The long-running case between the Competition Commission and 23 local and international banks over foreign exchange manipulation has hit another hurdle as a number of the foreign banks have appealed a recent ruling from the South African Competition Tribunal. They are taking issue with the tribunal’s view of its jurisdictional powers.
The banks that have applied to the Competition Appeal Court include Macquarie Bank Limited; HSBC Bank USA; JP Morgan Chase & Co. and JP Morgan Chase Bank; Credit Suisse Securities Bank of America; Merrill Lynch International Limited and Merrill Lynch, Pierce, Fenner & Smith Inc (the Bank of America respondents); and the Australia and New Zealand Banking Group (ANZ).
These banks are largely what the tribunal determined to be “pure peregrini” — foreign-owned banks that are not domiciled in South Africa and which do not carry out business here.
The tribunal’s order, handed down last month, was in response to a number of pre-trial exception applications made by the banks, asking it to dismiss the case. The reasons included that the local competition authorities did not have jurisdiction over some of the banks, and that the commission’s referral was so poorly formulated that the banks were unable to answer the case being made against them.
As part of its order, the tribunal instructed the commission to go back and reformulate its case against the banks within 40 days.
On the question of jurisdiction, it found that the tribunal did not have jurisdiction to issue an order requiring the banks to pay any administrative penalty as such an order would not be effective. It therefore constrained the commission to seek an order declaring the conduct of these pure peregrini to be anti-competitive.
But the tribunal said this did not mean it was barred from issuing any other kind of declaratory order pronouncing on the conduct of foreign firms in South Africa — provided that the commission can prove its case against some or all of the foreign-owned banks and the declaratory order is limited in its effect.
The tribunal took time to outline why it was important for it to do so in its reasons for the decision: “Such a declaratory order is important to make in cartel enforcement because whilst the tribunal may lack enforcement jurisdiction, it is still a matter of public interest, in fighting the scourge of cartels, to pronounce upon the conduct of foreign firms whose conduct has harmed South African consumers,” it said.
The tribunal also did not want to be “under-inclusive” in framing any future declaratory order — particularly in the face of possible civil trials seeking damages.
“This means if a certificate mentioned only those firms over whom the tribunal had jurisdiction, the certificate could prove under-inclusive in a later civil trial, if the plaintiff sought to rely on evidence of agreements or communications with the pure peregrini cartel members.
“Note this is something different to holding those pure peregrini liable. Rather, it is evidence to assist the plaintiff to claim against those respondents over whom there was jurisdiction, by allowing the conduct to be fully certified, which means naming all those found to have participated,” the tribunal said.
A number of the foreign banks, however, disagree. In papers submitted to the Competition Appeal Court, ANZ argued that if the tribunal’s decision and order remain in place, it will expose ANZ to “a potential declaration of unlawfulness” and such a finding would “obviously have a materially disadvantageous impact on the bank’s reputation in other jurisdictions”.
It would also mean the bank would have “no option” but to participate in proceedings in order to safeguard its rights and interests. Any steps by the pure peregrini to defend themselves in a reformulated complaint could also expose them to the risk of an argument that their involvement “amounts to a submission to the jurisdiction of [South Africa’s] competition authorities”.
The Bank of America respondents said that any order from the tribunal, even if this avoids any kind of financial liability or administrative penalty, could have “significant consequences and thus be prejudicial to those firms”.
What the next steps are for the Competition Commission, and how this will affect the process of re-drafting its complaint to the tribunal, is yet to be seen.
Spokesperson for the Competition Commission Sipho Ngwema said only that the commission is studying the applications and weighing its options, after which it will “form a view once we have comprehensively considered everything”.