Picture: 123RF/lightwise
Picture: 123RF/lightwise

The legal fraternity is agog over the pushback the Competition Commission is receiving from higher courts — for lying to obtain search warrants, failing to abide by its own rules, and ignoring legal precedent in the high-stakes foreign-exchange case against 23 banks.

Disgruntled Sandton lawyers say the judgments confirm their view that the institution is becoming increasingly high-handed towards business.

Within the commission there is bubbling dissatisfaction too. At the Pretoria head office, staff mutter about dubious corporate governance and the fact that the top four executives are driven around by beefy bodyguards in a fleet of luxury motor cars.

The commission’s financial situation is decidedly less robust than its security detail.

In 2017, expenditure was allowed to climb by 24%, resulting in a R78m deficit that all but wiped out a surplus built up over many years.

To remain sustainable the commission will need a bigger annual budget or it will have to cut costs or reduce its work.

The Competition Amendment Bill adopted by the cabinet last week will, however, give the commission greater powers and responsibilities for which it will require greater resources.

Taken together, it appears everything is not quite as it should be at the commission, regarded by many as the poster child of state institutions.

In April, the commission was named "agency of the year" in its region at a global event in Washington DC. This was largely because it is set to become the first to prosecute foreign-exchange infringements in court. Other countries have reached deals or issued administrative decisions.

But the case against the bankers is not going the commission’s way. Of 23 banks charged with manipulating the rand/dollar exchange rate, only one has settled so far — Citibank, for a R70m fine.

Nearly all the others are digging in their heels. They have petitioned the Competition Tribunal to order the commission to remedy its founding papers, complaining that the charges are so unspecific that they cannot plead to them.

Some of these firms are genuinely trying to do what’s right but they’re being vilified as if they were a bunch of criminals

Separately, Standard Bank asked the commission for access to the record of its investigation. In terms of rule 15 of the commission’s procedures, any person is allowed this access. Both the commission and tribunal refused to hand over the record so Standard Bank took the case on appeal. It won, twice, with costs.

On June 1, it won its rule 15 application in a unanimous decision by three competition appeal court judges in Cape Town. On June 14, in a separate application before judge Nolwazi Boqwana, it successfully argued that it be allowed access to the record in order to petition that the whole case against it be set aside.

Boqwana said she could "find no legally cognisable reason as to why Standard Bank should be deprived of the record".

She cited several legal precedents that oblige the commission to produce a record "beyond question".

"Laudable as the work of the commission is, it is also subject to the rubrics as well as the principles of accountability and transparency, and I say this conscious of the commission’s work and its efforts in ensuring that transgressors of the act are held to account," Boqwana said.

The commission says it will take the matter all the way to the Constitutional Court. However, the top court is known for transparency and fairness and has before refused to hear rule-15 cases. This suggests the Constitutional Court considers the matter decided and that the commission and the tribunal have erred.

The obvious inference from the commission’s resistance to handing over its record of investigation is that it has not done a proper job or that its case is thin and it is still hoping to secure a settlement out of court.

"The commission’s case is clearly questionable," says one Sandton lawyer. "It seems the intention was to get firms to fold and rat on each other but now that the owners and management of firms can be held individually criminally liable, why would a firm just cave in?"

On June 15, the commission was again rapped over the knuckles. This time by the KwaZulu-Natal High Court for misleading its Pietermaritzburg division into granting it search warrants on two edible-oil companies (Willowton Oil & Cake Mills and FR Waring Holdings) which it suspected of collusive behaviour.

Judge Mjabuliseni Madondo found that the commission was guilty of a "serious breach of its duty of good faith" in failing to disclose material facts when it applied for the search warrants, and for relying on conjecture and hearsay. As a result the court had acted on "incomplete, inaccurate and incorrect information".

Madondo set aside the warrants, and ordered the commission to return all material seized from the respondents’ premises and pay their costs, including those of two counsel.

The finding that the commission effectively lied to the court has stunned the legal fraternity. The commission refused, however, to answer a question from the FM as to whether it regarded the ruling in a serious light and whether disciplinary steps would be taken against the head of the cartel division, Makgale Mohlala.

In fact, the commission refused to answer any of the FM’s questions, though it had two weeks to do so.

Picture: 123RF/lightwise
Picture: 123RF/lightwise

Communications head Sipho Ngwema took offence at the questions and said the FM was required "to put a case" to him before he would answer, as "he was not prepared to be part of any attempt to tear down the commission".

A Johannesburg competition lawyer who, like most of those interviewed, declined to be named because he frequently works on cases that appear before the commission and tribunal, says the three appeal court judgments show that the commission is becoming increasingly aloof.

