Competition Laws In Pakistan & Eu*
COMPETITION LAWS IN PAKISTAN & EU
By Mr. Justice (R.) Qazi Khalid Ali
I have been asked to speak on the "Competition Laws in Pakistan & E.U". This topic does not occupy purely a juridical field. Its inter-face with economics and sociology is paramount.
2. Conceptual Paradox
Before I proceed to discuss the contemporary competition laws of our country a conceptual paradox is required to be understood in its true perspective.
2.1 In a purely capitalistic set-up the market forces are allowed to operate freely without any pertinent checks. This is what the economists call a "perfect competition" or "laissez faire" economy. The idea is that there are no checks on the stakeholders, and the economy is principally unplanned or unregulated. However, the economists confirm that even in as competition there comes a point when certain factors hinder a "laissez faire" state of affairs; and unless and until those factors are checked by statutory or executive regulation, a "laissez faire" state cannot prevail. The great economist Paul A. Samuelson, as quoted by S.M. Dugar in his book "Commentary on MRTP Law Competition Law and Consumer Protection Law" (2006, 4th Edition, Vol.I), confirms this in the following words:-
"By laissez faire one does not automatically get perfect competition. To reduce imperfections of competition, a nation must struggle perpetually and must ever maintain its vigilance."
2.2 This means that a monopolistic situation can deter free competition or a "laissez faire" state. Therefore, to create a better level playing field for free competition the state is called upon to legislate 'competition', 'antimonopoly' or 'anti-trust' (as known in the USA) laws. Sometimes the raison de etre for the promulgation of competition laws is to the desire create a welfare state so as to hamper the concentration of wealth into a few hands.
2.3 While in practice it makes no difference as to whether the competition laws are brought about with the objective to create a laissez faire economy or whether the intention is to create a welfare state, the basic objective behind such a legislation can, however, be important to gauge the national fabric of the society.
2.4 In my opinion any anti-monopoly or competition law can validly function within the dispensation prescribed by the Constitution of Pakistan, 1973. Article 18 of the Constitution protects the right to enter into lawful profession, occupation or conduct any lawful trade or business, however, as per Article 18(b) nothing shall prevent "the regulation of trade, commerce or industry in the interest of free competition therein." Again Article 38 of our Constitution provides that the state shall, inter alia, prevent "the concentration of wealth and means of production and distribution in the hands of a few to the detriment of general interest " Articles 18 and 38 of our Constitution reflect the same paradox which is at the heart of the economic debate in introducing competition laws i.e. Article 18 of the Constitution prescribes regulation so as to provide a better and free competition in business, whereas Article 38(a) of the Constitution provides for taking steps which would hamper concentration of wealth into a few hands.
2.5 I leave this paradox to be resolved by our policy or law-makers!
3. History of Competition Laws in Pakistan
3.1 On 18th April, 1947 the Government of United India promulgated the Capital Issues (Continuance of Control) Act, 1947. This Act was adapted on 14.8.1947 by Pakistan upon independence. The idea behind this statute was to regulate the issuance of capital with a view to control accumulation of wealth in a few hands. In order to relax the control the legislature subsequently promulgated the Capital Issues (Exemption) Order, 1967 with a view to exempt certain entities from the vigours of the Capital Issues (Continuance of Control) Act, 1947. But the basis of the formal anti-monopoly laws in Pakistan is the budget speech of the then Finance Minister for the fiscal year 1963-64, when for the first time in Pakistan he announced the intention of the legislature to promulgate "anti-monopoly laws". For such purpose an "Anti Cartel Law Study Group" was brought about, which prescribed the draft of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1969. The said draft was published in the Gazette of Pakistan on 28.6.1969 for the purposes of eliciting public opinion. After consideration the comments received from the public, industry, financial institutions and academics on 26.2.1970 the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 (hereafter: "the 1970 Ordinance") was promulgated. This law was enforced on 17.8.1971, on which date the Federal Government also constituted the Monopoly Control Authority Vide SRO 315(I)/1971 dated 17.8.1971. Soon after the appointment of the Authority, rules regarding the procedure, fees and other matters for carrying out the purposes of law were notified in the gazette on 31.12.1971. These rules were termed as the Monopoly Control Authority Rules, 1971, Rule 10 of the said Rules provided that undertakings, individuals and agreements which attracted the provisions of the registration were asked to get themselves registered with the Authority by 15.1.1972 or within 15 days of the date when such undertakings, individuals or agreements became registrable under law.
