THE PROPOSED AMENDMENTS TO THE ADMINISTRATIVE PENALTY PROVISIONS OF THE COMPETITION ACT, 89 OF 1998 (THE ACT) AS SET OUT IN THE COMPETITION AMENDMENT BILL, 2018 INTRODUCED IN PARLIAMENT

By Lufuno Shinwana,Lucinda Verster Tuesday, July 31, 2018
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The seventh in a series of perspectives of the main proposals contained in the Bill.

This article focuses on the proposed amendments to the administrative penalty provisions of the Competition Act, 89 of 1998 (the Act) as set out in the Competition Amendment Bill, 2018 (the Bill).

A major change proposed by the Bill, is the removal of the “yellow card” regime in respect of the Act. Currently, the Act provides for administrative penalties to be imposed on firms for engaging in conduct that is prohibited in terms of Sections 4(1)(b), 5(2) or 8(a), (b) or (d) of the Act. Furthermore, a non per se infringement exempts a firm from a penalty for a first time contravention if it has been found to infringe the Act under Sections 4(1)(a), 5(1), 8(c) and 9 - it is only a repeat contravention of any of these provisions that will attract the imposition of a penalty.

The proposed amendments now provide for the imposition of administrative penalties for all contraventions of the Act, i.e. an administrative penalty may be imposed for all prohibited practice offences. In terms of the proposed amendments, the competition authorities will now have the discretion to determine an appropriate penalty for first time contraventions in relation to non per se infringements.

Since the inception of the competition law regime in South Africa, there have been few instances that dealt with the proper interpretation of Sections 4(1)(a), 5(1), 8(c) and 9 of the Act. These sections were worded to provide the Competition Tribunal (the Tribunal) and the Competition Appeal Court (the CAC) with the opportunity to develop the law over time. Despite the passage of time, there is no “greater certainty” in the interpretation of these provisions and the removal of the “yellow card” regime could potentially blunt the innovative qualities of firms which is often highly beneficial to the economy, particularly in a developing country that has limited resources.

The proposed amendments need to create greater clarity in ensuring that only anti-competitive conduct by firms or market features that adversely affect competition are the focus of public interest as there would otherwise be a risk of chilling competition to the detriment of consumer welfare.

The proposed amendment could also be detrimental to smaller firms, consumers and the cost structure of the economy. This is due to the imperative role of larger firms in the competitive process. Larger firms often have the advantages of economies of scale which, deployed properly, are to the benefit of consumers, competition, small businesses and the economy. Larger firms also provide access to other markets, including export markets and access to technology. Much of what such firms do should therefore not be presumed to be exclusionary. If larger firms are prohibited or discouraged from bringing such pro-competitive gains to the market by the threat of legal action, consumers and the economy would be in an unfavorable position.

The Commission should accordingly develop guidelines in relation to the proposed amendments with the view of effectively doing away with the “yellow card” regime without unduly affecting competition, public interest, consumer welfare and the overall economy. Such guidelines would also clarify the Commission’s approach in each of the issues that may have been raised in respect of the proposed amendments.

Significantly, a new provision in relation to administrative penalties, proposes to increase the maximum administrative penalty to 25% of a firm’s annual turnover, if a firm's anti-competitive conduct is substantially a repeat by the same firm of conduct previously found to be a prohibited practice. In addition, the administrative penalty may be increased by the turnover of any firm that controls the firm that is found to have engaged in a prohibited practice and to make the controlling firm jointly and severally liable for the penalty.

In determining an administrative penalty, the Commission applies the Tribunal’s six-step methodology namely, (1) determination of the affected turnover in the base year; (2) calculation of the base amount being that proportion of the affected turnover relied upon; (3) multiplying the amount obtained in step 2 by the duration of the contravention; (4) rounding off the figure obtained in step 3 if it exceeds the cap provided for by Section 59(2) of the Act; (5) considering factors that might mitigate and/ or aggravate the amount reached in step 4, by way of a discount or premium expressed as a percentage of that amount that is either subtracted from or added to it; and (6) rounding off this amount if it exceeds the cap provided for in Section 59(2) of the Act.

Currently, in terms of Section 59(2) of the Act, the administrative penalty may not exceed 10% of the firm’s annual turnover in the Republic and its exports from the Republic during the firm’s preceding financial year.

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