Caxton and CTP Publishers and Printers Limited and Others v MultiChoice Proprietary Limited and Others (140/CAC/MAR16) [2016] ZACAC 3; [2016] 1 CPLR 1 (CAC) (24 June 2016)

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[2016] ZACAC 3
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Caxton and CTP Publishers and Printers Limited and Others v MultiChoice Proprietary Limited and Others (140/CAC/MAR16) [2016] ZACAC 3; [2016] 1 CPLR 1 (CAC) (24 June 2016)

REPUBLIC
OF SOUTH AFRICA
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
IN CAPE TOWN
CASE
NO: 140/CAC/MAR 16
In
the matter between:-
CAXTON
AND CTP PUBLISHERS AND PRINTERS
LIMITED
First
Appellant
THE
TRUSTEES FOR THE TIME BEING OF THE
MEDIA
MONITORING PROJECT BENEFIT
TRUST
Second
Appellant
S.O.S.
PUBLIC BROADCASTING
COALITION
Third
Appellant
and
MULTICHOICE
PROPRIETARY
LIMITED
F
irst
Respondent
SOUTH
AFRICAN BROADCASTING
CORPORATION
(SOC)
LIMITED
Second
Respondent
THE
COMPETITION
COMMISSION
Third
Respondent
JUDGMENT:
24 JUNE 2016
DAVIS
JP and BOQWANA AJA (VALLY AJA separate judgment)
Introduction
[1]
This appeal concerns the nature of a "Commercial and Master
Channel Distribution Agreement" concluded between first

respondent and second respondent during July 2013 ('the agreement')
and, in particular, whether it gives rise to a merger within
the
meaning of s 12 (1) of the Competition Act 89 of 1998 ('the Act').
[2]
The concept of a merger transaction and hence which transactions fall
within the scope of a merger review lies at the heart
of this
dispute. The definition of a merger transaction which is to be
subjected to the scrutiny of competition authorities seeks
to
identify those transactions which are "suitable" for merger
review. By suitability, we mean that the transaction in
question
could lead to consequences that are in conflict with the chosen
policy goals of the competition law regime. Expressed
differently,
the focus is on whether the transaction may lead to structural
changes in the relevant market and, accordingly, whether
there is a
reasonable likelihood that the transaction could interfere
detrimentally with a competitive market outcome.
[3]
The purpose of developing the concept of a merger transaction which
is clear, predictable and comprehensible is to ensure that
the system
of merger review targets transactions that may lead to structural and
durable changes in the market place and therefore
hold the likelihood
of substantially preventing or lessening competition. At the same
time, the system should avoid the review
of transactions that might
pose no competitive risks or could be more appropriately be dealt
with by different instruments . Viewed
within the context, the goal
must be to minimise the costs resulting from what are referred to as
type I errors, by ensuring that
transactions that raise no
competitive problems do not have to be notified, while preventing
type II errors, that is problematic
transactions that might otherwise
escape a merger review. See in general, OECD working party No 3 on
Co-Operation and Enforcement:
'The Concept of a Merger Transaction
18 June 2013.
The
relevant provisions of the Act
[4]
In terms of s 13 A (1) the party to an intermediate or a large merger
must notify the Competition Commission of that merger
in the
prescribed manner and form. Section 13 A (3) provides that the
parties to such a merger may not implement the merger until
it has
been approved with or without conditions by the Competition
Commission in terms of s 14 (1) (b), by the Competition Tribunal
in
terms of s 16 (2) or the Competition Appeal Court in terms of s 17 of
the Act.
[5]
For a transaction to require a notification, two elements must be
satisfied.
(i)
The transaction must
comply with a definition of "merger" as contained in s 12
(1) of the Act; and
(ii)
The relevant
financial thresholds must be met. This is not an issue in the present
dispute.
[6]
A merger is defined in s 12 ( 1)(a) of the Act as occurring 'when one
or more firms directly or indirectly acquire(s) or establish(es)

direct or indirect control over the whole or part of the business of
another firm'. Section 12 (1) (b) provides that this control
can be
achieved in any manner. The section then sets out a non-exhaustive
list of transactions that may give rise to an acquisition
of control
by a firm, including the purchase and lease of assets. Of equal
relevance is s 12 (2) (g) of the Act, which provides
that a person
controls a firm if that person has the ability to materially
influence the policy of the firm in a manner comparable
to a person
who, in ordinary commercial practice, can exercise an element of
control referred to in paragraphs (a) to (f) of s
12 (2) of the Act.
[7]
Before dealing with the current jurisprudence which has interpreted
these sections, we must turn to a description of the agreement.
The
agreement
[8]
The agreement concerns the licensing of certain rights in respect of
television channels for a period of five years. The key
components of
the agreement are:
1.
An Entertainment
channel, being on entertainment channel to be developed and produced
by second respondent for first respondent
in respect of which first
respondent will have, subject to qualifications, exclusive
distribution and marketing rights.
2.
A News channel,
being a 24 hour news channel , to be developed and produced by second
respondent for first respondent in respect
of which first respondent
will have, subject to qualifications, exclusive distribution and
marketing rights.
3.
The SABC Digital FTA
channels, that is the free to air channels which will in the future
be transmitted by second respondent on
its digital terrestrial
television platform ('SABC OTT Platform') and in respect of which
first respondent will have non-exclusive
distribution marketing
rights.
4.
The MultiChoice
Digital FTA channel, that is a free to air entertainment channel, to
be provided by first respondent to the second
respondent for
distribution in the future on the SABC OTT Platform and in respect of
which the first respondent will have non-exclusive
distribution and
marketing rights.
[9]
The two key components which were the subject of the present dispute
concerned the Entertainment channel and the FTA channels.
It is
therefore necessary to deal with these provisions in somewhat more
detail.
The
Entertainment channel
[10]
The agreement contemplates that the entertainment channel will be
created from materials sourced in the archives of second
respondent.
First and second respondent shall meet (as soon as possible after the
signing of the agreement) to discuss the scheduling
and precise
details of the content of the entertainment channel. Second
respondent was required, pursuant to this meeting, to deliver
to
first respondent "a comprehensive presentation" which
should provide “precise details" as to the content,

programming schedule, name, broadcast hours and detailed costs of the
channel. First respondent will "convey its content,
programming
and scheduling requirements" and raise any concerns that it
might have with the proposal of second respondent.
Thereafter, a
detailed “content description schedule" will be
incorporated into the agreement. In the event that the
parties are
unable to agree on this schedule, first respondent has the right to
terminate the agreement. The content for this channel
will be owned
by second respondent as it will be sourced from its archives.
[11]
The agreement provides that first respondent will have exclusive
rights to broadcast the entertainment channel in Uthe territory",

which is defined as all of Africa, subject to clearances which second
respondent is able to procure from countries other than South
Africa.
It is then required to inform first respondent which will be able to
broadcast the channel in other parts of the continent,
save for South
Africa, where it is clear that there is such a clearance. In certain
circumstances; second respondent is precluded
from distributing or
authorising anyone else to distribute the entertainment channel or
any branded block or substantially similar
channels. It may
distribute the entertainment channel on its wholly owned services, on
condition that there is, at all times, a
specified delay of 60 days
following the first broadcast of the channel on any system of first
respondent, in which case it must
be broadcast by second respondent
in exactly the same format and according to the same schedule as
broadcast by first respondent
but subject to the delay clause.
[12]
First respondent has the right to monitor the performance of the
entertainment channel and, if the performance falls below
a certain
specified benchmark, the fees paid by first respondent for the
distribution of the entertainment channel will accordingly
be
reduced.
The
FTA Channels
[13]
First respondent is to provide second respondent with a MultiChoice
FTA channel, for the second respondent to distribute on
its OTT
Platform First respondent will grant second respondent a
non-exclusive license to receive, distribute and market this channel

in South Africa during the term of the agreement. First respondent
will be responsible for any costs of delivery of this channel;
that
it for any new transmission equipment. Second respondent grants to
first respondent a non-exclusive right to distribute and
market SABC
FTA channels in South Africa (at present SABC 1, 2 and 3). The
parties agree to discuss in 'good faith' the terms for
first
respondent to distribute these channels in the rest of Africa.
[14]
In terms of clause 4.3.1 read with clause 2.1.6 of the agreement,
second respondent undertakes not to transmit its FTA signals

unencrypted, but in a way that would be receivable by first
respondent's set top - boxes for the duration of the agreement.
Clause
2.1.6 of the agreement provides:
'The
Channel Signals for the SABC FTA channels as transmitted in South
Africa would at all times be available to and receivable
on the M-Net
OTT Set-Top Boxes distributed in South Africa. The SABC agrees that
the SASS FTA channels will not at any times be
encrypted or allow any
conditional access system to be applied in respect of the Channel
Signals for the SABC FTA channels transmitted
on the SABC OTT
Platform in South Africa so that viewers are able to view the SABC
FTA Channels without requiring anything other
than the installation
of an M-Net OTT Set­Top Box.'
[15]
In the event that second respondent transmits any of its FTA channels
on an encrypted list basis so that they are not freely
available for
any viewer with a M-Net STB, first respondent is afforded the right
to terminate the agreement or continue to broadcast
these channels
without paying any fees to second respondent in terms of clause 7 of
the agreement.
[16]
It appears that, in consideration for the grants of these rights to
first respondent and the supply of the Pay TV channels
first
respondent has agreed initially to pay second respondent R 553 m, 60%
of which amount is allocated to the entertainment channel
and 40% to
the news channel. There have been subsequent amendments to this
clause but these are not particularly relevant to the
present
dispute.
The
Tribunal's decision
[17]
In dismissing appellants case to compel first and the second
respondents to notify third respondent of acquisitions of control

which arose from the agreement, the Tribunal found that there was no
transfer of productive capacity; that is the rights to use
some of
second respondent's archive did not constitute the transfer of a part
of second respondent's business to first respondent.
In terms of the
agreement, the Tribunal held that the second respondent did not
transfer market share or a business to first respondent.
The contrary
suggestion by appellants was found to be an inference unsupported by
the facts. The Tribunal also emphasised that
the agreement was
limited to five years and hence did not have the necessary
permanence. It held further that comparative authority
suggested
that, for an agreement to be considered to be 'relatively permanent'
and thus to have the characteristics of relative
permanence, the
agreement had to endure for a period of much longer than five years.
For these reasons the Tribunal found that
the acquisition of rights
pursuant to the agreement did not amount to a transfer of the
business.
[18]
The Tribunal further held that the appellants had failed to establish
the issue should have been determined by government policy
and by
industry players respectively with regard to the question of
encryption. Accordingly, these issues fell outside the strict
ambit
of s 12 (2) (g) of the Act. Hence; the agreement regarding encryption
and access between first and second respondents could
not be held to
constitute control by first respondent over second respondent's
business. The Tribunal expressed the point thus:
'On
the present record we do not have enough clarity on what issues will
be determined by governmental policy and which will still
be
determined by industry players, assuming that they still have some
freedom of choice in these respects. However, to the extent
that they
do not, then the policy issue is not one of a firm as 12 (2) (g)
requires, but that of government bringing the issue
outside of the
ambit of that subsection.' (para 97)
The
appellants' case
[19]
As indicated, appellants concentrated on two key components of the
agreement; that is the entertainment channel and the provisions
of
the agreement relating thereto as well as upon the provisions
regarding encryption. We turn first to the provision relating
to the
entertainment channel.
[20]
In his most able argument, Mr Budlender, who appeared together with
Mr Marriot and Ms Msimang for appellants, submitted correctly
that s
12 (1)(b) of the Act recognises that an agreement to lease the
shares, interest or assets of another firm may give rise
to an
acquisition of control. Accordingly, a license agreement which also
constitutes a grant by the licensor of the right to use
the assets in
question to the licensee must be capable of transferring control over
the licensed asset to the licensee as envisaged
in s 12 (1)(a) of the
Act.
[21]
The agreement results in first respondent acquiring control over a
material portion of the archives of second respondent, a
most
significant asset. In particular, the agreement provided that second
respondent's grant to first respondent of an exclusive
license to
broadcast a channel, the content of which is to be determined jointly
by the respondents pursuant to the agreement,
was to be constituted
of programmes sourced in the archives of second respondent.
Appellants contended that these provisions fell
within the scope of s
12 of the Act.
[22]
The agreement also included a restraint imposed upon second
respondent not to distribute or to authorise any other party to

distribute the channel, any adaption, part version or individual
program, which formed part of the channel and any branded block
or
substantially similar channel.
[23]
On the basis of this reading of the agreement, Mr Budlender submitted
that, by granting this license, the second respondent
had divested
itself of the right to use or otherwise exploit the content of the
channel either individually or as a package. Although
the copyright
in the archive remained with second respondent, it no longer
controlled this key asset because it could not exploit
any of it for
its own commercial purposes, save in the limited circumstances set
out in the agreement, and subject to the time
delay to which we have
referred. In Mr Budlender's view, it was not simply the archived
content which was significant. The restraint
prevented the second
respondent from licensing "any substantially similar channel"
to the entertainment channel to a
third party for the duration of the
agreement. Accordingly any "reruns" by second respondent in
operating another channel
of archived entertainment material would
clearly be "substantially similar" to the entertainment
channel and would fall
foul of the restraint.
[24]
In seeking to illustrate the value of the right, Mr Budlender
referred to the conservative estimate that a R 200 m fee, including

