IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 69/AM/Jul07
In the matter between:
AC Whitcher (Propriety Limited Applicant
and
The Competition Commission of South Africa First Respondent
MTO Forestry (Proprietary) Limited Second Respondent
Boskor Saagmeule (Proprietary) Limited Third Respondent
Boskor Ripplant (Proprietary) Limited Fourth Respondent
Panel : D Lewis (Presiding Member), Y Carrim (Tribunal Member), and
M Mokoena (Tribunal Member)
Heard on : 28 August 2008
Reasons issued on : 10 December 2008
REASONS FOR DECISION
Introduction
1. In this application, the applicant A C Whitcher (Proprietary) Limited (“AC Whitcher”) seeks to
review a decision of the Competition Commission of South Africa (“the Commission”) to
approve an intermediate merger between MTO Forestry(Proprietary) Ltd, Boskor
Saagmeule (Proppreitary) Limited and Boskor Ripplant (Proprietary) Limited (“together
referred to as Boskor”).
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2. The application is the first of its kind at the Tribunal and was brought in terms of section
27(1) (c) of the Competition Act which states 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.
3. The applicant relied on a recent decision of the Competition Appeal Court, TWK Agriculture
Ltd v The Competition Commission (“TWK matter”) 1 in which the court held, having regard
to the provisions of s27(1)(c), that parties wishing to review decisions of the Competition
Commission should approach the Competition Tribunal before approaching the CAC.
4. At the time of the hearing of this matter the merging parties; second and third respondents,
were concerned that a pending decision in Johnnic Holdings Limited v Commission
(“Johnnic matter”)2 may have a bearing on the issue of jurisdiction and asked the Tribunal to
await that Court’s decision before accepting that it had the requisite jurisdiction. Since then
the CAC has decided that the Tribunal enjoyed review jurisdiction in that matter on the basis
that it raised only constitutional issues and not pure competition issues. 3 While the CAC did
not elaborate further on what would constitute pure constitutional reviews or pure
competition reviews, it nevertheless confirmed that this Tribunal, under s27 (1), enjoys
jurisdiction to review decisions of the Commission in matters of the kind such as the current
application before us.4
Background
5. The decision by the Commission involved an intermediate merger between MTO and
Boskor. The primary acquiring firm MTO is an integrated forest company which operates
forests and saw mills in the Eastern and Western or Southern Cape regions of the country.
Cape Timber Resource (Pty) Ltd owns 75% of MTO, the balance of the shares being owned
by South African Forestry Company Ltd (“SAFCOL”). The primary target firms are Boskor
by South African Forestry Company Ltd (“SAFCOL”). The primary target firms are Boskor
1 67/CAC/Jan07
2 69/CAC/Mar07
3 The Court distinguished the Johnnic matter from the TWK matter in para 35.2 where it states that
the Johnnic review was brought on constitutional grounds and the TWK matter concerned pure
competition issues
4 In TWK matter the applicants similarly sought the review of the Commission’s decision relating to an
intermediate merger
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which operates saw mills in the Tsitsikamma region in the Eastern Cape. MTO sought to
fully acquire the business and assets of Boskor sawmills located in this region. Until the
merger, Boskor was MTO’s largest customer. Since MTO also operates saw mills, the
merger transaction for the purposes of competition analysis, had both horizontal and vertical
dimensions.
6. The merger was notified to the Commission on or about 12 December 2006. The
Commission unconditionally approved the merger on 14 March 2007 and released a
summary of its findings. The Commission’s record of its investigation, which it had provided
to this Tribunal for purposes of this application, consisted of some over 1000 pages.
7. The applicant operates a saw mill in Tsitsikamma and is a competitor of the merging parties
as well as a customer of MTO, the acquiring firm. The applicant was opposed to the merger
and conveyed its objections to the Commission during the period of investigation. It had
held several meetings with the Commission and had also provided the Commission with a
report prepared by an industry expert Mr David Crickmay. What became clear through
these proceedings was that the applicant had been a rival bidder to acquire the assets of the
third and fourth respondents, the target firms in the merger transaction.5
8. When the merger approval was announced, the applicant wrote to the merging parties in
which it stated that it was considering seeking a review of the Commission’s decision on an
urgent basis.6 However the review application was only filed on 5 July 2007. In its notice of
motion one of the prayers sought by the applicant was that it be granted access to the
Commission’s record which it had not yet had sight of at the time of the application. The
Commission granted the applicant access to the record on 25 September 2007. The
applicant then filed a supplementary affidavit with this Tribunal on 23 November 2007.
applicant then filed a supplementary affidavit with this Tribunal on 23 November 2007.
Annexed to the supplementary affidavit was a second report by Mr Crickmay prepared for
the purposes of review, and which therefore was never available to the Commission when
the impugned decision was taken. The matter was heard on 28 August 2008. The applicant
did not seek the Tribunal’s leave to file the supplementary affidavit or Mr Crickmay’s report.
