A Competitor’s Guide to COVID-19 – Comprehensive Analysis

Despite lockdowns and various preventative measures being taken by numerous jurisdictions around the globe, the devastating impact of COVID-19 (“the coronavirus”) continues at a startling pace. Locally, the pandemic will highlight the inequality amongst the different classes of South Africans. How will the South African Government deal with and protect the various classes of South Africans from the socio-economic complications that the Corona Virus arrives with? Does Competition Policy have a roll to play?

In conjunction with our previous article, in which we addressed the above issues, we shall continue to focus on the action taken by the Department of Trade and Industry (“the DTI”), which is home to the competition authorities being the Competition Commission (“the Commission”), the Competition Tribunal (“the Tribunal”), and the Competition Appeal Court (“the CAC”). The actions taken by the DTI were, and continue to be, aimed at alleviating the socio-economic harms presented by the coronavirus.

The Competition Act echoes the objectives of the Constitution in that it similarly has as one of its purposes “to promote employment and advance the social and economic welfare of South Africans”.[1] In order to achieve these objectives, sections 8(3)(f)[2] and 10(10)[3] were invoked by the Minister of the DTI. Through these sections of the Act, the Minister was able to publish several sets of regulations which assist the competition authorities, various sectors of the economy, consumers, customers, independent retailers and ordinary citizens amongst others from the socio-economic challenges posed by the coronavirus.

The regulations can largely be divided into two categories, exemptive regulations and exploitative regulations.

Exemptive Regulations

In terms of the exemptive regulations, the Minister has granted exemptions in terms of the Competition Act, that is to say that certain agreements and behaviours which may otherwise be unlawful will be exempt from scrutiny from the Competition Act and the competition authorities.

In other words, the exemptive regulations have the purpose of exempting a category of agreements or practices between market participants in the various sectors from the application of sections 4 (horizontal agreements) and 5 (vertical agreements) of the Competition Act, with the overarching aim of promoting such concerted conduct to prevent an escalation of the national disaster and to alleviate, contain and minimise the effects of the national disaster. The regulations pertaining to each sector shall be discussed separately, below:

1. The block exemption for the Healthcare Sector – 19 March 2020

Purpose of exemption:

  • To promote access to healthcare, prevent the exploitation of patients, enable the sharing of healthcare facilities, manage capacity and reduce prices.

Practically this exemption has the effect of exempting, from scrutiny by the competition authorities, multiple different agreements or practices in different markets being: hospitals or healthcare facilities; medical suppliers; medical specialists or radiologists; pathologists or laboratories; pharmacies; healthcare funders; and the private healthcare sector and the Department of Health. We highlight the most important features of this exemption below:

  1. Agreements or practices between hospitals or healthcare facilities, medical suppliers, and pharmacies with the sole purpose of:
    1. co-ordinating on ensuring the patients are allocated (to the extent required) between the hospitals in the most efficient means possible to ensure that the respective capacities of the hospitals are effectively utilised.
    2. communicating with each other in relation to capacities and utilisation of facilities including intensive care units and isolation beds.
    3. co-ordinating in relation to the procurement of various consumables, pharmaceuticals and other inputs required for the optimal treatment of patients in order to ensure that inputs are procured in the most efficient manner possible.
    4. co-ordinating on the allocation of specific types of services, medical professionals and nurses as between the various hospitals.
    5. communicating with each other in relation to availability of medical supplies.
    6. co-ordinating the procurement and distribution of medical supplies.
    7. communicating with each other in respect of availability of pharmaceuticals and medical consumables.
    8. co-ordinating the procurement of pharmaceuticals and medical consumables.
    9. transferring of pharmaceuticals and medical consumables.
  1. Agreements or practices between the private healthcare sector and the Department of Health with the sole purpose of making available additional capacity at healthcare facilities to the public healthcare sector, ensuring adequate medical supplies to the public healthcare sector; and
  2. At the request of the Department of Health and subject to oversight and guidance by the Department of Health, agreements or practices concluded between the private healthcare sector and the Department of Health with the sole purpose of reducing the cost of diagnosis, tests, treatment and other preventative measures including vaccines. For the avoidance of doubt, any discussion and/or agreement on pricing between private healthcare companies or providers must be specifically authorised by the Minister of Health.

