Competition Amendment Bill: briefing by Department of Trade & Industry & adoption

NCOP Economic and Business Development

27 August 2008
Chairperson: Ms P Themba (ANC, Mpumalanga)
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Meeting Summary

The Department of Trade and Industry (Dti) briefed the Select Committee on the Competition Amendment Bill. The rationale behind the proposed amendments to the Bill was not to overhaul the Competition Act entirely, but to strengthen it, since a recent review of the Competition Act had highlighted pertinent blockages that weakened its effectiveness. The proposed amendments would strengthen effective enforcement of the Bill, allowing for closer scrutiny on cartel behaviour, the institution of a market enquiry process that could determine why prices were high in a certain market, and introduction of a clause that dealt with personal liability of directors who had engaged or had knowledge of cartel activities.

The Bill was premised on five main areas: market inquiries, complex monopolies, personal liability of individuals who caused a company to engage in cartel behaviour, the formalisation of the corporate leniency policy and concurrent jurisdiction. Each of these was explained in depth. It was further explained that the Department had engaged extensively with government, trade unions, business and there had been public hearings in the National Assembly.

Members asked whether the dti had envisaged a public awareness campaign around the proposed amendments as it had been deemed to be in the “public interest”, and that many people did not know where or whom to approach if they wanted to complain about unlawful conduct. Questions were raised as to why reports were not to be placed before Parliament, rather than the National Assembly, and it was agreed that the proposed section 21(3) could be changed to meet these concerns.  Further queries were raised by the Parliamentary Legal Advisors around the wording clause 12, and the legal advisers took some time to discuss the issues, resolving that the concerns could be addressed by making adjustments to the new Section 73A(5), dealing with culpability. Other amendments to clauses 3, 4 and 12 were highlighted. Members considered all the clauses and resolved to adopt the Bill and their Report.

Meeting report

Competition Amendment Bill (the Bill): Briefing by the Department of Trade and Industry (Dti)
Ms Zodwa Ntuli, Deputy Director. Department of Trade and Industry, said that the rationale behind the proposed amendments to the Bill was not to overhaul the Competition Act, but to strengthen it, as a recent review into the Act had highlighted pertinent blockages that weakened the effectiveness of the legislation. Recent uncompetitive behaviour by leading businesses, such as Tiger Brands, had highlighted this fact and prompted the Department of Trade and Industry (dti) to come up with amendments, as the objective of the Bill was to create a more efficient institutional mechanism that would ensure market transparency.
 
The proposed amendments would strengthen effective enforcement of the Bill, as close scrutiny would now be placed on cartel behaviour, through the institution of a market inquiry process that could determine why prices were high in a certain market. There would be introduction of a clause that dealt with personal liability of directors who had engaged in or had knowledge of cartel activities.

The Bill was premised on five main areas: market inquiries, complex monopolies, personal liability of individuals who caused a company to engage in cartel behaviour, the formalisation of the corporate leniency policy and concurrent jurisdiction.

The provision for a market inquiry read that the Competition Commission (CC) could submit a report on a market inquiry to the Minister, who would in turn table it before the National Assembly. This was a new provision that empowered the CC to conduct its own market inquiry as well as upon a request by the Minister. A market inquiry could be instituted without any evidence of wrongdoing by any specific individuals, merely upon reasonable reasons, as it was exploratory in nature and intended to inquire into the competition deficiencies within a certain market. The findings of the CC could be furnished to the Ministry and could suggest that either the Minister or the relevant market regulator impose regulations.

Complex monopolies related to collusive behaviour by businesses that had entered into an agreement that restricted fair competition practices and encouraged price fixing. The existing Competition Act had been not as effective as it could be, as evidence was needed that pointed towards a “meeting of minds”, which was difficult to prove. There would be instances where one business would increase or decrease its prices and consciously be followed by its competitors in that market. In such a case, collusive behaviour would be difficult to prove as the leading and following could be seen as a natural process of competitive behaviour. The proposed amendments would seek to remedy this, as the requirement to prove culpability, contact or an agreement would be removed and the CC would be empowered to review their outcomes, investigate the cause, and refer the matter to the Competition Tribunal that could issue a Consent or Declaration Order for the conduct to cease.

Ms Ntuli said that the amendments also aimed to introduce a provision that the directors of a business could be held personally liable for anti-competitive behaviour, and not only the business itself. This would be enforced upon evidence that the director had actively participated in entering into any agreement with other firms to collude, or had knowledge of such an agreement having been made. The legal consequence for the accused would be that he/she could face charges through a normal court and not through the Competition Tribunal.

Ms Ntuli then explained the provisions around leniency. She explained that this had been used in the past, but had not previously been formalised. She said that this called upon members of a cartel to “blow the whistle” because the first to give information about the cartel could be granted indemnity from prosecution, both personally and for the business. It had been an effective tool in the past. This did not however prevent an individual or group that suffered as a result of cartel behaviour from instituting a civil claim against a firm or individual.

The rationale for the provision on concurrent jurisdiction had been included as it had to address the consistencies that arose in particular from the Competition Act and the Electronic Communications Act (ECA), but also in relation to other sectors that were subject to their own regulators. It was to be clarified that the regulators would still be able to deal with matters such as the setting of tariffs but that the “ex post facto” matters around uncompetitiveness would be dealt with by the Competition authorities. Section 67(9) of the ECA stated that in a case of conflict, the Competition Act was subject to the ECA, but this and the Competition Act were now to be brought in line to clarify the situation and make the Competition Act the primary legislation in the case of any inconsistencies.

Ms Ntuli noted that the dti had held extensive consultation with the various stakeholders, including government, trade unions, regulators, and the private sector on the Bill, and that the new issues raised related more to the implementation of the Bill and not necessarily the principles.

Discussion
Mr D Gamede (ANC, KZN) asked whether the dti had intended a public awareness campaign on the proposed amendments.

Ms Nomfundo Maseti, Director: Competition Policy, dti, noted that public awareness was an important part of the legislative process on the amendments as they introduced very important provisions, especially around criminal sanctions. It was important that people know what was illegal, and what companies were and were not allowed to do. The Bill would now even seek to detect cartel behaviour during government tender processes. The CC had been empowered to conduct educational and awareness campaigns and would do so in due course.

Mr Gamede asked how the dti intended to level the playing field of competition as many small businesses wanted to enter a market but face strong opposition and competition from big business.

Ms Maseti said that the amendments would also introduce the concept of a “complex monopoly” as South Africa’s economy consisted of highly concentrated markets, and that government intended to deal with those markets that were highly concentrated. This did not emanate from modern policy directives, but from the 1954 ANC Freedom Charter that encouraged an economy free of discrimination and unfair economic and market practice. She agreed that it was important to level the playing field as consumers’ needs were not being met. In some cases large businesses had been taking advantage of their position, some both as manufacturers and distributors, such as Tiger Brands, who had not only inflated their own prices for bread, but also raised flour prices that killed the competitive effectiveness of downstream players. When the Tiger Brands Cartel was uncovered and a fine imposed, Tiger Brands had again raised the price of bread, presumably to cover the losses due to the fine.

Mr Gamede said he needed clarity on the amendment to section 21(5) (3) as it spoke of both a “National Assembly” and “Parliament”.

Ms Maseti said that “must” was the key word in this section, as all the other provisions had already been in the Act and that no other substantial changes had been made. The section related to a market inquiry that could be used as a tool to uncover whether a market had been failing due to price fixing. If substantive issues arose the Minister must table the report in the National Assembly.

Mr Gamede said he did not have a problem with the word “must” in section 21(5)(3), but with the confusion around “National Assembly” and “Parliament” as Parliament consisted of both the National Council of Provinces (NCOP) and the National Assembly (NA).

Mr Johan Strydom, Senior Legal Advisor: Legal Services, dti said that it was a reflection of what was found in the principal Act and that it could be rectified to read “Parliament”. A slight amendment in terms of the time period for Minister to submit the report to Parliament had been made, so that the Minister could have more time to familiarise him/herself with the report.

Mr Gamede asked whether the recommendations that had been made to the Minister would be binding.

Ms Ntuli said that there needed to be legislation that protected small, micro and medium sized enterprises (SMMEs) and to discourage collusive behaviour against such enterprises.  Markets had to be investigated so that blockages could be identified.

Mr Ntuli said that he had a problem with the visibility of the CC as many consumers did know how or where to lodge a complaint against businesses suspected of collusive behaviour.

The question went unanswered.

Ms B Dithebe (ID, Northern Cape) asked for clarity on the “whistleblower” and “immunity” aspect of the Bill.

Ms Maseti replied that in the case of the recent anti-competitive behaviour in the pharmaceutical sector, an employee who had knowledge of such behaviour had blown the whistle and was granted full immunity. It would be difficult to grant leniency to an individual or a business who had not disclosed their involvement first.

