Creative remedies for competition law contraventions

31 Aug 2016

Respondents to investigations involving anti-competitive conduct, who enter into consent agreements with the Competition Commission (Commission), must agree to appropriate sanctions with the Commission, with a view to reaching settlement. The Commission, in its aim to penalise respondents for anti-competitive behaviour and deter future contraventions, typically imposes discretionary financial penalties (of up to 10% of the respondent’s turnover), and secures commitments in respect of ongoing compliance efforts.

However, the bespoke remedies can extend beyond the bland, as is evident from a recent consent agreement entered into between the Commission and Sime Darby Hudson & Knight (Pty) Ltd (Sime), in terms of which Sime admitted to concluding an anti-competitive agreement with Unilever South Africa (Pty) Ltd (Unilever).

The alleged anti-competitive agreement precluded Sime from supplying customers with margarine packs that were less than 15 kilograms in size, such that Sime would have no presence in the retail sector of the market, where Unilever is active. Sime also admitted to agreeing to only produce packs of edible oils equal to or greater than 25 litres in size, which only industrial customers would be interested in purchasing, meaning it would again not compete directly with Unilever. The Commission alleged that this illegal allocation of customers persisted between 2004 and 2013.

In terms of the consent agreement, Sime agreed to pay an administrative penalty of some R35 million, and also made certain undertakings to the Commission in respect of its future conduct. In what are unique settlement terms, Sime agreed, among other things, to:

invest R135 million to build and commission a new packaging and warehouse facility for its edible fats and oils and ensure that it has the ability to package retail sizes of these products, such that Sime would now be able to enter the retail market that it was previously precluded from supplying; utilise the services of a Black Economic Empowerment (BEE) distributor to undertake some of Sime’s distribution requirements so that, according to the Commission, Sime’s reliance on its potential competitors for distribution of its products would come to an end; and provide assistance to the BEE distributor so as to facilitate it becoming a viable business, possibly even including financial assistance to procure, for example, a fleet of vehicles, loan guarantees and other forms of investment to enable the BEE distributor to render transportation services on a sustainable basis.

In terms of the Competition Act, No 89 of 1998 (Act) during or after the investigation of a complaint, the Commission and respondent can agree to settlement of the matter and enter into a consent agreement and apply to the Competition Tribunal (Tribunal) to make it an order. The agreement will only be binding to the extent that it is made an order by the Tribunal. If the Tribunal refuses to make the order, there is no legally enforceable agreement between the Commission and the respondent.

The Sime case demonstrates that the Commission is not only concerned with retributive and deterrent justice, but is also open to adopting other means, in line with the broader purpose of the Act (for example, remedies aimed at furthering BEE initiatives), towards redressing competitive harm. It seems that, provided the Commission and the respondent agrees on the negotiated remedies, and the Tribunal is willing to sanction them, settlement for competition law infringements are an open canvass.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)