Competition Amendment Bill: deliberations

Economic Development

18 September 2018
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Committee continued its deliberations on the Competition Amendment Bill [B23-2018] and started the clause-by-clause reading of the bill, in conjunction with, and with reference to, the Minister’s responses to matters raised by the Committee as contained in a report from the Economic Development Department.

On clause 1, which amended s1, where the public had raised concerns over the definition of “average avoidable cost,” which might be interpreted incorrectly as including unrecoverable sunken costs, the Minister had provided a definition which would avoid any doubt.

On the definition of “margin squeeze”, the Minister had provided four alternative definitions, but the matter was flagged for further discussions pending further Departmental input.

Members agreed that “efficient” remain excluded from the definition of “participate”, and Members also agreed to the definitions of “predatory prices,” “prohibited prices,” “small and medium business,” “small business,” and “workers.”

Members agreed on clause 2 which amended s2, and on clause 3(a) which amended s4.

Clause 3(b) generated discussion on whether to use guidelines which were non-binding and more flexible, or regulations which were a part of law and enforceable. The Minister’s response preferred guidelines, as it was an area of law that was still developing, and guidelines would allow the court greater discretion as it was less binding and more flexible. The matter was flagged for further discussion, as was clause 4, as it also related to guidelines.

On clause 5, on the substitution of s8(1)(a), Members agreed on the revised wording of the Minister, which included the use of both the terms ‘customer’ and ‘consumer’ to avoid the possibility of confusion. On the public’s request that s8(3) include the term “significant,” Members agreed to leave the clause as is. On s8(3)(a-f), the Law Society felt that the factors noted here need not be included, while others felt that the factors were too broad. The Minister’s submission preferred that there be guidance for the courts to determine whether pricing was excessive. The Minister’s response on s8(1)(d)(vii), about the abuse of buying power by dominant firms by implementing trading conditions that impeded the development of smaller firms, provided two options: to introduce a new sub-section in s8 prohibiting dominant firms from imposing unfair prices or trading conditions on small and medium enterprises (SMEs) or historically disadvantaged persons (HDPs), or introduce a new subsection in s5 (dealing with restrictive practices between customers and suppliers). Members agreed on option 1 as provided by the Minister, which would keep the clause in s8.

Members agreed on clause 6.

On clause 7 which amended s10, there had been complaints about the time it took the Competition Commission to process exemptions. The Minister felt it should be a year, given capacity constraints and the need to do a thorough job, and Members agreed with this. On clause 7(b) dealing with s10(3)(b)(ii) on where the Minister could grant exemptions, the exemptions could be granted if the exemption agreement allowed effective entry to the market. The original act only specified making HDIs competitive, and not entry to the market. The Minister’s response included not only small business, but also medium businesses, and the exemptions would relate to ‘category of agreements’ instead of specific agreements. This latter point also arose in s10.10. Members agreed on this clause, as well as clauses 7(c) dealing with s10(3)(b)(iv) and clause 7(d) dealing with s10(3)(b)(v) and on clauses 8 and clause 9.

On clause 10 which amended s15, the Minister’s response showed that he was agreeable to clarifying the circumstances under which a revocation or amendment of conditions was permissible. The clause contained new wording which limited the exercise of power of competition authorities’ jurisdiction over conditions. Members agreed on the clause, as well as on clause 11, which amended s16 and which dealt with the same matters touched on in s15.

The Committee adopted subclauses 18A (5)-(9) without amendment. It adopted, with amendments and lengthy deliberations, subclauses 18A (1), (2), (3) (4) and (10).

It decided to continue deliberations on subclauses 18A (12) and (13) the following day as there seemed to be serious reservations about the effectiveness of the penalty imposition in deterring foreign acquiring firms from deliberately misleading either the Competition Commission or the Merger Committee about an intended merger.

 

 

Meeting report

Competition Amendment Bill: Deliberations

The Chairperson said the Committee would be deliberating on the Competition Amendment Bill (CAB) [B 19 – 2017] clause-by-clause, in conjunction with, and with reference to, the Minister’s responses to matters raised by the Committee.

