2009 has seen some of South Africa's largest fines for anti-competitive behaviour and with further legislation due in 2010, company executives are now in the spotlight, say Paul Coetser and Louella Tindale

Since its inception the Competition Act No 89 of 1998 has proved to be a formidable force in combating anti-competitive behaviour in South Africa. In the last year the Competition Authorities have rigorously applied the Act to fight cartel activity, particularly in the construction and fertiliser industries.

2009 has seen some of the largest fines imposed on companies found guilty of participating in cartels. The last year has also seen the enactment of the Competition Amendment Act, the commencement of which has yet to be announced and has severe consequences for directors and managers of companies found to have participated in a cartel.

Cartel activity is prohibited in terms of section 4(1)(b) of the Act, which states: "An agreement between, or concerted practice by, firms or a decision by an association of firms is prohibited if it is between parties in a horizontal relationship and if it involves any of the following restrictive horizontal practices:

(i) directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii) dividing markets, by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering."

In order to efficiently combat cartel activity, the Competition Tribunal developed a strategy in 2006 whereby certain industries were prioritised. In a recent Competition Tribunal publication titled 'Unleashing Rivalry 1999-2009′, the Competition Tribunal outlined its process to identify problem industries as follows:

"The three main criteria for the prioritisation of sectors and cases are: the impact on poor consumers; their importance for accelerated and shared growth; and the likelihood of substantial competition concerns based on information that the [Competition] Commission gathers from complaints and merger notifications."

In 2007 and early 2008 the following industries were prioritised: food and agro-processing; infrastructure and construction; banking; and intermediate industrial products.Since the adoption of this strategy, numerous companies within these industries have faced fines of up to 10% of their annual turnover.

In addition, the Competition Commission adopted a corporate leniency policy (CLP) in 2004. This has proved to be hugely successful, so much so that in the last year South Africa has received considerably more CLP applications than many other jurisdictions in the world. CLP applications increased from three in 2004 to 24 in the first seven months of 2009.

At the beginning of 2009, Aveng (Africa) was dealt a hefty R45m (£3.6m) fine for its Infraset division's involvement in the concrete pipes and culverts cartel. The cartel began in the early 1970s when Rocla, a subsidiary of Murray & Roberts, approached its competitors and reached an agreement to form a cartel under which these competitors and Rocla would fix prices and market shares in Johannesburg, Cape Town and Durban. In addition, the members of the cartel agreed that they would not compete with each other in certain other territories in southern Africa.

Sasol Chemical Industries was fined R250m (£20m) this year for its involvement in a fertiliser cartel. This fine is the largest that has thus far been imposed for a section 4(1)(b) contravention in South Africa. In a consent agreement concluded with the Competition Commission on 18 May 2009, Sasol admitted to exchanging competitively sensitive information with its competitors Kynoch Fertiliser (Proprietary) and Omnia Fertiliser.

Other fines imposed by the Competition Commission for cartel activity in recent years are R54m (£4.4m) against Adcock Ingram; R146m (£11.9m) against New Reclamation Group; R46m (£3.7m) against Food Corp; R98m (£7.9m) against Tiger Consumer Brands; and R15m (£1.2m) against South African Airways.

It is anticipated that 2010 will see an increase in fines imposed, especially in the cement industry where Pretoria Portland Cement Company has just come forward to admit being involved in a cement cartel in exchange for conditional leniency. Furthermore, an alleged mining roof bolts cartel was uncovered in 2009 when RSC Ekusasa Mining (Proprietary), a subsidiary of Murray & Roberts, approached the Competition Commission for leniency for its involvement in the cartel which allegedly comprised companies such as Aveng (Africa), trading as Duraset, Dywidag-Systems International (Proprietary) and Videx Wire Products (Proprietary). The Competition Commission referred its findings from its investigation into this cartel to the Competition Tribunal on 30 September 2009.

In addition, 2009 also saw the beginning of the Competition Commission's investigation into the supermarket industry and a referral to the Competition Tribunal of a certain complaints against Telkom SA in relation to margin squeezing and excessive pricing.

2010 will see the Competition Amendment Act come into operation, which provides for further consequences if a company is found to be a member of a cartel. Of particular interest are the provisions introducing criminal sanctions on company executives who are guilty of cartel activity.

Section 73A(1) of the Competition Amendment Act provides that: "A person commits an offence if, while being a director of a firm or while engaged or purporting to be engaged by a firm in a position having management authority within the firm, such person:

(a) caused the firm to engage in a prohibited practice in terms of section 4(1)(b); or

(b) knowingly acquiesced in the firm engaging in a prohibited practice in terms of section 4(1)(b)."

This section applies to directors and managers. In order to be prosecuted under this section, the company's director or manager must either have admitted that the company was involved in a cartel or the Competition Authorities must have found evidence that the company engaged in a cartel. This is where a constitutional issue arises: the legislation imposes a reverse onus on the director or manager to prove his or her innocence.

In criminal proceedings the onus is typically on the state to prove that the accused is guilty of the offence and the standard of proof is beyond a reasonable doubt. Reverse onus provisions have previously been found to infringe an accused person's rights in terms of the Bill of Rights contained in the Constitution and have therefore been found unconstitutional by the Constitutional Court.

Furthermore, in terms of sub-section (b), the director or manager must have had actual knowledge of the prohibited practice. This may provide a possible defence to criminal prosecution under this sub-section.

If found to have committed an offence in terms of this section, the individual will have to pay a fine of up to R500,000 (£40,679) and/or face jail time of up to 10 years. It is further provided in the Competition Amendment Act that the company is prohibited from either directly or indirectly paying the fine imposed on the director/manager or from indemnifying, reimbursing or compensating the expense incurred by the director/manager in defending himself unless the prosecution is abandoned or he is acquitted.

The second provision of the Competition Amendment Act, which is of particular interest, is section 10A(1), which deals with complex monopolies and provides that:

"Complex monopoly conduct subsists within the market for any particular goods or services if:

(a) at least 75% of the goods or services in that market are supplied to, or by, five or fewer firms;

(b) any two or more of the firms contemplated in paragraph (a) conduct their respective business affairs in a conscious parallel manner or co-ordinated manner, without agreement between or among themselves; and

(c) the conduct contemplated in paragraph (b) has the effect of substantially preventing or lessening competition in that market, unless a firm engaging in the conduct can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect."

Unlike section 4 of the Act, this section of the Competition Amendment Act does not require any agreement or concerted practice. Complex monopoly conduct occurs when the unilateral conduct of various companies amounts to a type of co-ordination.

Complex monopolies are not a prohibited practice. However, the Competition Commission may investigate the conduct and approach the Competition Tribunal for a declaratory order against the companies believed to be part of the complex monopoly. At least one of the companies involved must have a market share above 20% and the conduct must have resulted in high barriers to entry, the exclusion of other companies, excessive pricing, etc.

The Tribunal may then issue an order requiring the companies to cease the complex monopoly conduct. What is prohibited, and could be visited with a fine, is if a company, after the Competition Tribunal's order to cease the conduct, continues.

It is yet to be seen what effect the above two sections will have in combating anti-competitive behaviour. Although directors' liability is introduced, possibly with the intention to deter cartel activity, it may be exactly this that will prevent individuals coming forward to the CLP for fear of criminal sanctions.

Paul Coetser is director and Louella Tindale is candidate attorney at Werksmans incorporating Jan S de Villiers' competition practice.