payment for the entertainment content restraints, had been paid by
the first respondent to second respondent. In his view, this
hefty
fee supported the further submission, that an independent channel
wholesaler would manifestly be able to operate a viable
self-standing
business, even if it had no assets other than the copyright in these
programs. The acquisition of the copyright in
these programmes
enabled the acquirer to access the channel wholesaler market and to
produce a market turnover within a reasonable
timeframe. The assets
thus constituted part of a business within the meaning of the Act.
[25]
Furthermore, given that the exclusive licensee, being first
respondent was the only party able to exploit the licensed asset
for
so long as the license remained in place, it was clear that first
respondent had acquired control over the relevant assets,
sufficient
to bring the transaction within the scope of s 12 of the Act.
Duration
of agreement
[26]
Turning to the duration of the agreement, Mr Budlender referred to
the decision of this Court in
Goldfields Limited v Harmony Gold
Mining Company Limited and another
[2005] 1 CTLR 74 (CAC) at 91
to the effect that there was no basis for a distinction to be drawn
between short and long term control,
particularly when the wording of
s 12 (2) {g) is carefully considered. In its
Goldfields
decision
this Court found that an acquiring firm, pursuant to the relevant
agreement, would be able to:
'Effect
a permanent and irreversible change to the very structure of its
competitor; at the very least it will be able to materially
interest
a key policy of appellant by ensuring that appellant's long-term
strategy of entering into the IAMGold transaction could
not be
implemented.' (para 92)
[27]
The appellant's argument is that an agreement of "only"
five years duration must be understood within the context
of the
specific business model of the television industry which has been
undergoing fundamental transformation in recent times.
The migration
to OTT, for example, represents a significant move in the direction
of media convergence. The whole country will
be required to obtain
STB's if a person wishes to continue viewing television. The
migration to OTT therefore represents a unique
opportunity for
broadcasters to capture more viewers than subscribers on a scale not
previously experienced in South African broadcasting
history. Control
over first respondent's archival content will ensure that the ability
of any other broadcaster to make significant
inroads into the
relevant market will be seriously undermined, particularly as first
respondent will be able to offer access to
lower LSM groups who watch
local content primarily through second respondent's channels.
[28]
In Mr Budlender's view, no other broadcaster will be able to match
the offering of first respondent. In further support of
this argument
relating to how the duration of the exclusivity is to viewed in the
context of the broadcasting industry, Mr Budlender
referred to
United
States v Columbia Pictures Corporation
189 F. Supp 153 (SONY
1960), a decision of the US District Court for the Southern District
of New York. In this case the court was
concerned with an agreement
that had been concluded between a wholly owned subsidiary of Columbia
Pictures and Universal Studios.
This subsidiary had acquired
exclusive television licenses for fourteen years to show over 600 pre
1948 feature films from the
Universal Studios. It would receive a
percentage of the income from distributing these firms and would pay
Universal a minimum
annual fee. There was an exclusive but time
limited right to broadcast part of Universal Studios' valuable
archives.
[29]
The court held that this agreement constituted an acquisition of
control over assets and fell to be assessed for its potential

anti-competitive effects. In particular, the court held that the fact
that the agreement was time bound did not preclude a conclusion
that
a change of control had occurred because:
"'Pre-1948
feature films" are a product of finite quantity. There is a
fixed inventory of that product. It cannot be replenished.
Moreover,
it is a continuously depleting property in the sense that, with each
repeat or rerun, its economic value approaches zero
... (at 13)
The
diminishing competitive position of Screen Gems must also be viewed
in light of the fact that a considerable proposition of
the value of
a given feature is consumed by the first showing.' (at 65)
The
test for transfer of a partial asset acquisition
[30]
Much of appellants' arguments in attacking the decision of the
Tribunal turned on its approach in
Competition Commission v Edgars
Consolidated Stores Limited
[2003)
1 CPLR 151
(CT) at para 37
where the Tribunal adopted a test for partial asset acquisition in
the case of a merger as proposed by USA academic
Professor Herbert
Hovenkamp. In its decision, the Tribunal cited Hovenkamp with
approval when the learned author stated:
'Anti-trust
policy becomes concerned with partial asset acquisitions when the
asset that changes hands represents a measurable and
relatively
permanent transfer of market share or productive capacity from one
firm to another.' cited at para 33 of the Tribunal's
decision
[31]
Mr Budlender correctly cautioned that a test developed in the United
States needs to be viewed within the merger notification
regime in
which the test was developed. Thus s 7 of the Clayton Act provides:
'No
corporation engaged in commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share capital

and no corporation subject to the jurisdiction of the Federal Trade
Commission shall acquire the whole or any part of the assets
of
another corporation engaged also in commerce, where in any line of
commerce in any section of the country, the effect of such

acquisition may be substantially to lessen competition.'
[32]
It is thus correct that the Clayton Act does not provide for the
notification of mergers. This however, does not mean that
there is no
merit in the broad approach developed by Professor Hovenkamp.
Accordingly, Mr Budlender, in the alternative, submitted
that the
agreement between respondents satisfied the Hovenkamp test because it
served to transfer productive capacity from second
to first
respondent in the upstream market for wholesale channel provision and
further restrained the second respondent from increasing
its market
share and increasing first respondent's market share in the
downstream market for broadcasting.
Respondent's
case
[33]
Central to the respondent's case was an analysis of the television
industry as developed by first respondent's expert economist,
Mr
James Hodge. Mr Hodge described the television broadcasting value
chain as comprising of three markets in a vertical relationship
to
each other; the production of content and licensing of rights by
content rights holder, the wholesale channel provision by channel

providers and retail broadcast service provision to consumers.
According to Mr Hodge, the chain can be depicted thus:
Content
Rights Holder
(Production
of Content)      [SABC]
↓
Licensing
and acquisition
of
contents rights
Wholesale
Channel Provider
(Packaging
content into channels)
[SABC]
↓
Licensing
and acquisition
of
channel rights
Retail
Broadcast Service
(Packaging
channels into
bouquets)
[Archive]
↓
Broadcasting
of bouquets
on
a Subscription of FTA basis
Consumer
[34]
Following on this description, first respondent contends that, given
vertical integration in the industry, a retail broadcaster
may also
license content or channels from another retail broadcaster. If a
vertically integrated firm in any industry is to sell
output from an
upstream division to third parties, by its very nature, this will be
to potential rivals of its downstream division.
[35]
First respondent points to the affidavit of Mr lmtiaz Patel, the
group CEO of first respondent, who states that over the years
first
respondent has concluded channel licensing agreements with a number
of channel providers which were also broadcasters in
the South
African market. On this basis, first respondent characterised the
agreement as a commercial arrangement between vertically
integrated
providers at different levels of the broadcasting value chain, in
terms of which an upstream wholesale channel provider
has agreed to
supply the others, as downstream retail service providers with
channels. In particular, it was contended that second
respondent had
sought to maximise value in an asset by licensing first respondent to
exploit the archive.
[36]
Turning to the question of exclusivity Mr Patel states in his
affidavit:
'There
is nothing unusual about a channel distribution agreement between a
vertically related channel provider and retail broadcaster
which
happen to compete against one another in the downstream market for
retail broadcasting services.'
Mr
Patel continues:
'As
a matter of commercial sense and practice, a retail broadcaster which
acquires a new channel which is not already broadcast
in the
territory will require a measure of exclusivity in respect of the
rights for which it is paying, whether or not the parties
compete
with one another in the downstream market. Where the channel provider
is itself a retail broadcaster, the protection of
exclusivity will
necessarily involve restriction on the channel provider's right to
broadcast the channel.
For
the licensee, exclusivity enables it to differentiate its content
offering from that of other broadcasters. lt also incentivises
the
licensee to invest in marketing the content, without others
free-riding on its efforts. For the licensor, exclusivity enables
it
to realise significantly higher value for the content.'
[37]
First respondent's expert economist Mr Hodge also referred to the
Hovenkamp test, to which we have already made reference,
as well as
the subsequent refinement by Areeda and Hovenkamp that there must be
'an acquisition of a going (even though failing)
concern or its
equivalent involving an immediate and relatively permanent transfer
of market share from one to another ... corporation.'
[38]
On the basis of this approach, first respondent contends that the
test formulated by Hovenkamp and later refined by Areede
and
Hovenkamp was designed to ensure that normal market transactions
involving the sale of output to a downstream firm which, in
turn,
uses these outputs and the production process to potentially improve
its market share in the downstream market including
licensing
agreements should not be captured under the scope of a merger
transaction.
[39]
First respondent also noted that, in terms of the EU Jurisdictional
Notice at para 28 'a change of control on the lasting basis
is not
excluded by the fact that the underlying agreements are entered into
for a definite period of time provided those agreements
are
renewable. A concentration may arise even in cases in which
agreements envisaged a definite end - date, if the period envisaged

is sufficiently long to lead to a lasting change in the control of
the undertakings concerned.
[40]
It is for this reasons that, it was found that in terms of an
agreement, control for a period of between 10 - 15 years was

sufficient to establish lasting control for the purposes of a merger
but a period of three years was clearly insufficient. See
Lehman
Brothers/SCG /Starwood/le Meridian
Case No P/M 3858 at para 9.
[41]
In support of these arguments, second respondent contended that first
respondent does not have control over material portion
of the archive
of the second respondent. The material which will be employed for the
production of the channel was only 0.6% of
the total archived
material. Such a miniscule percentage could not be regarded as
material. Accordingly, second respondent contends
that the
appellants' attempt to characterise the licence as an acquisition of
sole control over second respondent's archives amounted
no more than
a right obtained through a license to broadcast exclusively for a
defined and relatively short period. Further the
content shown on the
channel would make up less than 1% of the total content of the
archive of second respondent.
Evaluation:
Licensing Agreement
[42]
The key question for the determination of this component of this case
turns on the appropriate test for 'acquires or establishes
direct or
indirect control over the whole
or part of the business for
another firm
. To recap: the Tribunal had followed its earlier
decision in
Competition Commission v Edgars Consolidated Stores
Limited
(2003) 1 CPLR 151
(CT) and hence the test developed by
Hovenkamp, to which we have already made reference. The Tribunal had
found that there had
been no transfer of productive capacity from
second to first respondent and that 'the rights to use some of the
archive do not
constitute the transfer to MultiChoice, of productive
capacity that can be considered to be a business' (para 57). Further
the
Tribunal found that there was no sufficient evidence of a
transfer of market share sufficient to fall within the concept of the

transfer of a business.
[43]
Appellants have now sought to rely on the Canadian Competition Act of
1985 and, in particular s 110 (2) of that Act, which
provides for a
merger notification threshold for asset acquisitions as follows:
'110
(2) Subject to sections 111 and 113, this Part applies in respect of
a proposed acquisition of any of the assets in Canada
of an operating
business if the aggregate value of those assets, determined as of the
time and in the manner that is prescribed,
or the gross revenues from
sale in or from Canada generated from those assets, determined for
the annual period and in the manner
that is prescribed, would exceed
the amount determined under subsection (7) or (8), as the case may
be.'
[44]
This provision is however made subject to a qualification in s 111
which provides for exemptions from merger notification for
a series
of classes of transactions including:
'An
acquisition of real property or goods in the ordinary course of
business if the person or persons who propose to acquire the
assets
would not. as a result of the acquisition, hold all or substantially
all of the assets of a business or an operating segment
of the
business.'
[45]
The question is whether part of a business was transferred pursuant
to the agreement. The first challenge is to formulate the
appropriate
test to apply to this inquiry. The Hovenkamp test of seeking to
examine whether there has been a relatively permanent
transfer of
either market share or productive capacity from one firm to another
is not entirely incongruent with other areas of
South African law.
There is, for example, a significant body of jurisprudence as to the
meaning of the term "transfer of a
business as a going concern"
as set out in
s 197
of the
Labour Relations Act 66 of 1995
. This
phrase has been given meaning in a number of cases, including
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd
2015
(6) BCLR 660
(CC) paras 36-37 and
Communication Workers Union and
others v
Mobile Telephone Networks (Pty) Ltd and another
(2015) 36 ILJ 1989 (LAC). In this latter case at para 13, the
Labour Appeal Court said:
'As
this court remarked in
City Power ...
a court is required to
examine the substance of the agreement to determine whether an entity
retains its identity after a transfer
so that it can be concluded
whether the transferor carries on the same or similar activities with
the same personnel and/or business
assets without substantial
interruption. As the court stated (in
City Power
);
'[T]he
questions is whether the activities conducted by
a
party such
as
first respondent
fie the old service provider] constitute
a
defined set
of
activities which
represents an identifiable business undertaking
so
that when a termination of an agreement between first respondent and
appellant takes place, it can be that this set of activities,
which
constitutes a discrete business undertaking has now been taken over
by another party."' (Emphasis added)
[46]
Notwithstanding that this dictum sought to bring clarity to another
Act, the approach constitutes a helpful amplification upon
the
Hovenkamp test; that is, was there a transfer of an identified set of
activities and structures which can now be identified
as a separate
business undertaking and which could be pursued by the transferee. It
gives content to the phrase "a merger
occurs when one or more
firms directly or indirectly acquire ... direct or indirect control
over the whole or part of the business
of another firm." In
other words, the component of the business, which is transferred must
have constituted part of the business
of the transferor and has now
been placed under the direct or indirect control of the transferee.
[47]
The appellants were clearly cognisant of the difficulties which
confronted them with regard to this requirement. It is for
this
reason that they argued that if the rights in the archived material,
that are the subject of the license, were owned by an
independent
channel wholesaler, the latter could exploit those assets by
packaging them into a channel and granting an exclusive
license to
broadcast the channel thereby generating revenue in the amount of R
200 million.
[48]
It is understandable that the appellants would couch their argument
in terms of ownership. A license to exploit an asset for
a limited
period on its own and without more cannot constitute a merger
transaction. If it were so, it would mean that all licensing