Mr Mbulelo Ruda, Parliamentary Legal Advisor, said the majority of submissions supported the objectives of the bill.

Mr Sisa Makabeni, State Law Advisor suggested that the long title of the bill be flagged for further discussion, as it was dependent on changes made to other clauses in the bill.

Members flagged the long title for later deliberation.

Clause 1

On clause 1 which amended s1, Mr Ruda said the public had raised concerns over the definition of “average avoidable cost,” which might be interpreted incorrectly as including unrecoverable sunken costs. He referred Members to the Minister’s response (on p24 of the report from the Department to the Committee, dated 18 September 2018). The Minister had provided a definition to avoid any doubt.

Mr S Tleane (ANC) said the Minister’s wording should be seen as being accommodative, and should therefore be accepted as is.

On the definition of “margin squeeze”, Mr Ruda said the Minister had provided four variations of the definition for the Committee to consider (p24).

Mr Makabeni said the four definitions basically said the same thing, and the Committee could choose one.

Mr I Pikinini (ANC) said one had to bear in mind that the goal was to avoid abuse of dominance.

Mr Tleane suggested that the lawyers should advise the Committee which one to choose.

Mr Ruda said that one had to be careful, as definitions could either be too broad or too narrow, but his preference was for the first definition provided.

Mr Irshad Kathrada, special advisor to the Minister, said there were subtle differences, and suggested that the matter be flagged for further discussion to allow the Department to make further input later in the day.

Ms A Mfulo (ANC) said she preferred the last of the definitions.

Mr M Cele (ANC) said the matter should be held in abeyance until after consultation with the Department.

On the definition of “participate”, Mr Ruda said the Law Society had wanted the word “efficient” to be included in the definition. The Minister had responded that there was no requirement for “efficient” to be included because, by definition, firms had to be efficient.

Mr Tleane said it would be detrimental to include “efficient,” especially for companies that were just starting up.

Members agreed that “efficient” would remain excluded. They also agreed to the definitions of ‘predatory prices’, ‘prohibited prices’, ‘small and medium business’, ‘small business’, and ‘workers’.

Clause 2

On clause 2, which amended s2, Mr Ruda said no comment had been received, and Members agreed on the clause.

Clause 3

On clause 3, which amended s4, Mr Ruda said that there was no comment on clause 3(a) and Members agreed on the clause.

There were comments on clause 3(b), where guidelines were non-binding and it was proposed that these should be made regulations. He referred to the Minister’s response (p2), which preferred guidelines, as it was an area of law that was still developing, and the guidelines would allow the court greater discretion, as guidelines were less binding and more flexible.

Mr Tleane asked the lawyers to remind Members why there was a preference to use guidelines in law.

Mr Makabeni said that guidelines were used by regulatory bodies to guide industry in grey areas of law. Guidelines were not as binding as regulations, which were part of law.

Mr Ruda said the question of using guidelines or regulations was dependent on how settled the law was on the matter, therefore the Department’s preference for guidelines was because this area of law was still under development. The guidelines in this context were to be used to influence the behaviour, and was not the sole consideration to be taken into account.

Mr Tleane suggested reverting back to the guidelines, given the inputs by the lawyers.

The Chairperson said the main difference between guidelines and regulations was what could, and what could not, be enforced.

Ms Mfulo said she preferred regulations, as guidelines were open to exploitation.

The Chairperson said guidelines could be issued only by the Competition Commission, not the Minister.

Ms C Matsimbi (ANC) proposed that guidelines be used as it allowed for the rectification of wrong behaviour.

Mr Ruda said that if there were guidelines, the Minister could still issue regulations as he was not precluded from doing so.

Ms Mfulo said the reason for the amendment was because there were regulations, but big companies were using loopholes to avoid them. Currently there were too many guidelines, and the Department was not firm enough.

Mr Makabeni said the public’s complaint about the guidelines was that the guidelines were not clear enough. The guidelines were to guide the market in the grey areas of the law, as a pre-warning so they could not claim they did not know.