"There is a disparity between the stringent levels of fairness applied to individuals under criminal law and the way firms are being treated under competition law," he adds. "The commission is becoming increasingly one-sided and aggressive towards business and high-handed in its approach to the public."

Among the FM’s questions was which private law firms have been getting most of the commission’s cartel work, as a common perception in the legal fraternity is that Ndzabandzaba Attorneys is being favoured.

Though the commission declined to answer, the same information had been sought from economic development minister Ebrahim Patel by DA MP Michael Cardo in the form of a parliamentary question.

Patel’s reply was lodged in parliament on July 3. It reveals that nine firms have been briefed across the 26 cartel cases initiated since January 1 2017, at a total cost to the commission of R16.6m.

Former commission staff query why so much work is being outsourced. A few years ago this was done infrequently. For example, the commission handled the complex construction cartel case entirely in-house.

However, the cartel division now has its own building and legal team, allowing it to bypass the commission’s highly regarded legal services unit, which previously served all divisions.

The commission’s 2016/2017 annual report shows case-related costs rose to R46.7m in 2017 from R37.8m in 2016, while consulting and professional fees rose from R49.3m to R69.7m over the same period.

Over the past 18 months, the Bryanston firm of Ndzabandzaba Attorneys has received most of the outsourced cartel work. It was briefed in seven matters, handling 27% of the case load. For this it received R10.5m or 63% of all the fees paid out.

The next most popular firm was Morare Thobejane Incorporated, which received five of the 26 cases, or 19% of the work. However, it charged only R1.07m, which earned it just 6.4% of the fees paid out.

Ndzabandzaba Attorneys was founded by Anthony Ndzabandzaba after he left the commission, having worked in the cartels division for several years. He was suspended in mid-2015 by his line manager, former deputy commissioner Oliver Josie, over his performance but reinstated by current commissioner Tembinkosi Bonakele while Josie was on sick leave.

Another of the FM’s questions centred on whether targets that give staff an incentive to initiate cases creates a perverse incentive for them to pursue many small firms instead of concentrating on a few big fish.

There is, for instance, a whole pattern of cases involving "collusive tendering" in which established but insignificant firms have tendered once as themselves and again for the same work in a joint venture with an emerging black entrepreneur.

The firms argue that they are not trying to hide their dual identity and that this type of behaviour raises competition by increasing the number of tenders and business opportunities for new entrants that would not other-wise have bid. But the commission is having none of it.

Prof Simon Roberts, head of the Centre for Competition, Regulation & Economic Development (CCRED) at the University of Johannesburg, agrees with the commission. He thinks the established company should create a permanent subsidiary out of the emerging black firm and submit one tender.

"Business can’t have it both ways," he says. "The appeal court says the law is the law, you can’t interpret it any way you like.

"You would need to amend the law to allow this kind of thing, to create a safe harbour, otherwise the firms would have to apply for an exemption from the commission upfront, before they tendered."

For the firms involved, this approach makes little sense when one of SA’s key economic priorities is to encourage established businesses to partner with small black firms.

"Some of these firms are genuinely trying to do what’s right but they’re being vilified as if they were a bunch of criminals," says one lawyer. "In the end they settle — not because they feel they are guilty of anything but because they’re terrified of the consequences."

There are 126 cartel cases under investigation, many of them involving small firms. The commission’s annual report shows it initiated 26 new cartel investigations in 2016/2017 against a target of 12. It won all of them. In the current financial year it initiated eight cartel investigations. The decline in initiations year-on-year is due to "resource constraints".

Competition lawyers say the commission’s target, to win more than 75% of its cases (one of the indicators Patel uses to monitor its performance), encourages staff to appeal against everything, as a loss on appeal is not considered a loss.

All the legal experts interviewed complain the commission is becoming increasingly hardline in its approach, especially the cartel division, which allegedly bullies and intimidates firms into settling.

"After 20 years in competition law, I don’t know if I can stick it out for another 15 years," says one jaded practitioner. "You can’t get away from this inherent prejudice towards business, that big equals bad, and that the way the economy will achieve the government’s development objectives is to break everything up."

The commission, on the other hand, sees itself as a victim of its own success. In April it appealed to the portfolio committee on economic development for more money, saying its budget was inadequate to support the rising volume and complexity of the cases it undertakes.

In 2017, the commission’s expenditure totalled R367m, up 24% over the previous year, mainly due to staff and case-related costs. The commission’s deficit widened accordingly, to R78m in 2017 from just over R1m the previous year. To fund it the commission was forced to run down its R110m surplus: just R32m remained.

