South Africa

Details

  • Service: Tax, Corporate Law Advisory
  • Type: Business and industry issue
  • Date: 2010/10/05

Corporate Law Advisory Services

KPMG’s corporate law practice offers services in all areas of corporate law, including mergers and acquisitions, cross-border transactions, structuring of business entities, joint ventures and group rationalisations.

Competition Act: No fishing allowed 

On the 13th of September 2010, the Supreme Court of Appeal issued a judgement which surprised many, in particular the Competition Commission. The judgement sent a strong message to the Commission that the Competition Act has to be interpreted and applied in a manner that is consistent with the Constitution. The SCA re-confirmed the importance of the rule of law, the democratic values of dignity and freedom, the right to privacy, the right to a fair trial and just administrative action.

The main procedural mistake made by the Commission happened at the outset of the investigation into the dairy industry. Instead of formally initiating complaints against Woodlands and Milkwood which specified the applicable provision of the Competition Act that was allegedly contravened, the Commission launched a “full investigation into the milk industry”. The SCA made it clear that this was beyond the powers of the Commission as every complaint must relate to an alleged contravention of the Competition Act and specify the applicable provision that was contravened. In addition, the Commissioner must at least be in possession of information concerning an alleged practice which, objectively speaking, could give rise to a reasonable suspicion of the existence of a prohibited practice. Without such information, there could not be a rational exercise of power by the Commissioner. On the facts, the SCA found that the information which the Commissioner relied upon, did not meet this jurisdictional requirement. On this basis, the SCA ruled that the 2005 complaint initiation by the Commissioner against Woodlands and Milkwood was procedurally flawed and therefore invalid.

 

This conclusion took the case away from the Commission as all further actions of the Commission which followed the invalid complaint initiation were fruits of the poisoned tree and therefore equally invalid. The principle is that the Commission may not apply its far-reaching and invasive investigative powers unless a valid complaint has first been initiated. Against this principle, the SCA found that the subsequent investigations against Woodlands and Milkwood as well the additional complaint initiations and referrals to the Competition Tribunal were all tainted by the invalid 2005 complaint.

 

The SCA also criticised the remark by the Competition Appeal Court that because it is difficult to establish the existence of a prohibited practice, a generous interpretation of the Commission’s procedural rights is justified. It stated that this approach would imply that the more difficult it is to prove a crime, for example corruption, the fewer procedural rights an accused would have.

 

With reference to the power of the Commission to recommend administrative penalties, the SCA said that these penalties or fines bear a close resemblance to criminal penalties. It concluded that this means that the Commission’s procedural powers must be interpreted in a manner that least impinges on the respondents’ Constitutional rights.

 

What does this judgement mean from a practical perspective for those who face investigations by the Commission? In short, it means that the Commission may not use its strong investigative powers to fish for evidence of anti-competitive conduct and then formally initiate a complaint. The Commission first has to properly initiate a complaint in the prescribed manner and then launch an investigation. Even then, it has to be careful not to exceed the bounds of the complaint initiation when issuing summonses and interrogating individuals.

 

One would expect that following this judgement, many companies which are currently subject to an investigation by the Commission, will carefully consider the impact of this judgement on their particular cases and scrutinise whether any unlawful fishing has occurred.”