Competition Amendment Bill: deliberations & adoption of amendments proposed by NCOP

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Trade and Industry

06 October 2008
Chairperson: Mr B Martins (ANC)
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Meeting Summary

The Department of Trade and Industry took the Committee through the changes that had been proposed to the Competition Amendment Bill, following the National Council of Provinces process, although some of the technical amendments had emanated from the Department. Clause 3 contained a technical amendment to clarify the Acts being referred to. In regard to complex monopolies, a definition had been provided in relation to “conscious parallel conduct” under Clause 4, and an error in the description of this conduct was rectified. It had been noted that although this clause dealing with market inquiries made reference to the Minister submitting the report to the National Assembly, this was inconsistent with requirements elsewhere for tabling of reports to Parliament. It was therefore proposed that the reference to the National Assembly be replaced by a reference to Parliament. In respect of Clause 12 there had been concerns that it was possibly unconstitutional to attempt to impose criminal sanctions based on negligence and the provisions criminalising imputed knowledge were therefore to be removed. Clauses 12(2) and 12(5) were to be revised. The phrase “in the absence of evidence to the contrary” was being changed to “prima facie” to deal with the concerns around the possible reversing of the onus of proof.

Members queried the changes to clause 12 and asked whether directors should not always be held criminally liable for anti-competitive practices of their companies, raising their concerns about the possibility of abuse of power. The Department clarified that although gross negligence could be an element of certain criminal offences, it was not appropriate for this to apply in the Bill. The Department and the Parliamentary and State Law Advisers dealt at length with the reasons for the amendments. The wording around the evidentiary weight of Orders of the Competition Tribunal was also discussed. The Chairperson clarified that matters of principle rather than matters of law were at issue. Further questions related to the fines and imprisonment and the scale of offences, the definition of “conscious parallel conduct” and examples of this, the wording of the amendments under Clause 3, and the reasons why the amendments had not yet been incorporated into a C-and D-version of the Bill. The Committee resolved to adopt the amendments, and also adopted its Report on the Bill.

Meeting report

Competition Amendment Bill (the Bill): Department of Trade and Industry (dti) presentation on amendments made by the National Council of Provinces (NCOP)
Ms Zodwa Ntuli, Deputy Director General: Consumer and Corporate Regulation Division (CCRD), dti, noted that certain amendments were made by the National Council of Provinces (NCOP). She pointed out that some of the issues had been flagged already during discussions with this Committee, and noted that at the time when this Committee was discussing the Bill, the Department had also sought opinion from Senior Counsel on some issues, which were now reflected as well in the amendments.

She summarised that the Bill was introduced to this Committee in June 2008, and on 21 August 2008 had been debated and adopted by the National Assembly (NA). It was debated and adopted by the NCOP on 25 September.

The first amendment was a technical one relating to the application of the Act. Clause 3 had contained an incorrect reference to "this Act" and this had now been corrected by a replacement of the phrase so that it reflected both this Competition Amendment Act and other sector legislation.

In relation to complex monopolies, no definition had been given for “conscious parallel conduct". Business had requested such a definition, so that a differentiation could be made between such conduct and day-to-day pricing strategies and other activities. A proposal was now been put forward for such a definition, to be incorporated in Clause 4. A further change related to the description of this conduct, so that it would be correctly reflected as "conscious parallel conduct" instead of "parallel conscious conduct". Further technical changes were made to numbering of the Clause.

In relation to market inquiries, there had been questions raised about inconsistencies. Section 21(3) of the Competition Act was requiring the Minister to submit the report to the National Assembly, although elsewhere reports were to be submitted to “Parliament”. The dti proposed that the reference to the National Assembly be substituted with a reference to "Parliament", in Clause 5.

Ms Ntuli said that in respect of Clause 12, concerns were raised that it was unconstitutional to introduce a "negligence" standard for criminal sanctions, and it was suggested that the clause should be amended so that only actual knowledge should attract criminal prosecution, and not imputed knowledge. Originally, the clause had been worded so that directors who ought to have known about certain actions in the company could be held liable. The Department had sought legal advice on this point, and the Select Committee had also discussed the matter at length. It was now decided that the former sections of the clause related to negligence should be left out, and clause 12(2) was to be amended. Although the Department still believed that this clause as originally drafted was not actually unconstitutional, it was prepared to heed the concerns. There were instances in which negligence may be appropriate for criminal liability. However, the Department had received advice that this would not necessarily apply to this Bill.

