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[2016] ZACT 33
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Minister of Economic Development v Coca Cola Company and Others; In re: Coca Cola Beverages Africa Limited v Various Coca Cola Bottling and Related Operations (LM242Mar15, DSC005Apr16) [2016] ZACT 33; [2016] 1 CPLR 374 (CT) (22 April 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM242Mar15/DSC005Apr16
In
the matter between:
THE
MINISTER OF ECONOMIC DEVELOPMENT
First
Applicant
And
THE
COCA-COLA COMPANY
First
Respondent
COCA-COLA
CANNERS
OF
SOUTHERN AFRICA (PTY)
LTD
Second
Respondent
COCA-COLA
SHANDUKA BEVERAGES SA (PTY) LTD
Third
Respondent
AMALGAMATED
BEVERAGE INDUSTRIES (PTY) LTD
Fourth
Respondent
APPLETISER
SOUTH AFRICA (PTY) LTD
Fifth
Respondent
COCA-COLA
SABCO (PTY) LTD
Sixth
Respondent
COCA-COLA
FORTUNE (PTY) LTD
Seventh
Respondent
COCA-COLA
BEVERAGES AFRICA LIMITED
Eighth
Respondent
In
re:
the large merger between:
COCA-
COLA
BEVERAGES
AFRICA
LIMITED
Acquiring
Firm
And
VARIOUS
COCA-COLA
BOTTLING
AND RELATED
OPERATIONS
Target
Firm
Panel
: Norman Manoim (Presiding Member)
: Yasmin Carrim (Tribunal
Member)
: lmraan Valodia
(Tribunal Member)
Heard
on
: 13 April 2016
Order
Issued on
: 14 April 2016
Reasons
Issued on
:
22 April 2016
Reasons for
Decision
[1]
We have been requested by the attorneys for the Minister of Economic
Development ("the Minister") to provide as a
matter of
urgency reasons for our decision in respect of an application for
further and better discovery that was issued on 14
April 2016.
[2]
Ordinarily reasons for an interlocutory ruling of this nature are not
sought by parties or are dealt with in the final decision
of the
Tribunal at the end of the matter. However the Minister's advisors
indicated in their correspondence that reasons were requested
as it
is their intention to advise their client on whether to appeal or
review this decision.
[3]
Given
this
stated
intention,
the
Tribunal
in the
interests
of
expediting
the
process
is happy to
provide
its
reasons on
an
urgent
basis,
although
of
necessity
they are
brief. We do not express a view on whether
such an
order is appealable,
or subject
to review before
the
conclusion
of
the
merger
proceedings,
as
that
is
a
matter
for
an
Appeal
Court to
decide
should
it be
seized with
the
matter at
this
stage
of
proceedings.
[1]
[4]
The Tribunal issued its order in this matter on 14 April 2016 having
heard argument and being presented with the final request
from the
Minister's legal team on the previous day i.e. 13 April 2016. For
convenience this order is attached hereto as Annexure
A During the
hearing we dealt only with requests of further and better discovery
that remained in dispute, as on the day itself
certain items were
tendered by the merging parties whilst others were no longer pursued
by the Minister.
[5]
By way of background at a pre-hearing held on 1 April 2016,
preparatory to the hearing of the present discovery application,
the
presiding member gave directions to the Minister's legal team to
consider narrowing the focus of the document requests in their
application. In particular the member emphasised that requests
that were too widely formulated would not be redrafted by
the panel.
[6]
Notwithstanding this direction, and although the Minister filed
a revised application, this guideline was insufficiently
adhered to.
[7]
We will not go into a line by line response to each request. Broadly,
requests for discovery were refused when items-
7.1
Were formulated in an open-ended manner when it would not be clear to
the recipient
of the request the universe of the documents being
requested. By way of illustration, but this deficiency is by no means
limited
to these items, see the drafting of the requests for items 2,
9, 15-17 and 25. Similarly open ended, were several employment
related requests. In contrast, the Food and Allied Workers Union's
("FAWU") request for certain documents, brought on
the same
day as the Minister's application which was similar to the Minister's
employment related requests was better formulated.
