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[2017] ZACAC 5
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Hosken Consolidated Investments Limited and Another v Competition Commission (154/CAC/Sept17) [2017] ZACAC 5; [2017] 2 CPLR 519 (CAC) (30 October 2017)
REPUBLIC
OF SOUTH AFRICA
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CAC
CASE NO: 154/CAC/Sept17
In
the matter between:
HOSKEN
CONSOLIDATED INVESTMENTS LIMITED FIRST
APPELLANT
TSOGO
SUN HOLDINGS
LIMITED SECOND
APPELLANT
and
THE
COMPETITION
COMMISSION RESPONDENT
JUDGMENT
Delivered
30/10/2017
VICTOR
et MNGUNI AJJA:
[1]
Two issues require determination in this appeal. The first concerns
the question whether the Competition Tribunal ('the Tribunal;)
has
jurisdiction to entertain a matter in circumstances where a party has
not notified a transaction in terms of s 13 of the Competition
Act 89
of 1998 ('the Act'). The second concerns whether an acquiring
company, having obtained an unconditional prior approval from
the
Competition Commission (the Commission) to acquire sole control of an
entity over which it exerts control must still obtain
merger approval
before entering into a subsequent transaction with that entity.
[2]
These issues arose in this appeal under the following circumstances:
Prior to 2014 Tsogo Sun Holdings Limited ('Tsogo') was
subject to the
joint control of Hosken Consolidated Investments Limited (HCI) and
SABMiller pie (SABMiller). In 2014 SABMiller
announced that it was
divesting itself of its shareholding in Tsogo which would have the
effect of leaving HCI as the sole controller
of Tsogo. In the same
year HCI sought merger approval from the competition authorities for
the acquisition by HCI of sole control
of Tsogo. HCI and Tsogo sought
such merger approval because HCI intended to acquire over 50 per cent
of the shares in Tsogo within
the meaning of s 12(2)(a) of the Act.
The Commission conducted an investigation of the proposed transaction
and made recommendations
to the Tribunal that the proposed
transaction should be approved without conditions.
[3]
The Commission and the Tribunal evaluated the merger on the basis
that HCI would acquire and exercise sole control over the
gaming of
Tsogo. The Tribunal unconditionally approved the merger on that
basis. Pursuant to this merger approval, HCI increased
its
shareholding in Tsogo to approximately 47.5 per cent, thereby
exercising sole control over Tsogo within the meaning of s 12(2)
(g)
and (c) of the Act. Now HCI wishes to consolidate all its gaming
interests (other than betting and lottery interests) currently
held
in its Niveus subsidiary into the Tsogo Group which will result in an
increase of 50 per cent in its shareholding in Tsogo,
resulting in
the same outcome contemplated in the 2014 merger approval.
[4]
At this stage the entitles which are role players in this application
need to be introduced. HCI is a listed black empowerment
investment
holding company in the financial sector which currently has a
beneficial shareholding of 47, 61 per cent in Tsogo, primarily
held
through Tsogo Investment Holding Company (Pty) Ltd ('TIHC'). HCI
currently indirectly holds 100 per cent of the shareholding
of TIHC
through TIH Prefco (Pty) Ltd which in turn holds 90, 357 per cent of
TIHC. Tsogo is a level 1 BBBEE contributor status
company listed in
the travel and leisure sector. With its shareholding of 47, 61 per
cent, HCI is the
de facto
sole controller of Tsogo and is the
largest shareholder in Tsogo by a considerable margin.
[5]
The Tsogo Group's operations can be subdivided into two principal
business activities which are gaming and hotels. Tsogo's gaming
interests are held through Tsogo and Tsogo Sun Gaming (Pty) Ltd. The
Tsogo Group, through its various subsidiary companies currently
operates 14 gaming and entertainment complexes in the country.
Tsogo's non-casino hotel interests are held through Sun Hotels (Pty)
Ltd and Southern Sun Offshore (Pty) Ltd and their respective
subsidiaries and its casino hotels through each licenced Tsogo Group
Company. Southern Sun Hotels manages all of these non-hotel interests
and offers a variety of hotel brands tailored to suit individual
guest requirements from world class luxury to budget priced hotels.
[6]
Apart from its controlling shareholding in Tsogo, HCI also has a
controlling interest in Niveus (52.28%), which wholly owns
Niveus
Investment 19 Limited ('Game Co') which, in tum, wholly owns Galaxy
Gaming and Entertaining Proprietary Limited ('Galaxy
Gaming') and
Vukani Gaming Corporation Proprietary Limited ('Vukani Gaming ').
Game Co comprises of all of the South African gaming
interests of
Niveus other than its sports betting and lottery interests.
[7]
The Commission was informed that the proposed transaction involves a
number of steps which will ultimately entail the transfer
of the
special purpose vehicle, Game Co, to Tsogo.
[8]
The Commission was asked to confirm the proposed consolidation of all
of HCl's gaming interests (other than its sports betting
and lottery
interests) under Tsogo through the transfer of the said gaming
interests currently owned by one of HCl's subsidiary
companies,
Niveus, to Tsogo would not constitute a notifiable merger for the
purposes of s 12 of the Act. The rationale offered
for the proposed
transaction is to consolidate the HCI group's South African gaming
interests under Tsogo over which HCI exerts
sole control. HCI and
Tsogo contend that, by this consolidation, Niveus shareholders will
be able to realise the value of their
investments in the Limited
Payment Machine ('LPM') and bingo industries and provide the Niveus
shareholders with more diversified
exposure in gaming, leisure and
property through the Tsogo consideration shares.
[9]
The pre and post transaction structures can be depicted thus:
Pre-Transaction
[See
PDF for image]
Post-Transaction
[See
PDF for image]
[10]
On 7 August 2017, the representatives of the Commission met with the
legal representatives of HCI and Tsogo to discuss HCl's
request for
an advisory opinion. At that meeting the Commission requested certain
information from HCI and Tsogo relating to the
shareholding
structures of the companies in question. The requested information
was supplied to the Commission on 8 August 2017.
On 10 August 2017
the Commission requested further information from HCI and Tsogo
relating to the voting patterns of HCI through
TIHC at Tsogo's
shareholders annual meetings. The requested information was furnished
to the Commission on the same date.
The
Commissions Advisory opinion
[11]
On 16 August 2017 the Commission issued its advisory opinion in which
it expressed the view that the proposed transaction was
notifiable
for, inter alia, the following reasons:
(a) The proposed transaction would
result in the crossing of a bright line as HCI through TIHC would
increase its shareholding in
Tsogofrom the current 47.61 per cent to
more than 50 per cent resulting in HCI beneficially owning more than
one half of the issued
share capital of Tsogo within the
contemplation of s 12 (2) (a) of the Act. The Commission indicated
that the crossing of this
bright line has a definite legal
implication because it indicates the types of transactions that the
legislature deemed should
be notified to the Commission. In short,
the crossing of this bright line triggers notification of a merger.
(b) Circumstances had changed since
2014 and the structure of the market had altered which meant that a
merger investigation rather
than an advisory opinion was appropriate.
The Commission also emphasised that a non binding opinion was
part of its advocacy
role and it could not be held to the terms of a
non-binding agreement.
(c) The Commission considered that the
transaction involved a different firm namely Niveus, and other
factors would be relevant
such as the public interest which may
involve considerations of retrenchment. The Commission opined that
the past authorisation
was for a specific transaction and that
different considerations would apply to this transaction as it had
different transactional
structure. The Commission found it to be a
notifiable transaction and that it had to be notified prior to its
implementation. The
appellants argued to the contrary. The
consequences that flow from this difference of opinion between the
Commission and the appellants
is, in our view, a live dispute between
the parties.
[12]
The Commission made it clear in its advisory opinion that the views
expressed therein were not binding on the Commission or
any party and
that its
views
may change on the basis of further information
provided by HCI and Tsogo. The Commission also emphasised that it
provides the advisory
opinions to the parties on request as part of
its advocacy functions. HCI and Tsogo contended that the reasons
advanced by the
Commission in reaching the conclusion that the
transaction should be notified were flawed because HCI already has
sole control
of Tsogo, pursuant to approval by the Tribunal in 2014
and HCI and Tsogo were not seeking the acquisition of sole control.
In the
second instance, HCI and Tsogo contended that there is no time
limit imposed in the Act for the validity of an approval under the
merger control provisions.
Tribunal
Decision
[13]
Arising from this legal uncertainty HCI and Tsogo approached the
Tribunal on urgent basis seeking an order as foreshadowed
in the
notice of motion. At the hearing of the matter before the Tribunal,
the parties were requested to address the Tribunal on
the question of
whether the Tribunal enjoyed jurisdiction to consider this
application because the Tribunal took the view that
a transaction is
only triggered when that transaction has first been notified to the
Commission.
[14]
On 12 September 2017 the
Tribunal heard and dismissed the application and stated that the
reasons for such an order will be issued
in due course. On 29
September 2017 the Tribunal gave its reasons. The Tribunal found that
it does not have the power to grant
declaratory relief in terms of s
27(1)
[1]
and also in terms of s 58
[2]
of the Act. An analysis of s 58 demonstrates the wide range of powers
the Tribunal enjoys. Obviously the transaction must be considered
on
a case-by-case basis. It also found that the Commission's advisory
opinion is not binding on the applicants. The jurisdiction
of the
Tribunal to consider disputes about whether or not a merger is within
the jurisdiction of the Act is regulated by Tribunal
Rule 31
[3]
and Commission Rule 33. It also found that notification of a
transaction to the Commission is a jurisdictional requirement to
trigger their function. The Tribunal found that HCI and Tsogo were
not entitled to approach the Tribunal directly for the order
that
they sought. The Tribunal also held that even if they accepted
jurisdiction is triggered by a direct application they would
in any
event find no justification for the exercise of their discretion in
favour of HCI and Tsogo.
[15]
Although the Tribunal found that it does not have jurisdiction to
consider the matter, it nevertheless went on to consider
whether it
ought to exercise its discretion in favour of HCI and Tsogo. The
Tribunal concluded that there was no live dispute between
the parties
that required its intervention. The Tribunal went further and stated
that the applicants approached the Commission
for an advisory
opinion. They were not required to do so but the fact that they did
suggest that there was some doubt in their
minds whether their
transaction ought to be notified. The Commission provided an advisory
opinion which the applicants concede
is not binding on them.
[16]
Aggrieved by these findings, HCI and Tsogo launched this appeal
contending that the Tribunal should have found that it has
jurisdiction to grant declaratory relief sought by HCI and Tsogo on
the same legal basis that it has jurisdiction to interdict
the
implementation of notifiable mergers and to order their notification
to the competition authorities for approval under the
Act and in
particular in terms of s 27 (1) (d) of the Act. The primary thrust of
HCI and Tsogo's attack against the Commission's
advisory opinion is
that the proposed transaction constitutes the further implementation
of a merger approval previously granted
to HCI to acquire sole
control of Tsogo and that, even if the proposed transaction involves
an acquisition of an additional instance
of control within the
meaning of s 12(1), HCI and Tsogo have already obtained approval for
such acquisition of control in the form
of the 2014 merger approval.
[17]
This is then the convenient stage to deal with the two issues as
foreshadowed in para 1 above. We first deal with the question
relating to the jurisdiction.
[18]
Counsel for HCI and Tsogo contended that in terms of s 27 (1) of the
Act, in particular, s 27 (1) (d) thereof, the powers of
the Tribunal
are wide and include the power to grant declaratory relief in the
circumstances of this case. To bolster his submission,
he referred to
a number of the decisions where the Tribunal had exercised its
discretion and granted declaratory relief. First
is
Bulmer.
[4]
In this
case the Tribunal held that it has the power to declare that a
specific transaction constitutes a merger and to order its
notification by the parties to the transaction. This decision of the
Tribunal was confirmed by this Court on appeal.
[5]
Second is
Goldfields.
[6]
In this
case this Court held that the Tribunal had the power to grant
interdictory relief to prevent the implementation of a notifiable
merger. This court stated in this regard that, if, in exercising its
merger powers, the Tribunal found that a proposed transaction
constituted a merger and the parties were intent on implementation,
say before notification, it would be a legislative curiosity
if the
Tribunal did not have the power to grant an appropriate order to
prevent a breach of the Act in circumstances where the
breach was so
flagrant. This court interdicted Harmony from voting any of the
rights associated with the shares it had acquired
as a result of the
so-called early settlement offer putting beyond any doubt that the
competition authorities have the power to
Interdict the
implementation of mergers and the power to compel the notification of
mergers by the parties to the merger in question.
[19]
Third is
Supersport.
[7]
In this
case the Tribunal made a declaratory order regarding the
notifiability of the relevant transaction in that case as a merger.
Fourth is
Novus.
[8]
In this
case this court ordered the parties to notify an agreement as a
merger having found that the new agreement falls within
the meaning
of s 12(1). Fifth is SABC
[9]
. In
this case this court overturned the Tribunal's decision not to order
the transaction parties to notify the transaction between
them as a
merger. In this case this court held that the Tribunal has
inquisitorial powers and that these should be deployed to
determine
whether or not the transaction constituted a merger.
[20]
In
Johnic
[10]
the
Tribunal accepted that it had the power to grant a declaratory order
that the transaction in question constituted a merger:
'95. Any doubt which may
have existed previously about the Tribunal's powers to issue an
interdict sought by a firm on the basis
that another is implementing
a merger which has yet to be ruled upon by the competition
authorities ... has been dispelled by the
decision of the CAC in the
first of the
Goldfields/Harmony
cases,
where this power was affirmed and such an interdict was granted.'
[21]
In
Cape
Empowerment Trust Ltd v Sanlam Life Insurance Ltd and another
[11]
the Tribunal accepted that
it had the power to grant an interdict restraining the implementation
of a transaction pending receipt
of a merger approval.
[22]
In terms of s 62 of the Act,
the Tribunal and this Court have exclusive jurisdiction to hear any
matter that the Act defines
[12]
:
[23]
The Commission accepts that the Tribunal and this court have made
orders of various kinds in relation as to whether a transaction
constitutes a merger such as
Johnnic, Gold
Fields
and
Cape
Empowerment Trust, Distillers.
The Commission
however argues that the orders are not declaratory orders but are
merely analogous to declaratory orders.
[24]
On a fair reading of these cases, we find that it is manifest that
the orders granted therein are akin to declaratory orders.
The
Tribunal contends that, despite the fact that the Tribunal had
previously made orders relating to a determination of whether
a
transaction constitutes a merger, this did not apply to advisory
opinions of the Commission. It applied to mergers where there
has
already been notification to the Commission. In our view this
conclusion by the Tribunal is a misdirection.
[25]
Ordinarily the High Court would, but for the exclusive jurisdiction
provisions contained in the Act, have the power to grant
the
declaratory relief sought in this application. It therefore follows
that a party who seeks declaratory relief regarding the
notifiability
of a transaction under the Act would not be able to approach the High
Court for such relief. The only body that HCI
and Tsogo can approach
for such declaratory relief is the Tribunal and, on appeal, this
court. It seems to us that if this court
were to endorse the
Tribunal's finding that it did not have the power to grant
declaratory relief, a party seeking such relief
in respect of the
notifiability of transactions under the Act would be deprived of the
right to seek such relief from any forum
and would be left without a
remedy. In the circumstances, this will result in an untenable
situation where a party will be deprived
of their right to access to
court enshrined in s 34 of the Constitution.
[13]
In any event, in Seagram
[14]
the High Court confirmed the exclusivity of the competition
authorities in respect of the merger control provisions.
[26]
As correctly pointed out by Counsel for l:-ICI and Tsogo it would
lead to an incomprehensible reading of the Act to concluded
that if
the Act conferred upon the Tribunal the power (i) to declare that a
transaction constitutes a merger, (ii) to order the
parties to notify
the merger, and (iii) to order the parties not to implement the
transaction, pending approval, but, at the same
time, preclude the
Tribunal from being able to issue declaratory relief that a
transaction does not constitute a merger when approached
by the
parties for such relief. In our view, the jurisdictional basis has
been established that the Tribunal's powers do include
orders for
declaratory relief. This then is dispositive of the jurisdictional
issue. The exclusivity provisions as contained in
s 62 of the Act
would result in an unsatisfactory interpretation of the powers of the
Tribunal and results in a barrier to justice.
[27]
Having found that the
Tribunal's jurisdiction under the Act was triggered, the next step is
to determine whether, in the circumstances
of this case, the Tribunal
ought to have exercised its discretion in favour of HCI and Tsogo. At
the outset it must be emphasised
that declaratory orders can provide
legal certainty to each party in a matter when this could resolve or
assist in a dispute. Declaratory
orders are discretionary and the
facts must justify the relief. It is settled that once the Commission
had given approval it was
a
"once-off
affair"
and in this
case there were no conditions imposed relating to mode or timing of
the acquisition or exercise of control.
[15]
[28]
In
Ex
parte Nell
[16]
it became settled law that a live dispute is a requirement for the
granting of a declaratory order. The full court in
Minister
of Finance v Oakbay
Investments
[17]
stated the following:
'[59]
Herbstein and
van Winsen
extrapolate from decided cases factors Courts have
taken into account to determine whether judicial discretion should be
exercised
positively or negatively in an application for declaratory
relief. These include:
[59.1]
the existence or absence of a dispute;
[59.2]
the utility of the declaratory relief and whether if granted, it will
settle the question In issue between the parties;
[59.3]
whether a tangible and justifiable advantage in relation to the
applicant's position appears to flow from the grant of the
order
sought;
[59.4]
considerations of public policy, justice and convenience; [59.5] the
practical significance of the order; and
[59.6]
the availability of other remedies.' (Footnotes omitted)
[29]
In
Rail
Commuters
[18]
O'Regan
J held that a declaratory order is a flexible remedy which can assist
in clarifying legal and constitutional obligations.
In
Shells
Annandale
Farm
[19]
Davis J in relation to a tax matter accepted that where a matter is
not abstract or academic a declarator is appropriate but the
court
still had to exercise its discretion. He also cautioned against a
floodgate of declarators where parties may seek to obviate
procedural
provisions of a statute.
[30]
In
Cordiant
[20]
the
Supreme Court of Appeal postulated a two-stage approach to the
consideration of an application for declaratory relief. Firstly
the
applicant must have an interest in an existing, future or contingent
right or obligation and secondly if the court is satisfied
of such a
condition then it has to exercise its discretion by deciding to
either refuse or grant the order sought.
[31]
As regards the first leg of the test, HCI and Tsogo clearly have a
legal interest in the declaratory relief sought in their
application
as it relates to the question whether or not they have a legal
obligation to notify the proposed transaction to the
competition
authorities for approval. In addition, the relief sought relates to
an existing or contingent right or obligation of
HCI and Tsogo, in
particular, the question whether or not they are obliged to notify
the proposed transaction to the competition
authorities for approval.
As regards the second leg of the test, there is a live dispute
between HCI and Tsogo and the Commission
regarding the notifiability
of the proposed transaction. The legal uncertainty has been created
due to the stance taken in the
Commission's advisory opinion that the
proposed transaction constitutes a notifiable merger. In
Seagram
[21]
the
High Court observed that an advisory opinion, albeit not binding,
reflects the views of the Commission on a particular matter
(i.e.,
the notifiability of transactions), and can be acted upon. In
Bulmer
[22]
the
Tribunal stated that it would be "highly artificial" not to
regard an advisory opinion as reflecting the Commission's
position on
the notifiability of a transaction.
[32]
The Commission confirmed in its answering affidavit in the present
matter that it regards the proposed transaction as a notifiable
merger, and went so far as to make a counter-application for an order
directing HCI and Tsogo to notify the proposed transaction
to the
Commission as a notifiable merger. The fact that the Commission
withdrew that counter-application during the Tribunal hearing
does
not detract from the fact that there is clearly a dispute between the
parties, and legal uncertainty, regarding the notifiability
of the
proposed transaction under the Act. The declaratory relief sought by
HCI and Tsogo will settle the dispute between the parties
regarding
the notifiability of the proposed transaction, and remove the legal
uncertainty in relation thereto.
[33]
In
Goldfields
[23]
this
Court held that the Tribunal did have power to grant interdictory
relief. This court found that the Tribunal in issuing an
interdict
found: 'that the Tribunal in exercising its merger powers found that
a transaction constituted a merger but the parties
were intent on
implementation before notification it would be a legislative
curiosity if the Tribunal did not have the power to
grant an
appropriate order to prevent a breach of the Act'.
[34]
In summary, HCI and Tsogo have
a legal interest in the declaratory relief as it relates to whether
there is a legal obligation to
notify the competition authorities
about the proposed transaction. There is a live dispute between the
appellants and the respondent
regarding the notification of the
transaction. There is legal uncertainty and the Commission has
already indicated a set intention
that the transaction is a
notifiable merger. In
African
Media Entertainment
[24]
the court found that a
non-binding advisory opinion reflects the views of the Commission on
a particular matter such as notifiability
of transactions and can be
acted on.
[35]
As already stated, prior to 2014, Tsogo was subject to the joint
control of HCI through various subsidiary companies and SABMiller
pie. In 2014, SABMiller announced that it was divesting itself of its
shareholding in Tsogo which would have the effect of leaving
HCI as
the sole controller of Tsogo in 2014, HCI notified the Commission of
its intention to acquire sole control over Tsogo. After
investigation
of the merger as notified, the Commission recommended that the merger
be approved unconditionally and following a
hearing, the Tribunal
approved the transaction without conditions as reflected in its
decision in TlHC and Tsogo, ('the 2014 Tsogo
Decision'). In its
decision, the Tribunal recorded that the primary target firm is Tsogo
which is jointly controlled by TIHC and
SABSA Holdings Ltd (SABSA)
with 41.3 per cent and 39.6 per cent respectively and that
post-merger HCI will ultimately acquire sole
control of Tsogo.
[36]
This will occur through Tsogo purchasing the shares in GameCo from
HCI and the other shareholders of Niveus, after the shares
in GameCo
have been unbundled by Niveus. Tsogo will pay for these shares
through a combination of shares and cash, which will result
in HCI
acquiring a shareholding in excess of 50 percent in Tsogo. HCI
controls Tsogo through various subsidiary companies and all
of the
subsidiaries through which it holds shares in Tsogo.
[37]
The merger that was approved unconditionally by the Tribunal in the
2014 Tsogo decision was the acquisition of sole control
by HCI over
Tsogo. It was also expressly recognised in the Tribunal's decision
that HCI would acquire control of Tsogo by ultimately
increasing its
shareholding in Tsogo to over 50 per cent. Consequently, the
Commission and the Tribunal conducted the merger assessment
required
in terms of section 12A of the Act on the basis that HCI would exert
sole control over the gaming interests of both Tsogo
and Niveus. In
unconditionally approving HCl's move from joint to sole control of
Tsogo, the Tribunal concluded that such acquisition
of control did
not give rise to any concerns under s 12A of the Act, notwithstanding
that HCI also enjoyed sole control of Niveus's
gaming interests.
[38]
Counsel for the Commission
submitted that the contentions advanced on behalf of HCI and Tsogo
which appear to be premised on a unitary
concept of control are of no
assistance to HCI and Tsogo because it does not change following the
implementation of the proposed
transaction. Relying on Bulmer
[25]
and Distellers
[26]
,
he submitted that notification is intended to be as extensive as
possible; hence the breadth of the language in s 12. Once a
transaction presents the essential features of a merger it is
notifiable. If this were not the case, there would be a danger that
mergers that may have adverse effects might go undetected because the
jurisdictional barriers in terms of s 12 had been set too
high. It
follows that the Act was designed to ensure that the competition
authorities examine the widest possible range of potential
merger
transact ions to examine whether competition was impaired and this
purpose provides a strong pro-pointer in favour of a
broad
interpretation of s 12.
[39]
He submitted that this Court's judgement in Distillers is binding
authority for the proposition that the provisions of s 12(1)
do not
exclude a transaction between a company and its wholly owned
subsidiary. In this regard, in responding to the contention
by the
appellant in Distillers that, when s 12(1) of the Act refers to 'the
direct or indirect acquisition or direct or indirect
establishment of
control, it is exclusively to 'ultimate control' and, unless
'ultimate control changes as a result of the transaction
in question,
such a transaction falls outside the scope of s 12 of the Act, this
Court disagreed. It held that such an interpretation
is not mandated
by the express wording of s 12(1). To the contrary, s 12(1) makes no
express provision for the exclusion of transactions
between a company
and its wholly owned subsidiary, from the definition of merger.
[40]
Counsel for the Commission expressed the view that the legal question
relating to whether s 12(1) of the Act applies to a transaction
between a company and its subsidiary is a question that has already
been settled by this Court and that this is an important factor
that
has a bearing on the exercise of this court's discretion against
granting the declaratory relief sought.
[41]
On the question of sole control, HCI and Tsogo referred to the voting
patterns at Tsogo's most recent shareholders' meetings
which revealed
that at the 2015 Tsogo's annual general meeting HCI voted its full
allocation of 43, 18 per cent as its per shareholding
at the time and
its full allocation of 47, 6 per cent at the 2016 annual general
meeting. The Commission accepted that a minority
shareholder may be
deemed to have acquired sole control on a legal or
de facto
basis
in accordance with historic voting patterns at shareholder meetings.
HCI achieved a majority of 51, 09 per cent and 56, 84
per cent votes
at the Annual General Meetings and this was acknowledged by the
Commission in paragraph 9.1 and 9.2 of its advisory
opinion. The
Commission however argued that this represented volatility. HCI s
voter turnout based on control over Tsogo and that
a 2 year
assessment of the voting patterns of shareholders at meeting was too
short a period to assess stable sole control. The
Commission did not
suggest an appropriate historic benchmark period which was required
to establish stable sole control. We are
of the view that it is
significant that HCI did command majority of votes in Tsogo.
[42]
The importance of de facto control was also recognised in Caxton.
[27]
In this matter the Commission accepted that HCI has acquired sole
control over Tsogo by virtue of its shareholding. It also accepted
that HCI exercised sole control over Tsogo under sections 12(2) (g)
and (c) of the Act by virtue of its shareholding. The Commission
also
accepted that since 2014 HCI had exercised sole control over Tsogo in
accordance with s 12(2) (g) and (c) of the Act by virtue
of its
shareholding. The appellants contend that this potentially volatile
situation will be countered because the proposed transaction
will
move to majority control in terms of s12 (2) (a) of the Act, thus
moving HCI away from the dependence of other shareholders
at the
meetings. In AME
[28]
'manifestly control per se is relevant to determining whether a
merger exists and thus whether the Tribunal has jurisdiction to
examine the transactions in terms of the factors set out in s12.'
[43]
Counsel for HCI and Tsogo argued that the 2014 Tsogo decision led to
the acquisition of sole control by HCI
over
Tsogo. At that
time the competition authorities had conducted a merger assessment in
terms of section 12A of the Act and were aware
that in time HCI would
exert sole control over the gaming interests of Tsogo and Niveus. At
the same time HCI also enjoyed sole
control of Niveus gaming
interests. He correctly submitted that, in analysing s12 (2), it
becomes clear that the section does not
purport to define control in
terms of an exhaustive list. In this regard he pointed out that very
often, at the time of merger
notification, details may not be clear,
for example as to how many shares will be purchased by the acquiring
firm or when they
will be purchased or from which shareholders but
these factors do not prevent merger approval. He emphasised that the
important
factor in assessing whether the transaction constitutes a
merger or not is the question of prior and post transaction control.
He argued that in this case the facts insofar as HCl's pre and post
transaction control are clear.
Is
a Rule 33 application necessary?
[44]
In
Ethos
[29]
the Tribunal required the
parties to file an application to have the question of jurisdiction
determined. From what is stated above,
it follows that the content of
the appeal in terms of Rule 33 would be precisely the same
information as the application for declaratory
relief. Counsel for
HCI and Tsego submitted that the Rule 33 procedure would be costly,
unnecessary waste of time and would be
pointless. Based on the facts
in this case and in particular the approval granted in 2014 we find
that a Rule 33 application is
unnecessary.
[45]
HCI and Tsogo contend that the
acquisition of sole control is a
"once-off
affair and accordingly
that, once they have received approval for HCI to acquire sole
control over Tsogo, there is no requirement
for HCI to obtain any
further permission to increase its shareholding in Tsogo over 50 per
cent or to restructure the assets over
which it holds sole control.
In any event, HCI and Tsogo contend that the current proposed
transaction does not involve an acquisition
of control within the
meaning of s 12(1) of the Act, given that HCI already exerts sole
control over Tsogo in terms of the 2014
merger approval. In Ethos
[30]
this court found that a change of control is a once-off affair. Even
if a firm has notified sole control at a time when that control
is
attenuated in some respects by other shareholders and it later
acquires an unfettered right, provided that sole control has
been
notified and that this formed the basis of the decision, no
subsequent notification is required.
[46]
Confronted with these difficulties counsel for the Commission sought
to overcome them by submitting that the 2014 Tsogo Transaction
involved the exit of a significant minority shareholder, SABMiller,
and the acquisition by HCI through TIHC of additional shares
in
Tsogo. However, in the proposed transaction, not only will HCI
through TIHC acquire additional shares in Tsogo, the proposed
transaction also involves the transfer of a business GameCo which
currently houses the gaming interests of HCI. As a result, GameCo,
the wholly owned subsidiary of Niveus, will no longer be directly
controlled by Niveus, rather GameCo would be directly controlled
by
Tsogo with a shareholding of between 75 per cent to 100 percent.
[47]
He submitted that the commission's recommendation and the Tribunal's
decision was to approve the 2014 Tsogo transaction was
based on the
following submissions:
(a) In respect of the competitive
assessment, it should be noted that in the 2014 Tsogo Transaction,
the Commission did not conclude
on the relevant product market but it
assessed the effects of the 2014 Tsogo transaction on the narrow
market for casino gaming
and found to be no geographic overlap
between the activities of the merging parties due to the distance
between the Kuruman Casino
and Tsogo Sun's casinos. The Commission
then concluded that the 2014 Tsogo transaction was unlikely to
substantially prevent or
lessen competition in the casino gaming
market.
(b) The Commission noted that Tsogo
did not own any LPMs, Bingos and sport betting facilities in Kuruman
and the Northern Cape Province.
The Commission then found that on the
broader product market that included other forms of gambling Tsogo
was unlikely to constrain
the Kuruman Casino given that it did not
operate any gambling activities in the Kuruman region or area. The
Commission noted that
HCI also did not own any LPMs, Bingos and sport
betting facilities in Kuruman and the Northern Cape Province
resulting in the Commission
to conclude that, the Kuruman casino,
which was not operational at the time of the Commission's assessment
which was to operate
in the Kuruman and the Northern Cape province
would not result in any market share accretion and/or market
concentration since
HCI did not at that time perform any gambling
activities in the area or region.
(c) With regard to the public interest
in the 2014 Tsogo Transaction. HCI, through TIHC, submitted that the
transaction would not
result in any job losses or retrenchments as
the businesses of HCI and Tsogo will not be integrated. In the
Commissio'ns investigation
report in the 2014 Tsogo transaction the
merging parties submitted that 'it is not envisaged that the
transaction will bring significant
change in the operations of Tsogo
Sun as HCI through TIHC is prior to the proposed transaction already
a controlling shareholder
of Tsogo.' As such, no duplication of
functions was expected as a result of the merger. The merging parties
further submitted that
'Tsogo Sun's casino and hotel operations will
continue to be managed and operated in the same manner as they were
prior to the
proposed transaction by the same management team and
employees. The day-to-day operations of all the casinos and hotels
within
the Tsogo will be unaffected by the proposed transaction,
which will simply result in one of the previous joint controlling
shareholders
of the company acquiring a majority equity interest in
the business'.
[48]
The Commission submitted that the merger control scheme in the Act is
an investigative system; therefore, the declaratory orders
are not
well suited for an investigative system which has its bespoke
processes. This has direct implications on the discretion
that a
court has to exercise when confronted with an application for
declaratory relief especially when such declaratory relief
emanates
from the issue of a non-binding advisory opinion.
[49]
Counsel for the Commission further submitted that in the current
proposed transactions many variables remain unknown. In the
new
merger filing HCI and Tsogo would have to submit their strategic
plans including human resource plans in relation to the proposed
transaction. The plans will have to indicate whether or not an
integration of the two businesses is envisaged; whether there will
be
any duplication of roles; whether there will be any changes in
management and daily operations of the gaming activities of the
merging parties. In the Commission's experience firms' strategic
plans including human resource plans are never always constant
and
are subject to review and changes from time to time. He argued that a
merger filing is therefore required in order to conduct
this
assessment.
[50]
Counsel submitted that in the 2014 Tsogo transaction, the Commission
contacted all the relevant unions who had been duly served
with the
merger filing. The unions indicated that the 2014 Tsogo transaction
would not raise any public interest concerns. He asserted
that in the
present case, the Commission would need to solicit the views of the
relevant unions to establish whether or not the
restructuring will
raise public interest concerns. He submitted that the competitive and
public interest assessments cannot be
undertaken under the guise of
an advisory opinion and must be undertaken in a merger investigation.
[51]
He submitted that the subsequent acquisition of a majority
shareholding in Tsogo and the combination of the Niveus gaming
interests under Tsogo, constitutes a separately notifiable merger as
it involves a further acquisition of control in terms of s
12(2) (a)
of the Act. As indicated above, the Commission accepts that HCI
applied for (and was granted) approval to acquire sole
control over
Tsogo on the basis of an intended shareholding in Tsogo of over 50
per cent. Counsel contended that because that 50
per cent
shareholding will now come about pursuant to a subsequent transaction
that is distinct from the transaction contemplated
in the 2014 merger
approval, a further merger notification and approval is now required,
with a further merger assessment under
section 12A of the Act.
[52]
The grant of a declaratory order in this kind of case must be
considered very carefully. The power should be exercised sparingly,
lest the investigative powers of the Tribunal be undermined. But this
case is one of those rare exceptions. As already stated,
it is common
cause that HCI was granted approval to, and did in fact, acquire sole
control of Tsogo following the 2014 merger approval,
pursuant to its
increased shareholding in Tsogo of 47.5 per cent. By virtue of that
shareholding, HCI acquired sole control of
Tsogo in terms of section
12(2)(g) and section 12(2)(c) of the Act. HCI currently exercises
sole control of Tsogo. There is no
further acquisition of
establishment of control that is brought about by its acquisition of
over 50 percent of the shares in Tsogo
within the meaning of s 12(2)
(a) of the Act and this is a further implementation of an existing
sole control structure which was
approved by the Tribunal in 2014 and
which permitted HCI to conduct the operations of Tsogo as it saw fit.
[53]
S 12(2) therefore does not list different kinds of control, each of
which is separately notifiable but illustrates different
ways in
which control might be acquired within the meaning of section 12(1)
of the Act. Once sole control has been approved and
acquired in one
of the ways contemplated in section 12(2), it does not require
separate approval if it is subsequently implemented
in one of the
other ways contemplated in section 12(2). Merger approval is thus a
"once off' affair. We find that the proposed
transaction does
not constitute a notifiable merger because the competition
authorities have previously approved the acquisition
of sole control
of Tsogo in 2014 by HCI, and because HCI already exerts sole control
of Tsogo pursuant to the 2014 merger approval.
We were unable to find
any authority on the proposition. While the Commission's argument
about crossing bright lines raises important
policy considerations,
the latter would, on the present wording of the Act require amendment
to be given the kind of legislative
force advocated by the
Commission.
Sole
Control
[54]
Much of the debate centred on the nature of the control exerted by
appellants over Tsogo. Appellants referred to the voting
patterns at
Tsogo's
most recent shareholders meeting and found that it was
stable in that the minority of institutional investors were
acquiescent.
[55]
We are of the view that it is significant that HCI commanded the
majority of votes in Tsogo. The importance of
de facto
control
was also recognised in
Caxton, supra.
In the present matter
the Commission accepted that HCI had acquired sole control over Tsogo
by virtue of its shareholding. It also
accepted that HCI exercised
sole control over Tsogo under sections 12(2) (g) and (c) of the Act
by virtue of its shareholding.
The Commission also accepted that the
since 2014 HCI exercised sole control over Tsogo in accordance with s
12(2)(g) and (c) of
the Act by virtue of its shareholding. The
appellants contend that this potentially volatile situation will be
countered because
the proposed transaction will move HCI to a
position of majority control in terms of s12(2)(a) of the Act. This
moves HCI away
from the dependence of other shareholders at the
meetings.
[56]
The appellants submit that it is clear that the 2014 Tsogo decision
led to the acquisition of sole control by HCI over Tsogo.
At that
time the Commission and the Tribunal conducted a merger assessment in
terms of section 12A of the Act. It was aware that
in time HCI would
exert sole control over the gaming interests of both Tsogo and
Niveus. At the same time HCI also enjoyed sole
control of Niveus'
gaming interests.
[57]
In analysing s12 (2), it is clear that it does not purport to define
control in terms of an exhaustive list. The appellants
argue that
very often at the time of merger notification details may not be
clear, for example, as to how many shares will be purchased
by the
acquiring firm or when they will be purchased or from which
shareholders. These factors do not prevent merger approval.
The
important factor therefore in assessing whether a transaction is
simply that or whether the transaction constitutes a merger
is the
question of prior and post transaction control. In this case, the
facts are clear concerning HCl's pre and post transaction
control.
[58]
The present internal restructuring by HCI of its assets does not give
rise to a situation of a change in qualitative control.
A helpful
test was suggested regarding sole control in the Official Journal of
the European Union C95/16
'(54) Sole control is
acquired if one undertaking alone can exercise decisive influence on
an undertaking... determine the strategic
commercial decisions of the
other undertaking and where one shareholder can veto strategic in an
undertaking' has sole control.'
Conclusion
[58]
In our view the Commission cannot require the notification of a
transaction based on a reason that it wishes to assess the
Implications of such transaction. It is important to emphasise that
the effects of an acquisition of control are considered and
determined when the approval of the merger is sought and obtained
which is done on a forward-looking assessment of the likelihood
of
competition harm and the public interest and cannot be revisited once
it has been determined.
[59]
Having carefully considered the particular facts of this case we are
driven to conclude that the Tribunal has the jurisdiction
to grant
declaratory relief; that the requirements for the exercise of that
jurisdiction are met and that the proposed transaction
in this case
does not amount to a notifiable merger under the Act.
[60]
Coming to the issue of urgency, HCI and Tsogo have predicated urgency
on the fact that the proposed transaction involves a
series of
interconnected transactions between three listed companies with the
purchase price to be discharged by a combination
of cash and shares.
The long stop date for regulatory approval on the agreement was
originally 30 September 2017 and the parties
are currently seeking to
negotiate a brief extension of this date. They assert that there is
an urgent need for regulatory certainty
regarding the notifiability
of the proposed transaction prior to the expiry of the long-stop
date. Consistent with the urgency
of this matter, HCI and Tsogo have
sought to achieve certainty regarding their legal obligations with
all due expedition. The Tribunal
dealt with the issue of urgency in
para 76 of its decision. In light of the decision that we have come
to on the merit of the application,
we find it unnecessary to deal
with the issue.
[61]
What remains to be considered is the question of costs. The general
rule is that in the ordinary course costs follow the result.
However,
in this application Counsel for the Commission submitted that the
facts of this case do not warrant an order for costs
against the
Commission. Counsel for HCI and Tsogo rightly so conceded.
Order
1. The appeal is upheld.
2. It is declared that the proposed
transaction in terms of which Hosken Consolidated Investments Limited
will increase its shareholding
in Tsogo to more than 50 per cent and
will consolidate all of its gaming interests (other than its sports
betting and lottery interests)
under Tsogo Sun Holdings Limited, an
entity over which it exerts sole control pursuant to a decision of
the Tribunal in 2014 (CaseNo.
019372), by transferring such gaming
interests owned indirectly by one of its subsidiary companies, Niveus
Investments Limited
to Tsogo Sun Holdings Limited, does not require
approval by the completion authorities in terms of the merger control
provisions
of the
Competition Act 89 of 1998
.
_______________
VICTOR
AJA
_______________
MNGUNI
AJA
DAVIS
JP concurred
Appearances
Heard:
02 October 2017
Delivered:
October 2017
For
the Applicants: Mr D. Unterhalter SC and Mr J. Wilson SC
Assisted
by: Ms S. Pudifin-Jones and Mr N. Luthuli
INSTRUCTED
BY: Nortons Inc.
REF.:
TEL.:
For
the Respondents: Mr B Majenge, Mr K Ayayee and Ms L Phaladi
INSTRUCTED
BY: Competition Commission
REF:
TEL:
[1]
Section 27(1)
reads as follows: '27. Functions of Competition
Tribunal.-(1) The Competition Tribunal may-
(a) adjudicate on any conduct
prohibited in terms of Chapter 2, to determine whether prohibited
conduct has occurred, and, if
so,10 impose any remedy provided for
in this Act,
(b) adjudicate on any other matter
that may, in terms of this Ac be considered by It, and make any
order provided for in this
Act.
(c) hear appeals from, or review any
decision of, the Competition Commission that may In terms of this
Act be referred to It;
and
(d) make any ruling or order
necessary or incidental to the performance of its functions in terms
of this Act.'
[2]
Section 58 reads as follows:'58. Orders of Competition Tribunal.-(1)
In addition to its other powers in terms of this Act, the
Competition Tribunal may-
(a) make an appropriate order in
relation to a prohibited practice, including-
(i) interdicting any prohibited
practice;
(ii) ordering a party to supply or
distribute goods or services to another party on terms reasonably
required to end a prohibited
practice;
(iii) imposing an administrative
penalty, in terms of section 59, with or without the addition of any
other order in terms of
this section;
(iv) ordering divestiture, subject to
section 60;
(v) declaring conduct of a firm to be
a prohibited practice in terms of this Act, for purposes of section
65;
(vi) declaring the whole or any part
of an agreement to be void;
(vii) ordering access to an essential
facility on terms reasonably required;
(b) confirm a consent agreement in
terms of section 490 as an order of the Tribunal; or
(c) subject to sections 13 (6) and 14
(2), condone, on good cause shown, any non compliance of-
(i) the Competition Commission or
Competition Tribunal rules; or
(ii) a time limit set out in this
Act.
(2)
At any time, the Competition Tribunal may adjourn a hearing for a
reasonable period of time, if there is reason to believe
that the
hearing relates to a prohibited practice that might qualify for
exemption in terms of section 10.
(3)
Despite any other provision of this Act, if the Competition Tribunal
adjourns a hearing in terms of subsection (2), the respondent
may
apply for an exemption during that adjournment.'
[3]
Tribunal Rule 31 reads as follows: '31. Preliminary merger
decisions.-(1) An application may be made by filing a Notice of
Motion and affidavit, as described in Rule 42 (1), for any of the
following matters:
(a) For an order extending time in
terms of section 14A (2).
(b) An appeal against directions by
the Commission concerning the application of the Threshold
requirements and fee calculations,
In terms of Competition
Commission Rule 26 (3).
(c) An appeal against an opinion of
the Commission concerning the jurisdiction of the Act, in terms of
Competition Commission
Rule 33.
(d) An appeal against Form CC 13 (2)
issued by the Commission in terms of Competition Commission Rule 30.
(e) An appeal against a Demand for
Corrected Information issued by the Commission, in terms of
Competition Commission Rule 32.
(f) For an order for a remission of
filing fees, in terms of Competition Commission Rule 34 (2).
(2)
A person appealing agalnst Form CC 13 (2) in terms of both
Competition Commission Rule 30 (4) and Competition Commission Rule
33 (3) must combine both appeals on a single Notice of Motion.
(3)
A Notice of Motion and affidavit filed in terms of this Rule-
(a) must be served on the Commission,
or if the Commission is the applicant, on the firm that filed the
Merger Notice; and,
(b) if the applicant seeks an order
in terms of Competition Commission Rule 33 (3), must also be served
on the other primary firm.
(4)
Upon receiving a Notice of Motion and affidavit filed in terms of
this Rule, the registrar must set the matter down for hearing
at the
earliest convenient date.
(5)
A motion in terms of sub-rule (1) (a) may be heard by a single
member of the Tribunal in terms of section 31 (5).
(6)
Division E, other than the requirements set out in Rule 42 (1) and
(3), does not apply to a Notice of Motion brought in terms
of this
Rule.
(7)
Upon hearing an appeal in terms of Competition Commission Rule 30
(3), the Tribunal may make an order-
(a) Setting aside Form CC 13 (2)
entirely;
(b) Confirming any or all of the
requirements set out in Form CC 13 (2);
(c) Substituting other requirements
for any of the requirements set out in Form CC 13 (2);
or ·
(d) Combining any or all of the
requirements set out in Form CC 13 (2) with additional or substitute
requirements.'
[4]
Bulmer SA (Proprietary) Limited and another v Distillers Corporation
(SA) Limited and others Case No: 94/FN/Nov00;101/FN/Dec00.
[5]
Distillers Corporation (South Africa) Limited & another v Bulmer
(SA) (Pty) Ltd & another 08/CAC/May01.
[6]
Gold Fields Limited v Harmony Gold Mining Company Limited and
Another 43/CAC/Nov04.
[7]
Caxton CTP Publishers and Printers Limited and Naspers
Ltd/Electronic Medial Network Ltd/Supersport International Holdings
Ltd/Competition Commission (16/FN/Mar04)
[2004] ZACT 25
(13 April
2004) para 45.
[8]
Caxton CTP Publishers and Printers Limited and Media 24 Holdings
Ltd, Novus (Pty) Ltd, Adbait (Pty) Ltd, Lambert Phillps Retief
136/CAC/March 2015.
[9]
See footnote 26 below
[10]
Johnic Holdings Limited v Hosken Consolidated Investments United and
Another Case Number 65/FN/Jul05.
[11]
[2006] 1 CPLR 410 (CT).
[12]
'62. Appellate jurisdiction.-(1) The Competition Tribunal and
Competition Appeal Court share exclusive jurisdiction in respect
of
the following matters:
(a) Interpretation and application of
Chapters 2, 3 and 5, other than-
(i) a question or matter referred to
in subsection (2); or
(ii) a review of a certificate issued
by the Minister of Finance in terms of section 18 (2); and
(b) the functions referred to in
sections 21 (1), 27 (1) and 37, other than a question or matter
referred to in subsection (2).'
[13]
The Constitution of the Republic of South Africa, 1996.
[14]
Seagram Africa (Pty) Ltd v Stellenbosch Farmers' Winery Group Ltd &
others [2001] 1 All SA 484 (C).
[15]
In Caxton and CTP Publishers and Printers Limited and Others v
Multichoice (Pty) Limited and Others Case Number 140/CAC/March2016.
[16]
1963 (1) SA 754 (A).
[17]
Minister of Finance v Oakbay Investments (Pty) Ltd and Others;
Oakbay Investments (Pty) Ltd and Others v Director of the Financial
Intelligence Centre (80978/2016) [2017] ZAGPPHC 576.
[18]
Rail Commuters Action Group v Transnet Limited t/a Metrorail 2005
(2) SA 359 (CC).
[19]
Shells Annandale Farm (Pty) Ltd v Commissioner for the SARS
2000 JOL
5948
(C).
[20]
Cordiant Trading CC v Daimler Chryster, Financial Services (Pty) Ltd
2005 (6) SA 205 (SCA).
[21]
Seagram note 13 above.
[22]
Note 5 above at 458.
[23]
Goldfields Limited v Harmony Goldmining Company Limited and Another
43/CAC/Nov04.
[24]
African Media Entertainment Limited v David Lewis NO and Others Case
Number 68/CAC/Mar07.Africa (Pty) Limned and Stellenbosch
Farmer's
Winery Limited, Stellenbosch Farmer's Winery Group Limited
Distillers Corporation SA Limited 7759/00CBD.
[25]
Bulmer SA (proprietary) limited and another v Distillers Corporation
(SA) Limited and others case number 94/FN/Nov*0101/FN/Dec00.
[26]
Distillers Corporation (South Africa) Limited and another v Bulmer
(SA) (Pty) Ltd and another 08/CAC/May01.
[27]
Supra
[28]
African Media Entertainment Limited v David Lewis NO and Others Case
Number 68/CAC/Mar07.
[29]
Ethos Private Equity Fund IV and Tsebo Outsourcing Group (Pty)
Limited Case Number 30/LM/Juno3.
[30]
Ethos Private Equity Fund IV v The Tsebo Outsourcing Group (Pty)
Ltd.