Minister of Economic Development and Others v Competition Tribunal and Others, South African Commercial, Catering and Allied Workers Union (SACCAWU) v Wal-Mart Stores Inc and Another (110/CAC/Jul11, 111/CAC/Jun11) [2012] ZACAC 2; [2012] 1 CPLR 6 (CAC) (9 March 2012)

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[2012] ZACAC 2
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Minister of Economic Development and Others v Competition Tribunal and Others, South African Commercial, Catering and Allied Workers Union (SACCAWU) v Wal-Mart Stores Inc and Another (110/CAC/Jul11, 111/CAC/Jun11) [2012] ZACAC 2; [2012] 1 CPLR 6 (CAC) (9 March 2012)

REPUBLIC OF SOUTH AFRICA
IN THE COMPETITION
APPEAL COURT OF SOUTH AFRICA
HELD IN CAPE TOWN
Reportable
CASE NO: 110/CAC/Jul11
111/CAC/Jun11
In the matter between:-
THE MINISTER OF
ECONOMIC DEVELOPMENT
….........................................
First
Applicant
THE MINISTER OF TRADE
AND INDUSTRY
…...........................................
Second
Applicant
THE MINISTER OF
AGRICULTURE AND FISHERIES
….................................
Third
Applicant
and
THE COMPETITION
TRIBUNAL
…................................................................
First
Respondent
THE COMPETITION
COMMISSION
OF SOUTH AFRICA
…...............................................................................
Second
Respondent
WAL-MART STORES INC.
…........................................................................
Third
Respondent
MASSMART HOLDINGS
LIMITED
….........................................................
Fourth
Respondent
SOUTH AFRICAN
COMMERCIAL, CATERING
AND ALLIED WORKERS
UNION (SACCAWU)
& OTHERS
…..................................................................................................
Fifth
Respondent
SOUTH AFRICAN CLOTHING
AND TEXTILE
WORKERS UNION (SACTWU)
….................................................................
Sixth
Respondent
THE SOUTH AFRICAN
SMALL BUSINESS AND
MICRO ENTERPRISES
FORUM (SASMMEF)
….....................................
Seventh
Respondent
And in the matter between
SOUTH AFRICAN
COMMERCIAL, CATERING
AND ALLIED WORKERS
UNION (SACCAWU)
….....................................................
Appellant
and
WAL-MART STORES INC.
….........................................................................
First
Respondent
MASSMART HOLDINGS
LIMITED
…........................................................
Second
Respondent
JUDGMENT : 9 March 2012
DAVIS JP and ZONDI JA:
Introduction
[1] On 31 May 2011 the
Competition Tribunal (‘Tribunal’) conditionally approved
the merger between first and second
respondents. The Tribunal found
that the merger raised no competition concerns although it did raise
certain public interest concerns
which could, however, be adequately
remedied by the imposition of conditions which had initially been
submitted as undertakings
by the merging parties (being first and
second respondents) and which were then made part of the order
granted by the Tribunal.
[2] As they appear in the
order, these conditions were the following:
“
1.1
The
merged entity must ensure that there are no retrenchments based on
the merged entity’s operational requirements, in South
Africa,
resulting from the merger, for a period of two (2) years from the
effective date of the transaction. For the sake of clarity,

retrenchments do not include voluntary separation agreements or
voluntary early retirement packages, and reasonable refusals to
be
redeployed in accordance with the provisions of the
Labour Relations
Act, 1995
, as amended.
1.2 The merged entity
must, when employment opportunities become available within the
merged entity, give preference to the re-employment
of the 503
employees that were retrenched during June 2010 and must take into
account those employees’ years of service in
the Massmart
Group.
1.3 The merged entity
must honour existing labour agreements and must continue to honour
the current practice of the Massmart Group
not to challenge SACCAWU’s
current position, as the largest representative union within the
merged entity, to represent the
bargaining units, for at least three
(3) years from the effective date of the transaction.
1.4 The merged entity
must establish a programme aimed exclusively at the development of
local South African suppliers, including
SMMEs, funded in a fixed
amount of R 100 million to be contributed by the merged entity and
expended within three (3) years from
the effective date of this
order. The programme will be administered by the merged entity,
advised by a committee established by
it and on which representatives
of trade unions, business including SMMEs, and the government will be
invited to serve. The merged
entity must report back to the
Competition Commission annually, within one month of the anniversary
of the effective date, about
its progress. In addition the merged
entity must establish a training programme to train local South
African suppliers on how to
do business with the merged entity and
with Wal-Mart.
[3] In the proceedings
before the Tribunal, three groups of intervening parties
participated: certain trade unions, being SACCAWU,
NUMSA and FAWU as
well as SACTWU and the Labour Research Services (‘the unions’),
the Minister of Economic Development,
the Minister of Trade and
Industry and the Minister of Agriculture, Forestry and Fisheries
(“the Ministers”) as well
as the South African Small
Medium and Micro Enterprises Forum.
[4] Of all of these
parties, only SACCAWU appealed the decision of the Tribunal. The
Ministers brought a review against the proceedings
which took place
before the Tribunal, based on the essential contention that the
parties did not have a fair hearing before the
Tribunal. Accordingly,
if this court is to find in their favour, they contend that the
decision of the Tribunal should be set aside
and the matter should be
referred back to Tribunal without the merits being determined on
appeal. The Ministers contend that, only
if they were to fail in
their review application, would it be appropriate for this court to
hear and determine the merits of the
dispute.
The essential nature
of the dispute
[5] The primary acquiring
firm, being first respondent (‘Wal-Mart’) is a company
incorporated and listed on the New
York Stock Exchange. It is the
largest retailer in the world. Its operations include three retail
formats in the form of discount
stores, super centres which contain
products such as bakery goods, meat and dairy products, fresh
produce, dry goods and staples,
beverages, deli food, frozen food,
canned and packaged goods, condiments and spices, household
appliances and apparel and general
merchandise, and finally
neighbourhood markets which sell a variety products that are also
offered by its super centres. It also
owns a chain of warehouse
stores called Sam’s Club which sell groceries and general
merchandise, often in bulk.
[6] Wal-Mart operates in
fifteen different countries, including Mexico, Chile and the United
Kingdom, the experience of all three
of which have featured
prominently in the evidence presented to the Tribunal. Prior to the
merger, Wal-Mart had a very limited
interest in the South African
market. That interest operates through an entity, ASDA Group Limited,
which controls International
Produce Limited (‘IPL’) and
which in turn is controlled by Wal-Mart. IPL does not directly or
indirectly control any
other firm but purchases fresh fruit produce
in South Africa for the export market. It appears that none of these
products are
then resold into the South African market.
[7] Given its scale of
operations and size, Wal-Mart’s business operations have been
the subject of considerable scrutiny
and public controversy. As an
example of the different perspectives on Wal-Mart’s impact upon
lower income consumers (who
form a crucial element of the analysis in
this case) contrast Richard Epstein 2007 (39)
Connecticut Law
Review
1287 with Katherine Silgaugh
2007 (39)
Connecticut Law
Review
1713.
This public debate about Wal-Mart notwithstanding,
it is important to emphasise at the outset that this Court can only
and must
assess the arguments by the intervening parties through the
prism of the evidence and materials which formed part of the record

before the Tribunal.
[8]
Second respondent (‘Massmart’) is a company incorporated
under the laws of the Republic of South Africa and is listed
on the
Johannesburg Securities Exchange. It controls in excess of ten
subsidiaries which operate both within South Africa and in
other
parts of the African continent. It is both a wholesaler and retailer
of grocery products, liquor and general merchandise.
It has four
divisions namely Massdiscounters, Masswarehouse, Massbuild and
Masscash. The Massdiscounters division trades under
the name of Game
and Dion Wired. Game offers a wide range of general merchandise and
non-perishable groceries to customers in the
1
LSM
5-10 category both throughout South Africa and Sub-Saharan Africa.
Masswarehouse consists of the Makro chain of large wholesale
outlets
which offer a broad range of food, liquor and general merchandise to
commercial affiliated resellers within the LSM 6-10+
group. Massbuild
comprises Builders Warehouse, Builders Express and Builders Trade
Depot chains which sell hardware and home improvement
/ DIY and
building materials, generally to consumer in the LSM 6-10+ group. The
Massmart food and grocery business focuses on low
end customers
predominantly at the wholesale level and through its Masscash
division, where it sells directly to customers. These
sales take
place predominantly to consumers in the LSM 2-7 categories. The
stores include Buy-Rite, Sunshine, Mikeva, Cambridge,
DF Astor,
Savemoor and Score.
[9] On 27 September 2010,
Massmart announced that Wal-Mart intended to acquire a controlling
interest in Massmart by virtue of an
acquisition of 51% of the
ordinary share capital of Massmart. It is this transaction which gave
rise to the hearings before the
Tribunal during May 2011 and which
culminated in the decision of the Tribunal, its reasons being given
on 29 June 2011.
The Tribunal’s
reasons for approving the transaction
[10] In the light of the
complex range of disputes canvassed by the Tribunal, it is necessary
to deal fully with the Tribunal’s
reasoning before proceeding
to the review and the appeal. In summary, the Tribunal held that it
was common cause that the merger
did not raise any competition
concerns, in that Wal-Mart did not compete with Massmart in South
Africa and its only presence in
this country was its procurement arm
of IPL which did no more than purchase South African produce for an
export market. Accordingly,
the Tribunal found that the transaction
did not prevent or lessen competition in any of the markets in which
Massmart operated.
[11] The entire dispute
therefore turned on what was described by the Tribunal as ‘one
of the unusual features’ of the
Competition Act 89 of 1998
(“the Act”), that is the public interest concerns as set
out in s 12 A of the Act. In particular,
s 12 A (3) read together
with s 12 A (1) provides that the initial consideration of the merger
must consist of an examination of
whether the merger is likely to
substantially prevent or lessen competition by an examination of the
factors set out in s 12 A
(2). Once that enquiry has been completed,
and if it then appears that the merger is likely to substantially
prevent or lessen
competition, a determination must be made whether
or not the merger is likely to result in any technological,
efficiency or other
pro-competitive gain which will be greater than
the losses and thus offset the effects of the prevention or lessening
of competition
that has already been found to exists pursuant to the
initial enquiry. Further, and irrespective of the findings in
relation to
these considerations, the Competition Commission or
Tribunal must consider whether the merger can or cannot be justified
on substantial
public interest grounds.
[12] In summary, the
provisions of s 12 A envisage three separate but interrelated
inquiries, namely
1. Whether or not the
merger is likely to substantially prevent or lessen competition;
2. If the result of this
inquiry is in the affirmative, whether technological, efficiency or
other pro-competitive gains will trump
the initial conclusion so
reached in stage 1 together, with the further consideration based on
substantial public interest grounds,
which in turn, could justify
permitting or refusing the merger; and
3. Notwithstanding the
outcome of the enquiries in 1 or 2, the determination of whether the
merger can or cannot be justified on
substantial public interest
grounds.
The legislature sets out
specific public interest grounds in s 12 A (3):
“
(
3)
When determining whether a merger can or cannot be justified on
public interest grounds, the Competition Commission or the
Competition
Tribunal must consider the effect that the merger will
have on –
a particular
industrial sector or region;
employment;
the ability of small
businesses, or firms controlled or owned by historically
disadvantaged persons, to become competitive; and
the ability of
national industries to compete in international markets.”
[13] On the basis of the
approach adopted by the Tribunal, the essential enquiry in the
present case focussed on the effects set
out in sub paragraphs (a)
(b) and (c) of s 12 A (3).
[14] In its engagement
with these factors, the Tribunal confirmed its finding in its earlier
decision in
Harmony Gold Mining Company Limited v Goldfields
Limited
CT case 93/LM/Nov 04 at para 76:
“
This
prioritisation of the competition inquiry explains the use of the
word justification in the public interest test. The public
interest
inquiry may lead to a conclusion that is the opposite of the
competition one, but it is a conclusion that is justified
not in and
of itself, but with regard to the conclusion on the competition
section. It is not a blinkered approach, which makes
the public
interest inquiry separate and distinctive from the outcome of the
prior inquiry. Yes, it is possible that a merger that
will not be
anti-competitive can be turned down on public interest grounds, but
that does not mean that in coming to the conclusion
on the latter,
one will have no regard to the conclusion on the first. Hence section
12 A makes use of the term “justified”
in conjunction
with the public interest inquiry. It is not used in the sense that
the merger must be justified independently on
public interest
grounds. Rather it means that the public interest conclusion is
justified in relation to prior competition conclusions.”
[15] On the basis of this
approach to the relevant public interest considerations, the Tribunal
examined the specific public interest
concerns which were raised in
the evidence. The unions expressed great concern about the
possibility of a reduction of employment
following the merger; in
particular they found that the statement of Massmart’s CEO Mr
Grant Pattison on 28 October 2010,
namely that Massmart saw ‘
no
anticipated reduction in the employees in the short term and store
level employees should increase at the same rate as space
growth of
20% over the next three years’
, and further ‘
we
believe the Group is correctly sized for the current economic
conditions and barring any further economic contraction, have no

intention or plans to reduce our workforce, rather we are expecting
our store employees to grow by approximately 20% over the next
three
years as we expand
’ to amount to nothing more than
speculation. In particular, SACCAWU contended in a summary of
evidence to be presented by
Mr Noel Mbongwe that:
“
2.9
Wal-Mart’s
harmful effects on the conditions of workers in the retail sector and
its suppliers are well-documented and have
resulted in it being
repeatedly sanctioned by regulators in the markets in which it
operates.
2.10. In short,
SACCAWU would not hold the same attitude to the proposed merger if
the primary acquiring firm were another international
retailer
.”
[16] The Tribunal found
that, given the ambitions of Massmart to expand, the merger may well
expedite expansion and new jobs would
be likely to be created more
quickly. Hence it concluded:
“
On
balance, retrenchments are, post-merger, a possibility, but the more
likely scenario is that either the workforce size will remain

constant or will expand
.”
[17] Whatever the
disputes between the commitments of the merging parties and the
concerns expressed by the unions, the Tribunal
was satisfied with the
undertakings given by the merging parties that there would be no
retrenchments based on the merged entity’s
operational
requirements in South Africa, resulting from the merger, for a period
of two years from the effective date of the transaction,
were
sufficient to meet any objection that could justifiably have been
raised on the available evidence.
Reinstatement of
retrenched employees
[18] SACCAWU contended
that 574 workers had been dismissed prior to the merger but that, on
the evidence, these retrenchments had
been effected in anticipation
of the merger. SACCAWU contended that the Tribunal should impose a
condition which would order reinstatement
or reemployment of all
these affected employees, the alternative being that the dismissed
employees should be the first to be hired
as employment opportunities
arose within the Massmart group.
[19] The Tribunal found
that the retrenchments could not be linked to the merger in terms of
the evidence which had been presented.
However, an undertaking to
give preferential employment opportunities to 503 workers, (there is
a dispute about the number of affected
employees to which reference
will be made later) has ‘been prudently made, but absent the
showing of merger specificity cannot
be expected to have been made an
immediate offer of reinstatement’.
Collective Bargaining
[20] A number of issues
were raised by the unions under this rubric, although it appears
that, when argued before the Tribunal,
two central conditions were
proposed, namely that Massmart become the subject of a closed shop
agreement and that there be group
centralised bargaining to
streamline labour relations and reduce the comparative advantage
enjoyed by Massmart from the present
set of collective agreements
spread across its divisions. In summary, it was argued that the
present asymmetry in the bargaining
relationships between Massmart
and SACCAWU allowed the former to enjoy a centralised overview of the
organisation that would inform
its collective bargaining strategy,
while SACCAWU’s members were separated into different
operational silos within the Massmart
organisation.
[21] The Tribunal found
that the evidence indicated that Massmart’s approach to both
centralised collective bargaining and
the closed shop constituted a
policy which had been developed before the merger and that,
accordingly, there was no evidence to
suggest that this policy had
been formulated in conjunction with Wal-Mart. For these reasons, the
Tribunal found that the creation
of what would be an additional right
not presently enjoyed by the unions was neither merger specific nor
appropriately connected
to the limited public interest mandate
contained in s 12 A (3).
Procurement
[22] This issue prompted
the leading of a considerable amount of evidence, the core of which
will be analysed presently. Suffice
at this point to note that, on
the basis of this evidence, the argument was raised both by the
Ministers and the unions that the
result of the merger would be a
significant shift in purchasing away from South African manufacturers
towards foreign low costs
Asian producers, which would in turn have a
significant impact upon small and medium sized businesses within
South Africa and a
further consequent loss of jobs.
[23] Having analysed this
evidence, the Tribunal concluded that, notwithstanding a legitimate
concern which had been raised with
regard to the effect of the merger
upon local producers and jobs, the possible consequent job losses had
to be weighed ‘against
the consumer interest in lower prices
and job creation at Massmart. Since the evidence is that the likely
consumers, who will benefit
most from the lower prices associated
with the merger, are low income consumers and those consumers without
any means of support
of their own, thus the poorest of South
Africans, the public interest in lower prices is no less compelling’.
[24] The Tribunal then
turned to the conditions which had been sought by the unions, in
particular certain procurement conditions.
The Tribunal found that in
order to impose procurement conditions, there would be a need to
determine the local procurement levels
of Massmart pre-merger and
then hold it to this level for some period in the future. It held
that ‘this all sounds fine at
the level of principle, but…
founders when we get to the level of detail’.
[25] The Tribunal further
held that it would be extremely difficult to establish the amount of
locally produced product supplied
which is actually produced locally.
Further, there was no rational basis for determining the period in
which the procurement conditions
should operate. In addition, the
proposed conditions, in the Tribunal’s view, would create an
unjustified symmetry; that
is the merged entity would be the only
firm subjected to this restriction, while its rivals would be free to
procure globally.
In addition, the procurement condition would be
impermissible as it would render the country in breach of trade
obligations under
several international trade agreements to which
South Africa was a party.
[26] In the result, the
Tribunal found that the remedies proposed by the unions were far too
complex and imprecise. It held that
the proposal of the merging
parties to establish a programme aimed exclusively at the development
of local South African supplies,
including small and medium size
enterprises and funded in the fixed amount of R 100 million to be
contributed by the merged entity
over a three year period, was both
appropriate, proportional and enforceable.
[27] Within the context
of the factual matrix and the Tribunal’s decision, it is now
possible to deal first with the review
brought by the Ministers.
The Review
[28] The essential bases
of the Ministers’ application are firstly, that the Tribunal
erred in making a discovery order by
failing to order the merging
parties to discover all the documents sought by the Ministers which,
in their view, turned out to
be material to the determination and
secondly, that the Tribunal erred in making scheduling decisions in
that they precluded the
parties, which opposed the merger, from fully
and properly ventilating their concerns as well as making submissions
on the conditions
to which any approval should be subject.
[29] The Ministers
contended that, as the merger hearing progressed, the Tribunal
remained rigidly committed to its scheduling decisions,
whereas it
had a discretion under section 55 of the Act to amend scheduling
decisions in favour of a fair and proper ventilation
of the important
public-interest issues raised before it. They contend that the
Tribunal’s reviewable errors in making the
discovery order and
the scheduling decisions rendered its approval of the merger and the
conditions attached to it subject to being
set aside on various
reviewable grounds.
[30] This application is
opposed by the Commission and the merging parties on various grounds.
The Commission’s opposition
to the relief sought by the
Ministers is only confined to an attack on the exercise of the
Tribunal’s discretion in the making
of scheduling decisions. It
contends that the grounds upon which the Ministers rely in bringing
the review application will, if
upheld, have unintended negative
consequences for the future regulation and adjudication of mergers.
The Commission argues that
the Tribunal’s ability to control
and regulate its proceedings in ensuring that they are concluded as
expeditiously as possible
will be seriously compromised. It points
out that the commercial and economic environments change very quickly
and it would be
undesirable for the efficiency of the economy for
merger regulation and adjudication to be unduly protracted. It is the
Commission’s
case that, on the facts, the scheduling decisions
were fair and in accordance with section 52 (2) (a) of the Act.
[31] The merging parties
oppose the review on three grounds. Firstly, they submit that the
Ministers have not made out any case
for the setting aside of the
scheduling decisions, discovery order or the merger approval.
Secondly, the Ministers have expressly
or by their conduct waived
whatever rights they may have had to set aside the discovery order
and scheduling decisions on review.
Thirdly, they argue that, on the
facts, there is no basis for concluding that the Tribunal, in making
the scheduling and discovery
decisions, exercised its right to
control its own process unreasonably, irrationally or unlawfully.
The Nature of the
proceedings
[32] The Ministers have
emphasised that they have brought an application for review and not
an appeal. But, as correctly pointed
out by Mr Gauntlett who appeared
together with Mr Unterhalter, Mr Wilson and Mr Pelser on behalf of
the merging parties, the case
which the Ministers make out in their
founding affidavits appears to be more of an appeal. The Ministers
contend that the Tribunal
“
erred
” in making its
discovery order and scheduling decisions. The merging parties contend
that the use of this term by the Ministers
tends to blur the
distinction between appeals and reviews which is well entrenched in
our law. (
Bato Star Fishing (Pty) Ltd v Minister of Environmental
Affairs and Others
[2004] ZACC 15
;
2004 (4) SA 490
(CC) at 513 C-D;
TWK
Agriculture Limited v The Competition Commission and Others
Case
No.: 67/CAC/Jan07;
A.C. Whitcher (Pty) Ltd v The Competition
Commission and Others
Case No.: 84/CAC/Jan09)).
[33] It is consequently
as well to make clear what test is required in this form of
application. As the Supreme Court of Appeal
has held:
“
In a review the
question is not whether the decision is capable of being justified...
but whether the decision-maker properly exercised
the powers
entrusted to him or her. The focus is on the process and on the way
in which the decision-maker came to the challenged
conclusion.”
(
Rustenburg Platinum
Mines Ltd (Rustenburg Section) v CCMA
2007 (1) SA 576
(SCA) para
31).
[34] As far as the relief
is concerned, the distinction between an appeal and review is also of
significance. In the event of an
appeal being successful, the Court
would be empowered to set aside the decision and replace it with its
own. However, a Court,
in upholding a review, would be loath to
substitute its own decision for that of the decision-maker. Instead,
the Court would set
aside the decision and refer it back to the
decision-maker, unless the circumstances justified a departure from
the general rule
(
Johannesburg City Council v Administrator,
Transvaal
1962 (2) SA 72
(T) at 76 D-H).
[35] The persuasive
arguments raised about the Ministers’ seeking, in substance, to
appeal the Tribunal’s decision notwithstanding,
if regard is
had to the conspectus of the Ministers’ evidence contained in
the review supplementary and replying affidavits
and the relief they
seek, then it is clear that, in substance, they contend that the
Tribunal acted unreasonably and/or irrationally
in making the
discovery order and the scheduling decisions. They thus seek an
order,
inter alia
, reviewing and setting aside the impugned
decisions and referring the matter back to the Tribunal for
reconsideration which is
a review-related relief. In the
circumstances, we will approach the matter on the basis that a proper
case for the review has been
made.
[36] Accordingly it is
necessary to recapitulate on certain of the key facts giving rise to
this review application. Pursuant to
the announcement by Massmart of
Wal-Mart’s intention to acquire 51% of the ordinary share
capital of Massmart, on 3 November
2010, the merging parties
submitted a notice of a large merger to the Commission in which they
notified the Commission of Wal-Mart’s
intention to acquire a
majority stake in Massmart.
[37] The Department of
Economic Development (‘the Department’) thereupon
appointed an expert panel to conduct research
into the implications
of the proposed merger. The expert panel reported its findings to the
Minister of the Economic Development,
in which it confirmed that it
was probable that, owing to size and international exposure of
Wal-Mart, employment, the welfare
of local manufacturers and small
business would be seriously affected.
[38] In January 2011, the
Department contacted the merging parties, which contact resulted in
facilitated talks between the merging
parties and a number of trade
unions. Various stakeholders, whose views had by then been solicited,
expressed concerns over the
impact of the transaction on employment
in the post-merger entity, as well as on the employment conditions of
existing employees.
[39] In the meantime, the
Commission referred the notice of the merger to the Tribunal and to
the Minister of Economic Development
in accordance with s 14 A (1) of
the Act. The Commission then proceeded to consider the notification
of the proposed merger.
[40] The Department
continued its consideration of the public-interest issues raised by
the proposed merger and continued talking
with the merging parties.
It alleges that it expected that the talks would produce an accord,
which would address the public-interest
concerns and that the terms
of such an accord would be communicated to the Tribunal.
[41] On 11 February 2011,
the Commission, in terms of section 14 (1) (b) of the Act,
recommended to the Tribunal and to the Minister
of Economic
Development that the merger be approved unconditionally. This
recommendation came before the talks between the merging
parties and
the Department had been finalised and just before the time frames set
by section 14 A of the Act had expired.
[42] In its
recommendation, the Commission indicated that it was aware of
negotiations that were taking place between the Department
and the
merging parties. It went on to indicate that, as no party had applied
for an extension of the investigation period in order
to finalise
those negotiations, it would recommend that the merger be approved
without any conditions but stated that, if the discussions
were to
lead to some agreements between the parties, it would leave it to the
Tribunal to consider whether those agreements would
form part of the
conditions of the merger in terms of section 12 A of the Act.
[43] The Commission
rejects the suggestion by the Department that its recommendation was
arrived at on the expectation that the
merging parties would agree to
commitments to meet the public-interest concerns adequately. It
alleges that it regarded its task
as completed at the time it
compiled its report. It says it mentioned the fact that there were
negotiations between the Department
and the merging parties simply
because it did not want to close the door to the possibility of
conditions being imposed by agreement
between the parties.
[44] There is however no
factual support for the Commission’s denial. In its report, it
points out that it made its recommendation
with full knowledge of the
discussions which were taking place between the Department and the
merging parties and with the expectation
that “
an agreement
would be reached prior to the finalisation of the Tribunal hearing
”.
The Commission further says in its report “
based on the
outcome of these agreements the Competition Tribunal would have to
consider whether it would make these agreements
a condition to the
merger in terms of section 12
”.
[45] Professor Richard
Levin (“Levin”) the Director-General in the Department
alleges that, after the Commission had
recommended an unconditional
approval of the merger, the negotiations stalled and the merging
parties’ stance on procurement
showed less flexibility. At that
stage, it had become apparent to the Department that it was highly
unlikely that a suitable agreement
would be reached, prior to the
hearing which was scheduled for 22 to 24 March 2011. Accordingly, in
the light of these facts, the
Minister of Economic Development
elected to participate as a party in the merger proceedings before
the Tribunal in terms of section
18 (1) of the Act.
[46] Thus, on 25 February
2011, Levin sought and obtained from the Tribunal a right for the
Departments of Economic Development
and Trade and Industry to
intervene as parties in the merger proceedings. The Department of
Agriculture, Forestry and Fisheries
also intervened in the
proceedings.
[47] The bases upon which
these Departments sought intervention are set out by Levin as
follows:
“
This proposed
merger raises very significant public interest issues. The Commission
made its recommendation on the premise and expectation
that the
merging parties would make commitments with respect to those issues.
The Commission anticipated that those commitments
might be made a
condition of any merger approval by the Tribunal. EDD had facilitated
discussions with the merging parties in order
to seek to arrive at
agreements in this regard. However, it had now (at a very late stage)
become apparent that the merging parties
are delaying making binding
commitments which address these issues. In the view of the relevant
Government departments, it is self-evident
that the question of
whether any conditions should be imposed and if so what those
conditions should be, depends on the nature
and extent of any
commitments made by the merging parties with regard to public
interest grounds set out in the Act, such as labour,
procurement,
food security, and BBBEE business.”
[48] In justifying the
reasons for the intervention by the Departments, Levin then says:
“
[In terms of
section 12 A (3) and 18 of the Act] it is ... incumbent on EDD, in
particular to ensure that all public interest dimensions
of
significant mergers are fully canvassed and considered prior to the
merger being approved. EDD and the other Government Departments

prefer to address concerns about public interest ramifications of
mergers by facilitating dialogue between interested and affected

parties, with a view to procuring any appropriate commitments from
the merging parties, or addressing concerns of third parties
in other
ways. In other words, the relevant Government Departments prefer to
safeguard the public interest without in every instance
formally
intervening in Commission investigations or Tribunal proceedings.
However, where formal intervention is required, EDD
and the other
Government Departments are duty-bound to adopt that course.”
Levin points out that it
is necessary to investigate whether a merger could be expected to
have a notably deleterious effect on
any sector or region,
employment, smaller manufacturing suppliers ,particularly BBBEE
manufacturing suppliers, who could be prejudiced
by the merged entity
preferring larger manufacturing suppliers with greater economies of
scale, or relying to a greater extent
on imports.
Scheduling decisions
[49] In terms of the
directive which had been given by the Tribunal after a pre-hearing
conference held on 18 February 2011, the
merger hearing was scheduled
to commence on 22 March 2011.
[50] On 16 March 2011,
the Ministers addressed a letter to the Tribunal indicating their
intention to bring an urgent application
for the postponement of the
merger hearing, as they were of the view that the merger involved
complex issues that required meaningful
engagement and proper
ventilation. Hence they needed more time to prepare.
[51] On 18 March 2011,
the Ministers duly filed a notice of an application to be heard on 22
March 2011, in terms of which the Ministers
sought,
inter alia,
a postponement of the merger hearing to 2 May 2011, alternatively to
a date to be determined by the Tribunal or agreed upon between
the
parties.
[52] At the commencement
of the merger hearing on 22 March 2011, the Tribunal considered the
Ministers’ application for the
postponement and suggested
certain proposals regarding the manner in which the merger hearing
was to be conducted. After hearing
the views of the parties regarding
its proposals, the Tribunal decided to proceed with the merger
hearing on the basis that it
would hear the factual evidence of the
unions’ witnesses and the merging parties, excluding the expert
economists in the
week of 22 to 25 March 2011, and thereafter adjourn
the hearing to 9, 10 and 11 May 2011, for the hearing of evidence of
the various
economic experts.
[53] After a couple of
short adjournments, counsel for the unions expressed dissatisfaction
about certain features of the arrangements
decided upon by the
Tribunal for the further prosecution of the merger hearing. Counsel
for the unions indicated that their instructions
were to take the
Tribunal’s decision in respect of the further conduct of the
merger hearing on an urgent review to this
Court. Accordingly,
counsel for the unions moved an application for a stay of the merger
hearing pending the outcome of the review
application. After hearing
argument of the parties, the Tribunal granted a stay of the hearing
until 9 May 2011, but insofar as
other procedural matters were
concerned, the Tribunal said:
“
In relation to
other procedural matters that must be addressed, we are going to
adjourn and have a prehearing timetable with all
the parties. So, we
would ask them to remain behind and we will address seeing that the
hearing runs properly in the course of
that week to finality and that
we also address the issues of discovery and set timetables but we are
not going to leave this process
open-ended after we finish today...
So, we will adjourn
the matter until the 9
th
of May and we will
now ask the parties to remain behind and we’ll have a
prehearing to talk about how we are going to give
further directions
in relation to the proceedings of that week now that is taking that
turn and when we have final argument and
also to regulate the
outstanding discover application, which we understand the government
departments want to bring. So, we can
then adjourn, thank you.”
[54] After the stay had
been granted, in the course of the morning of 22 March 2011, a
further pre-hearing conference was convened.
One of the central
issues addressed was the determination of a timetable, in terms of
which the further discovery requested by
the Ministers would be
conducted.
[55] It was agreed among
the parties that by noon on 23 March 2011, the Ministers would
produce a revised list of documents sought
and the merging parties
would respond to the request by 10h00 on 24 March 2011, and that, if
necessary, the discovery application
would be argued on 25 March
2011.
[56] At that pre-trial
conference, the new hearing dates of 9-13 May 2011 for evidence and
16 May 2011 for argument were proposed
and agreed to by all the
parties. In addition to these dates, the chairperson proposed a new
order for the timetable and the allocation
of time for cross
examination which was agreed to by all the parties.
Discovery
[57] As the limitations
of the discovery process was central to this dispute, it is necessary
to set out the revised list of items
for discovery filed on behalf of
the Ministers:
“
Revised
items for discovery: Wal-Mart / Massmart merger
Definitions
/clarification
Any reference to
Wal-Mart includes references to ASDA and all other subsidiaries of
Wal-Mart.
“
Locally
produced” is defined as products which involve local
production and value-add (even if some components are imported
in
the process) and does not include products that are purely imported
through locally-based agents. This is in contrast to
the
terminology used by the merging parties where ‘local
procurement’ is defined to include both imports from local

