Cartel conduct is prohibited in terms of Section 4 of the Competition Act, No 89 of 1998, as amended (the Act).
The South African competition authorities consist of the Competition Commission (Commission), Competition Tribunal (Tribunal) and the Competition Appeal Court (CAC).
The Commission acts as the investigative arm and the primary point of contact between the competition authorities and the public. The Commission is the recipient, in the first instance, of merger filings and complaints relating to alleged prohibited practices. In investigating matters, the Commission may invoke its extensive investigative powers, including the right to issue summonses and conduct search and seizure operations, commonly known as dawn raids. If appropriate, the Commission could launch a broader inquiry into the state of competition in terms of the market concerning the market inquiry provisions in the Act.
The Tribunal acts as the adjudicative arm of the competition authorities and, although its procedures are less formal, operates in a manner similar to a civil court. A Tribunal hearing is presided over by a panel of generally three members who have the required qualifications and experience in business, law, economics or industry. The Tribunal adjudicates on prohibited practices and imposes penalties for non-compliance with the Act.
The CAC is the specialist appeal and review authority in competition matters. The CAC may hear appeals arising from Tribunal decisions and may issue any order it considers appropriate, including confirming, amending or setting aside a decision or order of the Tribunal or remitting the matter back to the Tribunal.
Fines and Penalties
The Tribunal may impose an administrative penalty (fine) in relation to a prohibited practice that may not exceed 10% of the relevant firm’s annual turnover in South Africa and its exports from South Africa during the firm’s preceding financial year. In the case of a repeat offence, the Tribunal may impose an administrative penalty not exceeding 25% of the relevant firm’s annual turnover in South Africa and its exports from South Africa during the firm’s preceding financial year.
The Tribunal may increase the administrative penalty to include the turnover of any firm or firms that control a firm found to have engaged in a prohibited practice if the controlling firm or firms knew or reasonably should have known that the controlled firm was engaging in a prohibited practice. It may order that the controlling firm or firms be jointly and severally liable for payment of the administrative penalty.
Any person or firm who has suffered loss or damage as a result of a prohibited practice may institute action through civil court proceedings for the assessment and awarding of damages.
A person commits an offence if while being a director of a firm or while engaged or purporting to be engaged in a position of management authority, they cause a firm to engage in cartel conduct or knowingly acquiesced in the firm engaging in cartel conduct. A person convicted of such an offence is liable to a fine not exceeding ZAR500,000 or imprisonment for a period not exceeding ten years or both a fine and imprisonment.
After investigating a complaint submitted by any party in relation to an alleged prohibited practice, if the Commission decides that the complaint cannot be sustained or is without sufficient merit and does not refer the complaint for adjudication to the Tribunal, such a party may itself refer the complaint for adjudication to the Tribunal.
While the Act does not expressly refer to or define “cartels‟ or “cartel conduct‟, Section 4 of the Act prohibits certain conduct by firms or associations of firms in a horizontal relationship (ie, competitors or potential competitors).
Although not expressly defined, cartel conduct is understood to occur where competitors, or potential competitors, agree or develop a practice or understanding to co-operate rather than compete with one another regarding certain business activities.
Cartel conduct can occur through an agreement or a concerted practice. The concept of “an agreement‟ is interpreted widely and, when used in relation to a prohibited practice, includes a contract, arrangement or understanding, whether or not legally enforceable. A “concerted practice‟ is defined as co-operative or co-ordinated conduct between firms, achieved through direct or indirect contact, that replaces their independent action but which does not amount to an agreement.
Section 4(1)(a) of the Act prohibits an agreement or concerted practice between firms, or a decision by an association of firms, in a horizontal relationship that has the effect of substantially preventing or lessening competition unless any technological, pro-competitive or efficiency gains that outweigh the anti-competitive effect can be proven. As such, Section 4(1)(a) allows for a “rule of reason‟ analysis and an “efficiency defence‟ based on any technological, pro-competitive or efficiency gains resulting from certain conduct that may outweigh the anti-competitive effects of such conduct.
