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[2016] ZACT 56
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Competition Commission of South Africa v Standard Bank of South Africa (FTN228FEB16) [2016] ZACT 56; [2016] 2 CPLR 989 (CT) (5 July 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
FTN228Feb16
In
the matter between:
The
Competition
Commission
of South
Africa
Applicant
and
The
Standard Bank
of
South
Africa
Limited
Respondent
Panel
: Yasmin Carrim (Presiding Member)
: Mondo Mazwai (Tribunal
Member)
: Andiswa Ndoni (Tribunal
Member)
Heard
on
: 03 June 2016
Reasons
Issued on
:
05 July 2016
Failure
to Notify Reasons and Order
Introduction
[1]
This matter concerned an application ("referral") brought
by the Competition Commission of South Africa ("the
Commission")
to impose an administrative penalty on the respondent, Standard Bank
of South Africa Ltd ("Standard Bank"),
as a result of its
failure to notify a merger implemented without the prior approval of
the Commission, in contravention of sections
13A(1) and 13A(3) of the
Competition Act ("the Act").
[2]
Standard Bank is a financial services institution that offers,
inter
alia,
transactional banking, saving, borrowing,
lending, investment, insurance, risk management, wealth management
and advisory services.
[3]
On 5
December
2011
Standard
Bank
acquired
100% of the
issued
share
capital of
Halberg Guss South Africa
(Pty) Ltd
("Halberg"),
now
referred to as Autocast
South
Africa
(Pty)
Ltd
("Autocast").
The
acquisition
came
about
as
a
result
of
Halberg
defaulting on its various loan obligations to Standard Bank.
[1]
Standard Bank intended
to dispose
of the
shares as soon as it found a suitable
purchaser
within a relatively short period of time.
[4]
The Commission's Practitioner's Update, Issue 4, entitled
"The
application
of merger provisions
of
the
Competition Act
89 of
1998,
as
amended,
to risk mitigation
financial transactions"
("the Practitioner
Update") contemplates acquisitions made by financial
institutions as a result of their debtor's defaulting
and with the
view of selling such acquisitions to new purchasers as soon as the
business has been turned around. In this temporary
period the
financial institution might exercise management control over the
acquired business.
[5]
Paragraphs 3, 4 and 5 of Part 5 of the Practitioner Update provides
the following:
"3.
Thus, in respect
of
transactions
outlined
in points
(i) to (iii)
above,
where
a
bank
acquires
an asset or controlling
interest
in
a
firm in the ordinary course
of its
business in
providing
finance based on
security or collateral,
the
Commission
would not require notification
of
the transaction
at this
point. Similarly,
if
upon
default
by
the
firm
the
bank
takes
control
of
the
asset
or controlling interest
in
that
firm
with the intention
to safeguard
its investment
or
on-sell
to another
firm
or
person
to recover
its finance,
a
notification
would not be required.
4.
However,
if the bank
fails
to dispose of the assets or
the controlling
interest within
a
period
of
twelve
(12) months,
notification
would
be
required
upon
the
expiry
of
the
twelve-month
period. This twelve-month
period
commences
only when
the
bank
assumes
control
over
the
security
interest. The
expiry
of
this period in itself
will trigger notification
of that acquisition
if thresholds are met. In seeking
an extension
of this period,
the institution
concerned
bears the onus of providing
a
substantial
basis
for
non-disposal
of
the
asset
or
control
over
the firm in
question.
The
Commission
would then exercise
its
discretion in granting such
an extension
on
a
case-by-case
basis.
5.
Failure
to notify
the
transaction
upon
expiry
of
the
twelve-month
period
or
the
extended
period
will be
construed
as
an
implementation of
a
merger
and the
penalties
in
terms
of
Section
59(1)(d)
and
(2)
will be applicable."
[6]
Of significance for this case is that the Practitioner Update
provides that the bank should only notify the Commission of such
a
merger in the event that it had not yet disposed of its controlling
interest after twelve months of it acquiring control of the
firm.
