It is generally accepted that agreements between competitors to fix prices, allocate markets and collude on tenders almost always have harmful effects on competition. Competition laws in various jurisdictions have, therefore, been drafted to address this and, in turn, agreements or understandings between competitors which provide for price fixing, allocating of markets and / or colluding on tenders are, in most instances, per se prohibited.

Therefore, insofar as any such agreement or understanding is established, the impugned firms will be found to have contravened competition law and no effects analysis will be available to the firms to defend or justify their conduct. In other words, the conduct is irrebuttably presumed to have an anticompetitive effect on competition. It could then be said that these agreements or understandings are restricted by object rather than by effect, and this corresponds broadly with the conduct prohibited in section 4(1)(b) of the South African Competition Act[1].

There are however instances where a firm’s conduct will, on the face of it, fall within the ambit of section 4(1)(b), but the firm’s conduct will not be found to fall within the object of the section 4(1)(b) and no contravention will be established. This is known as characterisation, and this article discusses the development of the principle of characterisation in South African competition law.

American Natural Soda Ash Corporation

The Supreme Court of Appeal (‘SCA’) in American Natural Soda Ash Corporation v the Competition Commission and Others[2] first introduced the principle of characterisation to South African competition law.

Prior to being heard by the SCA, the matter was heard by the Competition Tribunal (‘Tribunal’) and the Competition Appeal Court (‘CAC’) where it was alleged by the Competition Commission (‘Commission’) that the American Natural Soda Ash Corporation, or ANSAC, had engaged in price fixing and allocation of markets.

During the Tribunal hearing, ANSAC sought to lead evidence to justify and defend its conduct. In response to this, the Tribunal held that, once the conduct complained of is found to fall within the scope of the prohibition, this would be the end of the enquiry. In turn, the Tribunal held that no evidence could be lead to justify or defend the conduct of ANSAC. On appeal, the CAC, for all intents and purposes, held the same.

On subsequent appeal to the SCA, the SCA held that the Tribunal had in fact misdirected its enquiry, in that ANSAC was not attempting to lead evidence to defend or justify its conduct, but rather to lead evidence regarding the character of its conduct, and whether its conduct fell outside the object of section 4(1)(b).

In disagreeing with the Tribunal and the CAC, the SCA introduced the principle of characterisation, where it stated,

It is to establish whether the character of the conduct complained of coincides with the character of the prohibited conduct: and this process necessarily embodies two elements. One is the scope of the prohibition: a matter of statutory construction. The other is the nature of the conduct complained of: this is a factual enquiry. In ordinary language this can be termed ‘characterising’ the conduct – the term used in the United States, which ANSAC has adopted.

Following this, the SCA warned that not every agreement between competitors would fall within the object of section 4(1)(b), and that it would be easy to envisage an instance where, for example, competitors could enter into a bona fide joint venture for a legitimate purpose, through the vehicle of a separate entity, in which prices for goods that it supplies would be set (which prices would emanate from the competitors) merely in pursuance of the joint venture.

The SCA therefore set aside the decisions of the Tribunal and the CAC, and remitted the matter back to the Tribunal to determine the scope of section 4(1)(b) and the admissibility of evidence lead by ANSAC.[3]

South African Breweries

A number of years later, the CAC had occasion to deal with the principle of characterisation in the Competition Commission v South African Breweries and Others[4].

In this matter, the Commission had initiated a complaint against South African Breweries, or SAB, alleging, inter alia, that its exclusive territory agreements with ‘appointed distributors’ amounted to market allocation under section 4(1)(b)(ii) of the Competition Act.

Whilst it was acknowledged that there was a vertical relationship between SAB and the appointed distributors, it was argued that there was also a horizontal relationship as SAB participated at the distributor level.

Referring to the SCA’s ANSAC decision, the CAC noted that the principle of characterisation had been introduced into South African competition law. Drawing on jurisprudence and case law developed from the United States – on which the SCA sought to rely in ANSAC – the CAC noted that –

the ‘characterisation’ that is required under our legislation is to determine (i) whether the parties are in a horizontal relationship, and if so (ii) whether the case involves direct or indirect fixing of a purchase or selling price, the division of markets or collusive tendering within the meaning of s 4(1)(b). However, since characterisation in this sense involves statutory interpretation, the bodies entrusted with interpreting and applying the Act (principally the Tribunal and this court) must inevitably shape the scope of the prohibition, drawing on their legal and economic expertise and on the experience and wisdom of other legal systems which have grappled with similar issues for longer than we have.

Moving to the analysis of the facts, the CAC stated that the ultimate question was whether, in the circumstances of the case, SAB’s and its appointed distributors’ conduct was to be characterised as dividing markets within the meaning of section 4(1)(b)(ii).

The CAC thought not. Whilst the CAC noted that SAB had its own distribution network, it held that the core of the relationship between SAB and the appointed distributors was vertical of nature.

Reiterating the purpose of the characterisation principle, the CAC noted that the per se prohibitions contained in section 4(1)(b) are the most serious legislative prohibitions against a defendant. The CAC further stated that the idea of the characterisation principle is to ensure that only those economic activities to which no defence should be tolerated are held within the scope of the prohibition in section 4(1)(b). This, the CAC held, is informed both by common sense and competition economics.