Mr Cele felt that the Committee should opt for regulations.

The Chairperson asked if regulations could be issued at any time.

Mr Makabeni replied that they could, but there was a long process in issuing regulations, and it needed to be publicised for consultation.

The Chairperson flagged the matter for further discussion.

Clause 4

On clause 4, which amended s5, Mr Ruda said this matter should also be flagged, as it was also related to guidelines.

Clause 5

On clause 5, on the substitution of s8(1)(a), Mr Ruda said it related to the differences between the terms ‘customer’ and ‘consumer’. The Minister’s response (p4) was that both terms should be included to avoid the possibility of confusion, and the Minister had provided a possible wording for the clause.

Mr Tleane said both terms should be used.

Members agreed on the revised clause provided by the Minister.

On the public’s request that s8(3) include the term ‘significant’, Mr Ruda said the amendment aimed at making the section clearer.

Mr Tleane said that the aim was to avoid using the word ‘compare’.

Members agreed to leave the clause as is.

On s8(3)(a-f), Mr Ruda said the Law Society had felt that these factors need not be included, while others felt that the factors were too broad. The Minister’s submission (p5) had been that he preferred that there be guidance for the courts to determine whether the pricing was excessive.

Mr Makabeni said the inclusion of the factors clarified what factors needed to be considered in determining whether there was excessive pricing.

On s8(1)(d)(vii), Mr Ruda said the clause was about the abuse of buying power by dominant firms by implementing trading conditions that impeded the development of smaller firms. The Minister’s response (pp6-7) had provided two options: to introduce a new subsection in s8 prohibiting dominant firms from imposing unfair prices or trading conditions on small and medium enterprises (SMEs) or historically disadvantaged people (HDPs), or to introduce a new sub-section in s5 dealing with restrictive practices between customers and suppliers.

Mr Pikinini said the issue had initially been raised by Ms Mfulo to cover small businesses.

The Chairperson said the undertone of the Minister’s response was that while it helped smaller businesses, this would also be extended to big firms.

Ms Mfulo said that at the moment there was nothing to protect small businesses. The law needed to say that bigger firms should refrain from exploiting small businesses through the big firms’ buying power.

The Chairperson said the question was how to open up markets for smaller businesses.

Mr Pikinini said he supported the first option provided by the Minister.

Mr Makabeni said the provisions were more suited to s8, and therefore option 1.

Ms Mfulo said the dominant firm had to show that the price was reasonable, so she was satisfied.

Clause 6

On clause 6, which amended s9, Mr Ruda said there were two issues -- the materiality of a test, and how to determine the test for price discrimination if a qualification such as the word ‘substantially’ was removed. He said proving price discrimination was ‘substantial,’ and was a higher standard to meet.

Members agreed on the clause 6(a).

On clause 6(b), on the ‘dominant’ firm, he said proving impedance now shifted to the dominant firm.

Members agreed on the clause.

Clause 7

On clause 7, which amended s10, Mr Ruda said there had been complaints about the time it took the Competition Commission to process exemptions. Some, like the Law Society, felt it should be six months, while the Minister felt it should be a year, given capacity constraints and the need to do a thorough job.

Members agreed on a time period of a year.

On clause 7(b) dealing with s10(3)(b)(ii), on where the Minister could grant exemptions, Mr Ruda said exemptions could be granted if the exemption agreement allowed effective entry to the market. The original act only specified making HDPs competitive, not entry to the market.

Mr Makabeni added that in the Minister’s response (p16), it would apply not only to small businesses, but also to medium businesses. He added that the exemptions would now relate to ‘category of agreements’ instead of specific agreements. The latter point also arose in s10.10.

Members agreed on this clause, as well as clauses 7(c) dealing with s10(3)(b)(iv) and clause 7(d) dealing with s10(3)(b)(v).

Clause 8

On clause 8, which repealed Chapter 2A, Mr Kathrada said the chapter referred to the Complex Monopolies Act, which had never been brought into operation and was now no longer needed.

Mr Makabeni pointed out a typographical error on p6 line 10 of the amendment bill, and said that the year 2009 should read 2000.