Summary of parties’ submissions
5 See pg. 4 of the second, third and fourth respondents’ heads of argument
6 See annexure DR8 of the merging parties’ answering affidavit
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9. In this application, the applicant relies on the principles of the common law right to fair
administrative justice, alternatively on the provisions of the Promotion of Administrative
Justice Act 2000 (“PAJA”), further alternatively on section 33 of the Constitution of the
Republic of South Africa.
10. On the merits the applicant seeks to review the Commission’s decision on a number of
grounds alleging that the Commission in conducting its investigation and making the
decision to approve the merger without conditions, was materially influenced by an error of
law, failed to take relevant considerations into account, acted arbitrarily, acted in a manner
which was not rationally connected to the information before it and/or in exercising its power
to approve the transaction, acted so unreasonably that no reasonable person could have so
acted.
11. The merging parties objected to the applicant’s pleadings on the basis that they were too
broad and vague and that the applicant was required to provide an explanation for the delay
in bringing this application. In its reply and at the hearing, the applicant asked the Tribunal
to consider three aspects of the Commission’s decision in order to assess whether there has
been a reviewable irregularity namely; the Commission’s finding of the relevant geographic
market for sawn timber, the Commission’s finding that the merging parties would have no
ability and no incentive to engage in foreclosure strategy and the Commission’s finding that
the applicant’s reduced supply was not merger specific but as a result of the fire that had
destroyed a significant portion of the log supply.
12. The applicant argued further that the Tribunal should have regard to the grounds listed in
PAJA, but that unlike the High Court, this Tribunal should, by virtue of its expertise and
statutory role be more willing to intervene in the decisions of the Commission.
statutory role be more willing to intervene in the decisions of the Commission.
13. The respondents raised a number of preliminary points. The primary point relied upon by
them was that the applicant had delayed unreasonably in bringing the review application
and the Tribunal ought to dismiss the application on this basis. We deal with the issue of
unreasonable delay later in these reasons.
14. The second point revolved around the application of PAJA in respect to issues of standing,
exclusion and procedure. The existence of a statutory remedy has often been regarded by
our courts as replacing or ousting the usual common law remedies of judicial review which
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are now provided for in PAJA. 7 This issue however was not taken any further in argument.
We accept for purposes of deciding this matter that the grounds of review in section 6 of
PAJA apply here. Nor was the issue of the applicant’s standing taken any further.
15. It is significant to note that the applicant does not enjoy the right of appeal from merger
decisions of the Commission under the Competition Act, a right enjoyed only by merging
parties. The underlying rationale for this probably lies in the nature of merger regulation and
does raise the question whether a decision of the Commission, which may at best have
some economic, but not legal, effect on a market or a competitor in that market, falls within
the type of administrative decisions contemplated in PAJA. However this matter remains to
be decided on another day.
16. Section 7(1) of PAJA provides that review proceedings may be instituted only after the
applicant has exhausted domestic or internal remedies. We deal with this issue in more
detail later.
Grounds of review
17. As a first ground of review the applicant alleged that the Commission had committed an
error of law in misconception of the relevant economic standard applicable to the analysis of
vertical mergers and to the question of vertical foreclosure. As a second ground of review
the applicant alleged that the Commission in concluding that there were no foreclosure
concerns had arrived at a decision which was unreasonable. Specifically it alleged that the
Commission’s basis for arriving at the definition of the relevant geographic market was
irrational in that it had taken into account irrelevant factors and ignored relevant factors. Its
assumption regarding the 100 000 cbm of logs in relation to the calculation of market shares
was also irrational. We deal with this latter ground first.
Reasonableness test
7 See in this regard the discussion in Cora Hoexter et al, Administrative Law Vol II, I Currie (ed) Juta
2002 at 300-302
2002 at 300-302
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18. Since the introduction of the right to fair administrative justice in section 33 of the
Constitution,8 the grounds of review that were previously applied by the High Courts have
been extended to include reasonableness as a separate ground of review. Prior to that at
common law reasonableness was always an element of irrationality. PAJA was
promulgated to give legislative effect to the right contained in section 33. 9 The applicant
argued that because the notion of reasonableness was introduced as a separate ground of
review, the distinction between review and appeal has been blurred and this required the
Tribunal to consider the substantive aspects of the Commission’s decision so as to decide
on its reasonableness.