agents and locally produced products.
“
Correspondence”
includes all hardcopy and email correspondence.
Documents in
respect of Wal-Mart’s global operations
2.1 Any and all
complaints, orders, judgments awards and decisions in respect of
Wal-Mart’s activities relevant to competition
matters in any
and all countries for the past 3 years.
2.2 Copies of
judgments on all court proceedings referred to in affidavits,
including those dealing with race and gender, as detailed
in
paragraph 68, 69 and 70 to 80 of the Witness Statement by Bond.
2.3 All documents
relating to its claims, measurements of and methodology in support of
Wal-Mart’s contentions on local procurement
in Mexico, Brazil,
India, Chile and USA; including the complete underlying data and
measurement methodology in respect of the claims
made in para 32.1 of
Bond’s statement. To the extent that the claims of ‘locally
sourced’ includes products imported
through local agents (as
per the parties definition of ‘local procurement’), then
in addition the provision of data
for each of the countries cited in
para 32.1 in respect of the proportion of products that are locally
produced (as per the definition
above). Further, provide a breakdown
for each of the following major categories; general merchandise,
perishable grocery products,
non-perishable grocery products and
non-edible grocery products.
2.4 Data (and the
underlying methodology) in respect of the proportion of purchases by
D&S in Chile that are locally produced
(as defined above for
2008, 2009 and 2010 rather than the locally produced definition and
data as used in RBB table 10. Further,
provide a breakdown for each
of the following major categories: general merchandise, perishable
grocery products, non-perishable
grocery products and non-edible
grocery products.
2.5 In respect of D&S
in Chile, documents containing data for the past three years on:
2.5.1 employment;
2.5.2 the split in
employment between full-time and part-time employees, and
2.5.3 annual increases
in wages and benefits for full-time and part-time employees, d) union
membership in total and membership
of the company-wide union (as
alleged by Claudio Alvarez) specifically.
2.6 In respect of D&S
in Chile, the underlying data and measurement methodology in respect
of the claims made by RBB and Layton
concerning the JBP programme.
2.7 In respect of all
countries in which Wal-Mart operates, documents relating to a
benchmarking of Wal-Mart against the industry
for:
2.7.1 the split in
employment between full-time and part-time employees;
2.7.2 wages and
benefits for full-time and part-time employees, and
2.7.3 union
membership.
2.8 Both Bond and
Pattison refer to the global procurement network and capabilities of
Wal-Mart in their Witness Statements. Provide
documentation
indicating details of the current offices, distribution centres,
assets and personnel of Wal-Mart that are utilised
in this global
procurement network for each country from which Wal-Mart sources
globally. Also provide the total value of products
shipped annually
from each of these countries that Wal-Mart sources globally, and a
breakdown of value by broad product category,
namely general
merchandise, perishable grocery products, non-perishable grocery
products and non-edible grocery products.
2.9 The “UK
grocery report” as referred to in the RBB report:
2.10 Reports, analysis
and other documentation which support the claims made about Brazil in
footnote 6 on page 15 of the RBB report
that:
“
...[P]rior
to its acquisition by Wal-Mart in 2004, prices at the Brazilian
retailer Bompreço were [CONFIDENTIAL]% higher
than the market
for a basket of 3,000 top-selling items. However, an equivalent
basket of items in Bompreço is now [CONFIDENTIAL]%
lower than
the market average. Similary, prior to its acquisition by Wal-Mart in
2005, prices at Brazilian retailer Sonae were
around [CONFIDENTIAL]%
lower than the market average, but are now around [CONFIDENTIAL]%
lower.”
2.11 Reports, analysis
and other documentation which support the claims made about Mexico in
footnote 6 on page 15 of the RBB report
that:
“
Another
example is Mexico where prices at Wal-Mart stores are currently
[CONFIDENTIAL]% lower than the market...”
2.12 Copies of the
ABRAS and AC Nielsen reports which support the claims made in
footnote 23 on page 44 of the RBB report that:
“
In
Brazil the three major retailers account for only 39% of Grocery
sales, while in Argentine the top four grocery retailers’