Members agreed on clause 9(a) dealing with s12A(3)(b).

Clause 9

On clause 9(b), dealing with s12A(1A), Mr Ruda said that apart from considering mergers on competitive grounds, the Competition Commission had to consider whether a merger could be justified based on substantial public interest grounds. He said this clause was supported by the unions.

Members agreed on this clause and on clause 9(c) dealing with s12A(2)(g-h).
 
On clause 9(d) dealing with s12A(2)(i), Mr Ruda said that the clause contained other factors to be considered in a merger -- in this case, the extent of ownership by a party in the merger with another firm or firms in related markets.

Members agreed on this clause, as well as on clauses 9(e) dealing with s12A(3)(c-d), and clause 9(f) dealing with s12A(3)(e).

Clause 10

On clause 10, which amended s15, Mr Makabeni said the Minister’s response (p25) showed that he was agreeable to clarifying the circumstances under which a revocation or amendment of conditions was permissible. The revised clause contained new wording which limited the exercise of power of competition authorities’ jurisdiction over conditions.

The Chairperson asked if there was a difference between the current bill and the new formulation.

Mr Makabeni said the only difference was that the competition authorities would be limited to the instances mentioned in the revised wording as contained in the Minister’s response, namely, that the decision was based on incorrect information for which a party to the merger was responsible -- the approval was obtained by deceit, or a firm concerned had breached an obligation attached to the decision.

Members agreed on the clause.

Clause 11

On clause 11, which amended s16, Mr Ruda said it dealt with the same matters touched on in s15 on the overly broad jurisdiction of competition authorities and where the Minister, in his response (p25), had made a similar amendment as in s15.

Members agreed on the clause.

The meeting adjourned for lunch.

Clause 18

Mr Ruda said the deletion and insertion in clause 18 (1) was to provide clarification and to read that ‘the Minister could participate as party to any merger proceedings before the Competition Commission’. He added that some of the submissions from stakeholders had been concerned about the Minister’s intervention in mergers, specifically from the South African Law Society (SALS) and Vodacom.

The Chairperson asked what would lead the Minister to participate in a merger, and at what stage would the Minister get involved.

Mr Kathrada replied that the Minister participated only in public interest concerns. That included provisions in subsection 12 (a) (3) of the principal Act, which were employment, small businesses, and the ability of national industries to compete internationally, as well as the impact on a region or a sector. The CAB also had a fifth criterion which was the spread of ownership. especially by previously disadvantaged persons. as well as company employees. Typically the Minister would get involved during the Competition Commission’s (CC’s) deliberation on mergers.

The Chairperson asked whether the Minister attended personally, or if that duty could be delegated.

Mr Kathrada replied that the Minister had to participate in person.
 
The Committee agreed to the amendment of clause 18.

Regarding the insertion of section 18A in Act 89 of 1998 -- ‘‘intervention in merger proceedings involving a foreign acquiring firm” -- Mr Ruda said the SALS had bemoaned section 18 A as being wide and broad, and had suggested that it had to be abandoned entirely, whereas the International Bar Association (IBA) had supported the clause with its own draft amendments to make it less broad. Trade unions’ submissions had supported the inclusion of national security interests in merger proceedings.

The Minister’s response generally had been that it was supported and recognised that Governments had a duty on national interests. and it was also a constitutional imperative to protect and defend national interests.

There had been further amendments, such as in sub-clause 18 A (4) (d), where ‘important’ had been substituted with ‘critical’.

The Chairperson asked whether the Committee in principle accepted the insertion of clause 18A as a new clause.

Mr Tleane said it had to be accepted.

Mr Pikinini agreed to accept the new clause 18A.

Clause 18A (1)

Mr Ruda then read clause 18A.

The Chairperson asked if there had been any issues from stakeholders on the provision.

Mr Ruda replied that public submissions had related to sub-clause 18A (2) and the duration of the Merger Committee, which was proposed in sub-clause 18A (1).

The Committee agreed with the sub-clause 18A (1) as had been submitted.