The CAC accordingly dismissed the section 4(1)(b)(ii) complaint as against SAB.

Dawn Consolidated Holdings

In 2018, the CAC again had occasion to develop the principle of characterisation in Dawn Consolidated Holdings and Others v the Competition Commission.[5]

In this matter, the Commission had initiated a complaint with respect to a clause contained in a shareholders agreement between Dawn Consolidated Holdings (‘Dawn’) and Warplas Share Trust (‘WST’) in respect Sangio Pipes (‘Sangio’).

The clause in question restrained Dawn and its subsidiaries from manufacturing HDPE piping in South Africa, and applied for as long as Dawn or its associates held shares in Sangio. It was alleged by the Commission that this clause amounted to market allocation in terms of section 4(1)(b)(ii) of the Competition Act, as Dawn and WST were, at the very least, potential competitors.

Assuming that Dawn and WST were potential competitors, the CAC moved on to decide whether the principle of characterisation could be applied in this instance.

In this regard, the CAC stated that the character of a non-compete clause should not be assessed as if it stood on its own, but rather in the context of the transaction as a whole and in the circumstances in which the parties concluded the agreement. Following this, the CAC set out a three-step test to determine, objectively, whether the restraint was reasonably required for the implementation of the transaction:

  1. Is the main agreement, minus the impugned restraint, unobjectionable from a competition law perspective?
  2. If so, is the restraint reasonably required for the conclusion and implementation of the main agreement?
  3. If so, is the restraint reasonably proportionate to the requirement served?

As regards to the first step, it was accepted by the Commission that the agreement, minus the clause in dispute, was unobjectionable. The CAC therefore moved onto the second and third steps of the inquiry.

Having heard evidence and having referred to case law regarding enforceable restraints, the CAC held that this type of restraint was enforceable and reasonably required for the conclusion and implementation of the transaction between Dawn and WST. This was because Dawn – who had no experience or expertise in producing HDPE piping – as a potential competitor, could acquire the necessary knowledge and insight through Sangio in order to compete with WTS and, in turn, WTS required the restraint to cure these concerns.

Regarding the proportionality of the restraint, the CAC noted that the restraint would only exist for as long as Dawn or any of affiliates were shareholders of Sangio, and that no legitimate objection could be raised in this regard.

Overall, the CAC found that the restraint in the shareholders agreement between Dawn and WST was justified in the circumstances of the transaction. Applying the characterisation argument, the CAC held that this restraint would not fall foul of section 4(1)(b)(ii) and accordingly the CAC upheld the appeal of Dawn and WTS.

A’Africa Pest Prevention

Earlier this year, the CAC once again dealt with the principle of characterisation – this time in the case A’Africa Pest Prevention CC and Others v the Competition Commission.[6]

Here, the Commission initiated a complaint against two firms – A’Africa Pest Prevention CC (‘A’Africa’) and Mosebetsi Mmoho Professional Services CC (‘Mosebetsi’) – for alleged collusive tendering. The relevant facts can be summarized as follows:

  • A’Africa was owned by Aletta Labuschagne and Albertus Smith (Mr. Smith’s wife also owned a portion of A’Africa at one stage).
  • Labuschagne and Mr. Smith incorporated a new close corporation, Mosebetsi.
  • Mosebetsi lay dormant for many years, until Ms. Labuschagne and Mr. Smith appointed one of their employees, Modise Mohelo, as a member of Mosebetsi. This appointment was registered at the Companies and Intellectual Property Commission in South Africa.
  • At the stage that Mr. Mohelo was a member of, and running, Mosebetsi, both Mosebetsi and A’Africa were involved in pest control. Mosebetsi and A’Africa were run together, sharing equipment, staff and strategies.
  • Mohelo later resigned from Mosebetsi (although he was not deregistered at the Companies and Intellectual Property Commission), and Ms. Labuschagne continued to run Mosebetsi.
  • The Department of Public works issued a tender, and both Mosebetsi and A’Africa were invited to participate. Ms. Labuschagne filed tender bids for both Mosebetsi and A’Africa. The tender bids submitted were almost identical, save for the quote provided by Mosebetsi, which excluded value added tax.

The Tribunal agreed with the Commission that Mosebetsi and A’Africa had collusively tendered in contravention of section 4(1)(b)(iii) of the Competition Act. Mosebetsi and A’Africa appealed.

Part of the grounds of appeal included the Tribunal’s findings in relation to the argument of characterisation. The CAC held that the Tribunal had not fully taken into account the principles laid down in the ANSAC, SAB and Dawn cases. The CAC found that –

Although on paper, by virtue of being separate entities, firms may be capable of colluding, ultimately, the actual role players behind those firms are natural persons.  The question in this case, is who was Labuschagne colluding with? Could she collude with herself, or engineer collusion between the two firms she completed the forms on behalf of, and what would the effect of that be?  In my view, those are the questions that the Tribunal ought to have asked, because more and more they highlight the reason why the conduct ought to have been characterised.  This on its own lacks the hallmarks of collusion, which necessarily would involve individuals behind the firms conducting prohibited practices. Labuschagne had no colluding partner, so I find it hard to find that she could collude with herself in submitting the two tenders on behalf of the appellants.

Accordingly, the CAC dismissed the section 4(1)(b)(iii) complaint as against Mosebetsi and A’Africa.