19. The reasonableness yardstick has always been the most controversial ground of review in
South African administrative law. 10 Hoexter suggests that reasonable administrative action
implies a decision that is ‘structured’ in a rational fashion, must broadly be supported by the
evidence and information before the administrator and the reasons given for it, must be
objectively capable of furthering the purpose for which the power was given and must be
proportional.11 Reasonableness has also been equated with “justifiability”. 12
20. Many commentators and courts alike have argued for a cautious approach to the degree of
reasonableness required so as to avoid the conflation between the “judicial review of
administrative action and the judicial exercise of administrative decisions”.13 This is because
there is a substantive distinction between a review and an appeal of administrative
decisions. An appeal involves a reconsideration of the matter as a whole and represents a
second opportunity for parties directly affected by the outcome being challenged. In a
review the enquiry is focused on the manner in which or the process in which a lower court
or a functionary arrived at the decision.
or a functionary arrived at the decision.
8 Constitution of the Republic of South Africa, 1996. Section 33 (1) states that everyone has the right
to administrative action that is lawful, reasonable and procedurally fair
9 See s33(3) of the Constitution
10 See the discussion in Hoexter, The New Constitutional & Administrative Law at 177 - 178 and Baxter,
Administrative Law at 480 -487
11 Hoexter 181-183
12 Hoexter 179
13 Hoexter 183. See also Carephone (Pty) Ltd v Marcus NO 1998 (11) BLLR 1093 LAC
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21. In Rustenberg Platinum Mines Ltd v CCMA & Others14, the court stated the following:
“…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…In a review the
question is 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…”
22. Put another way, in review proceedings, the relevant question is not whether the decision-
maker made the correct decision but whether it made a reasonable decision..
23. The significance of this test and the distinction between the two cannot be more
emphasized: -
“The right of appeal may be thought of as a second-chance: an opportunity to have
one’s case heard a second time by a new decision-maker with the possibility of a
different decision being reached…Review by contrast is not concerned with whether
the decision was right or wrong but whether the way the decision was reached is
acceptable….The focus of review is not the decision itself but on the process of
arriving at it.” 15
24. Our courts have consistently shown a high degree of respect for and have seldom set aside
administrative decisions which are made in accordance with policies, guidelines or
legislation which seeks to balance a number of competing objectives or interests and where
there is a clear allocation of powers to an administrative body. Courts are unwilling to set
aside such decisions, not because of the degree of complexity of the decision, but because
they seek to uphold the separation of powers between the different arms of government and
to give finality to administrative decisions of functionaries who are expressly granted the
to give finality to administrative decisions of functionaries who are expressly granted the
discretion to make complex decisions. Nor have our courts ever relied on their own
expertise as a basis for justifying a lesser degree of respect towards decisions of
functionaries.
14 [2006] JOL 18359 (SCA) at para 30-31
15 Hoexter 64
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25. In Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and others 16, O’ Regan J
emphasized that it is essential for a court to show the appropriate level of respect for
decisions for administrative agencies entrusted with discretion by the legislature and not to
usurp the function of the administrative agency:-
“… A decision which requires an equilibrium to be struck between a range of competing
interests or considerations and which is to be taken by a person or institution with
specific expertise in that area must be shown respect by the courts.”17
26. In that matter the Court held that the reasonableness of a decision will depend on the
circumstances of each case. Factors relevant to deciding whether the decision is
reasonable or not “ wil l includ e the nature of the decision, the identity and expertise of the
decision-maker, the range of factors relevant to the decision, the reasons given for it, the
nature of the competing interests involved and the impact of the decision on the lives and
well-being of those affected”. 18 This is clearly not a numerus clausus of factors to be taken
into account.
27. The Competition Act expressly grants the Competition Commission the discretion to
investigate and decide intermediate mergers. 19 The evaluation of intermediate mergers
requires the Commission to determine whether a transaction will lead to lessening or
prevention of competition. Section 12(A) (2) provides guidance to the Commission as to the
relevant factors it should take into account when making this determination. The
Commission is required to consider factors relevant to competition including the
characteristics of the product itself, the market, the level of import competition in that market,
the ease of entry in that market, the history of the collusion or co-ordination between firms in
that market, whether there has been a history of failures, the extent of vertical integration,
whether absent the merger a firm will fail, whether the merger will result in the removal of an
effective competitor and whether there are any efficiency or pro-competitive grounds for
approving the transaction.
16 2004 (4) SA 490 (CC)
17 ibid at para 48.
18 Ibid at para 45.
19 Section 14 Competition Act, 1998
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28. This is clearly not an exhaustive list of factors but any additional factors taken into account
by the Commission must be relevant to competition. These factors are typical of those that
an agency engaged in merger analysis would have regard to and in accordance with
international best practices.20
29. The Act does not prescribe what relative weighting the Commission should allocate to these
factors, nor does it require the Commission to consider all of these in one particular
transaction. It requires the Commission to consider a conspectus of factors in the context of
the market dynamics prevailing at the time and in the circumstances of a particular
transaction. In addition section 12A (3) provides that the Commission may also have regard
to a limited number of public interest grounds when making its final determination. These
are not considered to be traditional competition criteria but permit the Commission to
approve a merger on public interest grounds even if such a transaction could have adverse
effects on competition or to prohibit a merger which may not be anti-competitive.