Clause 18A (2)
Mr Ruda submitted that the public submission in general had inquired as to who would be the members that would sit on the Merger Committee established by the President, and if it would be a standing Merger Committee or ad hoc, and what skill set would the members be required to have to sit on that Committee.

Mr Tleane said that the provision was acceptable, as it was but proposed that the Merger Committee be a standing committee.

The Chairperson asked whether the proposal to have the Merger Committee as standing was supported, noting that the current draft provision provided for standing and ad hoc status, as it was broad and not prescriptive.

The Committee agreed.

Clause 18A (3)

Mr Ruda said the International Bar Association (IBA) had raised an issue with the sequence of notification about the merger by foreign acquiring companies from the Merger Committee to the CC; additionally, the IBA had wanted clarity whether the matter of national interest would have been finalised before the CC considered the merger.
 
The Minister had responded that applications could be filed for a merger both with the CC and the Merger Committee simultaneously, so that the matters could be considered at the same time.

The Chairperson asked how far the Minister’s response had responded to the IBA’s concern.

Mr Ruda replied that the concern probably related to the time it would take for the merger to be processed in the instance that the security vetting first had to be finished by the Merger Committee, which would be followed by the CC considering the matter. The response that there could be a dual consideration then addressed the IBA’s concern, in that the Merger Committee could look at the security vetting issues whilst the CC looked at the competitiveness issues of the proposed merger.

The Chairperson asked for input on the proposed amendment of simultaneous notification for a merger, as provided in sub-clause 18A (3).

Subclause 18A (3) was accepted.

Clause 18A (4)

Mr Pikinini said the provision was sufficient, as it covered everything the Committee would have considered.

The Chairperson said that sometimes the government considered national security as ground security. However, she felt that there were also other threats and she wanted clarity as to whether the provision covered everything, including items not covered in the list of sub-clauses under 18A (4).

Mr Makabeni replied that the list of considerations was not a closed one.

Mr Ruda referred to a suggested substitution by the Department of Economic Development (EDD) relating to sub-clause 18A (4) (d), where ‘important’ had been substituted with ‘critical’.

The Committee agreed with the substitution.

Clause 18A (10)

The Chairperson asked whether the prescribed time for the Minister to submit the Merger Committee’s report to the National Assembly (NA) had been prescribed, or had been left open ended. She believed that the publishing of the notice of the merger in the Gazette and submitting the Merger Committee’s report to the NA had to be concurrent to enable whichever Portfolio Committee was responsible in the NA to be advised about the merger, and to avoid prejudicing Parliament of developments regarding a merger.
 
Mr Tleane agreed with the Chairperson’s sentiments about the parallel processes as provided for in clause 18A (10).

The Chairperson asked who would be prescribing the time period for the Minister to submit the report to the NA.

Mr Makabeni replied that the President of the Republic would be prescribing.

The Chairperson said that that had not been provided for, citing sub-clause 18A (7). She therefore required the provision that cited the President as prescribing the time period for the Minister to submit the Merger Committee’s report.

Mr Makabeni replied that sub-clause 18A (5) (a) addressed the regulations which the President had to issue, but certainly the timeframe for the Minister to submit the Merger Committee’s report could be added to clause 18A as sub-clause (5) (c).

The Chairperson wanted affirmation as to whether that would settle the issue of a timeframe for the Minister in clause 18A (10)

Mr Makabeni said it would not work as well as sub-clause (5) (c).

The Shairperson suggested that the proposal by the State Law Adviser (SLA) be inserted as a new sub-clause in clause 18A (10), instead of in clause 18A (5).

Mr Ruda read out the proposed insertion in clause 18A (10) as part of sub-clause (10) (b).

The Chairperson agreed with the proposal, if there were no implications.

Mr Makabeni said the words ‘within the prescribed time period’ still remained in Clause 18A (10).

The Chairperson said the phrasing had to be deleted so that the provision read: ‘Following the decision contemplated in subsection (7), the Minister must…’ Additionally the Gazetting, in sub-clause 18A (10) (a), had to have a time frame prescribed as well. Would there be any implications or consequences for those insertions?

