Staying within the law during this disaster
by Lebohang Mabidikane. How the competition authorities have responded to COVID-19, relating to excessive pricing and the need for the health and banking sectors to talk to each other during this time.Wednesday, 25 Mar 2020
by Lebohang Mabidikane. Regulations published on 19 March 2020 prohibit excessive pricing by dominant suppliers; restrict suppliers of all goods and services from charging prices which are unconscionable, unfair, unreasonable or unjust; and impose measures to facilitate the supply of goods and services during the period that COVID-19 is declared a national disaster.
Regulations passed by South African Trade and Industry Minister Ebrahim Patel will exempt certain categories of agreements and practices in the banking sector which are required to respond to the COVID-19 crisis. An exemption for categories of agreements between, or practices by, healthcare providers has also been put in place.
An exemption has been provided to banks registered in terms of the Banks Act in order to ensure that they can reach agreements or engage in practices for the sole purpose of responding to the COVID-19 pandemic national disaster, which are required to ensure that:
- Essential payment systems continue to operate (limited to ensuring the continued availability of bank notes to ATMs, branches and businesses; the continued provision of essential ATM, branch and corporate banking services; and the continued provision of electronic payments systems).
- Debtors are managed and there is extension of credit (limited to payment holidays and debt relief for business and individual debtors subject to financial stress; limitations set on asset repossessions of business and individual debtors subject to financial stress; and the extension of credit lines to individuals and businesses subject to financial stress).
However, this excludes communications or agreements on prices, unless specifically authorised by the Minister of Economic Development or the Minister of Finance. The Banks, Banking Association of South Africa and/or Payments Association of South Africa must keep written records of any agreements or practices falling within the scope of these exemptions. These regulations came into effect immediately, but they specifically recognise that their scope may be expanded in due course, if the need arises.
Pricing restrictions on consumer goods and services
Any ‘material price increase’ by a dominant supplier which does not correspond or is not equivalent to an increase in cost of providing the product or service; or which increases the net margin or mark-up on the product or service above the average margin or mark-up in the three month period prior to 1 March 2020, will be a ‘relevant and critical factor’ in determining whether the price is ‘excessive’ in terms of the Competition Act, 1998 (Competition Act) and is prima facie evidence that the price is ‘excessive or unfair’.
Pricing of this nature is also deemed by the regulation to constitute an ‘unconscionable, unfair, unreasonable or unjust’ price in terms of section 120 of the Consumer Protection Act, 2008 (CPA).
The Commission will investigate complaints of excessive pricing in contravention of the Act and will refer complaints to the Competition Tribunal for adjudication.
In line with recent amendments to the Act, dominant firms are required to show that their prices are not unreasonable. If found to have contravened this prohibition, dominant firms face a fine of up to 10% of turnover, even for a first-time offence.
The National Consumer Commission will deal with complaints of contraventions of the CPA. Although fines in terms of the CPA are capped at ZAR 1 million, the CPA also provides for various offences, including failing to act in accordance with a compliance notice, which carries a penalty of imprisonment.
These restrictions regarding pricing apply to:
- Critical medical equipment, such as hand sanitisers and surgical gloves and masks, but are also applicable to private medical COVID-19 testing, prevention and treatment services.
- A wide range of basic consumer goods, such as cooking oil, rice, pasta, canned and frozen vegetables, meat, chicken, fish and bottled water.
The Minister can add to this list by notice in the Government Gazette, or impose limits on the maximum number of goods consumers may purchase by issuing directions under regulations to the Disaster Management Act. These regulations also provide that Minister Patel may in due course issue directions in terms of the regulations under the Disaster Management Act ‘to set maximum prices on private medical goods and services relating to the testing, prevention and treatment of COVID-19 and its associated diseases during the national disaster’.
Obligations on suppliers, wholesalers and retailers
Obligations are imposed on:
- Suppliers: To develop and implement reasonable measures to ensure equitable distribution and to maintain stocks of the prescribed goods.
- Wholesalers: To take reasonable steps to ensure these measures are not circumvented.
- Retailers: To prominently display a notice in each of its stores that it will implement these measures.
Exemption for healthcare providers
The Minister has also provided an exemption from the restrictions on competitors, and customers and suppliers (or both), set out in the Competition Act against certain agreements between, or practices by, healthcare providers ‘if undertaken at the request of, and in co-ordination with the DOH for the sole purpose of responding to the COVID-19 pandemic’. These include:
- Hospitals and healthcare facilities allocating patients, professionals, equipment or services; communicating on capacity; procuring drugs and consumables and agreeing on standard protocols.
- Medical suppliers communicating on availability of supplies and coordinating on procurement and distribution.
- Specialists and radiologists sharing data on the scale of the outbreak, disease or patient profiles, capacity and utilisation; or agreeing to standardise care protocol or transfer supplies.
- Laboratories and pathologists communicating on capacities and utilisation; coordinating on procurement of inputs required for testing; and transferring medical supplies and equipment.
- Pharmacies communicating on availability of pharmaceuticals and medical consumables, and coordinating on transfers and procurement.
- Healthcare funders agreeing reduce the cost of diagnosis, tests, treatment and preventative measures, and to reaching agreements with healthcare facilities to reduce these costs.
In each case, however, firms involved will have to keep detailed records of their interactions in order to ensure that their conduct remains within the scope of the exemption from the Competition Act. Agreements or discussions on prices will not be exempt unless specifically authorised by the Minister of Health.
Agreements between the private sector and DOH to make additional capacity at healthcare facilities available to the public sector, and to ensure adequate medical supplies, are also exempt.
These regulations came into effect immediately upon publication, although there is a 14-day period for public comment, which may result in amendments to the regulations. The regulations will remain in effect until the COVID-19 outbreak is no longer declared a disaster.
The Competition Commission has already announced that it will prioritise these complaints, including by creating a toll-free consumer hotline (0800 014 880) and setting up a dedicated investigation team. Companies supplying these goods and services are at risk of complaints and, accordingly, need to implement a comprehensive pricing policy which is compliant with the law, and is clearly communicated to sales and marketing staff.
Lebohang Mabidikane is a partner at Bowmans. Prior to joining Bowmans she was head of the Competition Commission South Africa’s Mergers and Acquisitions Division, as well as its Cartels Division. She was also a member of the Commission’s highest decision-making structures, including its executive committee and has represented the Commission at various panels of the International Competition Network.
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