30. Hence it does not follow that a merger resulting in a large post-merger market share or
dominance of the merged entity will inevitably be prohibited or a merger that results in a low
accretion of market share will be approved. Nor does the evaluation consist of a mere
calculation of pre-merger and post-merger market shares. It involves a complex analysis
and weighing up of factors not limited to those listed in 12A(2) but relevant to competition in
that market. The more complex the transaction or the markets involved, the more complex
the analysis. The analysis also involves a consideration of complex economic theories
seeking to explain the impact of the merger on the incentives of the merging firms, its
competitors and customers. Moreover, the lessening of competition must be substantial and
not insignificant.
not insignificant.
31. Central to this enquiry is the definition of the relevant market. Because competition effects
can only be measured with reference to defined product and geographic markets, it is in this
area that we find the greatest contestation between the agencies on the one hand and
merging parties on the other hand. Parties making submissions to the Commission always
seek to define the relevant market as widely as possible so as to demonstrate that their
transaction will have no or minimal impact on competition in the relevant market. Objectors
or competitors of the merging parties may seek to define the relevant market as narrowly as
20 See Hovenkamp, Fundamentals of antitrust law, Chapter 9, ICN Merger Guidelines, US Merger
Guidelines, EC Merger Guidelines, and, Kovacic, Antitrust Law and Economics in a Nutshell, 5th ed,
Chapter IX
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possible so as to justify their concerns. The more differentiated the product the harder it is
to define the outer boundaries of the relevant market.
32. The Commission is required to investigate these claims and does that through a variety of
information gathering methods. 21 In its investigation the Commission may from time to time
utilise complex economic theories and models as analytical tools in order to better
understand the behaviour and incentives of enterprises in a relevant market.
33. A peculiar aspect of merger regulation is that it is predictive in nature. It requires
competition agencies to look back in history and predict, on the basis of the evidence before
them, not on mere speculation, whether the merger is likely to have anti-competitive
consequences. This predictive element of merger regulation has often given rise to
concerns that there may be too much room for agencies to commit errors in which they may
prohibit mergers that are unlikely to lead to anti-competitive findings, referred to as type I
errors, and approve mergers that are likely to adversely impact on competition referred to as
type II errors. However it is accepted, given the predictive nature of merger regulation and
weighing up of a myriad of factors, and where information flow is often asymmetric, that
agencies may at times arrive at an incorrect decision. In South Africa, this concern is
somewhat mitigated by the fact that the Commission does not arrive at its merger decisions
without soliciting the views of a range of industry players and examining a wide array of
documents and econometric evidence.
34. The Commission’s usual practice, is to allocate a transaction to a lead investigator, obtain
information from merging parties, solicit the views of customers and competitors of the
merging parties, receive information from a variety of industry sources, receive or solicit
merging parties, receive information from a variety of industry sources, receive or solicit
views from industry experts, obtain and review internal strategic documents of the merging
parties, submit the information received to its own economists for analysis and at times
conduct in loco inspections at the merging parties operations. In more complex transactions
it may also procure the assistance of industry and economic experts alike. In this process
the Commission engages directly with a range of people and evaluates reams of data put
before it in order to make findings of fact and law. It arrives at a decision by having regard
to a myriad of factors and weighing up competing objectives of the Act.22
21 See in general decisions of the Tribunal dealing with factors taken into account when defining
relevant markets, more specifically JD & Ellerines 78/LM/Jul00
22 See the objects of the Act in the preamble and section 2 dealing with the purpose of the Act
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35. The manner in which the Commission arrives at conclusions about each of the relevant
criteria is informed by the jurisprudence of experienced and established competition
agencies in the United States and Europe, international best practices developed by the
lawyers and economists alike.
36. It is the Commission, as the investigator, who gathers information, conducts interviews,
conducts visits to the operations of merging parties and competitors alike, peruses internal
strategic documents, gathers econometric evidence and through this process develops
insights into the issues and the people pertaining to the transaction.