Mr Makabeni was concerned about the dual considerations of the decision. If indeed one decision depend,ed on the other, that could cause confusion if one decision was published and the merger failed to materialise as the CC would still need to consider it.

The Chairperson interjected, saying that she understood that. However, she had also considered that the CC’s consideration and decision on the merger would not be published, because if the Minister published a notice in the Gazette there would not to be a problem in drafting ‘…after the CC had completed its work’. However, that had to be within a reasonable timeframe after the CC had completed its work.

She asked what the Members’ views were in that regard, because her experience with the Executive was that it developed laxity if there were no timeframes specified in legislation and when problems arose, the Committee would be found wanting.

Mr Tleane requested input from the SLA and Parliamentary Legal Adviser (PLA) on how the legislature had developed timeframes in similar laws, and what practical timeframes were usually assigned so that the Committee would not assign impractical timeframes to the Executive.

Mr Makabeni replied that other pieces of legislation did prescribe timeframes in which matters had to be tabled to Parliament. Therefore there was nothing amiss with the Committee wanting to prescribe similarly.
 
Mr Pikinini agreed with the Chairperson’s summation and addition of sub-clause 18A (10) (b).

Mr Ruda said he was not knowledgeable about what considerations the Minister took before gazetting a notification for a merger and submitting the CC’s report to Parliament, but the Bill recognised that there had to be oversight over the process, which would be undertaken by the Merger Committee. He was proposing that a sub-clause be drafted under clause 18A (5) (c) which would prescribe that the President of the Republic had to prescribe a time limit by which the Minister had to submit the Merger Committee’s report to Parliament.

The Chairperson said the CAB was a law from Parliament, and therefore a clause dealing with the responsibility of reporting to the legislature could not be abdicated to the President of the Republic. It had to be a standalone, to indicate that although he had to issue regulations he was also obliged to return to Parliament to report on issues of national security. The success of a merger and notification thereof was something separate, so if the Committee had to apply its mind further on that question, that provision could be parked and returned to later.

Mr Tleane asked the SLA and PLA where in the CAB the provision could be inserted as a standalone.

The Chairperson, having re-read clause 18A (10), said that the decision spoken to there did not address parallel processes, but a decision whether to allow the Merger Committee and the CC to proceed with the consideration of the merger or not. There still needed to be a prescribed timeframe, because all this still remained without a time limit.

Mr Makabeni said probably the amendment needed in clause 18A (10) would be a consequential one, following what would have happened at clause 18A (6), where the dual process was occurring in the CC and the Merger Committee. Sub-clauses 18A (10) (a) (i) and (ii) would no longer be necessary. Therefore it seemed that there was no need to separate the number of days that the Minister needed to publish a notice in the Gazette from the time the Minister would inform Parliament. He proposed the deletion of sub-clauses 18A (10) (a) (i) and (ii), with the insertion at sub-clause 18A (10) (a) to read: ‘Following the decision contemplated in sub-section (7), the Minister must, within 15 days publish a notice in the Gazette of the decision.’

The Chairperson said a decision could be taken on the day, but a report would become ready at a future date. Could the Committee also put a decision on that provision aside and return to it at later stage?

The Committee agreed.

Clause 18A (11)

Mr Ruda submitted a proposed sub-clause (a) of clause 18A (11) which read: ‘The Competition Commission may not make a decision in terms of section 13(5) (b) or 14(1) (b), and the Competition Tribunal may not make an order in terms of section 16(2), if the foreign acquiring firm failed to notify the Committee in terms of sub-clause 18A (6).’ The rest of the clause 18A (11) would be sub-clause 18A (11) (b).

The Chairperson asked whether the amendment would still be necessary following the discussion the Committee had had about sub-clause 18A (10).

Mr Ruda replied in the affirmative.

The Committee accepted the rationale.