As can be seen from the cases discussed above, the principle of characterisation is firmly entrenched in South African competition law. It is however interesting to note the different, yet interrelated approaches that have been taken in respect of characterisation: in ANSAC and Dawn, the conduct of the firms was ‘characterised’ by the courts; in SAB, the economic relationship between the firms was ‘characterised’ by the CAC and, in A’Africa, the actual management and control of the firms (as well as the conduct) was ‘characterised’ by the CAC.

In conclusion, characterisation is important as it allows for instances where conduct may fall foul of section 4(1)(b) to be assessed in light of the actual intention of the section. That is, whether the conduct is so egregious that no defence should be entertained. This, in turn, ensures that competition law does not unnecessarily hamper or obstruct pro-competitive and genuine commercial transactions from occurring, and allows courts to avoid false positives.

[1] 89 of 1998. In summary, section 4(1)(b) prohibits price fixing, market allocation and collusive tendering between competing firms.

[2] [2005] 3 All SA 1 (SCA).

[3] The matter was settled before being heard by the Tribunal.

[4] 129/CAC/Apr14.

[5] 155/CAC/Oct2017.

[6] 168/CAC/Oct18.

Recent Legal News

On September 12, 2019, the Supreme Court of Canada denied Sobeys Incorporated’s (“Sobeys”) and Metro Incorporated’s (“Metro”) leave to appeal from a judgement of the Ontario Superior Court of Justice (“ONSC”) – (“Sobeys v. Commissioner”) – dismissing their applications for disclosure of the identities of witnesses in the Competition Bureau’s Immunity Program. Their request arose in the context of an ongoing inquiry by the Competition Bureau (the “Bureau”) into an alleged conspiracy to fix the prices of fresh commercial bread in Canada contrary to section 45 of the Competition Act (the “Bread Conspiracy”), in which both Sobeys and Metro have been implicated, among other grocers and bread producers.

In Re Application by Immunity Applicant Witnesses at First Stage Hearing, 2018 ONSC 6301 (the “First Stage Hearing Decision”), a related decision, the ONSC declared the witnesses in the Bread Conspiracy to be confidential informants entitled to the protection of informer privilege. This decision did not dismiss Sobeys’ and Metro’s application for the disclosure of the identities of these witnesses. However, in Sobeys v. Commissioner, Sobeys and Metro accepted that the First Stage Hearing Decision had, for all practical purposes, determined their own application for the identities of the witnesses in the Bread Conspiracy. The only issue in dispute was the form of order in which to effect the dismissal of Sobeys’ and Metro’s application for the identities of witnesses in the Bread Conspiracy, which was expedited and did not include submissions as to the impact of the First Stage Hearing Decision. The ONSC agreed with Sobeys and Metro and expedited the dismissal of their applications in the interests of efficiency.

The Full Story

The Bureau has an Immunity Program which exists to help detect unlawful conduct contrary to the Competition Act. The Immunity Program involves a grant of immunity from prosecution to the first party to disclose to the Bureau an offence previously undetected. To qualify, the immunity applicant must cooperate with the Bureau’s investigation and any subsequent prosecution by the Public Prosecution Service of Canada (“PPSC”). The Bureau, in response to the First Stage Hearing, now clearly stipulates in its technical guidance documents that applicants for immunity are not confidential informers and that the identity of an immunity applicant and any information that might tend to identify them are not subject to informer privilege.

Informer privilege serves protects the identity of informants by overriding the Crown’s obligation of disclosure to an accused. Once informer privilege is found to exist, no exception or balancing of interests is made except when a trial judge finds disclosure necessary to demonstrate an accused’s innocence. It is a near absolute bar on disclosure of identity.

It has been the Bureau’s practice to treat the identity of an immunity applicant as confidential until charges are laid against the other participants to the offence, at which point the Crown will be required to disclose the applicant’s identity. But sometimes, the Bureau will disclose an immunity applicant’s identity sooner, if the Bureau relies on their evidence to obtain judicial authorization for an investigative measure, such as a search warrant or a wiretap. To obtain judicial authorization, the Commissioner of Competition (the “Commissioner”) must provide the court with information that satisfies the test for the particular judicial authorization sought, such as reasonable grounds to believe that an offence has been, or will be, committed. In doing so, the Commissioner will rely on the information provided by the immunity applicant to establish these grounds, including the immunity applicant’s identity, where necessary.

Unsurprisingly, the Commissioner opposed an application by the immunity applicant witnesses in the Bread Conspiracy for a declaration that they are confidential informers entitled to informer privilege in the First Stage Hearing Decision. The Commissioner submitted that the application of informer privilege would compromise the operation of the Immunity Program and anti-cartel enforcement in Canada. Nevertheless, the ONSC found that informer privilege applies to immunity applicants in the Bureau’s Immunity Program at the outset of their participation in the program, but that if the case goes to trial, they have waived the privilege by agreeing to testify, at a later date, by virtue of their participation in the program. Note that the ONSC found that there is a temporal element to this waiver.

