COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 69/AM/Dec01
In the appeal in the intermediate merger between:
Astral Foods Limited
and
National Chick Limited
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Reasons for Decision and Order
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Introduction
Astral Foods Limited (Astral), the acquiring party in a merger with National Chick
Limited (Natchix), seeks to have our order approving that merger subject to
conditions, varied on the grounds that the order is ambiguous. We will refer to
this as the variation application. Prior to us considering the variation application,
we have to decide whether three firms, the applicants in this matter, who allege
that they have an interest in opposing the variation application, can intervene.
We will refer to this application, which is the subject matter of this decision, as
the intervention application.
Background
In December 2001 the Competition Commission considered the intermediate
merger between Astral and Natchix and decided to prohibit it. The merging
parties then requested us to consider the merger in terms of section 16(1)(a).
1
After hearing further evidence we decided on 16 April 2002 to approve the
merger subject to certain conditions to remedy concerns about both the
horizontal and vertical effects of the merger. The conditions that concern the
variation application are those that relate to the vertical aspects of the merger
and for this reason we set out only those provisions.
Conditions in relation to the Broiler Industry
1. Astral must supply any independent customer on the following basis:
1.1. Subject to subparagraphs 1.3 and 1.4 below, in terms of a standard
form contract approved by the Competition Commission.
1.2. In the case of any disease or other form of force majeure, Astral must
reduce its supply to all customers, including entities within the Astral
group, pro rata to their ordinary volumes purchased
1.3. In the event that an independent customer does not wish to enter into
the standard contract with Astral, then Astral must supply that
customer in accordance with the principles set out in subparagraph
1.4 below, except for those that relate to notice periods.
1.4. Astral may not discriminate in its conditions of supply between entities
in its own group and its independent customers for equivalent
transactions. In particular it may not discriminate between them in
relation to price, discounts or rebates offered. The determination of
prices remains in the discretion of Astral. Astral may not impose any
condition on an independent customer that requires them to purchase
exclusively from Astral. The parties to the agreement must each be
required to give notice to the other if they do not wish to renew the
contract. The length of this period must be the same for both parties
and must be reasonable having regard to the nature of the industry.
The contracts must be of a five year duration.
2. The conditions set out in clause 1 above shall apply for five years from
date of this order.
date of this order.
3. The Commission’s discretion in approving the standard form contract is
limited to ensuring that it complies with the principles set out in sub
paragraph 1.4 above.
2
A commercial dispute has developed between Astral and the applicants
subsequent to the merger. The nub of the dispute, which for the purpose of this
decision we need not elaborate upon, is whether our order entitled the first two
applicants to resile from existing contracts that they have with Astral. The
applicants maintain that our order voided the contracts and hence they have
resiled lawfully. According to their founding affidavit:
“Those Conditions [the conditions attached to the approval of the merger]
necessarily terminated any existing contracts and permitted customers to
enter into the standard form agreement, or to be supplied on the basis of
new contracts that complied with paragraph 1.4 of the conditions.” 1
Astral’s reading of our order leads them to the opposite conclusion. They assert
that the first two applicants continue to be bound by their respective existing
contracts. Astral however alleges that our order is ambiguous and hence they
propose that it be varied in terms of section 66 of the Act by the insertion of a
par. 1.5 into the present order of the following clauses which they argue will cure
the ambiguity and bring the order into line with our original intent.
“1.5
1.5.1 Existing contracts with independent customers are unaffected by
this Order, subject to amendments required to ensure consistency
with subparagraph 1.4 of the Tribunal Order, such amendments
pertaining to price, discounts or rebates, exclusive purchasing
obligations, notice periods and the length of the contract;
1.5.2 Independent customers who have concluded supply contracts must
be afforded an opportunity to enter into the standard form contract
approved by the Competition Commission;
1.5.3 In the event of any independent customer with an existing contract
concluding a standard form contract, neither the volume of chicks
concluding a standard form contract, neither the volume of chicks
ordered in terms of the existing contract, nor the notice periods
specified therein, can be varied in the standard form contract.”
