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[2022] ZACAC 4
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Competition Commission v Coca-Cola Beverages Africa (Pty) Ltd (194/CAC//Oct21) [2022] ZACAC 4; (2022) 43 ILJ 1971 (CAC); [2022] 2 CPLR 22 (CAC) (17 June 2022)
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
IN CAPE TOWN
Case
NO: 194/CAC/Oct 21
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED
17
JUNE 2022
In
the matter between
COMPETITION
COMMISSION
APPELLANT
and
COCA-COLA
BEVERAGES AFRICA
(Pty)
Ltd
FIRST
RESPONDENT
FOOD
AND ALLIED WORKERS UNION
(‘FAWU’)
SECOND
RESPONDENT
This
judgment was handed down electronically by circulation to the
parties’ and/or parties’ representatives by email
and by
being uploaded to CaseLines. The date and time for hand-down is
deemed to be 10h00 on 17 June 2022
JUDGMENT
Siwendu
AJA (Victor JA and Nkosi AJA concurring)
[1]
This appeal raises important legal
questions about the nature and standard of review envisaged in
section 27(1) (c) of the Competition
Act 89 of 1998 (the Act) read
with Competition Commission Rule 39(2)(b). The pervading concern is
whether the section confers the
Competition Tribunal (Tribunal) with
a “
separate and context
specific form of review
” akin
to an appeal.
Coupled
with the above question is the correct test the Tribunal should apply
to decide “
merger specific
”
retrenchments as opposed to retrenchments for “
operational
reasons
” under the Labour
Relations Act 66 of 1995 (the LRA).
[2]
The appeal flows from a complaint lodged
by the Food and Allied Workers Union (FAWU) to the Competition
Commission (the Commission)
that
Coca-Cola Beverages Africa (CCBA) breached certain employment related
merger conditions by retrenching 368 employees who were
part of the
bargaining unit.
On
24 October 2019, after investigations and engagements
with CCBA, and its attorneys, the
Commission issued CCBA with a Notice of Apparent Breach (Notice of
Breach) of the employment merger
conditions. The consequences of an
issue of a Notice of Breach could result in the revocation of merger
approval, an imposition
of an administrative penalty or an order of
divestiture.
[3]
Instead of tabling a remedial plan, an
alternative available to a party in terms of the Competition
Commission Rules (CCRules),
CCBA elected to apply to the Tribunal for
a review of the Notice of Breach and for an order to set it aside.
CCBA also sought an
order declaring that it had substantially
complied with the merger conditions. There is no contest that the
review power in
CCRule
39(2)(b) is conferred on the Tribunal to avoid the severe
consequences that
may
flow
from
a
Rule
39(1)
Notice
of
Breach
if
in
fact
there
has
been substantial compliance with imposed
merger conditions. CCBA succeeded in its application and the Tribunal
ruled that it had
substantially complied with the merger conditions.
[4]
The
appeal has as its backdrop the incomparable statutory public interest
safeguards and crucible afforded by section 12A(3)
[1]
through the imposition of merger conditions monitored by the
Commission. The issues raised implicate the sensitive interplay
between
labour law and competition law jurisprudence. The abiding
principle is that this Court may only determine employment issues
within
the scope of the Act.
The
challenge for the Tribunal and this Court is to observe this careful
distinction while giving equal effect to the objectives
of the Act.
In this instance the importance of labour relations and their
protection in section 23, as well as freedom of trade
in section 22
of the Constitution are implicated.
Condonation
[5]
The Commission seeks condonation for the
late filing of its notice of appeal. It attributes this to internal
administrative procedures
it had to adhere to and unavailability of
its counsel before filing the notice.
[6]
At different times, both parties did not
adhere to the time frames imposed by the Rules. Even though at first
CCBA opposed the application,
it did not make submissions in this
regard. Ms Engelbrecht (for CCBA) advised the Court that CCBA will
abide by its decision.
[7]
The Court determined that condonation
should be granted. The case
raises
important questions of law which are significant to both parties.
Background
[8]
A brief background to the merger and its
mechanics is necessary to give a proper context to the issues at
hand.
[9]
CCBA operates in the non-alcoholic
beverages (NABs) market which includes amongst others, the Ready to
Drink (RTD) and Carbonated
Soft Drinks (CSD) market. Part of the
production cycle of these beverages involves sugar,
its producers, bottlers and
distributors. CCBA manufactures, bottles and distributes the
Coca-Cola Company (TCCC) products to wholesalers,
formal
and informal retailers. Typical points
in the supply chain involve production, distribution, marketing and
sales.
[10]
On 19 March 2015, SABMiller PLC, the
Gutsche Family Investments (Pty) Ltd and the TCCC notified the
Commission of a large merger.
The proposal was to combine the
bottling operations of the NAB business in South Africa under a
single entity now known as Coca-Cola
Beverages South Africa (Pty) Ltd
(CCBSA). CCBSA would be a subsidiary of Coca-Cola Beverages Africa
Ltd (CCBA).
[11]
The merger of the bottlers was the first
of two contemplated transactions. It was reported that the second
transaction would entail
an introduction of a new controlling
shareholder for CCBA. I understood further from the Commission’s
investigation report
that at the time, TCCC planned to exit the
African bottling market. The estimated time horizon for the second
transaction was between
18 to 24 months.
[12]
The
first
transaction
involved
the
merger
of
four
of
the
five
authorised TCCC Bottlers, namely:
a)
Coca-Cola Shanduka Beverages South
Africa (Pty) Ltd (CCSB);
b)
Waveside (Pty) Ltd (Waveside) /
Coca-Cola Canners of Southern Africa (Canners);
c)
Coca-Cola Fortune (CCF) / Coca-Cola
Sabco (Pty) Ltd (Sabco); and
d)
ABI Bottling (Pty) Ltd (ABI).
The
transaction excluded Peninsular Beverage Company (Pty) Ltd (PenBev).
