PROPOSED AMENDMENTS TO THE MARKET INQUIRY PROVISIONS OF THE COMPETITION ACT, 89 OF 1998 (THE ACT) AS SET OUT IN THE COMPETITION AMENDMENT BILL, 2018

By Xolani Nyali,Tamara Dini Monday, July 30, 2018
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The sixth in a series of perspectives of the main proposals contained in the Bill.

This article focuses on the proposed amendments to the market inquiry provisions of the Competition Act, 89 of 1998 (the Act) as set out in the Competition Amendment Bill, 2018 (the Bill). The proposed amendments are far-reaching and reflect an intention on the part of the Minister of Economic Development (the Minister) to play a significant role in market inquiries. 

While certain proposals are laudable, they raise concerns in respect of the institutional independence of the Competition Commission (the Commission). Further, the proposal that the Commission's findings will be binding (meaning that the Commission can take remedial action against an individual firm as a result of a market inquiry), is a significant departure from the current position, with significant implications taking into account (i) what a market inquiry is and (ii) in circumstances where firms are not afforded the rights that would ordinarily apply in the context of an investigation of unlawful conduct. 

Market inquiries in terms of the Act

A “market inquiry” is a formal inquiry in respect of the general state of competition in a market for particular goods or services, without necessarily referring to the conduct or activities of a particular firm. 

Currently, the Act allows the Commission to conduct a market inquiry on its own initiative or in response to a request from the Minister, if the Commission has reason to believe that a feature or combination of features of a market prevents, distorts or restricts competition within that market, or to achieve the purposes of the Act. 

The Commission must publish a notice in the Government Gazette announcing the establishment of the market inquiry, setting out the terms of reference and inviting members of the public to provide information to the market inquiry. To date, market inquiries have been initiated in relation to healthcare, LPG, data services, public passenger transportation and the retail sector. While the Act requires that the terms of reference include the timeframe within which the market inquiry is expected to be completed, it also allows the Commission to extend the timeframe and one of the criticisms levelled at the current market inquiry process is that market inquiries have taken a considerable period of time. For example, the LPG market inquiry took almost three years, while the healthcare market inquiry commenced in January 2014 and is still underway. 

Under the current Act, on completion of a market inquiry, the Commission must publish a report and submit a copy to the Minister, with or without recommendations, which may include recommendations for new or amended legislation and recommendations to other regulatory authorities. However, the recommendations are not binding.

Currently, based on information obtained during a market inquiry, the Commission may initiate a complaint and enter into a consent order with a respondent; initiate a complaint against a firm for further investigation; initiate a complaint and refer it directly to the Competition Tribunal (the Tribunal); take any other actions recommended in the report within the Commission’s powers under the Act; or take no further steps. 

Market inquiries contemplated by the Bill

The Bill seeks to change the market inquiry process significantly and, notably, by granting the Minister extensive powers. Salient changes proposed include the following:

  • Under the Act, the Minister must appoint at least one Deputy Commissioner to assist the Commissioner in carrying out the functions of the Commission and, as such, the Deputy Commissioner has a range of responsibilities in terms of supporting the Commissioner. However, the Bill provides for the Minister to appoint one or more full-time or part-time Deputy Commissioners specifically responsible for conducting market inquiries. Additionally, while the Act currently allows the Minister to request the Commission to conduct a market inquiry, the Bill shifts this position by providing for the Minister to require the Commission to conduct a market inquiry, within a specified period, after consultation with the Commission. These changes effectively allow the Minister to identify appointees specifically to conduct market inquiries that the Minister (rather than the Commission) deems necessary. 
  • While the Act does not prescribe a time period for the completion of a market inquiry, the Bill proposes that a market inquiry must be completed within 18 months, subject to the Commission being able to apply to the Minister to extend this for a reasonable period. While the introduction of a more expedient process for market inquiries is commendable, insofar as the Commission’s determination of its own process is subject to the Minister’s approval, this is indicative of the Minister’s intention to become more involved in market inquiries.

Both of these proposals relating to the powers of the Minister raise concerns in respect of the Commission’s institutional independence, previously a hallmark of the Commission.            

In line with the objectives of the Bill to protect and stimulate the growth of small and medium businesses (SMEs) and firms owned and controlled by historically disadvantaged persons, the Bill includes a new requirement that in a market inquiry the Commission must decide whether any feature, including structure and levels of concentration, of each relevant market for any goods or services impedes, restricts or distorts competition within that market and, in making its decision, must have regard to the impact on SMEs and firms controlled by historically disadvantaged persons. The specific inclusion of the impact on SMEs and on firms controlled by historically disadvantaged persons to be taken into account aligns with the stated objectives of the Bill, which include promoting economic transformation and stimulating the growth of small and medium businesses owned and controlled by historically disadvantaged persons.

A significant departure from the current position is the proposal for a market inquiry to produce binding outcomes. Except for divestitures (which can only be imposed by the Tribunal), the Bill proposes that in relation to each adverse effect found on competition, the Commission may take action to remedy, mitigate or prevent such adverse effect. This change introduces significant uncertainty for businesses, in circumstances where a market inquiry is conducted in respect of a market, rather than in relation to the conduct of a specific firm (although it may reveal firm-specific unlawful conduct), and specifically as it seeks to address structural issues. As such, so long as a firm is active in the market which is subject to the inquiry, it need not infringe any provision of the legislation in order to be subject to any remedial action that the Commission decides to take. 

The concerns raised by the proposed binding nature of market inquiry findings are exacerbated by the proposal that the Commission’s decisions will not reviewable. While it is proposed that an appeal to the Tribunal will be permitted, the appeal will be limited to the record used by the Commission. It is contemplated that the review of a Commission decision taken as an outcome of the inquiry will not be permissible. This circumvents the higher threshold that the Commission would have to meet if it were to initiate an investigation against a firm for engaging in unlawful conduct. This proposal may also be subject to constitutional challenges from an administrative law perspective.

Significant changes are introduced in relation to the right to claim information as confidential. Currently, the Act allows for firms to claim information as confidential and that the Commission must treat such information as such unless the Tribunal determines that the information is not confidential. However, the Bill proposes that the Commission be allowed to determine whether or not information is confidential. Where a firm is aggrieved by the Commission’s determination, the firm may appeal to the Tribunal. 

This proposal jeopardises the integrity of the market inquiry process significantly as it erodes the protections in the Act which essentially require both the party claiming confidentiality and the Commission to apply their minds to confidentiality claims (with the Commission being bound by the confidentiality claim until or unless set aside by the Tribunal). With no certainty as to whether the Commission will in fact treat information claimed as confidential in the appropriate manner, the Bill places the confidential information of firms at risk. The rationale for a change in the confidentiality regime is not clearly set out in the Bill and it is hoped that the final Bill will maintain the status quo, as a strict confidentiality regime is in the interest of both the Commission and firms participating in a market inquiry.

If you have any questions relating to the above, please contact your usual contact in our Competition Practice.