agreements of this nature would constitute mergers. This would
trigger a plethora of either false positives or false negatives
as
described earlier in this judgment.
[49]
As noted, reliance was placed by appellants on the judgment in
United
States v Columbia Pictures Corporation supra.
This case however
was based on entirely different facts as can be seen from the
introduction to the judgment:
'The
complaint alleges that the violations arise from the execution and
subsequent performance of two interrelated agreements: an
agreement
entered into August 2, 1957, under which Screen Gems, a wholly-owned
subsidiary of Columbia, was granted for approximately
fourteen years
by Universal the exclusive license to distribute for television
exhibition approximately six hundred Universal feature
films
originally produced prior to August 1, 1948 for theatrical.
exhibition; and an agreement, executed concurrently by the three

defendants, under which Columbia guaranteed performance by Screen
Gems of all the obligations under the distribution agreement,
and
that Screen Gems would continue to be the exclusive licensee for
television exhibition of substantially all Columbia pre-August
1,
1948 feature films.
Under
the distribution agreement. Screen Gems undertook television
distribution of the Universal feature films. Screen Gems was
to
receive certain specified percentages of the total income from such
distributions. and guaranteed payment of Universal of annual
minimums
totalling $20,000,000 during the first seven years.
The
Government alleges that the agreements themselves are agreements to
fix prices, illegal
per se
under s 1of the Sherman Act. It
also alleges that, the distribution since August 2, 1957 of the
universal and Columbia feature films
by Screen Gems, prices were
fixed and competition eliminated between Universal and Columbia
per
se in violation of s 1of the Sherman Act.
The
Government further alleges that the exclusive distribution rights
received by Screen Gems constituted the acquisition of an
asset
within the meaning of s 7 of the Clayton Act, the effect of which may
be substantially to lessen competition in the distribution
of feature
films for television exhibition in New York City and the contiguous
areas known as Metropolitan New York.'
[50]
Even if it could be argued that somehow the agreement to license
first respondent could be analysed as a business within the
meaning
set out above, the wording of s 12 makes it clear that what has to be
transferred is part of the transferor's business
which is now
transferred as "a going concern" to the transferee. No
evidence on these papers was provided to suggest
that what was
transferred by second respondent pursuant to the agreement
constituted a discrete business operation which prior
to the
agreement, had been run by second respondent. This lack of evidence
in itself reveals the difficulty of considering the
agreement to be a
notifiable transaction within the clear meaning of s 12 of the Act.
[51]
There is a further difficulty concerning the period of the license;
that is five years and as to whether this period is sufficient
to
meet the requirement of "a relatively permanent transfer".
The EU Consolidated Jurisdictional Notice emphasises that
the period
of a license must 'be sufficiently long in order to lead to a lasting
change in the control of the undertaking concerned
in the structure
of the market'. While there are suggestions that given the migration
to OTT, and hence the rapidly changing nature
of television in the
country, a five year period is sufficient to change the structure of
the market. Mr Patel, in his answering
affidavit, contested the
effect that this will have on the market as follows:
'The
News Channel and the Entertainment Channel will enhance MultiChoice's
local news and entertainment offerings respectively,
add value for
its existing subscribers, and promote retention of subscribers, but
are unlikely to result in an expansion of its
subscriber base. The
SABC is entitled to broadcast the News Channel once it launches its
OTT platform and may broadcast the Entertainment
Channel subject to
the qualifications set out in the Agreement.
Any
growth in MultiChoice's market share arising from the Agreement will
not be at the expense of the SABS or e-tv, neither of which
is in the
subscription television market.'
[52]
It is instructive in the evaluation of these arguments to explore
appellants submission based
inter alia
on the decision of the
European Commission in the
Novartis/Glaxosmithkline
Oncology Business:
Case
No COMP I
M7275. In this case the
relevant parties signed a share purchase agreement based on which:
'Novartis
will acquire sole control over GSK's portfolio of oncology
pharmaceutical products composed of 10 marketed products and
2
pipeline products. These products are marketed or are in clinical
development for the treatment of advanced cancers. The acquired

business consists in transfer of rights, licences, marketing
authorisations and employees necessary for commercialisation and R&D

in respect of the oncology pharmaceuticals concerned.'
[53]
Unsurprisingly the Commission came to the following conclusion:
'Absent
the Transaction, Novartis and GSK's MEK inhibitors would likely have
constrained each other in the potential market for
targeted therapies
for ovarian cancer. Based on the above, the Commission considers that
the likely elimination of Novartis' pipeline
MEK inhibitor following
the Transaction will result in the loss of a credible competitor.
Furthermore, there would not be any other
player that would exert any
competitive pressure on the merged entity post-Transaction.
In
light of the above and of all available evidence, the Commission
concludes that the Transaction raises serious doubts as to its

compatibility with the internal market as regards targeted therapies
for the treatment of ovarian cancer because it would enable
the
merged entity to restrict competition through non-coordinated
effects.' (paras 82-83)
[54]
It is clear from the facts of the Novartis case that the nature of
the transaction, into which the parties entered, notwithstanding
the
price that was paid, pursuant to the purchase agreement, created a
level of such permanence, which on a further assessment
of the facts,
would clearly raise serious doubts for any responsible competition
authority as to the competitive effects thereof.
By contrast, the
present transaction set to ensure for the limited duration of five
years and which limited contains the limited
scope as set out above
cannot on any basis, be classified as similar so as to justify the
same application of legal principle.
[55]
In summary, based upon the test that we have developed to apply to an
asset transfer acquisition' there is no basis by which
to conclude
that part of the business which was conducted by second respondent
was now run by first respondent. Furthermore, on
the evidence
available on the papers, there is insufficient evidence to conclude,
on the probabilities, that market share will
sufficiently be altered
so as to meet a test which would distinguish a commercially based
licensing agreement from a transaction
which falls within the scope
of s 12.
[56]
A further difficulty which confronts appellants concerns the limited
makes of the agreement. Appellants sought to use the authority
of
this Court's decision of
Goldfields Limited v Harmony Gold Mining
Company Limited and another
(2004] ZACAC 91,to support the
argument that a five year period could create a sufficiently
significant degree of permanence so
as to alter the structure of the
relevant market.
[57]
In the
Goldfields
case, a transaction was initiated in order
that the purchaser would acquire the entire issued share capital of a
company in exchange
for the issue to the company's shareholders of
new shares in the purchaser company. The offer was structured in two
separate transactions:
At the first stage the offer was made to
acquire up 34.9% of the share capital in the target company. At the
second stage a further
offer would be made which had to commence the
day after the consideration was settled in respect of the first
offer. When the matter
came before the Tribunal, it held, on the
balance of probabilities, that it had not been established that the
two offers formed
part of the single offer sufficient to acquire
control and further that the first offer alone did not amount to a
change or control
for the purposes of a merger transaction.
[58]
Applying a "substance over form", approach to the two
transactions, this Court found that the purchaser 'will be
able to
effect a permanent irreversible change to the very structure of its
competitor; at the very least it will materially influence
a key
policy of appellant by ensuring that appellant's long term strategy
of entering into IAM Gold transaction could not be implemented'.
[59]
The judgment in
supra,
must be taken to mean that following
Goldfields,
in an examination of the substance of the
transaction, an irreversible effect on the competitive process would
take place, once
the first offer had been accepted.
[60]
In the present case the only way in which the approach adopted in
Goldfields, supra
could be applied is on the basis of evidence
which revealed that there would be an irreversible effect on the
relevant market; that
is to the effect that the agreement will
necessarily bring about a lasting and fundamental change in the
structure of the relevant
market. Appellants' case was based upon the
argument that the agreement, and with it control over second
respondent's archival
material, will effectively ensure that the
ability of any other broadcaster, including second respondent, to
make material inroads
into the relevant market would be seriously
undermined. On this argument, first respondent would be able to offer
second respondent's
FTA channels as well as enjoy exclusive access to
second respondent's Pay - TV channels as part of a "low cost"
offering,
which would particularly appeal to lower LSM groups who
predominately watch local content primarily. In appellants' view, no
other
broadcaster would then be able to match first respondent's
offering. This would have the kind of effect upon the relevant market

which should trigger an inquiry pursuant to a merger notification.
[61]
These averments were vigorously contested by respondents and in
particular, in terms of the evidence of Mr Patel, on behalf
of first
respondent. According to Mr Patel as stated earlier in the judgment:
'The
News Channel and the entertainment Channel will enhance MultiChoice's
local news and entertainment offerings, add value for
its existing
subscribers, and promote retention of subscribers, but are unlikely
to result in any expansion of its subscriber base.
It
is equally unlikely that access to the $ABC's free-to-air channels
(which will in any event be available to all South African
viewers
free of charge) will enable MultiChoice to attract new subscribers.
There would be no incentive for consumers to pay a
monthly
subscription fee for content which is available to them free of
charge.'
[62]
A similar debate concerned the question of whether the exclusivity of
the agreement supported appellants' case. Mr Moolman,
on behalf of
the appellants, stated in his affidavit:
'In
circumstances where the channel owner is itself a broadcaster (i.e is
vertically integrated) and competes with a licensee, it
is
inconceivable that the grant of a right to the channel would be
exclusive.'
By
contrast Mr Patel states:
'The
licencing of channels on an exclusive basis is the norm in the
broadcasting industry. As a matter of commercial sense and practice,

a retail broadcaster which requires a new channel which is not
already broadcasted in the territory will acquire a measure of
exclusivity in respect of the rights for which it is paying whether
or not the parties compete with one another in the downstream

market.'
Mr
Smith, an expert economist who deposed to an affidavit on behalf of
the appellant brought the following caution to the debate:
'Exclusivity
may be common place, and so too a situation in which horizontal
broadcasting competitors licensed channels to one another,
but it
seems that the question of whether or not these two coexist requires
further investigation, it seems to involve a closer
combination of
mutual interest and is present in either the two features alone.'
[63]
Mr Smith continues in his affidavit as follows:
'The
nature of the exclusivity and, in particular, the restrictions on how
the SABC may use the channel and the content it supplies
as part of
the channel. The exclusivity that is part of a typical licensing
arrangement does not usually restrict the content producer
from
broadcasting the channel itself, nor from selling the same (or
similar content to other downstream broadcasters. In this case,

however, the Agreement does exactly that.'
Weighing
the evidence
[64]
Mr Budlender submitted that this court should not rely on the
Plascon
Evans
test in order to evaluate the evidence placed before it;
that is, where there is a dispute on the facts,final relief should be
granted
in motion proceedings only if the facts as stated by the
respondent together with the admitted facts that the applicant's
affidavit
would justify such an order.
Plascon-Evans Paints Ltd v
Van Riebeeck Paints
(Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634-635.
[65]
In support of this submission reference was made to a decision of
this Court in
Patensie Sitrus Beheerend Bpk v Competition
Commission and others
(2003]
2 CPLR 247
(CAC), particularly where
the Court in reference to s 52 (1)(b) and s 55 (3) of the Act
emphasised that the Tribunal may conduct
itself in an informal and
inquisitorial manner and accordingly "play an active role to get
at the truth". This is wise
guidance which should be followed by
the Tribunal. Unfortunately, in an appeal, where all the evidence is
presented on affidavit,
this Court has no other alternative than to
apply the tried and tested
Plascon Evans
rule. Its application
leads us to the conclusion that the asset transfer case of the
appellant has not been shown to fall within
the ambit of s 12 of the
Act.
[66]
Confronted with an argument that the Tribunal did not fully probe
some of these disputes, an inquisitorial approach was open
to the
Tribunal of which we have made reference. However which, at this
stage of the proceedings there is no other evidential mechanism

