Chris Charter, Director, Competition, Cliffe Dekker Hofmeyr
In its recent decision to impose an administrative penalty against two firms for their role in a wire mesh cartel, the Tribunal has set out a new approach to penalty calculations. Borrowing heavily from the policy in Europe, the Tribunal’s approach involves six steps:
Step 1: Determination of the affected turnover in the relevant year of assessment (affected turnover is based on sales of products or services that can be said to have been affected by the contravention).
Step 2: Calculation of the ‘base amount’, being that proportion of the relevant turnover relied on (based on the EU precedent, this may be as much as 30% of the affected turnover, depending on the nature of the contravention).
Step 3: Where the contravention exceeds one year, multiplying the amount obtained in step 2 by the duration of the contravention.
Step 4: Rounding off the figure obtained in step 3, if it exceeds the cap provided for by s59(2) (this cap is statutorily set at 10% of a firm’s entire South African turnover).
Step 5: Considering factors that might mitigate or aggravate the amount reached in step 4, by way of a discount or premium expressed as a percentage of that amount that is either subtracted from or added to it (this is not typically applied in the EU, but allows the Tribunal to consider factors that are specific to a respondent, such as it being an unwilling participant, or in the interests of proportionality).
Step 6: Rounding off this amount if it exceeds the cap provided for in s59(2). If it does, it must be adjusted downwards so that it does not exceed the cap (this is likely only if there are aggravating circumstances that push the level of fine up). The new paradigm provides some clarity, but does open the door for significant argument as to the effect of the contravention as well as the circumstances applicable to each firm involved. Of considerable concern to firms that have significant turnover beyond that affected by the cartel, is the prospect of paying a fine well in excess of 10% of affected turnover. It is also worth noting that the calculation process envisages higher fines for cartels of long duration as a matter of course.
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