De Lille Legislative Proposal to Amend the Competition Act: deliberations

Private Members' Legislative Proposals and Special Petitions

19 November 2008
Chairperson: Ms P Mentor (ANC)
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Meeting Summary

Ms Patricia de Lille, MP, submitted a legislative proposal to amend the Competition Act. She noted that when price fixing was proven, the corporate entity had in the past been sanctioned. It was considered that every individual involved in the price fixing should be penalised individually, separate from the legal entity. There should be more stringent monetary fines on legal entities in proportion to the profit made from price fixing and the impact on consumer. Judges also should taken into consideration the intention behind the price fixing.

The Department of Trade and industry noted that the two Houses had already passed amendments to the Competition Bill. This Department viewed price fixing very seriously and as an area of priority. Individuals who caused firms to engage in price fixing would be charged and could face fines up to R500 000, or ten years imprisonment.  It noted that when firms had been fined, they would find a way to pass on the costs, but an individual found criminally liable could not do so. Under the most recent amendments, companies would be prohibited from paying the fines on behalf of those individuals. This would go a long way to serve as an effective deterrent. The Department explained the effects of the new Bill.

The Chairperson noted that Ms de Lille’s proposal had been forwarded to he Speaker in April 2008 and events had rather overtaken it. Members nonetheless thanked Ms de Lille for bringing this to the attention of the Committee and agreed that price fixing was a serious and endemic problem, that Parliament must hold Cabinet collectively accountable for this as it threatened the entire economy. The Committee, whilst appreciating the efforts that the Department of Trade and industry were making, nonetheless felt that the Department  must look into the possibility of institutionalising monitoring, education awareness and compliance, and to strengthen their mechanisms, the committee was not happy.

Finally the Committee noted that although the issues raised by Ms de Lille need not be pursued at this stage, as they were encompassed in legislation now awaiting enactment, the price fixing problems should be highlighted as a legacy issue that the next Parliament should prioritise.
 
The Minutes of Committee Meetings dated 05 August 2008; 07 August 2008; 12 August 2008; 19 August 2008; 26 August 2008; and 22 October 2008 were adopted.

Meeting report

De Lille’s Legislative Proposal to Amend the Competition Act, No. 89 of 1998
Mr L Greyling briefed the Committee on the proposal by Ms Patricia de Lille, MP. He noted that Ms de Lille had proposed a legislative amendment to make price fixing a criminal offence for which company directors could be held personally criminally liable. Price fixing had to be recognised as an offence that was defrauding the poor. This morally reprehensible action was able to take place due to the monopolistic nature of many of the economic sectors in South Africa.

Since the announcement of the intention to launch the legislative proposal, the ID party had been inundated with calls from various sectors alleging price fixing activities. This week the dairy producers resorted to the courts in an attempt to stop the Competition Tribunal from investigating and ruling on price fixing in that industry. However, the Judge had ruled against the dairy producers and correctly stated that price fixing was something that must be dealt with urgently
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Price fixing was not just an economic arrangement, it was a calculated and criminal act aimed at maximising corporate profits at the expense of both the poor and vulnerable companies lower down the chain. It must be stopped for the sake of the poor, as well as for the economy, as too many emerging businesses had been forced out of the market as a result of collusive practices by the large corporates. It was therefore imperative that a strong signal be sent out. Many of the corporates such as Tiger Brands could simply absorb the large fines, and ironically would pass this on to the poor through increasing their prices.

Ms de Lille submitted that there was no difference between stealing from a shop and a corporation stealing from the poor. Nobody who participated in white-collar crime should be allowed to hide behind the corporate veil, in order to shield their personal culpability.

Comments from Department of Trade and Industry (dti)
Ms Nomfundo Maseti, Acting Chief Director, Department of Trade and Industry (dti), advised that this Department had already introduced a Bill to amend the Competition Act, which had been passed by both Houses. The purpose of this Bill was to deal specifically with the challenges identified by Ms de Lille, particularly on the price fixing. Dti agreed that this was critical and that price fixing did not only rob consumers, but was detrimental to the economy, as it increased inefficiencies, increased the input cost downstream, was tantamount to fraud and collusion, and decreased competitiveness in the marketplace. 