There are differing views on the impact of the First Stage Hearing Decision. The ONSC took the view that the conferral of informer privilege to immunity applicants will strengthen the program by encouraging parties involved in criminal offences contrary to the Competition Act to come forward knowing that their identities will be held strictly confidential and not revealed until a trial date in the distant future, if ever, because many of these cases settle. Others are concerned that the effectiveness of the Immunity Program will be negatively impacted in cases where informer privilege compromises the Bureau’s ability to condition immunity on cooperation in judicial proceedings other than a trial, to the extent that such cooperation involves revealing the identity of the immunity applicant. Even where it is possible for the Commissioner to seek a sealing order to protect the identity of an immunity applicant, the obligation to do so would be burdensome for the Bureau.

However, in obiter, the ONSC commented that

“the nature of ‘judicial proceedings’ in paragraph 5 of the Bureau’s Form of Immunity Agreement is not defined or limited, and a waiver by the agreement to testify can, in other cases, potentially apply to a variety of judicial proceedings.”

The comment in obiter suggests that in some cases signing an Immunity Agreement could constitute a waiver of informer privilege applicable to testifying in judicial proceedings other than a trial. However, even in a case where the Form of Immunity Agreement could be interpreted as an effective waiver of informer privilege, prior to signing the agreement, informer privilege will protect the identity of witnesses.

As previously mentioned, the Bureau has added new language to its technical guidance documents which now stipulate that “[c]ooperating parties are not confidential informers…the identity of a cooperating party and any information that might tend to identify them are not subject to informer privilege.” It is an open question what effect this language will have. It is possible this new language could serve to create a waiver of informer privilege at the outset of an immunity applicant’s participation in the program. But that possibility has not yet been judicially tested. The counter view is that informer privilege was created and is enforced as a matter of public interest rather than contract. It is owned by both the Crown and the informer. Neither can waive it unilaterally. The First Stage Hearing Decision makes clear that for a waiver to be effective, it needs to be clear, express and informed. Until there is case law on this question, it would be prudent for parties considering participation in the Immunity Program to expect the Bureau will maintain the confidentiality of their identity generally, but that the protection of their identity may not rise to the level of informer privilege.


As the Supreme Court of Canada has decided not to hear an appeal of the decision not to disclose the identities of the witnesses in the Bread Conspiracy, it is unclear whether witnesses in the Bureau’s Immunity Program will be protected by informer privilege. We will look forward to future decisions adding clarity to the cases in which signing an Immunity Agreement may serve to waive informer privilege and to test the new language in the Bureau’s technical guidance documents.

Under the Competition Act (the “Act”), any six persons who are resident in Canada, at least 18 years of age and of the opinion that (a) an offence has been or is about to be committed under the criminal provisions in the Act, (b) grounds exist for the making of an order under the civil provisions in the Act or (c) a person has contravened an order made by the Competition Tribunal or a court pursuant to the Act, may apply to the Commissioner of Competition (the “Commissioner”) for an inquiry into the matter. These types of applications are commonly referred to as “six resident applications”.

A six resident application must be accompanied by a statement that includes the following: (a) the names and addresses of the applicants; (b) the nature of the alleged contravention or offence under the Act; (c) the names of persons they believe to be concerned; and (d) a statement of the evidence supporting their opinion.

Upon receipt of a six resident application, the Commissioner is required to commence an inquiry into all such matters as the Commissioner considers necessary to inquire into with a view of determining the facts. Upon commencing an inquiry, the Commissioner has access to and may in his discretion use a wide range of formal information gathering tools, such as (a) orders requiring oral examinations under oath, the production of documents and/or the delivery of written information under oath; (b) search warrants; or (c) in certain cases, wiretaps.

Six resident applications are a relatively straightforward and cost-effective tool for Canadians looking to capture the attention of the Competition Bureau (the “Bureau”). There are many examples of six resident applications resulting in inquiries under the Act. In the past, six resident applications have generally been used to bring attention to consumer-protection issues. For example, Friends of the Earth Canada recently brought a six resident application with respect to alleged false or misleading marketing practices by certain manufacturers and distributors of single-use “flushable” wipes. This application has resulted in increased awareness for Canadians of the environmental impact of such wipes.

While six resident applicants are entitled to updates on the progress of an inquiry, they should be mindful that the Bureau is required by law to conducts its investigations in private and is bound by strict confidentiality provisions in the Act. If a prosecution or civil proceeding results from an inquiry, that fact will become a matter of public record and the Bureau will often make the public aware through announcements or position statements. However, where no prosecution or civil proceeding has been commenced, and despite that the Bureau strives to be as transparent as possible, parties can, at times, feel “in the dark” while the Bureau advances its inquiry. Should the Bureau commence an inquiry pursuant to a six resident application and discontinue its inquiry, the Commissioner is required to inform the six resident applicants of the reasons for doing so.

In recent years, competition/antitrust enforcers around the world, including Canada, have taken a marked interest in private equity deals.  As part of a broader global trend of tougher merger enforcement, private equity firms that have taken ownership positions (controlling or minority) in portfolio companies that are competitors have been subject to heightened scrutiny.  The litigation and subsequent settlement in involving Canada’s Competition Bureau and Thoma Bravo is the most recent example.

The Transaction

On May 13, 2019, Thoma Bravo (a private equity firm based in the United States) acquired Aucerna, a Calgary-based company that supplies reserves software, known as Val Nav, to oil and gas producers.

Before the acquisition, Thoma controlled several software companies, including a company known as Quorum. Quorum supplies reserves software, known as MOSAIC, to oil and gas producers.

