The Competition Amendment Bill, which has been passed by Parliament still awaits signature by President Zuma. It will then become law. However there are concerns that certain provisions of the Bill may not be constitutional, so it is possible that the President will refer the Bill to the Constitutional Court. On the other hand, in principle, the Bill could be signed into law at any time and its contents are unlikely to change significantly.

The Bill seeks primarily to amend the current Competition Act¹ by providing new, wider measures for dealing with cartel behaviour. It seeks to establish new forms of anti competitive conduct and broaden the independence of the Competition Commission, as well as provide a more proactive role for the Commission in investigating markets of its own accord.

Market Enquiry

Market enquiries are catered for under the Act, empowering the Commission to conduct formal enquiries into the general state of competition in a market without necessarily referring to the conduct of a particular firm. The finding of the enquiry will be reported to the Minister of Trade and Industry. This means that the Commission may, at any time, initiate its own investigation (or do so on the request of the Minister) if it has reason to believe that a feature of the market prevents, restricts or distorts competition. The scope and length of the enquiry must be defined by the Commission at the outset, and the results of the enquiry must be published within the time limits set out. The Bill empowers the Commission to proceed promptly against firms on the strength of information obtained through such an inquiry, by initiation of complaint proceedings. Note that the Commission's usual search and seizure powers do not apply in such enquiry.

Tacit Collusion

The Bill empowers the Commission to launch an investigation into suspected participation in complex monopoly or tacitly coordinated conduct. According to section 10A of the Bill a complex monopoly exists where at least 75% of the goods or services in a market are supplied by or to five or fewer firms. Competition concerns are raised when two or more of those firms conduct their affairs in a "conscious parallel manner or coordinated manner without agreement between or amongst themselves". A common example of complex monopoly conduct is 'price following' behaviour, whereby Firm A does not adjust its price until Firm B does so, and when Firm B increases its price, it does so on the understanding that Firm A will follow. A coordinated outcome is achieved without any explicit agreement between Firm A and Firm B.

This provision is widely criticised as creating an offence of simply being involved in a market structured in a particular way. No explicit collusion is required for an investigation into the market to be launched. However, the Commission is tasked with showing that the complex monopoly conduct substantially lessens or prevents competition, and results in at least one of the following specific anti-competitive effects:

• High barriers to entry;
• Exclusion of other firms from the market;
• Excessive pricing;
• Refusal to supply other firms in the market; or
• Other characteristics that indicate coordinated conduct.

The Commission may seek a declaratory order in respect of firms allegedly engaged in complex monopoly conduct. While there will be no first time administrative penalty on the basis of such an order, the Competition Tribunal is given extremely broad powers to construct any remedy which would ameliorate the effect of the complex monopoly conduct. Contravention of such an order may result in administrative penalties being imposed.

Criminal Liability

The Act as it stands does not cater for criminal liability for directors or managers of firms engaged in cartel activity. The Bill attributes criminal liability to directors or persons 'engaged or purporting to be engaged in management authority within the firm' who caused or knowingly acquiesced in cartel conduct. Negligence alone has been deemed not to be sufficient for prosecution (the suggestion that the knowledge standard of 'ought to have known' has thankfully been removed).

At present, neither the Act nor the Commission's Corporate Leniency Policy caters for leniency to be granted to individual respondents if they disclose information on their involvement in cartel activity. To remedy this, the Bill seeks to grant the Commission authority to declare a person 'deserving of leniency' if that person has provided the Commission with information or otherwise cooperated to the satisfaction of the Commission.

The Bill prohibits firms from paying criminal fines on behalf of directors convicted under its provisions, and from contributing to the expenses incurred by directors in defending those criminal actions initiated under its provisions. The sanctions for an offending individual are a fine of up to R500 000 and / or a prison sentence of up to ten years.

Concurrent Jurisdiction

Concurrent jurisdiction is currently catered for in the Act, although it has become apparent that there are inconsistencies with industry-specific legislation governing certain regulated industries. This is specific to the Electronic Communications Act, which has raised uncertainty as to the exercise of authority on competition matters in regulated industries by the Commission. As a result, the Bill proposes to empower the Act to be the central governing statement of competition policy in South Africa, but at the same time, recognizes other industry specific legislation as conferring concurrent jurisdiction. As a result there will be a need for dialogue between industry regulators and the Commission.

Implications

Assuming the Bill is passed in its current form, a suite of new offences, consequences and issues will be added to the existing competition enforcement framework as soon as the Bill is promulgated. Its consequences are far reaching and potentially costly. The extremely broad nature of the complex monopoly provisions open up significant scope for the Commission to investigate and prosecute conduct by firms that participate in a market structure which resembles an oligopoly. The criminal provisions and sanctions may have major implications for firms engaged in anti-competitive conduct, who wish to apply for leniency under the Commission's Corporate Leniency Policy.

It is vital that businesses are familiar with the provisions of the Bill to avoid unnecessary investigation and possibly severe consequences for directors and managers for competition infringements. Because the Bill, once signed into law, will not operate retrospectively, firms should make use of this time prior to its promulgation to learn more about how the provisions of the Bill are likely to operate ensure compliance with its provisions.

Should you require more detailed information or training for relevant employees on any particular provisions of the Bill, and their implications, please contact the Bell Dewar Competition Department.