For this reason
the panel granted certain items in FAWU's request. However as these
items overlapped with some of the items requested
by the Minister,
the Tribunal extended access to these items to the Minister as well
as seen in para 1.4 of our order.
7.2
Were established as redundant. In other words documents at a high
level had already
been discovered on issues in which there was no
dispute of fact. Several documents were sought in order to establish
that the merging
parties' market shares in certain products had
declined. This issue was not placed in dispute and since the Minister
had documents
evidencing this already, it was not made clear why more
documents to the same effect were required.
7.3
Documents relating to the wholesale channel were requested without a
sufficient justification
as to why they were relevant to the issues
on which the Minister sought to intervene in relation to the
"Commissions cooler
condition" in what has been referred to
as the Local and Traditional Channel ("L&
T
channel"). The merging parties challenged their relevance
and this challenge was not effectively rebutted by the
Minister,
other than to state that his intervention is not limited to
the L&T channel. Even if the merging parties have taken a
narrower
view of the Minister's remit than he considers he has, this
response was not helpful in linking his theory of harm and the
proposed
condition to the class of documents required. The requests
were motivated at a level of the speculative nature of what might be
yielded rather than a more confident assessment by the experts on
their probative nature in relation to the issues in dispute.
Again a
focused, well-motivated request, would have been helpful to us in
order to understand the pertinence of what was being
sought, but this
was not forthcoming.
7.4
The
merging
parties
indicated
in their
answer
that
a
substantial
number
of
documents
were discovered prior to this application in relation to some of the
issues on which further and better discovery had
been requested. We
are not in
a position
to know whether this is
the case as
we only have a list of the titles of the documents provided. Since
the Minister's team of advisors had access to these
documents they
would have been in a position to evaluate whether they
were
deficient
In
some
instances
they
did
this
in
clear
terms
-
for
instance
item 8
which
was
a
request
to
have the
full
document,
when
only
excerpts
had
been
provided.
Here
we
ordered the
full
document to
be
produced. However, in respect of many others, the Minister did not
engage with the
adequacy of
those already furnished, but rather argued that he was entitled to
all documents requested, not only
some. This
argument however does
not meet
the test we set out in
Walmart.
[2]
We are not
engaged
here in
discovery
for
a
prohibited
practice
case but the development
of a theory
of harm
to
justify
the
imposition
of
conditions
on
a
merger.
As
we
stated
in Walmart:
"Where
the
yield
is
minimal
or
uncertain,
but
the
burden
great,
this
would
favour
denying
production.
'
[3]
7.5
Certain documents related to a dispute about the proper time period
for which documents were required. The merging parties offered
documents for the time period commencing in 2013. They justified this
on the basis that this would show documents that existed
one year
prior to the commencement of merger discussions. In contrast the
Minister asked for documents commencing in 2011. However
no cogent
justification was given for why documents should come from a period
two years earlier. However as a precautionary step
we ordered that
documents evidencing the rationale should be discovered from the
period 2011. If the merging parties are correct
then no documents
from prior to this period will exist. If it emerges they are
incorrect then the panel may reconsider the
time
period issue as discovery issues are
of an interlocutory nature.
[8]
The deficiencies referred to
above
can be contrasted with the
features of the document requests which we did allow. The reasons
that these were allowed were because-
8.1
The request was sufficiently focused for example item 8 referred to
above.
Since the merging parties tendered discovery of the
full document we did not need to consider any other issue pertaining
to its
relevance and probative value;
8.2
The requests were highly probative, and pertinent to the issues at
hand, or where there may be a dispute in respect
of the documents
already produced. For this reason we considered that documents
relating to the rationale for the merger as discussed
at individual
target firm level were relevant, as the motivation was that the
respective target firms may have had different
rationales for the
merger than those put up in the documents provided, and hence the
discovery was well motivated. In any event
documents around rationale
are viewed as vital for the consideration of the merger in general
experience and are given great weight.