The Bill already provide that the individuals who caused those firms to engage in price fixing activities would be charged, and could, if found guilty,  be fined up to R500 000 or sentenced to ten years imprisonment, or both.

Ms Maseti noted that even when large corporates had been fined in the past, they did find a way to pass on the costs. An individual found guilty could not do so. His or her personal freedom was being threatened. Companies would also be prohibited from paying the fines on behalf of those fined. Dti believed that that would go a long way to serve as an effective deterrent in terms of price fixing.

Discussion
The Chairperson noted that this matter had been placed before the Speaker on 18 April, at a time when the amendments to the Bill were not yet public. However, the Committee must still consider the matter. She would still be given the credit by the Committee for bringing this matter to the attention of Parliament.

The Chairperson then expressed her personal view that the responses to price fixing had been quite belated – as evidenced by the dairy producers matter. She believed that Parliament must hold Cabinet collectively accountable when incidents like this occurred. They threatened the economy, and the Executive was supposed to defend the economic integrity of the Republic.

Adv P Swart (DA) understood that Ms de Lille’s proposal had thus been captured in the Amendment Bill. He suggested that all the Committee could do was to note that the matter had been covered in subsequent legislation and compliment Ms de Lille for bringing the matter to the Committee’s attention.

Mr A Ainslie (ANC) also congratulated the presenter on the way the proposal was drafted. It was succinct, and clearly described the background, the objects of the proposal and the reasoning.

He noted that the proposal dealt with four matters, of which two were dealt with by the Department in the Amendment Bill. However, there were still considerations as to the fines to be imposed, and the fact that currently the corporates would simply recoup the cost of the fines from the consumers and continue to transgress. He believed that the only way to address this was to have huge fines. Ms de Lille had also suggested that judges be informed of the motive when they were imposing sentence. Mr Ainslie also suggested that the effect upon the poor should also be taken into account. He asked whether the Departmental amendments had met all four recommendations. 

Mr Greyling noted that Ms de Lille had participated in public hearings on the amendments. At that time there were some concerns about individual criminalisation, as it was feared that this could be a disincentive for people to become directors. He asked whether that had been dealt with.

Ms J Fubbs (ANC) asked for clarification on the Amendment, saying that the reference had also been made to the milk price fixing, which seemed to suggest that the Bill might have a retrospective effect. She noted that it was difficult for this Committee to consider matters when they had not seen the Competition Amendment Bill, and did not know when it might be enacted. Whilst she supported stringent decisions and actions against price fixing she cautioned that there was a need to be careful how the legislation was worded, to ensure that a director who was not present at a meeting might not find himself the subject of a criminal action, for instance.

Ms Rajbally also complimented the presenter on her proposal. Her concern was how the Department monitored price fixing, and whether they had inspectors to go around and check on price fixing.

Ms Maseti responded that the Bill was not yet enacted. It had been passed by the National Assembly in October and still had to be signed by the President. She noted that it would not apply retrospectively, and also pointed out that the milk cartel allegations had not been decided upon by the Court. In response to the questions around the fines, she said that up until now, there had been concerns as to whether the fines had been large enough to be a real deterrent. The original Act had provided that a fine of up to 10% of annual turnover could be imposed. She noted that this would not relate simply to the profit generated on the product in question, but on all the goods that the company produced. In the past the fines had usually been imposed at around 1.5 or 2%. A 10% fine could be very severe.

Ms Maseti, in answer to a question from the Chairperson seeking further clarity, explained further that the annual financial statement of a company might put its total turnover at R10 billion for all goods produced. The 10% calculation would be based on the R10 billion. Under the new system, there would be an assessment of how much the disputed goods had produced – for instance, milk alone, discounting cheese and yoghurt. The fine would be 5% of that specific figure. The fines could still be huge; she pointed out that in the Tiger Brands case the R99 million fine had represented a fairly small percentage.

The decision by dti now to impose fines on individuals was taken in order to produce an effective deterrent.

