4. LIABILITY FOR CARTEL CONDUCT
4.2 Liability for Cartel Conduct
4.2.2 Directors
58 When a firm agrees to become a member of a cartel, it is automatically presumed that the firm tacitly agrees to comply with any decision taken by the cartel to engage in anti-competitive behaviour, unless the firm overtly opposes any of the cartels’ decisions. Cartel members may be regarded to have effectively compromised the detection of a cartel and encouraged its continuation in instances where the firm fails to publicly distance themselves from the anti- competitive initiative or report it to the competition authorities. These cartel members should therefore be held fully responsible for their participation in such anti-competitive conduct.
The aforementioned judgment has set a valuable precedent in deterring both passive and active involvement in prohibited agreements.261
59
‘ignorance of the law is no excuse for non-compliance’264 and thus does not constitute a defence.
The imposition of liability on directors is a contentious point. It remains unclear as to whether these individuals should be prosecuted under the auspices of competition law, criminal law or company law for their roles in cartel conduct. As a result, the liability they face may vary depending on the type of action taken against them. The following section will therefore analyse the legislation in its current form.
4.2.2.1 Directors liability in terms of Competition law
Both criminal and administrative sanctions may be pursued in respect of the same conduct in cartel proceedings. However this requires a finding by the Competition Tribunal of cartel conduct in order to pursue either a criminal or civil claim. It is not possible to pursue civil damages if such a finding has not been made. The Competition Amendment Act specifically caters for a situation in terms of which an administrative sanction may be imposed on a corporation while criminal sanctions may, subsequently, be brought against the respondent firm’s directors. Action may only be taken against directors for a criminal offence once there has been a finding by the Competition Tribunal or the CAC that the respondent firm has engaged in cartel conduct, or the respondent firm has entered into a consent order with the Commission. Furthermore, a person or firm may only pursue a claim for civil damages once there has been a finding that the respondent firm has engaged in a prohibited practice (the cartel conduct).265
Under the Competition Amendment Act, directors of firms who cause or knowingly acquiesce in collusive tendering, market division or the fixing of prices and trading conditions under section 4(1)(b), who are subsequently found guilty of contravening section 73A of the Competition Amendment Act will in future, once Section 73A becomes effective, be held liable to a maximum of 10 years’ imprisonment or a maximum fine of R500,000, or both a fine and imprisonment. Section 73A requires ‘either that the firm must have acknowledged an infringement of section 4(1)(b) of the Act in a consent order, or that the Competition Tribunal
264 Ibid.
265 Oxenham, J; Webber, M ‘Cartel Regulation: South Africa’ available at
http://nortonsinc.com/wpcontent/uploads/2014/01/CR2014-South-Africa.pdf, accessed on 3 October 2014.
60 or CAC have made a finding of infringement’266 in terms of section 4(1)(b). The Competition Act states that if these requirements are satisfied, a director, or person having management authority, may be prosecuted.267
Furthermore, section 73A(6) (signed but not yet in force) provides that a firm is precluded from ‘(i) paying any administrative penalty imposed on an individual; and/or (ii) indemnifying, reimbursing, compensating or otherwise defraying the expenses of any individual incurred in defending such a prosecution unless the prosecution is subsequently abandoned or the person acquitted’.268 It is important to note that a similar provision exists under company law such as section 77(3)(b) and section 78(6) of the Companies Act.
In terms of section 73A(4) of the Competition Amendment Act, ‘the Competition Commission may not seek or request the prosecution of a person for an offence in terms of section 73A if the Competition Commission has certified that the person is deserving of leniency in the circumstances.’269 Whilst immunity granted in terms of the CLP extends to all forms of prosecution initiated and enforced by the competition authorities and the NPA in terms of the Competition Act, such immunity does not extend to various parallel criminal offences engaged in by individuals employed by the firms who have been found to have engaged in cartel behaviour.270 The CLP does not seem to contemplate the fact that an individual may expose himself or herself to criminal liability when voluntarily making a statement to the Competition Commission which implicates him or her in cartel conduct.
Individuals will become increasingly aware of this (and at a minimum should be informed of their right not to self-incriminate), and unless they are provided with assurances that information disclosed to the Competition Commission may not be used in parallel criminal proceedings, such individuals will be reluctant to assist the Competition Commission in uncovering cartels.271 ‘As a director of a company, one would be almost certain to think twice
266 Kelly (note 31 above) 322.
267 Shahim, C ‘Colluding constructions: Lucky break?’ (2013) available at
http://www.polity.org.za/article/colluding-constructions-lucky-break-2013-07-18, accessed on 3 October 2014.
268 Section 73A(6) of the Competition Amendment Act 1 of 2009.
269 Ibid.
270 Lopes, N; Seth, J; Gauntlett, E ‘Cartel enforcement, the CLP and criminal liability – are competition regulators hamstrung by the Competition Act from co-operating with the NPA, and is this a problem for competition law enforcement?’ available at www.compcom.co.za/.../Cartel-Enforcement-Paper-Final-2013- 08-20.pdf, accessed on 24 March 2014.
271 Ibid.
61 before approaching the Competition Commission for leniency without guarantees that one's own liberty is not at risk.’272
As the CLP did not extend its immunity to individuals, the Competition Amendment Act made provision for this by introducing a section which is not yet in full force, but relates to individual leniency for persons who provide information or otherwise cooperate with the Competition Commission’s investigation into cartel conduct. In terms of section 50 of the Competition Amendment Act, the Competition Commission may, at any time after receiving or initiating a complaint, certify that any particular person contemplated in section 73A is deserving of leniency in the circumstances. Thus when immunity or leniency is granted to a corporate defendant, its current and former employees may be prosecuted for a cartel offence only in instances where the relevant firm has acknowledged, in a consent order, that it engaged in cartel conduct or in instances where the Competition Tribunal or the CAC has made a finding that the relevant firm engaged in cartel conduct. However if a firm is granted total immunity in terms of the CLP, its directors or managers, current and former, cannot be prosecuted for cartel conduct.273
The contemporary competition law regime fails to provide for directors to be held personally liable for the company's anti-competitive conduct In other words, the individuals involved in cartel conduct will not face prosecution under the Competition Act. Such a restriction has not deterred those seeking justice from pursuing alternative avenues in an effort to take action against and hold those actually responsible for such conduct liable, as relief may be sought under other branches of law.274
4.2.2.2 Directors liability in terms of Company law
Company law comprises that area of law that governs a director’s relationship with his or her firm. In terms of that relationship, a director owes certain responsibilities and duties to his or her company. It is important to understand the context of this relationship as a company
272 Ibid.
273 Oxenham, J; Webber, M ‘Cartel Regulation: South Africa’ available at
http://nortonsinc.com/wpcontent/uploads/2014/01/CR2014-South-Africa.pdf, accessed on 3 October 2014.
274 Shahim, C ‘Colluding constructions: Lucky break?’ (2013) available at
http://www.polity.org.za/article/colluding-constructions-lucky-break-2013-07-18, accessed on 3 October 2014.
62 wishing to recoup or recover losses incurred as a result of the director’s unlawful conduct for competition law violations, should be able to do so within the ambit of company law.
It is important to note that since directors are not held personally liable for cartel conduct under the current competition law, they remain untouchable by competition authorities.275 It would, therefore, seem that company law remains a possible avenue of law that could provide companies with a remedy so that they could take actions against those individuals responsible for cartel conduct.
4.3 Directors’ Responsibilities, Duties and Liabilities