account for 65% of the market”
2.13 Representations
and objections to Wal-Mart’s entry into Germany and copies of
all minutes of board and management meetings
relating to its decision
to exit from the German market.
2.14 The total number
of individual cases brought against Wal-Mart relating to any matter
involving employment matters, including
discrimination, dismissal,
victimisation, retrenchment and non-appointment. Including the number
of persons in total affected by
such cases, for the period 2000 to
2010, in all countries in (sic) operates in and in each the US,
Brazil, Chile, Mexico, India
and China as detailed in paragraphs 28
and 67 of the Witness Statement by Bond.
Wal-Mart
documents in respect of the merger transaction
3.1 All correspondence
(including documents exchanged) and minutes of meetings between the
merging parties between February 2009
(when the reciprocal
confidentiality undertaking was signed) and 26 September 2010 (when
the indicative offer was made).
3.2 All Wal-Mart
documents and reports generated in the evaluation of Massmart as a
potential acquisition / target.
3.3 All Wal-Mart
documents dealing with proposals for increasing efficiencies and/or
lowering prices and/or increasing market share
of Massmart post
acquisition.
3.4 All Wal-Mart
documents dealing with labour issues in respect of Massmart and/or
South Africa including any evaluation of current
labour laws, current
labour practices at Massmart and any proposed strategy in respect of
labour relations post acquisition since
February 2009.
3.5 All Board minutes,
management minutes, notes and transcripts of Wal-Mart relating to its
strategy on or entry into South Africa
and or African market and or
bid for Massmart as detailed in paragraphs 7, 8, 19, and 44 to 48 of
the Witness Statement by Bond.
3.6 The Massmart Due
Diligence report done by Wal-Mart, following the indicative offer of
26 September 2010.
Massmart
documents
4.1 Any documents
evidencing and or in support of Massmart’s approach to
procurement and procurement philosophy as detailed
in paragraph 6 of
the Witness Statement by Pattison. Without limiting the generality of
the above any documents evidencing and
or support of the ‘variety
of sources’ that Massmart envisages to procure supplies from
and any and all market research
documents in support of Massmart’s
procurement philosophy.
4.2 Any documents
evidencing and or in support of Massmart’s local procurement
strategy as detailed in paragraph 6.8 of the
Witness Statement by
Pattison.
4.3 Any Massmart
Procurement Department (or relevant department that conducts
procurement) documents that detail the imported good
strategy of
Massmart.
4.4 Provide details of
the current offices, distribution centres, assets and personnel of
Massmart that are utilised for direct
imports to South Africa
(including such items located abroad).
4.5 Provide further
information in respect of Massmart development and use of suppliers
in particular SMME and historically disadvantaged
suppliers (Pattison
statement para 6.14 – 6.17).
4.6 A document
providing the breakdown of sales, direct imports and local content by
major sub-categories of the product categories
listed in tables 7 and
8 of the RBB report (e.g. provide such details for the major
sub-categories of non-edible groceries).
4.7 The Massmart
Strategy Document 2010 regarding home improvement shares in South
Africa (see table 5, page 13 of the RBB report).
4.8 Presentations to
retail analysts, presentations to asset managers, presentations to
shareholders, presentations to the Massmart
senior management team
and presentations to the Massmart board on the proposed acquisition
of Massmart by Wal-Mart.
Data from both
merging parties
5.1 For the top and
bottom 10 locally produced products by Rand value purchased by
Massmart in 2010 in each of the categories listed
in tables 7 and 8
of the RBB report, the ex-factory price (ex VAT) paid by Massmart to
the local producer and the likely lowest
delivered price to South
Africa (provide the ex-factory price and likely per unit transport
costs to South Africa) from Wal-Mart’s
global suppliers.”
[58] In response thereto,
the merging parties tendered documents sought in paragraphs 2.4; 2.6;
2.9 to 2.12; 4.1; 4.6 and 4.7 of
the discovery but refused to
disclose the balance of the documents so sought. The documents
tendered, as set out in paragraphs
2.4, 2.6, 2.10 – 2.12 and
4.1 were made, subject to the Ministers providing appropriate
confidentiality undertakings.
[59] The Ministers
proceeded with their application for discovery on 25 March 2011, due
to the fact that, in their view, the documents
discovered by the
merging parties were inadequate. After hearing argument by the
parties, the Tribunal, by way of a discovery order,
directed the
merging parties to make discovery of some of the documents identified
by the Ministers. The Tribunal did not provide
reasons for the
discovery order. It only did so on 15 August 2011.
[60] In determining
whether or not discovery of the documents sought by the Ministers
should be ordered, the Tribunal adopted the
test, the nature of which
is captured in para 8 of its ruling as follows:
“
Two factors
distinguish an approach to discovery in such an application
from one in more
conventional adversarial litigation. In the first place the public
interest canvas is much broader than it would
be in conventional
litigation, where the factual dispute in issue more narrowly frames
the issues. But whilst the canvas is narrower
in conventional
litigation, individual documents are more significant, because so
much turns on the resolution of specific factual
disputes to which
the documents sought may be relevant. In public interest disputes
potentially many issues can be said to be relevant.
Since relevance
is the usual filter for assessing discovery claims, it is less useful
to the adjudicator in such cases in determining
what documents ought
to be produced. But whilst more documents might be deemed relevant in
a public interest case, at the same
time the probative value of
individual documents is less compelling than in conventional
litigation, if their focus is too microscopic.
Therefore to avoid an
overwhelming number of documents being required for production we
must consider other filters in addition
to relevance to determine an
application.”
[61] The Tribunal went on
to say at para 9:
“
While documents
might be, arguably, relevant to a microscopic issue, we ask if they
are relevant to better informing us on macroscopic
issues. Even if
they may relate to macroscopic issues, we have to weigh the value of
the information yielded to the process, against
the burden to the
party required to produce it. Where the yield is minimal or
uncertain, but the burden great, this would favour
denying
production.”
[62] Having outlined its
approach to the discovery application, the Tribunal proceeded to
consider item by item documents requested
by the Ministers. It
refused to order discovery of the documents sought in items 2.5 and
2.14 of the request on two grounds, firstly,
that Ministers are not
best placed to deal with Wal-Mart’s direct relationships with
its employees. In its view, this issue
was not pertinent to the
primary issue on which the Ministers sought to intervene, namely the
effect of the merged firm’s
post-merger procurement policy on
the South African manufacturing sector and producers. The Tribunal
pointed out that the Ministers
were concerned that Wal-Mart’s
assumed superior purchasing powers and logistics in international
markets may lead to a displacement
of local suppliers by way of
imported goods with a consequent employment loss in South Africa. It
reasoned that the relationship
between the merged firm and its
employees was an issue which was adequately represented in the
proceedings by SACCAWU, which is
the union currently recognised by
Massmart in its various divisions. In turn, SACCAWU was supported by
an international Trade Union
solidarity movement which, it could be
assumed, possessed direct knowledge of Wal-Mart’s labour
practices in other countries.
[63] The second reason
advanced by the Tribunal for refusing discovery was that it was
unlikely that the request, as formulated,
would provide it with any
useful information for the purposes of determination, particularly
regarding Wal-Mart’s relationship
with its employees. It said
this information was microscopic but not macroscopic. It went on to
observe:
“
How much
information would represent a trend for us to take note of is not
clear nor does the government, which seeks this information,
seem to
know. Granted we will hear of numerous cases of labour disputes, but
we do not know if they represent a generalised trend,
are conclusive
(as is typical of many disputes of this kind, many may not be
resolved, other may be settlements for which no admissions
of wrong
doing are made) or are historic
.”
[64] The Tribunal also
refused to order discovery of item 2.3, essentially on the grounds
that the basis of the request, being the
determination of local
producers was extremely complex, particularly with regard to the
determination of local production and the
further difficulty of the
comparison being applicable to the present dispute and hence its
probative value.
[65] With regard to
information sought in items 5.1, 2.8 and 4.5, the Tribunal similarly
refused to order its disclosure on the
ground that it was not sure if
the request could be complied with and, even if it could, whether the
probative value of this complex
undertaking was worth the
considerable effort, which undertaking would have further delayed the
hearing of the merger. The Tribunal
also refused to order discovery
of information in item 2.13 relating to Wal-Mart’s entry into
Germany on the ground that
it was not pertinent to any of the public
interest issues that the Ministers wished to raise in the merger.
Legal Principles
[66] The test to be
applied in this matter is whether the Tribunal’s discovery
order and scheduling decisions are decisions
which a reasonable
decision maker could not make. It is trite that once it is found not
to be reasonable, the decision can be reviewed
and set aside. (
Sidumo
& Another v Rustenburg Platinum Mines Ltd & Others
[2007]
12 BLLR 1097
(CC)). Prior to
Sidumo
,
in the
Minister
of Health & Another NO v New Clicks South Africa (Pty) Ltd &
Others (Treatment Action Campaign & Another as
Amici Curiae)
2006 (2) SA 311
(CC) at paragraph 511 Ngcobo J (as he then was) had
this to say in connection with the test to be applied by a reviewing
Court
in applications for review:
“
There is
obviously an overlap between the ground of review based on failure to
take into consideration a relevant factor and one
based on the
unreasonableness of the decision. A consideration of the factors that
a decision-maker is bound to take into account
is essential to a
reasonable decision. If a decisionmaker fails to take into account a
factor that he or she is bound to take into
consideration, the
resulting decision can hardly be said to be that of a reasonable
decisionmaker.”
[67] It is not without
significance that the Ministers did not contend that the merger not
be approved. Their entire argument concerned
the appropriate
conditions that they consider would, in their view, safeguard the
public interest as defined. It is within this
context that they
contend that the Tribunal failed the standard of the reasonable
decision maker.
Submissions of the
Parties in relation to the Review
[68] As noted above, the
Minister of Economic Development sought to participate in the merger
proceedings in the public interest
in terms of section 18 (1) read
with s 53 (c) (iv) of the Act, which he contends he was unable to
advance because of the discovery
order and scheduling decisions made
by the Tribunal. The Ministers advanced four grounds upon which they
contend that the approval
of the merger should be reviewed and set
aside. Firstly, they contend that the Tribunal erred in making the
discovery order by
failing to order the merging parties to discover
all the documents which they had sought, which, as it turned out from
the Tribunal’s
reasons for their decision, were wholly
material.
[69] Secondly, the
Ministers contend that the Tribunal erred in making the scheduling
decisions in that the effect of the latter
was to preclude the
parties, which opposed the merger (or had otherwise intervened,
including the applicants), from fully and properly
ventilating their
concerns as well as making submissions on the conditions to which any
approval should be subject.
[70] Thirdly, they argue
that, as the merger hearing progressed, the Tribunal remained rigidly
committed to the scheduling decisions,
whereas it had the discretion
under section 55 of the Act to amend its schedule in favour of a fair
and proper ventilation of the
important public-interest issues before
it. Fourthly, they contend that the Tribunal’s refusal to
separate out the questions
of the merits and of the conditions, as
the applicants requested in chambers before the commencement of the
hearing on 9 May 2011,
constituted an irregularity.
[71] The Ministers
accordingly submit that the Tribunal’s reviewable errors in
making the discovery order and the scheduling
decisions rendered its
approval of the merger and the conditions attached to it subject to
being set aside on the following grounds:
1. The merger hearing was
inherently unfair and not in accordance with the principles of
natural justice as required by
s 52
(2) (a) of the
Competition Act.
2. The
merger hearing was
procedurally unfair within the meaning of s 6 (2) (c) of the
Promotion of Administrative Justice Act 3 of 2000
(“PAJA”).
3. The Tribunal took into
account irrelevant considerations and failed to take account of
relevant considerations within the meaning
of s 6 (2) (e) (iii) of
PAJA, in its approval of the merger and in its determination of the
conditions attached to it.
4. The Tribunal’s
approval of the merger and its determination of the conditions
attached to it were unreasonable within the
meaning of s 6 (2) (h) of
PAJA.
[72] Mr Trengove, who
appeared together with Mr Bhana and Mr Meiring, on behalf of the
Ministers submitted that, since the merger
holds a significant impact
for employment and imports of goods, it was important for the
Tribunal to obtain more evidence to establish
the extent of the
increase of imports and the consequent effect on employment. He
contended that, reasonably employed, the discovery
order and the
scheduling decisions were important tools with which the Tribunal
could have ensured that significantly more facts
were placed before
it and more time was permitted for a full and fair ventilation of the
issues. He further submitted the unfair
restrictions resulting from
the discovery order and the scheduling decisions made it impossible
for the Minister of Economic Development
to fulfill his role under
section 18 of the Act. Hence, because of the nature of the discovery
order and the scheduling decisions,
the Ministers were seriously and
unfairly prejudiced in demonstrating the extent of increased imports
as a result of the merger
and its measureable effect on employment.
[73] In response to the
Ministers’ submissions in relation to the scheduling decisions,
Mr Mtshaulana who appeared with Mr
Ngcancisa for the Commission,
submitted that the Tribunal did not act unfairly or unreasonably in
making the scheduling decisions.
He advanced two grounds in support
of this submission. First, he argued that the Tribunal has the right
to regulate and control
its proceedings. In developing this argument,
he contended with reference to the provisions of sections 52 (1), 52
(2) (a) and
55 (1) of the Act, that it was clear that the legislature
had made a deliberate policy choice to grant the Tribunal a
significantly
wide discretion and latitude to determine the conduct
of its own proceedings.
[74] In particular, he
pointed out that s 52 (1) requires the Tribunal to “
conduct
a hearing, subject to its rules, into every matter referred to it
”
in terms of this Act and that, in terms of s 52 (2), it must conduct
its hearings in public, as expeditiously as possible,
and in
accordance with the principles of natural justice and may do so
informally or in an inquisitorial manner. He argued that
s 55 (1)
which deals with the rules of procedure goes further by allowing the
Tribunal member presiding at the hearing to determine
any manner of
procedure of the hearing.
[75] In short, the
Commission contends that it is clear from the provisions of these
sections, that the purpose of the Act is to
ensure that the Tribunal
plays an active role in its proceedings to ensure that they are
conducted as expeditiously as possible
and in accordance with
principles of natural justice. In the context of merger transactions,
which are by their nature time sensitive
and often time-bound, the
Tribunal is expected to make a determination as expeditiously as
possible.
[76] In support of his
submission that the Tribunal has the right to control and regulate
its proceedings, Mr Mtshaulana referred
to the judgment of this Court
in
Caxton & CTP Publishers & Printers (Pty) Ltd v Naspers
Ltd & Others
[2007] JOL 208286
(CAC) (case no 72/CAC/Aug
2007) in which the Tribunal’s right to exercise control over
the proceedings was emphasised. In
justifying the Tribunal’s
scheduling decisions, Mr Mtshaulana submitted that they were
necessary to limit repetitious cross-examination
which would have
unnecessarily prolonged the proceedings.
[77] Further, the
Commission argues that, if the courts were to interfere excessively
with the discretion of the Tribunal to control
and regulate its own
proceedings, in particular to make scheduling decisions, the
Tribunal’s ability to regulate and control
its proceedings
would be adversely affected.
[78] While the Tribunal
has the right to regulate and control its proceedings in order to
ensure that they are concluded as expeditiously
as possible, the
Tribunal is bound, in the exercise of its right, to observe carefully
the principles of natural justice which,
in the context of the
present matter, requires the Tribunal to act fairly in affording the
Ministers the opportunity of a fair
hearing. The necessity for the
Tribunal to conclude its proceedings as expeditiously as possible
cannot trump this duty to act
fairly.
[79] Thus the question
for determination is whether the approach to the discovery and the
scheduling decisions adopted by the Tribunal,
in the exercise of its
discretion under section 55 of the Act, was unreasonable; that is, as
Mr Trengove contended, it failed to
conduct the proceedings so that
it could make an informed decision as to the likely consequences of
the merger, such failure being
sourced in its discovery and
scheduling decisions.
[80] It does not appear
that the Tribunal’s ruling was cast in legal stone. Thus, if it
turned out during the course of the
hearing that the Ministers’
ability to present their public interest-based case was severely
compromised because of limitations
imposed by the discovery order and
scheduling decisions, the Ministers could have brought their concerns
to the attention of the
Tribunal which, in the exercise of its
discretion to regulate and control the proceedings, and in the
consideration of fairness,
would have been required to evaluate the
Ministers’ concerns. There is no evidence from the record which
suggests that this
course of action was ever considered by the
Ministers. The letter (H17 to the founding affidavit) upon which the
Ministers rely
for their denial that they agreed to the proposed
timetable, does not advance their case. In paragraph 6.5 of this
letter it is
recorded that “
the relevant Government
Departments, otherwise are happy with the Tribunal’s
suggestion
” which is set out in paragraph 6 of the same
letter namely that evidence be led from 22 March through 25 March
2011, (with
argument to be heard at a later date). In any event, this
letter was written before the hearing of the merger was postponed on
22 March 2011 to 9 May 2011, and it related to the Tribunal’s
initial directive.
[81] Acting in terms of s
55 of the Act, on 22 March 2011, the chairperson of the Tribunal
proposed a new order in respect of the
timetable and how time
allocated was to be utilised. Counsel for the Ministers’
response to the suggestion was qualified.
His attitude was that the
Ministers’ position was that they never accepted the timetable
but they were forced to deal with
it. He went on to say “
and
that is why we set out our position, but that can be dealt with at a
future date if need be
”. At best for the Ministers, this is
an ambivalent response.
[82] In an attempt to
neutralise the effect of this response to the proposed timetable, the
Ministers, in their replying affidavit,
point out the scheduling
decisions took place on 22 March 2011, some days before the discovery
hearing was conducted and before
the Ministers would know its
outcome. They argue that the positive stance which was expressed on
their behalf was premised upon
the mistaken assumption that full
discovery would, in all likelihood, be granted and before they
appreciated the prejudicial impact
the discovery order would have on
their ability to present their case.
[83] The Ministers’
explanation stands to be rejected for two reasons. Firstly, had the
Ministers felt so strongly about the
Tribunal’s scheduling
decisions they could have communicated this attitude to the Tribunal.
There is no evidence to suggest
that the Tribunal was made aware that
its scheduling decisions undermined their ability to advance their
“public interest”
case and made it impossible for them
adequately to address the question of appropriate conditions that
might be imposed upon the
merger in order to alleviate public
interest concerns. Secondly, the Ministers could then have taken the
scheduling decisions and
discovery order on review. The fact that the
Tribunal’s scheduling decisions and discovery order were but
the first step
in a multi stage process does not mean that an
aggrieved party had to wait for the final step, namely merger
approval before it
can take action for review. An aggrieved party
should not have to wait for a final step before taking an action on
the preliminary
decision in circumstances where the preliminary
decision has serious consequences such as where it lays the necessary
foundation
for a possible decision which may have grave results
(
Earthlife Africa (CT) v DG: Department of Environmental Affairs &
Tourism
[2005] ZAWCHC 7
;
2005 (3) SA 156
(CPD) paragraph 35-36).
[84] In the
circumstances, the contention that the Tribunal’s scheduling
decisions were unreasonable must be rejected. It
cannot be said that
the Tribunal’s discovery order and scheduling decisions are
decisions which a reasonable decision-maker,
faced with the need to
make both a fair and expeditious decision, could not have so made.
[85] This finding does
not mean that the Tribunal could not have used its inquisitorial
powers to gain further information or that
the scheduling
arrangements did not cause some difficulty. Indeed, at least part of
the problem with merger hearings is that it
appears that the Tribunal
may adopt too passive an approach to the inquiry, arguably not giving
sufficient effect to the provisions
of s 52 which, at the very least,
allows the Tribunal to employ an informal or inquisitorial form of
hearing. Thus, by ensuring
that the key issues are defined as early
as possible by the Tribunal, and that the parties are then
immediately appraised thereof,
the inquisitorial or informal form of
hearing provided for in the Act , could ensure a far more
satisfactory balance between expedition
and natural justice. An
adversarial form of hearing may prove both more helpful to the
Tribunal and more conducive to the principles
of natural justice in
cases dealing with restrictive practices. But merger hearings are
different. Here the Tribunal is mandated
to engage in a statutorily
defined inquiry, as opposed to a determination of a breach of a
provision of the Act. This form of inquiry
is therefore different to
a determination about restrictive practices as defined in the Act.
Merger herrings, the object of which
is to determine whether a merger
can be approved, should not be stultified by an excess of formalism
or of procedures best suited
to a trial. This observation is offered
as guidance for the future. In this case however, the issue is not
whether this court would
have acted differently to the Tribunal or
whether the latter’s decisions were unquestionably correct. The
test turns rather
on the standard of the reasonable decision maker,
with limited resources, an extensive work load and the need to bring
certainty
to a dispute concerning large merger.
[86] Mr Trengove referred
to a multitude of examples to illustrate the consequences of the
Tribunal’s misdirected approach
to discovery. Thus he referred
to the Tribunal’s dismissal of the relevant parts of the
testimony of Baker. A good illustration
of the Tribunal’s
attitude toward Baker’s position is the following:
“
Baker also made
an attempt to show that Massmart at present is not heavily reliant on
imports. This exercise was to prove unreliable,
given that Massmart’s
main defence against procurement conditions was to assert the
impossibility of determining the extent
of local manufacture in the
products that they sell. If Massmart cannot perform this exercise
credibly, neither can Baker. Baker
is not able to say much about a
very important question in this merger
.”
Mr Trengove further noted
that, in spite of the Tribunal’s favourable attitude to Hodge’s
testimony, it conceded that
the discovery order constrained Hodge’s
ability to provide evidence on which the Tribunal could rest its
findings.
[87] Specifically
regarding Wal-Mart’s global procurement network and how its
logistical capabilities might heighten imports
into South Africa, the
Tribunal made the following observation:
“
Hodge had
wanted to [answer this question], but when he asked for the data to
do this exercise in a discovery application, the merging
parties
raised insuperable difficulties, contending it would lead to
indeterminate collateral issues. We accepted this at the time
and did
not compel this information. It is highly probable that if Massmart
was procuring at prices near to those of Wal-Mart,
this exercise –
entirely within the knowledge of the merging parties - would have
been done. Is It likely that the two firms
did not at some time, over
their lengthy contact, not explore this possibility?”
The Tribunal thus
demonstrated that a question central to the public-interest concerns
was taken beyond the reach of Hodge. In Mr
Trengove’s view,
this constituted a fine illustration, from the mouth of the Tribunal
itself, of how the Tribunal materially
misdirected itself in not
compelling the discovery of this information.
[88] Within the context
of these submissions it is again necessary to take account of the
applicable test to be applied in such
an application. It is correct,
as Mr Trengove submitted that the competition authorities, including
the Tribunal, must seek to
obtain proper information from the merging
parties so that it can make an informed decision as to the likely
consequences of a
merger. Manifestly the only basis upon which the
Tribunal can appraise whether undertakings made by the merging
parties or conditions
otherwise proposed or ventilated are
‘sufficient’ or ‘adequate’ is upon a thorough
consideration of facts
disclosed to it by way of evidence
.
[89] Again the question
arises: What would be the approach adopted by a reasonable decision
maker in these specific circumstances?
In this connection the
following observation of the authors of
De Smith’s Judicial
Review
(6th ed) at 11 – 686 is salutary:
“
Whether a court
carries out substantive review of a decision by reference to the
concept of unreasonableness or proportionality,
two questions arise:
To what extent should the courts allow a degree of latitude or leeway
to the decision-maker? And to what extent
should it be uniform? The
answers to these questions depend in large part on the respective
constitutional roles of the court and
the primary decision-maker (the
impugned public authority), but also on practical considerations. The
willingness of the courts
to invalidate a decision on the ground that
it is unreasonable or disproportionate will be influenced in past by
the administrative
scheme under review; the subject matter of the
decision; the importance of the countervailing rights or interest and
the extent
of the interference with the right of interest. Indeed the
intensity of review will differ, for the reason that ‘in public