3.2 Between 1972 and 1977 the major industries of the country were nationalized in view of this shift in the economic policy to regulate the economy and discourage private ownership. Thus the 1970 Ordinance was not put into much application. However, post 1977 the government again encouraged private enterprises as a result of which there has been both legislative amendments to and court cases arising out of the 1970 Ordinance.
3.3 The fundamental approach of the 1970 Ordinance was to expressly prohibit unreasonable growth in the following situations:-
(a) undue concentration of economic power;
(b) unreasonable monopoly power;
(c) unreasonable restricted trade practices.
(See PLD 2008 Karachi 583 titled Exide Pakistan Ltd. v. Malik Abdul Wadood , authored by Speaker for High Court of Sindh as he then was a Judge)
3.4 The 1970 Ordinance did not per se prohibit the above three situations, as was prescribed in the American Anti-Trust Laws (see "Competition in British Industry" by Swaun, Brien, Maunder and Howe, 1974). Instead the 1970 Ordinance stipulated a case to case approach and under it each situation was to adjudged on its own merits through the test of reasonableness. The anti-monopoly law as prescribed through the 1970 Ordinance in Pakistan was largely based upon the British legal system as it prevailed then. In the British system, prevalent from the 1960s to the 1980s no practice was regarded as illegal or even presumed contrary to the public interest (see "The Law of Restrictive Trade Practices and Monopolies" by Lord Willverforce, Allan and Neil, 1966).
3.5 As stated above, after 1977 there has been a plethora of case law developed by the Pakistani courts with regards the 1970 Ordinance. In Haji Ismail Dossa v. Monopoly Control Authority PLD 1984 Karachi 315 a learned Single Judge of the Sindh High Court was pleased to observe that the 1970 Ordinance was an economic legislation intended to create an economic system which would not result in the concentration of economic power, monopolization and create unreasonably restricted trade practice. Writing for the Court, Saleem Akhtar J, as he then was, observed as follows:-
"From its very nature the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 imposes restrictions on trade, commerce and business. The object of the Ordinance is to prevent concentration of wealth in the hands of a few and to curb monopolistic and expansionist tendencies in trade, commerce, industry and business. It prohibits undue concentration of economic power, unreasonable monopoly power and eliminate unreasonably restrictive trade practices from the market. It also discourages such trade practices which prevent, restrain or lessen competition. The Ordinance is designed to restrict and prohibit. In public interest, dealings, agreements, arrangements and practices which create monopoly and economic power and unreasonably control the business, undertaking and market. These economic evils as specified in the Ordinance have been considered detrimental to public interest therefore, the Ordinance has provided measures to regulate, check or eliminate them."
In re: Islamization of Law PLD 1985 FSC 193 a full bench of the Federal Shariat Court was pleased to observe that the objects of the 1970 Ordinance advanced the objectives of Sharia. It was observed that the main object of the 1970 Ordinance was to ensure that the wealthy did not become wealthier and the poor did not get poorer in view of the entities acquiring monopoly in their respective fields and increasing prices so as to control market and restrict supplies. Reference is also invited to a judgment of the Division Bench of the Sindh High Court reported as Habib Bank Limited v. Monopoly Control Authority 1986 CLC 2489. In this decision it was observed that the aims of the 1970 Ordinance was to break the monopolies and avoid concentration of economic power. It was held that one of the modes of avoiding undue concentration of economic power was to break or at least weaken such associations which were commonly managed but had semblance of separate entities. Right from the inception till date we have seen in Pakistan that the economic power or concentration of wealth has been in the hands of the few. During the days of Ayub Khan it was a known fact that the entire concentration of wealth was in the hands of 22 families of Pakistan. In Rafan Maize Product Company Limited v. Monopoly Control Authority PLD 1986 Lahore 346 it was recognized that the objectives of the 1970 Ordinance was to, inter alia, distribute the economic power which was concentrated in the hands of individual and their families. It was further observed that the idea behind the law was to eliminate such narrow family oriented attitudes of the entrepreneurs and the subsequent establishment of professional management to control enterprises, which are in turn managed and controlled by big business family groups. In Sanaullah Woollen Mills v. Monopoly Control Authority PLD 1987 SC 202 the Supreme Court of Pakistan expounded the criteria to judge "concentration of economic power." It was held that the magnitude of the undertaking had a direct nexus with "concentration of economic power". The manner in which the 1970 Ordinance prescribed norms and actions is very ably analyzed in a judgment of the Lahore High Court reported as Pakistan Industrial Promotors Limited v. Monopoly Control Authority 1990 CLC 1008; a relevant excerpt from the judgment of Abdul Majeed Tiwana J, as then he was, is underscored for convenience as follows:-
"7. The purpose of the Ordinance is stated in section 3 thereof which prohibits undue concentration of economic power, unreasonable monopoly power, and unreasonably restrictive trade practices because these factors give rise to uneven distribution of wealth amongst different sections of society, ultimately leading to unrest, strife and conflict amongst them, thereby regarding economic growth and impairing its general welfare. To achieve this object the Ordinance creates a body known as Monopoly Control Authority which administers this law and in that context exercises many power and performs various functions. The first step in this direction is the collection of necessary information and data from those engaged in business and commerce in the private sector and that is done through the process of registration as embodied in section 16 of the Ordinance and the rules made thereunder. After completing this step, the Authority begins the process of inquiry and if it prima facie finds that the provisions of section 3 ibid have been or are likely to be contravened it passes an order under section 12 after following the procedure laid down in section 11 and keeping in view the guidelines given in sections 4, 5 and 6 of the Ordinance. Section 19 thereof empowers the Authority to impose penalty if its order is not complied with or any person or undertaking does not himself or itself registered under the Ordinance. In nutshell this is the scheme of the Ordinance".
