How to Avoid Competition Law Violations in Commercial Agreements

Commercial agreements often create competition law risk long before anyone thinks to call a lawyer. A distribution clause, a pricing provision, an exclusivity arrangement or a restriction on customers or territories can all raise issues under the Competition Act 89 of 1998. The Competition Act prohibits certain horizontal arrangements between competitors and certain vertical restraints between firms at different levels of the supply chain, while minimum resale price maintenance is specifically prohibited.

That is why competition law problems do not only arise in dawn raids, cartel cases or major mergers. They also arise in everyday contracts. By the time the Competition Commission starts asking questions, the problem is usually already embedded in signed agreements and business conduct. Barter McKellar advises on reviewing, structuring and negotiating commercial agreements so that they remain enforceable, commercially workable and competition-law compliant.

Why commercial agreements create competition law risk

In South Africa, competition law applies broadly to economic activity within or having an effect within the country. The Competition Act regulates restrictive practices, abuse of dominance and mergers and the Competition Commission is empowered to investigate anti-competitive conduct.

For agreements, the legal risk usually sits in three places:

• agreements between competitors

• agreements between suppliers and customers or distributors

• clauses used by dominant firms to restrict market access or customer choice

The most serious mistakes happen when businesses treat aggressive commercial drafting as harmless boilerplate.

Start with the first question: who are the parties in relation to each other?

Before drafting or signing any agreement, you need to identify whether the parties are:

• competitors in a horizontal relationship

• supplier and reseller or distributor in a vertical relationship

• parties where one may be dominant in the relevant market

That matters because section 4 of the Competition Act governs restrictive horizontal practices, while section 5 deals with restrictive vertical practices. Section 5 also expressly prohibits minimum resale price maintenance, although a supplier may recommend a minimum resale price if it is clearly non-binding and appropriately labelled as such.

This is one of the biggest drafting mistakes. Businesses often focus on the commercial label of the agreement and ignore how the law categorises the relationship.

Never include cartel-type provisions between competitors

If the agreement is between competitors, the danger level is much higher.

Section 4(1)(b) prohibits agreements or concerted practices between competitors that directly or indirectly fix a purchase or selling price or any other trading condition, divide markets by allocating customers, suppliers, territories or specific types of goods or services, or involve collusive tendering. These are hard-core prohibitions, not clauses you can justify later because they seemed commercially efficient.

That means a commercial agreement should not contain or support provisions that:

• align pricing between competitors

• allocate customers or regions

• restrict who each competitor may sell to

• coordinate tender behaviour

• indirectly standardise trading terms in a way that looks like coordination

Even an informal side letter, industry understanding or coordinated implementation can be dangerous. Competition risk is not avoided simply because the problematic wording sits outside the main contract.

Be careful with exclusivity and long-term lock-ins

Exclusivity is not automatically unlawful, but it can create real risk depending on market power, duration and effect.

Section 5(1) prohibits vertical agreements if they have the effect of substantially preventing or lessening competition in a market, unless a party can prove that technological, efficiency or other pro-competitive gains outweigh that effect.

That means clauses such as these should be reviewed carefully:

• long-term exclusive supply obligations

• exclusive purchasing commitments

• single-branding requirements

• customer restrictions that foreclose rivals

• rebates or incentives that effectively lock a counterparty in

These clauses may appear commercially sensible, but if they significantly close off routes to market or make it harder for rivals to compete, they can become a problem.

Do not prescribe minimum resale prices

This is one of the clearest drafting traps in South African competition law.

The Competition Act specifically prohibits minimum resale price maintenance. The Commission also states on its enforcement page that prescribing minimum resale prices by a supplier or producer to its customers is classified as a restrictive vertical practice. A supplier may recommend a minimum resale price only if the recommendation is clearly non-binding and, where the product carries a stated price, that price is marked as a recommended price.

So your agreement should not say or imply that the reseller:

• must not sell below a specified floor price

• requires approval before discounting

• will be penalised for deviating from a minimum resale price

• must maintain a fixed margin or minimum advertised price if it effectively fixes resale pricing

Businesses often think they are protecting brand value. In practice, they may be writing a prohibited clause into the contract.

Watch restrictions on territories, customers and online sales

Territorial and customer restrictions need careful scrutiny.

Between competitors, market allocation is a red-flag issue. Between firms in a vertical relationship, territorial restrictions may still raise concerns if they substantially lessen competition.