She added that small businesses and people who had supplied information on collusive behaviour could choose to be anonymous and their anonymity would be protected. There had been instances where people and companies had felt that they were being bullied by the companies they had reported, and that they had been encouraged to get a protection order against such companies. 

She said again that in the past it had been very difficult to prove the existence of complex monopolies, and in cases where this had been proved, businesses had raised the prices of their products to offset the cost incurred by the imposition of a fine. The proof submitted had to be circumstantial or economic evidence, even if no evidence could be found of an agreement.

Ms Ntuli said that the competition law framework had been designed to assist the Tribunal to look at evidences and that the standard of proof was not “beyond a reasonable doubt” but “the balance of probabilities”. The State would have to prove through circumstantial and economic evidence that the Competition Act was violated.

The Acting Chairperson said that Webber Wentzel had presented the Committee with a document that highlighted certain problems with the amendments made to the Bill, and asked whether they had been consulted or made inputs during the public hearings.

Ms Ntuli said that the dti had engaged with Weber Wentzel before and during the public hearing process, and that their concerns had been noted. Webber Wentzel’s argument had been that the proposed amendments would limit their client, Mastercard’s, performance.

Mr Gamede noted that the Acting Chairperson should not have raised the document submitted to the Select Committee at the meeting as normal parliamentary procedures had not been followed and that entities should not be allowed to further their narrow interests.

Mr Ntuli supported this view and stated that normal procedure had to be followed, as this Bill ought to address the injustices inflicted upon innocent consumers by multi-national and big businesses.

The Acting Chairperson supported this view as well, pointing out that this was a Select Committee briefing and not a public hearing.

Ms Dithebe asked whether the proposed amendments would also protect informal vendors from neighbours that might want to start a fully operated spaza shop that sold the same products at a lower price.

Ms Maseti said that she was not sure whether the jurisdiction of the Competition Act would be applicable to such a scenario.

Ms Ntuli felt that the Competition Act would not be applicable to such a scenario.

The Acting Chairperson asked the Parliamentary and Dti legal advisors to give their opinions on the proposed amendments.

Mr Strydom said there were currently two obstacles in the path of the State if it wished to prosecute a person, because currently the State had to obtain a consent order admitting to the fact that there was illegal conduct, or have a finding by the Competition Tribunal of illegal conduct. Every element would have to be proved beyond a reasonable doubt in a criminal court. The dti wished to change this to read that unless it was otherwise challenged, the finding of the Tribunal may be accepted as “conclusive proof”. The accused would then have to challenge the findings of the Tribunal, and persuade a Court why they should not be accepted. If he or she chose not to give evidence and do this, then the findings of the Tribunal could stand.

Ms Refilwe Mathabate, Parliamentary Legal Advisor, said that the Parliamentary Legal Unit had indicated that it had a problem with the new Section 73A, specifically subsection (5).

Mr Strydom said that the methods employed by the Tribunal had been of a highly technical nature and thus not easily interpretable, and that if the Select Committee decided to omit this subsection, then the State, in the criminal proceedings, would have to prove, from scratch, that the individual or business had been involved in unlawful conduct.

Ms Themba asked the two legal advisory teams to reach consensus on legal aspects of the Bill and excused them from the meeting for five minutes to reach consensus.

Upon their return to the meeting, Mr Strydom noted that the legal advisers had agreed that some of the sub clauses that dealt with culpability, had been changed and that the words “engaged in” had been substituted with the words “knowingly acquiesced”. This dealt with a director either having first hand or subjective knowledge of unlawful conduct.

Mr Strydom said that the phrase “National Assembly” in the revised section 21(5) (3) would be removed and the reference to “Parliament” retained as it encapsulated both Houses of Parliament.

Ms Koleka Beja, Parliamentary Legal Advisor, said that the issues raised by Webber Wentzel had been addressed in the Bill and that the Constitutional Court judgement that they had referred to in their document did not apply as a precedent. They had been given adequate time to raise their grievances during the public hearing process and their concerns had been answered by the dti.

Ms Themba said that she was satisfied with the consensus reached between the various legal teams.

Other Proposed Amendments
Mr Strydom said that amendments had also been made to clause 3, clause 4 and clause 12 of the Bill.

Adoption of the Bill
The Chairperson read through the Motion of Desirability, which was accepted.

The Bill was unanimously adopted.

The Chairperson read through the Report of the Committee.

The Committee accepted the Report.

The meeting was adjourned.

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