37. Given the complex nature of the decision and the fact that the Commission exercises its
discretion through direct engagement with issues of fact, law and economics, this Tribunal
would be inclined to show a high degree of respect for the decisions of the Commission and
would only be inclined set aside decisions of the Commission in circumstances of a grave or
palpable error. Such an approach would be in accordance with the guidelines developed
by our courts and similar to that adopted in jurisdictions such as the European Union (“EU”)
where the Court of First Instance (“CFI”) has granted the European Commission (“EC”) a
margin of appreciation and would not set aside a decision unless there was some grave or
manifest error or procedural illegality. 23 Such an approach would not be dissimilar to that
adopted by the Competition Appeal Tribunal in Co-operative Group (CWS) Ltd v Office of
Fair Trading in which it was held that while the OFT must exercise its powers reasonably
and proportionately, it enjoys a broad margin of assessment. That court went on further to
state that the fact that the OFT “could have adopted a different decision does not in itself
show that the alternative it did adopt was unreasonable”.24
38. The Commission’s investigation of this particular transaction involved a high level of
engagement and interaction. The Commission’s report shows that it had taken a number of
factors into account, had solicited the views of customers and competitors alike, had
gathered econometric evidence, had reviewed internal strategic documents of the merging
parties, and had repeatedly engaged with all relevant stakeholders, including industry
experts such as Mr Crickmay. All of the information and data gathered was subjected to
23 See Nicholas Levy, “Evidentiary Issues In EU Merger Control” article presented at the Fordham 35th
Annual Conference on International Antitrust Law and Policy, September 2008. See also Tetra Laval
BV v Commission of the European Communities Case T-5/02 ( ECR 2002 ii-04381), and MyTravel v
Commission Case T-212/03
24 Competition Appeal Tribunal case no 1081/4//1/07 para 180- 182
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legal and economic analysis. In its report it dealt at length with the concerns raised by a
number of sawmillers, including the applicant. The Commission did not merely gather this
information from the comfort of its offices but held meetings with several players in the
timber and sawmill industry 25 and conducted in loco inspections of the merging parties
operations.
The Commission’s Competition Analysis of the merger
39. The Commission’s definition of the relevant market demonstrates that it did not simply adopt
the merging parties’ definition but instead formed its own view. 26 In defining the product
market and the relative market shares, it considered submissions made to it by various
parties, including the applicant, and considered various other upstream and downstream
markets before deciding the relevant market as that of sawn timber. 27 In its report it also
dealt with the differences in the figures supplied by the various parties, including the
applicant’s own expert.28
40. In its computation of the relevant market shares, the Commission, had excluded 100 000
cbms logs from the open market, a shortage caused by the fire in the Tsistikamma region.
This decision of the Commission had drawn intense criticism from the applicant. The record
reveals that a fire had in fact taken place at MTO’s forests and that the Commission had
repeatedly engaged with the merging parties before accepting the figure itself. The
Commission’s exclusion of the quantity was based on the fact that it took into account both
demand and supply side factors in its analysis. This approach is not inconsistent with
established principles of market definition where factors impacting upon the supply of input
goods or services on the open market are taken into account. 29 Thus goods that have
historically been supplied for own use rather than for the open market may be excluded or
historically been supplied for own use rather than for the open market may be excluded or
excess latent capacity to produce more goods could be included. In markets which are
vulnerable to extreme weather conditions factors such as fire, flood or drought would be
highly relevant to take into account.
25 See record 648-657
26 See record 1278- 1286
27 See record 1177-1178, 1290
28 See record 1289 -1291
29 See supra fn20 Hovenkamp Chapter 9, Kovacic Chapter 9 and Whish “Competition Law” 5th ed
Chapter 20 and 21
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41. In the case of the forestry sector and the market for logs, shortages due to fires can have a
significant impact on the total volume and quality of logs for a sustained, rather than a
temporary period of time since forests take an average of 20-25 years to mature. The
Commission took reasonable steps to verify the fact of the fire and its likely impact on supply
in the region by visiting the merging parties’ operations, engaging with its operational
employees and meeting with competitors and customers alike. The Commission’s decision
to exclude the 100 000 cbms shortage and its assessment of the impact of the fire on the
supply of is therefore not in the circumstances of this case unreasonable.
42. In defining the geographic market, the Commission had regard to factors such as transport
costs, prices, supply and demand balances in different regions, sales and production data
between regions. Transportation of large and heavy goods such as felled trees is usually
considered to act as a limiting factor on the geographic extent of the market because of the
high costs associated with it and the need for adequate rail and road infrastructure. Given
the shortage caused by the fire in the Tsistikamma region, the ease or difficulty of imports
into that region was highly relevant to an assessment of the availability of supply in that
region and not unreasonable.
43. The Commission had dedicated approximately 13 pages of its analysis to the issue of
vertical input foreclosure. In its investigation the Commission had solicited extensive
submissions from large and small firms alike in a fair amount of detail and had dealt with
these concerns in its report in quite some depth. However it had dealt with these at the
general level of “input foreclosure” rather than with specific types of foreclosure such as
refusal to supply, raising rivals’ costs or quality degradation. The applicant argued that the
fact that the Commission’s report made no mention of its concern around log mix (quality
degradation) demonstrated that it had not given due regard to the applicant’s foreclosure
concerns.