available to an appellate court than to have recourse to the
Plascon
Evans
approach. The finding does not mean, however, that the
appellants will invariably be without a remedy. To this issue we
shall return,
after an examination of the encryption issue.
[67]
For these reasons and based on the record presented to the Court we
find that the agreement relating to the entertainment channel
does
not fall within the definition of merger.
The
encryption issue
[68]
The essence of the appellants' contention on the encryption point is
that clause 4.3.1 read with clause 7 of the agreement
confers upon
second respondent the ability to materially influence a key policy
decision of first respondent regarding the manner
in which it
broadcasts or distributes its free-to-air channels in the OTT
broadcasting environment, within the contemplation of
s 12(2) (g) of
the Act. The relevant clauses of the agreement read as follows:
'4.3
SABC FTA Channels
4.3.1
The SABC undertakes and agrees that all Channel Signals in respect of
the SABC FTA Channels as transmitted by the SABC on
the SABC DTT
Platform shall be broadcast or transmitted by or on behalf of the
SABC, unencrypted and without any conditional access
system and shall
always be available and receivable by M-Net OTT Set-Top Boxes
distributed in South Africa throughout the Term,
without requiring
anything other than the installation of an M-Net OTT Set-Top Box.
…
7.
RESOLUTIVE CONDITION
Should
any one or more of the SABC FTA Channels be made available on the
SABC OTT Platform in South Africa at any time during the
term on an
encrypted basis, and that access to the SABC FTA Channel(s) is
I
are controlled or limited by means of a conditional access system
or otherwise not freely available for viewing by a viewer using
an
M-Net OTT Set-Top Box, then:
7.1.
MCA shall
immediately, or at any time thereafter, be entitled to suspend or
terminate this Agreement in whole or in part; or
7.2.
MCA may elect to
continue distribution of some or all of the Channels in accordance
with the terms of this Agreement without payment
of any Fees from the
date that access to any SABC FTA Channels is controlled or limited by
means of a conditional access system
or otherwise not freely
available for viewing by a viewer using an M-Net OTT Set­ Top
Box, and the SABC shall immediately refund
to MCA any and all Fees
already paid by MCA to the SABC in accordance with this Agreement.'
[69]
In terms of these provisions second respondent undertakes to
broadcast all its free-to-air channels unencrypted, and to make

available all of its free-to-air channels in a manner that they can
be received and viewed by viewers using nothing more than first

respondent's M-Net Set-Top-Boxes ('STBs'). If second respondent does
not comply the terms of the agreement, clause 7 entitles first

respondent to suspend or terminate the agreement immediately in whole
or in part or may elect to continue distributing some or
all of the
channels without paying any fees to second respondent and second
respondent would be obliged to refund it all of the
fees already paid
in accordance with the agreement. If one has regard to clause 5 of
the agreement dealing with contribution and
fees, repayment of fees
may run into hundred millions of rand.
[70]
According to appellants, this situation allows first respondent to
dictate to second respondent how it should conduct its business,

second respondent cannot change its policy on encryption and if it
does it stands to lose and to pay back a considerable amount
of money
to first respondent. Its decision making power is accordingly
fettered by these encryption clauses.
[71]
Furthermore, so the argument goes, the undertaking made by second
respondent fundamentally affects its ability to compete with
first
respondent. It further ensures that subscribers to first respondent's
low cost offerings will receive everything that the
second respondent
has to offer
via
first respondent's decoders plus its new
channel offerings. This would increase first respondent's market
share and solidify its
position to the exclusion of other players or
potential competitors in the industry. This is so, because encryption
is critically
important for free- to- air channels in order to
compete with Pay-TV broadcasters. It provides a high quality signal
and is less
susceptible to signal piracy. These advantages make it
possible for broadcasters to attract premium high definition content.
Non-encryption
would as a result make it difficult for second
respondent and potential new free-to-air entrants to access to
premium content.
First respondent on the other hand, being the only
broadcaster with an established base of encrypted signals would
remain as the
only broadcaster with the ability to attract premium
content and would easily be able to increase its market share.To
support their
view, appellants rely on submissions made by the
Competition Commission on the National Integrated ICT Policy in
February 2015
and Ofcom report in the United Kingdom.
[72]
In this part of their case, appellants seek to invoke the provisions
of s 12(2) and, in particular, s 12 (2)(g) of the Act.
Section 12(2)
lists various forms of control as follows:
'A
person controls a
firm
if that person –
(a)
beneficially owns
more than one half of the issued share capital of
the
firm;
(b)
is entitled to vote
a majority of the votes that maybe cast at a general meeting of
the
firm,
or has the
ability to control the voting of the majority of those vote either
directly or through a controlled entity of that person;
(c)
is able to appoint
or to veto the appointment of the majority of the directors of
the
firm;
(d)
is a holding
company, and
the
firm
is a
subsidiary of that company as contemplated in section 1(3)(a) of the
Companies Act, 1973 (Act No.61 of 1973);
(e)
in a case of a
firm
that is a trust,
has the ability to control the majority of the votes of the trustees,
to appoint the majority of the trustees,
to appoint or change the
majority of the beneficiaries of the trust;
(f)
in the case of a
close corporation, owns the majority of members' interest, or
controls directly, or has the right to control the
majority of the
members' votes in the close corporation; or
(g)
has the ability
to materially influence the policy of the firm in a manner comparable
to a person who, in ordinary commerce practice.
can exercise an
element of control referred to in paragraphs a to f’
(Underlined for emphasis)
[73]
In
Caxton and CTP Publishers and Printers Limited v Media 24 (Pty)
Ltd,
case no. 136/CAC/March 2015
(' Novus')
at paras 45 to
48 this Court set out the approach to be followed in interpreting s
12 (2) (g). It observed that the term
'ability'
found in (g)
can be viewed as a power derived from an agreement in the same way
that powers in (a) to (d) are sourced from instruments
such as a
shareholders agreement. It further held that the influence the
provision speaks of must be over
'the policy of the firm'.
[74]
'Policy of the firm'
typically relates to strategic or
important decisions of a firm such as budgets, business plans, major
investments and/or appointment
of senior management. These are
matters which regulators have traditionally considered to be matters
to be looked at when determining
the existence of control of a firm.
See
Faull and Nickpay, The EC Law of Competition
2nd edition
at 808;
Caxton v Media 24 and others supra
at para 46.
[75]
The term
'materiality'
as held in
Novus
points to a
range of matters over which the power extends. In that case this
Court held that power over one or two matters may not
have the
sufficient extensiveness so as to meet the threshold of materiality,
depending on the nature of those matters. The range
of influence, so
required, however, need not be as extensive as that which is
exercised directly by shareholders in general meetings
or indirectly
through the board by the person with power to appoint directors, it
must though, as in both instances be
'reasonably extensive since
otherwise it will not be comparable to the influence exercised by
a
person with control contemplated in paras (a) to (d)'
(Novus
para 48). Lastly, power can either determine or prevent an outcome.
[76]
The appellants presented a number of arguments in support of their
contention that first respondent acquired control over second

respondent's business as envisaged in s12 (2) (g). It sought to
highlight the significance brought about by the migration to OTI
to
the South African viewers and the broadcasting industry as well as
its commercial advantage. There can be no question about
the fact
that the on migration and the issue of encryption or non-encryption
are important. We appreciate the fact that they have
occupied the
broadcasting space for quite some time and are contentious.
[77]
The focus of the issues at hand, however, should be limited to
whether the non-encryption of the free-to-air channel signals
to be
broadcast digitally on the second respondent's on platform as
stipulated in the agreement and its public policy on encryption

conferred control on first respondent as contended by the appellants.
[78]
The first question is whether the non-encryption undertaking in the
agreement constitutes material influence over a
policy of
a
firm
within the meaning of s 12(2) (g). According to the
second respondent its business entails production, wholesaling,
broadcasting
of television and radio. It argues that the scope of the
encryption policy under challenge is extremely narrow and does not
meet
the threshold of material influence over the
policy of the
firm.
The second respondent also points to the narrowness of this
issue and contends that it does not meet the threshold of materiality

propounded by this Court in the
Novus
case. Firstly, it argues
that the undertaking only applies to the second respondent's
free-to-air channels to be transmitted digitally
on its OTT platform;
channels broadcast on platforms other than OTT are not touched by the
agreement nor was the second respondent
precluded from deciding at
any time to encrypt any subscription channel it might wish to
broadcast. Secondly, digital broadcasting
was due to commence on 1
February 2016 and channels would be broadcast only in respect of the
remaining thirty months.
[79]
In our view the concept
policy of a firm
should be viewed in a
wide sense and within the context of each case. While it should be
accepted that influence on one aspect of
a firm may not be sufficient
to constitute material influence over the policy of that firm,
context is very important. There may
be matters whose nature is so
material to the strategic direction of the firm (even if numerically
few) such that influence on
them may be reasonably extensive in a
manner that qualifies to control contemplated by paras 12 (2) (a) to
(d) of the Act. That
qualification, we would suggest, was made in the
Novus
judgment by reference to
'depending on the nature of
those matters'
(at para 48.
[80]
We are however doubtful that in this matter we have enough facts to
come to such a conclusion. Based on the evidence before
us, the
effects of the encryption of the free-to-air channels, if any, in the
market place would be for a short duration given
that the agreement
terminates in July 2018. It is also not clear if there would be
digital channels on platforms other than the
OTT platform and how
much of those would fall outside the agreement.
[81]
Even if we were to assume on behalf of the appellants that the
encryption policy carries strategic significance, the difficulty
that
the appellants have is that a decision not to encrypt the free-to-air
channels has already been made by the second respondent.
It has
undertaken and agreed that it will not encrypt for the duration of
the agreement. It seems logical, in our view, that the
forms of
control indicated in s 12 (2) (g) involved acquisition of control in
respect of decisions that may be made in future.
Mr Unterhalter SC
who appeared for the second respondent together with Ms Norton SC and
Ms Cornelissen argued that it could not
have been the intention of
the legislature that a party who undertakes certain obligations in a
contract which may constrain its
strategic direction, conferred upon
the other party the power to influence its future strategic policy.
We agree with this view.
[82]
Mr Budlender on behalf of the appellants submitted that, though this
may be the case, the second respondent may still want
to change its
decision in future to encrypt its free to air channels. This it may
not do during the term of the agreement because
of the undertaking it
made and if it does not comply with the encryption clause it faces a
hefty penalty in terms of clause 7.
Second respondent stood to lose a
lot if it breached the agreement and that was indicative of the
influence that first respondent
had on this matter.
[83]
Whilst the point made by the appellants has value, these kinds of
circumstances cannot give rise to material influence within
the
meaning of 12 (2) (g) in our view. Second respondent took a decision
to limit its strategic options contractually. It may decide
to opt
out of the agreement but if it does it must face the consequences of
a breach.
[84]
It was submitted further on behalf of the appellants that the
circumstances leading up to the conclusion of the agreement are

indicative of the influence that first respondent has on second
respondent's encryption policy. This is because its stance at the

initial stages of the debate on encryption and prior to the
conclusion of the agreement was to support the encryption of its
channels.
Its U-turn on this issue clearly proved the amount of
influence that second respondent had on its public policy. According
to the
appellants, second respondent has not been able to show that
the decision not to encrypt was made before the conclusion of the
agreement.
[85]
The respondents on the other hand submit the second respondent took
the decision against encryption independent of the first
respondent
and that was before to the conclusion of the agreement. According to
the second respondent, this decision was taken
in view of its
universal access obligations, which are to make their service
accessible to the largest possible audience of South
Africa and in a
cost effective manner. It concluded that mandatory conditional access
and encryption would be costly to itself
and to the consumer.
Accordingly, when the proposed undertaking was made, it appeared to
be commercially acceptable within the
context of its own position and
obligations as a public broadcaster. The encryption provision in the
agreement is therefore consistent
with its own position.
[86]
The appellants contend that the Court must accept this not to be the
case because it is not supported by any evidence. They
further allege
that, in fact, as early as January 2013, they had come to understand
that the second respondent and e.tv were engaged
in negotiations with
Sentech around STB encryption standard. It is not clear how this
information was obtained. The appellants
further contend that the
letter by Dr Ngubane, the then chairman of the SABC Board dated 30
January 2013 which advised of the SABC
Board's decision to exclude
the functionality known as Conditional Access from the STB control
system which could be used to terminate
access for users who do not
pay their subscription fees, did not talk directly to the question of
encryption.
[87]
These issues are clearly disputed on the papers by the respondents.
The proposition that second respondent supported encryption
prior to
the agreement is not as clearly evident from the papers as the
appellants have suggested. What the papers show, though,
is a process
involving discussions between government and various stakeholders,
including the broadcasters where in the process
of these discussions
broadcasters changed views at different points in time. There is no
clear indication, that prior to the signing
of the agreement, the
second respondent took a decision different to that which is
contained in the agreement.
[88]
Furthermore terms such as
'control system', 'conditional access'
and
'encryption'
appear to bear different meanings while
they were at times used interchangeably. The appellants themselves
sought to highlight that
fact when they asked the Court to regard
conditional access from the STB control system
raised in Dr
Ngubane's letter referred to above to be unrelated to the issue of
encryption.
Second respondent suggests the opposite.
[89]
To illustrate the point of fluctuation by the parties on this issue
further, in 2008 the second respondent was opposed to conditional

access control system in its submissions to the Department of
Communications so was e.tv. The then Broadcasting Digital Migration