In addition, in relation to Clause 12(5), the shifting of the onus to the accused was also debated at length at the NCOP The original version had read that the findings of the Competition Tribunal or Consent Order should be accepted as conclusive proof of the conduct, unless otherwise proved. This was regarded as a shift of the onus of proof to the accused, a breach of the presumption of innocence until proven guilty, and therefore the words "in the absence of evidence to the contrary, and conclusive" was being replaced with the phrase "prima facie". This did not have the effect of reversing the onus of proof, but gave the accused the opportunity to argue the case. The State Law Advisers and Parliamentary legal advisers were satisfied with this wording.

Discussion
Mr J Maake (ANC) noted that it was very confusing that the changes had not been inserted in the Bill, and questioned what exactly was being changed in Clause 12(5).

Mr Johan Strydom, Senior Legal Adviser, Department of Trade and Industry, said that the last three lines on page 8 of the B version of the Bill, and the first six lines of page 9 would all be deleted; namely from the new Section 73A(2)(b) to 73(2)(b)(iii).

Mr M Nonkonyana (ANC) raised concerns about Clause 12. He questioned whether Senior Counsel had been of the opinion that the clause as originally drafted had been unconstitutional or not.

Mr Nonkonyana also read out the ATC report of the amendments made by the NCOP, noting that the Bill did not seem to define the concept of “actual knowledge”. He had understood that intention in the criminal sense could be direct intention, or indirect. He wondered if this would be dealt with in this Bill and asked for further clarity on this issue.

Mr D Dlali (ANC) questioned the shifting of the onus under Clause 12. He wondered if the clause would not need to be rephrased.

Ms Nomfundo Maseti, Director: CCRD, dti, said that the opinion from Senior Counsel had not said that gross negligence needed to be proven in all criminal matters. The Department of Trade and Industry had originally inserted wording so that a person could be liable if he ought reasonably to have had knowledge by virtue of his position as senior executive or director, which required him to exercise a duty of care in the company. If cartel activities were taking place, or where marketing directors were dealing with prices, which a director was approving, then that director would be in a position to have knowledge. However, when the clause was discussed, concerns were raised that there could be instances where directors might genuinely not be aware of cartel activities, and if the wording as originally drafted had remained, then they could have been held criminally liable despite their factual lack of knowledge. The opinions given by Senior Counsel had been to the effect that the negligence portions of the clause should be removed, and instead there must be proof that the directors had such knowledge.

Mr Strydom interjected that the amendment was consolidating, in the new Section 73A, what had been listed as sub-clause (2) and (2)(a) into a single sentence, and all of subclause (2) (b) was being removed. Therefore the new subsection (1) of that new section would then say how the Director could commit an offence. Firstly, if he caused the firm to engage in a prohibited practice – perhaps putting forward a proposal to fix the price of goods – he would be the architect of the price fixing and would be held liable. Secondly, if another director did not put forward the idea, but listened to the proposal and acquiesced to it, having actual knowledge, he would also to be committing a statutory offence (73A(1)(b). However, a third director, who should have attended the meeting but did not, could not be held liable by reason of the failure to attend the meeting. No actual knowledge could be imputed to the third director, and no criminal liability would extend to that Director.

Ms Ntuli summarised that therefore a director could be held personally criminally liable only where he caused a firm to do something uncompetitive, or where he had actual knowledge. The Department’s initial proposal that directors who ought to have had knowledge should also be liable had now been withdrawn in the amendments. Although there were some areas of the law where a person could be held criminally liable on the basis of his negligence, this Bill was not a clear cut area, according to the legal advice given to the Department.
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Ms M Ntuli (ANC) asked whether a director who had not attended the meetings and agreed to the collusion, but who had benefited from the result, could not ever be liable.

Ms F Mahomed (ANC) asked if the requirement that a director must now have "actual knowledge", could not lead to abuse of power. She asked why (b)(i), (ii) and (iii) had been removed from the new Section 73A.

Mr Maake noted that ignorance of the law was not an excuse. He felt that directors should hold some responsibility. He questioned how far the directors would be sanctioned.