44. In our view the Commission’s analysis demonstrates that it had no need to deal with each
and every possible type of input foreclosure in its report precisely because it had discounted
these on the basis that the concerns were not merger specific. Given the factual matrix of
the case, this is not an unreasonable conclusion to arrive at. MTO was already present in
the upstream and downstream markets prior to the merger and the fire had caused severe
shortages of logs available to sawmillers on the open market, as opposed to those under
contract from MTO. In the applicant’s case, the shortages on the open market as a result of
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the fire were likely to have a significant impact on its business because a large part of its
supply of logs was obtained on the open market. 30 The Commission’s approach of
comparing MTO’s ability to foreclose prior to the merger to that of the merged entity’s ability
to do so post merger is also in accordance with established merger analysis. As stated
above merger analysis has a predictive element to it but that prediction must be based on
the evidence before the Commission and not on mere speculation. Moreover the
Commission is required to assess a particular transaction’s likely impact on competition. In
that sense the harm to competition must be merger specific. There is nothing to suggest
that the Commission engaged in any form of speculation or that it was biased or arrived at
its conclusions without regard to established approaches to merger analysis. 31
45. In our view the Commission has come to its conclusions in a reasoned manner and took all
reasonable steps to test the theories of harm proposed by the applicant and the other
objectors against the factual evidence put before it and gathered by it in the course of the
investigation. The Commission may have come to a wrong conclusion about the extent of
concentration in the relevant markets or that foreclosure was not merger specific. However
the correctness of the Commission’s conclusions would more appropriately be the subject of
an appeal and not of this enquiry.
Error of law as a ground for review
46. Mr Unterhalter appearing on behalf of the applicant argued that the Commission by
assuming that vertical mergers are efficiency enhancing committed an error of law. He
relied on the decision of the CAC in the appeal of Mondi-Kohler Ltd and Kohler Cores &
Tubes32 to support the contention that the “relevant economic standard” in South African
merger analysis is not the theoretical model developed by the Chicago School, and that the
merger analysis is not the theoretical model developed by the Chicago School, and that the
30 The applicant obtained 28 500 (twenty eight thousand five hundred) cubic meters logs under contract
from MTO. See clause 2.1 of the contract, pg. 156 of the record. In the open market it obtained
supplies of approximately 45 000 (forty five thousand) cubic meters logs. See pg 27 of the transcript
31 This much was conceded by the applicant’s counsel in argument
32 20/CAC/Jun02
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Commission committed an error of law by concluding that the merger would not lead to a
substantial lessening of competition on the basis of this efficiency enhancing assumption.
47. This argument is completely without merit. As discussed above, economic concepts and
economic theories play a critical role in competition regulation in that they seek to explain
the behaviour of firms and markets. To suggest that a particular theory, whether current or
historical, is to be treated as the “relevant standard” is to conflate that particular economic
theory with the relevant legal standard. The legal standard according to which mergers are
to be evaluated under our Act is whether a transaction is likely to lead to a substantial
lessening or prevention of competition in a particular market by having regard to a number
of factors, the extent of vertical integration being only one of these.33
48. In this legal enquiry, many economic theories could be advanced as to why a particular
transaction may or may not lead to a lessening of competition. The Commission in
considering these theories is required to test these against the details of the particular
transaction and the evidence it has gathered. Indeed this is precisely what had taken place
in this case. It is clear from the Commission’s report that it did not leap to its conclusion
merely by a consideration of the vertical concerns or an assumption of efficiency. Instead it
considered the economic theories put forward by both the merging parties and the
intervenors alike, tested these against the facts of this case and concluded that either of
those scenarios were [theoretically] plausible but were not merger specific.34
49. The Commission’s investigation did not stop there but went on to investigate a range of
other relevant factors listed in section 12A including barriers to entry, countervailing power,
efficiencies and concerns about collusion, all of it in accordance with the approach to merger
regulation confirmed by both this Tribunal and the CAC in the Mondi case.35 It is noteworthy
to point out here that the Mondi case involved an appeal brought by the merging parties
against a prohibition of the Tribunal. The Court in that case did not elevate any specific
economic theory to the relevant legal standard to be applied by the agencies nor did it
establish a “relevant economic standard” by which vertical mergers should be investigated.
Indeed the Court confirmed the role that economic theory can play, as an analytical tool in
33 In other jurisdictions, dominance or particular market share may be the legal standard to evaluate a
particular transaction
34 Record 1303
35 Para 23. See also JD Ellerines case supra fn 22
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merger analysis, but cautioned the appellant in that case against relying too heavily on
economic theories which have been developed under limited assumptions or in a different
legal and economic context.36
Unreasonable delay
50. The respondents argued that the applicant delayed unreasonably in launching this
application and questioned the applicability of PAJA in this application. Mr Unterhalter
conceded that there may be some uncertainty about whether or not PAJA applied. He
argued that while the applicant relied upon section 27(1) (c) as the statutory threshold for
launching its application it nevertheless relied on the provisions of section 7(1) of PAJA.
