On 18 May 2020, the Competition Commission published its final Buyer Power Guidelines (the guidelines). Earlier this year, the new buyer power provisions of the Competition Act 89 of 1998 (the Act) came into effect.
These provisions prohibit dominant buyers in designated sectors from imposing unfair prices or trading conditions on small and medium enterprises (SMEs) and firms owned and controlled by historically disadvantaged persons (HDP).
The guidelines seek to provide clarity to dominant buyers and SME/HDP suppliers as to how the new buyer power provisions will be enforced by the Commission, and will serve as an essential point of reference for firms to assess risk and guide compliance.
Fair treatment of SME and HDP
In the wake of the COVID-19 pandemic, there is likely to be a heightened focus on supporting SME and HDP firms – the fair treatment of such firms will be carefully scrutinised and, as such, the risk of complaints against dominant firms may be considerably amplified.
The Commission has also published a summary guidance document which sets out the answers to frequently asked questions in respect of the buyer power provisions in the Act, as well as summary guidance notes on unfair prices and unfair trading conditions.
Earlier this year, Ministerial Buyer Power Regulations were gazetted (Gazette No. 43018), which set out the factors and benchmarks for determining whether a price or trading condition is unfair, as well as the designated sectors to which the buyer power provisions apply (namely agro-processing, grocery wholesale and retail, e-commerce and online services).
The guidelines present the general principles that the Commission will follow in assessing whether the alleged conduct contravenes the Act and usefully delve into detail on each element required to establish a contravention against dominant buyers.
In some instances, illustrative examples are provided to offer context. Importantly, the guidelines also provide further details on the Commission’s approach to the anti-avoidance provisions contained in section 8(4), which make it a contravention for dominant buyers to avoid buying from SME/HDP suppliers for the purposes of avoiding the application of the buyer power provisions.
Screening of unfair pricing complaints
Although the guidelines indicate that a specific materiality threshold in terms of quantum of harm to the supplier is not required, the guidelines do stipulate that the Commission will focus on more material cases, including those that impact on a larger number of suppliers.
It is also encouraging to note that the Commission has provided further details on how complaints will be screened, in order to filter out those which are unlikely to succeed and those which can be resolved quickly through changes in conduct.
Although regard will be given to industry dynamics, for the screening of unfair pricing complaints, the Commission will apply a three percent (3%) threshold to the relative price difference for like goods or services and the reduction in net price paid in order to prioritise cases for a more detailed investigation.
Screening of unfair trading condition complaints
For the screening of unfair trading condition complaints, the Commission will make use of the published provisional list of trading terms and conditions as the primary filter for detailed investigation and potential referrals.
Although the guidelines provide some clarity on the practical application of the contentious buyer power provisions, the actual scope and effect will only start to become clear once the competition authorities begin to grapple with complaints.
In fact, the guidelines recognise that the content may be subject to change in the future based on the experience derived by the Commission in investigating and litigating these complaints, as well as decisions of the Competition Tribunal, Competition Appeal Court and Constitutional Court.
The extensive scope of the buyer power provisions and significant consequences of a contravention require firms that are dominant purchasers operating in the designated sectors to adopt a cautious approach.
It will be important for such businesses to conduct a careful assessment of their network of suppliers, market position, trading terms and procurement policies.