This will assist in ensuring that the private and public healthcare system and all the associated firms, such as pharmacies and pathological laboratories, can provide the necessary care at reasonable prices to all classes of South Africans without fear of contravening the Competition Act.

We note that these regulations were expanded on 08 April 2020, the most significant amendment extends to manufacturers and suppliers of medical and hygiene supplies in that agreements or practices used in the testing, prevention or treatment of COVID-19 and its associated diseases are now exempted from scrutiny in terms of the Competition Act, where such agreements or practices are for the purpose of:

  1. Communicating with each other in relation to the availability of medical and hygiene supplies; and
  2. Coordinating the procurement and distribution of medical and hygiene supplies.

2. The block Exemption for the Banking Sector – 23 March 2020

Purpose of exemption:

  1. To enable 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
  2. To enable the banking sector to manage the banking infrastructure, including the payment infrastructure, ATMs and branches.

Practically this exemption has the effect of exempting, from scrutiny by the competition authorities, the following:

  1. Agreements or practices in the banking sector with the sole purpose of ensuring essential payment systems continue to operate during the national disaster; and
  2. Agreements or practices with the sole purpose of ensuring the management of debtors and extension of credit continue during the national disaster.

This will assist in ensuring that banking sector will remain functional with respect to ATMs, branch services as well as benefiting businesses and individual debtors under financial stress in that (i) payment holidays and debt relief can be offered (ii) asset repossessions can be limited and (iii) credit lines may be extended.

3. The block Exemption for the Retail Property Sector – 24 March 2020

Purpose of exemption:

  1. To enable 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.

Practically this exemption has the effect of exempting, from scrutiny by the competition authorities, the following:

  1. Agreements or practices amongst and between designated retail tenants and retail property landlords with the sole purpose of ensuring the survival of tenants of retail properties during the national disaster.

This will assist the retail property sector, in that the designated retail tenants will hopefully be able to resume business as usual after the national disaster. The regulations hope to alleviate some of the stress on these retail tenants by exempting agreements or practices in respect of (i) payment holidays and/or rental discounts for tenants (ii) limitation on the eviction of tenants and (iii) the suspension or adjustment to lease agreements clauses that restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster.

4. The block exemption for the Hotel Industry – 27 March 2020

Purpose of exemption:

  1. To enable the hotel industry to collectively engage with the Department of Health and the Department of Tourism in respect of identifying and providing appropriate facilities for persons placed under quarantine, as determined by the Department of Health.

Practically this exemption has the effect of exempting, from scrutiny by the competition authorities, the following:

  1. Agreements or practices in the hotel industry with the sole purpose of identifying and providing appropriate facilities for the accommodation of persons placed under quarantine, as determined by the Department of Health and the Department of Tourism;
  2. Communication between market participants in relation to capacities and utilisation of facilities for the accommodation of persons placed under quarantine, as determined by the Department of Health and the Department of Tourism;
  3. Agreements or practices in the hotel industry with the sole purpose of communicating and agreeing on the reduction of the cost of providing appropriate facilities for the accommodation of persons placed under quarantine, as determined by the Department of Health and the Department of Tourism;[1]

This will assist in alleviating the effect of the national disaster as well as the spread of the coronavirus in that it allows the Government to identify quarantine zones for those affected by the coronavirus as well as ensuring that those affected and in quarantine shall have adequate facilities.

Exploitive Regulations – 19 March 2020

The Minister of the DTI further gazetted regulations in terms of section 8(3)(f) of the Competition Act.[5] The purpose of these regulations is to protect consumers and customers from unconscionable, unfair, unreasonable, unjust or improper commercial practices during the national disaster.

In effect, the regulations prohibit firms from charging excessive prices to consumers in respect of goods and services that are deemed as protected goods or services in the regulations themselves. The regulations further contemplate what an excessive price would be:

  1. An excessive price would be a material price increase of a good or service as contemplated which does:-
    1. not correspond to or is not equivalent to the increase in the cost of providing that good or service; or
    2. increases the net margin or mark-up on that good or service above the average mark-up for that good or service in the three-month period prior to 01 March 2020.

These excessive pricing regulations have strengthened the ability of the Commission to respond to incidences of exploitative/excessive pricing of the protected goods or services as these regulations empower the Commission to prosecute cases where prices have increased materially without any cost justifications for the increase.