('BDM') policy mentioned 'a
control system to prevent STBs
from
being used outside borders of South Africa and to disable the usage
of stolen STBs and
capabilities to unscramble the encrypted
broadcast signals
so that
only fully compliant STBs
made or authorised for use in South Africa could work on the
network.'
The 2012 BDM policy provided that STBs would have a
robust STB control system and did not mention encrypted signals or
conditional
based control system. The appellants conceded in their
heads of argument that the 2008 and 2012 policies did not mention
encryption
or decryption but made reference to control system. In
August 2013 Minister Yunus Carrim proposed amendment to the BDM
policy that
a control system for STBs would be mandatory but that its
use by broadcasters would not be. In 2015 the current Minister,
Minister
Faith Muthambi published an amendment to the BDM policy
stating that STBs must have a control system to prevent government
subsidised
free-to-air OTT STBs from functioning in non-South African
OTT networks and that the STB control system for free-to-air OTT STBs

will not have capabilities to encrypt broadcast signals for the
subsidised STBs. Depending on the kind of broadcasting services

individual broadcasters may at their own cost make decisions
regarding encryption of content. For completeness the government
policy as it stands reads as follows:
'
5.1.2 (A) In keeping with the objectives of ensuring universal access
to broadcasting services in South Africa and protecting
government
investment in subsidised STB market,
STB control system in the
free-to-air OTT will be non-mandatory
.
5.1.2
(8) The STB control system for the free-to-air OTT STBs shall-
not
have capabilities to encrypt
broadcast signals for the subsidised
STBs; and be used to protect government investment in subsidised STB
market thus supporting
the local manufacturing sector.
5.1.2(C)
Depending on the kind of broadcasting services broadcasters may want
to provide to their customers, individual broadcasters
may at their
own cost make decisions regarding encryption of content.'
[90]
Second respondent 'officially announced' its decision on 1 November
2013, only a few months after the agreement was signed
with first
respondent stating,
inter alia,
that '[a]s a
public
broadcaster, we have taken the decision not to support conditional
access of set-top boxes,
as is a suitable option for us as a
free-to-air broadcaster...' The reasons for the decision were said to
be related to its universal
access mandate and costs. The date of the
official announcement does not necessarily support a view that the
decision and reasons
given were contrived and taken only after the
agreement was concluded.
[91]
On the basis of the rule in
Plascon-Evans, supra
there is no
reason not to accept the version given by the respondents that the
second respondent made the decision of its own accord
and independent
of the first respondent and this was not as a result of the
agreement.
[92]
The agreement does not
per se
prevent second respondent from
adopting a public policy supporting encryption. What it does is to
constrain it from encrypting the
free-to-air for the duration of the
agreement. The second respondent asserts that the agreement provides
for eventualities such
as regulatory changes that may occur pursuant
to the migration to the OTT environment, which may require the
signals to be broadcast
by second respondent on an encrypted basis.
[93]
Clause 20.2 provides for the striking off of any term of the
agreement that is determined to be completely or partially void

and/or unenforceable by any competent regulatory authority. In that
event parties shall consult with one another with a view to
negotiate
a provision which substantially gives effect to the parties'
intention and intentions and satisfies the relevant regulatory

authority. If no agreement is reached within three months of the
negotiations either party may terminate the agreement by written

notice to the other without the other waiving its rights not to
terminate before. It would seem that the consequences of a breach
in
clause 7 are not negated by clause 20.2.
[94]
The effect of government policy, that is to increase the barrier for
firms that wish to encrypt, is not a matter located within
s 12 (2)
(g). Subsequent to the hearing of this appeal the Supreme Court of
Appeal held in
e.tv (Pty) Ltd and others v Minister
of
Communications and others
[2016] ZASCA 85
, that the amendment to
the BDM policy which effectively dropped encryption capability from
subsidised ST boxes was unlawful and
hence invalid. We requested
further written submissions from the parties as to the possible
consequences for the present dispute
which might follow from this
judgment. We are indebted to the parties for their further
assistance.
[95]
As appellants have noted in their note, respondents had argued before
this Court that first respondent could not have acquired
material
influence over a matter which had already been determined by
government. The SCA judgment may well have undermined this
argument
in that a free to air broadcaster may now be able to make its own
choice about encryption. However, as first respondent
notes in its
supplementary note, the question as to whether STB's will include
encryption capability is a matter which remains
to be determined by
the Universal Service and Access Agency of South Africa, albeit that
this state agency will not be required
to consider the encryption
policy which was set aside by the SCA. These arguments
notwithstanding, the decision may well have consequences
for the
relevant agreement between first and second respondent but it has no
further bearing on our findings, namely that, on its
own, clause
4.3.1 read with clause 7 does not fall within the meaning of control
under s 12(2) (g) of the Act, as we have determined
that meaning in
this judgment.
[96]
It might be asked why the non-encryption clause was included in the
agreement if the undertaking made was in line with the
second
respondent's position and did not make much of a difference. The
answer to this is simple, first respondent wanted to protect
its
commercial interests. Government policy and hence that of the second
respondent might now be compelled to change on encryption
whether
this now happens, it falls outside the scope of our enquiry.
[97]
Lastly, even if the policy of encryption had commercial relevance as
it is suggested, namely that encryption substantially
increases the
ability of potential competitors to attract premium content. This
issue is disputed on the papers. First respondent's
expert Mr Andrew
John Snead alleges that most free-to-air broadcasters worldwide do
not encrypt their signals but they still obtain
high definition
content from international studios. According to the first
respondent, it is highly unusual for terrestrial free-to-air

broadcasting signals to be encrypted. In addition to that, the second
respondent's press release that we referred to earlier on
states that
'[r]esearch through benchmarking with other public broadcasters
across the world'
showed that other public broadcasters do not
have conditional access on their services either, which it contends
is a standard practise.
It further notes that conditional access is
predominantly used by Pay-TV operators.
[98]
Verona Duwarkah, the Group Executive: Television of second respondent
states in her affidavit on behalf of second respondent
that second
respondent has not had difficulties in attracting high premium
content because of non-encryption and that it supports
certain
control features as they have been provided in the South African
National Standard (SANS 862: 2013) which means copying
of the high
definition digital content is not possible. The appellants hold a
different view and contend that Mr Snead's claims
and that of second
respondent should be rejected. They further contend that the Walt
Disney and CBS letters given by first respondent
as examples of
content which do not require encryption where their content is
broadcast on a free­ to-air network must be rejected
as hearsay.
[99]
Even if these examples were disregarded there are clearly disputes of
fact on the papers between the parties on these issues
and there is
no reason to depart from the rule that disputes ought to be resolved
on the respondents' version.
[100]
For those reasons, the appellants have not been able to show that the
first respondent has acquired material influence on
the first
respondent's encryption policy as per the agreement and on its public
policy on encryption as envisaged under s12(2)(g),
and as the law has
been set out by this Court in the
Novus
case,
supra.
Alternative
relief
[101]
In its amended notice of motion the appellants introduced before the
Tribunal a prayer for alternative relief in the following
terms:
'(i)
directing MultiChoice and the SABC within 14 days of the hearing, to
produce all documentation, including but not limited to
all
correspondence, board minutes, internal memoranda, pertaining to the
negotiation, conclusion and implementation of the Agreement;
(ii)
directing the Commission, within 30 days from the date upon which
MultiChoice and the SABC produce the aforesaid information,
and
having considered the information produced and any other relevant
information available to it or requested by it, to file a
report with
the Tribunal recommending whether or not the Agreement gives rise to
modifiable changes of control; and
(iii)
directing a re-hearing of the matter by the Tribunal, to determine
whether the conclusion of the Agreement entailed a modifiable
change
of control
[102]
Appellants contended, in support of this alternative form of relief,
that the Tribunal, which is not a civil court but an
administrative
body clothed with inquisitorial powers the primary purpose of which
is to protect the public interest, ought to
have required the
Competition Commission to investigate the matter further before
rendering a final decision if it was satisfied
that a
'prima facie
case' had been made out. The Tribunal held that, even if the test
to grant alternative relief should be that a
prima facie
case
is made out, the appellants had not met the test on the papers.
[103]
There was much debate about the application of the test for a
'prima
facie
case' as set out in
Hulse-Reutter and others v Godde
2001 (4) SA 1336
(SCA) at para 12-14 and confirmed by Wallis JA
in
Children's Resource Centre Trust v Pioneer Food (Pty) Ltd and
others
2013 (2) SA 213
(SCA) at para 40:
'The
requirements of a prima facie case in relation to attachments to
found or confirm jurisdiction has over the years been said
to be
satisfied if an applicant shows that there is evidence which, if
accepted, will establish a cause of action and that the
mere fact
that such evidence is contradicted will not disentitle the applicant
to relief - not even if the probabilities are against
him; it is only
where it is quite clear that the applicant has no action, or cannot
succeed, that an attachment should be refused.
... Nestadt JA, in the
Weissglass case ... warned that a court "must be careful not to
enter into the merits of the case or
at this stage to attempt to
adjudicate on credibility, probabilities or the prospect of
success".'
[104]
Respondents contend that the inferences sought to be drawn by the
appellants are contradicted by the undisputed facts and
hence
appellants failed to establish a case which can be supported by
credible evidence; that is evidence; which was available
and
potentially available after discovery and other steps directed to
procuring such evidence.
[105]
The
Children's Resource Centre Trust
case turned on the
question of certification of a class action. Wallis JA sought to
develop a test as to when certification should
be granted in the
appropriate case. The learned judge of appeal accepted that where
there was no prospect of a trial court, 'with
the benefit of all the
evidence that the plaintiff could muster or suggest would be
available to it, holding that the claim is
legally tenable
certification should be refused. See para 38.
[106]
The reference to a test for establishing a
prima facie
case
and the application of this test to the facts in the
Children's
Resources Centre
case was designed to provide the appropriate
test as to when the kind of alternative relief sought in this case
might be granted.
More is required, however, than a simple
application of the test developed in
Children's Resource Centre
supra
and that more is to be found in the location of the
appropriate context.
[107]
The grant of such alternative relief should be analysed within the
context of the scheme of the Act. Section 13 A of the Act
imposes an
obligation upon a party to an
intermediate
or large merger to notify the Competition Commission of that merger
in the prescribed manner and form. In turn, this
triggers an enquiry
by the Competition Commission, in terms of s 14 of the Act, in
respect of an intermediate merger. What is sought
by appellants was
correctly described in the Tribunal's decision as a
sui generis
remedy. This
sui generis
remedy needs to be further
evaluated in terms of an observation made by the Tribunal in its
decision, namely 'a consideration of
mergers is clearly a key
function of the Tribunal's powers under the Act'. para 22 of the
Tribunal decision.
[108]
In this case, the Tribunal, did not have the benefit of the
Competition Commission's investigation, for the latter advised
that
it was not investigating the transaction. The Tribunal then concluded
that there was no basis by which to require such assistance
from the
Commission in order to determine whether the agreement gave rise to a
notifiable transaction. Appellants contend that
the Tribunal worked
with an inadequate factual matrix and that it could have exercised
its inquisitorial powers to ensure that
it had a sound evidential
foundation upon which to base its ultimate decision, hence they seek
the relief in this alternative form.
[109]
Given that the relief sought by the appellants is
sui generis,
there is a difficulty as to the determination of the appropriate
test, particularly in a case where, on an analysis of the evidence

provided, it could not be concluded that the agreement fell within
the definition of merger in terms of s 12 particularly s 12
(2) of
the Act.
[110]
In the vast majority of cases, this lack of evidence would surely be
the end of the dispute. However, in this case there are
a series of
significant exceptional circumstances which must be taken into
account. In the first place the agreement involves the
public
broadcaster. This in itself triggers a reference to the Preamble to
the Act, namely that one of the purposes of the Act
is to 'regulate
the transfer of the economic ownership in keeping with the public
interest'. It must be in the public interest
for transactions
involving the public broadcaster to be examined with a particular
consideration of the purpose of the Act. Secondly,
as we have
indicated throughout our judgment, there is a considerable lack of
clarity on a number of factual aspects which were
disputed True, on a
Plascon-Evans
test,
supra
which we are obliged to
follow in evaluating the evidence in the appeal record, the
respondent's version should be preferred. But
the Tribunal is clothed
with inquisitorial powers. A merger proceeding is not a trial in the
ordinary civil sense of that word.
The Tribunal should employ
inquisitorial powers to interrogate evidential questions beyond the
strict confines of
Plascon-Evans
to ensure that the full
evidential complexity is available to it in order that it might come
to a decision which advances the purposes
of the Act. Mergers are not
a place for the accusatorial formation adopted by the Tribunal in all
too many of its hearings. Again
it regrettably failed to inquire in
this particular case. There are many questions regarding disputed
factual contentions which
we have raised in this judgment which could
have been better answered if an inquisitorial approach had been
adopted and a more
sustained line of questioning been implemented by
the Tribunal in the hearing before it. Thirdly, as is evident from
paras 49-50
of the judgment of SCA in the
e.tv
case
supra,
questions of encryption may well stifle competition. While the
SCA judgment does not, in our view, disturb the finding regarding
the
application of s 12(2) (g) of the Act, the following passage from the
SCA judgment has significance for this part of our enquiry.
'The
effect of this, as pointed out by the first group of NAMEC, is that
once the analogue signal is switched off, free-to-air broadcasters

will not be able to encrypt their signals and all those with
television sets that do not have ST boxes with encryption capability