law, context is all’. The threshold of intervention is
particularly influenced by the respective institutional competence
of
the decision-maker and the court.
”
See also
Foodcorp
v Deputy Director General, Department of Environment Affairs and
Tourism
2006 (2) SA 191
(SCA) at para 12.
[90] It was, in our view,
not unreasonable for the Tribunal, faced with its own constraints and
the competing claims made in this
case, to have structured the
hearing and the discovery of documents as it so did in order to meet
its obligations under s 12 A.
It carefully weighed what evidence was
necessary for its inquiry and the time which it could reasonably
expend in this process.
To a large extent, the Ministers seek to
buttress their arguments by way of an
ex post facto
examination of the consequences of a decision taken by the Tribunal
which is mandated to arrive at a decision about a merger and
thus act
as a decision maker and not as a trial court within the context of a
merger. An examination of the Tribunal’s reasons
for its
discovery decisions reveals that it carefully justified why it
considered a number of the requests to be unnecessary in
order to
make a decision. In short, the Tribunal may have acted imperfectly
but not unreasonably.
The appeal
[91] SACCAWU based the
foundation of its appeal upon a criticism of the normative approach
adopted by the Tribunal to the application
of the Act. Thus, it
contends that the approach adopted by the Tribunal and further
contended for by the merging parties ignored
the express language of
the Act. It argues that the South African competition regime is
concerned with economic or market power,
its creation, extension,
distribution and (ab)use, and that the entry of a firm with the scale
of operations and consequent economic
power of Wal-Mart into the
South African economy will disrupt the competitive equilibrium and
processes in the retail sector, as
well as alter competition for
suppliers in the retail supply chain.
[92] SACCAWU therefore
contends that the merging parties’ uncritical adoption of the
perspective of a consumer welfare standard
ignores its explicit
rejection by the Act. SACCAWU suggests that s 12 A enjoins the
competition authorities to take account of
factors which do not play
a role in terms of the consumer welfare approach to competition
policy. In this connection, reference
was made to David Lewis
Global
Competition: Law Makers and Globalisation
(2011) and the
perspective which extends beyond that of a narrow consumer welfare
standard as contended for by Eleanor Fox
Poverty and Markets
(March 2009). See also Wolfgang Kerber . Should competition law
promote efficiency? In Drex/Idot and Moneger (eds) Economic Theory

and
Competition Law
(2009). In citing these authorities, we
did not take SACCAWU to be arguing in favour of a total welfare
standard which would take
account only of consumer and producer
surplus, but rather that the Act supported a more nuanced test than
that of a consumer welfare
standard.
[93] Mr Kennedy, who
appeared together with Ms Le Roux on behalf of SACCAWU, contended
that a new paradigm was established in terms
of the Act, particularly
as a result of s 12 A (1) and (3). The articulated public interest
concerns incorporated a legislative
commitment to a competitive
process which seeks to correct socio-economic disadvantage and
distortion which arose as result of
South Africa’s
discriminatory past. Accordingly, competition law and policy, as set
out in the Act, includes instruments
for South Africa’s
economic development and compliment other policy instruments,
including trade and industrial policy. In
short, s 12 A makes it
clear that the analysis, as required by the Act, enjoins the
competition authority to undertake an examination
of factors beyond
standard questions of a contemplated transaction’s impact on
price and output.
[94] Mr Kennedy contended
that it therefore followed that South African competition authorities
are required to examine the merger
in terms of the following
considerations:
1. Whether an increase in
import competition would take place in the market because local
suppliers cannot compete with the prices
of imported goods and thus
sustain their businesses, which, in turn, would result in job losses,
a closure of small and medium
size businesses and a concomitant
impediment upon the development of local business.
2. Whether barriers to
entry will be raised, given that it would be increasingly difficult
to attain the scale which would be necessary
to compete against
Wal-Mart.
3. An increased
concentration of the market as smaller enterprises fails in the
retail sector and its supply chain.
4. An increase in
countervailing power in the market, to such an extent that this would
act to the detriment of small and medium
sized enterprises.
5. A reduction of growth,
innovation and product differentiation as the relevant sector
contracted.
6. A removal of effective
competition and homogenisation of the sector.
[95] For these reasons,
Mr Kennedy was extremely critical of the approach adopted by the
Tribunal to considerations of public interest
in terms of s 12 A (2)
read with s 12 A (3). The Tribunal had confirmed its earlier approach
as set out in
Shell South Africa (Pty) Ltd v Tepco Petroleum (Pty)
Ltd
(CD 66/LM/Oct 06), that it ought to show deference to other
regulators in dealing with questions which were contained in the
public
interest considerations because its role was ‘secondary
to the statutory and regulatory instruments’. ( para 58)
Furthermore,
criticism was raised by SACCAWU of the approach set out
in the Tribunal’s decision in
Harmony Gold Mining Company
Limited
case
supra
para 76, namely that ‘the public
interest conclusion is justified in relation to a prior competition
conclusion.’
[96] Mr Kennedy submitted
that s 12 A imposed clear obligations upon the Tribunal to consider
the effect that the merger would have
on the specific public interest
considerations as tabulated in the section. These could not be
relegated into considerations of
a secondary order by use of a theory
of deference to other regulatory authorities. Furthermore, the clear
wording of s 12 A indicated
that a tiered approach to the inquiry was
required, as has been set out earlier in this judgment.
[97] While the Tribunal’s
decision and SACCAWU’s argument appear to make common cause
that public interest considerations
are both part of the overall
inquiry into competition concerns, the Act would appear to enjoin the
Tribunal to initially examine
the transaction within a traditional
consumer welfare standard and, thereafter, to test its initial
finding further in terms of
the broader inquiry as mandated in terms
of s 12 A (2) read with s 12 A (3). In other words, having examined
whether the merger
is likely to substantially prevent or lessen
competition by a consideration of factors set out in s 12 A (2), a
further inquiry
must then take place in terms of a justification on
the substantial public interest grounds as set out in subsection (3).
[98] Viewed holistically,
there is merit in the argument that the Act should be read in terms
of an economic perspective that extends
beyond a standard consumer
welfare approach. By virtue of an embrace of the goals of a free
market and effective competition together
with an incorporation of
uniquely South African elements, including the need to address our
exclusionary past, which need is reflected
expressly in the preamble
together with s 2 of the Act, the legislature imposed ambitious goals
upon the competition authorities
created in terms of the Act. Within
the context of the present dispute, this ambition is further captured
in s 12 A which mandates
an enquiry into substantial public interest
grounds.
[99] Correctly, Mr
Unterhalter contended on behalf of the merging parties, that the
adoption of a standard other than that of consumer
welfare would
significantly complicate the implementation of the Act, particularly
owing to the complexity of the economic calculation
of total welfare
of a particular transaction, particularly if total welfare extended
beyond an exclusive calculation of consumer
and producer surplus
alone. His point is well illustrated by Professor Robert Lawrence,
albeit within a different context, ((2011)
Foreign Affairs
169):
“
For
the past 50 years technological development has helped productivity
grow more rapidly in manufacturing than in the rest of the
economy.
On the one hand, this growth could lead to less employment, since it
allows the production of a given quantity of goods
with fewer
workers. On the other hand, it results in cheaper products, creating
an incentive for consumers to buy more goods which
could increase
employment. Yet in practice, the consumer response to cheaper goods
has been insufficient to offset the job losses
associated with higher
productivity. Just as rapid productivity, growth and agriculture has
led to fewer jobs on farms, rapid productivity
growth in
manufacturing has led to fewer jobs in factories.”
An evaluation of whether
societal welfare, as envisaged in the Act increases in circumstances
where the price of a product reduces
to realise a benefit for
consumers but takes place at the expense of job losses is extremely
difficult to determine; even more
so within the context of South
African competition law and the scarce technical resources available
to the competition authorities,
let alone the broader economic tools
available. Expressed differently, what weight is to be given to the
factors set out in s 12
A (3) in order to determine whether these
should trump a finding based on more traditional considerations of
consumer welfare as
captured in s 12 A (2)?
[100] This question does,
within the context of the dispute and the wording of the Act as
employed in the preamble, read together
with sections 2 and 12 A
require an answer. From the structure of s 12 A, the Tribunal or this
court may be faced with arguments
that go to consumer welfare and
those that then extend to employment and the interest of small
business. An engagement with an
exercise of proportionality is then
required to determine how to balance the competing arguments. While
this exercise may, by its
nature and for the reasons set out above,
never be precise, it is what the Act appears to require in respect of
mergers.
En passant
, this should not be interpreted to mean
that the Act mandates a narrow view of consumer welfare determined
exclusively in terms
of affects upon price and output. However, a
proportionality exercise requires evidence which would enable the
exercise, justify
the calculation which flows therefrom and permit a
balance to be struck between the competing issues of consumer welfare
employment
and small business.
[101] The difficulty in
engaging with this exercise in this case is revealed in the evidence
which was presented in support of the
opposition to the merger. The
critical evidence in this connection was given by economist Mr James
Hodge, who testified on behalf
of the Ministers but whose evidence,
in this appeal, has been used by SACCAWU to buttress its case. He
conceded that:
“
There
can be little doubt that Wal-Mart has a size that affords it a global
infrastructure that enables it to leverage that source
products (sic)
enable to bargain with suppliers and reach better product prices and
although some of these in extent to which they
exists may be
sometimes disputed by the merging parties, I think the existence is
in little doubt
.”
Mr Hodge’s key
point in favour of a cautious approach to the proposed merger was
that, even with a 1% change in procurement
from domestic to imported
goods, a loss of jobs will result; in his view, about 4000 jobs in
the supply chain would take place
by virtue of a 1% alteration in
procurement in favour of imported products.
[102] In cross
examination, Mr Hodge conceded that lower prices could obviously work
to the benefit of consumers. His concern, as
confirmed under cross
examination, was ‘whether those benefits should be ones at the
expense of people who earn even less’;
in particular, whether
the consumer benefits which would be gained as a result of a
transaction would be displaced by negative
employment effects.
[103] In summary, the
difficulty in engaging with a proportionality exercise which would
favour appellants’ case is illustrated
by the concession made
by Mr Hodge that, if there was, for example, a 5% reduction in prices
resulting from the merger, on the
current turnover of Massmart this
would result in a benefit of approximately R 2.5 billion to
consumers. Mr Hodge accepted that
this would obviously constitute a
real benefit for consumers. Thus, this benefit could result in an
increase in expenditure which,
on his working assumption, could in
turn, increase employment by approximately 20 000 jobs.
[104] Much of the debate
between Mr Hodge and Mr Baker, the merging parties economist, turned
on the question, which was considered
to be of extreme importance to
the merger by the Tribunal, namely can Wal-Mart post-merger source
goods from overseas and in particular
Asia more cheaply than can
Massmart and if so will it? This question was deemed to hold the key
to the determination of whether
the potential losses which flowed
from the merger, particularly when analysed in terms of factors set
out in s 12 A (3) would outweigh
the proclaimed consumer advantages
of the merger. The Tribunal complained about an absence of more
precise evidence, commenting,
however, that ‘it is highly
probable that if Massmart was procuring at the prices near to those
of Wal-Mart, this exercise
– entirely within the knowledge of
the merging parties – would have been done. Is it likely that
the two firms did
not at sometime over their lengthy contact, explore
this possibility? Hence the Tribunal appeared sceptical of the claim
that no
change to procurement patterns would take place. However, in
its view,
“
The
problem is that the concern raised in relation to local
procurement/imports is also associated with important benefits for
consumers. A possible loss of jobs in manufacturing of an uncertain
extent must be weighed up against consumer interests in lower
prices
and job creation at Massmart. Since the evidence is that the likely
consumers who will benefit most from the lower prices
associated with
the merger are low income consumers and those consumers without any
means of support of their own, thus the poorest
of South Africans,
the public interest in lower prices is no less compelling
.”
[105] The determination
of the trade-off between consumer benefits and job losses caused by
increased importation of goods presently
obtained in South Africa,
was bedevilled by the lack of precise evidence. Thus, in his
evidence, Mr Baker conceded that he was
unable to testify on
‘specific numbers’ relating to increases in imports.
Notwithstanding this observation, Mr Baker’s
essential argument
was encapsulated in the following passage of testimony:
“
They
(Wal-Mart) have a global procurement system in sourcing which enables
them to report very efficiently. They also have a range
of IP and
other assets that they can deploy in domestic procurement which will
make their procurement of domestic goods much more
efficient. They
are not as cheap as they are in the US just because they import
cheaply. They import cheaply, but they procure
domestically very
efficiently as well
.”
[106] In short, Mr Baker
testified that Wal-Mart would not only introduce an efficient import
infrastructure into South Africa but
also an efficient domestic
procurement infrastructure together with retailing techniques, stock
management and ‘full rates’
which would ensure the
achievement of lower prices. As he told the Tribunal:
“
My
understanding is often Wal-Mart doesn’t get a big factory gate
premium over other buyers, but it gets advantages from having
a more
efficient logistics chain. In other situations it may get a factory
gate advantage, but I think it’s important to
dispel the idea
that … which I think is the intuitive one when one comes to
situations like this, Wal-Mart is very large,
Wal-Mart goes to China,
Wal-Mart get a factory gate price which is much much lower than
everybody else. That’s not my understanding
of what happens. I
may or may not get a lower price, but it gets significant benefits
from being very efficient in the way that
it handles goods.
”
[107] While the Tribunal
was never the beneficiary of a comprehensive and coherent exposition
of the implications of global value
chain management, to an extent Mr
Hodge conceded that it was within its superior global value chain
management that Wal-Mart’s
ability to achieve its objective of
ensuring lower prices could be located. Thus, Mr Hodge said:
“
In
terms of domestic supply I can think after almost a week of testimony
I can think there can be little doubt that Wal-Mart has
a size that
affords it a global infrastructure that enables it to leverage and to
source products, enables it to leverage and to
source products,
enables it to bargain with suppliers and reach better prices and
although some of these in the extent in which
they exist may be
sometimes disputed by the merging parties, I think their existence
there is in little doubt
.”
Mr Hodge’s argument
however was that ‘It would be a remarkable coincidence’
if Wal-Mart only sourced globally
through the supply chain which were
currently employed by Massmart’. Thus, the unknown factor was
whether the source of imports
would be switched together with the
further question of the extent to which the intensity of imports
would be increased subsequent
to the merger.
[108] Viewed accordingly,
the evidence of both economic experts was predicated on a number of
assumptions which need to be treated
with considerable caution. Mr
Hodge’s model is predicated upon a 1% change in domestic
procurement in favour of imports and
its effect on employment. It was
based on an assumption that the employment output elasticity equals 1
so that a 1% increase in
output would inevitably lead to a 1%
increase in employment. Similarly, Mr Baker’s evidence was, to
a considerable extent,
based on that of Mr Pattison and Mr Bond, an
executive vice president of Wal-Mart who had told him about the
Massmart and Wal-Mart
operations rather than basing his testimony on
any sustained empirical investigation. In addition, Mr Baker relied
upon data gleaned
from the Wal-Mart experience in Chile and the
United Kingdom, the applicability of which to this merger, was hotly
contested. Furthermore,
Mr Baker conceded that he did not have
information which would have allowed him to compare 10 ‘like
for like products’
of Wal-Mart and Massmart to assess the
difference between Wal-Mart’s factory prices and those of
Massmart; and therefore
the likelihood of shifts in procurement
patterns and price reductions; hence his reliance on academic
articles relating to Wal-Mart’s
record in Chile. In this
connection, he emphasised that, in the six months before Wal-Mart’s
acquired DNS in Chile, the prices
were approximately 1% below the
market as a whole. After the acquisition by Wal-Mart, the prices
reduced to 5% below the market
average.
[109] A further piece of
connected evidence was provided by Mr Gerhardus Ackerman of
Shoprite/Checkers. In essence, he testified
that, at present, there
is a balance between the large competitors in the market in respect
of both price levels and local procurement.
In his view, Wal-Mart
could substantially ‘upset this balance’. However, it is
not without significant that Mr Ackerman
was not privy to information
as to the decisions that the merging parties would take which could
substantiate his claim or provide
specifics in regard thereto.
[110] In summary, SACCAWU
contends, that, given the wording of s 12 A, the Tribunal was
required to determine whether a merger,
even if pro-competitive,
could be justified on public interest grounds. As the only
countervailing public interest identified by
the merging parties for
consideration was the overall consumer welfare benefit flowing from a
reduction of the price of products
sold by Wal-Mart, this
consideration, without more, could not outweigh the other interests
which would be effected by the merger.
For these reasons, SACCAWU
contends that the only concrete benefit associated with the claimed
potential to reduce prices for consumers
cited in the merger filing
which this Court could accept with confidence is that ‘
Massmart
will have access to Wal-Mart’s global procurement services
through Wal-Mart’s global procurement network’
,
which, however, in its view is a proposed benefit that has
considerable downside for the public interest.
[111] It further argued
that, internally, Massmart acknowledges that the other cost
advantages at Wal-Mart stem from non-unionisation,
labour practices
and bargaining power with suppliers. To the extent that consumer
benefits flow from mere transfers from labour
or suppliers, such
efficiencies should not be recognised but raise substantial public
interest issues.
Evaluation
[112] The arguments
raised by SACCAWU against the merger were also used to justify the
alternative prayer, namely the imposition
of further conditions. The
latter submissions must however await an evaluation of whether the
Tribunal’s approval of the
merger should be set aside. This
evaluation can only be undertaken after assessing the position of the
onus
required in terms of s 12 A and, further some practical
resolution to the debate about the normative framework of the Act, as
described.
[113] On a holistic
reading of the Act, it is possible to contend, for example, that if
it appears that a merger is not likely to
substantially prevent or
lessen competition, the relevant competition authority must,
notwithstanding this finding, proceed to
engage with the factors
which make up the public interest enquiry. On one level, this appears
to be an approach which is congruent
with the wording of the section.
Public interest grounds then stand to be examined separately in order
to come to the final conclusion
as to whether to permit the merger.
In so doing, the Act provides no guidance to the weight to be placed
on the factors set out
in s 12 A (3) nor to the relationship between
the traditional competition questions contained in s 12 A and the
specific public
interest grounds. By virtue of the fact however that
public interest grounds are described as having to be ‘substantial’,

