Buyer power, price discrimination and confidentiality provisions of the Competition Act come into effect

A year after several amendments to the Competition Act, No. 89 of 1998 (the Act) were introduced by the Competition Amendment Act, No. 18 of 2018, the Minister of Trade, Industry and Competition (the Minister) has announced that other amendments have become operative, from 13 February 2020.  These new provisions address (i) buyer power, (ii) price discrimination and (iii) confidentiality.  The Buyer Power Regulations and Price Discrimination Regulations, which have been the subject of robust consultation over recent months, have also been published on 13 February 2020 and have also come into effect. The buyer power and price discrimination provisions are intended to support greater participation in the economy by small and medium enterprises (SMEs) and firms owned or controlled by historically disadvantaged individuals (HDIs).

Abuse of buyer power

In terms of the new section 8(4) of the Act, it is prohibited for a dominant firm to require or impose “unfair prices” or “unfair trading conditions” on suppliers that are (i) SME’s or (ii) firms owned or controlled by HDIs (the “designated class” for purposes of the buyer power provisions is discussed below), in sectors designated by the Minster.  In terms of the Buyer Power Regulations, these sectors are the (i) grocery wholesale and retail sector, (ii) agro-processing sector, and (iii) e-commerce and online services sector.

To assess whether a purchase price is unfair, factors to be considered include the prices paid to suppliers outside the designated class and the nature of purchase price reductions (e.g. whether these are effected retrospectively, unilaterally or unreasonably). To assess whether a trading condition is unfair, factors to be considered include the reasonableness of risk/cost transferred to a firm in the designated class and the one-sidedness, or proportionality, of the trading condition (as the case may be) relative to the objective of the clause or the agreement as a whole.

In terms of the Buyer Power Regulations, the designated class comprises firms owned or controlled by HDIs who procure less than 20% of the relevant product or service from the dominant supplier over the same period as the price discrimination.

Price discrimination

The new price discrimination provisions distinguish between the types of customers being discriminated against, and introduce provisions aimed at protecting (i) SMEs or (ii) firms owned or controlled by HDIs (the “designated class” for purposes of the price discrimination provisions is discussed below) from price discrimination which impedes the ability of SMEs, or firms in the “designated class”, to participate effectively (“participate” refers to the ability of, or the opportunity for firms to sustain themselves in the market).

While a dominant firm is not precluded from discriminating in terms of prices (including discounts, rebates, credit etc.) on various grounds, including volumes, where SME’s or firms owned or controlled by HDI’s are concerned, a volume discount defence will not be sufficient.  Notably, other defences for dominant firms remain, e.g. where the price discrimination in question constitutes an act of good faith to meet a competitor’s price, or is a legitimate response to changes in market conditions.

The factors to be considered when assessing whether price discrimination has the effect of impeding effective participation by an SME or a firm owned or controlled by an HDI include (i) the extent of the price difference relative to the price offered to other purchasers in the same market (or markets in which the particular purchaser is a potential competitor); (ii) the significance of the specific input cost in the purchaser’s cost structure; (iii) the duration and timing of the price difference; and (iv) the likelihood that the price discrimination will lower the demand of the purchaser’s products or services. 

As with the Buyer Power Regulations, the designated class in terms of the Price Discrimination Regulations comprises firms that are owned or controlled by HDIs who procure less than 20% of the relevant products or services supplied by the dominant seller over the same period as the price discrimination.

The new provisions of the Act will require a more circumspect approach by dominant firms when dealing with small suppliers or purchasers, or firms owned or controlled by HDI’s. 

The new sections 44 and 45 of the Act also became operative on 13 February 2020.  In terms of these sections, not only does the Competition Commission (the Commission) have access to a firm’s confidential information in the ordinary course, but so will the Minister, any other relevant minister and any relevant regulatory authority. These parties may only use the confidential information for purposes of the Act, unless the information is required to be disclosed in terms of any other law, or the Minister has a reasonable suspicion that the information discloses a potential criminal offence.

The Commission may determine whether the information is indeed confidential in terms of the Act, and can make any appropriate determination concerning additional access to the information if necessary. However, the claimant must be notified in the prescribed way of the Commission's intent. Any claimant who is aggrieved by the Commission’s decision may refer the decision to the Competition Tribunal (the Tribunal) for determination. If the claimant is aggrieved by the Tribunal’s decision, the claimant may refer the Tribunal’s decision to the Competition Appeal Court, provided that leave to appeal is granted by either the Tribunal or the Competition Appeal Court.

In terms of section 44 of the Act, the Commission, Tribunal and the Minister may not disclose any information that has been claimed as confidential until a final determination on the status of the information has been made.

Feel free to discuss the implications of the above provisions with your usual contact in the Competition Practice.

Disclaimer: This publication is not intended to constitute legal advice which can only be given having regard to particular facts and circumstances. Any liability that would or could arise from or of the contents hereof is hereby excluded. Always seek professional advice from a suitably qualified lawyer on any specific legal problem or matter.

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