The Covid-19 outbreak has caused a surge in demand for basic goods such as food, hygiene products and personal protective equipment as well as medical services required for the detection, prevention and treatment of Covid-19. To reduce the negative economic impact of the Covid-19 outbreak on customers, measures have been put in place by the legislator to ensure suppliers of these products and services do not engage in undue commercial practices.
Firms, including persons, partnerships and trusts (“Firm”) operating under the national state of disaster declared on 15 March 2020 by government gazette (“National State of Disaster”) must therefore ensure their pricing is not excessive.
Excessive pricing in terms of the Competition Act No. 89 of 1998:
In terms of section 7 of the Competition Act No. 89 of 1998 (“Competition Act”) a Firm is dominant in a market if that Firm has –
- at least 45% (fourty five percent) of that market;
- at least 35% (thirty five percent), but less than 45% (fourty five percent), of that market, unless it can show that it does not have the power to control prices, to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers (“Market Power”); or
- it has 35% (thirty five percent) of that market but has Market Power,
hereinafter referred to as a (“Dominant Firm”).
Section 8(1)(a) of the Competition Act prohibits a Dominant Firm from charging an excessive price to the detriment of customers. In addition to the section 8(1)(a) prohibition, the regulations issued on 19 March 2020 in terms of sections 78 and 8(3)(f) of the Competition Act (“Regulations”) prohibit material price increases on goods or services relating to –
- basic food and consumer items;
- emergency products and services;
- medical and hygiene supplies; and
- emergency clean-up products and services,
collectively (“Essential Goods or Services”) (please consult the Regulation for a comprehensive list of goods and services).
The Regulation further states that material price increases on Essential Goods or Services which –
- do not correspond to or are equivalent to the increase in cost associated with the provision of the relevant Essential Good or Service (“Price Increases not Corresponding to Cost Increases”); or
- increase the net margin or mark-up on the Essential Good or Service above the average net margin or mark-up in the 3 (three months) prior to 1 March 2020 (“Price Increases Exceeding the Average Net Margin or Mark-up”),
are considered relevant and critical factors in the determination of excessive or unfair pricing and are an indication that the price is on face value excessive or unfair.
Excessive pricing in terms of the Consumer Protection Act No. 68 of 2008:
In terms of section 120(1)(d) of the Consumer Protection Act No. 68 of 2008 (“Consumer Protection Act”), the Regulation also prohibits a supplier from offering to supply, supply or enter into an agreement to supply any good or service at an unfair, unjust or unreasonable price, and similarly to the abovementioned prohibitions, Price Increases not Corresponding to Cost Increases and Price Increases Exceeding the Average Net Margin or Mark-up are also unconscionable, unfair, unreasonable and unjust.
Penalties:
Firms that contravene the Regulations may be liable for a fine not exceeding R1 000 000 (one million Rand), a fine not exceeding 10% (ten percent) of a firm’s turnover or imprisonment not exceeding 12 (twelve) months.
In addition, a Dominant Firm that is non-compliant with Regulation 4 must be investigated by the competition commission and, depending on the competition commission’s finding, may become liable for penalties in terms of the Competition Act. Take further note that a Firm in contravention of the Consumer Protection Act may also attract penalties in terms thereof.
Firms providing essential services during the National State of Disaster are therefore encouraged to pay special attention to the Regulations in order to ensure that they are not guilty of committing excessive pricing practices which may lead to economic and reputational damage.
VDMA can assist your business during the National State of Disaster to ensure that your business is fully compliant with all applicable rules and regulations and we remain fully operational during the level 4 lockdown.