Competition Commission publication of Guidelines for Administrative Penalties
15 December 2014
On 10 December 2014, the Competition Commission (Commission) issued draft Guidelines for the Determination of Administrative Penalties (Guidelines) for public comment. The Guidelines have been prepared in terms of section 79(1) of the Competition Act 89 of 1998 (the Act) and in order to provide objectivity and transparency in the method of determining administrative penalties.
The Commission has stated that the Guidelines have been issued for the purpose of providing a general methodology that the Commission will follow in determining administrative penalties when concluding consent orders and settlement agreements and recommending administrative penalties in complaint referrals before the Tribunal. The Guidelines are not intended to prevent the Commission from exercising its discretion on a case by case basis.
The Commission has started from the principle that the primary objective of administrative penalties is deterrence, both against future anti-competitive behaviour by firms that have contravened the Act and as a general deterrent to other firms that may consider engaging in anti-competitive conduct. The Guidelines intend to provide transparency and objectivity in the manner in which the Commission will determine administrative penalties.
In formulating the Guidelines, the Commission has adopted the six step methodology developed by the Competition Tribunal and Competition Appeal Court for determining the administrative penalties that firms will be liable to pay in respect practices contravening the Competition Act:
Step 1: Determination of the "affected turnover" in the base year
The "affected turnover" is the firm’s turnover or the turnover of an association of firms, derived from the products or services that are the subject of the contravention. The Commission will have regard to the firm’s audited financial statements. Where audited financial statements are not available, the Commission may consider any other reliable records reflecting the firm’s affected turnover or estimate the affected turnover based on available information.
In cases of a once-off bid-rigging contravention, the Commission will consider the affected turnover of the firm that has won the tender, and that was party to the collusive agreement, to be the value of the tender/contract. The Commission will consider the affected turnover of the firm/s that did not win the tender, but were party to the collusive agreement and submitted one or more complementary bids, or agreed to not submit a bid or to submits a higher bid to ensure a bid is won by another firm, to be the greater of (1) the turnover generated by the firm in the goods or services that were affected by the contravention, or (2) the turnover reflected in the contract or bid on which the firm submitted a rigged bid or a cover bid in connection with the contravention, or (3) the value of the tender/contract.
Step 2: Calculation of the "base amount"
The "base amount" is described as being that proportion of the affected turnover relied upon for the calculation. It will be calculated as a proportion of the affected turnover on a scale from zero percent (0%) to thirty per cent (30%). The exact proportion relied upon will be determined after considering several factors, being:
- the nature of the affected products
- the structure of the market
- the market shares of the firms involved
- barriers to entry in the market
- the effect of the contravention on third parties
For cartel conduct, harm is presumed and will not be proved.
Step 3: The duration of the contravention
The Commission will take into account the duration of the contravention by multiplying the base penalty determined in Step 2 by the number of years of participation in the contravention. For contraventions lasting less than one year, the Commission will apply a duration multiplier equal to the proportion of the year over which the contravention lasted. For example, if the contravention lasted for eight months, the Commission will apply a duration multiplier of 8/12.
Step 4: Consideration of the statutory cap
Section 59(2) of the Act provides that an administrative penalty may not exceed 10% of the firm’s annual turnover in the Republic and its exports from the Republic during the firm’s preceding financial year. Where the administrative penalty determined in Step 3 exceeds the maximum allowable limit, the Commission may have regard to the statutory limit.
Step 5: Aggravating and mitigating factors
The Commission will adjust the amount determined in Step 4 by way of a discount or premium after assessing the aggravating and mitigating factors. The Commission will adjust the amount determined in Step 4 based on the following factors set out in section 59(3) of the Act:
- The behaviour of the firm in question. In considering a firm’s behaviour the Commission will have regard to the firm’s bona fides; whether the contravention was the result of wilful, deliberate engagement or the result of negligence, and whether it took steps to terminate the conduct following the Commission's intervention.
- The level of profit derived from the contravention.
- The firm’s degree of co-operation with the Commission and Tribunal.
- Whether the firm is a repeat offender. In considering whether a firm is a repeat offender the Commission will have regard to the firm’s involvement in previous leniency applications, settlement agreements and conduct previously found by the Tribunal to be a prohibited practice.
Step 6: Applying the statutory cap
Where the administrative penalty exceeds the maximum allowable statutory limit of 10% of a firm’s annual turnover in the Republic and its exports from the Republic during the firm’s preceding financial year, the Commission will apply the maximum allowable administrative penalty.
The Commission has indicated that, at its discretion, it may offer a discount of between 10-50% off the administrative penalty arrived at in accordance with the six steps above. In determining whether a discount will be granted, the Commission will consider the firm’s demonstrated willingness to expeditiously conclude a settlement as well as the extent to which the firm provides information and assists in the prosecution of other firms involved in the contravention.
The Commission may also take into account the ability of a contravening firm to pay the penalty, and has recognised that imposing penalties that threaten the sustained viability if a firm would in itself not be in the interests of competition. Notwithstanding the imposition of an administrative penalty, the Commission may consider other remedies that seek to address the harm caused to competition as a result of the contravention. The remedies can be over and above the final administrative penalty.
A novel controversial feature of the Guidelines is that the Commission may impose an administrative penalty on a holding company whose subsidiary has contravened the Act. The Commission will in this regard take into account the extent of the holding companies control of the subsidiary, as well as whether it was aware of, or condoned, and whether it benefitted from the commission of the prohibited practice. It is debatable whether the Act actually permits the imposition of such liability, in circumstances where the holding company's level of control and influence falls short of actual participation in the prohibited practice.
The closing date for comments is Friday, 30 January 2015.