Corporate & Commercial Law Update, Directors beware - Section 73A of the Competition Amendment Act and criminal liability
Section 12 of the Competition Amendment Act, 1 of 2009 (“Amendment Act”) makes cartel conduct a crime. It introduces section 73A, which provides that a director or a person with management authority who has been found guilty of engaging in, or knowingly agreeing to, market division, price fixing or tender collusion is guilty of a crime and may face up to 10 years in prison, a fine of up to R500 000, or both.
Section 73A(5) of the Amendment Act provides that a consent order or a finding by the Competition Tribunal (“Tribunal”) or Competition Appeal Court (“CAC”) that a firm has been price fixing, dividing markets or colluding on tenders is a prima facie proof in criminal proceedings against any of that firm's directors or managers. The Amendment Act creates a reverse onus on the accused to rebut this finding based on the Tribunal or CAC’s conclusion.
There are strong arguments in favour of criminalising cartel conduct. However, the Amendment Act raises a number of questions, not the least of which is whether it is necessary at all. The statutory offence of corruption is far reaching and, as shown in the recent Construction cartel cases, may well encompass tender collusion. Against that background, the criminal offence of cartel conduct may not be necessary, especially when it is complicated by the constitutional issues associated with the reverse onus which it creates. It is going to be interesting to see whether, when it comes into operation, section 73A passes constitutional muster. We think not.
At a practical level, what is also going to be interesting is to see the impact of section 73A on the Competition Commission's ("Commission") Corporate Leniency Policy ("CLP"). So far, the CLP has been a key tool used by the Commission to find and punish cartel conduct. Once section 73A kicks into operation, there will be very little incentive for firms to co-operate with the Commission in terms of the CLP if any consent order or finding against that firm can trigger personal criminal liability for its directors and managers. In addition, the Amendment Act does not deal with access to information given under the CLP. Even now this poses a problem if conduct under the Competition Act ("the Act") falls within the scope of an existing criminal offence such as corruption. The National Prosecuting Authority may well be able to insist on seeing the fruits of a firm's co-operation with the Commission in terms of the CLP. This is not going to encourage firms to be forthcoming with the Commission in terms of the CLP.
Section 73A also raises questions about how it will work with section 49A of the Act which protects from criminal prosecution a person who has been summoned to provide evidence to the Commission and has made self-incriminating statements. Section 49A provides that self incriminating statements made under section 49A of the Act are inadmissible in any criminal proceedings. At the 7th Annual Conference on Competition Law, Economics and Policy 2013, a solution proposed to this problem was lodging a marker in terms of the CLP process and then only making a CLP application on condition that all information provided in terms of the CLP process is covered by a summons.
What is increasingly apparent is that the State's apparent zeal to stamp out cartels has resulted in legislation which has not been thought out from a practical perspective and may well create more problems than solutions. For now, every director and manager of a firm which is dealing with the Commission should beware of making disclosures which could be used against it in related criminal proceedings.
Jennifer Finnigan Contact 031 575 7406 and email@example.com
Sally Mashiane Contact 031 575 7418 and firstname.lastname@example.org