Tribunal ‘relaxes’ administrative penalty on the back of market division

In the complaint proceedings between the Competition Commission and Sam Louw N.O, Anita Louw N.O and Welkom Key Centre CC (collectively, the Respondents) the Competition Tribunal found on 18 December 2014 that the Respondents contravened s4(1)(b)(ii) of the Competition Act of 1998 by entering into an agreement to divide the market for the supply and distribution of security cylinders, matching keys, padlocks, electronic and multipoint locks in the Free State and Northern Cape provinces. On 23 July 2015, the Tribunal imposed a unique set of remedies on the Respondents, which is likely to set an interesting precedent in future.

The Tribunal acknowledged its six-step test for the assessment and calculation of administrative penalties as formulated in Competition Commission and Aveng Africa Limited t/a Steeledale and Others, as follows:

• Step 1: Determination of the affected turnover in the relevant year of assessment;
• Step 2: Calculation of the base amount, being the proportion of the relevant turnover ranged between 0 to 30%;
• Step 3: The base amount is multiplied by the duration of the contravention;
• Step 4: The amount in Step 3 is rounded off, if it exceeds the statutory cap of 10% of total turnover;
• Step 5: Consideration of mitigating and aggravating factors; and
• Step 6: The amount in Step 5 is rounded off, if it exceeds the statutory cap.

The Commission submitted that a 10% administrative penalty be imposed on the Respondents as market division is a per se prohibition, deemed to be unlawful. On the other hand, Welkom Centre argued that the base amount be set at 5% and submits that a 90% discount be applied to the administrative penalty and relied on the following mitigating factors:

1. the market division was an attempt by Louw’s Key Centre to assist a new entrant (Welkom Centre) in the market, both of which did not know that the conduct was unlawful;
2. over time, the significance of the agreement diminished as Welkom Centre serviced customers that was allocated to Louw’s Key Centre;
3. the market is characterised by trust as it pertains to security of person and property;
4. Welkom Centre did not derive any profit from the agreement;
5. Welkom Centre co-operated with the Commission in that it was frank and honest; and
6. Welkom Centre was not found to have previously contravened the Competition Act.

Moreover, the Respondents also proffered alternative remedies which required that their respective customers be informed of the unlawful conduct that the Respondents engaged in as well as weekly advertisements in a newspaper that circulates in both territories.

The Tribunal held that the maximum administrative penalty contended for by the Commission is not warranted in this case and held that a remedy that seeks to deter the Respondents from the censured conduct coupled with the alternative remedies is more apposite. The alternative remedies are more likely to redress any harm that may have been caused by the market division, than an administrative penalty alone. In order to address the wrongs of the Respondents, the Tribunal imposed a two-fold remedy comprising an administrative penalty and conditions aimed at correcting the effects of the market division.

In the case of Welkom Centre, the administrative penalty was set at R41,127.40 and in the case of Louw’s Centre, the administrative penalty was set at R123,868.75. The Tribunal applied a rather novel approach to the imposition of administrative penalties by structuring the order in such a way that if the Respondents complied with its respective obligations flowing from the alternative remedies, 50% of their administrative penalties will be obliterated and reduced accordingly. However, if they fail to comply, the full administrative penalty becomes due and payable.