will not be able to access high-definition content that can compete
with the pay-television broadcasts. This is the view also of
the
Competition Commission, which advocates conditional access, as well
as that of SOS and MMA...
All
the appellants advocate encryption in order,
inter a/ia,
to
facilitate competition amongst broadcasters. The effect of the
amendment is that high quality television will not be available
to
the poorest in our society, and competition will be stifled. The
ability of free-to-air broadcasters to encrypt their signals,
as
allowed for in clause 5.1.2 (C), is thus illusory.'
[111]
In summary, for all these reasons, this is an exceptional case. There
is more than enough evidential doubt, coupled to a clear
public
interest component, in this transaction to dictate that a fess
formalistic and more substantive approach to the enquiry
is required.
[112]
We are cognisant of the fact that the agreement has been entered into
in July 2013 and that the matter must be brought to
finality.
Accordingly a restricted timetable must be employed for any relief
granted. Furthermore, in the event that the Competition
Commission
fifes a report to the effect that the agreement does not give rise to
a change of control in terms of the Act, it would
appear to be a
fruitless exercise for the matter to be reheard by the Tribunal in
the light of the exhaustive enquiry which has
already taken place in
this court and previously in the Tribunal.
Costs
[113]
In this case, we agree with the Tribunal that this is a matter which
does concern important questions in the broadcasting
industry and in
the public interest at large and accordingly no award of costs will
be made.
[114]
For these reasons therefore the following order is made:
1.
The order of the
Tribunal of 11 February 2016 is set aside.
2.
First and second
respondents are directed to provide the Competition Commission within
21 days of this judgment of all documentation
including but not
limited to all correspondence, board minutes, internal memoranda
pertaining to the negotiation, conclusion and
implementation of the
agreement of 3 July 2013.
3.
The Competition
Commission is directed within 30 days of the receipt of the aforesaid
information and documentation to file a report
with the Competition
Tribunal recommending whether or not the agreement gives rise to a
notifiable change of control.
4.
In the event that
the Competition Commission recommends that the agreement gives rise
to a notifiable change of control which falls
within the definition
of merger in terms of s 12 of the Act, it is directed that a
rehearing of the matter shall be conducted by
the Tribunal to
determine whether the conclusion of the agreement did entail such a
merger as defined.
___________________
DM
DAVIS
Judge
President
___________________
NP
BOQWANA
Acting
Judge of Appeal
APPEARANCES:
For
the Appellants:

S Budlender with G Marriot and A Msimang
Instructed
by:

Nortons Incorporated, Sandton
For
the First Respondent:
D Unterhalter SC with M Norton
SC and Z
Cornelissen
Instructed
by:

Werksmans Attorneys, Sandton
For
the Second Respondent:        A R
Shana SC with PMP Ngcongo
Instructed
by:

Cliffe Dekker Hofmeyr Inc., Sandton
Vally
AJA
Introduction
[1]
I have had the pleasure of reading the judgment of my colleagues. I
agree with the order they issue. However, the approach I
have adopted
in coming to the conclusion that that order should be granted is
slightly different from that of my colleagues. This
is my reasoning.
[2]
On 3 July 2013 the first and second respondents concluded a mutually
beneficial commercial agreement concerning aspects of their
two
businesses. It is titled,
Commercial and Master Channel
Distribution Agreement
(the agreement). It was amended three
times, on 4 August 2014, 11 August 2014 and 21 November 2014.
[3]
The Appellants were unsuccessful in convincing the Competition
Tribunal (Tribunal) that the agreement and its implementation

actually constituted a merger of parts of the businesses of the first
and second respondents. They further failed to convince the
Tribunal
that there was
prima facie
evidence showing that parts of the
two respondents' businesses were merged, albeit for a period of five
years only. Their second
contention was raised as an alternative to
the first one and it only surfaced during the course of the hearing.
It resulted from
them successfully applying to have their notice of
motion amended. The relief they sought was obviously predicated upon
them convincing
the Tribunal either of the correctness of their
interpretation of the agreement, i.e. that it constituted a merger,
or that there
was sufficient evidence before the Tribunal warranting
a finding that a
prima facie
case of a merger has been made
out. As their contentions concerning the agreement failed to carry
the day they were unable to secure
any of the relief they sought.
1hey have now appealed to this Court claiming that the Tribunal erred
in not adopting their interpretation
of the agreement and in not
granting them either the main or the alternative relief they sought.
[4]
The relief they sought was an order compelling the first and second
respondents to notify the Competition Commission (Commission)
of the
acquisition of control by the first respondent of part of the
business of the second respondent. This control, they claimed,
was
the result of the implementation of the agreement. In the
alternative, they asked that the Tribunal refer the agreement to
the
Commission for further investigation.
The
nature of the first and second respondents' businesses
[5]
The first respondent, MultiChoice (Pty) Ltd (Multichoice), is a
private company. It is a wholly owned subsidiary of another
private
company, eighty percent (80%) of which is owned and controlled by
another company which, in turn, is owned and controlled
by a public
company, Naspers Ltd (Naspers). Naspers, through its various
subsidiary companies conducts business operations in South
Africa,
which consist, amongst others, of multi-channel digital subscription
television {DStv) and terrestrial subscription television.
M­
Net. MultiChoice holds a commercial subscription television
broadcasting service license in South Africa, which authorises
it to
broadcast a digital satellite television service to subscribers. It
is presently broadcasting these services exclusively
to its
subscribers.
[1]
M-Net holds an
analogue subscription terrestrial television broadcasting service. It
is the business of the DStv television service
that is of relevance
to this case.
[6]
The second respondent, the South African Broadcasting Corporation
(SABC), is a public broadcaster. It is a statutory public
body. It is
licensed to provide two analogue based public television broadcasting
services (SABC1 and SABC2) and one analogue based
commercial public
television broadcasting service (SABC3). Presently, it is
broadcasting its services to members of the public.
These services
are free
[2]
to anyone who owns
or has access to a television set. For this reason they are referred
to as the Free to Air (FTA) platforms.
[7]
MultiChoice and the SABC compete with each other in the market place.
They compete largely over audiences and over customers
- customers
who purchase advertising slots from each of them. There are other
forms of competition but these two largely capture
the nature and
structure of their businesses.
[8]
There are two other businesses operating in the market place that
also possess licences to provide the same or similar services
as that
of the first and second respondents. They are e-TV and Top TV.
[9]
The first appellant is a public company that engages, amongst others,
in the business of publishing and printing. It has been
exploring the
viabilty of expanding its existing business(es) into the digital
television business, which involves providing video
content through
various forms of digital media. Should it do so it would be a direct
competitor to MultiChoice, the SABC, e-TV
and Top TV.
[10]
The second and third appellants are non-governmental organisations
whose main concern is to protect and promote public broadcasting
in
the country and to protect and advance the public interest. They
engage in all manner of advocacy-related work.
The
agreement
[11]
The agreement has been amended three times, with the last amendment
occurring on 21 November 2014. It has a life span of five
years. In
terms of the agreement SABC committed itself to providing two
channels for MultiChoice: a 24-hour daily news channel
(the news
channel) and a 24-hour daily entertainment channel (the entertainment
channel). These channels retain the SABC branding
but are broadcast
and marketed by MultiChoice. They are also presented on the bouquet
of services that make up the MultiChoice
business.
[12]
The SABC agreed to market these two channels on its FTA channels. In
other words, it agreed o inform its FTA viewers that they
could
access its own material, which is not distributed on the FTA
channels, on the DStv channels. By so doing they would encourage

their FTA viewers to subscribe to the MultiChoice bouquet of
services. MultiChoice, too, markets these two channels on its other

channels thus encouraging their subscribers to view the SABC material
on the channels within its bouquet.
[13]
As for the entertainment channel, the material broadcast there would
only be available to the subscribers of MultiChoice. The
SABC agreed
that for the duration of the agreement it would not distribute nor
authorise anyone else to distribute this material.
It is, however,
entitled to distribute it on its wholly owned channels, provided that
the material that it intends to so distribute
is exactly the same as
has been first broadcast on the entertainment channel, and a certain
condition has been fulfilled. The condition
is confidential. However,
it has no material impact on the outcome of this case.
[14]
The entertainment channel would be created from archived material
owned by the SABC. The SABC would consult MultiChoice on
what
material is to be distributed on this channel. MultiChoice would be
allowed to terminate the agreement should it not be able
to convince
the SABC of the material to be distributed.
[15]
The news channel would run for 24 hours each day. lts format and
content are regulated by the agreement. The SABC is precluded
from
distributing any material from the news channel to any other
broadcaster and it is prohibited from creating and broadcasting
its
own 24-hour news channel or from licencing such a channel to other
broadcasters.
[16]
At present, MultiChoice has secured five million subscribers. The
broadcasting of the SABC channels on its bouquet grants SABC
exposure
to these subscribers. MultiChoice benefits by increasing the choice
available to its subscribers. It would also improve
the
attractiveness of MultiChoice to potential subscribers. The SABC has
approximately eight million viewers accessing its FTA
channels.
[17]
Finally, MultiChoice would also provide to the SABC an entertainment
genre television channel, to be compiled, packaged and
branded by
MultiChoice for SABC to distribute on its DTT platform when that is
in operation. As yet, the SABC has not commenced
providing any of its
products through the DTT platform.
[18]
The agreement provides that all existing SABC FTA channels, and any
new ones that may be established, are to be transmitted
or broadcast
without encryption, or if encrypted a consumer would need no more
than an M-Net OTT Set-Top Box (STB) if she wished
to access the
broadcast. This particular provision is the basis of a major part of
the appellants' contention that the agreement
constitutes a merger as
contemplated by s 12 of the Competition Act, 89 of 1998 (the Act).
[19]
Both SABC and MultiChoice are bound by a provision in the agreement
that they should co-operate with each other in order
"to
avoid the imposition of any competent regulatory authority of any
burdensome obligation
on
either of
the Parties,
provided that in taking such steps the Parties shall preserve the
commercial intention underlying the Agreement."
[20]
MultiChoice has agreed to pay to the SABC the sum of R200m for the
rights it receives with regard to the entertainment channel
and R387m
for the rights its receives with regard to the news channel. The
payment is to be spread over a period of five years.
At the same
time, they have agreed to share the revenue stream that will flow
from the implementation of the agreement. The revenue
is to be
distributed on the following basis:
[20.1]
the revenue derived from sales of advertising and sponsorships on the
news and the entertainment channels shall accrue to
the SABC;
[20.2]
the revenue derived from sales in respect of advertising and
sponsorship deals on the SABC FTA channels shalt accrue to the
SABC;
[20.3]
the revenue derived from sales in respect of advertising and
sponsorship deals on the MultiChoice Digital FTA Channel shall
accrue
to MultiChoice.
[21]
The agreement has been implemented with both parties complying with
the obligations arising therefrom.
The
Act
[22]
Section 12 of the Act is of direct relevance to this case. Its
provisions read:
"(1)
(a) For purposes of this Act, a merger occurs when one or more firms
directly or indirectly acquire or establish direct
or indirect
control over the whole or part of the business of another firm.
(b)
A merger contemplated in paragraph (a) may be achieved in any manner,
including through-
(i)
purchase or lease of
the shares, an interest or assets of the other firm in question; or
(ii)
amalgamation or
other combination with the other firm in question.
(2)
A person controls a firm if that person-
(a)
beneficially owns more than one half of the issued share capital of
the firm;
(b)
is entitled to vote a majority of the votes that may be cast at a
general meeting of the firm, or has the ability to control
the voting
of a majority of those votes, either directly or through a controlled
entity of that person;
(c)
is able to appoint or to veto the appointment of a majority of the
directors of the firm;
(d)
is a holding company, and the firm is a subsidiary of that company as
contemplated in section 1 (3) (a) of the Companies Act,
1973 (Act 61
of 1973);
(e)
in the case of a firm that is a trust, has the ability to control the
majority of the votes of the trustees, to appoint the
majority of the
trustees or to appoint or change the majority of the beneficiaries of
the trust;
(f)
in the case of a close corporation, owns the majority of members'
interest
or controls directly or has the right to control the majority of
members' votes in the close corporation; or
(g)
has the ability to materially influence the policy of the firm in a
manner comparable to a person who, in ordinary commercial
practice,
can exercise an element of control referred to in paragraphs (a) to
(f)."
The
contentions of the appellants
[23]
The appellants contend that the agreement has effectively granted
MultiChoice:
[23.1]
control of part of the business of the SABC . This has also been
referred to as the transfer of assets from the SABC to MultiChoice;
[23.2]
the power to influence the policy of the SABC as regards encryption,
which is an issue of strategic importance;
[23.3]
the power to influence the policy of the SABC with regard to the
exploitation of its news reporting capabilities.
The
third contention was not pursued in this appeal. I, therefore, say
nothing about it.
The
first contention: transfer of assets
[24]
The appellants draw attention to the following facts regarding the
entertainment channel: (i) that MultiChoice has secured
an exclusive
licence to market and distribute the entertainment channel; (ii) that
the content of the material distributed through
the entertainment
channel is the exclusive property of the SABC and to which it holds
intellectual property rights; (iii) that
this material constitutes
assets of the SABC; (iv) that it is valued at R200m by the SABC and
MultiChoice; (v) that it has a say
over what material is presented on
this channel; (vi) that the SABC is not free to distribute this
material on its own channels
unless it meets certain strict
conditions; and (vii) that there has been a cross-pollination of the
two businesses in that the
SABC will run advertisements on its FTA
channels alerting its viewers of material to be distributed on the
entertainment channel
in order to encourage them to access it there,
and MultiChoice will do the same on its other channels - run
advertisements alerting
them to the material that will be distributed
on the entertainment channel. Collectively these facts, the
appellants claim, demonstrate
that MultiChoice has acquired control
of part of the assets of the SABC, albeit only for a period of five
years.
The
second contention: Influence over the policy of the SABC
[25]
Their second contention is that by virtue of certain key clauses of
the agreement MultiChoice has effectively acquired material
influence
over the policy of the SABC on the important issue of encryption. It
is common cause that the issue of a broadcaster
adopting the policy
of encrypting its material so that it can only be accessed by
consumers who have acquired the necessary equipment
(an appropriate
STB) allowing for the signal to be decrypted and thereby viewed, is
of fundamental importance in the industry.
It lies at the heart of
the competition between various retailers of television services and
products. It is also common cause
that the country's supply of
television services is to experience a revolutionary shift involving
the move away from analogue based
transmission to digital based
transmission. This change is expected to have momentous consequences.
It is anticipated that this
change will make accessible to millions
of people information based products that are presently unavailable
to them. The change
is anticipated to produce a huge boon for the
growth and development of the education sector as well as for
businesses in general.
It is in the context of this that the policy
adopted by the SABC as to the encryption of its material must be
understood. It is
also common cause that from the inception of this
issue the SABC adopted a policy that it would encrypt the material to
be broadcast
on its channels This would require any viewer who wished
to access the materials to have the necessary STB linked to her
television-set
so that the signal could be decrypted. DStv adopted
the opposite position - that the broadcasting of the SABC channels
should not
be encrypted. The SABC at some point changed its policy.
Like DStv, it now supports the policy of no encryption.The SABC
claimed
that it changed its policy prior to the conclusion of the
agreement, but it is common cause that it only announced the change
after
the agreement was concluded. Unfortunately, the SABC provided
very little detail of the change in its policy. Crucial details as
to
when it occurred, why it occurred and how the changed policy is
consistent with its duties as a public broadcaster were not