“Per Se‟ Offences
Section 4(1)(b) prohibits any agreement, concerted practice or decision if it involves the following restrictive horizontal practices:
These prohibited practices are deemed “per se‟ or outright offences, as conduct falling within the provisions of Section 4(1)(b) is not subject to a rule of reason analysis. The anti-competitive effects of a per se offence are presumed to exist and cannot be justified or defended on the basis of any alleged technological, efficiency or other pro-competitive gains flowing from the relevant conduct. An efficiency defence is, therefore, not available under Section 4(1)(b).
The Act applies to all economic activity within or having an effect within the Republic of South Africa. Legitimate joint ventures between competitors or potential competitors and concerted conduct designed to achieve a non-commercial, socio-economic objective or similar purpose do not amount to a violation of the Act.
The Act and Regulations do not identify specific sectors or industries exempt from the provisions of the Act. However, Section 10 provides that firms may apply to the Commission for an exemption from the application of the provisions prohibiting certain conduct between competitors or potential competitors. The Commission has one year within which to grant or refuse the exemption.
Section 10 stipulates that an exemption may be granted in respect of agreements or practices that relate to the exercise of IP rights or that contribute towards the following objectives:
In terms of Schedule 1 Part A of the Act, trade associations may apply to the Commission for an exemption if, regarding internationally applied norms, any restriction contained in the Rules of the associations is reasonably required to maintain professional standards or the ordinary function of the profession.
Section 67 of the Act provides that a complaint in respect of prohibited practices (including cartel conduct) that ceased more than three years before the complaint was initiated may not be referred to the Tribunal. The Commission may still investigate conduct that ended more than three years before the complaint was initiated, but it cannot refer such conduct for prosecution.
The three years do not commence on the date of the conclusion of the agreement or the concerted practice but from the date that the effects of the agreement or concerted practice are no longer experienced in the market.
A party who wishes to rely on prescription in litigation proceedings is required to raise it as a special plea.
The three-year prescription period provided for in Section 67 of the Act operates as a procedural time bar and is not an absolute substantive time bar, as it is capable of condonation by the Tribunal in terms of Section 58(1)(c)(ii) of the Act. Condonation is not a mere formality. The Commission has to apply for condonation and show good cause why historical conduct may be prosecuted. Such condonation applications will be considered on the facts of each case.
The Act applies to all economic activity within or having an effect within the Republic of South Africa. In the context of Section 4, the Act applies to agreements concluded outside South Africa but have an effect within South Africa. In practice, it may be difficult for the competition authorities to act against firms domiciled outside their jurisdiction but whose conduct has an effect in South Africa, especially where foreign firms have no local office or physical presence in the country.
The Commission may establish personal jurisdiction over foreign or offshore corporations with no presence or business operations in South Africa if the Commission is able to allege adequate connecting factors between the relevant forum adjudicating the dispute (ie, the Tribunal) and the conduct sought to be adjudicated upon (ie, cartel conduct) that would tie the conduct to that forum.
The Commission generally accepts the submission of documents electronically as well as the submission of written statements of individuals, where individuals may not be available in the country.
Section 1(2)(b) of the Act prescribes that the Act must be interpreted in compliance with the international law obligations of the Republic of South Africa.
The CAC has considered and been cognizant of the principles of international comity in its adjudication of cases that affect foreign firms. In the Ansac/Botash appeal to the CAC, the CAC considered whether principles of comity would argue against the exercise of jurisdiction by the South African authorities in the prosecution of the cartel conduct of foreign firms. The CAC noted that Ansac did not operate in the USA and, if it had, its activities would have been in breach of the Sherman Act. Accordingly, it held that there was no conflict between South African and US law and, therefore, no reason to find that international comity precluded the South African competition authorities from exercising their jurisdiction in terms of the Act.
In the Ansac/Botash appeal to the CAC and the appeal to the Supreme Court of Appeal (SCA), the courts indicated that there was no real conflict of the legal requirements imposed on the parties and that there may be very little room to deny jurisdiction to the South African authorities on the basis of comity.
The Tribunal noted in Ansac/Botash that it is easy to appreciate the dangers of differential treatment of foreign firms. Those who wished to collude in the local market would simply find themselves an offshore cartel haven and collude to trade in South Africa, knowing that evasion would be simpler than if they were located domestically. It seems unlikely that the legislature could have intended to favour foreign firms with a defence not available to domestic firms.
