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[2017] ZACT 63
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Hosken Consolidated Investments Limited and Another v Competition Commission (DC0155Aug17) [2017] ZACT 63; [2017] 2 CPLR 865 (CT) (29 September 2017)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: DC0155Aug17
In
the matter between:
HOSKEN
CONSOLIDATED INVESTMENTS
LIMITED
First
Applicant
TSOGO
SUN HOLDINGS
LIMITED
Second
Applicant
and
THE
COMPETITION
COMMISSION
Respondent
Panel:
Yasmin Carrim (Presiding Member)
:
AW Wessels (Tribunal Member)
:
Enver Daniels (Tribunal Member)
Heard
on: 08 September 2017
Order
Issued on: 12 September 2017
Reasons
Issued on: 29 September 2017
Reasons for Decision
Introduction
[1]
This matter involved an application for a declaratory order by the
applicants to the effect that their proposed transaction
did not
require approval from the competition authorities in terms of the
merger control provisions of the
Competition Act, No. 89 of 1998
, as
amended ("the Act"). In terms of the proposed transaction
Hosken Consolidated Investments ("HCI") will
consolidate
all of its gaming interests (other than its sports betting and
lottery interests) under Tsogo Sun Holdings Limited
("Tsogo"),
an entity over which it exerts control by transferring such gaming
interests owned indirectly by one of its
subsidiary companies, Niveus
Investments Limited ("Niveus") to Tsogo.
[2]
The application follows a request by the applicants for an advisory
opinion from the Competition Commission ("the Commission")
made by HCI on 04 July 2017. In HCl's view the proposed transaction
was not notifiable because it had already obtained approval
for sole
control in a 2014 transaction that had been approved by the Tribunal
("the 2014 transaction").
[3]
The Commission issued its advisory opinion on 16 August 2017 in which
it expressed the view that the proposed transaction ought
to be
notified for
inter alia
the following reasons:
a. The proposed transaction would
result in the crossing of a "bright line" as HCI through
Tsogo Investment Holding Company
(Pty) ltd ("TIHC") would
increase its shareholding in Tsogo from the current 47.61% to more
than 50% resulting in HCIbeneficially
owning more than half of the
issued share capital of Tsogo within the contemplation of
section
12(2)(a)
of the Act. The Commission indicated that the crossing of
this bright line has a definite legal implication because it
indicates
the types of transactions that the Legislator deemed should
be notified to the Commission. Thus, the crossing of this bright line
triggers notification of a merger;
b.
There has been a significant
time lapse between the Tsogo
Investment
Holding Company (Pty) Ltd and Tsogo Sun Holdings Limited
[1]
merger ("the 2014 decision") and the proposed transaction
and the question as to whether the structure of the market
has
changed cannot be determined in an advisory opinion. Rather this
determination is best suited for a merger investigation. We
note that
this time lapse is approximately 3 years and that the current
transaction, involving different firms at a different time,
hopes to
achieve what the 2014 transaction could not (i.e. a greater than 50%
shareholding in Tsogo by HCI); and
c. The question as to whether or not
the proposed transaction raises public interest issues such as
retrenchments must also be confirmed
in a new merger investigation.
[4]
The Commission made clear in
that opinion that its views were not binding on itself or any party
and that these may change on the
basis of further information
provided by the applicants.
[2]
At the hearing of the matter the Commission clarified that it
provided advisory opinions to parties on request as part of its
advocacy functions.
[3]
[5]
Upon receipt of this advisory
opinion, the applicants filed this application on an urgent basis and
were accommodated by the Tribunal
in their request. In response to
the application the Commission sought an order directing the
applicants to notify the proposed
transaction. However, the
Commission did not persist with this at the hearing and explained
that the counter-application was merely
a misstatement in the
drafting of its answering affidavit.
[4]
[6]
Prior to the hearing of the
matter the Tribunal requested the parties to address it on the
question whether or not the Tribunal
enjoyed jurisdiction to consider
the application.
[5]
We are indebted to both parties who accommodated our request at short
notice.
[7]
After hearing the matter, the Tribunal declined to issue the relief
sought by the applicants. Our reasons for doing so are detailed
below.
Jurisdiction of the
Tribunal
[8]
The applicants undertook this exercise by firstly addressing the
Tribunal's jurisdiction to issue a declaratory order, and secondly
whether the applicant's case satisfied the threshold tests in order
for the Tribunal to exercise its discretion in their favour
and issue
such an order.
[9]
The applicant's contended that
it was clear that the High Court would (but for the exclusive
jurisdiction provisions contained in
the Act) have the power to grant
such a declarator in the circumstances of this matter. However, due
to the exclusive jurisdiction
provisions, the High Court jurisdiction
is ousted. Therefore, the only body that can, in this instance, be
approached by the applicants
for the relief sought, is the Tribunal.
