SA companies could face huge civil claims for anti-competitive behaviour

21 May 2012

A leading law firm has warned that South African companies could increasingly face large civil damages claims for anti-competitive behavior.

These damages claims would be in addition to penalties imposed by public competition law enforcement bodies, namely the Competition Commission and Competition Tribunal.

“Civil claims for damages could prove even more costly than fines imposed by the competition authorities,” said Shawn van der Meulen, senior associate at Webber Wentzel, one of Africa’s leading corporate law firms.

Although damages claims for anti-competitive conduct is a relatively untested field in South Africa, it is well developed elsewhere.

“In countries such as Australia, the USA, the United Kingdom and various European countries, the enforcement of competition law by regulators is augmented by private damages claims.

“In the USA, damages up to three times the amount of the loss suffered can be awarded against defendants for anti-competitive behaviour. This provides strong incentives for plaintiffs to pursue damages claims.”

Van der Meulen added: "The rise in private competition law enforcement and damages claims internationally paves the way for South African customers, competitors and suppliers that suffer loss as a result of anti-competitive conduct to recover damages in civil proceedings".

He noted, however, that it is currently unclear whether groups of individuals can bring damages claims for anti-competitive conduct by way of a class action, as currently it is not clear whether such class action claims are recognised in South African law.

South African Airways, which recently requested a substantial bailout from government to cover operational costs, is the first South African corporate to face damages claims for anti-competitive conduct. Rivals Comair and Nationwide (now liquidated) have instituted huge damages claims for SAA's exclusionary abuse of dominance for anti-competitive incentives paid to travel agents between 1999 and 2005. These claims come on the back of earlier penalties of R100 million, which the Tribunal imposed for the conduct. To add to SAA's financial woes, it recently agreed a penalty of R18.8 million with the Competition Commission for a cartel infringement.

Telkom, which is also in financial difficulty, could very well be the next high-profile company to be confronted with damages claims. It is awaiting a ruling by the Tribunal for alleged excessive pricing and exclusionary behaviour. The Competition Commission has asked the Competition Tribunal to impose a R3.5 billion penalty (or 10% of its turnover) if Telkom is found guilty of these contraventions. Substantial further damages claims by third parties that suffered lost profits as a result of Telkom's conduct could therefore be crippling.

At a time when the Competition Commission is increasingly investigating cartel behavior and other prohibited practices, companies facing investigations should be prepared for the potential financial exposure that may result from penalties imposed by the Competition Tribunal, as well as potential damages claims by third parties.

"The increase in the Competition Commission's cartel enforcement," warns van der Meulen, "will create a number of targets for civil damages claims for eager litigants in South Africa".

FURTHER INFORMATION It's all in the numbers

• R18.8 million: the amount SAA has agreed to pay the Competition Commission to settle cartel complaints in price-fixing of flights between Johannesburg and Hong Kong; and collusion in respect of international air cargo surcharges and domestic route charges during the Fifa 2010 Soccer World Cup.
• Undisclosed: Settlement figure SAA paid to Nationwide (now liquidated) in 2006 for abusing its dominant market position in the domestic market by offering incentives to travel agents (1999-2001).
• Pending: Comair's claims against SAA in respect of similar complaints to that of Nationwide; but also for the period 2001-2005. Nationwide has recently launched a second damages claim in respect of SAA's conduct in 2001-2005.

Civil competition damages - an overview

Civil damages are based on common law delictual claims, requiring the plaintiff to show that the defendant acted negligently or intentionally in an unlawful manner that caused the plaintiff loss or damage. A plaintiff thus has the challenging task of proving a causal link between alleged anti-competitive conduct and the actual loss suffered.

If the Tribunal finds that Telkom, for example, contravened the provisions of the Competition Act, large corporate customers and other resellers that depend on Telkom´s infrastructure could claim damages against Telkom. These plaintiffs will have to show that there is a causal link between Telkom's anti-competitive conduct and the loss of profits they suffered as a result of Telkom's anti-competitive pricing.

Groups of individuals who suffer loss may theoretically bring such claims together as a class action, but currently it is not clear whether class action claims in respect of anti-competitive conduct are recognised in South African law. Unlike other recent pieces of legislation, such as the new Companies Act and Consumer Protection Act, the Competition Act does not expressly provide for class action claims.