In March 2020, the national government issued regulations limiting unjustified price hikes and product stockpiling to protect consumers.
Several block exemptions were issued in response to the declaration of the COVID-19 pandemic as a National State of Disaster in South Africa. Block exemptions were issued for, amongst others, the healthcare, banking, retail property and hotel sectors, exempting certain agreements or practices from the application of Section 4 (restrictive horizontal practices) and Section 5 (restrictive vertical practices) of the Act to mitigate the negative economic and social impact of the pandemic.
With the lifting of the National State of Disaster by President Cyril Ramaphosa in April 2022, the block exemptions issued for the above sectors are no longer in effect, and parties can again be held liable for contraventions of Sections 4 and 5 of the Act.
In July 2021, in response to the disruptions to the supply chains of essential goods in the country due to riots and civil unrest, and due in part to the COVID-19 pandemic, a one-month long block exemption was granted in respect of agreements and practices between firms in the supply chain for essential goods, including basic food and consumer items, emergency products, medical and hygiene supplies (including pharmaceutical products), refined petroleum products and emergency clean-up products.
In response to the economic consequences of the COVID-19 pandemic, the South African government developed the Economic Reconstruction and Recovery plan that maps out interventions to promote inclusive growth and employment in the domestic economy, one being increased localisation. In line with this recovery plan, in August 2021, the Commission published draft guidelines on collaboration between competitors on localisation initiatives for public comment, which were finalised in March 2022.
Several firms were investigated and prosecuted for hiking prices and “price gouging” in relation to products such as face masks, sanitisers, toilet paper, COVID-19 PCR and antigen tests, flu medication and essential food items.
The Commission remains fully functional and, as of around March 2022, has resumed holding some meetings with stakeholders in person at its offices in Pretoria.
Tribunal and CAC hearings are currently (May 2022) conducted virtually.
Initial investigatory steps include researching the relevant market, issuing requests for information or summonses to industry participants and conducting dawn raids.
The Act allows the Commission to conduct unannounced visits and searches at a firm’s premises, referred to as dawn raids. The Act provides mechanisms by which the Commission may enter and search premises with a warrant or, in limited circumstances, without a warrant. A judge or magistrate may issue a warrant to enter and search any premises if, from information provided on oath or affirmation, there are reasonable grounds to believe that a prohibited practice has taken place, is taking place or likely to take place on or in those premises, or if anything connected with an investigation in terms of the Act is in the possession of a person who is on or in those premises.
The Commission has conducted dawn raids on companies in various industries, including cement, furniture removal, scrap metal, tyres, LPG, vehicle glass, particleboard, fibreboard, packaging material, cargo shipping, edible oils and margarine. That said, there have been no dawn raids since the onset of the COVID-19 pandemic.
Restrictions on Dawn Raids
A dawn raid may only be executed during the day unless the warrant determines otherwise (a warrant generally provides the Commission 24 hours within which it must complete the raid) and must be conducted with strict regard to decency, freedom, security and privacy, and in accordance with the rights afforded through the Constitution of the Republic of South Africa. A firm may refuse to permit the inspection or removal of an article or document because it contains privileged information.
Procedure of Dawn Raids
During a dawn raid, the Commission may enter premises, examine and copy documents (both in hard and electronic format), seal business premises and ask for explanations from staff to obtain information on suspected infringements. The Commission may attach and remove any documentation or article and may use or require the assistance of any person on the premises to use any computer system to:
In most cases, the Commission’s investigators copy the hard drives of the computers of key personnel, and, in some cases, data from cell phones and other electronic devices, such as tablets, will be reviewed and copied.
It is an offence to:
Section 1(2)(a) of the Act prescribes that the Act must be interpreted in a manner consistent with the Constitution of the Republic of South Africa. Respondents under investigation by the Commission are afforded all the constitutional rights available to any participant in judicial proceedings, including the right to be represented and assisted by counsel. A firm’s in-house counsel may perform this role. The Act does not prescribe that respondents or individuals obtain separate counsel.