If the Tribunal did not have the power to grant such relief, this
would have the effect
of denying the applicants their right to access
to courts in terms of section 34 of the Constitution.
[6]
[10]
In terms of section 62(1) of the Act, the Tribunal and the
Competition Appeal Court share exclusive jurisdiction in respect
of
the interpretation of the merger control provisions.
[7]
[11]
The consequence of the ouster contained in section 62(2) is,
therefore, that a party who is in dispute with the Commission
on the
issue whether a transaction constitutes a merger would not be able to
approach the High Court for declaratory relief in
that regard. If,
therefore, a party could not approach the Tribunal for such relief,
it would be deprived of the right to seek
such relief from any forum.
[12]
The applicants argued that this
is not consonant with the provisions of section 34 of the
Constitution.
[8]
[13]
In any event they submitted
that section 27(1)(c) and (d)
[9]
conferred jurisdiction on the Tribunal to hear any matter that may in
terms of this Act be considered by it.
[10]
The Tribunal in a number of cases has issued interdicts which are in
the nature of declaratory orders. Hence the Tribunal enjoyed
the
jurisdiction to consider this application. However whether it decided
to exercise its jurisdiction in favour of the applicants
was a matter
of discretion and there is ample case law to guide the exercise of
the Tribunal's discretion.
[14]
The Commission submitted that
the merger provisions in the Act do not expressly make provision for
the Tribunal to grant declaratory
relief. However, it pointed to the
fact that the Tribunal has previously made orders relating to a
determination of whether or
not a transaction constitutes a merger.
Those decisions however did not pertain to advisory opinions of the
Commission but to mergers
that had already been notified to the
Commission.
[11]
In other words those cases involved a live dispute between the
Commission and the merging parties.
[15]
We will return to the matter of our discretion. However we disagree
with the applicants in their assessments and conclusions
on the issue
of our jurisdiction.
[16]
The central issue for consideration is not whether the Tribunal
enjoys a general power to grant declaratory orders (which is
contemplated not only in section 27(1) but also in section 58 of the
Act) but whether in
this
case the Tribunal enjoys jurisdiction
to grant the relief sought.
[17]
The first consideration in this enquiry would be to ask whether
indeed the matter is a live dispute between the parties as
described
by the Commission. The answer to that question necessarily must go to
understand the nature and purpose of the Commission's
advisory
opinion.
[18]
It is common cause in this matter that the Commission's advisory
opinion does not constitute a decision or finding by the Commission
that the proposed transaction constituted a notifiable merger as
defined in section 12 of the Act. It merely served as a guide
on the
approach the Commission was likely to adopt in assessing the matter
given
inter alia
past experience. In its opinion the
Commission has not required the applicants to notify the transaction,
its senior officials merely
expressed a view based on the information
provided to them that the transaction ought to be notified. The
opinion had thus not
been considered by the Commission's EXCO or by
its Commissioner(s).
[19]
At the hearing the applicants
conceded that the advisory opinion was not binding on them nor on the
Commission. It was not a decision
of the Commission as contemplated
in the Act and was accordingly not reviewable under PAJA. It was
possible that a review on the
constitutional grounds of rationality
could be brought but the applicants were not pursuing this.
[12]
In other words they accepted that the opinion was not binding on
them.
[20]
This is a critical concession. If the advisory opinion is not a
decision of the Commission (hence not reviewable under section
27(1)
or PAJA) and not binding on them, where is the dispute pertaining to
rights and obligations?
[21]
The Tribunal is not a High Court and does not enjoy inherent
jurisdiction. Its powers are circumscribed by the provisions of
the
Act. The framework of merger enforcement in the Act under chapter 3
does not confer inherent powers upon the Tribunal. Indeed
our
jurisdiction is only triggered through the provisions of the Act.
Section 13A requires a party to an intermediate or a large
merger to
notify that merger to the Commission. The framework for intermediate
mergers then requires the Commission to investigate
and make a
decision on the merits of the merger within 20 business days. If any
party is dissatisfied with the decision of the
Commission it can
apply to the Tribunal for a consideration under section 16. In
relation to large mergers the framework in section
14A requires the
Commission to investigate and make recommendations to the Tribunal.
[22]
This is the framework of merger control in the Act. The Tribunal's
jurisdiction in respect of the merits of a proposed transaction
is
only triggered when that transaction has been notified to the
Commission first.
