THE CORPORATE LENIENCY POLICY: MURKY WATERS AHEAD

Friday, June 30, 2006
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The Commission had no other leniency policies or guidelines prior to adopting the CLP, which is modelled on that of the United States. The Commission has dealt with several cases involving cartel behaviour through its investigations and subsequent prosecutions (See also the Case Ansac/Botash Case Number 49/CR/A/ Jul00). Discretion to grant immunity rests with the Commission depending on whether the information amounts to conclusive evidence or not. This decision is based on whether the applicant cooperates fully and secondly whether or not the Competition Commission needs the assistance of the applicant in securing a conviction.
A cartel constitutes per se prohibited practice in terms of Section 4(1) (b) of the Act. Cartels are deceptive, collusive and secretive and are difficult to investigate without the assistance of an outsider, especially where lack of resources hampers the investigative functions of the authorities. A cartel's goal is to fix prices, to limit supply and to limit competition which leads to increased prices and diminished efficiency (http://en.wikipedia.org/wiki/Cartel). Cartels take advantage of countries lagging behind in terms of the antitrust enforcement. Several requirements and procedures must be followed before a corporation can be granted immunity. The analysis below will focus on the fourth and fifth requirements in the CLP.
Eight requirements must be met before a corporation qualifies for immunity. The fourth requirement: the applicant must immediately stop the cartel activity or act as directed by the Commission) and the sixth requirement, the applicant must not alert other cartel members that it has applied for immunity, are a contradiction in terms. The Commission requires the applicant to cease conducting any cartel related activities; however, ceasing these activities would defeat the requirement that the applicant does not inform other members or former members of the cartel of its leniency application. The Office of Fair Trade's view is that the corporation must carry on its basic activities in the same way as if it had never been approached by the authority. Authorities are likely to adopt this approach where the applicant is required to act as directed by the Commission.
One of the main concerns where a corporation acts as directed by the Commission is the question of liability for injury suffered by a third party during the course of the investigation. There is no case law addressing the delictual liability of the Commission, however, there is case law dealing with other public bodies. In September 2005 the Supreme Court of Appeal held that where a public body made an erroneous or negligent judgment in the course of exercising a function which was in the public interest, the sense of justice of the community did not demand that the person who suffered harm (plaintiff) as a result of the public body's conduct be compensated for such harm. Therefore the incorrect decision arrived at negligently during adjudicative process in public interest must not be regarded as unlawful. (Telematrix (Pty) t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA)). It would appear that a leniency applicant implicated in a civil suit will be exempt from civil prosecution, but only to the extent that they were acting under the direction of the Commission.
Lack of clarity as to how the Commission would deal with a civil suit against a party whom it granted immunity exists. Ordinarily, a matter would be reported to the Commission by the complainant and in determining the sanction, the Commission or Tribunal would take into account the amount of damages the complainant suffered (See S59 (3) of the Act). Therefore damages for the complainant are included in the fine. Section 65 (9) stipulates that a person's right to bring a claim for damages arising out of a prohibited practice comes into effect on the date that the Competition Tribunal made a determination in respect of a matter that affects that person. At issue is the fact that since the Tribunal dealt with and granted immunity to the applicant, a civil court will have to deal with the merits thereafter if a suit is brought against the immunity grantee by a third party. Section 65(2) stipulates that if, in any action in a civil court, a party raises an issue concerning conduct that is prohibited in terms of this Act, that court must not consider that issue on its merits,but must refer it to the Tribunal provided certain requirements are met. Furthermore, Section 67 (2) stipulates that a complaint may not be referred to the Competition Tribunal against any firm that has been Respondent in completed proceedings before the tribunal under the same or another section of this Act relating substantially to the same conduct. It is not clear whether the use of the word "Respondent" is inclusive of the "applicant" in CLP applications.
Even though leniency is granted on the basis of an agreement between the applicant and the Commission, the CLP states that the policy is purely aimed at providing guidance and is not binding on the Commission or other competition bodies in the exercise of their respective discretions, or the interpretation of the Act.
Where a complainant brings an application to the tribunal to issue a certificate in terms of section 65(6) (b), a problem arises. The immunity applicant might have been exempt from the sanction imposed on its cartel partners, and the tribunal might have issued a certificate certifying the guilty verdict, which would exclude the immunity applicant, but the rules of civil procedure would require the immunity grantee to be joined as a co-defendant in a civil claim. It is not clear whether the Tribunal will issue a new certificate certifying that the immunity grantee was guilty of an offence, which would be supported by the confession mentioned above or whether the certificate would merely indicate that the grantee was a member of the cartel. Whichever route the Tribunal takes erodes on the CLP's effectiveness. In addition, should the Tribunal issue a certificate certifying the immunity grantee guilty of cartel activity the issue of sanctions imposed always arises, but that is a debate for another discussion.
Lastly, the CLP does not stipulate the fate of ill-gotten profits accumulated when the applicant was acting as directed by the Commission. For instance, if the applicant makes more profit during the period after being granted conditional immunity rather than before they reported the cartel, no provision is made on how those profits will be recouped. Certainly, the applicant is exempt from prosecution, will not plead and will not be found guilty of any offence related to that particular cartel's activities however the applicant will be required to sign a confession as part of the agreement. Total immunity extends to the point where the applicant cannot be asked to pay a fine of any sort I relation to the Competition Commission only.In clause 5.9, the CLP states that it would not absolve the applicant from criminal liability under any provision of the Act apart from Section 4(1) (b).
In conclusion, the Competition Commission is likely to review this policy and possibly adapt it to suit local needs because of the level of uncertainty it raises. Furthermore, the guidelines are open to abuse, particularly regarding the marker system.It would seem that the safest option for corporations, particularly international corporations, is to carry out investigations into the suspected cartel's operations, weigh the benefits and disadvantages of reporting and especially the consequences attached thereto. In most likelihood, if the Commission institutes investigations, other jurisdictions where that corporation operates are likely to follow suit, so a synchronisation of a client's immunity applications is worthwhile.