South African Competition Commission seeks public comment on its draft guidelines

Section 79(1) of the Competition Act, No 89 of 1998 (Act) empowers the Competition Commission to prepare guidelines to support its policy approach on matters within its jurisdiction. In this light, the Commission published its draft Guidelines for the Determination of Administrative Penalties for Prohibited Practices (Guidelines) for public comment on 10 December 2014.

Administrative penalties are intended to serve to deter firms from engaging in anti-competitive behaviour. The Guidelines outline the methodology to be implemented by the Commission in determining administrative penalties for the purpose of concluding consent orders, settlement agreements and recommending an administrative penalty in a complaint referral before the Competition Tribunal. The aim of the Guidelines is to promote objectivity and transparency.

The Commission's methodology is based on a six-stage test developed in the case of Competition Commission v Aveng (Africa) Limited t/a Steeledale, Reinforcing Mesh Solutions (Pty) Ltd, Vulcania Reinforcing (Pty) Ltd and BRC Mesh Reinforcing (Pty) Ltd (Case No: 84/CR/Dec09) which was later confirmed by the Competition Appeal Court. In essence, the six-stage test comprises of the following steps:

(i)       the determination of the affected turnover (being the turnover derived in the market in which the collusive conduct took place);

(ii)      the calculation of the base amount by multiplying the affected turnover with a percentage of up to 30% determined with reference to the nature and extent of the contravention, loss and damage suffered as a result of the contravention and market circumstances;

(iii)     multiplying the base amount by the duration of the contravention;

(iv)     reducing the amount obtained at step (iii) if it exceeds the statutory limit for an administrative penalty of 10% of total turnover;

(v)      a consideration of aggravating and mitigating factors; and

(vi)     reducing the amount obtained at step (iv) if it exceeds the statutory limit.

Some of the notable features of the Guidelines include:

• In addition to the existing factors listed in s59(3) of the Act, the Guidelines imposes additional factors to be taken into account in the determination of an administrative penalty. For example, s59(3)(c) of the Act relates to the behaviour of the respondent in the market. Additional factors, amongst others, include the nature of a firm's involvement in the contravention (ie whether the firm was a passive or proactive participant), the involvement of directors and/or senior management in the contravention and the firm's encouragement of its employees' participation in the contravention ought to be taken into account.
• Once the Commission has applied its proposed methodology, it may offer the respondent firm a discount ranging between 10% and 50% off the administrative penalty. The Commission shall be guided by the respondent firm's willingness and co-operation to conclude a consent order and the extent to which the respondent firm assists the competition authorities in the prosecution of other firms.
• Under exceptional circumstances, the Commission will take into consideration the respondent firm's ability to pay the administrative penalty. The Commission shall be guided by the production of objective evidence such as audited financial statements which can attest to the veracity of the firm's financial position. If the Commission is satisfied that the administrative penalty shall put the respondent firm at risk, then it may consider the use of payment terms amenable to both parties.
• The Commission may in certain instances impute liability on a holding company where its subsidiary company has been found to have contravened the Act.  

As the Commission puts it, "the imposition of administrative penalties is not a precise science" and the competition authorities will continue to apply discretion on a case-by-case basis, implying that the Guidelines are in no way binding on the competition authorities.

In the spirit of natural justice, openness and transparency, the Commission is to be commended for taking steps to spell out its processes and techniques when setting administrative penalties. The deadline for making submissions to the Commission on the deadlines has been extended until 16 February 2015.