Because the applicant was relying on PAJA it was entitled to bring such application within
180 days of the Commission’s decision, as provided in section 7(1) of PAJA and accordingly
was not out of time. He nevertheless referred the Tribunal to the explanation provided by
the applicant in its reply for the delay.
51. Section 7(1) of PAJA provides that review proceedings must be instituted without
unreasonable delay and not later than 180 days after domestic or internal remedies have
been exhausted.
52. While the Tribunal rules prescribe the time limits within which a request for reconsideration
of a small or intermediate merger should be filed with it,37 the rules do not prescribe any time
periods within which a review application should be brought before it. Tribunal rule 55
provides that where there is procedural uncertainty, the Tribunal may have regard to the
Uniform Rules of the High Court. Review proceedings are governed by rule 53 of the High
Court which also does not prescribe time limits within which review proceedings ought to be
launched. Where there are no time frames specified it is well established that a review
application must be brought within a reasonable time. 38
application must be brought within a reasonable time. 38
53. In our view the applicant, if it seeks to rely upon section 27(1) (c) and the CAC decision in
the TWK matter to approach this Tribunal, must necessarily rely on the rules of procedure of
36 At para 44-46
37 See section 16(1) and rule 32 (1) which provides that a request for reconsideration should be filed
within 10 business days of the Commission’s decision in a small or intermediate merger.
38 See Harms “Civil Procedure in the Supreme Court” at B53.21 and the cases cited there under
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this forum. Hence it cannot rely on the outside limit of 180 days provided for in PAJA. Since
the Tribunal rules do not prescribe the time frames for bringing the review application, the
applicant was entitled to rely on rule 53 of the Uniform rules and was required to bring this
application within a reasonable time.
54. Put another way, had the Tribunal rules prescribed the time frames for a review application,
the applicant would have had to comply with those, failing which it would have had to ask
the Tribunal to condone its non-compliance. Since the Tribunal rules do not prescribe time
frames, the matter must necessarily be dealt with under Tribunal rule 55 and by
incorporation rule 53 of the Uniform Rules of Court which provides that an application for
review must be brought “within a reasonable time”.
55. Even if we are wrong on this point, the provisions of section 7(1) of PAJA provide that
review proceedings should be launched “without unreasonable delay and in any event not
later than 180 days after the date on which the applicant became aware of the action and
the reasons for it”. The use of the word “and” in the section does not give an applicant a
choice between “without unreasonable delay” and “180 days”. Notwithstanding the fact that
the section places an outer time limit of 180 days in which an application should be
launched the injunction in PAJA is to launch proceedings without unreasonable delay within
that very same time limit. The notion of “unreasonable delay” is not defined in PAJA.
Accordingly we are entitled to turn to the common law to give meaning to this provision.
56. Our courts have held that what is reasonable depends on the circumstances of each case.
Where it is alleged that the applicant has failed to institute proceedings within a reasonable
period of time the court has to decide whether the proceedings were in fact instituted after
period of time the court has to decide whether the proceedings were in fact instituted after
the passing of a reasonable period and if so whether the unreasonable delay ought to be
condoned. The former enquiry is a question of fact. In regard to the latter the court
exercises a judicial discretion with regard to all the relevant circumstances.39
57. In Associated Institutions Pension Fund v Van Zyl 40, the court stated there is a duty on
applicants not to take an indifferent attitude but rather to take all reasonable steps available
to them to investigate the reviewability of administrative decisions adversely affecting them.
39 See supra fn 38 Harms B53.21
40 2005 (2) SA 302 (SCA) at para 51
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58. In Chairperson: Standing Tender Committee and Others v JFE Sapela Electronics (Pty) Ltd
and Others41 the SCA confirmed the approach taken by the Court in Associated Institutions
Pension Fund matter and held that the object of the rule was not to punish the party seeking
the review but, quoting from Associated Institutions at para 28, was two-fold namely :-
“Firstly, the failure to bring a review within a reasonable period of time may cause
prejudice to the respondent. Secondly, there is a public interest element in the finality
of administrative decisions and the exercise of administrative functions”42
59. In the Sapela case the Supreme Court of Appeal held that under the rubric of the public
interest referred to above, the court would include considerations of pragmatism and
practicality.43
60. The applicant is a competitor of the merging parties and by all accounts has been involved
in the business of saw milling for some years and has demonstrated that it is well
acquainted with the competitive landscape in the Tsitstikamma area. The applicant was
intricately involved in the Commission’s investigation from inception. It appears that the
applicant sought legal advice at an early stage of the Commission’s investigation and was
represented at all material times by a firm of attorneys specializing in the field of competition
law. It also sought the advice and assistance of an industry expert, Mr Crickmay and
submitted a report prepared by him to the Commission as part of its comments on the
possible competition harm that the merger could lead to.