the weight afforded to these grounds must be considerable, if the
authority is to refuse the merger, in a case where there is no

finding that the merger is likely to substantially prevent or lessen
competition. As already stated, this enquiry requires the
production
of evidence which can be utilised to do the relevant proportionality
exercise.
[114] By contrast, the
merging parties invited the court to adopt the principle that the
relevant competition authority should,
in the interests of ‘consumers
and society’ err on the side of approving rather than
preventing a merger. See Buttigieg
Competition Law Safeguarding
the Consumer Interest: A Comparative analysis of US anti-trust and EC
Competition
(2009) at 255 – 256. While such a presumption
should not be adopted in an inflexible fashion, the wording of s 12 A
would
appear to indicate that, only upon the presence of clearly
identified,
substantial
public interest grounds, should a
merger, which would otherwise have no adverse competition
consequences, be prohibited. Expressed
in this manner, the two
submissions are not necessarily at war with each other. Unless the
effect upon public grounds, as set out
in s 12 A (3) is shown to be
substantial, the court cannot employ the public interest test to
disallow the merger. Where the evidence
shows that the merger may, on
the probabilities, have a detrimental effect, for example, on
employment or the ability of small
and medium sized business to be
competitive, the court will need to engage in the necessary balancing
exercise which entails an
embrace of, broadly, the normative
framework advocated by SACCAWU, as qualified in this judgment.
[115] The evidence in
this case thus becomes crucial as to the proper judicial engagement
with the range of enquires envisaged in
s 12 A. As is apparent from
observations made earlier in this judgment, the intervening parties,
admittedly, had some difficulty
in obtaining the comprehensive
picture which would have included the merging parties’
proposals with regard to the ratio
between domestic procurement and
imports. This is somewhat surprising as it could have been expected
that Wal-Mart had developed
a series of business models in order to
test the extent to which the considerable investment in Massmart
would prove to be profitable.
In turn, these
ratios
could then
have been expected to have been employed to further examine the
arguments about shifts towards imports.
[116] Nonetheless, even
if all of this information had been made available, it would not have
gainsaid the conclusion, based on
uncontested evidence, that prices
will be reduced to the benefit of consumers as a result of the
merger. The legitimate criticism
about insufficient evidence
notwithstanding, it is clear from the record as a whole that consumer
benefits will flow from this
merger.
[117] It does not appear
to be disputed either that there is the potential for small and
medium sized South African suppliers to
gain benefit from the
presence of Wal-Mart and its unique access to global value supply
chains. Mr Bond provided unchallenged evidence
in this connection:
“
In
fact, it seems likely that domestic suppliers will stand potentially
to benefit from the transaction, for two reasons. First,
as seen in
the Massmart procurement data, the supply of food is generally an
area where small local suppliers have considerable
advantages over
imports. As the transaction may be expected to allow Massmart to
accelerate the development of its retail offer,
including expanding
the provision of perishable foodstuffs and private –label, one
might expect the merger to offer more
opportunities for small
domestic suppliers of foodstuffs to expand their businesses,
including as private-label suppliers, and
to do so earlier than might
otherwise have been the case. Second, to the extent that
international trade in the goods concerned
is feasible, it is a
two-way street. Consequently, one would expect the best of the small
South African suppliers to have opportunities
to export via the
Wal-Mart network of stores elsewhere in the world.
”
This claim follows that
contained in his witness statement in which the following appears:
“
Numerous
studies in different markets around the world indicate that
Wal-Mart’s stores create opportunities for small and
medium
sized businesses, and that Wal-Mart is accordingly good for the local
economy. Wal-Mart is committed to working with local
businesses to
build capability and opportunity. Suppliers have the opportunity to
extend their reach considerably by being part
of Wal-Mart’s
global supplier family
.”
[118] These positive
factors would need to be weighed against any losses which will be
experienced by small and medium sized businesses,
as well as the
consequences for employment, when the transaction is viewed
holistically. But, as we have noted, in dealing with
a standard that
seeks to balance consumer and other forms of societal welfare as set
out in the Act, it is highly unlikely that,
even with further
information as sought by the Ministers, a set of calculations could
have been produced which would ultimately
have justified the
conclusion based on such a standard, that the merger should not have
ben approved. The available evidence, together
with inferences that
could reasonably be drawn, particularly from uncontested evidence,
supports this conclusion.
[119] One further example
from the evidence must suffice to support the conclusion, that even
on appellant’s version, there
was insufficient evidence to
refuse the merger. In cross examination, Mr Hodge, who it should be
noted, fulfilled the role of an
expert witness in these kind of
proceedings in exemplary fashion, was asked about the effect of a 5%
reduction in prices resulting
from the merger. He accepted that such
a reduction and the concomitant saving on the part of particularly
relatively poor consumers,
could result in an increase of 20 000
jobs. In other words, when both sides of the transaction were
measured, there was no clear
evidential basis by which the
probabilities could be configured to disturb the Tribunal’s
primary findings.
[120] In summary, the
evidence, as made available to the Tribunal and which forms the
record placed before this court, cannot justify
the conclusion that
the public interest considerations raised by the appellant would so
trump the benefits which, it is common
cause, will flow to consumers,
to sustain a decision that the merger should be prohibited.
[121] This conclusion
does not necessarily result in a finding that no conditions should be
imposed, insofar as this transaction
is concerned. To this enquiry,
we shall return. But it is first necessary to examine certain other
issues raised by SACCAWU.
Employment rights
[122] SACCAWU sought the
intervention of this court in order to protect its members against
the adverse effects of what it termed
‘the Wal-Mart model’
on employment levels, particularly terms and conditions of employment
and the organisational rights
of workers within the merged firm. It
conceded that the conditions imposed by the Tribunal, to which
reference has already been
made, had gone some way towards achieving
the protection of workers. However, Mr Kennedy contended that more
was required to protect
the union structurally against what he termed
‘Wal-Mart’s anti-union stance’. Further, SACCAWU
contended that
574 workers had already been retrenched by Massmart,
all of whom must be reinstated by the merged firm, as opposed to
having been
given ‘preferential status’ in the event of
‘uncertain’ future recruitment, as provided for in a
condition
approved by the Tribunal.
[123] SACCAWU contended
that there was compelling evidence relating to Wal-Mart’s
practice and policies concerning workers;
in particular empirical
evidence of the adverse impact of Wal-Mart’s employment
practices and policies and wages and other
terms and conditions of
employment. In its view, Wal-Mart had ruthlessly pursued a labour
relations strategy which was designed
to prevent the unionisation of
its workers. It had done so successfully that 1.3 million out of 2.1
million of its workers in the
United States of America were not
unionised. This had resulted in wage levels of Wal-Mart employees
being 12.4% less than for workers
employed by other retailers.
According to SACCAWU, the merging parties, in their evidence before
the Tribunal, had provided no
firm and enforceable commitments
regarding labour and employment issues but merely required the
Tribunal to accept their ‘bold
denials or say-so’ that
‘Wal-Mart’s global reputation for poor labour relations’
would not be imported
into South Africa through the merger.
[124] In this connection,
SACCAWU relied upon the report prepared by Mr Hodge in which he
acknowledged that scope existed for the
merging parties to downgrade
the terms and conditions of employees without violating the
applicable labour laws or bargaining agreements
and therefore without
recourse to the union or its members.
[125] By contrast, the
merging parties relied on evidence from Chile, where Wal-Mart had
recognised a range of trade unions. In
his evidence, Mr Ostale, the
Chief Executive Officer of Wal-Mart Chile, testified that prior to
Wal-Mart’s acquisition of
a similar business in Chile, D&S,
there were 55 separate unions which had been recognised by the Labour
Bureau Authorities
in Chile. Following Wal-Mart’s acquisition
of D&S, the number of unions grew so that there are now 82
unions, representing
61% of all workers in all areas of the country,
which were so recognised. Mr Ostale testified further that by
December 2010, there
were 94 union contracts, in effect regulating
the contractual conditions of 21 000 employees of Wal-Mart. On
the strength
of Mr Ostale’s evidence, the merging parties
sought to contradict the evidence of the union’s witness Mr
Alvarez, namely
that Wal-Mart had a policy or carried out any action,
direct or indirect, which was aimed at preventing or restricting
unionisation
or union activities in Chile.
[126] Mr Kenneth Jacobs,
the chair of the University of California Berkeley’s Centre for
Labour Research and Education, testified
on behalf of the unions that
Wal-Mart’s expansion into a country did not increase a number
of total retail work hours but
displaced existing jobs as opposed to
increasing total employment. He contended that in the United States,
if there was a control
for differences in geographical location,
Wal-Mart workers earned approximately 12.4% less than retail workers
as a whole and 14.5%
less than workers in large retail chains in
general. In addition, Wal-Mart workers were less likely to have
employee sponsored
health benefits. He cited two studies which showed
that Wal-Mart’s entry into a metropolitan area reduces both
average and
aggregate retail earnings through a substitution of lower
paying Wal-Mart jobs for higher paying retail jobs and a competitive
effect of other retailers reducing wages in order to compete with
Wal-Mart.
[127] Mr Gauntlett, on
behalf of the merging parties, hotly contested the accuracy and
utility of Jacobs’ evidence and suggested
that Mr Jacobs’
testimony was informed not by fact but by a strong predisposition. In
his view, Mr Jacobs sought out evidence
to support an
a priori
position, yet had not verified his claims on the veracity of the
evidence upon he sought to rely. For example, Mr Jacobs had cited
a
complaint in a class action suit, referred to during the hearing as
the
Jane Doe
case. That case had been dismissed on exception
by the Ninth Circuit Court of Appeals, without any evidence having
been led. Mr
Jacobs accepted this fact during cross-examination and
conceded that he had incorrectly referred to this complaint in his
affidavit,
in circumstances when, at the time when he had prepared
the document there was already a published decision dealing with the
complaint.
[128] Whatever the
criticisms of Mr Jacobs’ testimony, there is additional
evidence which was provided by the unions to support
the ultimate
conclusions which it urged the Tribunal to accept. The witness
statement of Annette Bernhardt, Co-Director of the
National
Employment Law Project in the United States of America, provided an
overview of employment cases involving Wal-Mart which
pointed towards
‘a structural systemic underpayment of employees’. This
criticism of Wal-Mart’s employment practices
was also supported
by a statement of Professor Nelson Lichtenstein, professor of history
at the University of California (Santa
Barbara) concerning systematic
anti-union strategies adopted by Wal-Mart in the US.
[129] Independent support
for these concerns regarding Wal-Mart’s employment policy are
also to be found in aspects of the
recent decision of the United
States Supreme Court in
Wal-Mart Stores Inc. v Dukes
et al
(20 June 2011). In this case, a class of some 1.5 million female
employees sought judgment against Wal-Mart for injunctive and

declaratory relief, punitive damages and back pay because of alleged
discrimination against women in violation of Title VII of
the Civil
Rights Act of 1964. They claimed that management had exercised a
discretion over pay and promotion that was disproportionately
in
favour of men, which had an unlawful disparate impact on female
employees and further that Wal-Mart had failed to curb the managerial

authority which had been given rise to this disparate discriminatory
treatment.
[130] While the majority
of the Supreme Court found in favour of Wal-Mart, holding that the
applicable procedural rule can only
apply when a single injunction or
declaratory judgment would provide relief to each member of the class
and did not authorise class
certification when each individual class
member would be entitled to a different injunction or declaratory
judgment against the
defendant four members of the court held
otherwise. In the minority judgment (supported by three other
justices) Ginsberg J cites:
“
Plaintiffs
evidence including ‘class members tales of their own
experiences (which) suggest that gender bias suffused Wal-Mart’s

company culture… [t]he plaintiffs presented an expert’s
appraisal to show that the pay and promotion disparity at
Wal-Mart
can be explained only be gender discrimination and not …
natural variables
.’
Although this case, the
largest class action brought in the United States of America, ended
with a finding that the plaintiff class
could not be certified, a
reading, particularly of the minority judgment of Ginsberg J, as to
the evidence that would have been
raised had the class been
certified, raises similar concerns to those which were articulated by
those witnesses who testified on
behalf of the unions before the
Tribunal. For a detailed examination of the
Dukes
decision see
Judith Resnick 2011(125)
Harvard Law Review
79
[131] The question which
must now be answered in the present case is whether the concerns
articulated and which are based on comparative
evidence are
sufficient to justify the remedies sought by SACCAWU; in particular
the imposition of group centralised bargaining
and the creation of a
closed or agency shop arrangement at the merged firm.
[132] Apart from the
negative evidence, which has already been noted, there was positive
evidence presented which illustrates that
Wal-Mart has operated in
unionising environments. Thus, Brenner Eidlin and Candele “Global
Companies – Global Unions
– Global research - Global
Campaigns” (2006) at 46 write:
“
In
the case of Argentina, Brazil, Germany, Great Britain, and Japan,
unionisation has been the result of Wal-Mart purchasing an