[23]
There is no merger before the Commission, the Commission has not made
a decision but has merely provided an opinion which is
not binding on
any of the parties. How then is the Tribunal's jurisdiction
triggered, if at all?
[24]
The applicants have incorrectly asserted that there is a live dispute
before us. The very nature of a non-binding advisory
opinion cannot
give rise to a dispute that requires the Tribunal or a court of law
to intervene. At best it gives rise to a difference
of opinion.
[25]
The Commission stated that:
"the absence of
this live dispute it's a factor. It's one of the important
considerations for the tribunal to consider in exercising
its
discretion. Now, the question becomes then does the rendering of a
non-binding advisory opinion which is not binding on the
commission
and is not binding on the parties does it rise to the level of
generating a live dispute. In other words how does guidance
suddenly
metamorphose into a dispute? And we submit not."
[13]
[26]
The applicants frame their argument in such a way to indicate
they will be precluded from approaching the Tribunal. However they
are not because there are mechanisms in the Act that provide for the
applicants to approach the Tribunal, in the prescribed manner
at the
correct stage of the proceedings. These mechanisms are to be found in
Commission Rule 33 and Tribunal Rule 31(1)(c).
[27]
Tribunal Rule 31(1)(c) reads as follows:
"(1) An
application may be made by filing
a
Notice
of Motion and affidavit, as described in Rule 42(1), for any of the
following matters:
(a)
.. .
(b)
.. .
(c)
An appeal against the opinion of the Commission concerning the
jurisdiction of the Act, in terms of Competition Commission Rule
33."
[28]
Rule 31(1)(c) provides that the Tribunal can hear an appeal
against an opinion of the Commission concerning the jurisdiction of
the Act in terms of Commission Rule 33. Rule 33 is applicable after a
proposed merger has been filed with the Commission.
[29]
Rule 33 provides -
"Questions of
jurisdiction and categories
(1)
If the Commission
has indicated on Form CC 13(2) that a merger appears to fall outside
the jurisdiction of the Act –
(a)
the Commission
must
–
(i)
refund the filing
fee to the firm that paid it;
(ii)
return the
Merger Notice to the primary firm that submitted it; and
(iii)
send a copy of
Form CC 13(2) to -
(aa) the other primary
firm if the filing was in terms of Rule 29; and
(bb) each person
identified in the Merger Notice as being entitled to receive a copy
of the Merger Notice in terms of section 13A(2);
and
(b)
no party to that
merger is required to file any further documents concerning that
merger.
(2)
If the Commission has indicated on Form CC 13(1) or CC 13(2),
as the case may be, that the merger appears to fall within the
jurisdiction
of the Act, the Commission must –
(a)
send a copy of
the Merger Notice and accompanying Statement of Merger Information to
the Minister;
(b)
if it appears to
be a large merger, send a copy of the Merger Notice to the Tribunal.
(3)
Within 5 business days after receiving Form CC 13(1) or Farm
CC 13(2), as the case may be, the firm concerned may appeal to the
Tribunal for an order setting aside the opinion of the Commission –
(a)
that the merger
is within the jurisdiction of the Act; or
(b)
....
(4)
If, upon hearing an appeal in terms of sub-rule (2)
–
(a)
the Tribunal sets
aside the opinion of the Commission that the merger is within the
jurisdiction of the Act, the provisions of sub-rule
(1) apply; or
(b)
the Tribunal sets
aside the opinion of the Commission that the merger falls within a
particular category other than that declared
on the Merger Notice,
the opinion of the Commission is a nullity.
(5)
If, within the time allowed by sub-rule (4), a firm does not
appeal against the opinion of the Commission that the merger falls
within a particular category other than that declared on the Merger
Notice, or if the Tribunal, on hearing the appeal, confirms
the
Commission's opinion one of the primary parties must pay to the
Commission the difference between –
(a)
the appropriate
filing fee for the category determined by the Commission; and
(b)
the filing fee
previously paid in respect of the merger.
(6)
The Initial Period for a merger referred to in this Rule
begins –
(a)
On the date
following the day that the merger notice was filed if, following the
order of the Tribunal, there are no outstanding
notification
requirements, and
(i)
The application to the Tribunal concerned only a matter of the
jurisdiction of the Act,
(ii)
The Tribunal set aside the Commission's category
determination, or
(iii)
The Tribunal upheld the Commission's category determination
and one of the firms concerned paid the amount required in terms of
sub-rule (5) within 5 business days after the Tribunal makes its
order; or
(b)
In any case, on
the date determined in accordance with Rule 29(2)."
[30]
Tribunal Rule 31(1)(c)
and Commission Rule 33
[14]
which specifically provide for a procedure to deal precisely with the
debate that is the subject matter of this application.