Clauses that need review include:

• bans on selling into certain regions

• restrictions on named customers or customer classes

• limitations on passive sales

• restrictions on digital or online channels

• channel-conflict clauses that go further than legitimate brand or operational protection

The danger is not only the wording itself, but the combined effect of several restrictions operating together.

Be cautious with information-sharing clauses

Commercial agreements sometimes require the exchange of information. That is where drafting can become dangerous, especially where the parties compete in any part of the market.

The Competition Commission has issued final guidelines on the exchange of competitively sensitive information, reflecting that information exchange is an active enforcement concern.

High-risk categories typically include:

• current or future pricing

• margins

• customer-specific terms

• volumes

• bidding intentions

• strategic plans

If the agreement requires data-sharing, it should be tightly limited to what is genuinely necessary, structured for a legitimate purpose and not become a route for competitor coordination.

Be careful with trade association and collaboration language

Some commercial agreements sit alongside broader industry arrangements, trade association activity or collaboration projects. That can be dangerous if the contract normalises competitor coordination.

The Competition Act captures not only direct agreements, but also concerted practices and decisions by associations of firms in horizontal relationships.

That means businesses should avoid contractual language that encourages or records:

• alignment of commercial strategy with rivals

• common approaches to pricing or tender conduct

• coordinated market behaviour through industry bodies

• open-ended data pooling among competitors

What looks cooperative on paper can later be characterised as anti-competitive coordination.

Draft with market power in mind

A clause that seems manageable in one market can become far riskier where one party has substantial market power.

The Competition Act also regulates abuse of dominance and exclusionary conduct, so commercial agreements used by a dominant firm to exclude rivals, lock in customers or deny access can attract scrutiny beyond sections 4 and 5.

This is especially important for:

• large suppliers with strong channel control

• digital platforms

• businesses with must-have inputs or infrastructure

• firms using rebate, loyalty or exclusivity models at scale

A contract that looks aggressive but lawful in a fragmented market may be much harder to defend where one party is dominant.

Practical drafting steps to reduce risk

The safest approach is to build competition review into contract drafting before signature.

A sensible process usually includes:

• identifying whether the parties compete anywhere in the market

• classifying the relationship as horizontal, vertical or dominance-sensitive

• removing any language that looks like price fixing, market allocation or collusive tendering

• softening or narrowing exclusivity, non-compete and customer restriction clauses

• converting any resale pricing language into clearly non-binding recommendations where appropriate

• limiting information exchange to what is strictly necessary

• checking the real commercial effect of the agreement, not just the wording

A clause that is technically softened but commercially enforced in practice can still create risk.

Common mistakes businesses make

The most common errors are predictable:

• copying overseas templates without checking South African law

• using aggressive exclusivity clauses as default wording

• confusing recommended pricing with binding minimum resale prices

• inserting territorial or customer restrictions without analysing market effect

• allowing commercial teams to exchange sensitive information under the contract

• assuming only large corporates need competition review

These mistakes are expensive because they are often discovered only after the agreement has been signed and implemented.

When should you get legal advice?

You should get competition law advice before signing a commercial agreement if it involves:

• exclusivity

• pricing controls

• distributor or reseller restrictions

• territory or customer allocation

• data-sharing between market participants

• competitor collaboration

• a party with significant market power

Early review is far cheaper than trying to defend a problematic clause once the Commission is involved.

How Barter McKellar can assist

Barter McKellar advises on:

• reviewing commercial agreements for competition risk

• redrafting exclusivity, pricing and distribution provisions

• assessing agreements between competitors, suppliers and customers

• managing risk where a business may be dominant

• training commercial teams on contract-related competition issues

Our focus is practical. We help clients keep the commercial objective while reducing the risk that the agreement becomes the source of a complaint, investigation or enforcement action.

Get advice before standard clauses become regulatory problems

Competition law violations in commercial agreements are rarely obvious to the people signing them. That is exactly why they are dangerous.

What looks like a strong commercial position can amount to a prohibited restraint, especially where pricing, exclusivity, customer restrictions or competitor interaction are involved. Once the issue surfaces, the agreement may already be exposing the business to investigation, penalties and operational disruption.

Speak to a competition law specialist at Barter McKellar. Request a review of your commercial agreement before the risk escalates.