already-unionised domestic retailer, thus inheriting the company’s
bargaining units. Countries such as Germany and Great
Britain have
national labour laws that require a degree of worker representation
or adherence to sectoral collective bargaining
agreements.
Additionally, after initially claiming they were exempt from national
regulations, Wal-Mart announced in 2004 that
it would allow unions at
its stores in China. Wal-Mart stores in Mexico also come under
collective bargaining agreements. And at
their August 2005 convention
in Chicago, UNI Commerce, the global labour federation for retail
workers, announced a major campaign
to organise Wal-Mart workers in
South Korea.
Unions
at Wal-Mart Outside the United States
Argentina
Federación
Argentina de Empleados de Comerio y Servicios (FAECYS)
Brazil
Sindicato
dos Comerciá de São Paulo (SECSP)
Canada
United
Food and Commercial Workers International Union (UFCW)
China
All-China
Federation of Trade Unions (ACFTU)
Germany
Vereinte
Dienstleistungsgewerkschaft (ver.di)
Great
Britain
GMB:
Britain’s Geneal Union
Japan
Federation
of Seiyu Workers Union (SWU)
Korea
Korean
Federation of Private Service Workers (KPSU)
Although unions have a
nominally substantial presence in Wal-Mart’s international
operations, it is important to note that
the organisation, scope, and
effectiveness of union representation vary from country to country.
Unions in some countries, such
as GMB in Great Britain and particular
ver.di in Germany, have shown considerable resolve in standing up to
Wal-Mart, and have
engaged in various types of job actions and legal
fights. As ASDA, the unions have shop stewards, but no collective
bargaining
agreements. In Brazil, Wal-Mart reached agreement with
unions on some works’ rights issues. At the other end of the
spectrum,
unions in China are known more for their role in enforcing
government policy than in representing workers, and Mexican unions
are
notorious for being little more than protection rackets, offering
“sweetheart contracts’ with few representation rights
for
workers in exchange for employer payoffs. Nevertheless, the presence
of unions and collective bargaining arrangements in these
countries
would seem to provide possible leverage for efforts to unionise
Wal-Mart’s North American operations
.”
[133] This evidence needs
to be read together with the active presence of a union (SACCAWU) in
the Massmart enterprise and the existence
of a body of existing
labour legislation, in particular the
Labour Relations Act 66 of
1995
, which affords both unions and individual employees a range of
rights which, in turn, are supervised by a set of specialised bodies,

including the Labour Court and the Labour Appeal Court.
[134] There is also
evidential support for the contention that Massmart had adopted an
attitude, prior to the merger, that it would
not support centralised
bargaining nor a closed shop; in other words, Massmart’s
attitude to SACCAWU’s demands had
been formulated long before
the merger.
[135] SACCAWU, however,
contends that, given the general record of Wal-Mart towards labour
rights, these protections are necessary.
To an extent, the Tribunal
recognised that Wal-Mart executives had, albeit cryptically,
expressed concern about the present structure
relating to labour
relations in Massmart. In a due diligence report dealing with “HR”
of 29 October 2010 the following
appeared:
“
High
levels of labour/associates in stores. The clarity of this position
is clouded by the use of vendor colleagues, ‘brand
associate
advisors’ and other third-party employees (e.g. Decorland).
There is an opportunity to reduce cost and drive productivity.
The
solution or alternatives to mitigate risk in this report is to
‘review required structures, remove third-party labour
where
appropriate (seeking margin reduction where appropriate), establish a
new model, amend contract if necessary, introduce an
automated
scheduling system
.”
Similarly, under
‘
outstanding issues relating to an absence of supporting
documentation to verify unionised staff
’, the following
comment appears in the same document: ‘Risk High –
Statistics needed to be provided unionism
is a risk to the
transaction and accurate information is essential.’ SACCAWU
thus argues that, given Wal-Mart’s anti-union
stance in the
USA, the observations contained in this ‘HR’ document
justifies its case for additional protection.
[136] But is it the role
of competition law to provide the specific safeguards sought by
SACCAWU? Viewed within the prevailing analytical
discourse of labour
law, SACCAWU has raised a series of disputes of interest which must
ultimately be determined by way of an exercise
of collective power.
The conceptual distinction between interest and rights disputes is
fundamental to existing South African labour
law. The law deals with
rights and not interests, which are to be resolved by the exercise of
collective power. The negative evidence
concerning the ‘Wal-Mart
model’ notwithstanding, this principle should still apply
within the context of the merger,
even when the considerations of
s
12
A (3) read together with the balance of
s 12
A are taken into
account. In terms of the conditions set out in the Tribunal’s
order, no retrenchments for operational reasons
can take place for
two years and SACCAWU’s current position in Massmart is
guaranteed for 3 years. Beyond these protections,
SACCAWU must use
either its bargaining power or, where applicable, rights guaranteed
to workers under existing labour law, to protect
its members. In
summary, it is not the role of competition law to provide legal
protections to potential disputes of interest which
stand to be
resolved by the exercise of collective power. To the extent that the
merging parties would seek to erode union or employee
rights
guaranteed under existing law, these will be protected by the labour
courts, which are set up to deal with disputes of rights.
The 574 workers
[137] SACCAWU contends
that 574 workers, who were retrenched, including those who worked for
Game in Nelspruit and others who worked
for regional distribution
centres took place in anticipation of the merger. While there is no
direct evidence in point, SACCAWU
contends that the only reasonable
inference to be drawn is that, given the timing of the retrenchment
viewed within the process
of merger negotiations, these retrenchments
are merger related.
[138] The merging parties
contend however that the decision to implement the regional
distribution structures, which gave rise to
the retrenchment of 503
employees at Game was made in 2002, while the decision to build a
particular distribution centre which
led to these retrenchments was
made in 2008. Accordingly, the merging parties contend that these
decisions were made well before
any suggestion of the merger with
Wal-Mart. The merging parties contend, by way of the evidence of Mr
Bond, that Wal-Mart only
decided that Massmart was its target firm in
June or July 2010, after meetings with potential targets, one of
which was another
South African retailer. Further, the merging
parties argue that as only 503 employees were retrenched out of a
total compliment
of 26 500, it is highly unlikely that Massmart
retrenched to make its organisation a ‘sweeter prospect’
for acquisition
than its rivals.
[139] This argument was,
in effect, accepted by the Tribunal. The Tribunal held that the
burden of justifying a merger specific
retrenchment fell upon the
merging parties but, in this case, the retrenchments had taken place
prior to the merger. Accordingly,
it held that the unions would have
needed to show that the retrenchments were merger specific. Only upon
this finding being made,
would the burden of justification have
shifted to the merging parties. The Tribunal found further that
Massmart gave plausible
reasons for the retrenchments that were not
merger specific. Consequently, there was no basis to grant the relief
sought by the
unions based upon the facts which had been presented to
the Tribunal.
[140] Curiously, the
passage which the Tribunal employed from its own decision in
Metropolitan Holdings Limited v Momentum Group Limited
(decision of the Competition Tribunal of 9 December 2010) to justify
its finding does not entirely support the approach that it
appears to
have now adopted. Thus, in paragraph 51 of its determination in this
dispute, it relies on paragraph 68 of the Metropolitan
decision.
Paragraphs 68 and 69 of that decision read thus:
“
[68]
In Harmony Goldfields we held that the merging parties are not
required to affirmatively justify a merger on public interest

grounds. What we did not decide in that case is whether once a
substantial public interest ground has been raised whether the
merging parties face an evidential burden of justification. In this
case we have decided that they do. Once a prima facie ground
has been
alleged that a merger may not be justifiable on substantial public
interest grounds, the evidential burden will shift
to the merging
parties to rebut it.
[69] Thus, if on the
facts of a particular case, employment loss is of a considerable
magnitude and that short term prospects of
re-employment for a
substantial portion of the affected class are limited, then prima
facie this would be presumed to have a substantial
adverse effect on
the public interest and an evidential burden would then shift to the
merging parties to justify it before a final
conclusion can be made.
This is not an unfair burden given that only the merging parties can
answer this question.
”
An examination of this
reasoning does not automatically support the argument that, because
the retrenchment took place prior to
the merger, it cannot be merger
specific, a conclusion which was central to its finding in the
present case. A retrenchment, which
takes place shortly before the
merger is consummated may raise questions as to whether this decision
forms part of the broad merger
decision making process and would,
accordingly, be sufficiently closely related to the merger in order
to demand that the merging
parties must justify their retrenchment
decision.
[141] The present case
luminously illustrates this proposition. Mr Gauntlett submitted that
the decision to implement the regional
distribution structures was
taken in 2002 and the later decision to build particular distribution
structures in 2008 showed clearly
that the retrenchments had little
to do with the negotiations concerning the merger. Notwithstanding
these submissions, the fact
remained that Massmart retrenched 503
workers in June 2010, almost two years after its decision to build
the particular distribution
centre and eight years after the
so-called ‘initial decision’ to retrench. To argue, as Mr
Gauntlett sought, to do,
that ‘the dye was cast’ insofar
as these workers were concerned as from 2002 and that consequently
the actual implementation
had nothing to do with the merger, at best
for the merging parties, raises questions as to whether there was not
a clear linkage
between the merger and these retrenchments.
[142] It thus became
important for the merging parties to show that the decision to merge
had occurred late in 2010 in order to
rebut the negative inference.
Mr Pattison testified that merger negotiations had ‘only picked
up momentum in late September
2010’, thereby contending that
the decision to engage in the merger was way beyond the date upon
which the retrenchment decisions
had been taken. In cross-examination
by Mr Kennedy, Mr Pattison had considerable difficulty in justifying
this claim. It was clear
from documentation generated from meetings
of Massmart’s board, that talks had taken place between the
merging parties as
from 2009. Mr Pattison was forced to concede that
discussions had been requested from Wal-Mart in December 2008.
Similarly, he
was compelled to accept that in November 2009, Wal-Mart
had indicated in a document that, in 2010, there was a possible
acquisition
in South Africa.
[143] Mr Pattison
encountered a further problem in denying the proposition put to him
by Mr Kennedy that the ‘strategy of
Massmart at this time,
going back particularly around 2009 was to manoeuvre your business
into a situation which would be good
for business in your view
overall, but one of the factors you were alive to and influenced by
was the potential acquisition by
Wal-Mart’. Mr Kennedy referred
Mr Pattison to a document dated 15 December 2009. The following
passage of his exchange with
Mr Kennedy is significant:
“
The
very first passage under the heading ‘introduction’ “In
preparing for a potential offer by Wal-Mart, Massmart
has requested
Deutsche Bank to give consideration to the possible form of Walter’s
offer investment strategy, offer mechanics
and key execution
considerations from a structural, legal and regulatory perspective.’
This document contains
details relating to this very issue. Are you seriously standing by
your evidence that in 2009 there weren’t
serious discussions
between Wal-Mart and Massmart with regard to the acquisition by
Wal-Mart, which is referred to here as Walter,
not so?
MR PATTISON
: I
absolutely stand by that and perhaps I can help you with your
confusion. I think you are getting confused between our preparations

for a potential entry of Wal-Mart into Africa, which again I would be
remiss in not appointing advisors to prepare me for that
and
necessarily me having discussions with Wal-Mart. It was clear because
of announcements in the press that Wal-Mart was now considering
a
target. It was very important for me to have the information at my
hands about how that might happen, both with me and the other

potential targets and to get advice on Wal-Mart’s history on
acquiring other companies in other countries. So, we did. We

appointed, I can’t remember the exact date, but somewhere in
2009 I think we appointed our advisors, Deutsche, to consider
any
potential implications and later we appointed our advisors called
Saks (?) to prepare us, as the document says, for a potential
offer.”
Similarly, Mr Pattison
was confronted with a Wal-Mart document which clearly indicated that
by May 2010 ‘Massmart is now an
exclusive target and valuation
to be finalised.’ His answers to these questions failed to
explain the obvious: that, in 2009
Massmart was, at the very least,
focussed upon a possible merger with Wal-Mart.
[144] The doubts
surrounding this version were fortified by Mr Pattison having
informed the Department of Economic Development in
October 2010 that
a restructuring had taken into account ‘the Wal-Mart approach’
to operational issues which manifestly,
given the Wal-Mart model,
even as evidenced on the due diligence and Project Memphis reports,
would have included issues of employment.
[145] Whether, as Mr Bond
testified, the amount of time and effort spent on the retrenchment
question demonstrated ‘that the
retrenchments did not make
Massmart a more attractive proposition’ is hardly sufficient,
without more, to rebut the inference
that there was a relationship
between Massmart’s attempt to prune the workforce, even if it
was only in one area of its operation
and the negotiations which
ultimately culminated in the merger with a company (Wal-Mart) which
would understandably have been particularly
concerned about
employment costs.
[146] There is the
further issue about the 71 additional employees who were retrenched
at Makro Silver Lakes (this is in addition
to those at Game
Nelspruit). In its initial papers, SACCAWU accepted that 503
employees had been retrenched. However in closing
argument, Mr
Kennedy informed the Tribunal the he was ‘instructed’
that the figure was 574. It does appear that the
additional employees
were retrenched at Makro Silver Lakes, following agreement on a 40
hour working week. According to the merging
parties, the employees
relied on the agreement, the result of which was that Makro was
forced to retrench these workers. Without
more evidence, it is
difficult to conclude that these additional workers fall within the
same framework of a merger related analysis
as do the 503 employees
to which reference has already been made.
The Tribunal’s
order
[147] At the hearing, the
merging parties proposed what was referred to by the Tribunal as an
‘investment remedy’. In
terms thereof, they committed
themselves to spending R100 million over three years through the
establishment of a programme aimed
at the development of local
suppliers, including SMMEs. The programme, although it would be
administered by the merged entities,
would be advised by a committee
comprising representatives of the trade unions, business including
SMMEs. Government would also
be invited to serve on this committee.
[148] The Tribunal
accepted the proposal and made it part of its order. Unfortunately,
as it appears from its determination, it
did so without any sustained
engagement as to how the remedy would operate, whether an amount of R
100 million was excessive or
too little and, further, what effect the
proposal would have in dealing with the concern that, at the very
least, post the merger
there would be some substitution of local
procurement for import. The merging parties’ proposal received
no more than three
paragraphs of explanation in the determination of
the Tribunal. Accordingly, in our view, there was an inadequate
interrogation
of this proposal in relation to the arguments that have
been put up by the intervening parties concerning the possible
problem
of increased procurement by way of imports and, in turn, the
potential for a negative effect upon the South African economy, in

