President Ramaphosa has signed the Competition Amendment Bill into Law

14 February 2019|In Competition Briefs eBriefs News and Media Nortons Inc News NortonsInc

In this edition:

  • PRESIDENT RAMAPHOSA HAS SIGNED THE COMPETITION AMENDMENT BILL INTO LAW
  • NORTONS INC ATTENDS ECONOMIC DEVELOPMENT DEPARTMENT FORUM ON DRAFT COMPETITION REGULATIONS IN TERMS OF THE COMPETITION AMENDMENT ACT
  • MINISTER EBRAHIM PATEL MAKES SIGNIFICANT AMENDMENTS TO RULE 15: ACCESS TO INFORMATION IN MATTERS INVOLVING THE COMPETITION COMMISSION
  • COMPETITION COMMISSION APPOINTS JAMES HODGE AS NEW CHIEF ECONOMIST
  • COMPETITION TRIBUNAL ISSUES UNCONDITIONAL APPROVAL IN CTP LIMITED AND COGNITION LIMITED MERGER
  • COMPETITION TRIBUNAL PROHIBITS MEDICLINIC ACQUISITION OF MATLOSANA MEDICAL HEALTH SERVICES
  • COMPETITION TRIBUNAL PROHIBITS MERGER BETWEEN LARGEST STEEL DRUM MANUFACTURERS IN SOUTH AFRICA.
  • COMPETITION TRIBUNAL RULES THAT EVIDENCE PROVIDED BY WHISTLE BLOWER CANNOT BE USED AGAINST IT IN CARTEL CASE
  • POWER CABLE COMPANY FINED R1.3 MILLION FOR PRICE FIXING AND COLLUSIVE TENDERING IN ESKOM TENDERS
  • COMPETITION COMMISSION DECIDES NOT TO PROSECUTE MULTICHOICE AND SUPERSPORT 

PRESIDENT RAMAPHOSA HAS SIGNED THE COMPETITION AMENDMENT BILL INTO LAW

On Wednesday, 13 February 2019, the President assented to the Competition Amendment Act.

In an earlier press statement released by the office of the Presidency it was noted that the Competition Amendment Bill would provide “a clear mandate to the competition authorities to address economic concentration in a balanced manner and to promote economic transformation. The Bill provides greater clarity to firms and investors on prohibited practices and what constitutes abuse of dominance.”

The statement further noted that “the amendments enable a more effective approach to concentration, with a focus on improving outcomes for small and black-owned business, and strengthen the institutions involved in managing competition policy and law.”

While the Competition Amendment Act has now been enacted, it is not clear from when it will become effective.  In remarks which were made by the Minister of Economic Development during his SONA reply, he noted that over the next number of months we’ll implement this law in phases”.

Nortons Inc recently attended a forum into the draft regulations into price discrimination and buyer power which were hosted by the Economic Development Department on Friday, 8 February 2019.  It is understood that a further iteration of these draft regulations will be put out for comment in due course.

Thus, while the Competition Amendment Act has been signed into law, it is unclear whether the Amendment Act will only be implemented once the regulations relating to price discrimination and buyer power have been finalised.

We do understand, however, that the signed Competition Amendment Act will be gazetted today.


NORTONS INC ATTENDS ECONOMIC DEVELOPMENT DEPARTMENT FORUM ON DRAFT COMPETITION REGULATIONS IN TERMS OF THE COMPETITION AMENDMENT ACT

On Friday, 8 February 2019, representatives of Nortons Inc were invited to a forum hosted by the Economic Development Department, which was held at the Industrial Development Corporation offices in Sandton.  The forum was hosted by a panel comprising the Chief Economist of the Economic Development Department, Ms Tanya van Meelis, Chief legal counsel of the Competition Commission, Bukhosibakhe Majenge, and the new appointed Competition Commission Chief Economist, James Hodge.  During the forum the panel presented the draft guidelines, which were first published in December 2018, and more importantly the thinking behind the draft guidelines.

The Forum, also presented an opportunity for stakeholders, such as Nortons Inc, which had prepared submissions on behalf of various of its clients, to engage with the drafters of the current draft regulations.  Nortons Inc provided detailed submissions which sought to highlight certain concerns with the current drafting of the draft regulations. Nortons Inc highlighted various concerns with the complexity of various provisions of the draft regulations, and in particular the difficulties which business would encounter in seeking to apply them.

Nortons also identified areas of the draft regulations where there may be regulatory overreach, and breaches of the separation of powers doctrine.

It is hoped that the contributions which Nortons Inc made during the forum will be taken into consideration when the revised draft regulations are circulated.