61. What is obvious from the time, effort and expense incurred by the applicant in this process is
that it considered the matter of grave importance for its business. Given this the applicant’s
explanation that Mr Ritchie was unavailable in northern Mozambique and a decision could
not be taken without him seems incredible. Mr Ritchie could have flown or even driven
not be taken without him seems incredible. Mr Ritchie could have flown or even driven
home, northern Mozambique not being that far or remote as suggested by the applicant.
Indeed such a discussion could also be held on the telephone.
62. The second reason proffered by the applicant which is that it was understood in the industry
that the merger had hit a snag is also rejected as a basis for delaying the review. We are
not told what this “snag” is and whether it involved some disaffection between the parties or
41 [2005] 4 All SA 487 (SCA)
42 See also Associated Institutions at para 46
43 See Sapela supra fn 41 at para 29
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reconsideration by the seller or whether in the applicant’s view it was of a kind that
warranted a wait and see attitude. For all we know the “snag” may have been a mere
technicality. On the basis of mere gossip and rumour the applicant, despite predicting dire
consequences for itself should the merger be approved by the Commission, simply folded its
arms and waited.
63. The third basis for the delay appears to be the uncertainty in the law whether review
proceedings ought to be brought in the Tribunal or the CAC. Mr Scott does not indicate at
what point in time the applicant debated this point with its attorneys. This uncertainty does
not seem to bedevil the attorneys when they remitted the letter to the merging parties
asserting that their client intended to bring “urgent review proceedings in the Competition
Tribunal”.44
64. Mr Unterhalter suggested that through the very same correspondence the merging parties
were notified of the applicant’s intention to bring review proceedings and ought not to have
implemented the merger. In that letter the applicant proclaims its intention to bring urgent
proceedings against the decision of the Commission but does not ask the merging parties to
desist with the implementation. It merely suggests that they limit the extent to which they
implement the transaction. How were the merging parties expected to understand this
suggestion? We would have expected the applicant, given its active involvement in the
Commission’s investigation, and the very prejudice that it proclaimed it might suffer, to have
at the very least sought interim relief preventing the merging parties from implementing the
merger. Instead the applicant merely requested the merging parties not to rush ahead with
the implementation, sat back, bided its time and sought to hedge its bets through
correspondence.
65. The merging parties on the other hand were entitled to ignore the applicant’s request not to
implement the merger. If every merger was halted by the mere threat of review or appeal
being made in correspondence by a jilted suitor or competitor the entire rationale for merger
regulation in the economy would be defeated and the work of the competition agencies
would forever remain suspended.
66. As far as the filing of the supplementary affidavit is concerned, the applicant submits that
they required Mr Crickmay’s input and had to wait until he had looked through the record of
proceedings. The status of the supplementary affidavit remains uncertain since the parties
44 See pg. 104 of the transcript
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came to an agreement among themselves. 45 However the consequence of the agreement
was that the hearing of this matter could only be set down until after the supplementary
affidavit was filed. Needless to say that Mr Crickmay had been integrally involved in the
matter – both on behalf of the applicant and the Commission– and from all accounts was
very well acquainted with all of the issues in the case. Seemingly he would not have
needed to look at anything more than the Commission’s recommendation and perhaps the
views of some of the other competitors which he may not previously have seen which he
could have easily done in a week, given the urgency and alleged seriousness of the matter.
67. The merging parties have gone some way in implementing this merger. They have already
taken steps to integrate and re-structure the target firm, with its attendant consequences on
finances, employees, customers and investors, a reversal of some of which may be difficult
to achieve.
68. The public interest in the finality of the Commission’s decision is also a significant factor to
take into account. In the context of mergers and acquisitions, which in their nature create
uncertainty in the marketplace, there is a need to bring certainty to a range of stakeholders,
including investors, customers and employees alike.
69. Having regard to all the factors above, we accordingly find that the applicant’s delay of some
75 business days in bringing the review application was unreasonable in the circumstances
of this case, and does not warrant this Tribunal overlooking it. Indeed the applicant’s
lacklustre conduct in seeking interim relief, its inclination to adopt a wait and see attitude
and its rather limp suggestion that the merging parties would not rush ahead with the
merger, suggests that the delay may in fact have been wilful and that this application is
nothing more than a ploy to extract some form of commercial advantage rather than the
pursuit of the public interest.
pursuit of the public interest.
The order
70. The application is accordingly dismissed with costs including the cost of two counsel.
___________ 10 December 2008
Y Carrim Date
45 Accordingly we place no reliance on its contents
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D Lewis and M Mokuena concurring
Researcher: L Xaba
For the Applicant: Adv. Unterhalter SC and Adv Gotz instructed by Webber Wentzel Bowens
For the First Respondent: Adv Kgoroeadira instructed by the Competition Commission
For the Second, Third and Fourth Respondents: Adv Gauntlett SC and Adv Cockrell instructed
by Edward Nathan Sonnenbergs
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