Clause 18A (12)

Mr Ruda submitted a new sub-clause 18A (12) (a) reading: ‘the Committee may revoke its approval of the merger or, in respect of a conditional approval, make any appropriate decision regarding any condition relating to the merger if the approval was based on incorrect information for which the parties to the merger are responsible, the approval was obtained by deceit, or a theme consent contained as breach of application attached to the approval.’

The Chairperson personally agreed with the new insertion and asked the Committee for input.
 
Clause 18A (13)

Mr Ruda submitted a new clause 18A (13) which read: ‘the Competition Tribunal may impose an administrative penalty in accordance with section 59 (2) on the parties to a merger involving a foreign acquiring firm for any contravention contemplated in section 59 (1) (d) of the Competition Commission Act read with the changes of the CAB.’

Mr Makabeni proposed that clause 18A (13) be amended to read: ‘the Competition Tribunal may impose an administrative penalty in accordance with section 59 (2) on the parties to a merger involving a foreign acquiring firm for failure to notify the Committee, as contemplated in sub-section (6).

The Chairperson asked whether the new clause 18A (13) was pre- or post the Merger Committee’s work.

Mr Makabeni said it could be after the Merger Committee’s consideration, or during the consideration. There was also a proposed amendment to section 62 of the Competition Commission Act, which read: ‘the Tribunal and the Competition appeal court had no jurisdiction over matters in clause 18A, except for clause 18A (13).

The Chairperson asked whether the contraventions would have been related to information that parties to the merger were supposed to have disclosed under clause 18A (6). Was disclosure of information separate and different from failure to notify the Merger Committee by the merger parties?

Mr Makabeni referred to clause 18A (6), noting that if a foreign acquiring firm failed to follow that provision whilebeing party to a merger, the Competition Tribunal could impose a penalty in terms of clause 18A (13) above.

The Chairperson was still unclear why the failure to notify would only be a Competition Tribunal issue instead of a country issue, when the foreign acquiring firm would be obligated through national law to notify the Merger Committee as well as the CC together.

Mr Makabeni replied that logically the Competition Tribunal had the expertise to impose a penalty in respect of a very specific contravention. The substance of the decision that would have been taken by the Merger Committee would not be the concern of the Competition Tribunal at that point, but whether the foreign acquiring company had informed the merger Committee and CC or not.

The Chairperson said her issue was that a multinational corporation could possibly deliberately not notify the Merger Committee, as the penalty regime of the Competition Tribunal was very minimal.

Mr Ruda said the corollary was the clause empowering the Merger Committee to revoke the merger for failure to notify it, and deceit by the foreign acquiring firm. The Competition Tribunal penalty addressed administration and capacity, as the Merger Committee possibly would not have the expertise to impose penalties for deceit or failure to notify by the merger parties.

The Chairperson asked why the need of the Competition Tribunal to impose penalties for failure to notify if the sub-clause 18A (12) (c) empowered the CC or merger Committee to revoke a merger approval.

Mr Ruda replied that the intention probably was to discourage merger parties from failing to notify, as penalties would be imposed from that stage of processing a possible merger.

The Chairperson remained unconvinced, specifically referring to clause 18A (6) that a foreign acquiring firm was required to notify the Competition Commission in terms of section 13A(1), and that an intended merger must, prior to the notification of the merger to the Competition Commission, first file a notice with the Merger Committee. Problematic for her was the penalties being administrated somewhere else -- away from the Merger Committee. The sequence of the processes also confused her, because the CC could not process and announce a decision before the Merger Committee had pronounced itself. However, clause 18A (13) was saying the Competition Tribunal had to impose a penalty for failure to notify. Who would be notified -- and when, and for what? Her understanding was that the Merger Committee would only have initiated a merger review, having received notice of an intended merger first.

Mr Ruda recalled that the Committee had agreed at clause 18A (3) to have dual consideration and a review of the merits of the merger by the CC and the Merger Committee. Clause 18A (13) probably intended to address and discourage merger parties on deciding to notify only the CC alone, although national security interest would be involved, and not the Merger Committee on their intended merger. If the CC, for instance, continued evaluating the merger on competition grounds, and it was later reported or found out that the parties to the merger had failed to notify the Merger Committee, then the penalty imposition would be effected as per the clause 18A (13). Mr Ruda also believed that if the CC received notification of a merger that had national interest implications, it would be obligated to notify the Merger Committee as well, but to discourage parties to a merger from taking chances with the government, the penalties would be imposed for taking the said chances.