[31]
These rules provide that where the parties differ with the
Commission on whether or not a merger is within the jurisdiction of
the
Act they may notify such merger, under protest so to speak, and
have the issue of jurisdiction resolved by the Tribunal through
the
mechanism of Tribunal Rule 31(1)(c) and Commission Rule 33.
[32]
The legislature in drafting the provisions of the Act clearly
contemplated that situations may arise in complex commercial
transactions
that the issue of whether and when notification is
required might be blurry. This is the mechanism that has been used by
many a
responsible corporate citizens and would be the logical route
for a large listed entity involved in a complex transaction to
follow.
[33]
Notification of the transaction would indicate a willingness
on thepart of the firm to comply with regulation, would indisputably
confer jurisdiction on the Commission and the Tribunal (because the
matter would have been notified), would allow the Commission
to have
a better and closer look at the transaction because alt the details
thereof would have been provided in the merger filing
and would
provide certainty to all the stakeholders by requiring the Tribunal
to resolve the issue of whether or not a merger is
within the
jurisdiction of the Act in the light of fuller facts put up in a
merger filing.
[34]
Unlike under the aegis of an advisory opinion, a notification under
Commission Rule 33 could be to the benefit of the merging
parties.
They would provide fuller information to the Commission and such
information would ultimately become part of the record
that is to be
placed in front of the Tribunal under Rule 31(1)(c). The Commission
on the other hand, unlike in its advocacy role,
would be entitled to
ask for more information and would be placed in a position to form an
informed view about the jurisdiction
or not of the Act.
[35]
There is no better example of the use of these rules than in the
Ethos
Private Equity Fund JV v Tsebo Outsourcing Group (Pty) Ltd
[15]
decision. Therein
the merging parties also sought an advisory opinion from the
Commission, who advised that their proposed transaction
in its
opinion was a notifiable transaction. In that transaction Ethos was
increasing its shareholding in Tsebo from just less
than 50% to just
over 50%. Themerging parties notified the merger and brought the
dispute about jurisdiction to the Tribunal as
provided in Tribunal
Rule 31(1)(c).
[36]
Notification is thus a jurisdictional requirement for the Tribunal to
exercise its jurisdiction. Hence a party in order to
appeal against
the opinion of the Commission in respect of whether a merger is
within the jurisdiction of the Act must
first
notify
the proposed transaction to the
Commission.
[37]
But the applicants have elected not to notify the proposed
transaction. Hence the status of the advisory opinion is not an
opinion that is contemplated in Tribunal Rule 31(1)(c). The Tribunal
accordingly has no jurisdiction to consider the matter and
grant the
order sought by the applicants.
[38]
We are of the view that the matter is not one that triggers our
jurisdiction simply because there is no live dispute between
the
parties and the applicants were not entitled to approach the Tribunal
directly. If they wish to challenge the Commission's
views about
their transaction they must do so in accordance with Commission Rule
33 and Tribunal Rule 31(1)(c).
[39]
Merging parties are not entitled as a matter of right to approach the
Tribunal directly (or courts for that matter) simply
because they
have a difference of opinion with the Commission. Nor should they be
encouraged to do so as matter of public policy.
The Commission is
mandated to perform an investigative and enforcement function, the
Tribunal an adjudicative one. While the Tribunal
enjoys inquisitorial
powers these cannot be exercised so as to undermine the framework of
the Act and to exclude the Commission's
investigative mandate.
[40]
Although we find that we do not have jurisdiction in to consider this
matter, we nevertheless for the sake of completeness
(and argument)
consider whether we ought to exercise our discretion in favour of the
applicants.
The discretion to issue a
declaratory order in
this matter
[41]
Both the applicants and the Commission submitted that on the
assumption that the Tribunal's jurisdiction under the Act was
triggered, the Tribunal does indeed enjoy a discretion whether or not
to grant a declaratory order.
[42]
To this, the Commission cited the principles relating to the granting
of declaratory relief, as most recently restated in
Minister
of Finance v Oakbay Investments (Pty) Ltd
[16]
"[52] The
exercise of the Court's jurisdiction in terms of section 21(1)(c)
follows a twolegged enquiry:
[52.1] the Court must
first be satisfied that the applicant is a person interested in an
existing, future or contingent right or
obligation; and if so,
[52.2] the Court must
decide whether the case is a proper one far the exercise of its
discretion.
[53] The first leg of
the enquiry involves establishing the existence of the necessary
condition precedent for the exercise of the
Court's discretion. An
applicant for the declaratory relief satisfies this requirement if he
succeeds in establishing that he has
an interest in an existing,
future or contingent right or obligation. Only if the Court is
satisfied accordingly, does it proceed
ta the second leg of the
enquiry."
