The Competition Act 89 of 1998 (“the Act”) was enacted to promote and maintain competition in South Africa, to ensure small and medium-sized enterprises have an equitable opportunity to participate in the economy, and to promote a greater spread of ownership, particularly amongst historically disadvantaged persons.

The Competition Commission has noted in its review of 10 years of competition law enforcement that aside from price-effects, low levels of quality and service delivery, lack of competition essentially has negative effects on the end consumer, and economic efficiency in general.[1]

Chapter two of the Act lists a number of prohibited practices including restricted horizontal and vertical practices. Vertical practices are practices between the end user or consumer and the product or service provider. Horizontal practices are practices between product and service providers.

For the purposes of this article we will deal with Section 4 which regulates interaction between competitors and lists a number of restricted horizontal practices.

While horizontal practices are not expressly defined in the Act, a horizontal relationship is defined as a relationship between competitors. Therefore, by implication, horizontal practices include practices between competitors. Although competitors are not defined in the Act, the Commission has stated that “firms will be regarded as competitors if they compete in the same market in respect of the same or interchangeable or substitutable goods or services.”

The catch all provision, s4 (1)(a) of the Act, prohibits agreements between, or concerted practice by, firms, or decisions by associations of firms, made between parties in a horizontal relationship, which have the effect of substantially preventing or lessening competition in a market. Unless a party to the agreement, concerted practice or decision can prove that it has technological, efficiency, or other pro-competitive gains which outweigh its negative impact on competition.

S4(1)(b) of the Act states that agreements between, or concerted practice by, firms, or decisions by associations of firms are per se prohibited outright if they involve any listed restricted horizontal practices including: directly or indirectly fixing a purchase or selling price or any other trading condition; dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or collusive tendering. Provided no justifications based on any grounds exist.

Horizontal agreements include contracts, arrangements or understandings, whether or not they are legally enforceable. Concerted practices include any co-operative or co-ordinated conduct between firms, achieved through direct or indirect contact, that replace their independent action, but which does not amount to an agreement.

Examples of restricted prohibited practices amongst competitors include:

Price-fixing

This involves fixing a selling, purchase price or trading condition.

Dividing markets
This includes allocating markets amongst sellers or purchasers per territory, type of goods or services.

Collusive tendering

This occurs when producers of goods or services decide to apply for a tender and agree that one of them shall submit the lowest bid in order to secure the tender. This ensures that each tenderer obtains a share of the market, and together they are able to price fix.

Should a firm (a person, partnership, or trust) contravene any of the prohibited practices in this section, the Competition Tribunal may impose an administrative penalty not exceeding 10% of the firm’s annual turnover in South Africa during its preceding financial year. This fine is payable to the National Revenue Fund.

Exceptions to the prohibited restrictive horizontal practices

The prohibitions or restrictive horizontal practices set out in s4(1)(a) and (b) of the Act, do not apply to an agreement between, or concerted practice engaged in by a company, its wholly owned subsidiary, a wholly owned subsidiary of that subsidiary or any combination of them, or the constituent firms within a single economic entity similar in structure to any of the above.

If you are concerned about anticompetitive behaviour in your company and need assistance in navigating what may be unchartered territory, we at Dingley Marshall Inc are happy to assist.

Written by:

Lucien Lewin and Romi Martin

[1] Horizontal agreements: the harm they can do Unleashing Rivalry (1991-2009) Ten years of enforcement by the South African competition authorities.