In Arshad Mehmood v. Government of Pakistan PLD 2005 SC 193 the Supreme Court of Pakistan found a franchise to be a privileged contract aimed at creating a monopoly and popularly known as a "CARTEL". This judgment also lays down tests as to how reasonableness of restriction with regards the fundamental right pertaining to freedom of trade, business or profession has to be adjudged.
4. The Competition Ordinance, 2007
4.1 The Competition Ordinance, 2007 (hereafter: "the 2007 Ordinance") (reported in PLJ 2008 Federal Statutes 292 = 2008 CLD Statute 281) was promulgated on 2nd of October, 2007. Vide section 59(a) the 2007 Ordinance repealed the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970. The said 2007 Ordinance came into force on the date of its promulgation mentioned above. The 2007 Ordinance was repealed by the section 61 of the Competition Act, 2010, which was published in the Gazette of Pakistan, Extraordinary Part I dated 13-10-2010 from pages 645 to 677 (PLD 2010 Federal Statute (Supplement, 724) (Hereafter Act XIX of 2010). This law has made a clear departure from the standards which were prescribed in the 1970 Ordinance. As mentioned above, under the 1970 Ordinance every action was tested on the touch-stone of reasonableness. In striking contrast under the 2007 Ordinance and Act XIX of 2010 clear standards are provided as to what would be permissible and what would be impermissible. As such, in term of providing legal certainty the Act XIX of 2010 is a definite improvement.
5. The Competition Act, 2010 (Act XIX of 2010)
5.1 Under section 3 of the Act XIX of 2010, no person shall abuse "dominant position" [see section 3(1)]. In turn it has been provided that "dominant position" shall be deemed to have been brought about if there are "practices" which prevent, restrict, reduce or distort competition in the " relevant market " [see section 3(2)]. Section 3(3) defines that the expression "practices " shall include and not be limited to the following situations:-
"(a) limiting production , sales and unreasonable increase in prices or other unfair trading conditions;
(b) price discrimination by charging different prices for the same goods or services from different customers in the absence of objective justifications that may justify different prices;
(c) tie-ins, where the sale of goods or services is made conditional on the purchase of other goods or services;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage , have no connection with the subject of the contracts;
(e) applying dissimilar conditions to equivalent transactions on other parties , placing them at a competitive disadvantages;
(f) predatory pricing driving competitors out of a market, prevent new entry , and monopolize the market;
(g) boycotting or excluding any other undertaking from the production, distribution of sale of any goods or the provision of any service; or
(h) refusing to deal."
The term " dominant position " has been defined in section 2(e) as follows:-
"2(e) 'dominant position' of one undertaking or several undertakings in a relevant market shall be deemed to exist if such undertaking or undertakings have the ability to behave to an appreciable extent independently of competitors, customers, consumers and suppliers and the position of an undertaking shall be presumed to be dominant if its share of the relevant market exceeds forty percent. "
5.2 Apart from the abuse of dominant position the Act XIX of 2010 prohibits the execution of certain agreements in section 4. According to section 4(1) of the Act XIX of 2010 an undertaking and associations of undertaking are prohibited from entering into any agreement calculated to be a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services, which have the object or effect of preventing , restricting or reducing competition within the relevant market , unless exempted under section 5 of the Act XIX of 2010 . Again section 4(2) provides that the prohibited agreement shall include and not be limited to the following:-
"(a) fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale of distribution of any goods or the provision of any services;
(b) dividing or sharing of markets for goods or services, whether by territories, by volume of sales or purchases, by type of goods or services sold or by any other means;
(c) fixing or setting the quantity of production, distribution or sale with regard to any goods or the manner or means of providing any services;
(d) limiting technical development or investment with regard to the production, distribution or sale of any goods or the provision of any service, or
(e) collusive tendering or bidding for sale, purchase or procurement of any goods or service;
(f) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a disadvantage; and
(g) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts."