[42]
The onus is thus on the applicants to show that it is a person
interested in an existing, future or contingent right or obligation
before the Tribunal could decide whether or not it should exercise
its discretion.
[43]
Following on from the above,
the applicants relied on a passage from the Supreme Court of Appeal
in
Cordiant Trading CC v
Daimler Chrysler Financial Services (Pty) Ltd
[17]
wherein it was stated that:
"The applicant in
a case such as the present must satisfy the court that he/she is a
person interested in an 'existing, future
or contingent right or
obligation' and nothing more is required. “
[18]
[44]
The applicants submitted that the current matter does relate to
existing, future or contingent rights or obligations in that
if the
proposed transaction is a merger, the applicants are obliged to
notify it and may not implement it. By the same token, the
Commission
is then under an obligation to investigate the notification under
section 14A of the Act.
[45]
The second leg of the test relates to whether we deem this case a
proper one for exercising our discretion in favour of the
applicants.
[46]
The applicants once again
relied on the Supreme Court of Appeal, again in
Cordiant
[19]
:
"[17] It seems to
me that once the applicant has satisfied the court that he/she is
interested in an existing, future or contingent
right or obligation:
the court is obliged by the subsection to exercise its discretion.
This does not, however, mean that the court
is bound to grant a
declarator but that it must consider and decide whether it should
refuse or grant the order, following an examination
of all relevant
factors".
[48]
The relevant factors that
Cordiant
alludes
to are to be found (as acknowledged by both the applicants and the
Commission) in
Minister
of Finance v Oakbay Investments (Pty) Ltd and Others
[20]
.
The
High Court identified the following factors as being relevant to the
exercise of a court's discretion when granting declaratory
relief:
"[59.1] the
existence or absence of a dispute;
[59.2] the utility of
the declaratory relief and whether if granted, it will settle the
question in issue between the parties;
[59.3] whether a
tangible and justifiable advantage in relation to the applicant's
position appears to flow from the grant of the
order sought;
[59.4] considerations
of public policy, justice and convenience;
[59.5] the practical
significance of the order; and
[59.6] the
availability of other remedies."
[49]
After consideration of the relevant facts of this case as set
out below we decided not to exercise our discretion in favour of the
applicants.
No
live dispute between the parties
[50]
The first of these is to consider whether there is a live
dispute between the parties.
[51]
The applicants concede that the need for a live dispute is a
factor influencing our discretion to issue a declaratory order:
"... you do not
need to have a live dispute, an existing dispute in order to get a
declaratory order, although obviously the
fact that there is or is
not a live dispute in issue will be relevant to the exercise of the
discretion of the court, we would
say in this case the tribunal, to
grant declaratory relief.”
[21]
[52]
As we have indicated already in the discussion concerning
direct access to the Tribunal, there is no live dispute between the
parties
that requires our intervention.
[53]
The applicants approached the Commission for an advisory
opinion. They were not required to do so but the fact that they did
suggests
that there was some doubt in their minds whether their
transaction ought to be notified. The Commission provided an advisory
opinion
which the applicants concede is not binding on them.
Alternative remedies
[54]
The applicants, after receiving the Commission's advisory
opinion now have several options and are not without remedy.
[55]
They could of course implement the transaction without
notifying it to the Commission (as they are inclined to want to do)
and if
pursued by the Commission for having done so without
notification could raise in mitigation that they had sought legal
advice and
had acted in accordance therewith.
[56]
They could do the
obvious as many other firms have done, for the sake of comfort and
legal certainty, simply notify the transaction
and allow the matter
to run its ordinary course. In this regard the Commission has given
the applicants an assurance that the matter
would be treated as a
phase 1 merger because it is unlikely to involve an overlap in the
relevant markets.
[22]
This would result in the merger being processed relatively quickly.
[57]
The applicants could notify the merger under protest so to
speak and approach the Tribunal on the question of notification
through
Rule 31(1)(c) of the Act. It has been the course followed by
many other merging parties such as in
Ethos.
In
Ethos
the
merging parties notified the transaction but did so under protest,
making it clear they were only notifying in order to comply
with the
advice provided in the Commission's advisory opinion.
[58]
The Commission has also offered the applicants a fourth option,
namely further engagement. The Commission says in its opinion
that on
the furnishing of further information if might take a different
view.
[23]
At the hearing the
Commission expressed surprise at the fact that the applicants had
lodged this application when it (the Commission)
was under the
impression that they were still involved in a process of engagement
with the applicants.
