Authors: Nkonzo Hlatshwayo – Director & Head of Competition and Disebo Leokaoke –Associate
The novel Covid-19 virus necessitated the introduction of several unprecedented measures aimed at mitigating its impact. Of particular interest in our field are the Covid regulations (Government Gazette 43116, 19 March 2020) and block exemptions published by the Minister of Trade, Industry and Competition pursuant to the national state of disaster declared by the government under Government Gazette number 313 of 15 March 2020.
While the regulations focused mainly on protecting consumers from "unconscionable, unfair, unreasonable, unjust or improper commercial practices during the national disaster", the block exemptions were meant to facilitate co-ordination in sectors that were essential to the fight against Covid-19 such as the banking and healthcare sectors.
During this time, with the aid of the regulations, the Competition Commission managed to investigate and prosecute a record number of cases for abuse of dominance, primarily relating to excessive pricing. It is noteworthy that a number of these cases were resolved by means of settlement agreements between the Commission and the affected firms. This was in sharp contrast to the pre-Covid 19 era where the prosecution of firms, based on excessive pricing, proved exceptionally difficult for the Commission.
Prior to the Covid-19 era, firms that were alleged to have engaged in excessive pricing were prosecuted in terms of section 8 of the Competition Act 89 of 1998 (as amended). Ordinarily, excessive price actions require the finding of dominance. However, some of the firms that were accused of excessive pricing during the national state of disaster were not necessarily dominant in the ordinary sense. In fact, many of them had miniscule market share in their relevant markets.
The introduction of the Covid regulations and by extension the concept of price gouging led to the first technical interpretation of “market power”. In the case of Competition Commission v Babelegi Workwear Overall Manufacturers and Industrial Supplies CC) (Babelegi), the Tribunal and the CAC held that even though Babelegi had a market share of less than 5%,
“one can reasonably infer that Babelegi had market power during the Complaint Period since it behaved to an appreciable extent independently of its competitors, customers, or suppliers”.
However, some legal and economic commentators have opined that the principle of price gouging does not form part of our law. Further, the legitimacy of the concept has been questioned in various jurisdictions. In several jurisdictions, price gouging laws were specifically introduced to prevent excessive pricing and profiteering during a state of emergency. The concept of price gouging, albeit being questioned by the legal and economic commentators because it is not expressly provided for in the Act nor the Covid regulations, has been utilised in several excessive pricing cases during the Covid era. Consequently, a number of firms were prosecuted for price gouging, among other things, under section 8 of the Act read with regulation 4 of the Covid regulations. The latest case to be prosecuted in this manner was the case of Competition Commission v Tsutsumani Business Enterprise - a firm that is a supplier of masks to the South African Police Services. The Competition Tribunal found Tsutusmani Business Enterprise guilty of “excessive pricing or price gouging” in contravention of section 8(1) of the Act read with regulation 4 of the regulations. For this reason, it was fined 10% of its relevant turnover.
On 4 April 2022, the President of the Republic of South Africa announced the end to the national state of disaster. It is important to note that in terms of regulation 2.3 of the Covid regulations,
“the regulations and directions will be of no force or effect when the Covid-19 outbreak is no longer declared a disaster”.
This means that absent any transitional measures to ensure the continued validity of the Covid regulations firms that are alleged to have engaged in excessive pricing can only be prosecuted in terms of section 8 of the Act. The critical question that arises is whether firms that contravened the Covid regulations at the relevant time could still be prosecuted in terms of those regulations if no prosecution proceedings were initiated at the time that the Covid regulations were still in force.
When considering the post-Covid landscape, the fundamental question that arises is whether the cases prosecuted during the Covid era can be used as precedent on post-Covid prosecutions. It will be interesting to see what effect, if any, the Covid regulations will have on the post-Covid jurisprudence and whether there will be a general increase in prosecutions during normal market conditions. In particular it will be interesting to see if the authorities will continue to embrace the concept of price gouging despite the contestation that it does not exist in our law.
As mentioned above, the regulations were not the only measure adopted to mitigate the impact of Covid. The block exemptions, which regulated conduct between competitors, were also put in place to facilitate a certain level of coordination in order to deliver on an efficient and expedited basis certain critical service in the healthcare sector as well as the banking sector. Laudable as this may be, the effects of co-ordination between rivals may be difficult to end now that the national state of disaster is lifted.
The swift response of the government as well as the competition authorities to ensure that exploitative behaviour in the market is curbed is commendable indeed. It will, however, be interesting to see whether these unprecedented measures will contribute to changing competition jurisprudence as we know it.
Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit www.lawtonsafrica.com