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Publication

JSE

Page

84-88

Date

Sun 01 Oct 2017

AVE (ZAR)

125109.47

sallewiWH/N313S13SV3NONVANdYN901OHd

IV)IP)

=== = REGULATIONS oss ===

FAIRGAME

How much legislation and regulations should guidecompanies to ensure equitable business practice and

mitigate anti-competitive behaviour?BY TONI MUIR

www.jse.co.za REGULATIONS 087 ===

air competitionspeaksof the creation

andmaintenanceofa levelplaying

field- onethataffordsaccesstobusinessoppor tunitieswhile simul-

taneouslyprotectingconsumerwelfarethrough

a greaterchoiceofqualityproductsandservicesavailable at the best prices. The predominant

legislationin SApertainingto fair competitionis

theCompetitionAct,whichhasbeenin forcesince1999.LastyearMay,criminalsanctionsforcertainanti-competitiv ebehaviourwereintroducedwith

thehopethatthiswouldhelpaddresstheongoingissuesaroundcartelconduct.

'What underpinsthe CompetitionAct is the

principalofeffectivecompetition,whichiswhatdrivesa lot of the importantefficienciesthatyouneedfora proper,functioningeconomy,"says

Dary!Dingley,headofthecompetitionpracticeatWebberWentzel.'With the bigstickof a competition

regulatorensuringeffectivecompetition,you're

goingto have improvedproductive,allocative

anddynamicefficiencies,whichleadtoa better-performingeconomy.

LesleyMorphet,headof competitionat Hogan

Lovellsaddsthat 'the preambleto theCompetition

Acttalksaboutrecognisingthat practicesofthepast resultedin concentr atedownershipand con-

trol of the economy ,and howthe economyshould

beopenedupto a widerspreadofownership".

Dingleybelievesthecountry'sCompetitionAct

hasbeenwelldrafted.'I thinkthatouract is likeour Constitution in the sensethat, when it was

drafted, thosewhowereresponsibledrewfromthe

bestexistingpiecesof legislationfromall overtheworldandconsolidatedcertainelementsto produce

this newinstrument, "he says.'Whendraftingthe

act, theywereableto seewherethe pitfallswere

andputtogethera greatpieceoflegislation. 'TheprovisionsoftheCompetitionActareenforced

by theCompetitionCommission.Jasonvan Dijk,

a directorandcompetitionlawyerat NortonRoseFulbrightSouthAfrica,describesthecommissionasoneofSA'smoreeffectiveregulators.'Thecom-missionhassuccessfullysecuredsomeverysignifi-cant behaviouralconditionsandfinancial penalties

being imposedonfirms that haveengagedin anti-

competitiveconduct,to theextentthat | believetheamountofrevenuegeneratedforthefiscusbythe regulatoris secondonlytoSARS, hesays.

Is theCompetitionCommissionaneffectiveorganisation?'If it wasn'tbefore,it definitelyisnow,' accordingtoCandiceHolland,directoratDeloitte 'srisk advisor ypractice.Sincethe start

of2016,the commissionhasinvestigated393

mergers- unconditionallyapproving353, con-ditionallyapproving32andprohibitingfive,withthreecases beingwithdrawn, she says. It also

investigated17banksthatwereallegedlyinvolved

ina forextradingcartel,andoneincancermedi-cineprices.'Whileundertakingtheaforementioned,the commissionstill hadtime, bywayof example,

tochargeat leastoneindustryforcartelconduct;wentaftermeatsuppliersfor pricefixing; boatoperatorsfor colludingin the RobbenIsland

museumtender;andFreeStatecompaniesforcolludingina provincialtreasurytender,"shesays.

'Furthermore,inAugust2017,thecommission

laid649chargesofcollusivetenderingagainstthe transportindustry.Therecanthusbe little

doubtthateffor tsofthecommissionhavehada chillingeffectonanti-competitivebehaviour."

VanDijksaysthat, whilethecommissioniswellresourced,thereareareasfor improvement.'Overtheyears,thecommissionhaslearntsomehard

lessonsbut it hasrespondedtothis in a proactiveandremarkablyphoenix-likefashion.Thecommis-

sionis activelyengagedin policydevelopmentthroughthefacilitationandencouragementofacademicdebateandsimulation,and- byworking

throughtheDepar tmentofEconomicDevelopment- hasensuredthat policydevelopmentand the

necessarylegislativechangeshavebeenmade.'Dingleyagreesthatthecommissionhasa 'very

goodrecordofprosecutions'.Heargues,however,that it is stretchedfroma capacity perspectiv e

'Consequently,theyaren't focusingonthingsin the

waythattheyshouldbe.I thinktheyshouldbemoreselectivein their prosecutionsand investigations.

Manycartelmattershavebeenrunningfor several

years - a consequenceof them taking on newwork

and not finishingmattersalreadyontheir plates

Competitionregulatorsin theUSandEuropearemoreselectivein termsof what theyprosecute."