The regulations have empowered the Commission to take policy decisions to specifically prioritise such complaints in order to ensure that firms exploiting consumers are quickly prosecuted and penalised. To this end, the Commission has set up a dedicated team to respond and investigate any such complaints, and to fast track these through referral and prosecution before the Tribunal.

It seems as if these regulations are having the desired in effect as consumers have brought over 250 credible complaints to the Commission regarding excessive prices already. The complaints are against retailers and suppliers for charging excessive prices for products related to those deemed protected by the regulations. The majority of the complaints related to hand sanitizers and face masks, followed by toilet paper, flu medication and other products.

The Commission’s ability to prosecute these matters are solely dependent on the functioning of the Tribunal and as such, the Minister of the DTI, on 06 April 2020, gazetted regulations on Competition Tribunal Rules for COVID-19 Excessive Pricing Complaints Referrals.

The purpose of these regulations is to provide for rules regulating complaint referrals heard in the Tribunal for alleged contraventions of section 8(1)(a) of the Competition Act. In sum, the Tribunal regulations provide:

  1. A complainant bringing a Complaint Referral (the Applicant) must do so by Notice of Motion as set out in the Rules.[6]
  2. The Notice of Motion must be served on a Respondent(s) and filed with the Tribunal with proof of service on the Respondent(s) on the same day.
  3. The Respondent must serve its Answering Affidavit within 72 hours of receipt of the Complaint Referral, and file it with the Tribunal on the same day.
  4. The Applicant may, if it wishes, serve its Replying Affidavit on the respondent within 24 hours of receipt of the Answering Affidavit, and file it with the Tribunal with proof of service on the Applicant(s) on the same day.
  5. The Tribunal will set the matter down for hearing within 48 hours of the close of pleadings.
  6. The Applicant and Respondent(s) must file a joint statement with the Tribunal within 24 hours of the close of pleadings indicating the facts and issues which are agreed between them and those which are in dispute.
  7. The Commission is requested, to the extent possible, to consolidate Complaint Referrals on the basis inter alia of the same products or services; same respondents; retailers; wholesalers; or any other suitable basis.
  8. All documents must be filed electronically with the Registrar of the Tribunal.
  9. The regulations have also made provision for the hearing of Consent Orders, Unopposed Applications, Opposed Applications, and extended time periods.

The Tribunal has adopted these regulations and its interpretation of the rules can be found here.

It is furthermore likely that there will be ongoing regulatory developments as the situation progresses, including by extending exemptions to more industries.

The respective gazetted regulations can be accessed here:

  1. The block exemption for the Healthcare Sector regulations
    1. Regulations expansion
  1. The block Exemption for the Banking Sector
  1. The block Exemption for the Retail Property Sector
  1. The block exemption for the Hotel Industry
  1. The excessive pricing regulations
  2. Regulations on Competition Tribunal Rules for COVID-19 Excessive Pricing Complaint Referrals

We recommend that industry players adopt a pro-active approach in any engagements with competitors, suppliers and customers, by seeking legal advice before doing so.

Jac Marais
Partner | Commercial Attorney
Mia de Jager
Associate | Litigation Attorney

References

[1] Section 2(c) of the Competition Act.

[2] Section 8(3)(f) of the Competition Act –

Any person determining whether a price is an excessive price must determine if that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account all relevant factors, which may include any regulations made by the Minister, in terms of section 78 regarding the calculation and determination of an excessive price.

[3] Section 10(10) of the Competition Act –

The Minister may, after consultation with the Competition Commission, and in order to give effect to the purposes of this Act as set out in section 2, issue regulations in terms of section 78 exempting a category of agreements or practices from the application of this Chapter.

[4] At the request of the Department of Health and the Department of Tourism and subject to oversight and guidance by the Department of Health and the Department of Tourism.

[5] Section 8(3)(f) of the Competition Act – “Any person determining whether a price is an excessive price must determine if that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account all relevant factors, which may include any regulations made by the Minister, in terms of section 78 regarding the calculation and determination of an excessive price.

[6] For the avoidance of doubt, a complainant is defined as set out in the COVID-19 Excessive Pricing Regulations and includes the Competition Commission; or a complainant who filed the complaint with the Commission, which the Commission has decided not to refer to the Tribunal itself.

Co-author: Kameel Pancham