[59]
The applicants have followed none of these available remedies. In
argument the applicants submitted that they wished to avoid
the
expense and inconvenience of filing a large merger with all its
concomitant bureaucracy under Rules 31(1)(c) and 33 only to
find
themselves back at the Tribunal to debate the very subject matter of
this application:
"Why would you go
down that long expensive and resource intensive path in circumstances
where the matter can be put to bed
one way or the other on this
basis. In our submission convenience clearly motivates in favour of a
determination at this point
in time"
[24]
[60]
But such an argument presumes that a filing of the merger and
further engagement with the Commission would result in the very same
outcome, namely a difference of opinion. It is not a foregone
conclusion, and the Commission has repeatedly pointed this out to
the
applicants, that the two sides will necessarily hold the same views.
At the end of that process of engagement it is likely
that the
Commission might be persuaded otherwise. It is also likely that the
applicants would be persuaded otherwise.
[61]
All firms face the expense and inconvenience of complying with
regulation but large listed companies, the applicant included,
provide
for the time and costs of compliance. This argument can
hardly be relied upon by merging parties to leapfrog provisions of
the
Act by alleging a live dispute when there is none.
Different
transaction and regulatory oversight
[62]
The applicants were of the view that they were not required to notify
the transaction because HCI was, in their opinion, the
ultimate sole
controller of the two groups and that they had received approval in
the 2014 transaction for achieving more than
50% in Tsogo.
[63]
The 2014 Tsogo Transaction involved the exit of a significant
minority shareholder, SABMiller pie ("SABMiller"),
and the
acquisition by HCI (through TIHC) of additional shares in Tsogo.
Prior to 2014, Tsogo was subject to the joint control
of HCI (through
various subsidiary companies) and SABMiller. In 2014, SABMiller
divested itself of its shares in Tsogo, leaving
HCI as the sole
controller of Tsogo.
[64]
The Commission conducted an investigation of the 2014 transaction and
made a recommendation to the Tribunal that the transaction,
in terms
of which HCI (through TIHC) would acquire sole control over Tsogo,
according to the information submitted by the merging
parties at the
time, should be approved without conditions.
[65]
The Tribunal
subsequently did approve the transaction unconditionally. The
Tribunal, in its decision stated
"Post-merger,
HG/ will ultimately acquire sole control over Tsogo
Sun".
[25]
[66]
The applicants provide that it was clear from that the merger
that was approved unconditionally by the Tribunal in 2014 was the
acquisition of sole control by HCI over Tsogo. They further submit
that the Tribunal expressly noted in paragraph 8 of its decision
that
HCI (through various entities) would ultimately increase its
shareholding in Tsogo to over50%.
[67]
The Tribunal decision does record the intention of HCI to
ultimately increase its shareholding to above 50% through the 2014
transaction
which involved a share buyback. However HCI, for reasons
unknown to us, did not achieve the intended shareholding in Tsogo
through
the 2014 transaction and while it currently enjoys
de
facto
control with a shareholding of 47.61% it does not enjoy
dejure
control of above 50%.
[68]
HCI as the controller of Niveus, indirectly controls GameCo,
the wholly owned subsidiary of Niveus. GameCo owns 100% of the issued
shares in Vukani Gaming ("Vukani") (which is mainly engaged
in offering Limited Payout Machine gaming services at third-party
sites throughout Southern Africa) and Galaxy Gaming ("Galaxy"),
an operator of licensed bingo centres and the Kuruman
Grand Oasis
Casino.
[69]
The applicants submitted
that the proposed transaction in the current case simply gives effect
to the pre-authorized establishment
of sole control over both the
gaming interests of Niveus and Tsogo and the current transaction
merely constitutes a restructuring
in line with the approval of the
combination of these gaming assets that was implicitly granted by the
2014 decision. The proposed
transaction does not entail a move from
joint or dual control to sole control, and does not involve an
acquisition of control.
The proposed transaction is, therefore, not a
merger.
[26]
[70]
In its advisory opinion
the Commission however expressed the view based on the information
that had been provided by the parties
to date, that the transaction
ought to be notified. We reiterate the salient grounds on which it
formed this view:
[27]
a. The proposed transaction would
result in the crossing of a "bright line" as HCI through
Tsogo Investment Holding Company
(Pty) Ltd rTIHC") would
increase its shareholding in Tsogo from the current47.61% to more
than 50% resulting in HCI beneficially
owning more than half of the
issued share capital of Tsogo within the contemplation of section
12(2)(a) of the Act. The Commission
indicated that the crossing of
this bright line has a definite legal implication because it
indicates the types of transactions
that the Legislator deemed should
be notified to the Commission. Thus, the crossing of this bright line
triggers notification of
a merger;
b. There has been a significant time
lapse between the 2014 decision and the proposed transaction and the
question as to whether
the structure of the market has changed cannot
be determined in an advisory opinion. Rather this determination is
best suited for
a merger investigation; and
c. The question as to whether or not
the proposed transaction raises public interest issues such as
retrenchments must also be confirmed
in a new merger investigation.