5.3 It is clearly provided in section 4(3) of the Act XIX of 2010 that any agreement in violation of section 4 of the Act XIX of 2010 shall be void.
5.4 An important feature of section 3(3) and section 4(2) of the Act XIX of 2010 is that the definitions of "practices" and "prohibited agreements" are not exhaustive, the two definitions being inclusive. This is an important aspect of the statute since the law-makers cannot possibly foresee and add to these lists all the possible eventualities, therefore the two lists have been left flexible.
5.5 The statute provides for individual exemption from the Act XIX of 2010 which can be granted by the Commission under section 5 and for block exemption from the operation of the Act XIX of 2010 in section 7 thereof.
5.6 Very importantly the Act XIX of 2010 in section 10 denounces deceptive marketing practices. In other words, the law regarding misrepresentation has been reiterated.
5.7 An important feature of the Act XIX of 2010 in section 11 thereof which clearly provides that no undertaking shall enter into a merger which substantially lessens competition by creating or strengthening dominant position in the relevant market. The term "relevant market" has been defined in section 2(k) of the Act XIX of 2010 in terms of both a "product market" and a "geographic market".
5.8 For the purposes of monitoring the Act XIX of 2010 the said statute provides for the establishment of a Commission which is to comprise not less than 5 and not more than 7 members, while the government is given the power to increase or decrease such membership. The members of the Commission are appointed by the Federal government for a complete term; not more than 2 members of the Commission shall be from the federal government. This is to ensure that the Commission is represented by persons from the private sector as well.
5.9 The Commission has been made financially independent by creation of a fund so as to meet the charges and its expenses including salaries of its members and staff. The Commission is required to keep proper accounts and shall be subject to audit and has to file an annual report.
5.10 Under section 33 of the Act XIX of 2010 the Commission is given the same power as a civil court under the Code of Civil Procedure 1908 (Act V of 1988) and the proceedings are deemed to be judicial proceedings within the manner of the Pakistan Panel Code (Act XLV of 1860) and the Criminal Procedure Code 1898 (Act V of 1898). The Commission has the power to enter and search premises, force entry, call information and undertake enquiries and studies.
5.11 The hallmark of the Act XIX of 2010 is provided in section 29 which caters to promote awareness. The Commission is empowered to impose penalties in case of contravention under section 30, while under section 31 it has powers to issue orders which fall under the following broad categories:-
(a) in case of abuse dominant position the undertaking can be required to take certain steps so as to restore competition;
(b) in case of prohibited agreements the Commission can either annul the agreement or require the undertaking concerned to amend the agreement;
(c) in case of deceptive marketing practices the Commission can confiscate, forfeit or destroy the property or product or the guilty party can be directed to restore the previous market position;
(d) in case of merger it can either authorize them, unconditionally or conditionally or review them.
5.12 Under section 32 the Commission has the power to grant interim orders. Section 38 of the Act XIX of 2010 allows the Commission to impose penalties whereas under section 39 the Commission can afford leniency.
5.13 An order of a single member of the Commission is appealable before the Appellate Bench (section 41), while an order of two or more members of the Commission or the Appellate Bench, as the case may be is appealable before the Competition Appellate Tribunal.
5.14 An order of Competition Appellate Tribunal, is appealable before the Supreme Court under 44 of the Act XIX of 2010.
6. Selected Foreign Competition Regimes:
6.1 The American Sherman Act, 1890 is reckoned to be started point of modern competition or antitrust laws. Senator Sherman of the USA himself recognized that the American Sherman Act, 1890 was based in part on the Constitution of Zeno, Emperor of the East from 474 to 491 AD. According to Mark Furste in "Competition Law of the EC and UK" Sixth, Edition, 2008, this is not a correct statement. According to him the Roman Legislation dealt with anti-monopoly laws even some 500 years before the Constitution of Zeno.