Expiry of this period would trigger notification of the merger to the
Commission which would require the payment of the prevailing
filing
fee. It bears mention that at the time of hearing this application,
the Commission had extended this 12 month period to
24 months.
[7]
St
a
ndard
Bank wrote
to the
Commission
on
18 January
2011
and
submitted
that
it made the
acquisition of Halberg / Autocast with a view to turning the business
around
within a
year and selling it to recoup its loans and associated costs.
[2]
[8]
By
5
December 2012 (upon the expiry of the twelve month
period stipulated in the Practitioner Update), Standard Bank had not
yet disposed
of its controlling interest.
[9]
Nine
months
after
the
expiry
of
the
twelve
month
period,
on
11
September
2013,
Standard Bank became
aware that
the twelve
month period had
expired and
that it
had failed
to request an extension. On 19 September 2013, by way of a letter,
Standard Bank approached the Commission to request
an extension in
order to dispose of its
interest.
In this letter, Standard Bank expressed the various steps it had
taken in an attempt to sell Autocast and that it was
in
the process
of engaging management for a potential Management Buyout ("MBO").
Standard
Bank
therefore
requested an extension
from
the
Commission until 1
January
2014
to
dispose of
Autocast.
[3]
The MBO would be a small merger and would therefore not be
notifiable.
[10]
On 6 November 2013 the Commission denied Standard Bank's request for
an extension and indicated its intention to investigate
Standard Bank
for prior implementation. Thereafter, on 12 December 2013, Standard
Bank disposed of the shares in terms of the MBO.
All suspensive
conditions in respect of the sale of the Shares were fulfilled on 12
December 2013.
[11]
On 2 October 2015, after a period of 23 months, the Commission
informed Standard Bank that its conduct constituted the
implementation
of a merger without approval in terms of section
13(A)(3) of the Act.
[12]
Standard Bank denied that it had contravened the Act. The Commission
and Standard Bank entered into settlement proceedings.
The parties
were unable to reach agreement on the appropriate penalty and the
matter was eventually heard as an opposed application
at the
Tribunal.
[13]
It was common cause that upon the expiry of the twelve month period
in the Practitioner Update, Standard Bank either had to
request an
extension or notify the merger, neither of which it had done.
Therefore the issue for determination for the Tribunal
was whether an
administrative penalty was appropriate and if so, the quantum thereof
by having due regard to the factors set out
in sections 59(3) and
59(2) of the Act.
[14]
At the
hearing the Commission persisted with the administrative
penalty
sought in
i
ts
application, being R 1
000 000 on
the basis that Standard Bank had contravened the Act.
[4]
[15]
The
Commission relied on the methodology for calculating
an
administrative
penalty
that was used in the matter between
the
Competition
Commission
and Aveng Africa Limited
t/a
Steeldale
and
Others
("the
Aveng
case")
[5]
.
That matter
concerned
a
contravention
of section
4(1)(b)
of
the Act.
In
that case the Tribunal
developed
the
methodology
by
having
regard to
the
European
Commission
Guidelines
[6]
("the
EC
Guidelines")
in
relation
to
contraventions
of
Article
81
and
Article
82,
[7]
as
recommended
by
the CAC in
SPC,
Contrite v Competition Commission,
[8]
but adapting some features
of the
approach to meet the requirements of our Act.
[9]
[16]
Standard Bank submitted that its failure to seek an extension of the
twelve month period was a
bona
fide
error and
that when it became aware of its failure, it acted responsibly and
openly and contacted the Commission promptly. The Commission
was made
aware from early on that Standard Bank intended to dispose of
Autocast as soon as it was able to find a purchaser. The
additional
period for which it had held the shares was relatively short and it
ought not to be mulcted with an administrative penalty
at all or one
that was merely, for these reasons, symbolic.