The Bureau’s Challenge

32 days after the transaction closed, the Bureau sought to unwind the transaction, alleging a substantial lessening of competition in the market for reserves software for oil and gas producers in Canada. By bringing Aucerna and Quorum under common ownership and control, the Bureau alleged a merger to monopoly among the two largest Canadian suppliers of reserves software. The Bureau identified Aucerna’s Val Nav software and Quorum’s MOSAIC software as built and developed specifically for the Canadian market, and further alleged international competition from Schlumberger and Halliburton as insufficiently tailored for Canadian customers.

The Resolution

Approximately two months later, the litigation settled by way of a Registered Consent Agreement before Canada’s Competition Tribunal.  As part of the settlement, Thoma agreed to divest Quorum to a purchaser acceptable to the Bureau. The Bureau and Thoma agreed to the divestment of Quorum rather than any of the assets Thoma acquired from Aucerna through the transaction.

Lessons Learned

  • Great Scrutiny of Private Equity: The Thoma Bravo litigation demonstrates that Canada is no exception to the growing global scrutiny of private equity deals. Whether taking controlling or minority interests, private equity firms need to analyze the antitrust/competition implications of their prospective transactions, whether or not the transaction is subject to pre-merger notification before the Bureau.
  • Greater Scrutiny of Non-Notifiable Transactions: While not entirely clear, Thoma’s acquisition of Aucerna was likely not subject to pre-merger notification before the Bureau. The Bureau’s challenge of a non-notifiable transaction aligns with recent statements by the Bureau regarding its expanded Merger Intelligence and Notification Unit. The Bureau’s newly created Unit aims to identify non-notifiable transactions that may have competition concern. The Unit also aims to incentivize merging parties involved in competitively sensitive non-notifiable transactions to engage the Bureau pre-closing.
  • Post-Closing Unwinding of Transactions: Most merger challenges by the Bureau take place pre-closing, thereby preventing the intermingling of the merger parties’ businesses. The Bureau actions – seeking to unwind a transaction over a month post-closing – represents a rare exercise of discretion and a signal that no comfort should be taken from the lack of a pre-merger challenge by the Bureau.

Please contact any member of our Competition or Private Equity Group to discuss this development to ensure that appropriate consideration has been given to the heightened scrutiny from the Canadian competition regulators for private equity transactions.

The Competition authorities of the G7 countries (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) and the European Commission have reached a common agreement on the opportunities and challenges arising from the growing digital economy. The agreement was reached on June 5, and adopted by the Finance Ministers and the Bank of Governors of the G7 and the European Commission on July 18.

The competition authorities agreed on four primary principles:

  • Competitive markets are key to well-functioning economies.
  • Competition law is flexible and can and should adapt to the challenges posed by the digital economy without wholesale changes to its guiding principles and goals.
  • Governments should assess whether policies or regulations unnecessarily restrict competition in digital markets or between digital and non-digital players, and should consider procompetitive alternatives where possible.
  • Given the borderless nature of the digital economy, it is important to promote greater international cooperation and convergence in the application of competition laws.

The agreement notes that the digital economy has fundamentally changed the way that goods and services are produced and sold, and that the accumulation of data can aid in the improvement of existing products, or the formation of new ones. These benefits assist in evaluating how the digital economy has affected competition over time. The authorities noted that innovation facilitates economic growth and allows new entrants to enter the market and increase competition, while competition law enforcement has an important role to play in safeguarding consumer trust in the marketplace.

The authorities also noted the competition-related challenges that the growing digital economy presents, including factors that make market definition, market power assessment and competitive effects analysis more difficult, requiring closer analysis of non-price aspects of competition. They also discussed that an increased awareness for the identification of anti-competitive behaviour by dominant firms might be necessary as digital markets become more concentrated. The authorities agreed that these challenges are not outside of the reach of competition law, and that many features of digital markets are already being addressed by existing frameworks.

The agreement notes that in order to have effective enforcement, competition authorities need to be consistently improving their understanding of the competitive effects of new business models.

The agreement also highlights the importance of advocacy and of competition impact assessments of policies. The authorities agreed that governments should avoid using competition law enforcement to address non-competition objectives. They also noted that regulations can increase the cost of entry and entrench incumbents, and therefore have anti-competitive effects. They agreed that governments should monitor the competitive impact of prospective regulations and review the existing ones to ensure that they promote competition and maintain competitive markets.

Finally, the authorities confirmed their agreement on the importance of cooperation with their international counterparts.

Pre-merger exchanges of information can create competition risk. Companies considering mergers or acquisitions legitimately need access to detailed information about the other party’s business in order to negotiate the deal, engage in due diligence and implement the transaction. While non-competitively sensitive can (subject to any commercial concerns) be freely exchanged, care needs to be exercised when exchanging competitively sensitive information, such as current and future price information, strategic plans and costs. This is especially true if the companies are competitors or potential competitors.

Competition Law Concerns

In the context of mergers, the Competition Bureau is particularly concerned with pre-closing information exchanges of competitively sensitive information among actual or potential competitors. This is because the exchange of such information can facilitate coordination between the parties in the period prior to closing or for a much longer period of time if the transaction ultimately does not close. For example, the exchange of competitively sensitive information can reduce the uncertainty around a competitor’s current or future business, marketing or strategic plans.

