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Follow-on damages – the new kid on the block for competition law non-compliance?

Until recently, the pecuniary risks of non-compliance with the Competition Act at a firm level involved a fine of up to 10% of a firm’s turnover, and for those guilty of cartel conduct, the risk of criminal sanctions that can take the form of fines or imprisonment.

However, two recent and related cases indicate that we are seeing the emergence of private enforcement in South Africa through damages claims, which allows those who have been directly harmed by anti-competitive conduct to obtain the compensation to which they believe they are entitled.

The landmark ruling last year of the South Gauteng High Court ordering South African Airways (SAA) to pay Nationwide Airlines R97 million in damages and earlier this year the ruling of the Court to award a damages payment of R554 million plus interest (estimated to be over R1 billion) to Comair, is a clear indication that the risks of non-compliance with the Competition Act have increased considerably.  While there have been previous attempts to seek damages (such as the bread collusion case), until last year no damages award was made for harm suffered as a result of anti-competitive conduct.

When can a claim for damages be pursued?

A claim for follow-on damages can only be pursued on the basis of an adverse finding on the part of the Competition Tribunal and Competition Appeal Court. In 2005, the Competition Tribunal found that SAA had abused its dominant position in the market for domestic airline travel by engaging in certain exclusionary practices. Between 1999 and 2001, SAA has induced travel agents not to deal with SAA’s competitors (being Nationwide Airlines and Comair).  This inducement took the form of two practices, in particular, being the “override incentive scheme” and the “Explorer scheme”. The Competition Tribunal found that these practices constituted an abuse in terms of the Competition Act and this finding opened the door for the aggrieved parties to pursue claims for damages.

What is the future for follow-on damages?

While there is yet to be a successful claim for follow-on damages based on cartel conduct, the number of findings for collusive conduct by the competition authorities would suggest that it is likely a matter of time before such an award could be made.  This could mean that South Africa follows developed jurisdictions in Europe and the USA by pursing private competition law enforcement claims and that such claims could increasingly complement the public enforcement efforts of the competition authorities. In these developed jurisdictions, the competition authorities actively encourage the private enforcement efforts of individuals that have been impacted by anti-competitive conduct. Recent pronouncements by the Competition Commission suggest a similar attitude: “These are landmark decisions for competition law regulators, primarily because they enhance the regulators’ deterrence toolboxMonetary penalties play a crucial role in ensuring compliance through deterrence… There may also be a role to play for South African competition-law regulators to emulate examples set in other jurisdictions, such as the EU, by explicitly advocating for the use of follow-on damages following the finalisation of prosecution of firms before competition adjudicative bodies.

What does follow-on damages mean for compliance?

These trends serve to highlight that the risks of non-compliance with the Competition Act are continuing to increase and companies are well advised to:

  • Ensure that they have an effective compliance programme in place.
  • Communicate to employees the additional and real risks of non-compliance with the Competition Act given the prospect of follow-on damages.