As it is, the document
requests around rationale were reformulated to make them more
focused; or
8.3
The request was relevant to an apparent deficit in discovery on an
issue in dispute (items 74-5). In his recommended
conditions the
Minister proposes removing a restraint of trade contained in the
merging party's shareholders' agreement restricting
the merged firm
from entering a related market. The merging parties do not agree with
this proposal. The Minister then sought documents
that motivated the
restraint and the merging parties denied that there were any. Here
the probability that some documents must
exist was convincingly made
out on the probabilities; further if the documents exist they are
directly relevant again to an issue
in dispute between the parties
regarding the need for a restraint. However if the documents don't
exist, then the burden on the
merging parties to provide an affidavit
to this effect, is not too onerous, given the limited manner in which
we again reformulated
this request. (Note that there is a general
provision in the order in paragraph 4 to provide that the merging
parties must provide
an affidavit where they allege a document does
not exist.)
Conclusion
[9]
These reasons briefly set out the Tribunal's approach in this
matter. It must be borne in mind that the Minister has had
access to
the documents in the Commission's record in this matter where the
Commission had requested a wide range of documents
from the merging
parties which were furnished to him. From argument in this matter it
would appear the Minister's advisors were
advising the Commission on
what documents should be requested in the course of the Commission's
investigation. We do not comment
on whether this approach should be
subject to criticism as the merging parties had. The Minister has
also been given further documents
during the Tribunal's discovery
process by the merging parties. The only point we make here is
that discovery requests made
late in the process by a party with
prior knowledge of the full record and issues are burdensome for the
merging parties, especially
where requests are directed at several
entities comprising the merging parties. The Act's mandate in section
52(2) is to exhort
expedition of process; this is particularly
apposite in time sensitive transactions such as mergers when
assessing the reasonableness
of burdensome and time consuming
requests that lack sufficient focus on what is being sought and a
proper motivation about why
it is being sought.
[10]
In this case the Minister's approach to remedies has been well
documented as he has usefully done so by way of edits to the
Commission's proposed remedies. There is thus on his version, a
highly specified approach to the outcome he seeks from the
Tribunal
process. Regrettably, in many respects, the discovery request was far
blunter, lacking a reasoned nexus between what was
being sought and
his proposed conditions. The criticism is not that no reasons were
put forward - indeed they were - but the connection
between the
explanation of what the document was, its likely yield, and the
relationship between the yield and the very specific
conditions the
Minister seeks, did not outweigh the countervailing considerations;
viz, the imprecision of the requests' formulation,
the doubtful
utility of their yield to the issues under consideration and the
burden on parties who had to discover.
[11]
In general the Tribunal has followed the approach to discovery it
took in the
Walmart
case, which is referred to in paragraphs
60 and 61 the judgment of the Competition Appeal Court in that same
matter. We do not understand
the CAC to have criticised or rejected
this approach to discovery in merger proceedings. In short not
everything that may be tangentially
be relevant to the merger is
required to be discovered in a merger proceeding.
22
April 2016
DATE
_________________________
Mr
Norman Manoim
Yasmin
Carrim and Prof lmraan Valodia concurring
Tribunal
Researcher:
Aneesa Raval and Karissa Moothoo Padayachie
For
the merging parties: Adv. M
Van der Nest SC instructed by Bowman Gillfillan
For
the Commission:
Maya Swart
For
the Minister:
Adv. J Gauntlett SC and Adv. P Ngcongo instructed by
Werksmans
[1]
See
views
of
the
Competition
Appeal
Court
regarding
a
review of
inter
alia
discovery
by a single member
in
Old
Mutual
Properties
(Pty)
Limited
and
Old
Mutual Life Assurance
Company
(South
Africa) Limited
and
The
Competition
Tribunal
and
others
Case
no:2 l/CAC/Jul02.
[2]
The
Minister of Economic Development and others and The Competition
Tribunal and others
Case
no:
110/CAC/Jull
l 111/CAC/Junll
[3]
Paragraph 9 of the Tribunal's reasons as quoted at Paragraph 61 of
the CAC's decision in the same matter.
Supra
footnote 2.