SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in
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COMPETITION TRIBUNAL REPUBLIC OF SOUTH AFRICA
Case No: CO085Aug20
In the matter between:
The Competition Commission Applicant
And
Oil and More General Trading CC Respondent
Panel Y Carrim (Presiding Member), F Tregenna (Tribunal Member), A Ndoni
(Tribunal Member)
Heard on: 14 August 2020
Decided on: 14 August 2020
CONSENT AGREEMENT
The Tribunal hereby confirms the consent agreement as agreed to and proposed by
the Competition Commission and Oil and More General Trading CC annexed hereto.
Signed by: Yasmin Tayob Carrim Signed at: 2020-08-14 14:22:09 +02:00
Reason: I approve this document
CONSENT AGREEMENT BETWEEN THE COMPETITION COMMISSION AND OIL
AND MORE GENERAL TRADING (PTY) LTD IN RESPECT OF AN ALLEGED
CONTRAVENTION OF SECTION 8(1)(a) OF THE COMPETITION ACT 89 OF
1998, AS AMENDED, READ WITH REGULATION 4 OF THE CONSUMER AND
CUSTOMER PROTECTION AND NATIONAL DISASTER MANAGEMENT
REGULATIONS AND DIRECTIONS PUBLISHED IN GOVERNMENT GAZETTE NO
43116 ON 19 MARCH 2020
The Competition Commission and Oil and More General Trading CC hereby agree
that application be made to the Competition Tribunal for the confirmation of this
Consent Agreement as an order of the Tribunal in terms of section 49D of the
Competition Act 89 of 1998, as amended ("the Act"), in respect of a contravention of
section 8(1)(a) of the Act read together with Regulation 4 of the Consumer And
Customer Protection And National Disaster Management Regulations And Directions
published in Government Gazette No 43116 on 19 March 2020, as well as the
Regulations on Competition Tribunal Rules for COVI0-19 Excessive Pricing
Complaint Referrals published in Government Gazette No 43205 on 3 April 2020 and
the Tribunal Directive for Covid-19 Excessive Pricing Complaint Referrals on the
terms set out below:
1 DEFINITIONS
The following words shall, unless otherwise stated or inconsistent with the context in
which they appear, bear the following meanings in this Consent Agreement:
1.1 "Act" means the Competition Act 89 of 1998, as amended;
1.2 "Commission" means the Competition Commission of South Africa, a statutory
body, established in terms of section 19 of the Act, with its principal place of
business at Building C, Mulayo Building, the dti Campus, 77 Meintjies Street,
Sunnyside, Pretoria, Gauteng;
1.3 "Commissioner" means the Commissioner of the Competition Commission,
appointed in terms of section 22 of the Act;
1.4 "Consent Agreement" means this agreement duly signed and concluded
between the Commission and O&M;
1.5 "Consumer Protection Regulations" means the Consumer and Customer
Protection and National Disaster Management Regulations and Directions published
in Government Gazette No 43116 on 19 March 2020;
1.6 "O&M" means Oil and More General Trading CC, a food distributor and
restaurant supplier, that supplies food products and consumables to the hospitality
industry, namely, restaurants, cafes' and hotels. O&M's principal place of business is
situated at unit 6 & 7, Drill Park, 3 Drill Avenue, Montague Gardens, Cape Town;
1.7 "Tribunal" means the Competition Tribunal of South Africa, a statutory body,
established in terms of section 26 of the Act, with its principal place of business at
Building C, Mulayo Building, the Dti Campus, 77 Meintjies Street, Sunnyside,
Pretoria, Gauteng; 1.8 "Tribunal Directive for Covid-19 Excessive Pricing
Complaint Referrals" means the directive issued by the Tribunal on 6 April 2020; and
1.9 "Tribunal Rules for COVID-19 Excessive Pricing Complaint Referrals" means
the Regulations on Competition Tribunal Rules for COVID-19 Excessive Pricing
Complaint Referrals published in Government Gazette No 43205 on 3 April 2020.
2 BACKGROUND AND CONTEXT
2.1 On 15 March 2020, the Minister of Co-operative Governance and Traditional
Affairs ("COGTA") declared a State of National Disaster in the Republic of South
Africa which declaration was published in Government Notice No. 313 of
Government Gazette No. 430096.
2.2 On 18 March 2020, the Minister of COGTA issued regulations ("Disaster
Management Regulations") published in Government Notice No. 318 of Government
Gazette no. 43107, regarding the steps necessary to prevent an escalation of the
disaster or to alleviate, contain and minimize the effects of the disaster. These
regulations were made in terms of section 27(2) of the Disaster Management Act,
1957 (Act No. 57 of 2002) ("Disaster Management Act"). Paragraph 10(6) of the
Disaster Management Regulations ("Disaster Management Regulations") authorised
the Minister of Trade and Industry to, inter alia, issue directions to protect consumers
from excessive, unfair, unreasonable or unjust pricing of goods and services during
the national state of disaster.
2.3 On 19 March 2020, the Minister of Trade and Industry published the Consumer
Protection Regulations. The purpose of the Consumer Protection Regulations is to
promote concerted conduct to prevent an escalation of the national disaster and to
alleviate, contain and minimise the effects of the national disaster and to protect
consumers and customers from unconscionable, unfair, unreasonable, unjust or
improper commercial practices during the national disaster.
2.4 In relation to excessive pricing, the Consumer Protection Regulations states the
following:
"4. Excessive Pricing.
4.1. In terms of section 8(1) of the Competition Act a dominant firm may not charge
an excessive price to the detriment of consumers or customers.
4.2. In terms of section 8(3)(() of the Competition Act during any period of the
national disaster, a material price increase of a good or service contemplated in
Annexure A which -
4.1.1. does not correspond to or is not equivalent to the increase in the cost of
providing that good or service; or
4.1.2. increases in net margin or mark-up on that good or service above the average
margin or mark-up for that good or service in the three-month period prior to 1 March
2020; is a relevant and critical factor for determining whether the price is excessive
or unfair and indicates prima facie that the price is excessive or unfair."
2.5 Annexure A lists the goods and services that fall to be regulated by the
Consumer Protection Regulations.
2.6 On 23 March 2020, the President of the Republic of South Africa announced
the enforcement of a nationwide lockdown for 21 days with effect from midnight on
Thursday, 26 March 2020.
2.7 On 3 April 2020, the Tribunal Rules for COVID-19 Excessive Pricing Complaint
Referrals were published and thereafter, on 6 April, the Tribunal Directive for Covid-
19 Excessive Pricing Complaint Referrals was issued.
3 THE COMMISSION'S INVESTIGATIONS AND FINDINGS
3.1 In April 2020, the Commission received information in terms of section
49B(2)(a) of the Competition Act, against O&M, in relation to the inflated prices of
nitrile blue disposable gloves ("nitrile gloves"), that it was charging its customers
between March and April 2020.
3.2 Nitrile gloves fall under the category of 'medical and hygiene supplies' in
Annexure A as well as item 1.5 of Annexure B of the Consumer Protection
Regulations, respectively. Regulation 4 of the Consumer Protection Regulations is
therefore applicable to the conduct described in this Consent Agreement.
3.3 In terms of Section 7(3) of the Act, market power can also be inferred from the
economic behaviour of the firm. In this case, the mere. ability to raise prices is
indicative of market power as it demonstrates a lack of constraints such that there is
an ability to control prices and/or behave independently of competitors and
customers.
3.4 States of disaster often provide the conditions for temporary market power to
be held by market participants that may not otherwise have market power outside of
the disaster period. The removal of constraints may occur for several reasons, many
of which are conceptually related to a narrowing of the geographic market for
products as a result of disruptions to the normal functioning of markets. Due to the
national lockdown, the scope of the geographic market is narrow as citizens'
movements are heavily restricted.
3.5 In a state of national disaster, an established test within the assessment of
excessive pricing under the Act is determining whether price increases have a
corresponding cost justification. This is because an excessive profit margin is
detectable if the ordinary prices are increased materially absent cost increases.
