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[2007] ZACAC 3
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TWK Agriculture Limited and Competition Commission & Others (67/CAC/Jan07) [2007] ZACAC 3 (7 August 2007)
IN
THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CAC
Case No. 67/CAC/Jan07
TWK
AGRICULTURE LIMITED Applicant
and
THE
COMPETITION COMMISSION First Respondent
NCT
FORESTRY CO-OPERATIVE LIMITED Second Respondent
SHINCEL
(PTY) LTD Third Respondent
SHIELD
OVERALL MANUFACTURERS (PTY) LTD Fourth
Respondent
JUDGMENT:
7 August 2007
DAVIS
JP:
[1]
This is an application for an order reviewing and setting aside the
decision by first respondent (‘the Commission’)
to
approve the acquisition by second respondent of control over third
respondent
and/or
fourth respondent and consequently the setting aside of a merger
clearance certificate issued under case No.2006/AUG/2478.
[2]
The application for review has been brought in terms of section
62(2), alternatively
section 62(1)
of the
Competition Act 89 of
1998
(‘the Act’) on the basis that the Commission, in
exercising its powers acted irregularly and accordingly beyond the
jurisdiction conferred upon it by the Act.
Background.
[3]
On 29 August 2006 second and fourth respondents notified the
Commission of an intermediate merger. Prior to the merger , second
respondent held a 45% interest in third respondent, the remaining
55%
of the shares being held by fourth respondent. In terms of the
proposed merger which was notified to the Commission, second
respondent was to acquire the remaining interest in third respondent
, thus ensuring that it would have sole control there over.
This
merger caused concern to applicant and its members and it therefore
exercised rights under
section 13
B(3) of the Act and submitted
information in a letter to the Commission on 18
th
September 2006. This letter is annexure “A” to the
applicant’s founding affidavit.
[4]
The following passages of annexure “A” of particular
relevance: ‘It has become clear to TWK that NCT has adopted
a
strategy of building up a dominant market share in woodchip export
facilities. NCT will increase its dominant market share of
the
woodchip export facilities and this will lead to substantial
lessening of competition at the procurement level. NCT’s
market
dominance in the market for procurement of hardwood pulpwood logs
will increase as a result of fact that there are limited
distribution
channels for the sale of hardwood pulpwood logs. The only major
purchasers of hardwood pulpwood logs in South Africa
are the wood
chipping export facilities and the pulp and paper manufacturers
namely Mondi and Sappi … The small timber growers
had no
negotiating powers against these large companies and therefore
co-operatives were created to assist the small timber growers
in
their negotiations with the large purchases of hardwood pulpwood,
logs ….The timber growers only viable alternative distribution
channel for the sale of hardwood, pulpwood log is to sell to woodchip
facilities for export purposes…. The control of the
woodchip
export facilities is crucial for the sustainability of the businesses
of the timber growers to be able to access the international
market
for the sale of hardwood chips and presents an opportunity to escape
the monopolistic purchasing power of Mondi and Sappi.
Any person who
controls a dominant share of the wood chip export facilities will
similarly be able to exercise market power in
relation to the
purchase of hardwood, pulpwood, logs for chipping and export….
TWK is concerned that NCT’s control
over a dominant share of
the independent woodchip export facilities in South Africa will lead
to an abuse by it of its position
to the detriment of TWK and its
members. NCT’s increased dominant position will be detrimental
to timber growers in South
Africa who are not affiliated to NCT since
they may be subjected to discriminatory pricing practices and their
distribution channel
may be foreclosed upon…..’
[5]
After its initial written submissions to the Commission, applicant’s
attorneys arranged a meeting with the Commission’s
investigators. On the 28
th
September 2006 a meeting took place and the applicant
explained in full the concerns which it initially had articulated in
its letter
of 18 September 2006.