Initial Steps Taken by Defence Counsel
Principal steps to undertake during the initial phase of a Commission investigation or complaint referral include obtaining all the relevant facts and corroborating evidence and obtaining clarity from the Commission as regards the conduct being investigated and the period relevant to the complaint. If any concerns are identified during the initial phase, consideration should be given to applying for immunity in terms of the Commission’s Corporate Leniency Policy or engaging in “without prejudice‟ settlement negotiations with the Commission.
The Commission can issue requests for information, which recipients can elect to respond to on a voluntary basis. The Commission can also utilise its statutory investigative powers, such as conducting dawn raids and issuing summonses to firms, entities and individuals, requiring them to provide documents and/or appear for interrogation by the Commission’s investigators.
The Commission also obtains information, documents and evidence from leniency applicants, informants and respondents who have settled or are engaged in settlement negotiations with the Commission.
Procedure for Obtaining Other Types of Information
The Commission can obtain oral evidence by issuing summonses or oral submissions or proffers provided by immunity applicants and informants.
In most dawn raids, the Commission’s investigators will copy the hard drives of the computers of key personnel, and, in some cases, data from cell phones and other electronic devices, such as tablets, will be reviewed and copied.
The Act applies to agreements or concerted practices concluded outside South Africa by foreign firms, in so far as they have an effect within South Africa. Foreign firms have a duty to reply to requests for documents and information. In general, firms are required to produce documents and evidence in their possession and located within the Republic of South Africa.
The Commission’s powers of inspection are subject to claims of privilege. Privileged documents are not required to be produced during discovery or in response to a summons. If a firm claims privilege over a document during a dawn raid, the Commission may request that the registrar or sheriff of the High Court remove it for safe custody until the court determines whether that document is indeed privileged.
Other Relevant Privileges
Individuals may be summoned to provide documents and respond to questions from the Commission. However, a question does not have to be answered if it is self-incriminating. The only criminal proceedings in which self-incriminating information may be used are those relating to perjury or proceedings in which a person is tried for failing to answer fully and truthfully or for causing or permitting a firm to engage in a prohibited practice.
Firms under investigation generally co-operate voluntarily with the Commission. If firms elect not to co-operate or respond to requests for information, the Commission can utilise its investigative powers, such as issuing summonses or conducting dawn raids. A firm’s degree of co-operation with the competition authorities is one of the factors taken into consideration by the Tribunal in determining the quantum of an appropriate penalty.
When submitting information to the Commission, firms may claim all or part of that information as confidential by describing the information and explaining why it is confidential. The Act defines confidential information as trade, business or industrial information that belongs to a firm, has a particular economic value and is not generally available to or known by others.
The validity and scope of a summons can be challenged upon receipt of that summons. The validity and scope of a dawn raid can be challenged during or at the conclusion of that dawn raid. Arguments against the merits of a complaint referral, including special pleas, are raised after the Commission has concluded its investigation and the complaint has been referred for adjudication to the Tribunal.
The Commission has issued a Corporate Leniency Policy (CLP), in terms of Section 49E of the Act, that serves as a framework for granting immunity from prosecution to cartel participants in exchange for information and co-operation with the Commission. The decision to grant immunity (or enter into a settlement agreement, where applicable) is at the discretion of the Commission, provided that certain requirements and conditions are met by the cartel member. The CLP is applicable in respect of agreements among competing firms to engage in price-fixing, division or allocation of markets, or collusive tendering. These cartel activities need not have been entered into in South Africa but must have had an effect within South Africa.
The CLP envisages a situation not only where the applicant alerts the Commission of the existence of cartel activity but also one where that whistleblowing would culminate in a referral and ultimately in the prosecution of the cartel conduct at the Tribunal. Where a leniency applicant dutifully provides the Commission with all available information and documents and complies with the requirements set out in the CLP, leniency is granted.
The CLP has been a very effective enforcement tool in uncovering and prosecuting cartels and has been applied in numerous cartel investigations across a wide range of industries, including construction, cement, concrete, bread, milling, glass and airline industries.
Firms are granted immunity from prosecution for engaging in cartel conduct. However, firms that have been granted immunity in terms of the CLP may still be held liable for damages in a civil court.
Qualifying for the CLP
Only a firm that is first to apply may qualify for immunity by:
Leniency applications must be in writing to the Commission. Leniency applications must contain sufficient information to allow the Commission to identify the cartel conduct and participants. The CLP does not allow for blanket immunity, and an applicant is required to specify the cartel conduct in respect of which it seeks leniency. The leniency applicant must submit to the Commission all relevant information, evidence (whether written or oral) and documents relating to the cartel activity. The Commission’s practice is to grant conditional leniency for the duration of the competition proceedings and final immunity at the completion of the matter, provided that the applicant has met the requirements for securing leniency.
The CLP allows for the submission of a marker, which must be made in writing and must clearly indicate that a request for a marker is being made. A marker is typically sought where the firm is aware that prohibited cartel conduct has taken place but requires time to prepare its leniency application and source documentary evidence in support thereof and provide the firm with some comfort that it is “first in line” in respect of the leniency application for the conduct in question.
There is no separate amnesty regime in South Africa. Firms that wish to avoid prosecution for engaging in cartel activity are required to approach the Commission in terms of its CLP or engage with the Commission in settlement negotiations.
The Commission may direct requests for information to employees and issue summonses to employees.
The Commission may direct requests for information to firms and issue summonses to firms.
The Commission may direct requests for information to a peregrinus (an entity not domiciled within South Africa). The regulations provide for an order of substituted service when it is impossible to serve and issue a summons to a peregrinus.
There is significant inter-agency interaction between the Commission and other regulators. In so far as the Act applies to an industry or sector subject to the jurisdiction of another regulatory authority, the Act must be construed as establishing concurrent jurisdiction. The Commission has concluded memoranda of understanding with several sector regulators.
South African competition authorities frequently engage with their international counterparts, particularly in the case of international cartel conduct and international mergers that impact several jurisdictions. The Commission has received assistance from the US Department of Justice and Federal Trade Commission and looked to the practice of US authorities in the exercise of its investigative functions.
Both the Commission and Tribunal are active participants in the International Competition Network (ICN), and the Commission has previously been granted “observer status‟ by the Competition Division of the OECD. There is also regular engagement between the Commission and competition regulators in other African jurisdictions on a number of matters, including, eg, sharing best practices and helping to build the capacity of existing and future African competition agencies. The Commission has also concluded memoranda of understanding with foreign competition authorities.
Criminal prosecution is not conducted by the competition authorities but through the National Prosecuting Authority (NPA) and the criminal justice system. The Commission may not seek or request the prosecution of a firm or person deserving of leniency and may make submissions to the NPA in support of leniency for a person prosecuted for an offence if the Commission has certified that person as deserving of leniency.
The law relating to criminal prosecution for cartel conduct is undeveloped in South Africa. There are no reported decisions relating to criminal prosecution for cartel conduct in South Africa.
Any person or firm who has suffered loss or damage as a result of a prohibited practice may institute action through civil court proceedings for the assessment and awarding of damages. When instituting action in a civil court, a plaintiff must file with the registrar of the relevant court a notice from the Tribunal:
Enforcement actions involving cartels are typically brought against multiple parties (including the relevant trade association) in a single proceeding.
The standard of proof is a balance of probabilities, similar to the standard of proof in civil law matters.
The Commission acts as the principal finder of facts. Parties granted the right to intervene and participate in Tribunal litigation proceedings may, subject to the discretion of the Tribunal, produce and discover additional documents, and may call for further discovery by other participants in the proceedings.
The Tribunal may accept as evidence any relevant oral testimony, document or article, whether or not it is given or proven under oath or affirmation, or whether or not it would be admissible as evidence in court.
The Tribunal may conduct its hearings informally or in an inquisitorial manner but must at all times conduct its hearings in accordance with the principles of natural justice.
Please refer to 3.11 Use of Evidence Obtained From One Proceeding in Other Proceedings.
Experts are frequently used by the Commission, respondent firms and interveners to provide economic analysis in Tribunal hearings.
Privileged documents are not required to be produced during discovery or in response to a summons. A question does not have to be answered if it is self-incriminating. The law regarding a witness’s privilege in a criminal case in a court of law applies equally to a person who provides information during a Tribunal hearing.
In terms of Section 56(3) of the Act, the Tribunal may order a person to answer any question or produce an article or document, even where such evidence is self-incriminating.
