On 19 March 2020, the Minister of Trade and Industry (the Minister) published the COVID-19 Block Exemption for the Healthcare Sector (the Block Exemption) and the Consumer and Customer Protection and National Disaster Management Regulations and Directions (the Protection and Management Regulations) under the Competition Act, 1998 (the Competition Act), the Consumer Protection Act, 2008 (the Consumer Protection Act) and the regulations issued in terms of the Disaster Management Act, 1957 on 15 March 2020 in terms of which COVID-19 was declared a national disaster.
The Block Exemptions and Protection and Management Regulations address competition and consumer protection concerns arising as a result of COVID-19, and are
effective immediately.
This unprecedented development follows persistent global calls for competition law to be amended to allow for collaboration between competitors and to pool together necessary resources. There has also been an outcry from consumers for protection from exploitation due to excessive prices being charged for essential items such as hand sanitisers, medicines and non-perishable foods. The Minister's ability to react swiftly under these extreme circumstances is welcomed, and it is possible that further regulations of this nature may be necessary to alleviate the impact of the virus. Similar block exemptions may need to be applied to other supply chains such as food, hygiene and cleaning products, given their critical importance in the times of a global pandemic, and due to the inability of certain consumers to access certain high demand goods in the current circumstances. The United Kingdom authorities (and possibly other competition regulators around the world) are considering similar actions to allow coordination between retailers to ensure that people are fed and have access to healthcare.
Notably, both sets of regulations will be of no force and effect when the COVID-19 outbreak is no longer declared a disaster.
The Block Exemption regulations exempts certain agreements and conduct from the provisions relating to anti-competitive agreements between competitors (section 4 - restrictive horizontal practices) and between suppliers and customers (section 5 - restrictive vertical practices), while the second set regulates the supply and pricing of certain goods and services during the period of national disaster.
Representations on possible amendments to both the Block Exemption and the Protection and Management Regulations can be made to the Department of Trade and Industry within 14 days of the effective date.
The COVID-19 Block Exemption for the Healthcare Sector
In terms of section 10(10) of the Competition Act, the Minister may issue regulations exempting a category of agreements or practices from the application of the Competition Act. The Block Exemption constitutes such an exemption and is aimed at strengthening the Government's health programs designed to fight COVID-19. Significantly, this constitutes the first use of section 10(10) which was recently introduced following amendments to the Competition Act.
It is important for those in the healthcare sector to note that the Block Exemption only applies if the agreement or practice is undertaken
at the request of, and
in coordination with, the Department of Health (DOH) for the sole purpose of responding to the COVID-19 pandemic national disaster.
Furthermore, the exemption specifically excludes communication and agreements in respect of prices unless authorised by the Minister of Health.
Agreements or practices between the following categories of players in the healthcare sector are exempt from the application of section 4 and 5 of the Competition Act:
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hospitals or healthcare facilities with the sole purpose of, amongst other things, coordinating on ensuring efficient patient allocation amongst hospitals; communicating in relation to capacity and utilisation relating to intensive care units and isolation beds; and coordinating on the allocation and transfer of specific services, medical professionals and medical supplies and equipment;
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medical suppliers with the sole purpose of communicating with each other in relation to availability of medical supplies and coordinating the procurement and distribution of medical supplies;
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medical specialists or radiologists with the sole purpose of, amongst other things, communicating with each other and sharing data in relation to the scale of the outbreak, the disease profile, patient profiles and capacity utilisation; standardising quality of care protocols; and transferring medical supplies and equipment;
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pathologists or laboratories with the sole purpose of communicating with each other in relation to capacities and utilisation; co-ordinating the procurement of inputs required for testing; and transferring medical supplies and equipment;
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pharmacies with the sole purpose of communicating with each other in respect of availability and coordinating the procurement of pharmaceuticals and medical consumables, and transferring pharmaceuticals and medical consumables;
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healthcare funders with the sole purpose of reducing the cost of diagnosis, tests and diagnostics, treatment and other preventative measures;
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healthcare funders and healthcare facilities as well as other healthcare providers with the sole purpose of reducing the cost of diagnosis, tests and diagnostics, treatment and other preventative measures;
- the
private healthcare sector and the DOH with the sole purpose of making available additional capacity at healthcare facilities to the public healthcare sector and ensuring adequate medical supplies to the public healthcare sector; and
- the
private healthcare sector and the DOH with the sole purpose of reducing the cost of diagnosis, tests, treatment and other preventative measures including vaccines (but only at the request of the Department of Health and subject to oversight and guidance by the Department of Health).