They also seek a declaratory order on the following terms:
1. Existing contracts with independent customers are unaffected by this
order, subject to amendments required to ensure consistency with
subparagraph 1.4 of the Tribunal order, such amendments pertaining
to price, discounts or rebates, exclusive purchasing obligations, notice
periods and the length of the contract;
1 See paragraph 3.31 of the applicants ‘ founding affidavit
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2. Independent customers who have concluded supply contracts are to
be afforded and opportunity to enter into the standard form contract
approved by the Competition Commission;
3. In the event of any independent customer with an existing contract
concluding a standard contract, neither the volume of chicks ordered in
terms of the existing contract, nor the notice periods specified therein,
can be varied in the standard contract;
4. In the event of an independent customer with an existing contract not
concluding the standard contract, the existing contract remains of full
force and effect as per paragraph 3.1 above.
After the variation application was filed on 27 November 2002 the applicants,
who apparently were served with a courtesy copy, applied to intervene in the
variation application. Astral has opposed the intervention application and hence
the need for us to decide this issue before we can get to the variation application.
Consideration of the application
Astral’s opposition to the intervention application is founded on two arguments: 1)
that there is no legal basis for parties to intervene in variation proceedings, and
2) that even if there is, the interveners have not made out grounds for
intervention, as they were not parties to the merger proceedings before us and
hence can have no interest in the outcome of a proceeding to vary such an order.
a) Is there a legal basis for the intervention?
The variation application is being brought in terms of section 66 of the Act, which
states:
1) The Competition Tribunal, or the Competition Appeal Court, acting
of its own accord or on application of a person affected by a
decision or order, may vary or rescind its decision or order
(a) Erroneously sought or granted in the absence of a party
affected by it;
(b) In which there is ambiguity, or an obvious error or omission,
affected by it;
(b) In which there is ambiguity, or an obvious error or omission,
but only to the extent of correcting that ambiguity, error or
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omission; or
(c) Made or granted as a result of a mistake common to all of
the parties to the proceeding.
Astral argues that this is the only section governing the procedure for variation
applications and that the language of the section manifestly does not
contemplate applications to intervene in such proceedings. It simply provides for
a party affected by an order to make an application.
Section 53 which provides for the rights of third parties to intervene in
proceedings does not assist the applicants either it argues, as in the case of
mergers the right to intervene in such proceedings is limited by the opening
words of section 53(1)(c) which states:
“ if the hearing is in terms of Chapter 3 – …“
Since section 66 is located in Chapter 6, the argument continues, the variation
application is not a hearing in terms of Chapter 3 and hence the provision does
not apply. As the Tribunal is a creature of statute it is not competent for the
applicants to intervene in these proceedings without a statutory basis.
In our view, Astral’s narrow reading of section 66 forces it into an absurdity. If an
application to vary can be brought by anyone affected by an order it would seem
to follow that anyone affected by the application to vary, even if they did not bring
the application, is entitled to be heard. If not, it would mean that everyone
affected must bring their own application, leading to a plethora of applications
with potentially contradictory outcomes.
At the very least, another party to the original proceedings should properly be
joined as a respondent in variation proceedings . There is no significance to the
fact that section 66 does not provide for this expressly one would not expect it.
Statutes, do not ordinarily, when providing for a right to bring an application, state
that there is a right to oppose – it follows as an obvious corollary of the first
that there is a right to oppose – it follows as an obvious corollary of the first
proposition that a right to bring an application contemplates a right to oppose it.
Indeed in this case Astral has cited the Commission as a respondent. 2
The fact that a person who is affected by the variation order was not a party to
the original proceedings does not make a difference to the issue of standing to
oppose the application, but should rather be subsumed under the enquiry as to
whether they have grounds to oppose, an approach that we have taken in this
decision.