The
relevant provisions of our Act
[17]
Section 13A(1) of the Act provides as follows:
"(1)
A
party
to an
intermediate
or
a
large
merger
must
notify
the
Competition
Commission
of that merger
in
the prescribed
manner
and form."
[18]
Section 13A(3) of the Act provides as follows:
"(3)
The parties
to
an
intermediate
or
large
merger
may
not
implement
that
merger
until
it
has
been
approved,
with
or without
conditions,
by
the Competition
Commission
in
terms of section
14(1)(b), the Competition
Tribunal in
terms
of
section 16(2) or
the
Competition
Appeal
Court in
terms
of
section 17."
[19]
Section 59( 1)(d)(i) and (iv) of the Act provides as follows:
"(1)
The
Competition
Tribunal
may
impose
an
administrative
penalty
only-
(d)
if the parties to
a
merger have-
(i)
failed
to give notice of the merger
as
required by
Chapter
3;
(iv)
proceeded
to implement
the merger
without the approval
of the Competition
Commission or Competition
Tribunal,
as
required
by
this Act."
[20]
Section 59(2) of the Act provides as follows:
"(2)
An administrative penalty imposed in
terms
of
subsection
(1)
may
not
exceed
1O
per
cent
of the firm's annual turnover in the Republic and its exports
from
the Republic
during
the firm's preceding
financial year."
[21]
Section 59(3) of the Act provides as follows:
"(3)
When determining an appropriate penalty, the Competition Tribunal
must consider the following factors:
a)
the nature,
duration,
gravity
and extent
of the contravention;
b)
any
loss
or
damage
suffered
as a
result
of
the contravention;
c)
the behaviour
of
the respondent;
d)
the market
circumstances
in
which the contravention
took place;
e)
the level
of profit
derived
from
the contravention;
f)
the
degree
to
which
the
respondent has
co-operated
with
the
Competition
Commission
and
the
Competition
Tribunal; and
g)
whether
the respondent
has
previously
been
found
in
contravention of this Act."
[22]
In section 59(1) the Tribunal is granted the power to impose
administrative penalties for contraventions of the Act. This power
as
reflected in the use of the word "may" is a discretionary
one which must be exercised with due regard to the facts
of each
case.
[23]
In
section
59(1),
the
Tribunal's
discretion
is
directed
to
having
regard
to
the
factors
listed in
section
59(3)
and
subject to limitations in
section
59(2) that any penalty imposed
not exceed
10% of the
firm's
annual
turnover
in the
Republic
during the firm's preceding financial
year, for
all three
types
or
species
of
contraventions
which
include
contraventions
of Chapter
2,
[10]
Chapter
3
[11]
and a
contravention
of or
failure
to
comply with
an
interim or
final
order
of the
Tribunal
or
the
Competition
Appeal
Court.
[12]
Unlike
in
the US
or
the EU
where
distinctions are drawn between Chapter 2
(prohibited
conduct) and Chapter
3
type
(merger control) contraventions,
[13]
the Act
does
not
prescribe
different
sanctions
for
different
contraventions.
Instead
it
has
granted
the
Tribunal
the
discretion to
make such
a
distinction when
we
have
regard to
the
nature,
duration,
gravity
and
extent
of the
contravention
as
provided
in section
59(3)(a).
[24]
As mentioned above, the Commission relied upon the methodology
developed in the
Aveng
case to advance their
computation of the penalty. This methodology, however, was applied in
the context of a cartel case, namely
a section 4(1)(b) contravention.
[25]
We
have
recently
stated,
in
The
Competition
Commission
of
South
Africa
and
Deican
Investments (Pty)
Ltd
and
New
Seasons
Investments
Holdings (Pty)
Ltd
[14]
("Deican
Investments")
that when
we
have
regard to
the
nature,
duration,
gravity
and
extent
of the
contravention,
as
required
by
section
59(3)(a) of
the
Act,
the
fact
that
this is
a Chapter
3, and
not
a Chapter 2 contravention
must be
given
significant
weight,
so that a
meaningful distinction is
drawn
between
the
two types of contraventions. If
this is
not a
cartel
or
abuse
of
dominance
then
we
are
alerted
to
the
possibility
that
this
contravention would require a somewhat different or even lesser
sanction depending on the specific facts of the matter. We
then turn
to consider
aggravating and mitigating
factors by
having regard to the remaining provisions of section 59(3).
Assessment
[26]
With regards to the nature of this contravention, we note that it is
a failure to notify and not a contravention of Chapter
2. Standard
Bank was required to notify the transaction upon the expiry of the
twelve month period as prescribed by the Practitioner
Update, and
would have at least been liable for the prevailing filing fee of R350
000. The prevailing filing fee provides us with
a rational "base"
or "minimum floor" from which to compute an appropriate
penalty.
[27]
We then consider whether there are any aggravating or mitigating
factors by having regard to the other factors listed in 59(3).
If
there are aggravating factors, the penalty would increase, bearing in
mind the upper limit of 10% of turnover in section 59(2).
Mitigating
factors would have the effect of reducing the fine, if appropriate
and then finally the assessment turns to whether
the fine falls below
the upper limit of 10% of the respondent's turnover.
[28]
When
viewing the facts of the current
case it was
accepted
by
the Commission that the transaction was unlikely to have resulted in
any
significant negative competitive or public interest effects and that
it was
unlikely
that the merger resulted in any loss or damage
to
the
relevant
market.
[15]
This
however,
is
considered
by
us
as
a
neutral
factor.
[16]
[29]
The
Commission
further
accepted
that there
was
no
indication that Standard
Bank
derived
any
profit from the alleged contravention.
[17]
This was a
case that
involved a
contravention
of
a
technical
nature
and
the
contravention
was
of
a
short
duration
(approximately
nine
months).
[30]
With
regard
to
the
degree
of
co-operation
with
the
Commission,
the
Commission
accepted
that
Standard
Bank
had
co-operated
with
the
Commission
by
providing
information to the Commission when the Commission was
unaware of
Standard
Bank's
conduct,
and where
such
information
may be
used
in an
investigation
against
it.
[18]
The
Commission
itself
accepted
that
this
conduct
is
to
be
encouraged
and,
as
a
result,
should
be
considered
a
mitigating
factor
when
determining
an
appropriate
penalty.
[19]
[31]
Standard
Bank
further
submits
that
the
failure
to
request
an
extension
of
the
twelve
month
period
in the
Practitioner
Update,
and
subsequently
the failure
to
notify, was
a
bona
fide
error
and that this should
be regarded
in
mitigation.
The Commission acknowledged
that there
were
no
ma/a
tides
in this
case but submitted that when taken into account
in
determining
a
penalty,
this
should
not be a
significant
mitigating
factor and
should
rather
be
neutral.
[20]
We
accept
that
Standard Bank
was not
ma/a
fide,
however
it must be kept in mind that Standard Bank has an investment banking
division that in
the
ordinary course of business acquires and
disposes of
shares
in
other
companies
and as
such,
should
be more
alive to
the
requirements
and
stipulations
of the
Practitioner
Update and
the Act
itself.
[32]
A mitigating factor is that Standard Bank has taken the
following steps to ensure compliance with the
Practitioner Update and to prevent similar contraventions in future:
a.
Standard Bank's external legal advisors have provided competition law
compliance training to key employees
of the investment banking
division of Standard Bank that are involved in risk mitigation
transactions. The training covered the
general principals of merger
control, and specifically dealt with the application of the
Practitioner Update and the fact that
the exemption under it was
limited to a twelve month period.
b.
A bi-monthly meeting is held by the legal team that serves the
corporate and investment banking division of
Standard Bank. Within
these meetings there have been regular discussions of the issue that
arose with Autocast and the need to
ensure compliance with the
Practitioner Update.
c.
