Fair Competition

While most of us were enjoying competition in the sports or leisure fields over this last weekend in August 2009, President Zuma signed the Competition Amendment Bill into law.

This is the same Bill which former President Motlanthe declined to sign, but referred back to the National Assembly on the grounds that some of its provisions were unconstitutional.

The provisions in the Bill, which sent shock waves through business and legal circles when it was tabled last year,  places a heavy burden on executives.  Directors and managers can be held personally liable for cartel or price fixing activities and could face prison terms (up to 10 years) or hefty fines (up to R500 000). The Competition Tribunal can fine companies themselves up to 10% of revenue. Merely having “knowingly acquiesced” in collusive practices would expose a director to criminal prosecution.

Although the Competition Tribunal is not a criminal court, its findings can be used as “prima facie” (that is, provisional) proof that a firm was engaged in prohibited practices. In the original Bill, the accused had to prove his innocence. This clause has been removed, but there remain complex legal procedural clauses in the Bill (which is now an Act of Parliament) concerning the onus (or burden) of proof on the accused.  These procedural issues will no doubt be tested in the Constitutional Court.  This could lead to a blockage in the system and cause a backlog of cases for years.

A major concern with this new Act is the corporate leniency policy.  This policy allows the Competition Commission to grant immunity to a member of a cartel who rats/tells/whistleblows on fellow cartel members.   Knowing that they might be prosecuted criminally and go to jail if they volunteer information which might incriminate them, directors who are party to such activities are unlikely to continue to volunteer information.  This will make the investigators’ jobs more difficult.

At present, many cases are settled without the need for prosecution before the Competition Tribunal, because the law allows for a Consent Order by the Commission, in terms of which directors acknowledge guilt and agree to pay fines.  If such admissions by directors will lead them to be prosecuted criminally, they are not likely to make admissions of guilt. The law is also not in line with international best practice in that it criminalises directors’ conduct  not only if they knew about collusive practices,  but also if they should have known about them.

The fact that, despite all these concerns, the Bill was signed into law this past weekend, will no doubt delight the Competition lawyers. Years of complex litigation will earn them good money. Directors of companies, however, had better hasten to their insurance advisers. Directors will also no doubt seek higher pay packages when considering the extreme risks they must now take to act as directors.

Clive Hill | Financial Services Manager