An overview of the Competition Amendment Act (Amendment Act) that was signed into law on 13 February 2019 by President Cyril Ramaphosa.
This briefing has been published by Neil Mackenzie, Johan Coetzee and Stuart Strachan of Fasken Martineau, South Africa, who have agreed to Simmons & Simmons making it available to elexica subscribers.
The Competition Amendment Act (Amendment Act) was signed into law on 13 February 2019 by President Cyril Ramaphosa.
The Amendment Act, which comes into effect at a later unknown date, introduces some significant changes, which fundamentally alter the scope of South Africa’s competition law and the powers of the competition authorities. This is done in the hope of redressing excessive concentration of ownership and control within the national economy, and promoting the participation in markets of small and medium businesses, and firms controlled by historically disadvantaged persons. The Amendment Act’s provisions and purpose represent a new chapter for South African competition policy.
This note sets out a high level summary of the main need-to-know features of the Amendment Act.
- When analyzing a merger, the Commission will usually consider numerous factors, including those listed in section 12A of the Competition Act. The Amendment Act introduces three additional grounds under section 12A for the Commission and Tribunal to consider: (1) the extent of ownership by a party to the merger in another firm or other firms in related markets; (2) the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors, and (3) any other mergers engaged in by a party to a merger for such period as may be stipulated by the Commission.
- The Amendment Act amends an existing public interest grounds and further introduces a new public interest ground for the Commission and Tribunal to consider. The amendment sees consideration being afforded to medium sized businesses, and a further analysis as to whether the merger has an effect on small and medium sized businesses to ‘participate’ within relevant markets. The newly introduced ground sees consideration being given to the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”.
- In addition to the competition authorities’ merger review process, the Amendment Act introduces a parallel notification and investigation process to be administered by a Committee, constituted by the President, comprising of cabinet members and other public officials, who will consider whether a merger involving a foreign acquiring firm has an adverse effect on ‘national security interests’ which are listed in the Amendment Act.
Abuse of Dominance:
- Excessive Pricing: The test for excessive pricing has been reformulated under the Amendment Act, although it is largely reflective of existing case law. It has been explicitly stipulated that where it can be shown by the Commission that the price charged by the dominant firm is prima facie excessive, the onus shifts to the dominant firm to prove that the price is reasonable.
- Predatory Pricing: The scope of possible cost benchmarks have been amended to include average avoidable cost and average variable cost, in order to allow for a more accurate assessment of exclusionary behaviour.
- Margin Squeeze: This practice has been included in the list of specific exclusionary acts.
- Monopsony Pricing / Abuse of Buyer Power: A customer that enjoys significant buyer power over its suppliers is prevented from abusing its dominance by imposing unfair purchase prices or trading conditions on its suppliers.
- The Amendment Act introduces an additional ground under which price discrimination may be tested. That is, whether price discrimination has the effect of “impeding the ability of small and medium businesses or firms controlled by historically disadvantaged persons to participate effectively”.
- The Amendment Act also prohibits a dominant firm from refusing to supply small and medium businesses or firms controlled by historically disadvantaged persons in order to circumvent this new, additional ground.
- If there is an allegation that a dominant firm has price discriminated against small and medium businesses or firms controlled by historically disadvantaged persons, the burden of proof has been adjusted so that a dominant firm will need to show that price discrimination did not impede those particular firms from participating effectively.
- While the Act previously provided for “yellow card” offences (no penalty for a first-time contravention), the Amendment Act makes all contraventions subject to a penalty of 10% of a firm’s annual turnover.
- An administrative penalty of 25% of a firm’s annual turnover has been included for a second offence.
- The proceedings during market inquiries will focus on categories of market features: (1) market structure, (2) observed market outcomes, and (3) conduct that has an “adverse effect” on competition.
- Critically, the Commission will be able to take any remedial actions that it considers to be reasonable and practicable, with the exception of divestiture, which can only be imposed by the Tribunal. The Commission’s findings and actions will be binding, unless challenged in the Tribunal.
Some of the existing grounds on which an exemption may be sought have been amended, and an additional ground has been included:
- The amended provisions now allow for exemption to be sought:
- To promote the ability of effective entry into, participation in or expansion within a market by small and medium businesses or firms controlled by historically disadvantaged persons, and
- For the economic development, growth, transformation or stability of any industry designated by the Minister.
- Under the newly included ground, an exemption may now also be sought:
- For competitiveness and efficiency gains that promote employment or industrial expansion.
The political will behind the passing of the Amendment Act is indicative of its importance, as a tool, to fulfil government’s policy objectives. It is expected that this area of law will receive more focus and resources from government for years to come.
The effect is that a greater range of commercial conduct will fall within the scope of competition law, the consequences of non-compliance have become more severe, and the powers of the competition authorities have been bolstered.
Firms would, therefore, be well advised to adopt a proactive approach to compliance with these new provisions, and tread carefully in those areas where new and untested prohibitions have been created.
Our team is looking forward to advising and guiding clients through this new and challenging landscape.
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