terms of factors which fell within the scope of
s 12
A (3); in
particular the effect on small producers, as it emerged from the
evidence, and employment.
[149] Mr Trengove
therefore argued that the Tribunal had misdirected itself by
considering, ‘entirely in a vacuum’,
whether the remedy
proposed by the merging parties was adequate and thus reached a
determination in this regard on no discernible
basis. The Tribunal
simply concluded that the sum of R100m is “large” for a
private company. From its reasoning, there
appears to have been no
attempt on the Tribunal’s part to gauge what might be an
appropriate and proportionate remedy, despite
the Tribunal holding
“[t]he approach we have taken is to examine the undertakings
and the evidence to which they are responsive
to see whether they are
adequate. In Mr Trengove’s view, in the light of the dearth of
evidence placed before the Tribunal
in this connection this statement
could be never anything more than lip service to the notion of
proportionality, as applied in
this judgment.
[150] Both Mr Trengove
and Mr Kennedy observed that the Tribunal had been the beneficiary of
a series of alternative proposals put
up by the intervening parties.
Mr Trengove contended that the Tribunal had failed to engage at all
with the remedies which had
been proposed by the Ministers. In
summary, the Ministers had provided two separate options. In option
A, they contended for a
baseline proportion for domestic procurement
as a percentage of total procurement that would prevent the erosion
of the domestic
supplier base. This baseline was related to
individual categories of goods so as to ensure that more vulnerable
supplier sectors
would not be undermined while total domestic
procurement remain constant.
[151] In terms of option
B, a supplier fund would be set up to advance the competitiveness of
domestic suppliers which would include
a baseline level of domestic
procurement (in Rand value) to prevent the merger from affecting
domestic employment in the supply
chain. Its application to
individual sectors would then have protected more vulnerable sectors.
According to Mr Trengove, the Ministers’
option B would be
broadly similar to the one adopted by the Tribunal but it would have
been ‘more realistic’ and proportionate,
in that it would
have been based upon a capital amount of R 500 million.
[152] In its submissions,
SACCAWU sought to have two related conditions imposed which, in its
view, would protect and enhance small
and medium sized businesses and
stimulate the competitiveness of firms in the supply chain. The first
condition would be to increase
the amount of investment in supply
development to at least R 500 million and refine and target the fund
to specific sectors or
industries, possibly focussing on private or
own label project expansion. The purpose and mandate of the fund
would be defined
in order to enhance Wal-Mart’s expertise in
improving or creating supply chain efficiency and by increasing its
independence
and effectiveness by ensuring that it was controlled and
managed by a public entity, such as the IDC, which, in its view, had
the
expertise and experience to manage such a project. The second
condition, which SACCAWU advocated, was that the merged firm be
prevented
from spending less than its current procurement on a Rand
value basis for a specific period of time, which could set a floor
for
domestic procurement.
[153] The Tribunal
rejected conditions relating to procurement. It held that, given the
nature of the business of Massmart which
supplied a wide range of
goods from basic groceries to consumer electronics, it would be
extremely difficult to determine the precise
nature of a local
manufacturing content of products, even if SACCAWU’s solution
was adopted to deem any specific product
one of local origin, if more
than 50% of its value was locally produced. In its view, this would
create an excessive dependence
on suppliers to verify local content.
Evaluation
[154] That there is
insufficient evidence to refuse the approval of the merger does not
mean that the case made out by the intervening
parties stands to be
rejected completely and hence the concerns raised regarding the
effect of the merger on small and medium sized
producers and
employment have no justification. The fact that conditions were
imposed by the Tribunal, no matter the criticism
of its reasoning, is
reflective of this concern. Manifestly, competition law cannot be a
substitute for industrial or trade policy;
hence this court cannot
construct a holistic policy to address the challenges which are posed
by globalisation. But the public
interest concerns set out in
s 12
A
demands that this court gives tangible effect to the legislative
ambition.
[155] Within this context
a key issue with regard to this merger and its effect on both the
South African consumer and small producer
turns on an understanding
of the development of global value chains, viewed within the broader
context of economic globalisation.
Only within this framework can the
effect on South African small and medium sized business be adequately
assessed. Although these
issues were canvassed in some of the
evidence, in particular the testimony of Messrs Hodge and Baker as
well as the evidence of
Mr Pattison in which he provided an
explanation of the large retailing business, it is regrettable that
an insufficient interrogation
of the implications of this context
took place. This exercise would greatly have assisted this Court to
tease out the comprehensive
implications of the development of global
value chains and the consequences of the introduction of the Wal-Mart
model into South
Africa.
[156] It is thus
necessary to examine this issue. For the purpose of this judgment,
the definition of a value chain offered by Raphael
Kaplinsky and Mike
Morris
A handbook for value chain research
(2004) must
suffice:
“
The
value chain describes the full range of activity which are required
to bring a product of service from conception to the different
phases
of production (involving a combination of physical transformation and
the input of various producers services) delivery
to final consumers
and final disposal after use
.”
Kaplinsky and Morris
provide an example of the furniture industry to illustrate the
implications of their proposed definition:
“
This
would involve the provision of seed inputs, chemicals equipment and
water for the forestry sector, for logs which are then
cut and
transported to the sawmill sector which obtains its primary inputs
from the machinery sector. From there sawn timber moves
to the
furniture manufacturers who, in turn, obtain inputs from the
machinery, adhesives and paint industries and also draw on
design and
branding skills from the service sector. Depending on which market is
served, the furniture passes through various intermediary
stages
until it reaches the final customer who after use consigns the
furniture for recycling.
”
[157] Viewed within the
context of this example, a global buyer value chain concerns an
industry in which a large retailer, marketer
and branded manufacturer
will play a pivotal role in setting up decentralised production
networks in a variety of exporting countries
which would typically be
located in the developing world, Kaplinsky and Morris note:
“
This
pattern of trade led industrialisation has become common in labour
intensive, consumer goods industries such as garments, footwear,

toys, housewares, consumer electronics and a variety of hands crafts.
Production is generally carried out by tiered networks of
third world
contractors that make finished goods for foreign buyers. The
specifications are supplied by the large retailer or marketers
that
order the goods
.”
For a further useful
discussion see Victor Fung “Global Supply Chains - Past
Developments, Emerging Trends” (2011) and
in respect of the
future of international competition and the consolidation of global
value chains, Gary Gereffi ‘Global
value chains and
international competitions’ 2011 (56)
The Antitrust Bulletin
37.
[158] Even this brief
reference to the nature of global value chains reveals that the
introduction of the largest retailer in the
world to the South
African economy may pose significant challenges for the participation
of South African producers in global value
chains which, as the
evidence indicates within the retailing sector, is dominated by
Wal-Mart. Failure to engage meaningfully with
the implications of
this challenge posed by globalisation can well have detrimental
economic and social effects for the South African
economy in general
and small and medium sized business in particular.
[159] Wal-Mart’s
own evidence, for example, as set out in Mr Baker’s report,
suggests that Wal-Mart are not unaware
of the challenges facing small
and medium sized indigenous producers which flow from globalization
in general and global value
chains in particular. Thus, Mr Baker made
much of Wal-Mart’s pride in its record in Chile, where it
sought to improve the
productive abilities of its supply
relationships by introducing the supply of programme known as the
Joint Business Plan. To quote
from Mr Baker’s report:
“
In
2009, 19 suppliers, accounting for around 46% of the D&S business
were invited to join the plan. In 2010, this was extended
to 44
suppliers accounting for 58% of its sales, and in 2011 it will be
further extended to cover 54 suppliers making 63% of sales.
The
impact of the JBP on the sales of those suppliers included in the
programme can be seen in Figure 4 …
Figure 4 shows that in
all but one month of 2010, suppliers within the JBP programme saw
their sales rise at a faster rate than
those of non-JBP suppliers,
even though non-JBP on the profits of those suppliers included in the
programme can be seen in Figure
5…
As can be seen, the
profits of suppliers included within the JBP grew at a faster rate
than the profits of those suppliers that
were not part of the scheme.
Moreover, by splitting the JBP suppliers into those supplying on
behalf of multinationals and those
supplying locally produced goods,
it becomes evident that local suppliers benefited to an even greater
degree than did the local
representatives of the multinationals in
their profit growth
.”
Mr Baker also referred to
Wal-Mart’s allegiance with a group of small farmers in central
Chile which culminated in a program,
the aim of which was ‘to
establish strategic alliances with small suppliers, focussing on
specific products and the timing
of the harvesting of those
products’. The evidence of Mr Bond, cited earlier, is equally
reflective of this position.
[160] Returning to the
implications for South African business, in Wal-Mart’s due
diligence process and valuation model, it
identified a range of
synergies which flowed from the merger amounting to a significant sum
in enterprise value enhancement. Of
this figure, 80% of the gross
figure was categorised as merchandising, including improved supplier
terms, exit strategy, aged inventory
management, margin enhancement
in top categories, development of private labels and direct imports.
Benefits from logistics amounted
to more than 20% of the gross figure
which included DC productivity, inventory management, the development
of regional distribution
centres, imports flow and supplier
collaboration.
[161] These figures
indicate that there will be some shift away from local producers to
direct and indirect imports. There will
also be benefits for the
merged entity from the broader access which Massmart will now enjoy
to Wal-Mart’s management of
global supply chains and which will
create a significant value enhancement.
[162] Some of these
developments will unquestionably impact upon small and medium sized
businesses in South Africa, whose interests
are protected in terms of
s 12
A (3). Given Wal-Mart’s size and expertise and its express
claim, made by its witnesses before the Tribunal , no doubt with

justification, for improving the position of suppliers in Chile, for
example, the proposal for a condition which would seek to
enhance the
participation of South African small and medium size producers in
particular, in global value chains which are dominated
by Wal-Mart so
as to prevent job losses, at the least, and, at best, to increase
both employment and economic activity of these
businesses protected
under
s 12
A must form part of the considerations which this Court is
required to be taken into account in considering a merger of this
nature.
[163] This flows from the
model for competition law chosen by the legislature and in particular
as set out in
s 12
A. It also forms part of the mandate given to the
Tribunal and, on appeal, to this Court, when faced with the inquiry
as to whether
a merger should be approved.
[164] In summary, the
concern that Wal-Mart’s coordinated global purchasing operation
and superior infrastructure for exploiting
global value chains will
result in the importation of consumer goods, thereby harming domestic
producers, which harm will exceed
the benefits of cheaper products
for local consumers, cannot, on the basis of the available evidence,
particularly that of the
intervening parties, justify the prohibition
of the merger. But that does not lead to the conclusion that the Act
justifies a blanket
approval. The solution to the possible threats of
greater imports and therefore detrimental consequences for local
manufacturers
is not, in our view, to impose a domestic content
requirement. The Tribunal has shown the difficulties which such a
proposal would
create. Further, a blanket procurement quota can give
rise to distortions both between the merged firm and other large
firms in
the market and in respect of manipulation of the product mix
in order to circumvent the designated procurement levels. It may also

facilitate forms of price collusion. For these reasons, the
Tribunal’s rejection of the proposals for import restrictions

cannot be disturbed on appeal.
[165] The problem however
with the existing conditions as approved by the Tribunal is that they
reflect an offer made by the merging
parties which was accepted by
the Tribunal, without sufficient interrogation as to precisely how
the programme would be implemented
and the consequences for dealing
with the potential difficulties which may be encountered by local
manufacturers, the effects on
employment and the ability of small and
medium sized businesses to operate within a competitive global
environment, as outlined
in this judgment.
[166] During argument, Mr
Unterhalter was pressed by the Court as to exactly how the proposed
fund would work in practice. He was
unable to provide any details,
save to contend that it was possible for a study to be commissioned
to investigate the parameters,
in terms of which such a fund would
work to the benefit of those parties who might be detrimentally
affected by this merger. The
answer cannot simply be to increase the
capital sum from R 100 million to R 500 million. This is to ask the
court to shoot into
the evidential dark. On the evidence available,
this Court has no idea as to whether a sum of more or less than R 100
million is
required nor how effective the fund may prove to be.
[167] A study which would
investigate the implications of this merger for small and medium size
businesses and which would be able
to offer guidance as to the proper
content for the framework in which a fund could operate to the
benefit of these entities within
the South African economy, would
greatly assist the court in being able to frame the precise
conditions within which the proposed
fund would operate and, in turn,
would give rise to an adequate mandate for the fund to assist small
and medium sized business.
[168] To this end
therefore, a variation of the proposal put up by the merging parties
is justified. The merging parties suggested
that the programme could
benefit from the advice given by a committee which would comprise
representatives of trade unions business
and in particular small,
medium size enterprises together with government. Before accepting
this vague condition set out by the
Tribunal without any significant
considerations of the benefits that it might achieve, it would be
preferable if a committee comprising
of an expert chosen by SACCAWU,
another by Wal-Mart and a third by government be invited to produce a
report within three months
of the delivery of this judgment which
would then allow this court to develop an investment remedy which is
both rational, justifiable
in terms of the evidence provided, as well
as in terms of the challenges with which the South African economy is
confronted as
a result of this merger and the legitimate concerns
which follow from the provisions of s 12 A (1) read with (3), in
particular
the future of small and medium sized producers.
[169] The parties would
in turn, be entitled to place further affidavits before this court,
following upon the report, in order
to assist the Court in framing
the precise nature of this particular condition. There is, of course,
the option of referring the
matter back to the Tribunal which could
hold further hearings and gather evidence before reformulating this
condition. We are cognisant
of the time already taken to resolve the
disputes concerning this merger and the need to bring this matter to
finality as expeditiously
as possible.
[170] For these reasons,
a dialogic model in which this court can engage with the parties to
resolve the outstanding disputes is,
in our view, suitable for
adjudication in these kind of matters and thus justifies an order
that the court benefit from expert
advice, further responses from the
parties, all of which must be made available in the shortest possible
time.
[171] Given this
component of our proposed order, it is unnecessary, at this stage to
engage with the interesting arguments raised
in respect of conditions
and relevant provisions of international law, particularly GATT.
Costs
[172] As a result of the
nature of this case and the outcome, there will be no order as to
costs in respect of the appeal.
The order
The review application
is dismissed with costs, including the costs of two counsel.
The appeal is upheld in
part. Accordingly, the decision of the Tribunal of 31 May 2011 is
set aside and replaced with the following:
2.1 The merger between
Wal-Mart Stores Inc. and Massmart Holdings Limited in terms of
s 16
(2) (b) of the
Competition Act 1998
is approved subject to the
following conditions.
2.1.1 The merged entity
must ensure that there are no retrenchments based on the merged
entity’s operational requirements
in South Africa, resulting
from the merger, for a period of two (2) years from the effective
date of the transaction. For the sake
of clarity, retrenchments do
not include voluntary separation agreements or voluntary early
retirement packages, and reasonable
refusals to be redeployed in
accordance with the provisions of the
Labour Relations Act, 1995
, as
amended.
2.1.2 The merged entity
is required to reinstate the 503 employees who were retrenched in
2009 and June 2010 and must take account
of these employees’
years of service in the Massmart Group.
2.1.3 The merged entity
must honour existing labour agreements and must continue to honour
the current practice of the Massmart
Group not to challenge SACCAWU’s
current position, as the largest representative union within the
merged entity, to represent
the bargaining units, for at least three
(3) years from the affected date of the transaction.
2.1.4 The merged entity
must commission a study to determine the most appropriate means
together with the mechanism by which local
South African suppliers
may be empowered to respond to the challenges posed by the merger and
thus benefit thereby. The study shall
be conducted by three experts,
one to be appointed by SACCAWU, another by the merging parties and a
third by the three government
Ministers. These experts must be
appointed within one month of the delivery of this judgment. The
study must be completed within
three months of the delivery of this
judgment. The report shall then be made available to the merging and
intervening parties who
shall have a further month after submission
therefor, to submit any affidavit evidence which they wish to place
before this Court,
of which account must be taken in the formulation
of the condition as to the programme to be established for the
development of
local South African suppliers. In particular, the
study shall canvass the best means by which South African small and
medium sized
suppliers can participate in Wal-Mart’s global
value chain training programmes that might be established to train
local South
African suppliers on how to conduct business with the
merged entity and Wal-Mart and the costs which would reasonably be
incurred
in so far as the development of such a programmes is
concerned. The costs of this study shall be paid for by the merging
parties.
3. There is no order as
to costs.
___________________
DAVIS JP
______________________
ZONDI JA
MAILULA JA concurred
1
LSM
or Living Standard Measurement is a tool used to measure the South
African market according to their living standards. LSM
1 being the
lowest and 10 being the highest. www.saarf.co.za