Ms Ntuli responded that a director who may not have participated in a meeting, but who then acted in a cooperative manner, would be caught by the complex monopoly provisions. Although a person may not have agreed specifically, he may follow other actions that would make him liable. There had been a gap in cartel matters to date because directors would deny actual involvement in cartels, but then still engage in conduct that caused a problem. The instances could be dealt with either under the cartel conduct or the complex monopoly provisions, so a director not distancing themselves completely could still be held liable. Ms Ntuli acknowledged that there were still some complex issues. The Department had not been completely convinced that its initial wording had been unconstitutional, but had agreed that certain amendments be made.

Ms Maseti added that a director who may not be a participant to the meeting might have been in a position to obtain information about the meeting, but fail to take any action. However, in terms of these most recent amendments, "actual knowledge" was a requirement.

Mr Strydom said that this was not a simple matter. It was more a matter of policy than of law. He asked that the Committee bear in mind that Parliament was seeking to create a statutory offence, which carried sanctions of a fine of up to R500 000, or imprisonment of up to ten years. This was a serious offence, and there was therefore all the more reason for fairness. Mr Strydom then referred back to the example he had given before. He queried whether it would be fair to say that a director who really did not have actual knowledge of price fixing should be imprisoned for ten years, although it would clearly be correct that the architect or anyone else having direct and actual knowledge of price fixing but raising no objections should be severely punished. This was not a question of constitutionality, but of policy and fairness.

Mr D Oliphant (ANC) was not convinced by the arguments raised. He felt that any director who benefited from the actions, and did not withdraw directly from the decision, should be held liable.

Ms Ntuli suggested that a "win-win" situation should be gained. She stressed that the directors' negligence should not contribute to other people's hardships. The mere fact of being a director should impose certain responsibilities. All directors should be vigilant and the legislation should be directed towards protection of the public and responsibility of directors.

The Chairperson pointed out that it might not be possible to find a "win-win" situation. The basic issue was that if directors were complicit, they could be held liable.

Mr Strydom said that a director who was not at the meeting, but had later become a signatory to the minutes, thereby gaining knowledge, would then be squarely liable for the statutory offence. It was only when a director in all honesty never acquired actual knowledge that he would not be liable under this statutory offence. He reiterated that the previous provisions where a director could be liable if he was in a position where he ought reasonably to have had knowledge of the conduct had been removed by the amendment.

Mr Maake noted that there must surely be degrees of the fines or imprisonment mentioned and the maximum would not be imposed every time. The gravity of the offence should be taken into consideration. He too would have liked to have seen a clause that could cover eventualities where directors did not attend to their responsibilities.

The Chairperson noted that general principles should apply equally. He noted that the Portfolio Committee might take decisions with which an individual member might not agree. It would not be possible to legislate for each and every situation.

Mr Oliphant noted that a Member who was not at the Portfolio Committee would bear responsibility for decisions. Exactly the same should apply to directors.

The Chairperson pointed out that these were criminal proceedings and that would not stand Constitutional muster.

Mr Strydom agreed that the penalties in the Bill were maximum penalties and the Court would consider the strength of the contribution, the position of the person, and all considerations relating to the offence.

Mr Nonkonyana referred to the amendments proposed for Clause 12(5). He pointed out that if a Consent Order was given, the parties would have had to be present throughout the previous proceedings of the Tribunal. He wondered why then the procedure should not be short-circuited. He was not convinced that the "prima facie" wording was necessary.

Mr Strydom explained the new section 73A(5) as embodied in Clause 12(5). It had been necessary to decide what evidentiary weight was applied to the Consent Order or Tribunal Order. Initially the Department had thought that if no evidence was presented to the contrary, this could be accepted as conclusive proof of the findings. Although the Parliamentary Legal Advisers appreciated that the intention of this clause was to try to short-circuit lengthy procedures, the effect of the clause was to reverse the onus of proof, as it shifted the onus of proving that the accused had been responsible from prosecution to accused, and that was unconstitutional. This was the reason for the amendment of the wording. Mr Nonkonyana’s points were quite valid, but did not address the situation where there was not a Consent Order. Even when dealing with a Consent Order, it was regarded as unconstitutional to shift the onus by requiring the accused to produce “proof to the contrary.