[71]
At the hearing the
Commission pointed out that it had repeatedly requested the
applicants to provide it with information on whether
the proposed
transaction would result in any retrenchments in light of the fact
that, unlike in the 2014 transaction, HCI was intending
to move an
entire business under GameCo. The applicants have to date not
responded to the Commission's request. The Commission
further
submitted that it will have to perform a new market delineation
assessment (bearing in mind that the Commission did not
conclude on
an exact market definition in the 2014 Tsogo transaction) which will
assist it to establish whether there are changes,
if any, in the
dynamics of competition between HCI and Tsogo since the 2014
transaction.
[28]
[72]
What is however a critical difference between the 2014 transaction
and the proposed transaction is the mechanism through which
HCI
intends to acquire more than 50% in Tsogo. The 2014 transaction only
involved a sale of shares and a share buy-back within
Tsogo. It did
not as the proposed transaction contemplates involve the transfer of
one business (held under GameCo) into another
(Tsogo) and the buying
out of minorities. This is why the Commission is concerned about
whether there would be overlapping functions
which could have adverse
employment consequences, a matter which the applicants have still not
addressed.
[73]
It is unclear to us in the proposed transaction whether the
moving of the gaming interests of Niveus to under Tsogo, will lead to
a market share accretion or any overlap in products or services
between the merging parties.
[74]
Nevertheless we give due regard to the argument by the
Commission that granting a declaratory order that the proposed
transaction
does not require approval from the competition
authorities - in circumstances where there is no live dispute between
the parties
and where the Commission has given assurances of ongoing
engagement and a fast-track phase 1 investigation in the event the
transaction
is notified by the parties - would be tantamount to
shutting the door on the Commission's mandate of regulatory
oversight.
No
Urgency
[75]
The applicants put forward a further reason why they approach
the Tribunal in this way namely that there is a matter of commercial
urgency. Instead of filing the proposed transaction as a large merger
after receiving the Commission's advisory opinion on 16 August
2017,
the applicants chose to bring this application by way of an "urgent
application on 28 August 2017.
[76]
However, we note that
the transaction was proposed as early as 14 December 2016, when HCI
released an Initial Announcement on the
Stock Exchange News Service
of the JSE ("SENS").
[29]
Hence we can infer that the proposed transaction would have been
planned by the applicants, a listed company well versed in regulatory
requirements, in advance of the SENS announcement. Yet, the
applicants only requested an advisory opinion from the Commission on
04 July 2017 some
6 months
after the SENS announcement. No explanation other than "commercial
urgency" which the applicants conceded was self
created was
put up in support of the urgency ground.
[77]
The applicants further
submitted that the commercial realities and costs of using the
alternate remedy are hugely inconvenient and
resource consuming.
[30]
But this argument seems to suggest that the applicants have through
this application sought to avoid complying with the provisions
of the
Act.
[78]
We are not swayed by the merging parties' argument in this
regard as the urgency of the matter is clearly self-imposed. The
applicants
had and still do have sufficient time to notify their
transaction should they elect to do so for purposes of comfort.
Alternatively
should matters be as urgent as they claim, the
applicants could proceed to implement the transaction. After all on
their own version
the proposed transaction amounts to an internal
restructuring and they are not bound by the views expressed in the
Commission's
advisory opinions of the Act.
Conclusion
[79]
In conclusion we found that the Commission's advisory opinion is not
binding on the applicants. The jurisdiction of the Tribunal
to
consider disputes about whether or not a merger is within the
jurisdiction of the Act is regulated by Tribunal Rule 31 and
Commission Rule 33. Notification of a transaction to the Commission
is a jurisdictional requirement for us to exercise our functions.
The
applicants have not notified their transaction and the Tribunal
accordingly lacks jurisdiction therein. The applicants are
not
entitled to approach the Tribunal directly for the order that they
seek.
[80]
But assuming for the sake of completeness that we accept that
our jurisdiction is triggered by a direct application such as this,
we find that there is no justification for the exercise of our
discretion in favour of the applicants. The Commission's opinion
is
nothing more than that and not binding on any party. It may be that
it has some significant status because it encompasses the
views of
the senior officials of the regulator. But the applicant is not
without options and alternative remedies. The applicant
could for the
sake of comfort notify its merger or notify it under protest and
follow the procedures provided in the Act. The Commission
has also
offered to continue engagements with the applicants. In the event
they elect to notify the transaction the Commission
has undertaken to
treat it as a phase 1 merger so that it can be dealt with timeously.