6.2 Be that as it may, at the time of Magna Carta, 1215 legislation provided that all monopolies were contrary to the law as they had a bearing on individual freedoms. In modern times the two contemporary statutes which govern competition laws in the UK are the Competition Act, 1998 and the Enterprise Act, 2002.
6.3 Articles 81 and 82 of the European Treaty provide for the control of anti-competitive agreements scheme and dominant firm abuses.
6.4 In India the Monopoly and Restrictive Trade Practices Act, 1969 had principally provided a similar anti -monopoly regime which was provided under our 1970 Ordinance. In India the antimonopoly law was brought about in view of recommendations given by the Monopolies Inquiry Commission which was set up by the Government of India in 1964. The Indian anti-monopoly law was principally based upon the UK legislation in particular the Restrictive Trade Practices Act, 1956, the Resale Prices Act, 1964 and the UK Fair Trading Act, 1973. Anti-Trust Legislation in USA notably the Sherman Act, Clayton Act and the Federal Trade Commission Act, as also the Australian and Canadian legislation on the subject have also been a guide in framing the Indian legislation (see S.M. Dugar, cited as above at page 1)
6.5 EU COMPLETION LAW
Together with its public services, the Europe Union's market economy, which competition law aims to protect from unfair trade practices and private monopolization generates GBP 14.303 trillion in 2013.
6.6 European competition law promotes the maintenance of competition with the European Union by regulating anti-competitive conduct by companies to ensure that they do not create Cartels and monopolies that would damage the interest of society. With a history that traces back to the prohibition on the restraint of trade, and influenced by the experience of the United States Sherman Act, 1890, and the Clayton Act, 1914, European Competition law today derives mostly from Articles 101 to 109 of the treaty on the functioning of the European Union, as well as series of Regulations and Directives. Four main policy areas include:-
a. Cartels, or control of collusion and other anti-competitive practices under Article 101 of the Treaty of the Functioning of the European Union. (TFEU).
b. Market dominance, or preventing the abuse of firm's dominant market position under Article 102 TFEU.
c. Mergers, control of proposed mergers acquisitions and joint ventures involving companies that have a certain, defined amount turnover in the EU, according to the merger regulation.
d. State aid, control of direct and in-direct aid given by members states of the European Unions to the Companies under TFEU Article 107.
This last point is a unique characteristic of the European Union Competition Law regime. As the European Union is made up of independent member's states, both competition Policy and creation of the European Single market could be rendered ineffective, were member states free to support national Companies as they saw fit. A 2013 Civitas report list some of the artifices used by participants to the state aid rules on procurement. Primary authority for applying Competition Law within European Union rests with European Commission and its Directorate General for Competition, although state aids in some sectors, such as transport, are handled by other Directorate General. The Directorates can mandate that improperly given state aid be repaid, as was case in 2012 with Malev Hungarion Airlines.
7. Corporate Veil
7.1 The discussions will not be complete unless something is also said about the concept of "veil of incorporation" in company law. One of the important aspects of any competition law is to explore as to whether there exists a fit case for piercing the veil incorporation. In the classical pronouncement of Salomon v. Salomon case (1897) AC 22 it was held that a company is an entity distinct from its members. This concept found in English Company Law is very much recognized in Pakistan. The Courts in Pakistan following the English Law have also expounded tests as to when the corporate veil would be pierced. In Union Council v. Associated Cement (Pvt.) Ltd . 1993 SCMR 468 the Supreme Court of Pakistan found that in certain events the veil of incorporation could be lifted. One of such instances was fraud. Earlier, the Supreme Court of Pakistan in the President v. Justice Shoukat Ali PLD 1971 SC 585 was pleased to pierce the veil of incorporation so as to determine the true relationship of the share-holders with the company.
7.2 The topic under discussion is very wide. The time available with us is not enough to cover every aspect in detail. However, atleast through the present opening class of students of School of Economics and Law, London and invaluable contributions made by Mr. Toaha Qureshi Member of British Empire (MBE) Principal of the School of Economics and Law, London and Mr. Umer Qureshi Director Academic School of Economics and Law, London. I am pleased to note that the area of study under discussion has been much enriched. However, I hope that in future more seminars and studies are undertaken not only in the field of competition laws but also in other laws of EU, USA and Pakistan.
- I would like to express my sense of gratitude for the kind cooperation of Mr. Toaha Qureshi and Mr. Umer Qureshi for admitting our 5 faculty members in their PGD program leading to LL.M in Commercial Law and Granting Exemption in 3 subjects. I have no adequate words to thank you Mr. Toaha Qureshi and Mr. Umer Qureshi for their kind support for the faculty development program of SZABU