provided.As a result, the appellants argue that this change in policy
on the part of the SABC is a product of the agreement. In
other words
they take issue with the SABC's averment that the policy was changed
prior to, and on the own accord of the SABC. Their
contention is
based on an inference they draw from the fact that the SABC has
failed to furnish crucial details of the change in
its policy. They
persist with the contention that the change only occurred because
MultiChoice required it. The effect of the change
is that the
agreement has granted MultiChoice the power to materially influence
the policy of the SABC on a matter of crucial import.
The
response
of
MultiChoice
and the SABC
[26]
MultiChoice claims that it is a purchaser of the services provided by
SABC. It has no role to play in the production of these
services. The
purchase is based on it getting sole rights in certain respects.
There is nothing unlawful or unusual in this. The
agreement is a
typical licencing agreement that is widely concluded on a daily basis
in the industry. MultiChoice is merely a distributor
of the channels
produced by the SABC. It plays no role in any decision taken with
regard to the production of the content of the
material that is
distributed on the entertainment channel, and plays no role in the
production of the material that is distributed
on the news channel.
It claims that the agreement underscores a vertical relationship
between the SABC and itself. Finally, it
denies that it has material
influence over the policy of the SABC regarding encryption. Whatever
decision the SABC took on this
issue is a decision it took by itself.
Hence, it denies that a merger as contemplated in s 12 of the Act has
taken place between
it and the SABC.
[27]
The SABC agrees with MultiChoice's interpretation of the agreement,
which is that it represents something akin to the sale
of a product
from a producer to a retailer. It also denies that it changed its
policy on encryption because it was forced to do
so by the agreement.
The
findings of the Tribunal
[28]
The Tribunal found that in order for the appellants to succeed they
had to show that MultiChoice had acquired a business or
part of a
business of the SABC. For it to be part of a business, it has to be
an asset. To pass muster as a merger the asset must
change hands and
it must involve
"a
measurable and relatively permanent transfer of market share or
productive capacity'
[3]
from
the firm that owns the asset to the firm that acquiresit. The
Tribunal has previously applied this approach to the question
of
whether a merger has been effected.
[4]
It is accepted by all the parties to this appeal that the approach is
correct.
[29]
The Tribunal accepted that the SABC operated at three different
levels in the market place: (i) as a producer or purchaser
of
original material for broadcast;(ii) as wholesaler of its material to
other broadcasters; and,(iii) as a self-distributor of
its own
material on its own television channels.
[30]
Thereafter, the Tribunal asked whether there was a transfer of
productive capacity from the SABC to MultiChoice by virtue of
the
agreement. It noted that it was common cause that the agreement had
no impact on the capacity of the SABC to produce its own
material.
Regarding the entertainment channel the SABC had already produced the
material that it agreed to distribute through the
channel located on
MultiChoice's bouquet of channels. As far as the material to be
distributed through the 24-hour news channel
is concerned, the
agreement does not allow for or envisage any role for MultiChoice to
play. The conclusion it drew from this analysis
of the agreement is
that there was no transfer of productive capacity from the SABC to
MultiChoice.
[31]
The next issue of focus for the Tribunal was whether the
implementation of the agreement resulted in "a
measurable and
relatively permanent transfer
of
market share"
from
the SABC to MultiChoice. On this score, it accepted that the
agreement had granted MultiChoice certain exclusive rights over

SABC's material that was to be distributed through the entertainment
channel. It also accepted that it was logically conceivable
and
theoretically possible for such a transfer of rights to result in a
transfer of market share. But, it said, in the ordinary
course of the
television business licencing agreements were normal and on their own
do not result in the transfer of a business.
At this point the
Tribunal shifted its focus away from a
"transfer of market
share"
to a
"transfer of business".
Like
the parties in this matter I do not read too much into this shift of
focus for it cannot be said that it led them into error.
What it did
was to ask itself if the appellants had proven that the agreement had
improved the market share of MultiChoice - either
through increased
revenue from sales of advertising and sponsorship deals, or from an
increased number of subscribers- because
of the additional channels
on its bouquet. The answer it provided was an unequivocal "No".
After noting that both the
SABC and MultiChoice have disavowed any
increase in market share or viewership for MultlChoice, the Tribunal
stated:
"First
the acquiring and target firms have not said as much, and in the
affidavits have disavowed this. The closest MultiChoice
comes to
making such a statement (about increased market share) ... (is) that
the value which MultiChoice has secured is to augment
its bouquet
offering and thereby add value for its existing subscribers. Second
merely because assets are being transferred does
not suggest a
transfer of viewers will follow. Indeed this is possible but not
probable. What evidence is there that current SABC
viewers, who are
not already Mult1Choice subscribers will, because of the transaction,
become MultiChoice subscribers? On the (appellants)
own version
MultiChoice already offers viewers the choice of over 200 channels.
What is it about this (the entertainment) channel
that will cause the
migration of viewers who have not already chosen to subscribe? The
(appellants) do not offer any reason (sic)
The size of the existing
DStv offerings seems to favour (MultiChoice's) enhancement argument
than (sic) the (appellants') market
share increasing one."
[5]
[32)
Building on this analysis of the agreement the Tribunal went further
and noted that, even if there are viewers who have yet
to purchase
MultiChoice's offerings, but who would want to access the material
distributed on the entertainment channel, they may
not actually take
the plunge and join the ranks of MultiChoice's subscribers. Hence, it
found that there was insufficient evidence
demonstrating that the
agreement produced any transfer of market share let alone "a
measurable and relatively permanent’
one. It then held
that the onus of producing this evidence rested on the shoulders of
the appellants, who failed to discharge it.
Accordingly, it found
that the appellants' reliance on this ground for their contention
that a merger as contemplated in s 12 of
the Act had been effected
lacked merit.
[33]
As for the fact that MultiChoice had secured exclusive rights to the
material distributed on the entertainment channel the
Tribunal found
that:
"Even
if a rival might have wanted to get rights to the archive, this does
not make the loss of such an opportunity a business
in the hands of
MultiChoice. Even if the strategy of MultiChoice was to buy up scarce
resources required by a competitor - a question
of fact we need not
determine here - then that would be a question of whether a
prohibited practice had been perpetrated. This
possibility does not
make the transaction a business. Expressed differently, the fact that
a transaction may have potentially anticompet
tive consequences does
not by virtue of that alone, transform it into a potential
merger,"
[6]
[34]
The Tribunal then focussed its attention on whether the transfer of
assets (the SABC material that was to be distributed on
the
entertainment channel) constituted a part of the SABC's business.
This focus, it acknowledged, was necessary as it is generally

accepted in international competition law learning that if an asset
constitutes, or could constitute, a business, and there is
a transfer
of that asset from one entity to another, such transfer may well
result in the lessening of competition. The fact that
the asset may
not constitute the whole of the business activity or operation of the
transferring firm is of no moment. By itself
it has no bearing on
whether competition was lessened by virtue of what can be termed a
transfer-transaction. The Tribunal found
however that the Act does
not treat a transfer of assets on its own as potentially constituting
a transfer of a business. The Tribunal
placed particular emphasis on
the distinction between "a
business"
and
"a
bare
asser.
According to it this was a distinction with a significant difference.
Boldly, it pronounced, "(w)e
thus
find that the transfer of assets does not amount to
a
business.
"
[7]
It, however, was acutely aware that the facts before it were
deficient in many respects, making it difficult for it to decide
whether the transfer that took place by virtue of the agreement was
actually a transfer of
"a
business"
or
a transfer of
"a
bare
asset".
It
decided that this should be considered when addressing whether the
appellants had made out a case justifying being granted the

alternative relief they sought. But the Tribunal did not leave it
there. It went further and found that as the agreement was of
limited
duration, five years only, it could not constitute "a
relatively
permanent'
transfer
of a business from the SABC to MultiChoice.
[35]
In the result the Tribunal dismissed the first contention of the
appellants.
[36]
As to the second contention, the Tribunal recognised that it was
common cause that a decision of the SABC to adopt a policy
of
encryption or a policy of open access had significant commercial
consequences for all the competitors in this market as well
as for
all the consumers. It was also common cause that the SABC had
initially favoured a policy of encryption and that later it
altered
its position radically and entirely to one of open access. It
recognised that this
volte
face
on
the part of the SABC is accredited by the appellants to the
agreement, and, for them, is a manifestation of the fact that
MultiChoice
has acquired influence over a key, if not fundamental,
policy decision of the SABC. The Tribunal accepted that in terms of
the
agreement the SABC cannot now decide to return to the policy of
encryption without risking the termination of the agreement. The

Tribunal also noted the averments made on behalf of the SABC to the
effect that there is no causal connection between its decision
to
change its policy on encryption and its decision to conclude the
agreement. But, the Tribunal was not satisfied with this response.
It
asked: if the content of the agreement was neutral to the decision of
the SABC then why was no explanation forwarded by the
SABC or
MultiChoice on the reasons for inclusion in the agreement of the
particular clause that precluded the SABC from ever transmitting
it's
material in encrypted form? While the Tribunal asked the correct
question, it unfortunately was not able to extrapolate a
reasoned
response from either MultiChoice or the SABC as to the purpose of
this clause. As a result, it elected to
"not
decide the matter on the causation issue and go on to consider the
remaining arguments raised by
(MultiChoice
and the SABC)."
[8]
These
remaining arguments were scrutinised on the basis of an assumption
that by concluding the agreement with the SABC, MultiChoice
had
acquired influence over the policy of the SABC. It did so by
examining what in terms of the Act, particularly s 12(2)(g), would
be
sufficient influence by one firm over the policy of another for it to
be found that the two firms had actually merged. It noted
that in
terms of this section sufficient influence would have to involve
"an
element of
control'
that
would be exercised
"in
ordinary commercial practice"
[9]
[37]
The Tribunal decided that it was necessary to give some meaning to
what the legislature intended by enacting s 12(2)(g). In
this regard
it found:
"In
ordinary commercial practice, such a person enjoys at least an
ongoing form of control over the company. nor merely a specific

