Mar 10,2013 / News / Legal Brief

In an unexpected move President Jacob Zuma on Friday 8 March 2013 issued a proclamation setting 1 April 2013 as the date on which the market inquiry provisions of the Competition Amendment Act No 1 of 2009 will come into force.  This comes as a great surprise to competition law practitioners as the Amendment Act has languished in limbo for the last three and a half years, after it was signed into law by President Motlanthe on 28 August 2009. At the time there was great uncertainty about the desirability and constitutionality of certain provisions of the Amendment Act, for instance those criminalizing cartel behaviour and outlawing conscious parallel conduct in a concentrated market.  After such a long time, people started thinking, or perhaps hoping, that the Amendment Act was shelved for good.

For the moment, the troubling criminalization and parallel conduct provisions remain inoperative. However, it is not entirely clear if it is competent for the President to bring the Amendment Act into force on a piecemeal basis.

Why has the government now taken the Amendment Act out and dusted it off?  It is undoubtedly to enable the Commission to carry out an extensive investigation into the private healthcare industry. The Commission announced its desire to conduct such an investigation in December 2011 and reiterated it in September last year at the time of its annual conference  At the time, the Minister of Health Dr Aaron Motsoaledi bemoaned the spiralling cost and declining outcomes of healthcare and welcomed such an investigation.

But it is unlikely to end there: other industries which may in due course possibly face market inquiries are mobile telecommunications, FMCG goods, steel manufacturing and other concentrated markets. If and when this will occur will presumably depend on the resources of the Commission, which are already severely stretched.

The Amendment Act will now permit the Competition Commission to conduct formal enquiries into the general state of competition in a particular market, without the need for referring to the conduct of a specific firm or group of firms. For an inquiry to commence the Commission must first publish terms of reference setting out at least the scope of the inquiry and the time within which it is expected to be completed.

Previously the Commission could only exercise its investigating powers after a formal complaint of alleged prohibited conduct had been laid or initiated against one or more firms. The Commission believed that this hampered their ability to intervene in uncompetitive markets. Now a market inquiry may be conducted simply if the Commission has reason to believe that “any feature or combination of features of a market… prevents, distorts or restricts competition” or “to achieve the purposes of” the Competition Act. The market inquiry provisions are modelled on the UK Enterprise Act of 2002 which has been used extensively by the UK Competition authorities for investigations into groceries, cement, airports, healthcare and auditing, amongst others.

Whilst the Commission in the context of market inquiries will not be allowed to  conduct “dawn raids” it may summons individuals to appear before it and to provide information and documentation as part of the market inquiry. The person presiding at the hearing of a market inquiry may question any person under oath or affirmation and a failure to comply may lead to a fine of R2000 or imprisonment of up to 6 months. The fact that the information may be confidential would not constitute a valid reason for withholding it although one could provide it in camera.

The Commission has of course previously conducted a much publicized inquiry into the banking industry.  In that case, the banks and other market participants’ willingly cooperated with the investigation, despite incurring extensive legal and other costs. But the Commission was apparently not so confident that such cooperation will extend into other industries. A representative of the Commission is reported to have said in respect of the healthcare sector that:

We would prefer to go ahead with this market enquiry armed with the additional investigative powers that the Amendment Act introduces. We don’t believe that all healthcare players will be providing the information we are looking for voluntarily.

Upon completing a market inquiry the Commission will be required to submit a report to the Minister of Economic Development in which it may make policy, legislative or regulatory recommendations as well as recommendations to other regulatory authorities on competition matters. The Commission may also initiate a complaint of prohibited conduct against a specific firm or group of firms based on the outcome of the market inquiry. But one must wonder about the efficacy of these inquiries: the Banking Inquiry commenced in 2006 and a report was finally issued in December 2008. However, no regulatory changes or prosecutions have as yet been implemented arising from its recommendations.

It remains to be seen if the market inquiry provisions will not yet be challenged. The grounds on which the Commission may decide to institute an inquiry are so broadly phrased and the powers afforded it so invasive that it may well be asked whether these provisions pass Constitutional muster. The purposes of the Act, for instance, are diverse and are not only to provide competitive prices but also to promote employment and to increase the ownership stakes of historically disadvantaged persons. An industry facing the sharp end of a market inquiry may very well consider if the terms of reference of the inquiry are not an ultra vires administrative act.

One thing is clear: the competition law landscape has irretrievably been changed and the Commission’s horizons have been expanded. Individual businesses that have thus far steered clear of competition law concerns by carefully adhering to compliance programs may now be drawn into market inquiries where the conduct of other players in the market has attracted the attention of the Commission. The external and internal cost of involvement in such inquiries may be huge and could impact significantly on the productivity of the affected firms. It is therefore hoped that the Commission will used their new powers sparingly and reserve them for markets in which it can make a real difference. Be that as it may, it is now certain that companies in the healthcare sector should be getting ready for an extensive investigation into their industry.

About the authors

Paul Coetser heads the firm’s Competition & Antitrust Law Practice and advises on all aspects of competition law including applications for leniency and for exemption from the Competition Act. He has significant expertise in the competition-related aspects of mergers and takeovers and in dealing with complaints of alleged anti-competitive conduct. He also undertakes compliance audits and programmes. He is consistently rated as one of South Africa’s top competition lawyers and is named as a leading lawyer in in competition/antitrust and Corporate/M&A by Chambers Global: The World’s Leading Lawyers for Business.

Rudolph Raath was appointed as a litigation director at Werksmans in 2007 and primarily advises on prohibited practice aspects of competition and anti-trust law. He also has experience in matters of administrative law, environmental law, mineral, energy and natural resources law and restitution of land rights matters.