2 The Commission has not filed papers in the proceedings and according to Astral regards the
issue as one for the Tribunal to resolve/
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We find then that on a proper reading of section 66 alone the applicants are
entitled to intervene in the variation proceeding if they can demonstrate that they
are affected by the order sought to be varied.
We deal below with the argument that the applicants are precluded from
participation on the grounds that they were not participants in the merger
hearings.
However, we further find that section 53 also applies to this type of proceeding,
and it is wrong for Astral to argue that because section 66 is located in Chapter 6
it is immunised from section 53.
The order sought to be varied is an order made pursuant to a hearing in terms of
Chapter 3. If the rights of participation that section 53 affords apply to a hearing
that gave rise to the original order, it follows as a matter of logic and consistent
policy that those same rights apply to a procedure to vary that order. That being
the case the intervenors are entitled to argue their right to intervene is governed
by section 53(1)(c)(v), which, as we have observed before in our decisions 3,
affords a wide discretion to the Tribunal. What that interest is has been the
subject of debate in earlier cases, but we need not decide here what the correct
test of the interest is because if the applicants meet the most stringent test the
rest is academic.
b) Are there grounds for intervention?
Having decided that the Act allows parties to intervene in merger proceedings we
must decide now if the applicants have made out a case justifying their
intervention i.e. have they made out a case that they are either, affected by the
order (section 66 read in isolation) or that they have some threshold interest
(section 53 read with the rules).
It appears to be common cause that the purpose of the variation application is to
resolve in Astral’s favour the interpretation of our order and that this will have a
significant impact on the commercial dispute between the parties. Astral in its
significant impact on the commercial dispute between the parties. Astral in its
founding affidavit in the variation application states:
“Astral has accordingly been obliged to approach this Tribunal at this
stage, as a matter of urgency, for a variation and clarification of the
Tribunal order. Astral also seeks a declaratory order to ensure that there
can be no further misunderstandings by Daybreak and Mikes (or any
3 See IDC v Anglo American Holdings, Tribunal Case No 45/LM/Jun02 and 46/LM/Jun02
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other interested party) as to the nature and consequences of the Tribunal
order.” 4
Later, in its answering affidavit in the intervention application it states:
“ The fact that the order of the Tribunal would impact on them is a
consequence that would have been the case in any event. I respectfully
submit that this does not establish for them a direct and substantial
interest in the proceedings.” 5
Indeed if the order is amended as suggested by Astral then it would lead to an
interpretation of the order diametrically opposed to the one the applicants seek to
advance and wish to rely on in their commercial dispute. Without leave to
intervene in our proceedings they have no other forum in which to argue their
construction of our order. It requires little reflection to realise that the notion that
we could do so without giving them a hearing would be a serious misdirection
contrary to any of the most basic notions of justice and fairness.
That being so it is unarguable that the applicants have an interest in the variation
proceedings that meets the most demanding test of materiality and by necessary
implication means of course that they are affected by the order. Astral did not
seriously dispute this.
It remains for us to consider the central argument of Astral, which is that the
applicants have no interest in intervening in a proceeding now, that they did not
intervene in earlier. As we understand it, what Astral is arguing is that the order,
in the form as varied, is the very order that we had intended to give in our
decision of 16 April 2002. Had we been asked to make it in that form then we
would have done so at the time, and the applicants not being there, would not
have been heard, and would have had to accept the order as it was.
Why should they now be in any better a position today than they were on the day
the order was granted?
the order was granted?
There is some dispute about why the applicants were not intervenors in the
merger hearing before us in April 2002. We do not need to decide whether it is
because, as suggested by Astral that they were content with their contract under
the then prevailing market conditions or as the applicants suggest that they were
happy to leave matters to the Commission which had opposed the merger.