The Chairperson asked at what stage it would be discovered that there had been mischief from merger parties, because clause 18A (6) specified that prior notification of an intended merger was an obligation. The dual processing of a merger by two bodies also involved resource allocation and utility. The provisions were saying the Tribunal had to act whilst both the CC and the Merger Committee were busy. What if one of the two bodies disallowed the merger from materialising, and the Tribunal had already penalised the parties to the intended merger? Would that not open the government up to unnecessary litigation?

Mr Pikinini his perception was that one provision had to be accepted -- that of approving of revoking the merger. The issue of penaliszing for not notifying one of the two bodies could not go ahead.

Mr Makabeni said the dual processing had been ventilated in case law. For example, if a company was sand mining somewhere in Cape Town, it had to comply with the zoning laws of the City of Cape Town (CoCT). It also had to comply with mining legislation as overseen by the Department of Mineral Resources (DMR). If it was to be that the Minister of the DMR had granted the sand mining company the licence to mine, and the CoCT refused to rezone to allow for mining in the specific area where sand mining was supposed to occur, the mining would not go ahead as one authoritative body would have refused operations. The Constitutional Court (ConCourt) had ruled on a similar situation in the Maccsand (Pty) Ltd case, so there was legal certainty on two authorisations being required from different authorisng bodies, where if one failed then one could not proceed.

Regarding the penalties, the principal Act already had provisions relating to penalties and failure to notify, specifically section 59 (1). Authorisation to impose penalties was in section 59 (2). Because national security interests were being introduced in the CAB which were not in the principal Act, the EDD wanted to insulate those interests from the Tribunal and the CC, and wa dealing specifically with penalisation for failure to notify the Merger Committee, which also had the right to revoke an approved merger once deceit was uncovered.  

The Chairperson replied that she was unconvinced. Her concern was that after the penalty imposition, the multinational company would likely litigate, stating that they had been penalised and therefore could not be barred from merging. What happened after the penalty?

Mr Makabeni replied that the President would publish a list of national security interests, and the CC would be aware of that list. When the CC was notified of an intended merger involving a foreign acquiring firm, the list was the first reference point and following the list review, the question following would be whether the foreign acquiring had notified the Merger Committee.? If that notification had not happened, the matter could be passed to the Competition Tribunal to impose a penalty for failure to notify. However, that did not absolve the foreign acquiring firm from still needing to notify the Merger Committee of its intended merger, because the Committee would still need to process the national security issues attached to that intended merger as clause 18A (12) (c) provided.

The Chairperson asked why a foreign acquiring firm would not inform the Merger Committee of its intended merger, if it was aware of the list of national interests.

Mr Makabeni replied that it would be deliberate evasion.

The Chairperson said the way the clause 18A provisions were being introduced were deliberately enticing parties to mergers to break the law so they could be penalised. From experience -- as it was known that mischief did occur -- why was the EDD not developing provisions to deter the mischief altogether? Why were there dual processes?

Mr Ruda reiterated his earlier point that clause 18A (13) was a deterrent for those who would try to evade notifying the merger Committee deliberately.

On dual processes, the public submissions had indicated that the competition issues had to be resolved as speedily as possible, and the Minister’s response to that was that the EDD would attempt to have a dual process of review in order to speed up the resolution of mergers, and whether they would be allowed or not.

The Chairperson said she was not comfortable with the dual processes of adjudicating the possibility of a merger, and remained unconvinced about whether the magnitude and schedule of the penalties would discourage deliberate mischief. The country had already compromised on a lot, and if the CC was still going to adjudicate on the competition issues, why would there be a need for the Merger Committee or the reverse between the two bodies?

She proposed that the issues be thrashed out the following day, as the Committee seemed exhausted.

The meeting was adjourned.

 

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