It envisaged that CCBSA would be held by the three shareholders
in
the following proportions: SABMiller (54%), TCCC (12%) and Gutsche
Family Investments (Pty) Ltd (GFI) (34%).
[13]
Thus,
the first CCBA transaction resulted in the consolidation of various
local Coca-Cola bottling operations.
The
bottling assets were to be jointly housed in a new company called
Coca-Cola Beverages SA (CCBSA), which would be a subsidiary
of
Coca-Cola Beverages Africa Limited (CCBA). The local bottling
company’s Head Office would be relocated, managed and
directed
from South Africa.
The
company would remain a tax resident of South Africa. After the
implementation of the transaction, CCBSA as the newly authorised
TCCC
bottler would retain the distribution function.
Geographic
location
[2]
of the operations
would remain in the various provinces.
[14]
Investigations reported based on
submissions made to the Commission that bottlers do not compete with
one another because of pre-existing
vertical restraints imposed by
TCCC as part of its distribution operating model. As a result, the
bottlers are contractually precluded
from trading in or with
customers in
the
same
geographic
area
by
virtue
of
the
Standard
International
Bottling
Agreement
(SIBA) imposed by TCCC. It was reported that the territorial
provisions are designed to encourage each bottler to invest
in the
necessary capital, distribution infrastructure and management talent
in order to compete with TCCC's rival brands.
[15]
Consequently,
it was accepted that the merger would not result in the combination
of the manufacturing operations of the four entities.
The Commission
reported that the merging parties considered their position analogous
to the findings of the Competition Appeal
Court (CAC) in
Competition
Commission v South African Breweries Ltd and Others
[3]
.
The
CAC found there was no geographical horizontal overlap between the
bottlers before the merger.
[16]
The Commission identified a number of
competition and public interest concerns. These included
inter
alia,
the impact the transaction
would have on employment.
Merger
conditions were deemed necessary to avoid the negative impact on the
NAB market in South Africa which would affect employment
and
localisation. When regard is had to the reported total employee
complement of the merging parties at the time, the investigation
revealed a concentration of employees in the Sales, Manufacturing and
Logistics areas of the business.
[17]
Given the proposed consolidation, it was
reported that the merging parties would close about six of the
separate offices because
one office was required after the merger.
The merging parties disclosed that the implementation of the proposed
transaction will
result in a duplication of about 250 positions at an
executive, managerial, administrative and technical level. The
merging parties
anticipated that there would be no involuntary
retrenchments amongst employees
who
form part
of
the
bargaining
unit.
It
was
stated
that
:
‘
This
will therefore
result
in
a
number
of
positions
within
the
bottling
operations
being duplicated and, hence –
the need to retrench post-merger.
’
[18]
Ultimately, in 2017, TCCC acquired
SABMiller’s majority bottling interest in CCBA and became the
controlling shareholder wielding
approximately 66% of the interest.
When the Commission approved the second transaction, it reported that
the merging parties stated
that it would not have an effect on
employment as the day-to-day operations of CCBA would not change
post-merger. They agreed that
the conditions which applied in the
first CCBA transaction would continue to apply to the merging parties
in this transaction,
including CCBA and TCCC. The Tribunal approved
the second transaction on 27 September 2017.
[19]
Even though the net public interest
determined by the Commission is not apparent from the papers, it is
safe to conclude that the
imposition of the conditions to protect and
preserve employment is a sign post that the public interest was
substantial. The relevant
conditions were:
‘
9
EMPLOYMENT CONDITIONS
9.1
Notwithstanding any other provision in
this paragraph 9, CCBA commits that, for a period of no less than
three years from the Approval
Date, it will maintain at least the
number of Employees as are employed in the aggregate by the Merging
Parties as at the Approval
Date.
9.2
Without derogating from its commitment
set out in paragraph 9.1, CCBA shall not retrench any Bargaining Unit
Employees as a result
of the Merger, and any retrenchments of
employees outside of the bargaining units shall be limited to 250
employees within the
category of Hay Grade 12 and above.
9.3
The Merging Parties commit to put in
place suitable and appropriate measures to mitigate the consequences
of the retrenchments by
providing:
9.3.1
in each year during which a retrenchment
contemplated in paragraph 9.2 or a separation contemplated in
paragraph 9.4.1 takes place
flowing from the Merger, employment
in
the
CCBA
group
within
South
Africa
to
such
number
of
permanent employees as are equal to the
number of employees retrenched or separated, voluntarily or
non-voluntarily (with the intention
that there shall be no net
reduction
in
employment arising from the Merger for a period of no less than three
years from the Approval Date).’
[20]
Before the approval of the second
transaction, the Commission assessed the merging parties’
compliance with the first CCBA
conditions. It found that the merging
parties had started implementing all of the conditions except for the
B-BBEE transaction
requirement. The following conditions were imposed
in respect of the second transaction:
EMPLOYMENT
CONDITIONS
‘
3.1
In clause 9.1 of the May 2016 Conditions states the following:
"Notwithstanding
any other provision in this paragraph 3 CCBA commits that, for a
period of no less than three years from the
Approval Date it will
maintain at least the number of Employees as are employed in the
aggregate by the Merging Parties as at the
Approval Date."
3.2.
The period mentioned in clause 9.1 of
the May 2016 Conditions shall be extended to apply for a period no
less than 3 years from
the date of implementation of the Proposed
Transaction.
3.3.
For the avoidance of doubt, the May 2016
Conditions shall continue to apply to, and be honoured by the Merging
Parties, including
the commitments made in terms of the MoAs.’
[21]
On 19 January 2019, approximately a year
and five months after the second transaction, CCBA notified the
Commission of intended
changes to its employee complement. What
prompted the changes was a need to rationalise its business and
streamline its operations
because it was confronted by unusual
business circumstances, which occurred post-merger.
[22]
CCBA advised the Commission that
economic difficulties necessitated it to rationalise and streamline
its operations to optimise
it to meet these unusual business
circumstances. The retrenchments were a legitimate response to: (1) a
decline in its revenue
and profitability due to the macro-economic
climate and a decline in sales volumes; (2) a competitive environment
with new entrants,
increased discounts and marginal revenue growth;
and (3) the imposition of the Health Promotion Levy (the sugar tax).
In April 2018 it paid R2.1 billion in
the new sugar tax.
Its
gross profits decreased by R300 million. It also anticipated sharp
increases in the cost of raw materials.
[23]
Its letter stated that it envisaged a
reduction in the total headcount by approximately 1200 employees
predominately in sales and
operations functions where there are
“
additional jobs
”
that have become redundant given the fact
that there was no growth in the
environment. It indicated that it would reduce reliance on outsourced
service providers by bringing
within its operations previously
outsourced roles, such as canteen services, cleaning and IT. It
planned to create specialised
roles in sales for account managers. It
anticipated a net jobs addition of 858 heads from this. I pause to
mention that CCBA framed
the concern about compliance with merger
conditions solely as one of the maintenance of the agreed aggregate
head count.
[24]
In CCBA’s letter dated 21 January
2019 to FAWU, it identified that optimisation would occur within the
Logistics and Commercial
operations. It advised that given the need
to adapt the organisation to face the future, it had become
imperative for the company
to ‘
reduce
our labour costs and transition to more efficient and cost-effective
operational structures
’
.
It noted that the management of its
fleet by a third party in the company with the exception of a few
sites, was counter-productive.
Even though retrenchments may be
necessary, as part of the merger conditions, it emphasised that
‘
there would be no forced
merger-related retrenchments
’
within the bargaining units of the CCBSA group of companies, as
defined in the recognition agreements in place at the various
entities in CCBSA (Bargaining Unit).
[25]
To this end, the company proposed to
reduce the number of resources in the following roles: Clerk Fleet.
In addition, the company
proposes to make the following roles
redundant: Fleet Artisan, Fleet Planner, Fleet Storeman, Battery Bay
Attendant, Body Builder,
Body Builder Assistant, Clerk: Planned
Maintenance, Fuel Attendant, Motor Mechanic, Panel Beater Assistant,
Semi- Skilled Artisan
and Transport Assistant.
[26]
It advised FAWU that activity levels in
the warehouses have reduced significantly as a result of the
reduction in sales volume.
It proposed to reduce the number of
resources in the following roles: Warehouse Operator, Team Leader
Warehouse, Shunter Driver
and Warehouse Clerk. In addition, it
proposed to make the following roles redundant: Janitors, Cleaners,
Scrubber Operators, Truck
Washing, Wash-bay Attendants, Re-packers,
Checkers and Truck Helpers.
[27]
In respect of the commercial part of the
business, it advised that the current trading environment, economic
climate and legislative
conditions forced the company to review and
optimise its Route-to-Market (RTM) strategy to ensure the company
remains competitive
and sustainable. It proposed to reduce the number
of resources in the following roles: Merchandiser, Pre-Seller
Merchandiser, Field
Marketer, Customer Relationship Representative
and Sales Team Leader.
[28]
Lastly, with regard to the finance
function, it noted that since 2016, finance made a number of changes
in an effort to remain efficient
and competitive. A number of
employees were redeployed to different roles.
The impacted
sites
were
spread
across
the
country
such
as
Clerical,
Filing
Credit Control and Senior Bookkeeper in
the finance function in Midrand, Bloemfontein, Heidelberg, Port
Elizabeth and Nigel.
Before
the Tribunal
[29]
The decision of the Tribunal clarifies
the history of the retrenchments and the process followed
sufficiently. CCBA took the decision
to retrench employees between
November and Decembers 2018. It disputed that the retrenchments were
“merger specific”.
It maintained throughout that the
retrenchments were caused by market and regulatory circumstances
beyond the control of CCBA and/or
CCBSA. There was no moratorium
placed on retrenchments for operational reasons. As already alluded
to above, the retrenchments
took place within a period of a year and
five months from the second transaction.
[30]
The Tribunal observed that during
investigations and engagements with CCBA, the Commission changed its
position about the foundation
of its complaint on a number of
occasions. At first, the Commission claimed there
was a breach of merger conditions
because the retrenchments occurred “
during
the moratorium
” -
and appeared to be “
merger
specific
” falling within the
purview of the merger conditions.
[31]
A further assessment by the Commission
revealed that the retrenchments took place in the bottling operations
of the merged entity.
It opined that a substantial number of
retrenchments occurred in the manufacturing, logistics and sales
parts of the business.
In
its view, the merger resulted in a duplication of roles in these
business areas.
[32]
The Tribunal observed that in its letter
of complaint dated 16 April 2019, the
Commission
referred
to
the
impact
the
retrenchments
might
have
on
the
aggregate
headcount required under merger condition 9.1 of the first merger and
its extension for a further period in condition
3.2 of the second
merger. The Tribunal went on to state that:
‘
No
information was ever solicited by the Commission on the issue of
duplications at this stage of the investigation.’
Nevertheless,
the Tribunal accepted as part of its reasoning that a merger
invariably involves duplication and restructuring, any
retrenchment
immediately before or soon after gives rise to a legitimate concern
that the retrenchment may be merger related.
[33]
The Tribunal also noted that in a letter
to CCBA's attorneys on 24 October 2019, the same date of the Notice
of Breach, the Commission
stated that after an extensive
investigation, it found the retrenchments were merger specific
because: ‘the [a]ffected employees
were employed at the merged
entity's bottling operations, which the merged entity indicated that
it wished to rationalise in order
to reduce duplications and staff
costs’ and that the retrenchments “took place during the
moratorium period prescribed
in clause 9.2 of the Merger
conditions”.’
[34]
The Tribunal observed further that on 9
April 2020, the Commission had raised a fresh issue about
harmonization in an email to CCBA's
attorney taking
a new tack, namely that ‘
the
provisions requiring the merged entity to
harmonise working terms and
conditions culminated in the involuntary retrenchment of 388
employees (who all form part of the collective
bargaining unit) in
breach of the conditions
’
while at the same time CCBA ‘
hired
new employees in the same/similar positions but for less wages and
less benefits
’. The Commission
had questioned CCBA's rationale for the retrenchments given that only
those areas in which duplications
arose from the merger were targeted
and no other area or why no other cost cutting measures were
effected.
[35]
The Tribunal noted that the merger
conditions envisaged a “
two-fold
”
public interest protection mechanism: ‘either by setting an
employee level
below
which the merging parties may not go for a period of time;
or
by preventing the merging parties from retrenching employees on
grounds that are merger specific’
.
[My emphasis underlined]. Clause 9.4
expressly excludes retrenchments occasioned by operational
requirements in the ordinary course
from ‘
retrenchments
as a result of the merger
’. It
is thus evident from clause 9 read as a whole that, although CCBA
must retain the number of employees as at the approval
date and that
it is not permitted to retrench for merger specific reasons, it is
permitted to retrench employees on grounds of
operational
requirements.
[36]
Nevertheless, the Tribunal accepted that
Clause 9.2 prohibited merger specific retrenchments whenever they
occur.
[37]
In dealing with section 27(1)(c) of the
Act, the Tribunal accepted that a review differs from an appeal,
noting that a review engages
the question
whether the decision reviewed is lawful,
reasonable and procedurally fair. However, it reasoned that Rule
39(2)(b) provided a:‘separate
and context specific form of
review, namely to determine whether a firm has substantially complied
with its merger conditions.
Such determination necessarily involves
whether the decision to issue the notice is lawful, reasonable and
procedurally fair.’
[38]
With regard to the test for determining
whether the retrenchments were “
merger
specific
”
,
the Tribunal rejected the delictual
test, also known as the “
causation
test”
proposed by CCBA as
inappropriate, acknowledging that the “
cause”
of the retrenchments would be an
employer’s decision. It agreed that the employer’s stated
reasons for the decision
that
must be
examined
. [Emphasis added].
[39]
After
an
evaluation
of
the
facts
and
the
allegations
of:
(1)
duplications;
(2)
reduction in staff costs; and (3) breach of harmonisation
obligations, it considered CCBA’s commercial reasons as already
alluded to above. It concluded that economic and commercial grounds
advanced by CCBA were not in dispute. It stated that:
‘
The
Commission’s conclusions about the duplication of roles were
based on an inference and not properly identified and investigated.
There was insufficient evidence to demonstrate the principal reasons
for the retrenchment
.
’
[40]
Following
this, the Tribunal decided the case on a preponderance of
probabilities to determine whether CCBA substantially complied
with
the merger conditions, and whether it had discharged its onus on a
preponderance
of
probabilities. The Tribunal relied on the formulation in
Stellenbosch
Farmers’ Winery Group Ltd v Martell et Cie.
[4]
[41]
It determined that taken together, the
probabilities were poor that the retrenchments were “
principally
motivated
” by the removal of
duplicate positions and not strong even as a marginal motivation. It
accepted CCBA’s commercial
reasons for the retrenchments
concluding that CCBA substantially complied with its obligations.
Grounds
of Appeal
[42]
The Commission’s appeal is
premised on three grounds:
a)
The first contention is that the
Tribunal purported to sit as an appeal body in a review application.
The complaint is that section
27(1)(c) of the Act read with
Commission Rule 39(2)(b) does not provide for a separate and context
specific form of review as propounded
by the Tribunal. It is said the
Tribunal misconstrued the section and erred by evoking a hybrid
review test for lawfulness, reasonableness
and procedural fairness.
b)
The
second ground pertains to the test applied by the Tribunal to
determine whether the retrenchments were “
merger
specific
”
.
The
Commission complains that by inquiring into “
principal
reasons
”
to determine whether the retrenchments were merger specific, the
Tribunal departed from its own precedent and test developed
in
BB
Investment Company (Pty) Ltd v Adcock Ingram Holdings
[5]
endorsed by this Court in
Sibanye
Gold Limited v Competition Commission
[6]
.
c)
Lastly, the Commission complains that
the Tribunal was wrong in substituting the decision of the Commission
and determine the issue
itself. It is contended that in view of the
gaps the Tribunal identified in the evidence presented by the
Commission, and absent
exceptional circumstances, the Tribunal was
obliged to remit the matter to the Commission.
The
Nature of the Review Powers
[43]
At the outset, I accept that the nature
and the applicable standard of review are inter-related and should be
considered contemporaneously.
However, in this instance, it is
necessary to segregate the two to highlight their proper meaning and
context.
[44]
Section 27(1)(c) of the Act provides
that the Competition Tribunal may: ‘hear
appeals
from,
or
review
any
decision
of,
the
Competition
Commission
that
may
in terms of this Act be referred to it.’
[45]
CCRule 39 of the Competition Commission
reads:
‘
(1)
If a firm appears to have breached an obligation that was part of an
approval or conditional approval of its merger, the Commission
must
deliver to that firm a Notice of Apparent Breach in Form CC 19,
before taking any action.
(2)
Within 10 business days after receiving a Notice of Apparent Breach,
a firm referred to in sub-rule (1) may –
a).….
b)
request the Competition Tribunal to review the Notice of Apparent
Breach on the grounds that the firm has substantially complied
with
its obligations with respect to the approval or conditional approval
of the merger.’
[46]
Both counsel agree that the Tribunal
acted as an appeal body but differ on whether the section confers the
appeal powers assumed.
[47]
Even though Ms Engelbrecht accepts that
the review power must be exercised by reference to the ambit and
content of the provision
that creates it, her point of departure is
that section 27(1)(c) read with CCRule 39(2)(b) confers “
special
statutory review powers
” akin
to an appeal. She argues that the power of review under the section
differs from the ordinary judicial review in the
administrative law
sense.
[48]
On
this score she relies on the court’s decision in
Nel
& another v Master of the High Court Eastern Cape & others
[7]
which suggests a “
third
type of review
”
.
The
point was made in the context of the Insolvency Act. The Supreme
Court of Appeal states that the insolvency statute creates
a review
mechanism akin to an appeal.
[49]
It
is contended that the interpretation proffered above derives from the
specialist nature of the inquiry the Tribunal must make
to determine
whether a firm
has
substantially
complied
with
merger
conditions.
Ms
Engelbrecht
finds
support for this contention in the Constitutional Court case of
Sidumo
& another v Rustenburg Platinum Mines Ltd & others
[8]
.
[50]
Reliance
is also placed on the dicta in
Sibanye
Gold Limited v Competition Commission
[9]
to support both the arguments about the unique
nature
of the review and the standard for review. The Competition Tribunal
stated that:
‘
This
review is peculiar in the sense that it is coupled to an implied
declaration that the firm has substantially complied with
its
obligations with respect to the approval or conditional approval of
the merger. In essence, the effect of rule 39(2)(b) appears
to be
that, if it is found that the merged entity has substantially
complied with its obligations with respect to the merger
conditionally
approved, then the Notice of Apparent Breach should be
set aside.’
[51]
Mr Ngcukaitobi (for the Commission)
disputes the argument as fundamentally flawed. He contends that the
court in
Nel
makes
clear that the nature of the review can only be construed relative to
the statute. The court in
Nel
stated
that:
‘
Thus,
when engaged in this third kind of review, the court has powers of
both appeal and review with the additional power, if required,
of
receiving new evidence and of entering into and deciding the whole
matter afresh. It is not restricted in exercising its powers
to cases
where some irregularity or illegality has occurred. However, while it
is sometimes stated that the court's powers under
this kind of review
are ‘unlimited’ or ‘unrestricted’, this is
not entirely correct. The precise extent
of any ‘statutory
review type power’ must always depend on the particular
statutory provision concerned and the nature
and extent of the
functions entrusted to the person or body making the decision under
review. A statutory power of review may be
wider than the ‘ordinary’
judicial review of administrative action (the ‘second type of
review’ identified
by Innes CJ in the Johannesburg Consolidated
Investment Co case), so that it combines aspects of both review and
appeal, but it
may also be narrower, 'with the court being confined
to particular grounds of review or particular remedies.’
[10]
[52]
The language employed in section 27(1)
is not obscure. As a matter of logic, an action taken by the
Commission under the Rule 39(1)
will precede any review contemplated
by section 27(1) of the Act and/or its invocation. An important point
made by the court in
Agri Wire
is
that it is not permissible to look to CCRule 39 to give scope and
meaning to the Act which created the
Rule. I agree with Mr Ngcukaitobi that
the scope and jurisdiction of the
Tribunal is to be found in the Act. The
court’s decision in
Nel
does
not support the perspective suggested on behalf of CCBA.
[53]
In my view, the simple point made in
Sidumo
and
Agri Wire
is
that,
where
the Legislature has created specialist structures like the Tribunal
to resolve particular disputes effectively and speedily,
it is best
to use those structures and no more. It concerns a reference to the
institution
created
by statute rather than the nature or substance of the review power
conferred.
[54]
I find that the Tribunal erred in
concluding that section 27(1) confers anything other than ordinary
review powers.
Had
the Legislature intended otherwise, it would have done so expressly.
What
is the review standard to be applied to set aside the Notice of
Apparent Breach?
[55]
There is no contest that a decision of
the Commission to issue a Notice of Breach constitutes administrative
action. Part of CCBA’s
complaint was that the Commission issued
the Notice of Breach in circumstances where it was
provided
with
the
full
information
that
underlies
CCBA
and
CCBSA’s submission that the
retrenchments were not merger specific, negating the factual
considerations placed before it.
I
agree in part with Ms Engelbrecht that in order to understand the
review standard to be applied, the text, context and purpose
of
Commission Rule 39(2)(b) must be interrogated.
[56]
As already stated, the Tribunal first
took the view that a review under CC Rule 39(2)(b) “
necessarily
involves whether the decision to issue the notice is lawful,
reasonable and procedurally fair
”.
Despite the cautioning, the Tribunal
paid lip service to its own injunction.
[57]
A ground for appeal by the Commission is
that the Tribunal erred in positing a hybrid review that tests a
decision for lawfulness,
reasonableness and procedural fairness. It
contends that “
rationality
”
and “
reasonableness
”
reviews are distinct tests and that rationality is not aimed at
testing the reasonableness of a decision.
[58]
Mr
Ngcukaitobi contends that a proper inquiry by the Tribunal was
whether the Commission rationally came to the conclusion to issue
the
Notice
of
Apparent Breach. As I understand it, a rationality test means all
that is required of the Commission is that the decision to
issue a
notice of breach must be rationally connected to the information
before it and the reasons advanced
for
issuing it.
He
relies on the decision in
Democratic
Alliance v President of the Republic of South Africa and Others
[11]
:
‘
...rationality
review is really concerned with the evaluation of a relationship
between means and ends: the relationship, connection
or link (as it
is variously referred to) between the means employed to achieve a
particular purpose on the one hand and the purpose
or end itself. The
aim of the evaluation of the relationship is not to determine whether
some means will achieve the purpose better
than others but only
whether the means employed are rationally related to the purpose for
which the power was conferred. Once there
is a rational relationship,
an
executive
decision
of
the
kind
with
which
we
are
here
concerned
is
constitutional.’
[12]
[59]
On the other hand, Ms Engelbrecht
contends that the majority in
Sidumo
,
recognising a type of “
special
statutory review of arbitrations
”
conducted in the CCMA under the LRA on narrow grounds, which did not
include specific mention of rationality or reasonableness,
held that
the review grounds are nevertheless “
suffused
”
with the standard of reasonableness in section 33 of the
Constitution. She contends that the same consideration applies
here,
because the decision to issue a Notice of Apparent Breach constitutes
administrative action.
[60]
The
risk of conflating rationality and reasonableness and a court being
bogged down in the semantics was evident during argument.
As pointed
by the Supreme Court of Appeal in
Edcon
Ltd v Pillemer NO & Others
[13]
,
a decision considered after
Sidumo,
the
earlier test requiring a “
rational
connection between the material properly before the arbitrator and
the decision reached
”
had been replaced with a test requiring an inquiry into whether the
award is
“
one
that a reasonable decision maker could arrive at considering the
material placed before him.
”
[14]
The Supreme Court of Appeal observed, however, that the standard of
“
reasonableness”
confirmed
by
Sidumo
is
conceptually the same as the earlier “
rationality”
test,
the only difference being semantic.
[15]
The reasonableness of the award now accordingly becomes the focus of
the inquiry on review.
[61]
Sight cannot be lost that unlike other
functionaries who make administrative decisions, when issuing a
Notice of Breach, the Commission
acts as
a
specialist
regulator
utilising
investigative
and
prosecutorial
powers conferred by the Act. I find that
the duties and the powers the Commission is enjoined to perform in
this instance, dictate
that it must act in a manner that is
lawful,
reasonable and procedurally fair
.
I consider this to be the appropriate
standard for review in this case. [Emphasis added]
[62]
There was no complaint about the
lawfulness of the Notice of Breach or the procedure followed to issue
same. I find that the Tribunal
correctly articulated the review
standard. However, it failed to apply it to the issues
before it. A proper question to ask was
whether the Commission acted
reasonably
in issuing the Notice of Breach.
Did
the Commission act reasonably in issuing the Notice of Apparent
Breach?
[63]
This question is allied with the review
standard dealt with above and the gateway lies in the relationship
between CCRule 39(1)
and CCRule 39(2). As will be apparent from the
analysis of the Rule, it has bearing on the manner the Tribunal dealt
with the evidence
before it, and the allocation of the evidentiary
burden between the Commission and CCBA.
[64]
An issue that arose but did not develop
fully during argument is the import of the jurisdictional fact in
CCRule 39(1).
I
pause to mention that CCRule 39(1) is a standalone requirement. It is
intended as a basis to trigger action by the Commission.
It requires
that before the Commission issues a Notice of Breach – there
must “
appear
”
to have been a breach of the merger conditions
.
In my view, an “
appearance
”
of a breach is synonymous with an “
apparent
or ostensible breach
”
.
It conjures a threshold which is
indicative of something less than conclusive proof of a breach. Ms
Engelbrecht agreed that
an
appearance of a breach does not equate to proof of a breach.
Accordingly, all that
was
required
was
for
the
Tribunal to
satisfy
itself that
an apparent
breach existed,
and
that
the
Commission
acted
reasonably
in
issuing
the
Notice
of Breach.
[65]
This brings me to the import of CCRule
39(2)(b). A Tribunal can only set aside the Notice of Breach if it
finds that merging parties
have
substantially
complied
with their obligations in
the merger conditions.
Three
correlated facets of the Rule are evident from its plain reading,
namely; (1) the party to whom the Rule is directed; (2)
where the
burden of proof lies; and (3) the applicable standard of proof.
[66]
Ms Engelbrecht appeared to accept the
distinction between CCRule 39(1) and 39(2)(b). Nevertheless, she
argued that the Commission
had the duty to put up facts to dislodge
what was presented by CCBA. The Commission didn't discharge that
duty. The argument is
similar to the approach by the Tribunal. Its
implication is that it was for the Commission to show evidence of a
breach and by
implication, provide evidence about CCBA’s
compliance or lack thereof.
[67]
Such an approach is not congruent with
CCRule 39(2)(b). On the contrary the rule makes clear that a burden
is placed on the applicant
seeking the review to show that
“
it
”
has substantially complied with the merger conditions. [My emphasis
underlined].
The
scheme of the two rules make it clear that it is not for the
Commission to convince the Tribunal that there has been a breach,
or
compliance or a lack thereof. That duty falls on the merging party
seeking a review.
[68]
Interestingly, Ms Engelbrecht made a
sound observation and accepted
that
imposing such a duty on the Commission would be more onerous albeit
that she conflated the application of the two rules.
Even if she is correct that the rule
enjoins the Tribunal to enter
upon
the
merits
de novo
and
assess whether there has been substantial compliance
,
other than a rebuttal of the facts
presented by CCBA, there is nothing for the Commission to do once it
has met the required threshold;
namely, that there was an apparent
breach of the merger conditions.
[69]
There
is good reason for Rule 39(2) - only a party to a merger will have
the full facts and only
it
can
justify its decision and show it has substantially complied with the
merger conditions.
[16]
[Emphasis added] I find that the Tribunal failed to draw this
material distinction. The error permeated its approach and evaluation
of the facts before it. It apportioned an evidentiary burden not
envisaged by the Rules on the Commission.
[70]
Contrary to the point raised by CCBA
that an appeal does not lie against the reasons for the decision, in
this instance, the manner
of the assessment of the evidence has a
bearing on how the Tribunal applied the test to determine whether the
retrenchments were
merger specific and whether CCBA had substantially
complied with the conditions. It has grave implications in the
investigation
and prosecution of future breaches of merger
conditions.
Merger
Specificity
[71]
Characteristically, job losses in
mergers occur after restructuring, duplications or the merging
entity’s desire to down size
its operations. Intervention under
the Act is only permissible if it is found that the retrenchments of
the 368 employees were
“
merger
specific
” and not for
“
operational reasons
”,
the latter being the domain of labour law.
As already stated,
the
argument
by
CCBA
is
that
the
retrenchments
were
unrelated
to
the
merger.
They
were permissible and for “
operational
reasons
” as contemplated in
section 189 of the LRA. CCBA’s case is that there is no merger
specificity and no nexus to the
merger.
[72]
From inception, the merging parties
specifically advised the Commission that given that the type of
merger entailed a consolidation
of head office functions, and that
the operations and the functions of the merged entities would remain
the same in all the geographical
locations, there would be no
retrenchments of the bargaining unit employees. It will be recalled
that the consolidation of the
head office function led to the
agreement
not
to
retrench more than 250 employees as provided in clause 9.2 of the
merger conditions. [Emphasis added]
[73]
In so far as the employees forming part
of the bargaining unit, there is no dispute that the merger
conditions in clause 9.2 prohibits
the retrenchments of bargaining
unit employees as a result of the merger. It was crafted to protect
the employees. Ms Engelbrecht
confirmed that CCBA was not reticent or
concerned when it agreed to a condition
that prohibited a retrenchment of employees in the bargaining unit.
Although it had first cast some doubt in
its papers before the Tribunal, CCBA now accepts that the merger
condition operates in
perpetuity and there was nothing to say that it
comes to an end after three years. It is distinguishable from the
obligation to
retain a
certain
number
of
employees.
[74]
The main controversy is whether the
retrenchments were merger specific and the test to be employed to
determine “
merger specific
”
retrenchments.
There
is recognition that the nexus is often complicated and the
distinction blurred.
The
relevant objective facts centre on two features which led to the
Commission’s conclusion that the retrenchments were merger
specific, namely,
(1)
the anticipated post-merger duplication of certain roles; and (2)
CCBA’s obligation to harmonise working conditions across
the
group.
[75]
The Commission’s complaint is that
the retrenchments occurred in the Sales, Manufacturing and Logistics
areas of the merged
entity where it had identified potential
duplications. It was not disputed that of the 368 retrenched
employees, the majority (69%)
were associated with CCF, 21% with ABI
and 10% with CCSB (being Shanduka related) and formed part of the
bargaining unit.
[76]
During argument Ms Engelbrecht
criticised the Commission for presenting “
a
broad notion of duplication
”
contending that the table relied on by the Commission failed to
identify actual roles duplicated.
Relying on the fact that the merged
entities remained separate operationally, she countered that the
reference to a “
duplication of
roles
” made by CCBA in the
various representations and engagements with the Commission was not
due to “
overlapping activities
”
brought about by the merger. Rather, they were as a result of
cost-cutting measures implemented through what I understand
to be a
reduction of the number of hands required for the roles in the
various operations unrelated to the merger.
[77]
In contrast, Mr Ngcukaitobi points to a
letter dated December 2019 from CCBA’s attorneys which
expressly stated that: “
CCBSA
recognizes that certain of the job losses were occasioned by the
removal of duplications
”
.
He contends that the Tribunal
disregarded the letter even though it was sufficient evidence of the
complaint.
Ms
Engelbrecht contended that the reference to “
duplication
”
was meant in the context of the cost reduction measures taken in
response to the unforeseen economic events for “
operational
reasons
”
.
[78]
The second objective feature concerns
the agreement to harmonise working conditions. The Tribunal viewed it
as a “
change of tack
”
by the Commission and disregarded it in its consideration.
I observe that this complaint emerged
following further engagements with CCBA after the Commission issued
the Notice of Breach.
The
rationale for harmonisation was meant to improve wages earned by the
lesser paid employees to the higher wages earned by their
duplicates
occupying a similar role. The Commission persists that the
retrenchment of the higher earning employees for cost cutting
purposes was merger related.
[79]
The question was: “How could there
be no nexus with the merger if workers earning a higher salary are
retrenched and replaced
in the very same positions at a lower
salary?” Ms Engelbrecht admits that there was a harmonisation
obligation but the obligation
to do so had not been triggered by the
time of the retrenchments. CCBA had a discretion when to implement
it.
The
point made on CCBA’s behalf is that all this was done to lower
labour costs for operational reasons, a domain of labour
law. She
contended that CCBA could not be found to have breached a merger
condition that had not yet come into operation. The difficulty
with
this argument is that the harmonisation obligation was time bound. It
had to have been implemented by May 2020. Objectively,
a delay,
coupled with retrenchments before the implementation leans close to
supporting a nexus with the incentives of the employer.
[80]
Given the above facts, the Tribunal
correctly recognised that if there was evidence of the merging
parties seeking to remove duplicates,
the retrenchments “
would
be merger specific
”
.
After the Tribunal correctly
rejected “
causation
”
also known as the “
but for
”
test, it fashioned its own test by inquiring into “
the
principal reasons/ principal motivation
”
for the retrenchments.
[81]
Mr Ngcukaitobi takes specific issue with
the test applied by the Tribunal and questions its departure from the
objective test developed
in
BB
Investment Company (Pty) Ltd,
endorsed
by this Court in
Sibanye Gold.
He
also takes issue with the Tribunal’s approach to the facts
before it and argues that the Tribunal ignored that CCBA readily
admitted that some of the retrenched employees occupied duplicate
positions in the merged entity. The point advanced is that
had the Tribunal applied the correct
test, it would have found there is sufficient evidence to establish
some nexus
between
the retrenchments and the merger. CCBA repeated the
casual
connection
approach before us.
[Emphasis added]
[82]
In
BB
Investment
the
Tribunal stated that “
merger
specific
”
means conceptually “
an
outcome
that can be shown,
as
a matter of probability
,
to have
some
nexus associated
with the incentives of the new controller
”
[17]
.
[My emphasis underlined]
[83]
It is not difficult to see the
prejudicial effects and why an adoption of either the “
casual
connection
” or “
the
principal reasons/principal motivation
”
test advanced by CCBA and the Tribunal respectively could be
prejudicial. If accepted, it would significantly erode the
safeguards
afforded to employees by section 12A (3) of the Act through merger
conditions against merger specific retrenchments.
The reality is that
the Commission can never prove “
a
lack of a cause or reason
”
predominant or otherwise. I endorse the test in
BB
Investment
as objective and sound
because the focus is on demonstrable outcomes [effects] rather than
the subjective attitude or intention
of the merging parties.
[84]
While the Tribunal in
BB
Investment,
pointing to the dynamic
nature of firms, affirmed that not every change that results
post-merger is necessarily attributable to
the merger, it indicated
that:
‘
Most
cases where we have imposed conditions relating to employment have
involved firms with overlapping activities. Here the nexus
is more
easily established because the inference
of
merger specificity is highly probable, when merging firms are engaged
in overlapping activities. Why would the firm continue
to employ two
people to do the same job, post- merger, when employing one would
suffice?
’
[18]
.
[85]
The letter Mr Ngcukaitobi refers to has
significance.
In
this instance, consistent with CCRule 39(2)(b), if indeed, as Ms
Engelbrecht contends, the retrenchments were separate and unrelated
to the business areas and duplicated roles identified by the
Commission before the merger, CCBA bore the burden to place before
the Tribunal facts to distinguish the retrenchments from the roles
identified before the merger.
[86]
Lastly, CCBA disputes that there is a
nexus associated with the incentives
of the new controller
in this case.
Ms Engelbrecht argues that merger
specificity cannot be found where the
incentives of the old controllers with
those of the new controller were not
examined and tested.
The
retrenchments were implemented 3 years after the merger.
The question is not whether CCBA was
making a profit, but about the
long-term
sustainability of the
firm
and of the operations.
[87]
The compelling argument by Mr
Ngcukaitobi is that where as in this case, a merger involves four
entities, there will be a well-founded
expectation of duplication,
and in turn an incentive on the part of the merged entity to
retrench. Based on
BB Investment,
the
probability of a nexus will be accentuated and easily established
because it is not likely that a firm would continue to employ
more
people for a job that requires one person.
[88]
I have no qualms with the proposition
that the further removed in time from the merger a retrenchment
occurs, the less likely it
is that the retrenchment is as a
consequence of the merger. I am nevertheless unpersuaded because the
argument does not account
for the interest of the new majority
controller, TCCC after the conclusion of the second transaction.
Retrenchments were effected despite the
extension of the merger conditions. The incentives of the new
controlling shareholder are
highly implicated in the circumstances.
[89]
I am satisfied that:
a)
there was an apparent breach of the
merger conditions;
b)
the Notice of Apparent
Breach was correctly and reasonably
issued by the
Commission;
and
c)
the retrenchments were merger specific.
[90]
Accordingly, I make the following order:
1.
The appeal is upheld.
2.
The finding that CCBA had complied with
the merger conditions is set aside.
3.
CCBA is ordered to pay the costs of the
appeal.
4.
The
cost
order
includes
the
consequent
employment
of
two
counsel,
and including those of Senior Counsel.
T
SIWENDU
ACTING
JUDGE OF
APPEAL
I
concur
M
VICTOR
JUDGE
OF APPEAL
I
concur
V
NKOSI
ACTING
JUDGE OF
APPEAL
APPEARANCES
For
the Appellant:
Adv
Ngcukaitobi SC
With
him:
Adv
S Quinn and Adv T Charlie
Instructed
by: Maenetja
Attorneys
For
the Respondent:
Adv
Engelbrecht SC
Instructed
by:
Bowmans
Heard
on:
28 April 2022
Delivered
on:
17 June 2022
[1]
In terms of section 12A (3) the competition authorities must conduct
an assessment of the effect of the proposed merger on public
interest grounds listed in section 12A (3) regardless of the outcome
of the competition analysis conducted under section 12A
(2). The
importance is evident from the decision – Distillers
Corporation (SA) Ltd and Stellenbosch Farmers Winery Group
Ltd
(08/LM/Feb 02)
[2003] ZACT 15
(19 March 2003) para 214
[2]
Reference: Volume 3, page 276
[3]
(129/CAC/Apr14) [2015] ZACAC 1; 2015 (3) SA 329 (CAC).
[4]
2003 (1) SA 11 (SCA).
[5]
[2014] 2 CPLR 451 (CT).
[6]
[2015] 1 CPLR 324 (CT).
[7]
2005 (1) SA 276 (SCA).
[8]
(CCT 85/06)
[2007] ZACC 22
;
[2007] 12 BLLR 1097
(CC). She also
relies on the decision in Agri Wire (Pty) Ltd and Another v
Commissioner of the Competition Commission and Others
(660/2011)
[2012] ZASCA 134
;
2013 (5) SA 484
(SCA) as well Competition
Commission of South Africa v Group Five Construction Limited
(195/20)
[2021] ZASCA 37
(8 April 2021) to bolster the view
advanced.
[9]
[2015] 1 CPLR 324 (CT).
[10]
Nel para 23
[11]
(CCT 122/11) [2012] ZACC 24; 2013 (1) SA 248 (CC).
[12]
Democratic Alliance para 32
[13]
(191/08) [2009] ZASCA 135; [2010] 1 BLLR 1 (SCA).
[14]
Edcon para 15.
[15]
Edcon para 16.
[16]
The view that it is for merging party or entity to justify its
decision to retrench employees also finds support in the Minister
of
Economic Development and Others v Competition Tribunal and Others;
South African Commercial, Catering and Allied Workers Union
v
Walmart Stores Inc. and Another (110/CAC/Jul11, 111/CAC/Jun11)
[2012] ZACAC 2
;
[2012] 1 CPLR 6
(CAC) para 140.
[17]
BB Investment fn 5 para 56.
[18]
BB Investment para 60.