Following the coming into force of the new buyer power provisions of the Competition Act, 1998 (as amended) in February 2020, the Competition Commission has now issued its expected Enforcement Guidelines on the Buyer Power Regulations. The Guidelines seek to clarify the Commission's approach to the enforcement of complaints under the new abuse of dominance provision.
We previously provided some background on the new provisions of the Act and the Regulations in an update in February. Very briefly, the amendments to the Act and the associated Regulations prohibit dominant firms from imposing an unfair price or trading condition on small and medium-sized businesses ("SMEs") and firms owned and controlled by historically disadvantaged persons ("HDPs") in designated sectors such as agro-processing, grocery wholesale and retail, e-commerce and online services.
In assessing a complaint in respect of the buyer power provision of the Act, the Commission will consider whether:
- the buyer is dominant;
- the supplier is an SME or HDP;
- the price or trading condition has been imposed; and
- the price or trading term is unfair. It is perhaps this final element that is most novel and therefore we focus on this below.
The Guidelines set out two broad benchmarks for determining if prices are unfair. If the price at which an SME or HDP supplies to a dominant buyer is lower than the price paid to other suppliers or the price previously paid to the same supplier for their product, such a price may be deemed unfair. The Commission will be particularly concerned about price differences that are sizeable, have persisted for a reasonable period and consistently discriminate against SMEs or HDPs. The Guidelines provide that for screening purposes, the Commission will apply a 3% threshold to relative price differences.
The Guidelines provide several indicators of where the Commission will consider a price to be unfair, including:
- if the reduction was unilaterally imposed by the buyer without negotiation;
- is retrospective in its application;
- is selectively applied to the complainant or suppliers within the designated class;
- lacks an objective justification; or
- unreasonably transfers risks and costs onto the supplier that should ordinarily be borne by the buyer or distributed evenly between the parties.
Unfair trading conditions
The Guidelines also provide a list of trading conditions that will be considered unfair within the designated sectors as the case may be. These include, among others:
- instances where a buyer pays an SME or HDP later than 30 days after delivery;
- cancellation of orders on perishable goods on too short notice;
- unilateral changes to the terms of the supply agreements; and
- the imposition of strict liability for loss or damage on the seller despite the passing of ownership.
Some other trade practices will be considered unfair unless they have been previously agreed in clear and unambiguous terms in the supply agreement.
Establishing a prima facie case and the switching onus
The Guidelines note that the Commission is obliged to present a prima facie case on all the essential elements of the contravention. However, the Guidelines also note that the Act creates an express evidential burden on a buyer accused of an abuse to adduce evidence that rebuts the evidence presented by the Commission.
Practically, the Commission envisages assessing conduct in terms of the four elements identified above alongside any justification or defence put forward by a respondent. Importantly, the guidelines make it clear that the Commission considers that where no justification is provided, or insufficient evidence for the justification is provided, then the presumption will be that the conduct cannot be justified.
Already in effect
It is worth noting that the new buyer power provisions are already in effect and there is no grace period for compliance. In addition, the various examples and factors listed above in determining whether a price or trading term are unfair are by no means exhaustive.
It is also important to remember that the Act specifically states that a dominant buyer cannot avoid or refuse to buy goods or services from SMEs or HDPs to evade the operation of the Act or Regulations.
A contravention of the buyer power provisions of the Act may result in an administrative penalty of up to 10% of annual turnover for a first-time offence, or 25% for repeat offenders.
Originally published 19 May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.