Ms Koleka Beja, Parliamentary Law Adviser, added that she had been part of the discussion process, and she supported the amendments now proposed. She stressed that previous decided cases had held that the words "in the absence of evidence to the contrary" were tantamount to shifting the onus of proof. She reminded the Committee that the Tribunal was dealing with proof on the balance of probabilities. In criminal proceedings the burden of proof was beyond a reasonable doubt. She agreed that negligence was also very difficult to prove. All three steps of the negligence must be proven, and if one was missing, then it was impossible to establish negligence.

Mr Nonkonyana took the points made, but was concerned about the tedious processes that it might lead to. However, if the legal advisers had come to this conclusion, then he would live with the position.

Mr L Labuschagne (DA) raised a question on "conscious parallel conduct". He asked if this would cover the situation where banks would be charging the same rates for certain services. There could be a number of competitors, and if one reduced the price, followed by another reducing a price, he questioned whether this would be conscious conduct. He agreed that it was wise to try to define the matter, but he would like to have some practical examples.

Ms Maseti noted that the actions of the competitors, while being aware of other competitors' conduct in the market, were key to the issue. If Company A were to raise prices, and not lose business, then Company B might opt to do the same. That would result in the rising of prices overall, lack of choices to competitors, and all companies sustaining a conscious action over a period of time, which effectively would kill competition. The question was whether the companies were using their power to influence the rising of prices to another level. It was not quite the same as a cartel agreement, but had the same outcome as if there was an agreement between competitors.

Ms Ntuli added that conscious parallel conduct was not in itself necessarily anti-competitive; it would depend on the circumstances. The complex monopoly provisions gave further context to the definition. In some instances the players were following each other in a very competitive way, whereas in others they might be doing so merely to fix prices.

Mr Nonkonyana questioned the amendments that were being made to Clause 3. He questioned whether the report in the ATC was correct, and whether a reference to “such other sector legislation” was to be inserted, or whether the reference would be to "these Acts and such other national legislation". He pointed out that this might give rise to confusion as other national legislation could, for instance, include the Criminal Procedure Act referred to in Clause 12.

The State Law Adviser suggested that "this Act and that other national legislation" might be clearer.

Ms Ntuli clarified that this Bill was already clarified as dealing with other sector legislation. The wording as reflected in the ATC report was in fact correct.

Mr Strydom noted a comment from Members that it would have been clearer if the new wording had been incorporated in a new version. He pointed out that he had circulated copies of the ATC, containing the report of the Select Committee. Although this was not the usual way of presenting matters to a Committee, this was procedurally necessary since this was a Section 75 Bill, dealing with matters of national competence. The Select Committee could not actually effect the amendments as they would have done with a Section 76 Bill. This was why the changes appeared in the ATC and not in a Bill. The Department had no mandate to effect any changes. A C-version of the Bill, if approved by this Committee, would reflect these amendments and the D version would have the amendments incorporated into them.

Dr S Rasmeni (ANC) questioned the statement of the Department that certain matters had still been outstanding at the time that the Committee had first debated the Bill. He was not aware of any issues on which the Department was awaiting guidance at the time that they had presented the Bill. He was concerned at the suggestion that the Committee might have passed the Bill without dealing with outstanding issues. He noted that it was quite in order for the NCOP to propose amendments.

Mr D Dlali (ANC) said that the Department should have made the Committee aware that there were still some outstanding issues at the time. He asked if the Committee would be checking every clause again, as he was concerned that other errors might slip through.

Ms Ntuli responded that perhaps she had not phrased her comments quite carefully enough. At the time that the Department had first presented the Bill to the Committee, there were certain issues that had been raised by stakeholders, and the Department indicated to the Committee that it was not entirely in agreement that the concerns were valid, but that the Nedlac process was still being finalised, and the Department had sought further legal opinion – for instance on the claims of unconstitutionality discussed earlier. The same issues were raised again at the Select Committee deliberations. In making these statements earlier, she had merely intended to highlight those areas of concern, and to indicate that these were the areas that had been raised also at the NCOP, and out of which the issues arose.

Committee Report on the Bill & Adoption of Bill
The Chairperson read the Report of the Committee,

The Committee resolved to adopt the Report.

The Committee then resolved unanimously to accept the changes proposed by the NCOP.

The meeting was adjourned.

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