Competition Act: Do’s and Don’ts

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_COR9927The Competition Act, No. 89 of 1998 (“the Act”) regulates competition issues in South Africa.   The Act regulates mergers and anti-competitive conduct which it refers to as “prohibited practices”.

Mergers which exceed the prescribed thresholds have to be approved of by the Competition Commission or Tribunal before implementation.  Implementation before approval may result in penalties of up to 10% of the relevant firm’s turnover.

The Act also prohibits anti-competitive conduct.  Section 4 prohibits an agreement between firms in a horizontal relationship (i.e. competitors), if this has the effect of substantially preventing or lessening competition, unless a party to the agreement can show a technological, efficiency or other pro-competitive gain resulting from the agreement which outweighs that effect of lessening competition in the market.

A variety of other interactions between competitors may potentially be regarded as anti-competitive.  This includes the sharing of information between competitors, as well as obtaining competitors’ information from common suppliers.  Employees are advised not to share any information relating to the employer with staff employed by any competitor at any social interaction or forum, or in other circumstances, and must be careful not to enter into any anti-competitive agreements or arrangements.

Section 5 prohibits restrictive vertical practices i.e. between parties which stand vertically in relation to each other i.e. a supplier and a customer.  An agreement between parties in a vertical relationship is prohibited if it has the effect of substantially preventing or lessening competition in the market unless a party to the agreement can prove that any technological efficiency or other pro-competitive gain results from that agreement to outweigh that effect.

In terms of Section 5, minimum resale price maintenance is prohibited.  A supplier or producer may recommend a minimum resale price to the reseller of goods or services provided the supplier or producer makes it clear to the reseller that the recommendation is not binding.  If the product has its price stated on it, the words “recommended price” must appear next to the stated price.

Direct or indirect price fixing, market division and tender collusion (“cartel conduct”) as well as generally anti-competitive agreements are absolutely prohibited.  It is per se unlawful for the directors or managers of a firm to collude with their competitors to fix prices, divide markets amongst themselves or collude in relation to the award of tenders.  It will also be a criminal offence to have actual knowledge of the collusive conduct and fail to take any action to prevent it.  In terms of recent legislation, where there is cartel conduct directors and persons having management authority within a firm can be held personally and criminally liable for such conduct.  Executives convicted in terms of this provision can be fined up to R500 000 and imprisoned for up to 10 years.  The firm is prohibited from paying any fine imposed on its executives or their legal costs in regard to this conduct.

Sections 8 and 9 prohibit abuses of dominance, including excessive pricing, refusing to allow a competitor access to an essential facility and other general exclusionary acts.  Specific exclusionary acts such as requiring or inducing a customer or supplier not to deal with the dominant firm’s competitors, refusal to supply scarce goods to competitors, tying or bundling, predatory pricing, buying up scarce supplies of goods or resources required by a competitor, and price discrimination, are prohibited.  Conduct of this nature could result in an offending company incurring a penalty of up to 10% of the contravening firm’s turnover.

David Janks

David has a BA LLB and was admitted as an attorney in 1980. He has worked as partner and senior partner at Sloot Broido, director at Routledge Modise (now Hogan Lovells) and general counsel and company secretary at the Clicks Group Limited for 8 years. David joined Caveat Legal in 2016.