All relevant players in the healthcare sector who participate in any agreements or practices falling within the scope of the Block Exemption must keep minutes of meetings held and written records of such agreements or practices.
Significantly, if the healthcare sector identifies additional agreements or practices outside the scope of those already identified that are necessary to achieve purposes relating to COVID-19, it may request the Minister to expand the scope of Block Exemption.
The Protection and Management Regulations
The Protection and Management Regulations apply to specified goods and services listed in Annexures A and B thereto.
Annexure A comprises basic food and consumer items, emergency products and services, medical and hygiene supplies, and emergency clean-up products and services.
Annexure B comprises toilet paper, hand sanitiser, facial masks, disinfectant cleaners, surgical gloves, surgical masks, antiseptic liquids, all-purpose cleans, baby formula, disposable nappies, disinfectant cleaners / wipes, bleach, cooking oils, wheat flour, rice, maize meal, pasta, sugar, long-life milk, canned and frozen vegetables, bottled water, and other non-perishable food items, as well as private medical services relating to the testing, prevention and treatment of COVID-19 and its associated diseases. The Minister may, from time to time, delete or add goods and services listed in Annexures A and B
Any person who contravenes the Protection and Management Regulations could be liable for one or more of the following penalties:
- a fine of up to R1 million;
- a fine of up to 10% of a firm's turnover; and
- imprisonment of a period of up to 12 months.
Excessive pricing
It is important to note upfront that only a dominant firm may not charge an
excessive price to consumers or customers. Section 8(3)(f) of the Competition Act currently provides that in determining whether a price is an excessive price, one must take into account all relevant factors, including any regulations imposed by the Minister. Importantly, this constitutes the first use of section 8(3)(f) which was recently introduced following amendments to the Competition Act.
The Protection and Management Regulations now provide that the following price increases of goods or services during the national disaster will be a relevant and critical factor for determining whether a price is excessive or unfair, and indicates
prima facie that the price is excessive and unfair:
- the price increase does not correspond to or is not equivalent to the increase in the cost of providing the good or service, or
- the net margin or mark-up on the good or service is above the average margin or mark-up for that good or service from 1 December 2019 to 29 February 2020.
"Price increase" means a direct increase or an increase as a result of unfair conduct such as false or misleading price practices, covert manipulation of prices, and manipulation as a result of raising or reducing grade levels of goods and services.
Unconscionable, unfair, unreasonable and unjust prices
The Protection and Management Regulations further reiterate the provisions of section 40 and 48 of the Consumer Protection Act, which provide that a supplier may not engage in unconscionable conduct, including the use of unfair tactics in marketing and supplying goods or services to a consumer, and may not offer to or supply any good or service at a price is unfair, unreasonable or unjust.
The following price increases of goods or services during the national disaster will be unconscionable, unfair, unreasonable and unjust, and are prohibited:
- the price increase does not correspond to or is not equivalent to the increase in the cost of providing the good or service, or
- the net margin or mark-up on the good or service is above the average margin or mark-up for that good or service from 1 December 2019 to 29 February 2020.
Supply of goods and services
Suppliers of goods and services are required to develop and implement reasonable measures to enable to equitable distribution to consumers and customers of all goods and services in Annexure A, and to maintain adequate stock of those goods. Notably, Annexure A includes emergency services, and accordingly, it remains to be seen how the equitable distribution of emergency services to consumers will be effected by the private healthcare sector during the COVID-19 disaster, particularly considering the vast number of South African citizens who do not have access to private healthcare.
In addition, the development and implementation of reasonable measures may include limiting the number of items of goods which a consumer or customer may purchase, in respect of the goods in Annexure B. Retailers must now prominently display a notice in each of their stores which states that they have developed and will implement these measures.
Wholesalers are also required to take reasonable steps to ensure that purchases by consumers and customers are not intended to circumvent the objectives of ensuring the equitable distribution to consumers and customers of goods and services contemplated in Annexure A, as well as the maintenance of stocks of goods contemplated in Annexure A. It is clear from this provision that the Minister is attempting to stabilise supply and demand throughout the entire supply chain during the COVID-19 disaster.
For other Covid-19 related insights which may be of interest to clients, please click on the links below:
