On January 4, 2016, the Competition Tribunal (the “Tribunal”) released its first decision in respect of a refusal to deal case in almost 5 years. Indeed, the Tribunal dismissed Audatex Canada’s (“Audatex”) application for leave to bring a refusal to deal application under section 75 of the Competition Act (the “Act”) against CarProof and Markplaats,
On 17 June 2015, the Competition Appeal Court of South Africa (CAC) overturned the Competition Tribunal’s decision which found Sasol Chemical Industries Limited (Sasol) guilty of excessive pricing.
The CAC’s judgment is thorough and the factual, legal, accounting and economic issues covered are complicated. Although redeeming for Sasol, the judgment may give rise to a number of significant implications for future enforcement action against excessive pricing South Africa.
We set out below a review of the questions raised in the decision as well as the potential implications of the CAC’s answers.
The feedstock debate – Actual costs or notional costs?1
The first and potentially most important question addressed by the CAC related to what the CAC referred to as the ‘feedstock debate’. According to the Competition Act2 , a price charged by a dominant firm is excessive and illegal if it has no reasonable relation to the economic value of the product in question.
In conditions of competition, prices will normally be driven down towards a firm’s costs of production (plus a reasonable return). A firm’s costs (including a reasonable return) therefore usually provide an insightful proxy for the price that would prevail under conditions of competition, and therefore a product’s ‘economic value’.
In the only previous excessive pricing case in South Africa, the Mittal case, the CAC held:
…economic value is a notional objective market standard, not one derived from circumstances peculiar to the particular firm… The criterion of economic value…recognizes only the costs that would be recovered in long run competitive equilibrium3.
Sasol has a peculiar cost advantage because it procures its feedstock propylene from its sister company – Sasol Synfuels – at a low internal transfer price. Feedstock propylene is a critical input in the production of purified propylene, which is then converted into polypropylene.
One of the key questions in the Sasol case was how …
The year of 2014 marked the 15 year anniversary of the South African Competition Authorities. The year’s highlights included some important merger decisions, implementation of the Competition Commission’s powers in relation to market inquiries, development of the law prohibiting excessive pricing, the appointment of a new Commissioner and important clarification of regional merger control laws…
On November 25, 2014, the Ontario Securities Commission (“OSC”) and the Competition Bureau (the “Bureau”, together with the OSC, the “Participants”) announced that they have signed a Memorandum of Understanding (the “MOU”), aimed at developing cooperation and effective delivery of each agency’s respective mandates.
The MOU signifies the acknowledgment of the important relationship between the…
On July 3, 2014, the Commissioner of Competition announced that changes to the Competition Bureau’s Corporate Compliance Programs Bulletin are planned. The Bulletin was last amended in 2010 to address the 2009 and 2010 amendments to the Competition Act.
Areas under consideration for updating include:
- the appropriate role of a company’s chief compliance officer;
On June 5, 2014, Lisa Campbell was appointed to the position of Senior Deputy Commissioner of Competition of the Merger Branch of the Competition Bureau (the “Bureau”). Ms. Campbell was mostly recently the Deputy Commissioner of the Fair Business Practices Branch of the Bureau. A week later on June 12, 2014, Ms. Campbell gave a…
On March 20, 2014, the Competition Bureau (the “Bureau”) released for public comment draft price maintenance enforcement guidelines. The draft guidelines are the Bureau’s first official statement regarding price maintenance since the decriminalization of price maintenance under the Competition Act (the “Act”). Through the decriminalization, the per se criminal offence was replaced with a…
The principal Canadian competition law theme in 2013, as with the year before, was enforcement. Criminal enforcement in the areas of price-fixing, bid-rigging and misleading advertising continued with new guilty pleas against various companies and individuals (e.g. auto parts, air cargo, chocolate, real estate advisory services contracts, gasoline and retail multiple telemarketing schemes). The Competition Tribunal (the “Tribunal”) released two decisions involving the Toronto Real Estate Board (“TREB”) and VISA and MasterCard that provided significant interpretations of the scope of the abuse of dominance and price maintenance provisions of the Competition Act (the “Act”). The Superior Court of Ontario also released its decision dismissing, in part, the Competition Bureau’s (the “Bureau”) misleading advertising charge against Rogers and Chat-r with respect to the claim of “fewest dropped calls”. Finally, the Supreme Court of Canada granted leave to appeal in Tervita Corporation v Commission of Competition. Five months earlier, the Federal Court of Appeal (“FCA”) upheld the order of the Tribunal requiring Tervita Corporation to divest the Babkirk hazardous waste landfill site in northern British Columbia that it obtained through its acquisition of Complete Environmental Inc.
With respect to private litigation, the Supreme Court of Canada released a trilogy of long awaited decisions in proposed class proceedings brought by indirect purchasers of products alleging competition law violations. The Supreme Court concluded, among other things, that indirect purchasers have a cause of action, resolving a conflict in appellate jurisprudence in Canada. The Supreme Court’s decisions are expected to have a profound impact upon cartel-related class actions in Canada.
2013 also saw John Pecman appointed as Commissioner of Competition on June 12, 2013 for a five-year term. Prior to his appointment as Commissioner, Mr. Pecman held the position of Interim Commissioner from September 2012 to June 2013.
Our Bulletin reports on these and other developments.
The year of 2013 provided further opportunity for development of South Africa’s competition policy, law and practice. The year’s highlights included the conclusion of the Competition Commission’s Fast Track Settlement process involving bid rigging in the construction sector; some important merger decisions; developments in the law on pursuit of private damages; and clarity on numerous procedural matters in enforcement actions. These are elaborated upon further below.
Merger Regulation Trends
324 mergers were notified to the Competition Commission in the period April 2012 to March 2013. This represents an increase of around 10% to the 291 mergers notified in the previous year. Most of these transactions were in the manufacturing 23%, property 27% and mining sectors.
In this most recent period, 85% of mergers were approved unconditionally. 11% were approved subject to conditions (28 behavioural remedies aimed at public interest issues and seven structural remedies); and 4% were withdrawn or dismissed for lack of jurisdiction. No mergers were prohibited.
The Commission continued with a trend we identified last year in protecting and advancing public policy considerations (most notably protection of employment) in its merger analysis. The case of Stefanutti/Enorgotec gave rise to the fastest decision yet by the authorities (reportedly made within four hours of filing of the Commission’s recommendation to the Tribunal) was based largely on the need to protect employment in a firm under severe financial distress.
In Glencore / Xstrata, the Competition Tribunal confirmed an agreement between the merging parties and the National Union of Mineworkers that the number of skilled employees retrenched as a result of the merger would be limited to 80, and the number of semi-skilled and unskilled employees retrenched would be limited to 100. Greater protection was provided for semi-skilled and unskilled workers, who may only be retrenched after two years following a 90 day review period, during which the necessity of the potential retrenchments had to be considered in consultation with the trade union.