If the exchange of competitively sensitive information is accompanied by accommodating actions, it could potentially constitute an unlawful agreement contrary to the criminal cartel provisions in the Competition Act. These provisions prohibit agreements between competitors to fix prices, allocate markets or restrict output, and provide for fines of up to $25 million and/or imprisonment of up to 14 years. As such, it is important that the parties continue to operate independently and compete against each other as they have in the past up to the date of closing, including preserving their competitively sensitive information.

Mitigating Risk

In light of the above, it is important that the parties to a merger have a plan in place to monitor and control the exchange of competitively sensitive information. For example, if competitively sensitive information must be exchanged for due diligence and integration planning purposes, parties should employ third-party consultants, clean teams and other safeguards that limit the dissemination and use of that information within the parties’ businesses. A helpful discussion of the various methods that can be employed to safeguard competitively sensitive information is contained in a short article published by the United States Federal Trade Commission titled “Avoiding Antitrust Pitfalls During Pre-Merger Negotiations and Due Diligence”.

Do’s and Don’ts

In addition to the protocols referred to above, set out below is a non-exhaustive list of do’s and don’ts in respect of pre-closing information exchanges:


  • Comply with all obligations relating to the exchange of competitively sensitive information set out in any relevant agreements, including confidentiality, non-disclosure and clean team agreements.
  • Limit the exchange of competitively sensitive information to that which is necessary to complete regulatory filings, engage in legitimate pre-closing integration planning or otherwise proceed with the transaction.
  • Restrict access to competitively sensitive information to senior management, legal counsel or those who have a “need to know”.
  • Limit the information exchanged to the minimum necessary, and to historical information, rather than prospective information such as strategic plans, marketing plans, product development plans, forecasts, price initiatives or capital plans.
  • Include “PRIVILEGED & CONFIDENTIAL – JOINT DEFENCE MATERIALS” in the subject line when emailing competitively sensitive information. Include the same note in the header of documents.
  • Keep the information shared as aggregated as possible (i.e. information that does not disclose specific prices, costs, customers or markets), thereby reducing the competitive value and sensitivity of the information.
  • Maintain a record of each communication and the information provided and received and review such record regularly to ensure that the information provided has been appropriate.
  • Be cautious when information is provided orally so that the conversations do not stray to sensitive or prohibited subjects.
  • Seek advice from counsel if you are unsure whether information should be shared.


  • Share information with personnel other than senior management, legal counsel or those with a “need to know”. Sales or marketing personnel should not receive or gain access to any competitively sensitive information.
  • Share information relating to any businesses unrelated to the proposed transaction.
  • Agree on customer pricing, jointly negotiate purchases or otherwise act as a single entity. Both parties must strive to be as competitive as possible until the transaction closes.
  • When communicating, even internally, use negative phrases such as “eliminate competition” and “dominant player”. Every document created relating to the transaction should be written with the knowledge that such document may end up in the hands of the Bureau. Therefore, great care should be taken to avoid any implication that the purchaser has any intent, practice or policy to restrict competition. In respect of the transaction, it is preferable to focus on the positive efficiency-enhancing aspects, such as achieve economies of scale.


Having regard to the protocols described in the FTC’s article and the do’s and don’ts summarized above will minimize the risk of issues arising in the context of pre-closing information exchanges. In contrast, parties that choose to exchange competitively sensitive information in the absence of such protocols could find themselves subject to lengthy investigations, prosecution and significant penalties under the criminal cartel provisions in the Competition Act.


In a digital economy, there has been an increasing amount of scrutiny regarding technology’s impact on consumers and competition. One key question is whether privacy should be considered a dimension of competition? That is to say, is privacy relevant to the analysis of competitive effects?

Competition law incorporates many non-price dimensions of competition, including innovation, quality, variety, service and advertising. One significant type of non-price effect involving data is privacy. Firms may compete to offer better privacy terms to customers over their competitors. However, consumers have vastly different ideas about how or when they want their data to be used. Some find targeted or behavioural advertising invasive, while others appreciate more relevant ads and receive free products or services in exchange for targeted ads.

There is tension between competition law and privacy. Competition law enforcers generally want as much data sharing as possible, whereas privacy advocates want to limit data sharing. For example, a competition law enforcer may want to facilitate access to data to alleviate one party from having more or better information than the other in a transaction (information asymmetry), but this may raise privacy concerns if that data includes personal information, as this data could be exploited or misused.

Barriers to Market Entry and Expansion

Access to data may create or strengthen several economic barriers to entry and help exclude rivals.

The first of these barriers is access to a large amount and variety of data, which can generate economies of scale that allow for innovative products or services that create significant economic value for consumers. For example, the data acquired through a merger may allow firms to develop products or services that would not have been possible otherwise, however this can make it difficult for competing firms to expand or enter the market.

The second barrier access to data can create is switching costs. For example, consumers may find it difficult to transfer from one platform to another competing platform. Dominant firms in the market may take steps to increase switching costs for customers to prevent them from switching products. Dominant firms may use practices such as restrictive contracts to achieve this.

