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Johannesburg - Pioneer Food Group [JSE:PFG] is unlikely to be forced to cough up more than the R350m it has already budgeted to settle its competition transgressions, law experts said on Wednesday.
This came after Pioneer warned investors on Tuesday it might have to pay up more than the R350m it had provided for its part in bread and wheat-milling cartels.
Pioneer was earlier fined R196m by the Competition Tribunal for its role in the bread cartel. The fine was calculated as 10% of turnover of Pioneer's baking division Sasko during the period when the offence occurred. The Competition Commission appealed against the decision, arguing Pioneer should have been fined 10% of group turnover - up to R1.6bn.
The tribunal is still to decide on the wheat-milling matter.
However, three independent law firms polled by Fin24.com interpret the Competition Act as fining the guilty business unit, not the entire group.
"The act says the penalty must be levied on the relevant line of business that was affected by the cartel activity," said Heather Irvine, Deneys Reitz head of competition law.
"The scope of the fine that can be laid as a deterrent is limited by the act to a 10% of the preceding year's revenue," said Irvine.
Unfair on big firms
Levying the fine on the entire group would be too broad for the act's definition of the term "firm", said Desmond Rudman of Webber Wentzel. "The reasonable and appropriate thing to do is to levy the fine on the legal entity affected."
That legal entity is the "firm" as defined by the act. Rudman feels bigger companies like Pioneer might find themselves being punished more severely than smaller ones with only a single operating entity, under the commission's interpretation of the act.
"The group approach also punishes other businesses within the group that had nothing to do with the cartel activity," said Rudman. He said the tribunal's R196m fine was the "correct and appropriate" approach as it was confined to the business unit guilty of price-fixing.
"Competition policy should seek to deter cartel activity and not put companies out of business," said Jocelyn Kats, competition law director at Edward Nathan Sonnensberg.
Levying a fine equivalent to 10% of group turnover carries the risk that the entire group may end up in financial difficulties, as that amount may be equivalent to total profit.
"The whole group gets punished whereas the cartel activity may emanate from some rogue people in one division," said Katz. She said it seems overly harsh to punish whole groups, and that "affected turnover" means a particular business unit that participated in the cartel.
"Punishing the whole group is a bridge too far," said Katz.
- Fin24.com
This came after Pioneer warned investors on Tuesday it might have to pay up more than the R350m it had provided for its part in bread and wheat-milling cartels.
Pioneer was earlier fined R196m by the Competition Tribunal for its role in the bread cartel. The fine was calculated as 10% of turnover of Pioneer's baking division Sasko during the period when the offence occurred. The Competition Commission appealed against the decision, arguing Pioneer should have been fined 10% of group turnover - up to R1.6bn.
The tribunal is still to decide on the wheat-milling matter.
However, three independent law firms polled by Fin24.com interpret the Competition Act as fining the guilty business unit, not the entire group.
"The act says the penalty must be levied on the relevant line of business that was affected by the cartel activity," said Heather Irvine, Deneys Reitz head of competition law.
"The scope of the fine that can be laid as a deterrent is limited by the act to a 10% of the preceding year's revenue," said Irvine.
Unfair on big firms
Levying the fine on the entire group would be too broad for the act's definition of the term "firm", said Desmond Rudman of Webber Wentzel. "The reasonable and appropriate thing to do is to levy the fine on the legal entity affected."
That legal entity is the "firm" as defined by the act. Rudman feels bigger companies like Pioneer might find themselves being punished more severely than smaller ones with only a single operating entity, under the commission's interpretation of the act.
"The group approach also punishes other businesses within the group that had nothing to do with the cartel activity," said Rudman. He said the tribunal's R196m fine was the "correct and appropriate" approach as it was confined to the business unit guilty of price-fixing.
"Competition policy should seek to deter cartel activity and not put companies out of business," said Jocelyn Kats, competition law director at Edward Nathan Sonnensberg.
Levying a fine equivalent to 10% of group turnover carries the risk that the entire group may end up in financial difficulties, as that amount may be equivalent to total profit.
"The whole group gets punished whereas the cartel activity may emanate from some rogue people in one division," said Katz. She said it seems overly harsh to punish whole groups, and that "affected turnover" means a particular business unit that participated in the cartel.
"Punishing the whole group is a bridge too far," said Katz.
- Fin24.com
