An extensive set of competition law amendments has been in the making since December 2017 when the Competition Amendment Bill (Bill) was initially gazetted for public comment. Since then (and robust public participation and commentary aside), the key features of the Bill have predominantly made their way into the Competition Amendment Act (Amendment Act), which, on 13 February 2019, received the requisite presidential assent. All that remains is a proclamation of a commencement date from which the Amendment Act will find application.
As a point of departure, it has become trite in South African competition law parlance that the mandate of the antitrust authority is dual in nature. It has always been the case that the authority's remit transcends pure competition issues into the realm of the public interest. It is in this context that the Amendment Act's overarching objective can be described as seeking to ensure the achievement of economic transformation. This it strives to do through addressing high levels of concentration, enhancing small business development and tackling the "racially-skewed" spread of ownership through merger control, the prosecution of abuses of dominance as well as, pertinently, market enquiries. The amendments will essentially empower the authority to "de-concentrate" what it considers to be otherwise highly concentrated markets.
A study conducted by the Competition Commission (Commission), which underpinned the formulation of the Bill, found that the following industries / sectors in South Africa were considered by it to be highly concentrated based on the following market share estimates:
|SECTOR||MARKET SHARE ESTIMATES|
|Food and agro-processing||60.5%|
|Infrastructure and construction||52.6%|
|Intermediate industrial products||63.3%|
It is in this context that the widespread amendments to the Competition Act should be contextualized and understood. Diving deeper into the Amendment Act's provisions, the notable changes are summarized below:
Abuse of Dominance Provisions
The history of South African antitrust jurisprudence demonstrates a dearth of successful abuse of dominance prosecutions relative to cartel prosecutions. The Amendment Act appears to render the prosecution of abuse cases easier for the Commission.
In particular, the Amendment Act:
- introduces a reverse onus in relation to excessive pricing prosecutions, requiring the allegedly dominant firm to refute the prima facie case against it by showing that prices charged are reasonable;
- prohibits a dominant firm from requiring an unfair trading condition or imposing an unfair price when the supplier is a small and medium-sized business or a firm controlled by historically disadvantaged persons operating in a sector designated by the Minister of Economic Development. Put differently, this amendment seeks to regulate the wielding of monopsony power by dominant buyers. What constitutes unfair will be determined by taking into account factors and benchmarks that the Minister must publish in due course. The onus is again placed on the dominant firm to prove that the prices or trading conditions being requested or imposed are not unfair;
- sets the cost benchmarks in relation to predatory pricing provisions to be average avoidable cost or average variable cost. This is in line with the Competition Appeal Court's 2018 decision in the Media 24 case;
- formally introduces the concept of margin squeeze into the list of specific abuses of dominance. In terms of the current Competition Act, margin squeeze allegations were dealt with under the "catch-all" provision, which prohibits general exclusionary acts by dominant firms;
- specifically prohibits a dominant firm from price discriminating where the price discrimination will not only have a net anti-competitive effect but also where it impedes the ability of small and medium businesses controlled by historically disadvantaged persons to participate effectively in a market. This is a new ground on which a dominant firm can be found to contravene the Competition Act for engaging in prohibited price discrimination. This too contemplates a reverse onus of proof.
Foreign Investment Interventions
The Amendment Act envisages the constitution of a committee that will be responsible for considering whether a transaction involving a foreign acquiring firm could have adverse effects on South Africa's national security.
The national security interests will be identified and published by the President in due course. In publishing this list, the President must take into account certain broadly couched factors such as the use or transfer of sensitive technology/know-how outside of South Africa, the security of infrastructure (including processes, systems, facilities, technologies, assets and services) essential to the health, safety, security or economic well being of South African citizens.
Once the list of national security interests is published and the committee has been constituted, a foreign acquiring firm (in the event of a compulsorily notifiable transaction) will be required to notify the transaction to both the Commission as well as the foreign investment review committee. Both the Commission and the foreign investment review committee must approve (with or without conditions) the transaction in order for it to be implemented in South Africa. The committee has the power to approve the transaction (conditionally or unconditionally) or prohibit the implementation of the transaction.
Without the committee's decision, the competition authorities are themselves hamstrung in furnishing a decision. However, where the committee makes a decision that prohibits the transaction, the necessity for a decision from the competition authorities will be obsolete as they will be precluded from approving a transaction that has already been prohibited by the committee.
Notably, the Amendment Act does not contemplate a right of appeal where the committee has prohibited a transaction or approved it subject to unfavourable conditions. It appears that the only avenue for aggrieved parties would be to review the committee's decision on administrative law grounds in the High Court. Despite the fact that the Amendment Act contemplates the formulation of the committee, the adjudicative arms of the competition authorities (being the Competition Tribunal and Competition Appeal Court) are not possessed of the jurisdiction to entertain appeals of the committee's decisions.
Under the current merger control dispensation, the competition authorities have a public interest mandate. This mandate has been extended by the Amendment Act to include an additional public interest factor, namely the "promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market".