The third barrier is network effects. Network effects exist when the value or benefit from using a product increases with the number of users. For example, search engines like Google gather and analyze data from users who click on ads and links. Increased user counts can therefore lead to improvements in the search algorithms to display more relevant search results and ads. While network effects can improve the quality of a product or service, the effect can create barriers to entry.

Privacy and Data Portability

Privacy frameworks may alleviate barriers to entry by facilitating competition through data portability and interoperability. Data portability protects consumers from having their data stored on platforms that are incompatible with another. Data portability requires common technical standards between firms to facilitate the transfer of data from one firm to another, thus promoting interoperability. Increased data portability can reduce switching costs for consumers and therefore increase completion in the market. Innovation may also increase because firms can more access data more readily and use it in novel ways.

Some companies such as Microsoft, Twitter, Facebook and Google are already taking steps to increase data portability. The companies are participating in the Data Transfer Project, which seeks to create an open-source, service-to-service portability platform so that all individuals across the internet can easily move their data between online service providers when ever they. The Data Transfer Project collaborators believe that portability and interoperability are central to innovation and that making it easier for consumers to chooses among services facilitates completion and consumer value.

Privacy legislation can help facilitate competition. For example, the European Union’s General Data Protection Regulation (“GDPR”) directly addresses the right to data portability in Article 20, facilitating the ability of consumers to switch service providers. While privacy legislation can help provide much needed clarity to enforcers and to firms, policymakers should be aware that privacy legislation can also have negative effects on competition. For example, privacy legislation may increase barriers to entry through increased compliance and legal costs. Often larger established firms are in a better position to absorb these costs at the expense of smaller competitors and potential entrants. Therefore, policymakers must carefully balance the privacy rights of consumers while still facilitating competitive market conditions.


The impact of data accumulation, transparency and control in a digital era creates emerging issues for competition law. While privacy laws deal with breaches of privacy, competition laws also overlap in the regulation of practices related to privacy. Clarity on the boundaries between privacy and competition law is needed going forward to avoid enforcement overlap.


The South African Grocery Retail Market Inquiry (“Inquiry”) published its preliminary report on May 29, 2019 (“Preliminary Report”).

The broad finding of the Inquiry is that there is a combination of features in the South African grocery retail sector that may prevent, distort or restrict competition.

For an overview of the key preliminary findings of the Inquiry, please see our bulletin, Grocery Retail Marketing Inquiry: Key Preliminary Findings and Recommendations.

Stakeholders were invited to submit comments on the Preliminary Report by June 28, 2019 and the Inquiry is currently busy with further consultations and discussions with stakeholders.

The reaction by stakeholders on the key findings has been mixed – some positive and some negative. The purpose of this note is to briefly unpack one positive reaction and two possible areas of concern that will seemingly lead to objections being raised by stakeholders to the preliminary findings and recommendations of the Inquiry.

Support for ending the use of long-term exclusive lease provisions

It is noteworthy and apparent from reading the non-confidential parts of the Preliminary Report that the majority of property developers, financiers and shopping mall owners do not support the retention of exclusive lease provisions. Such provisions essentially ensure retailers, mostly supermarkets, that there will be no other supermarket, or even a similar speciality store (bakery, butchery or liquor store), in a shopping mall for long periods of time (in some instances up to 40 years).

In this regard, in order to remedy what the Preliminary Report describes as “the distortions to competition as a result of the use of long-term exclusive lease agreements”, the Inquiry has recommended that the incumbent national supermarket chains and their successors (a) immediately cease enforcing any exclusivity provisions in their lease agreements against specialty stores; (b) not include exclusivity provisions in any new leases; and (c) phase out the enforcement of exclusivity provisions against other supermarkets within a three-year period.

Based on the non-confidential submissions made to the Inquiry, there is seemingly general support for this finding. An exception is the supermarkets, which understandably have vested interests in retaining the exclusivity provisions in their leases. It is unclear at this time what the approach of the supermarkets will be and it will be interesting to see what additional submissions the supermarkets will make to the Inquiry.

At this stage, it is unlikely that this will be the end of the use of exclusive lease provisions in South Africa.

Concerns about the finding of the Inquiry that the buyer power by the national chains results in smaller retailers bearing higher rental costs in shopping malls (“Rental Differentials”)

One of the findings of the Inquiry has been that the buyer power by the national chains results in smaller retailers bearing higher rental costs in shopping malls, which hinders the participation of competing small grocery retailers and specialty retailers. The Inquiry found that, as an entrenched business practice, this would be hard to change without commercial disruption and it has called for submissions on possible solutions to this concern.

It is understood that developers and shopping mall owners have specific concerns about this finding. They submit that the determination of rentals depends on numerous commercial factors and that there is never a “one size fits all” approach that will address the Inquiry’s concern. A landlord must assess the individual requirements of a tenant, the tenant’s business model, affordability, and the merits of each tenant prior to entering into a lease agreement. Aside from the tenant mix, competing stores, proximity, space required by a tenant and the shopper catchment area are also relevant considerations.

Further arguments are that supermarkets usually occupy between 2,000 and 4,000 m2 of floor space while smaller tenants typically occupy less than 300 m2 of floor space, with the result that supermarkets and smaller tenants cannot be compared with each other. For example, if a supermarket is charged the same rent as a small retailer, there would be no anchor tenants.