[6]
In its report to the Executive Committee , the Commission’s
representatives recorded ‘a complaint’ lodged
by
applicant. Nonetheless as Ms Blignaut , the Manager of the Merger and
Acquisitions Division of the Commission said in her answering
affidavit: ‘As a result of the research conducted in the course
of the investigation, the Commission formed the view that
there would
be no substantial change in market structure as a result of the
merger. In addition, the Commission was mindful of
the fact that only
about half of the logs produced by TWK are processed through CTC,
with the other half being sold independently,
giving TWK alternatives
to selling through CTC…The Commission accordingly concluded
that the proposed transaction is unlikely
to substantially prevent or
lessen competition
in
the market for the export of hardwood chips.’
[7]
A flurry of correspondence then ensued between applicant and the
Commission concerning the reasons for the Commission’s
decision. Upon examination of the full report submitted to the
Executive Committee of the Commission, applicant contended that
the
Commission had not fully evaluated its concerns. In particular,
applicant contended that the Commission had failed to consider
whether there was an alternative market definition relevant to the
merger. No other market definitions were discussed Hence, applicant
contended that there was no evidence of a consideration of the
procurement market ; that is the upstream market in respect of the
wood used by the wood chipping operations. Applicant therefore
contended that an examination of the reasons for its decision
provided
by the Commission confirmed its failure to consider certain
relevant markets including the South African procurement market.
[8]
Applicant thus contended that the decision of the Commission should
and ought to be reviewed on grounds which were all recognized
in the
Promotion of Administrative Justice Act 3 of 2000 (‘PAJA’),
being that the Commission failed to provide adequate
reasons for its
decision to approve the merger, to act rationally in approving the
merger, failed to take relevant considerations
into account in the
approving of the merger and acted arbitrarily and capriciously.
[9]
Before the question of review can be considered however, applicant
had to negotiate the hurdle of jurisdiction; that is that
was it
entitled to approach this Court without an initial recourse to the
Tribunal?
JURISDICTION
.
[10]In
its initial argument, applicant relied on two sections of the Act to
justify the argument that this Court had jurisdiction,
being section
62(1) and 62(2) of the Act. In oral argument Mr Brassey, who appeared
together with Ms Engelbrecht on behalf of the
applicants, relied
almost exclusively on section 62(2) to support his argument.
[11]
Section 62(2) provides as follows:
‘
In
addition to any other jurisdiction granted in this Act to the
Competition Appeal Court, the Court has jurisdiction over –
(a)
the question whether an action taken or proposed to be taken by the
Competition Commission or the Competition Tribunal is within
their
respective jurisdictions in terms of this Act.
(b)
any constitutional matter arising in terms of this Act.
the
question whether a matter falls within the exclusive jurisdiction
granted under subsection (1).’
[12]
Mr Brassey contended that, in terms of section 62(2)(a) , this Court
had jurisdiction ‘over the question whether an action
taken or
proposed to be taken by the Competition Commission…is within
[its] jurisdiction’. He therefore contended
that the section
conferred jurisdiction upon this Court as a court of first instance
to decide jurisdictional issues with respect
to the Commission. By
contrast, he submitted that the Tribunal had no power to determine
these jurisdictional questions. Nor could
it be expected that a body
which was inferior to a court of law should have such review powers.
[13]
By contending that the Commission acted unreasonably, irrationally
and beyond the scope of the Act and hence ultra vires the
powers
conferred upon it by the Act, Mr Brassey submitted that the
Commission had not acted within its jurisdiction. For this reason
,
section 62(2) empowered this Court to review the decision of the
Commission.
[14]
Mr Brassey submitted further that there was no viable distinction
which could be drawn between the authority of the Commission
and the
exercise of this authority. Failure to exercise its authority
properly , for example by taking into account extraneous
facts, meant
that it had acted outside of its jurisdiction.
