appropriate amount for administrative penalties to be levied against a number of furniture removal companies involved in cover pricing, it appears that the Competition Commission has adopted a formulaic approach in arriving at the quantum of the penalties. Although not documented in consent orders, it has been explained during Tribunal hearings that the formula entails apportioning a rising scale percentage for penalties depending on the degrees of contraventions. In other words, the penalty levied is based on a sliding scale which results in the percentage of the penalty payable increasing based on the total number of offences.

Some of the removal company respondents were found to have engaged in as few as 12 instances of collusive conduct while others admitted to having been complicit in as many as 3487 instances of collusion.

The offender with the highest number of collusive arrangements agreed to pay the maximum penalty of 10% of its annual turnover for the relevant year while the offender with the least admitted offences agreed to a penalty equating to 5% of its turnover.

On 12 November 2014, the Tribunal made a further six consent agreements between the Commission and the respective contravening firms orders of court, adding to the previous consent orders already confirmed by the Tribunal.

Considering the multiplicity of offences as well as offenders, it may be that the Commission sees it fit to apply a mechanical method of calculating penalties across a group of offenders, however, it should remain front of mind that this approach may at best serve as a guiding principle as the Tribunal must still abide by the prescripts of the Act when making determinations on the imposition of penalties.

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