RECENT DEVELOPMENTS IN RESTRICTIVE PRACTICE CASES INVESTIGATED BY THE COMPETITION COMMISSION – TAMARA DINI

Tuesday, November 02, 2004
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South Africa’s Competition Act[1] came into effect in September 1999, introducing mandatory merger notification and prohibiting certain agreements and practices regarded as restrictive of competition.  The Competition Commission and Competition Tribunal were established to administer and enforce the legislation.  Initially, the newly-established Competition Commission was inundated with merger notifications, leaving it with few resources to dedicate to the investigation of complaints of alleged restrictive practices.  Five years after the introduction of the legislation, however, the Competition Commission and Competition Tribunal are investigating an increasing number of complaints against restrictive practices, in a range of industries.  The South African business community is also more familiar with the provisions of the legislation and firms are more likely to lodge a complaint with the Competition Commission when subject to an anticompetitive practice than they were when the legislation was introduced.  In the 2003/2004 financial year, 141 cases were under investigation by the Competition Commission and more than R 38 million was paid during this period in settlement fees and administrative penalties.[2]  Since its inception, the Competition Tribunal has considered 31 restrictive practice complaints.[3]            
  
The Federal Mogul[4] case addresses the practice of minimum resale price maintenance, which is prohibited as a vertical restrictive practice under Section 5(2) of the Competition Act.  In this case, the complainant was a distributor of motor brakes and related parts, which he sourced from Federal Mogul Aftermarket Southern Africa (Pty) Ltd (“Federal Mogul”).  The complainant alleged that the rebate applicable to the products that he sourced from Federal Mogul had been reduced because he had offered these products on the market at a lower price than that imposed by his supplier.  After its investigation of the complaint, the Competition Commission concluded that there had been an infringement of the Competition Act and referred the complaint to the Competition Tribunal, recommending the imposition of an administrative penalty. 
 
The Competition Tribunal supported the Commission’s finding that Federal Mogul had engaged in minimum resale price maintenance. The Competition Tribunal considered that the complainant’s case reflected the two necessary elements of resale price maintenance.  Firstly, there was an understanding in the industry regarding the price at which distributors were generally obliged to sell their products to retail customers. Second, a sanction had been imposed on the complainant for his failure to comply with the proposed pricing structure, by reducing the complainant’s rebate.  The Tribunal emphasised that minimum resale price maintenance does not occur only in the situation in which a sanction is imposed: in order to establish minimum resale price maintenance it suffices that the retailer knows the price at which the wholesaler or manufacturer wishes the retailer to trade, and that there may be a form of sanction in the event of the retailer’s failure to comply with what is expected, even if the sanction is never applied.         
 
On appeal, the Competition Appeal Court agreed with the Competition Tribunal’s finding that the reduction of the complainant’s rebate was intended to show the complainant and other would-be transgressors the consequences of not playing by the rules and that Federal Mogul had infringed the legislation by engaging in minimum resale price maintenance.  The Competition Appeal Court also regarded the R 3 million administrative penalty, imposed by the Competition Tribunal, as appropriate.  This represented 5 % of Federal Mogul’s turnover.[5] 
 
It should be noted, however, that a minimum resale price may be recommended to a distributor or retailer by a manufacturer or supplier, provided that it is made clear that the recommendation is not binding and that the words “recommended price” appear next to the stated price.[6]        
  
The Competition Commission has recently conducted a number of investigations, in various industries, in relation to horizontal restrictive practices.  Horizontal restrictive practices refer to those agreements or practices between competitors which prevent or lessen competition.[7] In particular, the Commission has considered the practices of trade or industry associations where such associations distribute recommended tariffs or guidelines as to prices or conditions of trade, to their members.  In October, the Competition Commission concluded its investigation into the recommended fees and tariffs of estate agents, finding that the Institute of Estate Agents had indirectly fixed prices, since the price at which estate agents’ services are available to the market was, to a large extent, determined by the recommended tariffs. 
 
The investigation into the practices of estate agents follows the Competition Commission’s finding that the guidelines published by the Association of Pretoria Attorneys, which include recommended tariffs for its members to charge their clients, amounted to price-fixing in contravention of the Competition Act.[8]  Similarly, the Competition Commission investigated practices in the healthcare industry and concluded that the South African Medical Association (SAMA), the Hospital Association of South Africa (HASA) and the Board of Health Care Funders (BHF) had contravened the Competition Act by directly or indirectly fixing prices, in that the associations concerned had published recommended tariffs to their respective members.  While the conclusions of these investigations by the Competition Commission have not been tested before the Competition Tribunal, it is clear that the Competition Commission has adopted a firm stand, stressing that the role of professional associations should be to facilitate the maintenance of standards and ethics, without inhibiting price competition.  Competition Commissioner, Menzi Simelane, has stated that the elimination of anticompetitive practices will continue to be high on the Commission’s agenda and that the Competition Commission will be pursing infringing firms more vigorously in the future.[9]    
 
Tamara Dini
Competition & Trade Department
Bowman Gilfillan Attorneys    

[1] Competition Act, 89 of 1998.

[2] Competition Commission Media Release No. 17 of 2004, available on www.compcom.co.za.   

[3] The Competition Tribunal’s Annual Report 2003-2004, p. 23, available on www.comptrib.co.za. 

[4] The Competition Commission of South Africa v Federal Mogul Aftermarket Southern Africa (Pty) Ltd and Others Case Number 08/CR/Mar01; Federal Mogul Aftermarket Southern Africa (Pty) Ltd v the Competition Commission of South Africa and Another Case Number 33/CAC/Sep03. 

[5] In terms of Section 59(2) of the Competition Act, an administrative penalty of up to 10% of a firm’s turnover in South Africa in the firm’s preceding financial year may be imposed.

[6] Section 5(3)(a) and 5(3)(b) of the Competition Act.

[7] The specific prohibitions are contained in Section 4 of the Competition Act.  

[8] The Competition Tribunal’s Annual Report 2003-2004, p. 25, available on www.comptrib.co.za. 

[9] Competition Commission Media Release No. 17 of 2004.