[15]
Mr Rogers ,who appeared together with Mr Gotz on behalf of second to
fourth respondents, submitted that section 37 (1) of the
Act
specifically empowered this Court to review any decision of the
Tribunal. Accordingly the interpretation contended for by Mr
Brassey
in respect of section 62(2) would render one of these sections
redundant. Section 62(2) clearly granted this Court jurisdiction
over
any action taken or proposed to be taken by the Competition Tribunal.
Were the phrase ‘within their respective jurisdictions
in terms
of this Act ’ to include the usual forms of review, section 37
which provided this Court with the power to review
the Tribunal would
not be necessary in that the very same review power would already
have been located in section 62(2). It would
make no sense to have
introduced specific review powers in section 37 as had occurred when
section 37 was amended in terms of the
Competition Amendment Act of
2000
when
section 62(2)
already provided the very same powers of
review.
[16]
Mr Rogers pointed out that
section 37
had been introduced because
there had been a lacuna in the Act. Before the introduction of this
section into the Act,
Schutz JA ,
on behalf of a unanimous
court, held in Simelane and Others NNO v Seven –Eleven
Corporation SA (Pty) Ltd and Another
2003 (3) SA 64
(SCA) at para 2 :
‘The reason why the review application could be brought in the
High Court was that at the time of its institution,
the Act did not
confer review powers on the tribunal, although it had exclusive
jurisdiction in respect of matters of the kind
with which this case
is concerned (s 65(3) of the Act) [this is the equivalent to section
62(1) of the present Act] . Although
the Competition Appeal Court
(also a creation of the Act) had exclusive appellate and review
powers over the tribunal’s decisions
(s 65(4)), it also did not
have review powers in respect of the commission. Accordingly the High
Court at the time of institution
retained its common-law review
jurisdiction’. Significantly, section 27(1)(c) provided by way
of an amendment in terms of
the
Competition Second Amendment Act of
2000
that ‘the Competition Tribunal may hear appeals from or
review any decision of the Competition Commission that may, in terms
of this Act, be referred to it .’
[17]
In summary, Mr Rogers submitted that a specific review power had been
given to the Tribunal over the decisions of the Commission
and a
specific review power had been granted to the Court in terms of
section 37 to review the decisions of the Tribunal but not
the
Commission. The word ‘review’ had been employed in both
of these sections in contrast to the word ‘jurisdiction’
which was used in section 62(2). In his view, the meaning of the word
‘jurisdiction’ should be contrasted with the
use of the
word ‘review’ as contained in sections 27 and 37
respectively which had been specifically introduced in
response to
the
lacuna
in the pre 2000 Act.
[18]
In response, Mr Brassey contended that section 27 (1)(c) employed the
words ‘in terms of this Act’ Nowhere in the
Act was it
made clear as to what powers of review of decisions of the Commission
were possessed by the Tribunal. Further, it could
not be held that
the Tribunal possessed a residual power to review any decision of
Commission. Mr Rogers countered this submission
by contending that
the phrase ‘this Act’ as it appeared in section 27(1)(3)
was defined in terms in section 1(1)(i)
of the Act which provided
that ‘this Act includes the regulations and schedules’.
Regulation in turn was defined to
be a regulation made under this
Act. He therefore referred to the Competition Tribunal’s Rule
42 which makes provision for
reviews of decisions of the Commission.
This rule can be found in Division E of the Competition Tribunal
Rules which is headed
‘Other appeals, reviews variations or
enforcement proceedings’. Rule 42(1) provides for ‘any
proceedings not
otherwise provided for in these rules’ and Rule
42(3) refers to the Commission’s decision that is being
appealed or
reviewed. In short, Mr Rogers submitted that there could
be no doubt that Rule 42 permitted a referral or review of any
reviewable
decision of the Commission to the Tribunal.
EVALUATION.
[19]
Applicant’s submissions amount to the following: The term
‘respective jurisdictions in terms of this Act’
as
employed in section 62(2) of the Act essentially call into
application the ultra vires doctrine as a main justification for
a
general power of review and hence must be interpreted so as to
provide this Court with a general power of review over ‘any
action taken or proposed to be taken’ by the Commission or
Tribunal.