MINISTER EBRAHIM PATEL MAKES SIGNIFICANT AMENDMENTS TO RULE 15: ACCESS TO INFORMATION IN MATTERS INVOLVING THE COMPETITION COMMISSION

On 25 January 2019, Minister Ebrahim Patel, the Minister of the Economic Development Department, published the amended Regulation 15 of the Competition Commission Rules.  The rationale put forward for the amendments was to bring Rule 15 in line with section 7 of the Promotion of Access to Information Act.

However, the effect of the amendments to Rule 15 is that it significantly restricts the ability of third parties to obtain information which the Commission relies on as part of its investigation and/or merger assessment and will make the bringing of review applications in the Tribunal more difficult.


COMPETITION COMMISSION APPOINTS JAMES HODGE AS NEW CHIEF ECONOMIST

On 31 January 2019 the Competition Commission announced that James Hodge would be taking over as the new Chief Economist at the Competition Commission, effective from 1 March 2019.  James Hodge will replace Professor Liberty Mncube.

James Hodge brings a significant amount of experience to the Competition Commission.  He is the co-founder of Genesis Analytics and was the managing partner at Genesis Analytics’ Competition and Regulatory Economics practice for the past 14 years.


COMPETITION TRIBUNAL ISSUES UNCONDITIONAL APPROVAL IN CTP LIMITED AND COGNITION LIMITED MERGER

Nortons Inc notified the large merger involving the acquisition by CTP Limited of Cognition Limited. CTP is a printing, publishing and packaging company with operations throughout South Africa, while Cognition is an investment holding company whose subsidiaries provide interactive telecommunication, switching and business services using fixed and mobile networks.

Following the recommendation from the Competition Commission on 23 January 2019 the matter was heard before the Tribunal on 30 January 2019.  The Competition Tribunal, approved the transaction without conditions on 30 January 2019.

Nortons Inc acted on behalf of both parties.


COMPETITION TRIBUNAL PROHIBITS MEDICLINIC ACQUISITION OF MATLOSANA MEDICAL HEALTH SERVICES

The Competition Tribunal of South Africa has announced that it has prohibited the merger between Mediclinic and Matlosana Medical Health Services (Pty) Ltd (MMHS) in the North West province.

In its press release the Competition Tribunal of South Africa noted that on 28 June 2017, the Commission, after investigating the matter, recommended to the Tribunal that the proposed merger should be prohibited on grounds that the joining together of Mediclinic Potchefstroom, Wilmed Park and Sunningdale hospitals would be likely to result in:

  • a significant increase in healthcare prices in the region.
  • diminished incentives to improve on non-price factors, such as patient experience and quality healthcare, and
  • bargaining power to Mediclinic vis-à-vis medical schemes.

The Tribunal noted that despite different proposed remedies put up by the merging parties over several months, no appropriate remedy was tendered that would cure the substantial lessening of competition that would arise as a result of the proposed transaction.

Accordingly, the Competition Tribunal prohibited the proposed transaction on 30 January 2019.


COMPETITION TRIBUNAL PROHIBITS MERGER BETWEEN LARGEST STEEL DRUM MANUFACTURERS IN SOUTH AFRICA

The Competition Tribunal has announced that it has prohibited the merger between Greif International Holding B.V. (“Greif”) and Rheem South Africa (Pty) Ltd (“Rheem”), the two largest steel drum manufacturers in South Africa.  In terms of the proposed transaction, which was notified as an intermediate merger on 17 March 2017, Grief would have acquired a majority interest in Rheem.

Greif and Rheem are suppliers of industrial packaging products which include knock-down drums for export, large steel drums and steel pails.  Rheem has manufacturing facilities in Prospecton (Durban), Alrode (Johannesburg) and Cape Town. Greif’s main production sites are in Vanderbijlpark and in Mobeni.

On 13 June 2017 the Competition Commission prohibited the merger on the grounds that the proposed transaction would have resulted in a near monopoly in the market for the manufacture and supply of large steel drums.  The merging parties subsequently applied to the Competition Tribunal to reconsider the matter.

In an effort to ameliorate the harm identified by the Competition Commission, the Merging Parties proposed several remedies to the Competition Tribunal.  However, the Tribunal decided that the various remedies which were proposed did not in its view cure the substantial lessening of competition which would arise from the proposed transaction.

Accordingly, the Competition Tribunal prohibited the proposed transaction on 31 January 2019.


COMPETITION TRIBUNAL RULES THAT EVIDENCE PROVIDED BY WHISTLE BLOWER CANNOT BE USED AGAINST IT IN CARTEL CASE

On 4 February 2019, the Competition Tribunal issued a decision confirming that an application for leniency (i.e. immunity from prosecution) by Unilever South Africa could not be used as evidence against the company applying for leniency in a subsequent cartel case.

