SA’s competition policy is not constitutional

In SA our fundamental rights are inalienable and exist apart from any law. Constitutional protection of fundamental rights is summed up in the Fifth Amendment to the US Constitution: “No person shall be deprived of life, liberty, or property, without due process of law”. The state has an obligation to protect fundamental rights and to punish those who violate them. Claiming state protection of fundamental rights cannot be offered as a defence against punishment for violating the fundamental rights of others.

Due process follows the normal everyday legal process and has a logical sequence

1. Specific laws exist to protect fundamental rights.
2. An accused is charged with violating specific laws.
3. An investigation to establish if, prima facie, any specific laws have been violated (investigative function).
4. A decision to prosecute the accused and an indictment formed (prosecutorial function).
5. A trial before an impartial judiciary adhering to historical procedures.
6. The imposition of the appropriate sentence.

Fundamental constitutional theory requires that the state functions within the constraints of the separation of powers: the executive, the legislature and the judiciary. However, in SA a number of institutions have been created which violate the due process requirement. It can be said that these have become unitary states within the state and not administrative law bodies governed by administrative law and bound by the separation of powers. The competition regime is an example of this new phenomenon.

For example, if one private sector company wishes to merge with another, the state must have a method on which to make a decision. This would be governed by administrative law which imposes certain restrictions on arbitrary government action. Under the competition regime, this administrative law function has been transformed into a unitary state within the state.

The taking of private property can be done only in terms of the due process requirements. But, the current competition regime does not meet these requirements and by operating the prohibited practices provisions contained in chapter 2 of the Competition Act 89 of 1998 (ss4-10), it has garnered billions of rand for the government.

Specific laws protecting fundamental rights

A typical specific competition regime law is set out in s4(1)(b)(i) of the Competition Act: “An agreement between firms is prohibited if it is between parties in a horizontal relationship and if it involves directly or indirectly fixing a purchase or selling price or any other trading condition.”

In any case involving a contravention of this section, the state must prove that the sale price exceeded the market price and quantify the harm done to the consumer. I know of no case where this has been done.

All laws in the competition regime emanate from the regime itself. It makes proposals that are largely for its own benefit which then are endorsed by parliament.

An accused is charged with violating the specific laws

Frequently the accusation is merely a formality, never proven by the production of evidence tested in a court of law. It becomes extortion.

An investigation to establish that specific laws have been violated (investigative function)

Here, more serious constitutional problems arise. The due process procedure requires that where a violation of the law is suspected, the SA Police Service (SAPS) or other appropriate independent agency investigate. The competition regime does not operate this historical system. The Competition Commission, acting as a unitary state within a state, carries out the investigation and never hands the matter over to SAPS. There is no separation within the investigative function.

A decision to prosecute the accused and the formulation of the indictment (prosecutorial function)

Within the competition regime the usual prosecutorial function is not applied and it is not at all clear whether any prosecutorial process exists. When an investigation is complete, the docket should be handed over to the independent body of the National or State Prosecutor to decide if sufficient evidence exists to go to trial.

This does not happen in the competition regime. The Act says that the matter be referred to the Competition Tribunal – an ill-defined, in-house, home grown procedure that forms part of the unitary one stop shop state within the state set-up. What should happen, where the National Prosecutor is convinced a crime has been committed, the matter should be referred to a grand jury as in the US or a committal magistrate (or justice of the peace) as in the UK. For the competition regime to decide whether to ‘prosecute’ violates the fundamental constitutional safeguard of sending a docket to an independent general prosecutorial authority and does not follow the due process of law.

A trial before an impartial judiciary adhering to historically established procedures.

Instead of an indictment and trial before the ordinary courts, the accused appears before the Competition Tribunal whose function is unclear. It seems to be investigative but acts as a sort of judicial institution. Again, in line with the unitary state within the state, an in-house adjudicating body, which is not part of the judiciary or of the ordinary courts, becomes involved.

The imposition of the appropriate sentence

One of the most important functions of the judiciary is the determination of the appropriate sentence, the most important requirement being that the punishment must fit the crime. This can be traced back to the Code of Hammurabi known through the millennia as the LexTalionis and it is imperative that an estimate of the harm caused be quantified. This requirement is not met by the Tribunal.

A strange procedure of punishment has evolved from the Competition Commission (the investigative arm) of convincing the accused to enter into a so-called consent agreement to admit guilt and pay an enormous fine, in some cases in excess of R1bn. This is institutional extortion. The accused is given the option to either plead guilty or the Tribunal will violate the requirement of fitting the punishment to the crime and impose the maximum penalty of 10 per cent of turnover. This is akin to saying that SAPS can impose a billion rand fine on the public. The punishment should have nothing to do with the investigative arm of the criminal process.

This method of extortion is well-known in history. Under the Spanish Inquisition, the accused could either plead guilty and hand over all of his property or protest his innocence and be tortured until he confessed and handed over all of his property before being burnt alive at the stake. Most chose the first option and today many executives settle by handing over billions of rand of shareholders’ property.


The competition regime violates the constitutional due process requirements needed for the rule of law especially when imposing penalties. There is an urgent need to remove these activities from the competition regime and restore the normal procedures which exist in the separation of powers system. These should be assigned to SAPS, the National Director of Public Prosecutions and the normal courts of the land. There is no reason why this should not have been the case all along.

AUTHOR Robert Vivian is Professor of Finance and Insurance, School of Economic and Business Sciences, at the University of the Witwatersrand. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article / 17 April 2012

Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE