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The Competition Amendment Act 1 of 2009 was signed by President Zuma on 28 August 2009. The Amendment Act amends the Competition Act¹ by providing new, wider measures for dealing with cartel behaviour. It establishes new forms of anti competitive conduct and broadens the independence of the Competition Commission. It also provides a more proactive role for the Commission in investigating markets of its own accord.

Market Enquiry

The Amendment Act contains provisions 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 Amendment Act 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 Amendment Act empowers the Commission to launch an investigation into suspected participation in complex monopoly or tacitly coordinated conduct. According to section 10A, 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 Amendment Act 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' was thankfully removed before signature of the Amendment Bill).

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 Amendment Act 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 Amendment Act 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 was previously 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 Amendment Act endows the Competition Act as the central governing statement of competition policy in South Africa, but at the same time, recognizes other industry specific legislation as conferring concurrent jurisdiction.

Ex ante regulation is designated as within the scope of sector specific regulators, while ex poste regulation is the job of the competition authorities. As a result there will be a need for dialogue between industry regulators and the Commission.

Implications

The Amendment Act adds a suite of new offences, consequences and issues to the existing competition enforcement framework. 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 Amendment Act to avoid unnecessary investigation and possibly severe consequences for directors and managers for competition infringements.

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

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