[20]
The role of the ultra vires doctrine in justifying judicial review
has been the subject of a long running academic controversy
in the
United Kingdom. For example, Wade and Forsyth Administrative Law
(2004) continue to insist that ultra vires remains the
main
justification for judicial review on the basis that Parliament
intends administrators to conform their conduct and decision
making
to the principles of lawfulness , reasonableness and fairness. By
contrast, Craig Administrative Law (2003) rejects the
ultra vires
principle as a residual product of Dicey’s conception of
parliamentary supremacy. He argues in favour of a common
law model
which views the principles of administrative review as being a
product of a judicial process in terms of which judges
have developed
standards for administrative conduct. See also Craig
1999 Public Law
428
and a more recent examination of this subject by Jeffrey Jowell
2006 Public Law 562.
[21]
Since the decision in Pharmaceutical Manufacturers of South Africa:In
re: Ex Parte Application of President of RSA 2000(3)
BCLR 241 (CC) at
para 50, it is clear that the source of judicial review is to be
found in the Constitution. As Mr Cockrell, who
appeared on behalf of
first respondent, noted, section 33 of the Constitution of the
Republic of South Africa 108 of 1996 (the
Constitution) reads:
‘
Everyone
has the right to administrative action that is lawful, reasonable,
and procedurally fair.’ A distinction is therefore
drawn in the
Constitution between lawfulness, reasonableness and fairness. It
would thus appear that the Constitution does not
promote the argument
that the concept of lawfulness subsumes all forms of review under its
scope. This distinction is given clear
legislative content in s 6 of
PAJA where the power of a court or tribunal to review administrative
action where the administration
was not authorized to do so by the
empowering provision, (s6)(2)(a)(i)) stands as a separate ground to a
review where the action
was taken arbitrarily or capriciously.
(s6(2)(e)(vi)) .
[22]
Consequently, the approach contended for by Mr Brassey that acting
‘within their respective jurisdictions’ covers
all
grounds of review, at the very least, is not supported by PAJA which
has given legislative form to s33 of the Constitution
regarding the
source of judicial review. That may not be the end of the applicant’s
argument , were the wording of the Act
to afford clear contrary
support.
[23]
However , the attempt to locate the source of all review of the
Commission’s actions within section 62(2) of the Act
requires a
strained interpretation of this provision . Given that section
27(1)(c) and section 37(1) of the Act which provide for
review powers
to both the Tribunal and the Court in circumstances where no such
review power had existed prior to the 2000 amendment
to the Act, it
places an anomalous construction on these sections to contend that,
when Parliament passed an amending provision
to ensure that the
Tribunal or this Court had review powers, it sought to do no more
then duplicate the very review powers provided
for in section 62(2)
of the Act. To the extent that Mr Brassey contends that s27(1) (c) is
of no assistance to respondents because
in terms thereof the Tribunal
can only review a decision of the Commission ‘that may in terms
of the Act, be referred to
it’ and that no such provision
exists in the Act for such referral, there are two clear responses to
this submission both
of which applicant was unable to counter:
Firstly, as Mr Rogers submitted, the phrase ‘this Act’ ,
as it appears in
section 27(1) (c), is a defined term which includes
the regulations and schedules (section 1(1) (i)). Rule 42(3) of the
Tribunal
Rules refers to the decision of the Commission that is being
appealed or reviewed . This rule clearly envisages the possibility
of
a review by the Tribunal of the decision of the Commission..
Secondly, the linguistic attack on s27 omits to consider the
foundational
point , being that s27(1) ( c) specifically employs the
term ‘ review’ which would make no sense, were s62(2) to
be
interpreted to cover all forms of review, which could conceivably
be undertaken by the Tribunal. Why the need for two sections dealing
with the same power?
[24]
There is a further problem with the approach contended for by
applicants. As Mr Rogers correctly noted , the structure of the
Act
is designed to ensure that this Court is ,as it name suggests, an
appeal court. Were Mr Brassey to be correct, this court would
be a
court of first instance insofar as the review of decisions of the
Commission were concerned. It would not have the benefit
of the
considered decision of a specialist body, being the Tribunal . In
this way , applicant’s interpretation would undermine
the
careful construction of the competition institutions as provided for
by the Act.
[25]
Although Mr Brassey did not press the point, he did not abandon his
submission that a further source of jurisdiction can be
found in
section 62(1) of the Act which reads thus: ‘The Competition
Tribunal and Competition Appeal Court share exclusive
jurisdiction in
respect of the following matters:
(a)
interpretation and application of Chapters 2,3 and 5, other than –
(i)
a question or matter referred to in subsection (2); or
(ii)
a review of a certificate issued by the Minister of Finance in terms
of section 18(2); and
(b)
the functions referred to in sections 21(1), 27(1) and 37, other than
a question or matter referred to in subsection (2)’
[26]
Mr Brassey submitted that this court’s jurisdiction under
section 62 was said to be shared with the Tribunal. If a jurisdiction
was shared between two bodies, then he contended that at the election
of an applicant, either could be approached to exercise jurisdiction.
In the present case, it appeared that the Tribunal could not be
approached at all since it only had jurisdiction over reviews that
may ‘in terms of the Act’ be referred to it. No provision
was made in the Act for the referral to the Tribunal of a
review of a
merger decision taken by the Commission.
[27]
On its own however, section 62(1) does not confer jurisdiction on
this court. Whatever doubt there might have been with regard
to this
question, the matter was settled by the Supreme Court of Appeal in
Simelane and Other NNO
v
11 Corporation SA (Pty) Ltd and
Another
2003 (3) SA 64
(SCA) at para 2 in the passage of the
judgment of Schutz JA cited above. Section 65, to which Schutz JA
made reference, became
section 62(1) of the present Act. As the
Supreme Court of Appeal has held that neither the Tribunal nor this
Court had review powers
in respect of the decision of the Commission
in terms of section 65(3) , it clearly cannot be argued that the same
section now
numbered section 62(1) can be a source of jurisdiction.
MERITS.
[28]
On the basis of the finding to which I have come, there is no need to
deal with the merits of this case. There has however
been some
confusion as to the role of this Court under the Act; in particular a
lack of understanding of the difference between
an appeal and a
review. For this reason it may be useful to make some brief comments
on the merits of this dispute in order to
provide guidance to those
commentators who may have misunderstood this important distinction.
Unlike the majority of cases which
come before this Court, being
appeals arising from the Tribunal (37(1)(b) of the Act), this case
has been brought on the basis
of a review. Cameron JA has luminously
illustrated the important distinction between review and appeal in
Rustenburg Platinum Mines
Ltd v The Commission for Conciliation,
Mediation and Arbitration 2007(1) SA 576(SCA) at para 30-31 as
follows: ‘The question
on review is not whether the record
reveals relevant considerations that are capable of justifying the
outcome. That test applies
when a court hears an appeal: then the
inquiry is whether the record contains material showing that the
decision – notwithstanding
any errors of reasoning – was
correct This is because in an appeal the only determination is
whether the decision is right
or wrong…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.”
[29]
The objections to the Commission’s decision by applicant have
already been set out in this judgment. In the Commission’s
report the following paragraph sought in particular to deal with the
complaints raised by applicant: ‘5.6 Complaint There
has been a
complaint lodged to the Commission by TWK (who hold a 26% stake in
CTC )regarding this transaction. TWK argues that
the market
definition should not be regarded as international but as the market
for the ownership of independent wood chipping
facilities in South
Africa and the rendering of service thereto. TWK also informs the
Commission that since two of thee four independent
wood chipping
facilities are already under the sole control of NCT post-merger it
will control three – resulting in a market
structure with only
two players, Mondi and NCT The Commission is also informed that NCT
opened the Durban hardwood chipping facility
(NCT DWC) in order to
divert pulpwood logs away from CTC. TWK argues that this action will
eventually lead to the closure of CTC.
