This is a brief review of a number of important cases involving South Africa's competition authorities in 2011.
Competition complaints and mergers have dominated the business headlines over the past 12 months which highlights the reach of the country’s competition regime on all aspects of the economy.
On the complaints side, long-standing matters have been settled and in some cases withdrawn, while others continue through appeals on procedural grounds. The Competition Commission faces continuing challenges by higher courts to the scope of its authority. This led to the first Constitutional Court hearing of a competition law matter. Also, some extraordinary mergers have been heard before the Competition Tribunal this year.
Current trends in 2011 suggest that settlements in high profile cases will continue in 2012 while new challenges on the extent of the Commission’s procedural handling of cases in complaint investigations will be at the forefront of the development of competition law in the years ahead.
Settlements and complaints
Many high profile complaints have been withdrawn by the Competition Commission since the beginning of 2011. The Commission withdrew its investigation into the supermarket industry. It also ceased its investigation into four dairy companies after the regulatory body was found to have exceeded its authority against one dairy producer, Woodlands, before the Supreme Court of Appeal last year.
Complaints continue to be resolved through settlements instead of extended periods of litigation. The Commission reached high-figure settlements in the first half of the year with Sasol and Aveng (Steeldale) with agreed penalties of R111,6 million and R128,9 million for the companies’ respective cartel activities. In June, the Commission reached settlement agreements totalling more than R21 million with four grain storage companies. Later in the year, the Commission settled its cartel case against Apollo (Dunlop) Tyres, fining it R45 million for taking part in a price-fixing cartel between competing tyre manufacturers.
The Commission has also entered into a number of settlements involving cartel conduct where it has accepted lower settlement figures within 3 to 4% of the contravening party’s affected turnover which is far below the statutory maximum of 10% of total turnover. In November, the Tribunal accepted the Commission’s agreement with Afrisam for the company to pay a penalty of over R124 million or 3% of affected turnover. In recent years the percentages used for penalties in cartel cases have been far higher, usually above 5%.
The Commission initiated few new investigations in 2011, the most noteworthy being its two-pronged investigation into the media industry for alleged predatory pricing and market allocation. There was no reported dawn raid on any business this year even though this method has been adopted often by the Commission in previous years.
Instead, the Commission has adopted novel approaches to obtain information and resolve complaints. Suspected cartelists have been encouraged to come forward through the Commission’s popular corporate leniency program and other novel incentive schemes. In February, the Commission invited construction companies that were party to widespread bid-rigging or other collusive activities to settle via a ‘fast-track’ procedure that would provide financial and timing incentives to settle complaints early. A similar approach was applied to the participants in the grain industry.
Mergers and acquisitions
Both 2010 and 2011 were marked by a decrease in large and intermediate merger notifications, owing to reduced transactions as a result of the global financial recession. In 2010, 56 large and 138 intermediate mergers were filed while in 2011, these figures increased slightly to 63 large and 154 intermediate mergers.
Despite the modest number of merger filings this year, there have been several controversial transactions. In April, the Commission approved the Japanese company Kansai Paint’s hostile takeover of Freeworld Coating, with conditions. However, it recently retracted one of its recommended conditions before the Tribunal. In October, the Tribunal blocked the tie-up of seed producers Pioneer Hi-Bred International and Pannar Seed because the merger would have reduced the number of players in the market from three to two.
The most contentious merger though was Walmart’s acquisition of Massmart. In May this year, the Tribunal approved the merger between Walmart and Massmart subject to a number of conditions intended to address substantial concerns related to employment and manufacturing in the local supply chain. The merger was taken on appeal and review to the Competition Appeal Court where the government ministers and unions argued that the Tribunal did not give sufficient consideration to public interest issues in assessing the effects of the merger. Judgment is pending in this matter.
Procedure and authoritative powers
The growing body of case law may impact on a number of important cases before the competition authorities in the years ahead. In 2011, unprecedented procedural issues of competition law were taken to the highest courts in South Africa.
The Commission recently gained direct access to the Constitutional Court to appeal against the Competition Appeal Court’s ruling that, it says, limits its powers to investigate and refer complaints of anti-competitive behaviour submitted by third parties.
The Commission also announced that it will appeal to the Constitutional Court against a decision by the Competition Appeal Court in a price-fixing case against three foam producers.
In April, the Competition Tribunal refused to hear the Commission’s case against South African Breweries because it said the Commission had altered the original complaint too much. A poultry company appealed against the Commission’s decision on similar procedural grounds in August.
Even though the Commission has faced direct challenges on the extent of its powers to investigate complaints, in July the North Gauteng High Court gave its nod of approval to the Commission’s fight against anti-competitive conduct in the economy by dismissing an application brought by Agriwire in relation to the conditional immunity granted by the Commission in terms of its corporate leniency policy to one of its competitors. The corporate leniency policy continues to be an effective tool in the Commission’s prosecution of cartels.