aspect of it. Secondly. we must bear in mind that we are dealing with
a competition statute. Our emphasis on control is the ability
to
influence the competitive inclination of a company. This suggests
again that control should only be inferred when the policy
covers a
wide ambit not a limited specific aspect, particularly in the context
of a target firm whose business covers a range of
other activities,
which remain unfettered by the influence of the putative controller.
as in the instant case with SABC.
Further
there is a danger in giving this section too broad an application.
Many outsiders may be able to influence a company on
one aspect of
its business, or at a particular finite moment in time. If such
persons, typically lenders or suppliers with some
market power over a
customer to hold them to some terms, were thought of controllers for
the purpose of merger control, then merger
activity would be
ubiquitous. The section has to be given some sensible limitation as
to both the scope and time of the policy
matter in question."
[38]
It was on this theoretical basis that the Tribunal decided to
determine whether the influence exerted by MultiChoice over the
SABC
policy on encryption met the threshold of s 12(2)(g) of the Act. It
found that as the agreement was of limited lifespan of
five years and
because its scope was limited to the entertainment channel, which
does not cover the whole business of the SABC
as a producer,
wholesaler and broadcaster, the agreement does not meet the threshold
of s 12(2)(g) of the Act. Finally, it found
that the government's
decision to adopt a policy against encryption was not to be laid on
the shoulders of the SABC. As that decision
is not one made by the
SABC it falls outside the ambit of s 12(2)(g) of the Act.
[39]
On that analysis of the agreement, the Tribunal refused the
appellants the main relief they sought.
[40]
On the alternative relief the Tribunal found that the appellants
failed to establish even on a
prima facie
basis that the
agreement constituted a merger as contemplated in s 12(2)(g) of the
Act. Its reasoning on this score is captured
in a single paragraph
which reads:
"Thus
the case of the (appellants) has to be assessed, not on the facts in
dispute, but on whether the inferences it seeks
to draw from the
undisputed facts, i.e. - the terms of the agreement as amended, are,
on a balance of probabilities ... the more
reasonable ones in
determining whether they give rise to a merger situation. We have
explained above that they do not. Thus even
on a
prima
facie
standard
as the threshold for the alternative relief, we find the (appellants)
do not succeed.”
[10]
Do
the Tribunal's decisions constitute a misdirection?
[41]
It is now established that the general approach to a s 12 analysis
has to be broad in scope, otherwise the value of the section
could be
lost and the intention of the legislature would be defeated.
[11]
[42]
Section 12(1) specifically provides that where there is a transfer of
part of a business from one firm to another a merger
has been
effected. It is by now well established in international competition
law that a transfer only of intellectual property
rights in a product
could result in a merger.It goes without saying though that while a
transfer of part of a business or a transfer
of intellectual property
rights in a single product may constitute a merger the decision on
whether there actually has been a merger
or not is fact-specific. In
our law an important consideration is whether there has been a
"direct or indirect acquisition"
or
"direct
or indirect control'
over the transferred business or part of a
business. The appellants' case is fought on both fronts: they claim
that there has been
a direct or indirect acquisition of the archival
material of the SABC by MultiChoice; and, there has been indirect
control over
the policy of the SABC by MultiChoice.
[43]
On the first score they contend that as the agreement only allows the
SABC to distribute its archival material through MultiChoice's

bouquet of services, MultiChoice has either taken control of a part
of the SABC's business and/or MultiChoice has increased its
market
share at the expense of the SABC. This conclusion is postulated on
the basis of a specific understanding of the agreement.
That
understanding is captured in [24J above. There is no doubt
MultiChoice is given extensive say over the material that is
distributed
through the entertainment channel as that channel is part
of its bouquet of channels and is made available only to its
subscribers.
It is also possible to conceive of the entertainment
channel as being a separate business that is born out of the
agreement and
that it involves a combination of the assets of the
SABC with that of MultiChoice.
[12]
There is also no doubt that the SABC is considerably constricted in
its ability to re-use that material on its own channels.
[44]
In my view, however, on their own these two facts do not allow for a
conclusion that MultiChoice has acquired control over
part of the
business of the SABC as contemplated in ss 12(2)(a) -(f) of the Act.
To draw that conclusion it would be necessary
to have regard to other
facts. Understandably, these are not available to appellants. And, I
cannot on the basis of these two facts
only draw an inference that
they demonstrate that MultiChoice is entitled to, or actually does,
exercise the kind of control over
the SABC that is contemplated in ss
12(2)(a) – (f) of the Act. I cannot agree, therefore, that the
established facts demonstrate
on a balance of probabilities that the
agreement has resulted in a merger of assets and that such a merger
has effectively allowed
MultiChoice control over parts of the
business of the SABC.
[45]
I would have to arrive at the same conclusion even if we were to view
the entertainment channel as a separate business wherein
the archival
material (asset) of the SABC has been transferred. The facts
established thus far do not show that there is joint
control of that
business. MultiChoice has paid the SABC R200m for this material, and
while the control of this business does not
appear to be wholly in
the hands of the SABC, it would be difficult to conclude that
MultiChoice has so much influence over it
that it effectively
constitutes joint control over the business. This conclusion might be
possible if more facts were available.
[46]
Turning my focus then to whether MuttiChoice has increased its market
share at the expense of the SABC, it is obvious that
MultiChoice
wishes to attract the customers of the SABC who have yet to join the
ranks of its five million (Sm) subscribers. It
can, therefore, be
accepted that by virtue of it offering the exclusive archival
material of the SABC on its bouquet the attraction
of its services
increases. But, whether this will translate, or has translated, into
an actual transfer of customers from the SABC
to MultiChoice is
something that cannot be, or has not been, established from the facts
revealed thus far.
[47]
The second ground upon which the appellants found their case concerns
the control of the policy regarding encryption of the
SABC channels
once the OTT platform has been established. We know certain key
clauses in the agreement make it impossible for the
SABC to revert to
Its original policy of encrypting its material without risking the
early termination of the agreement. In which
case the SABC would give
up a substantial sum of money.
[48]
As long as the agreement is threatened the SABC remains handcuffed.
It cannot revert to its original position. The key to unlocking
this
handcuff rests with MultiChoice. Should it give up its right to
terminate the agreement if the SABC were to change its policy
on
encryption then the SABC would be free to re-examine its position or
re-evaluate its
volte
face.
It
may be true that the ultimate decision on whether encryption should
be compulsory or not rests not with the SABC but with the
government,
but the value of the position adopted by the SABC cannot be
underestimated. It is a very important participant in the
television
broadcasting market. In fact, it is the only public broadcaster
available. It is established by statute. It has a specific
and very
important role to play in the dissemination of information and ideas,
and in the provision of entertainment, to the public.
It is a
recipient of a significant subsidy from the public purse. Unlike
MultiChoice, TopTV and e-TV, all of which are its competitors,
it
bears a general duty towards the public and is required to act in the
public interest.
[13]
The
policy it adopts on this important issue of encryption is central to
its role as public broadcaster acting in the public interest.
The
fact that the ultimate decision of whether encryption is to be
compulsory or not lies with government is of no moment. In any
event
that decision of the government, taken by the Minister of
Communications, has been set aside by the SCA,who found that:
"The
effect of this, as pointed out by the first group of NAMEC, is that
once the analogue signal is switched off, free-to-air
broadcasters
will not be able to encrypt their signals and all those with
television sets that do not have ST boxes with encryption
capability
will not be able to access high-definition content that can compete
with the pay-television broadcasts. This is the
view also of the
Competition Commission, which advocates conditional access, as well
as that of SOS and MMA.
All
the appellants advocate encryption in order, inter alia, to
facilitate competition amongst broadcasters. The effect of the
amendment is that high-quality television will not be available to
the poorest in our society, and competition will be stifled.
The
ability of free-to-air broadcasters to encrypt their signals, as
allowed for in in clause 5.1.2(C), is thus illusory. "
[14]
[49]
Importantly, the SCA has found that the government decision on
encryption is central to the ability of all the participants
in this
market to compete effectively and lawfully with each other. This is
the view of the Commission, too.
[50]
Should government persist with its view that encryption should be
non- compulsory then if the SABC, upon re-examination of
its present
stance, decides that this policy is in conflict with its duty to
serve and/or act in the public interest it would have
to make known
its opposition to the government decision and take whatever legal
steps are available to it in order to protect its
role and duties as
a public broadcaster. At present it is unable to re-examine its
policy without risking the early termination
of the agreement. To the
extent that the power to bring this early termination rests wholly in
the hands of MuJtiChoice, it can
be safely inferred that MultiChoice
has a significant influence over the policy of the SABC. The policy,
as stated above, is of
crucial import. Moreover, the agreement is
explicit that both parties will co-operate with each other to avoid
any competent regulatory
authority imposing any burdensome obligation
on either of them. This could well mean that the SABC is
contractually bound to co-operate
with MultiChoice to ensure that the
Minister's decision on encryption does not become a burdensome
obligation on MultiChoice. This
obligation to co-operate with
MultiChoice on such an important issue could result in the SABC
losing its autonomy to decide on
and adopt a policy that is consonant
with its interests and its duties as a public broadcaster. The
Tribunal gave no thought to
these aspects of the agreement. It also
gave very little thought to the inexplicable change of attitude on
the part of the SABC
towards encryption of its material once the DlT
platform is established.
[51]
If regard is had to these aspects of the agreement then on the face
of it
(prima facie)
the appellants have shown that the SABC
and MultiChoice have constructed a merged business as contemplated in
s 12 of the Act.
[52]
By arriving at this conclusion I do not ignore the fact that whether
the influence MultiChoice has acquired over the SABC's
policy choice
results in it actually exercising control in the ordinary course of
business {bearing in mind that an important part
of the SABC's
business is to serve and advance the public interest) over the SABC
is not entirely clear. An inference to this effect
can be drawn, but
it would certainly not be the only one that can be drawn. To make a
definitive finding on this score it would
be necessary to have regard
to more evidence than is presently available. The information that
would shed more light on this important
issue rests in the hands of
MultiChoice and the SABC. They have elected not to furnishit to the
Tribunal. The Tribunal on the other
hand, instead of recognising this
lacuna
in the evidence proceeded to determine the issue on the
basis of what was proven on a balance of probability rather than a
prima facie
basis. It reverted to its finding that the
appellants had failed to show that the SABC had changed its policy on
encryption because
of the contents of the agreement. However, the
Tribunal made that finding by applying the balance of probability
standard. It was
not made by applying the standard of proof required
to establish that
prima facie
the policy change on the part of
the SABC resulted from the conclusion of the agreement. The balance
of probability standard deals
with proof that is certain and final.
The proof required to show a
prima facie
case, on the other
hand, is one that is tentative. It is one that points to a possible
rather than a definitive conclusion. The
Tribunal in my view made an
error by conflating the two tests. It is an error that is significant
enough to constitute a misdirection
warranting interference by this
Court. It resulted in the Tribunal incorrectly refusing the
alternative relief. An error refusing
relief (main or alternative)
when relief is due constitutes a material misdirection.
[53]
It is on the basis of this reasoning that l hold that the appeal must
succeed and the order of my colleagues should be granted.
[54]
Finally, it bears mentioning that the appellants placed a
considerable amount of learning drawn from the jurisprudence of this

Court and other Courts located internationally. In my view, there is
no need to engage with much of that learning at this stage
as any
findings based on that learning may well change once more facts come
to light after the Commission has concluded its investigation.
_____________________
Vally
AJA
24
June 2016
[1]
The subscribers are also referred to as viewers or consumers by the
parties.
[2]
In the sense that it does not require the viewer to pay a fee for
accessing the broadcast on any television set However, any
person
who owns a television set is required to pay an annual licence tee.
The fee is paid to the SABC.
[3]
This is referred to as the Hovenkamp Test. Its origins lie in a
passage in the academic work of a scholar from the USA who after

studying a number of competition law cases found that it best
described the findings in all those cases. The scholar is Herbert

Hovenkamp. The passage is to be found in his work, Federal Antitrust
Policy, The Law of Competition and its Practice at 498.
[4]
Competition Commission v Edgars Consolidated Stores Ltd [2003] 1CPLR
151 (CT)
[5]
Reasons for Decision
at [64]
[6]
Id at [66]
[7]
Id. at [76]
[8]
Id. at [91]
[9]
Section 12(2)(g) of the Act. See [21 ] above for a full quotation of
s 12 of the Act
[10]
Reasons for Decision at [113]
[11]
Bulmer SA (Pty) Ltd & Seagram Africa (Pty) Ltd/ Distillers
Corporation (SA) Ltd, Stellenbosch Farmers Winery Group (Pty)
Ltd &
The Competition Commission
[2001-2002] CPLR 36
(CAC) at pp 45 - 46
[12]
While MultiChoice was of the view that the agreement underscores a
vertical relationship between it and the SABC, the SABC was
slightly
more ambivalent about it. The SABC, during its oral submissions
contented that in some ways the agreement could be conceived
as one
having·created a business' and that the creation of a
business is not the same as a merger of two businesses. Inherent
In
this contention is, in my view, a concession that the agreement is
as much one between parties operating in the market place
in a
manner horizontal to each other. This concession significantly
dilutes MultChoice's claim that the agreement is solely one
between
parties engaged in a vertical relationship with each other.
[13]
The Supreme Court of Appeal (SCA) has in a recent judgment
highlighted the importance of this role for the general public life.

In south African Broadcasting Corporation SOC ltd and Others v
Democratic Alliance and Others" [2015] 4 AU SA 719 (SCA)
at
[49] it observed:
"It is important to emphasise
that this case is about a public broadcaster that millions of South
Africans rely on for news
and information about their country and
the world at large and for as long as it remains dysfunctional, it
will be unable to
fulfil its statutory mandate. The public interest
should thus be its overarching theme and objective. Sadly, that has
not always
been the case." (footnotes omitted)
[14]
e.tv (Ply) Ltd v Minister of Communications (Case No.: 1039/2015)
[2016] ZASCA 85
(31 May 2016) at [50]