The current Competition Act became South African law in 1998. The amendments thereto (collectively “the Act”) dealing essentially with the consequences of violation of restrictions relating to anti-competitive behavior and monopolistic practices were enacted in 2009. The Act regulates the way in which businesses compete with each other by creating a framework for competitor dealings and relationships with clients. Although this Act has been in force for some time now, companies are still fined and penalties exacted for contravening practices.
The Competition Commission is an independent body established by the Act. This body is responsible for the investigation, control and evaluation of certain business activities. These include unlawful or anti-competitive business practices and abuse of dominant positions in markets as well as mergers and acquisitions.
The Act categorises undesirable practices into two categories namely:
- Horizontally Prohibited Practices
These practices occur between competitors and are regulated by section 4 of the Act. Horizontally Prohibited Practices is perhaps the area wherein most businesses are at risk as it relates to interaction between competitors. An agreement which is intended to- or has the effect of preventing or lessening competition is prohibited, unless it can be shown that the agreement has a pro-competitive effect. Restrictive horizontal practices include the following:
- Price fixing
These violations occur when competitors collaborate on prices or pricing formulas. The Competition Commission imposes relatively heavy fines on these violations. Companies should also refrain from fixing of trading terms between competitors.
- Market allocation
This includes the allocating of territories, customers, suppliers or services which means that competitors basically agree to “not steal each other’s clients”.
- Collusive tendering
These violations include instances where competitors collude on tenders submitted for projects.
- Vertically Prohibited Practices
These practices are regulated by Section 5 of the Act and although it also relates to agreements which have an anti-competitive effect, it is rather focussed on the relationship between a company and its client, hence the “vertical” terminology. Any agreement limiting or preventing competition may be justified with a pro-competitive gain which outweighs the limiting or preventative effect of the agreement. These include:
- Resale Price Agreements
Suppliers may provide a “recommended resale price” for the product but such prices must not be enforceable by the Supplier when sold by its customer.
- Other examples
Agreements which may be viewed as violations include Exclusive Dealing Agreements and so-called “Tying Agreements”, which force clients to buy an alternative product together with the main product that the client intends to buy.
Fines and Penalties
Amongst other things, the Competition Commission has the power to obtain warrants for Dawn Raids whereby relevant documents are seized for inspection and use against violators. It also enjoys the authority to impose substantial penalties of up to 10% of a company’s annual turnover. Other consequences may include Directors’ personal- and criminal liability. Whistle-blower entities are afforded the opportunity to apply for leniency, thereby potentially escaping sanctioning.
Transgression of the Act, whether intentionally or due to ignorance, may invoke severe measures with potentially substantial consequences. Affected businesses may be well advised to seek guidance from their legal advisors in order to ensure compliance and to implement adequate measures to sensitise and train involved staff. If any doubt exists as to the adequacy of policies and/or controls, it may be prudent to seek the guidance of an attorney. RMI4Law members enjoy access to quality telephonic legal advice 24/7, 365 days a year and insurance for legal costs arising from business activities. Izak Viljoen is a Director of Barnard Incorporated Attorneys.