Ms Maseti noted that during the policy process dti had considered the position of directors. There might be directors who were aware of the collusive tenders but did not take any action to prevent them. This issue crossed over into Company law, and the dti had also recently processed the Companies Bill. The issue of director liability was basically covered under that more general legislation. In respect of the sentencing, she noted that knowledge and intent were closely linked. If an individual was part of a meeting at which collusion was discussed, but did not object, then he must be deemed not only to have actual knowledge, but to have the intent as he acquiesced. The knowledge proved the motive and this would be taken into account by the Court. Actual knowledge would have to be proven in the criminal charges against an individual, whereas this would not apply in the case of a juristic person like a company. Dti were satisfied that they had given sufficient attention to the Constitutional issues and that the Bill would pass Constitutional muster.

In respect to monitoring, she noted that there were various ways in how the Competition Commission could act. Sometimes people from the companies became whistle blowers, the Commission would receive calls, or pick up information from the press or rumours in the market.

The Chairperson thought that if there was not a structure then this could be problematic.

Ms Maseti responded that most information came from inside the companies. The Competition Commission had a Compliance Division to monitor compliance to the law. It could also monitor future compliance, after a contravention, to make sure that there was future compliance with the Act.

Ms Rajbally said that about twenty-five years ago in each province inspectors were employed to go to businesses and check prices. There were even substantial differences in the prices of bread. She felt that rather than waiting for a leak of information, the Department should be actively monitoring. She thanked Ms de Lille for drawing  attention to this important issue.

Ms M Maine (ANC) noted that the Department was doing good work, but she was concerned also about lack of monitoring, as whistle blowers had their own problems. 

The Chairperson asked dti why the bread was priced differently in one store than another.

Mr Greyling said the issue around whistle blowing was important,  as the bread producers have later given the person who blew the whistle on bread price-fixing some very rough treatment. He agreed that ultimately there was a need to look at a more proactive competition policy, so that the smaller players in the market could really compete. South Africa had a very monopolistic economy with a few controlling companies.

Ms Maseti clarified that there was monitoring even when there was no wrongdoing. The dti would ensure that people were aware of the legislation and were complying with it. There was a proactive stance taken on this legislation, and the whole process of amending he Competition Act and designing a policy framework was based upon the concerns around high input costs and the need to ensure that small businesses could compete. The Bill had further amplified the power to hold market inquiries, which were general investigations into a sector of the industry, not necessarily directed to any particular company, which would be set up where it seemed that matters were not working well or where prices were rising.

Ms Rajbally noted that over the weekend she had been shopping for a large function and had purchased rice in four different locations, for four different prices.

The Chairperson asked dti to define price fixing.

Ms Maseti clarified that price fixing would happen when competitors discounted or raised prices by agreement with each other. There may not be problems when prices were different, and in fact that benefited the consumer, who had the choice of where to purchase. If all prices, on the other hand, were set at the same level and then all increased (as had happened with Albany and Sasko and Blue Ribbon bread) that would harm consumers as they had no choice. Even if there was no actual agreement, but a conscious awareness, that would also now fall within the net.

The Chairperson returned again to the question of monitoring, saying that desperate times called for desperate measures. Price fixing was endemic in South Africa, and she urged dti to look into the possibility of institutionalising monitoring, education awareness and compliance. She asked this Department also to maintain contact with Ms de Lille. She noted that seven years ago she had heard of price fixing in milk, and believed that South Africa should have looked into the issue then. She further noted that even after the bread companies had been fined, the bread prices remained high, and then rose even more from those artificially high prices. The consumer received no relief at all..

Mr Segoane Monnye, Deputy Director, dti, noted that at the beginning of each year certain sectors were highlighted where it was suspected that there might be price fixing. The Competition Commission was unable to cover every sector all the time but was making a conscious effort 

The Chairperson then noted that although the issues raised in the proposal were already covered in legislation that was awaiting enactment, she thought that this was an important legacy issue that the next Parliament should prioritise, and the Committee would ask that this be done. She reiterated her comment that the Department should look into institutionalising monitoring. She asked the dti to convey this to the Minister.

Adoption of Minutes
The Minutes of Committee Meetings dated 05 August 2008; 07 August 2008; 12 August 2008; 19 August 2008; 26 August 2008; and 22 October 2008 were adopted.

The meeting was adjourned.

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