It was also stated that there
is a deadlock between NCT and TWK (the two owners of CTC) in relation
to the management of CTC and
there is currently a case underway in
court. The Commission addresses each of these concerns in turn. With
regard to the first
concern, as already argued in section 5.2 above,
there is no evidence that the domestic market for hardwood chip is
thriving. Virtually
the entire production of hardwood chips are
exported to international markets, with the two only domestic buyers
being self sufficient
and not selling in the open market except in
cases of excess production. The concern about the proposed
transaction leading to
a duopolistic market structure post-merger
seems to exaggerate the actual effect of this transaction on the
market. Pre-merger
NCT already has stakes in three of the four
players in the market , the only change post-merger is that it will
own one of these
three entities 100% The third concern implies that
any diversion of logs away from CTC by NCT will render the former
unable to
fulfill its export orders. The Commission established that
TWK supplies only half of the pulpwood logs that are processed
through
CTC, with the remainder being filled by NCT. The rest of the
logs are marketed independently of CTC, meaning therefore that tree
growers who are members of TWK have other avenues of selling their
product if CTC were to fail. With regard to the management of
CTC,
the Commission is of the view that it is not a competition matter and
therefore no further comment is warranted.’ (my
emphasis)
[30]
This response should be viewed against the two main objections raised
by applicant against the decision of the Commission,
namely the
appropriate definition of the market and whether the merger would
cause harm.
[31]
In its report, the Commission deals both with the relevant product
market and the geographic market. It concluded that the
relevant
product market was that of production and sale of hardwood chips. It
concluded that the relevant geographic market is
at least
international and could be limited to Japan , given that Japan
accounted for over 90% of the international hardwood chips
trade. In
dealing with the complaint regarding market definition, the passage
reproduced in this judgment headed ‘Complaint’
sets out
applicant’s objection as the latter had described it in its own
letter of 4 October 2006. Furthermore , as Mr Rogers
noted , there
was little evidence provided in the complaint of a lessening or
reduction of competition in the upstream market which
would justify a
different decision being taken by the Commission.
[32]
Without deciding this aspect of the case , it is clear that there are
powerful arguments raised by respondents as to the justification
for
the decision adopted by the Commission . To recapitulate: were this
Court to have jurisdiction, it would be required to decide
whether
the Commission had properly exercised the powers entrusted to it to
make a determination and further that it had applied
its mind to the
matter in arriving at a reasonable decision. In addition,
consideration would have to be given to the particular
expertise of
the Commission in competition matters of this nature. It is here that
the principle of deference to the expertise
of the Tribunal or the
Commission would apply. This is very different enquiry to an appeal
when the court must consider whether
the record of evidence contains
material which reveals that the decision of the lower body was
correct. In such a case, this Court
would apply its own view as to
the correct decision based on the evidence placed before it. The fact
that this Court would read
the record of evidence and then, after
argument from the parties , arrive at its own decision is in the very
nature of an appeal.
In a case where the Tribunal’s decision is
based upon a technical explication of economic evidence, respect in
the jurisprudential
sense, must be shown to that bodies’
expertise but even here, the decision on appeal is that of the court
, based on its
evaluation of the evidence and applicable law. By
contrast, as indicated, a court has a far narrower remit in the case
of a review
where it must be particularly cognizant of the role,
function and expertise of the administrative body.
[33]
To sum up: for the reasons already advanced in this judgment, this
Court is not possessed of the requisite jurisdiction to
hear this
form of application for review as a court of first instance This is a
matter that should have been brought properly before
the Tribunal.
Accordingly, the application is dismissed with costs, including the
cost of two counsel.
________________
DAVIS
JP
Patel
and Mhlantla AJ; JA concurred