A more fundamental issue raised in the submissions is that the finding affects normal commercial aspects of contractual freedom between parties and does not address actual competition concerns.

It will be interesting to see whether any of these submissions will have an impact on the conclusion of the Inquiry.

Market share concerns by the supermarkets

One of the main findings of the Inquiry is that the formal retail channel is highly concentrated, with the national supermarket chains, namely Shoprite, Pick n Pay, Spar and Woolworths, collectively accounting for 72% of turnover in 2015.

This finding was contested in an opinion article by David North, an executive of Pick n Pay, that appeared in Business Times on June 23, 2019. The article, which was titled “The ‘big four’ grocers are not guilty as charged”, included the following passage:

One of our concerns about the commission’s report, and Hodge’s column [Mr. James Hodge is the Commission’s chief economist], is that they rely on a fundamentally incorrect assertion that the market is “highly concentrated” with the “big four” supermarkets allegedly “accounting for more than 70% of sales”.

In making this claim, the commission relies on a report published by Stats SA in 2015. Unfortunately, it has misinterpreted the data in that report. When it says the “big four” account for the 72% of sales, it has mistakenly included R15bn of sales in countries outside SA. It has also mistakenly included in the “big four’s” grocery sales R14bn in turnover for furniture and building products.

The commission has also underestimated the size of the formal retail sector by almost 15% – excluding a category of general merchandise sales from non-specified stores that are part of the grocery retail sector.

David North’s opinion is that the actual market percentage of the “big four” is less than 30%, which is well below the benchmarks used by the commission for identifying competitive markets.

It is noteworthy that this opinion article was published in the press and thus became public prior to the last date for furnishing comments (June 28, 2019). At this stage, it is unclear what the Inquiry’s response will be. If the market share was indeed incorrectly calculated, the findings of the report may be materially affected.

It is anticipated that the Inquiry’s final report will be published towards the end of the year and future developments will be quite interesting to monitor.

As mentioned in our prior blog post titled Commissioner Points to More Active Enforcement, Greater Transparency and Refined Approach to Efficiencies Defence, the Commissioner of Competition announced during his keynote speech at the Canadian Bar Association’s Competition Law Spring Conference on May 7, 2019 that the Competition Bureau intended to release for public comment a draft model timing agreement for merger reviews where the parties raise the efficiencies defence. The draft agreement was released yesterday and interested parties have been invited to provide their views to the Bureau by no later than August 30, 2019.

As stated in the Bureau’s News Release announcing the consultation, “[t]he purpose of the timing agreement is to ensure that the Bureau has the time and information it requires to properly assess the parties’ claimed efficiencies”. In this regard, “[t]he model agreement establishes timed stages for the parties’ engagement with the Bureau, including the production of evidence and information, throughout the review process”. It also describes the general categories of information that the Bureau will require from the parties in order to conduct its efficiencies analysis, including (a) information on parties’ operations and assets; (b) plans for the merging parties’ businesses in the absence of the merger; (c) analysis and planning documents relating to the implementation of the merger; (d) analysis of merger efficiencies; and (e) information from past comparable integrations.

While the draft agreement is intended to “establish a schedule for the expeditious resolution of [proposed transactions]”, it may actually increase the length of the Bureau’s review (at least in certain cases). In this regard, while the Bureau’s draft Practical Guide to Efficiencies Analysis in Merger Reviews encourages parties to provide their initial efficiencies submissions and available supporting information at an early stage in order to “allow the Bureau sufficient opportunity to analyze potential effects and efficiencies concurrently”, the draft agreement contemplates that efficiencies submissions will now be provided within 30-40 days after full compliance with supplementary information requests (SIRs). This, combined with recent statements made by the Commissioner during an interview sponsored by the American Bar Association on July 10, 2019, suggests that the Bureau will no longer be willing to consider potential effects and efficiencies simultaneously. Rather, even if parties choose to provide an efficiencies submission at an earlier stage, it appears that the Bureau will not be willing to consider efficiencies until after it has determined whether the proposed transaction is likely to result in a substantial prevention or lessening of competition. Using the maximum timelines set out in the draft agreement, the Bureau’s assessment of the parties’ efficiencies claims likely will not be completed until 110 days from the date of full compliance with the SIRs.

In the absence of the parties entering into a timing agreement that the Bureau deems acceptable, it appears that the Commissioner will not be willing to exercise his discretion to consider the efficiencies defence as part of the merger review process. If this is the case, efficiencies, and, in particular, whether the efficiencies likely to arise from a merger are greater than and offset its anti-competitive effects, will likely be analyzed for the first time by the Competition Tribunal rather than by the Bureau in advance of any prospective litigation.

In his remarks at the New York University School of Law on July 11, 2019, Assistant Attorney General Makan Delrahim announced a significant policy shift at the US Department of Justice (DOJ) that would incentivize the adoption of adequate and effective corporate compliance programs.

Going forward, in deciding on how to resolve criminal charges against corporations, US DOJ prosecutors will consider “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of the charging decision.” In short, the US DOJ will now give corporations credit for having an adequate and effective compliance program, which can lead to a reduction in the penalty sought, something that was already occurring in other jurisdictions such as Canada. Having such a compliance program may, in certain circumstances, also qualify the corporation to a non-prosecution agreement, notwithstanding the DOJ’s general “disfavor” for such agreements.