In addition, one of the existing public interest factors has been tweaked to enable the authorities to take into account the "ability of small and medium businesses or firms controlled by historically disadvantaged persons to effectively enter into, participate in or expand" within a market.
Separately, when determining whether a proposed transaction is to be approved (conditionally or otherwise) or prohibited, the authorities must also consider the following three additional factors:
- the extent of ownership by a party to a merger in other firms in a related market;
- the extent to which a party to the merger is related to other firms in related markets, including through common members or directors; and
- any other mergers engaged in by a party to a merger for a period to be stipulated by the Commission.
Practically, merger filings will need to include submissions by the filing parties in relation to the additional grounds for consideration described above.
The current confidentiality regime enables parties to make a claim for confidentiality, which the Commission is bound by until such time as the confidentiality claim is struck down or varied by the Tribunal. In terms of the Amendment Act, the Commission may determine whether information submitted to it is indeed confidential. If it agrees that it is confidential within the meaning of the Competition Act, the Commission may nevertheless make any appropriate arrangement concerning access to the information. If the Commission disagrees that the information is confidential, the party claiming confidentiality will need to assert its claim to confidentiality before the Competition Tribunal and within a prescribed period. If the Commission disagrees that the information is confidential, it will invite the views of the party that has claimed confidentiality over the information. The Commission will take into account the parties' submissions but will not be bound by them. Thereafter, the Commission will make its own decision on confidentiality.
In the pre-amendment dispensation, there are “yellow card” offences, which evidently do not attract a penalty on a first-time offence and “red card” offences, which do. In terms of the Amendment Act, all first time offences attract a penalty of up to 10% of a respondent's annual turnover. In relation to repeat offences, the Amendment Act introduces an administrative penalty of up to 25%, which can be levied against offending firms.
Predictably, when determining an appropriate penalty, the impact of a contravention on small and medium business or businesses owned by previously disadvantaged groups will be taken into account in mitigation or aggravation.
Crucially, in terms of the Amendment Act, an administrative penalty may be increased to include turnover generated by an offending firm's parent company if the parent company was aware or should reasonably have known that its subsidiary was engaging in the anticompetitive conduct. In addition, controlling companies can be held jointly and severally liable for the payment of an administrative penalty imposed.
The proposed market inquiry provisions will be the key conduit through which the Competition Commission will be empowered to analyse and address perceived structural concerns in a market. Notably, the amendments lower the threshold for intervention by the competition authorities by establishing an “adverse effects” test. In other words, the competition authorities will be able to conduct a market inquiry if any feature or combination of features in a market adversely affects competition in that market even if that impact is not substantial.
Following a market enquiry, the Commission may take any action to remedy, mitigate or prevent an alleged adverse effect on competition. If the Commission takes the view that a divestiture must be ordered, it will be required to obtain an order from the Competition Tribunal to that effect, which must also (as a matter of course) be confirmed by the Competition Appeal Court.
|Abuse of dominance||We can expect an increased number of prosecutions of abuse cases given the reversal of the onus and the resultant dilution of the requirements that the Commission may satisfy in bringing a case. The dominance provisions are also a conduit to achieve de-concentration and we can therefore expect that the spotlight will be on businesses operating in the industries identified by the Commission as being highly concentrated.|
|Foreign investment submissions||Once the list of national interest issues is published, foreign acquiring firms will need to engage in a dual assessment as to whether filings need to be made to the Competition Commission as well as the foreign investment review committee. Where a filing to the committee is required, foreign acquiring firms will need to demonstrate that the proposed transaction will not adversely affect South Africa's designated national security interests. The timing of the merger control process is 60 days in the case of an intermediate transaction and the committee's process is also envisaged to be 60 days. Where the Commission is ready to render its decision sooner, the process before the committee may result in delays in implementation (given that the Commission will be constrained from issuing its decision before the committee has done so).|
|Merger control||Merger filings will need to include submissions that address the additional grounds contemplated in the Amendment Act.|
|Confidential information||There may either be: (i) elongated processes before the Commission due to disagreements on confidentiality; and/or (ii) increased applications to the Tribunal to resolve disputes of confidentiality. Confidentiality claims must be crafted credibly to avoid unnecessary disputes.|
|Administrative penalties||Proactive competition compliance is now even more pressing in light of the robust amendments coupled with the eradication of yellow card offences and more severe repeat offender penalties.|
|Market enquiries||The Amendment Act is underpinned by a study into certain markets (identified above) that are considered be concentrated. These may be on the Commission's radar to conduct market enquiries. Firms in these markets may be drawn in enquiries and will need to actively participate in them, given the extreme remedies that may be imposed. It is also envisaged that more and more firms will be contesting recommendations made by the Commission for divestiture before the Competition Tribunal and Appeal Court.|
It is not yet clear when the Amendment Act will fully come into force. In anticipation of the coming into force of the Amendment Act, it will be prudent for companies to begin engaging with the implications of its provisions for their businesses.