4 See paragraph 63.
5 Page 31 of the record, paragraph 16.
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The fact that the applicants were not before us previously for whatever reason
should not be decisive. What is decisive is whether they are affected or have an
interest in our order. We have found that they do and therefore are entitled to a
hearing.
Some of Astral’s fears, which perhaps motivated its opposition to the intervention
application, seem to be predicated on the concern that the scope of this
application may be unnecessarily widened if the applicants are allowed to
intervene. Certain passages in the applicants founding papers demonstrate that
they have an expansive notion of what their intervention will entitle them to bring
before us by way of evidence. In their founding affidavit, on page 18 of the
record, par 4.2, in the intervention application the applicants state:
“To assist the Competition Tribunal in resolving this matter it is proposed
that the intervening parties file an affidavit dealing with the material facts. I
am advised that it is necessary to fully explain the current market
conditions, set out the intentions of Mike’s and Daybreak in relation to
Midway and its role in the market, and to correct some of the factual
inaccuracies in Kingston’s affidavit. Should there be material disputes of
fact necessary for the determination of the matter, then the intervening
parties seek leave to participate in the proceedings to hear such evidence
as may be called to resolve the disputes of fact.” (Our emphasis)
We questioned their counsel about this at the hearing and he was astute to
assure us that the evidence would be less extensive than it might seem from the
papers and that it was merely necessary to explain the context. Indeed, as he
pointed out, Astral in its own papers had spent much time on setting out the
context of the application.
context of the application.
Nevertheless we are confined to inquiring into whether our order is ambiguous
and if it is, how it should be remedied. To answer these questions necessitates
argument about what was originally intended and for this purpose the record of
the original proceeding suffices. Evidence about what is happening in the market
now, although interesting background to explaining why the application has come
about, is not relevant to resolving these questions.
In their founding affidavit the applicants make out a case for opposing the
variation. For this reason we find that they are entitled to the ordinary rights
accorded to a respondent in application proceedings, the right to file answering
papers and to present written and oral argument. They further ask that if the
order is ambiguous, a fact that they deny, they should then be allowed to
propose a declaratory order to the effect that the conditions necessarily
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terminated the existing supply contracts. 6
We will allow the applicants to do so, if they deem it necessary, but if they do
they must bring a counterapplication setting out their proposed variation of the
order. However, the applicants are not entitled to adduce evidence on current
market conditions, save to the extent that they need to do so in order to respond
to any allegation made out in the founding papers.
ORDER
1. The applicants are granted leave to intervene in the application brought by
Astral Foods Limited in terms of section 66(1)(b) of the Competition Act, for
clarification and/or variation of the order made by the Competition Tribunal in
Case No 69/AM/Dec01, (the ‘variation application’).
2. The intervention is subject to the following conditions:
2.1. The applicants will be accorded the same rights as a respondent in
application proceedings in order to oppose the variation application;
2.2. The applicants will be entitled to bring a counterapplication to apply to
vary the conditions in the order in Case No 69/AM/Dec01, referred to as
the Broiler conditions;
2.3. The answering affidavit and counterapplication, if any, must be filed
within 10 business days of this order;
2.4. Any further filings by either party will be subject to the time periods for
that type of affidavit set out in Rule 42 of the Tribunal rules;
2.5. the variation application and any counterapplication will be heard at the
same time;
2.6. That if the applicants adduce evidence of current market conditions that it
be confined to factual allegations concerning the context of the variation
application or counterapplication.
3. The applicants are awarded the costs of the intervention application, which
include the costs occasioned by the employment of two legal representatives.
20 February 2003
N. Manoim Date
6 See paragraph 4.1 of the applicants founding affidavit page 18.
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Concurring: D. Lewis and P. E. Maponya
For Respondents Attorneys Sonnenberg Hoffman Galombik: R Wilson. Council
P Hodes and P Farlam
For Applicants Espag Hatting: BD Hattingh. Council :D Unterhalter and A Gotz
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