3.6 Following receipt of the information, the Commission conducted an
investigation into O&M's alleged conduct and found the following:
3.6.1 O&M operates in the market for the supply of food products and
consumables to the Hospitality Industry, in the city of Cape Town, in the Western
Cape Province.
3.6.2 O&M has market power in the abovementioned market, given the current
pandemic and state of national disaster;
3.6.3 During March and April 2020, O&M realised a gross profit margin as
depicted in Table 1, below. The table also shows the estimated excess profits
realised by O&M during March and April 2020;
Table 1: Excess Profits Earned by O&M During March and April 2020
3.6.4 During the period March to April 2020, the gross profit margin of - for O&M
was in excess of the average 20% gross margin, which is generally regarded as the
benchmark percentage for this category of products and regarded as fair and
reasonable. The gross profit margin during this period was - At a 20% gross profit
margin, the average selling price would have been-(excluding VAT).
3.6.5 Therefore, at a selling price of- (excl. vat) and a gross profit margin of_, the
Commission found that O&M has earned excess profits in the amount of-.
3.6.6 The Commission found that the gross profit margin of_ during March and
April 2020, in respect of nitrine gloves sold by O&M, amounts to a contravention of
section 8(1)(a) of the Act, read together with Regulation 4 of the Consumer
Protection Regulations.
3.6.7 O&M admits that the conduct set out above constitutes excessive pricing in
terms of section 8(1)(a) of the Act read with Regulation4 of the Consumer Protection
Regulations.
4 AGREEMENT REGARDING FUTURE CONDUCT
O&M agrees to:
4.1 immediately desist from the excessive pricing conduct described above;
4.2 reduce its gross profit margin on nitrile gloves to 20% with immediate
effect for the duration of the state of the national disaster;
4.3 develop, implement, and monitor a competition law compliance programme
incorporating corporate governance designed to ensure that its employees,
management, directors, and agents do not engage in future contraventions of the
Act. In particular, such compliance programme will include a mechanism for the
monitoring and detection of any contravention of the Act;
4.4 submit a copy of a compliance programme to the Commission within 60
business days of the date of confirmation of the Consent Agreement as an order by
the Tribunal; and
4.5 to circulate a statement summarising the content of this Consent Agreement to
all management and operational staff employed at O&M within 7 calendar days from
the date of confirmation of this Consent Agreement by the Tribunal and notifying the
Commission by submitting an affidavit under oath by Franscois Mynhardt, the
Financial Manager of O&M, confirming compliance with this undertaking.
5 CONTRIBUTION TO THE SOLIDARITY FUND
5.1 In addition to its undertaking listed in clause 4 above, O&M will make a
monetary contribution in the amount of R18 361,51 (Eighteen Thousand, Three
Hundred and Sixty-One Rand and Fifty Once Cents) to the Solidarity Fund,
5.2 O&M will pay the amount set out in 5.1 above to the Solidarity Fund within 7
(seven) days from the date of confirmation of this Settlement Agreement as an order
by the Tribunal.
5.3 The contribution as set out in 5.1 above will be made in one instalment directly
into the Solidarity Fund's bank account, the details of which are as follows:
Name of account holder:
Bank name:
Account number: [….]
Branch code:
SWIFT code:
Payment reference:
5.4 O&M will submit an affidavit under oath, testifying that the abovementioned
donations have been made, within 7 calendar days of such donation.
6 FULL AND FINAL SETTLEMENT
This Consent Agreement, upon confirmation as an order by the Tribunal, is entered
into in full and final settlement and concludes all proceedings between the
Commission and O&M relating to any alleged contravention of section 8(1)(a) the Act
read together with Regulation 4 of the Consumer and Customer Protection and
National Disaster Management Regulations and Directions published in Government
Gazette No 43116 on 19 March 2020 that is the subject of the Commission's
investigation under Commission Case No.
Tembinkosi Bonakele
The Commissioner, Competition Commission of South Africa