On the back of the declaration of COVID-19 as a national disaster and the subsequent publication of the COVID-19 Block Exemption for the Healthcare Sector under the Competition Act, 1998 (the Competition Act), the Minister of Trade, Industry and Competition (the Minister) on 23 and 24 March 2020 published the Block Exemptions for the Banking Sector and Retail Property Sector (the Exemptions), respectively.
The Exemptions aim to strengthen the Government's programs designed to fight COVID-19 by exempting categories of agreements or practices from the application of sections 4 and 5 of the Competition Act. The Exemptions are aimed at allowing certain forms of concerted conduct that would otherwise be prohibited under the Competition Act, to prevent an escalation of the national disaster and to alleviate, contain and minimise the effects of the national disaster.
The Exemptions are effective immediately and will remain in operation for as long as COVID-19 is declared a national disaster, or until they are withdrawn by the Minister.
Historically, very few exemptions have been issued by the competition authorities. Given the current unprecedented circumstances and the Minister's new powers to issue such regulations in terms of recent amendments to the Competition Act, exemptions have been issued in relation to three major industries in the last few days. It is anticipated there may be a continuing need for further exemptions of this nature in relation to other industries such as food, hygiene and cleaning products, given their critical importance. In addition, the Exemptions make provision for parties within the banking and retail property sectors to request that the Minister expand the scope of the exemptions if additional agreements or practices are identified that are not currently included
Firms operating in these industries need to carefully scrutinise the terms of these exemptions - the exempted categories are very specific and only relate to certain types of conduct. For instance, the risk remains that discussions in relation to pricing are still prohibited (unless authorised by the Minister) - firms need to exercise great caution in ensuring that collaborative efforts do not result in a violation of the Competition Act. In this regard, the Exemptions also caution that parties keep a careful paper trail of minutes of meetings held and written records of any agreements or practices falling within the scope of these exemptions.
The Competition Commission is also on high alert during this time - the Commission has announced that a dedicated team will be prioritising all COVID-19 complaints and the enforcement of the regulations gazetted by the Minister. Non-compliance with the regulations could lead to maximum penalties and sanctions being imposed.
Banking Sector Exemption
This exemption applies to Banks, the Banking Association of South Africa (BASA) and the Payments Association of South Africa (PASA). It is specifically aimed at enabling the banking sector to:
- minimise the negative impact on the ability of customers, including both business and private individuals, to manage their finances during the national disaster, and be in a position to continue normal operations beyond the national disaster; and
- manage banking infrastructure, including the payment infrastructure, ATMs and branches.
The following categories of agreements or practices in the banking sector are exempt from the application of sections 4 and 5 of the Competition Act if undertaken at the request of, and in coordination with, the Minister or the Minister of Finance for the sole purpose of responding to the COVID-19 pandemic national disaster and which exclude communication and agreements in respect of prices unless specifically authorised by the Minister or the Minister of Finance:
- Payments systems with the sole purpose of ensuring essential payment systems to operate during the COVID-19 national disaster, which are limited to the development of industry monitoring, operational policies and contingency plans in respect of:
- the continued availability of bank notes to ATMs, branches and businesses;
- the continued provision of essential ATM, branch and corporate banking services; and
- the continued provision of electronic payments systems.
- Debtor and credit management with the sole purpose of ensuring management of debtors and extension of credit continue during the COVID-19 national disaster, which are limited to the development of industry policies and monitoring in respect of:
- payment holidays and debt relief for business and individual debtors subject to financial stress;
- limitations set on asset repossessions of business and individual debtors subject to financial stress; and
- the extension of credit lines to individuals and businesses subject to financial stress.
Further, any person may make written representations to the Department of Trade and Industry regarding possible amendments to this exemption within 14 days of their publication.
Retail Property Sector Exemption
The exemption relates to certain categories of agreements or practices between designated South African retail tenants and retail property landlords from the application of sections 4 and 5 of the Competition Act.
The exemption is aimed at enabling the retail property sector to minimise the negative impact on the ability of designated retail tenants, including small independent retailers, to manage their finances during the national disaster and be in a position to continue normal operations beyond the national disaster.
Retail property landlords means those businesses that are involved in the supply of rentable space in the retail property sector such as retail shopping centres. The categories of landlords may include:
- real estate investment trust companies;
- property developers who own or operate retail shopping centres; and
- other intermediaries through whom the letting of rentable space in the retail property sector is facilitated.
Designated retail tenants mean firms which are retailers of goods or services that lease retail property from a retail property landlord, which is incorporated, established or formed under the laws of South Africa and whose place of effective management is within South Africa, and that fall within the following designated trading lines:
- Clothing, footwear and home textile retailers, which means retailers of wearable garments and products including menswear; ladieswear; children’s clothing; clothing for infants; sleepwear; underwear; intimate apparel, including lingerie; hosiery and socks; millinery (hats and caps); ties; school uniforms; sportswear; swimwear; protective clothing; workwear; hospital apparel; branded corporate wear; bespoke tailoring; footwear; and home textile products including sheets; pillows; towels; table cloths; carpets; terry towels; and blankets;
- Personal care services, which means retail outlets providing personal grooming services such as hairdressers, health and beauty salons; and
- Restaurants, which means a business that prepares and serves food and drinks to customers.
In relation to the categories of agreements or practices in the retail property sector that are exempt from the application of sections 4 and 5 of the Competition Act:
- the exemption only applies if undertaken at the request of, and in coordination with, the Minister for the sole purpose of ensuring the survival of tenants of retail properties during the COVID-19 national disaster, which are limited to agreements or practices in respect of:
- payment holidays and/or rental discounts for tenants;
- limitations on the eviction of tenants;
- the suspension or adjustment to lease agreement clauses that restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster;
- the exemption excludes communication and agreements in respect of prices unless specifically authorised by the Minister.
To qualify for an exemption, such agreements must extend to all South African retail tenants in the designated retail lines, including small, independent retailers, unless otherwise authorised by the Minister or the Competition Commission.