In 2014 Unilever applied for leniency in respect of a cartel which, according to the Commission, it was allegedly involved in with Sime Darby Hudson Knight.  Both parties were involved in the manufacture and supply of bakery and cooking products including edible oils and margarine. In relation to the alleged cartel in question, it has been suggested by the Commission that the two parties had allegedly agreed to divide markets by allocating specific types of goods and customers.  Sime Darby Hudson Knight entered into a settlement agreement with the Competition Commission in 2016 where it paid a penalty of R35 million.

While Unilever had applied for immunity in terms of the Competition Commission’s Corporate Leniency Policy, the Competition Commission did not grant the application for immunity.  Instead, the Competition Commission sought to use the evidence which Unilever had submitted as part of its leniency application against Unilever.

While the reasons for the Competition Tribunal’s decision are still pending, it appears that where firms apply for leniency in cartel cases, the evidence which these whistle blowers provide to the Competition Commission in an attempt to obtain leniency from prosecution, cannot be used against the firms in question, in the event that the Competition Commission decides not to grant an application for leniency and instead elects to prosecute the whistle blowing firm.


POWER CABLE COMPANY FINED R1.3 MILLION FOR PRICE FIXING AND COLLUSIVE TENDERING IN ESKOM TENDERS

On 6 February 2016, the Competition Tribunal confirmed a settlement agreement between Alcon Marepha (Pty) Ltd (“Alcon”), a power cable supplier, and the Competition Commission.

On 16 March 2010, the Competition Commission initiated a cartel investigation against Aberdare, Tulisa, and SOEW.  Subsequently on 28 May 2010 this investigation was expanded to include Alcon, CBI Electric, African Cables (Pty) Ltd, Kewberg Cables and Braids (Pty) Ltd, Malesela Taihan Electric Cable (Pty) Ltd, Phoenix Power Cables (Pty) Ltd, Silcom (Pty) Ltd and the Association of Electric Cable Manufactures of South Africa.

In terms of the conduct in question, Alcon has admitted that, through the auspices of the Association of Electrical Cable Manufacturers South Africa, Alcon discussed and agreed to quotation indices with competitors.  The Competition Tribunal noted that these indices were used to escalate prices when bidding for tenders to supply electric cabling products between 2001 and 2012. This is a form of indirect price fixing which is prohibited in terms of the Competition Act.

In addition, Alcon also admitted to engaging in collusive tendering through the submission of cover prices, in agreement with competitors, for tenders issued by Eskom between 1994 and 2008.

As a result, Alcon has admitted to paying a penalty of R1 378 107.69, which amounts to 1.5% of its 2010 turnover.


COMPETITION COMMISSION DECIDES NOT TO PROSECUTE MULTICHOICE AND SUPERSPORT

In what appears to be a somewhat controversial decision, on 5 February 2019, the Competition Commission decided not to refer to the Competition Tribunal for prosecution, complaints against Multichoice South Africa (Pty) Ltd (“Multichoice”) and Supersport International (Pty) Ltd (“Supersport”).  The conduct in question relates to various complaints of abuse of dominance against Multichoice and Supersport, which the Competition Commission received between 2012 and 2017.

The Competition Commission noted that the decision not to prosecute had been made because it believed that there were no reasonable prospects of success and that in its view a regulatory intervention would be more effective.

Strangely, the Commission noted that its decision not to prosecute Multichoice and Supersport, was notwithstanding its view that there was a potential for what it referred to as a “market failure” owing to several factors.

Indeed, the decision of the Competition Commission is a concerning one when one notes that the factors identified by the Competition Commission are those which one would expect to find in abuse of dominance cases.  In this respect, the factors identified by the Commission included:

  • Highly concentrated subscription television market;
  • High barriers to entry and an inability for smaller firms to expand;
  • Lack of competing buyers for premium sports rights other than Multichoice;
  • Long term exclusive contracts between Multichoice and content suppliers; and
  • A lack of credible alternatives which consumes can switch to other than Multichoice.

Indeed, it is markets which are characterised by a single dominant firm, high barriers to entry, and low levels of alternatives where one is most likely to successfully prosecute an abuse of dominance case.  This is because, absent intervention by competition authorities, such markets would not self-correct to more competitive states. Important examples of such cases include the inducement cases against South African Airways, and the margin squeeze case against Senwes.  These cases all took place in markets with similar characteristics.

While the Competition Commission has noted that it believes that targeted regulatory interventions may foster competition and make the market more competitive, citing the inquiry into subscription broadcasting services currently being conducted by the Independent Communications Authority of South Africa, this does not seem to explain why the Commission itself did not pursue remedial measures.

It will be interesting to see whether the complainants which had initially filed complaints to the Competition Commission, will decide to self-refer the matters to the Competition Tribunal for adjudication.  In terms of Section 51(1) of the Competition Act, complainants have the option of self-referring a complaint to the Competition Tribunal for prosecution should they wish to do so within 20 business days of the Competition Commission having issued a notice of non-referral.