A note
was
prepared
on
13
October
2015, that expressly requests
employees
involved
in
risk mitigation transactions
where
Standard
Bank
acquires
control
over the
business or
assets of a debtor, to diarise the transaction
to
ensure that
at least three months is
allowed
for requesting an
extension,
if necessary. In
addition,
employees are advised to inform external counsel to diarise
transactions in
which they
are
involved.
[21]
[33]
Finally, as a mitigating factor, it should be noted that Standard
Bank had not been found to contravene the Act previously.
[34]
On balance it is found that there is one aggravating factor, namely a
degree of negligence on the part of Standard Bank in
failing to
comply with the requirements of the Practitioner Update. In
mitigation, it is accepted that Standard Bank did indeed
report the
failure to request an extension in terms of the Practitioner Update
voluntarily; has not been found to have contravened
the Act
previously and contravened the act for a relatively short duration.
[35]
In light of the above circumstances we find that an administrative
penalty not exceeding R350 000 is appropriate. The fine
has been kept
to the "base" amount of the filing fee given that the three
mitigating factors outweigh the single aggravating
factor.
[36]
Now we turn to examine whether the amount of the penalty for Standard
Bank exceeds 10% of the turnover of that firm.
[37]
It was submitted that Standard Bank's total income was approximately
R61 100 000
000,
10% of which would amount to R6 100 000 000. The administrative
penalty of
R350
000 does not exceed R6 100 000 000.
Order
[38]
The respondent, Standard Bank, has contravened section 13A(1) and
13A(3) of the Competition Act.
[39]
Standard Bank is fined an amount of R350 ODO.DO (three hundred and
fifty thousand rands).
[40]
The aforesaid penalty must be paid to the Commission within 20
business days of this order.
05
July 2016
DATE
_____________________
Ms
Yasmin Carrim
Ms
Mondo Mazwai and Ms Andiswa Ndoni concurring
Case
Manager :
Kameel Pancham
For
the Commission :
Layne Quilliam
For
the Respondent :Jean
Meijer of Bowman Gilfillan Inc.
[1]
See paragraph 2 of the letter from Standard Bank to the Commission
dated 19 September 2013.
[2]
See paragraph
9 of the
letter
from Standard Bank to
the
Commission
dated
18 January
2011.
[3]
See Standard Bank letter of 19 September 2013 paragraphs 7-12.
[4]
Commission's heads of argument paragraph 41 page I
I.
[5]
Case no. 84/CRJDec09 and 08/CR/Feb II.
[6]
Guidelines
on
the
method
of
setting
fines
imposed
pursuant
to
Article
23(2)(a)
of
Regulation
No
1/2003
(2006/C2
l
0/02).
[7]
Relating
to the
abuse of dominance
and
cartels.
[8]
Case
no,
106/CAC/Dec2010
[9]
Aveng paragraphs 132 and
133
[10]
Section 59(1)(a) and (b).
[11]
Section 59(1)(d).
[12]
Section
59(1)(c).
[13]
Ibid.
[14]
The
Competition Commission of
South
Africa and Deican Investments (Pty) Ltd and New Seasons Investments
Holdings
(Pty)
Ltd
FTN l
51Aug
l
5.
[15]
Commission's heads of argument paragraph 27 page 7.
[16]
The
Competition
Commission
of South Africa
and
Deican
Investments
(Pty) Ltd
and
New
Seasons
Investments Holdings
(Pty)
Ltd
FTN
l 51
Aug
l 5.
[17]
Commission's
heads
of
argument
paragraph
29 page
8.
[18]
Respondent's heads of argument paragraph 23 page 6.
[19]
Respondent's heads of argument paragraph 23 page 7.
[20]
Transcript 3 June 2016, pages 23-14.
[21]
See affidavit
of Mark
Robert Kyle paragraph
7.