AccordingtoGraemeWickins,competition

sectordirectorat WerksmansAttorneys,several:

'WHEN DRAFTING THE ACT, THEY WERE ABLETO SEE WHERE THE PITFALLS WERE AND PUTTOGETHER A GREAT PIECE OF LEGISLATIONDARYL DINGLEY, COMPETITION PRACTICE HEAD, WEBBER WENTZEL

JS

= oss REGULATIONS

significant cases of anti-competitive behaviour

have recently comebefore the competitionauthori-

ties. 'Thebiggest,in termsoffinancialpenaltypaid

byonefirm, remainsthe settlementagreement

entered into betweenthe CompetitionCommission

andArcelorMittalSouthAfrica, whichresulted

in a penalty of R1.5 billion for anti-competitiv econduct, he says. Regarding a case that had an

immediateimpactonconsumers,the biggestof

thesewasprobablythecommission'sinvestigationand prosecutionof those firms involved in the bread,

milledwheatand whitemaizecartels, saysWickins

The largest penalty imposedon a participant of

thecartelwasa cumulativeamountofR500millionwhich PioneerFoodsagreed to pay to settle several

cases,includingclaimsthat it fixedpricesforflourandmaizein SouthAfrica.Thesettlementwith the

CompetitionCommissionresultedin Pioneerpaying

R250millionasafinancialpenaltywhilealsobeingrequiredto spendanotherR250millionto establish

theAgro-processingCompetitiv enessFund,through

whichthe IDCwasto offerfavourablefinancingtosmallandmid-sizebusinessesin the foodindustr y

In addition, Pioneer agreed to adjust its prices

to the marketforflour and breaddownwardover

a set period, therebylowering its grossmargin

and furthermorecommittingto increasedcapital

expenditur e,"saysWickins

Thepenaltyforcompaniesfoundguiltyof price

fixingorcartelbehaviouris severe,with finesof up

to 10%ofannualturnover- equatingtoa sizeablechunk of profits. The recent introductionof criminal

sanctionsmeansthat managersand directors found

guilty of having engaged in cartel behaviour or who

ith a firmengagingincartel

o 10yearsin jail, a fine of up

Asa developingcountry, wehave an astronomical

numberof cartels," says Dingley, whobelieves thereare several reasons for this, namely a competitive-

ness issue; structural issues in the economylend-

g themselv esto collusion;and that manyof SA's

ndustries were effectively legitimised cartelsbecauseofhowtheywerepreviouslyregulated

Askedwhether he thinks SAhas a problemwithcartel activity, Van Dijk responds in the affirmativ e

Cartels are very detrimental to the economy , parti-

cularly for consumers, whoare ultimately the ones

who suffer at the hands ofthe cartelists,' he says

'THE PREAMBLE TO THE ACT TALKS ABOUTRECOGNISING THAT PRACTICES OF THE PASTRESULTED IN CONCENTRATED OWNERSHIPLESLEY MORPHET, COMPETITION PRACTICE HEAD, HOGAN LOVELLS

Morphethasa different opinionregardingwhether

the country hasa problemwith cartels. 'Ithink if you

asked the commission, they'd say yes. But I'm not

sureI'd agree,"shesays.'Somebehaviourthat they

categoriseas cartel behaviour, I'm not sure that it

is correctlycategorisedas such, and couldbe more

appropriatelylookedat undera different sectionof

the act. Forexample,in certain circumstances,such

as in a joint venture, certain conduct may be cate-

gorisedbythecommissionascartelconductbecause

it is an agreementbetweencompetitors,whereasit

may merely be sensible business behaviour. They

categorise it very rigidly. Also, they say they have

uncovered,say,600cartelsbutit mightjustbeoneoverarchingcartelthat hasmanifesteditself in 600

instances. This creates the perception that there

aremorecartelsthan therein fact are.'As far as cognisanceof the lawgoes,Holland

says companies are more aware than ever of the

clients is organisations undertaking comprehensive

and ongoing training and educ

as competition law e-lea

workshopsfor their executives on what constitutes

allowable information exchanges with their compe-

titors, and anti-competitive due diligenceson com-

pany practices," she saysIn terms of deterring cartel behaviour, Dingley

argues severe sanctions are key. 'Tied to this isthe

fact that peoplewant to knowthat they're protected

and wanta degreeof certaintyfollowingtheir co-

With the

current corporate leniencypolicy, it's not quite clear

operation in cartel matters," he says

whether you're going to get leniency from criminal

prosecutionif you'rewillingto co-operate

As a large law firm, we'refinding that the

numberof parties approaching us inrelation

to corporate leniency applications is decliningbecausethey aren't sureof the level of protection

they will receive. The law is notclear and the com-mission has not yet clarified this

VanDijk adds: 'Asyet, wehavenot seen

a criminal prosecution take place, soit's an

interesting space to watch." ®