It is well established in civil court proceedings that evidence of alleged “similar facts‟ that seeks to establish other unlawful conduct on the part of the respondent is not a proper basis for relevance because it is highly prejudicial to the respondent and may raise numerous collateral issues that are not probative of the specific complaint in question. However, the Tribunal has a wide discretion to regulate its own hearings and to accept as evidence oral testimony, documents and other articles, whether or not these would have been admissible in court proceedings.
With regard to enforcement matters, such as cartel and abuse of dominance prosecutions, the Commission does not have the authority to impose sanctions directly and petitions the Tribunal for any sanction that it may deem appropriate in these matters. The Tribunal may adjudicate on prohibited conduct and impose any remedy or sanction provided for in the Act, including:
During, on or after the completion of a Commission investigation or market inquiry, respondent firms can agree on the terms of an appropriate settlement. Settlement agreements between respondents and the Commission have to be confirmed by the Tribunal as consent orders. The terms of settlement agreements are the subject of negotiation between the Commission and the respondents concerned, but will usually include an admission of guilt, provision for the payment of a fine and the development of a compliance programme, although recently, an increasing number of settlement agreements do not involve an admission of guilt.
A finding that a firm has engaged in cartel conduct could result in civil damages claims and criminal prosecution of the directors who caused the firm to engage in cartel conduct.
A person commits an offence if while being a director of a firm or while engaged or purporting to be engaged in a position of management authority, they cause a firm to engage in cartel conduct or knowingly acquiesces in the firm engaging in cartel conduct. A person convicted of such an offence is liable to a fine not exceeding ZAR500,000 or imprisonment for a period not exceeding ten years, or both.
Any person or firm who has suffered loss or damage as a result of a prohibited practice may institute action through civil court proceedings for the assessment and awarding of damages.
The existence of, and the extent to which a firm has applied, a compliance programme may be a factor considered by the Tribunal in determining the quantum of an appropriate penalty.
The Act does not provide for mandatory consumer redress.
Decisions of the Tribunal may be taken on appeal or review. Appeals to the CAC initiated by the Commission and respondent firms are fairly common.
If the Commission, after investigating a complaint submitted by any party in relation to an alleged prohibited practice, decides that the complaint cannot be sustained or is without sufficient merit and does not refer the complaint for adjudication to the Tribunal, that party may itself refer the complaint for adjudication to the Tribunal.
Class actions are possible within the South African legal system. However, the substantive and procedural aspects of class action suits have only recently begun to be tested by the country's courts. In terms of procedure, litigants must apply for a certification of the action, the class must be appropriately defined, there must be a triable issue, and there must be common elements to the claims of the members of the class (although all the claims need not be identical).
The law relating to civil damages claims is undeveloped in South Africa, with only two reported decisions. The underlying objective of damages claims and the civil court’s determination of the quantum of damages is to return the plaintiff to the position it would have been in had it not been for the competition law infringement.
The Tribunal has wide discretion and may accept as evidence any relevant oral testimony, document or article, whether or not it is given or proven under oath or affirmation, or whether or not it would be admissible as evidence in court.
The law relating to civil damages claims is undeveloped in South Africa, with only two reported decisions.
Costs are awarded according to the discretion of the court and typically awarded to the successful party.
Costs are awarded according to the discretion of the court and typically awarded to the successful party.
Decisions of the civil courts in relation to civil damages claims may be appealed or reviewed in accordance with the High Court Rules.
There are no other items of information that are pertinent to an understanding of the process, scope and adjudication of claims involving alleged cartel conduct in South Africa.
The Commission issues guidelines from time to time, but these are not binding on the Commission or Tribunal. In July 2021, the Commission published the final guidelines for competition in the South African automotive aftermarket industry, which provide practical guidance to firms in the automotive sector on conduct that may be anti-competitive, how to mitigate this, and to encourage competition through greater participation of small and medium businesses and historically disadvantaged persons. Other recent guidelines include the guidelines on collaboration between competitors on localisation initiatives, the final guidelines on local procurement in the implementation of the South African Value Chain Sugarcane Master Plan to 2030, and the draft guidelines on small merger notifications, which proposes that certain small mergers in digital markets be notifiable, and a guide on promoting competition in public procurement.
These guidelines can be obtained from the Commission’s website.