Oceana - the presumption of collusion in competition law

The recently confirmed consent agreement between Oceana and the Competition Commission, the Commission sought to apply the presumption of collusion under section 4(2) of the Competition Act for the first time.

According to Chris Charter, Director in the Competition and Regulatory practice at Cliffe Dekker Hofmeyr, “If two firms have a director or substantial shareholder in common and there is evidence of a failure to compete (such as apparent pricing similarities or failure to compete in one another's geographic areas), then the existence of an agreement not to compete may be presumed. Such an agreement would be in contravention of section 4(1)(b), namely, as to price fixing, market division or collusive tendering, all prohibited conduct that attracts an administrative penalty for a first-time transgression.”

Petra Krusche, Director in the Competition practice says, "In this case, the consent agreement records that a non-compete clause in a shareholders' agreement between Oceana shareholders, including Tiger and Brimstone, provided that Brimstone "or its subsidiaries" would not enter into the markets serviced by Oceana. Brimstone and Tiger each also owned a substantial stake in Sea Harvest, one of Oceana's main competitors. Per the consent agreement, the statutory presumption of a prohibited horizontal conduct between Oceana and Sea Harvest followed.”

Krusche says it appears further that Oceana and Sea Harvest did in fact not compete for some eight years in implementation of the non-compete clause struck by their owners qua shareholder of Oceana, thus contravening the prohibition against market allocation between competitors under section 4(1) (b) (ii) of the Competition Act.

Says Charter, “Insofar as the agreement not to compete resided in a written shareholders' agreement, it seems the Commission need not have invoked the presumption to prove the existence of the agreement.

“The statutory presumption of collusion has been described as unworkable and confusing. It is worth noting that in settling, Oceana did not admit that it colluded in this respect, merely admitting the existence of the agreement as well as the structural links between the companies. Thus, the workings of section 4(2) have not been fully tested as a matter of law,” Charter notes.

He says, “In any event, the presumption of a collusive agreement may be rebutted if the parties can show that the conduct "was a normal commercial response to conditions prevailing in that market''. In other words, that there is a rational explanation for the apparent lack of competition.

Charter explains, “The particular case also shows firstly that competing firms with shareholders or directors in common stand a greater risk of being prosecuted for alleged collusion due to the presumption.

Krusche adds, “Secondly, it shows that standard commercial non-compete provisions in relation to joint business ventures must be carefully considered as to their necessity and their ambit, given the dire consequences under the Competition Act.”