The National Treasury says it does not expect the commission to overspend in the 2018/2019 financial year.

Even so, the commission is offering Nehawu members a 9% salary increase (the union wants 10%) while commissioner Tembinkosi Bonakele, Mohlala and other members of the executive continue to enjoy their VIP protection.

"There is clearly a smell around the Competition Commission at the moment," says Cardo, who is alarmed by the commission’s vanishing surplus. 

He plans to ask Patel to appoint an independent inquiry into the commission, to establish the nature of the relationship between Ndzabandzaba Attorneys and senior employees.

"It must determine why the law firm is being remunerated so handsomely for cartel cases that could be dealt with in-house," he says, "and if and why, as it has been alleged, Ndzabandzaba Attorneys has been intimately involved in conducting search and seizure raids with the commission."

The inquiry must also get to the bottom of why some members of the executive committee enjoy VIP protection, a privilege usually reserved for presidents and ministers. It must also look into allegations of nepotism and favouritism in HR appointments.

Given the list of allegations piling up at the commission’s door (Cardo has a whole dossier), the timing of the new Competition Amendment Act, which will expand its role and powers, couldn’t be worse.

Over the past year, competition policy has taken centre stage in discussions about how to create faster, more inclusive growth. At the heart of the matter, says Roberts, is whether the competition regime should be viewed as an integral part of SA’s economic policies or exist only as part of the legal framework to punish transgressors.

It is widely accepted that the economy is highly concentrated and that dominant firms tend to invest and innovate less than firms under competitive pressure.

So, one way to drive the creation of new jobs, productivity and growth is to reduce barriers so that new, smaller players with fresh ideas and business models gain entry.

If these new firms are black, reducing industry concentration will also make the economy more inclusive.

What it means

The commission is accused of being prejudiced against big business

A recent commission study finds that in certain industries a single firm holds a market share in excess of 45% in key sectors, including communication technologies, energy, financial services, food and agriprocessing, infrastructure and construction.

"The new challenge for competition law," Patel says in the commission’s latest annual report, "is to respond to excessive levels of economic concentration that in many cases limits the opportunity for citizens, particularly black South Africans, to participate equitably in the national economy".

Critically, the existing Competition Act does not enable the authorities to address issues of industry concentration — only collusion and market abuse.

To remedy this, the new Competition Amendment Bill seeks to address concerns of concentration and representivity.

One of its chief aims is to boost the market inquiry process so that the commission isn’t confined to issuing reports lamenting the structure of a market, but will have the teeth to propose remedies.

This would empower the commission to take on a wider role, as in the Netherlands, the UK and Australia. In most countries, the competition authority has powers to investigate, take decisions and impose remedies, as long as these are properly founded and firms can appeal.

In SA’s case, the bill obliges the commission to impose remedies that are "reasonable and practicable" when any features of a market are judged to have an "adverse effect" on competition. (This is a lower threshold than other parts of the act, where conduct is penalised only when it "substantially prevents or lessens competition".)

It is likely that the final version of the bill (which has yet to be made public) will insist that these remedies meet stricter criteria than just being "reasonable and practicable", given the potential for such intervention to produce unintended economic effects.

The commission’s remedies will be binding, unless challenged in the tribunal. However, only the tribunal may order an enforced divestiture — when a firm is ordered to sell either all or part of a business in the interests of stimulating competition.

The DA is uneasy about the latitude the bill gives the competition authorities to intervene in markets and says it will do everything it can to ensure better legislation emerges.

"We believe that making the economy more inclusive isn’t about breaking up large firms or using a regulator to create a new market structure," says Cardo, adding that there is no guarantee that smaller players will enter the market.

"Economic inclusion is about radically transforming our labour laws to create jobs. It is about improving access to capital and credit for unbanked entrepreneurs, cutting red tape for small business people, and growing the economy. "None of this can be achieved by the competition regulator."

Robert Wilson, a partner in the competition practice at Webber Wentzel, says: "Competition law and policy cannot be a solution for the many economic and social challenges facing this country. Attempting to do so through the Amendment Bill risks stifling an important debate that requires a holistic view of the roles of different laws and policies in effectively transforming this country."

The CCRED’s Roberts is also worried about how policy co-ordination will be achieved between different regulators, including government departments, if the bill is enacted as first gazetted. He suggests the commission be legally obliged to consult other bodies during its market inquiries, to prevent turf wars between different regulators from erupting.

*This story was edited to correct a reference to a comment made by DA MP Michael Cardo.

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