[81]
The urgency that the applicants claim is self-imposed, and the
Commission has offered to engage with the parties further.
[82]
Finally as the Commission has submitted the proposed
transaction is different to the 2014 transaction and were we to grant
the order
as sought, which they argue we ought not to for the reasons
set out above, we will shut the door on the Commission's functions of
regulatory oversight which will be against public policy.
[83]
Having regard to all of the above, the appropriate order was to
dismiss the application which we issued on 12 September 2017
and
which is attached hereto for convenience.
Postscript
[84]
As a postscript we note with some concern that at the time of
writing the applicants had already lodged an appeal against our order
of 12 September 2017. When we released our order on 12 September 2017
we did so to accommodate the various requests made by the
applicants'
attorneys for the release of our order in advance of our reasons due
to shareholders' meetings that were scheduled
to take place on either
13 or 14 September 2017.
[85]
In our order we confirmed that our reasons would follow in due
course. The applicants have thus lodged an appeal without any insight
into the reasons for our dismissal of their application but have also
drawn the Commission at great expense into an appeal, the
merits and
prospects of which were unknown at the time.
[86]
We consider the actions of the applicants in a very serious
light especially when regard is given to the fact they and their
legal
representatives are familiar with the requirements and
framework of the Act. The attempt to seek a declaratory order from
the Tribunal
and then to seek an appeal against our decision in
circumstances where
they have conceded
that the Commission's
opinion is not binding on them suggests that the applicants are
involved in nothing but a cynical attempt
to exclude the Commission's
regulatory oversight, at great expense to the public purse.
___________________
Ms
Yasmin Carrim
Mr
AW Wessels and Mr Enver Daniels
29 September 2017
DATE
Case
Managers: Kameel Pancham
For
the Applicants: Adv. Jerome Wilson SC instructed by Nortons Inc.
For
the Commission: Bukhosibakhe Majenge and Korkoi Ayayee
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No.: DCO155Aug17
In
the matter between:
Hosken
Consolidated Investments
Limited
First
Applicant
Tsogo
Sun Holdings
Limited
Second
Applicant
and
The
Competition
Commission
Respondent
Panel:
Y Carrim (Presiding Member)
AW
Wessels (Tribunal Member)
E
Daniels (Tribunal Member)
Heard
on: 08 September 2017
Decided
on: 12 September 2017
ORDER
Following
the hearing on 08 September 2017, the Tribunal orders as follows:
1. First and Second Applicant's
application is dismissed.
2. There Is no order as to costs.
3. The Tribunal's reasons will be
issued in due course.
_______________________
Presiding Member
Ms Yasmin Carrim
12
September 2017
Date
Concurring: Mr AW Wessels
and Mr Enver Daniels
[1]
Tsogo Investment Holding Company (Pty) Ltd and Tsogo Sun Holdings
Limited O19372/LM067Aug14 (19 November 2014).
[2]
Commission's Advisory Opinion at par 38.
[3]
Transcript page 94, lines 16-19.
[4]
Transcript page 116, lines 7-15.
[5]
See Tribunal letter dated 7 September 2017.
[6]
Applicant's heads of argument page 4, par 11.
[7]
Section 62(1) provides that:
"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 (I) and 37, other than a question or matter
referred to in subsection (2)
".
[8]
Section 34 of the Constitution provides that:
"Everyone has the right to have
any dispute that can be resolved by the application of law decided
in a fair public hearing
before a court or, where appropriate,
another independent and impartial tribunal or forum".
[9]
Section 27(1)(c) and (d) provide:
"27(1) The Competition Tribunal
may-
(a) hear appeals from, or review any
decision of. the Competition Commission that may, in terms of this
Act, be referred to it;
and
(b) make any ruling or order
necessary or incidental to the performance of its functions in terms
of this Act."
[10]
Transcript page 31, lines 1·25 & page 32, lines 1.21.
[11]
Commission's heads of argument page 3, par 3.
[12]
Transcript page 136, lines 19-25 & page 137, line 1.
[13]
Transcript page 97, lines 1-9.
[14]
Commission Rule 33 deals specifically with questions of jurisdiction
and categories.
[15]
Ethos Private Equity Fund IV v Tsebo Outsourcing Group (Pty) Ltd
[2003) 2 CPLR 371 (CT).
[16]
Minister of Finance v Oakbay Investments (Pty) Ltd and Others;
Oakbay Investments (Pty) Ltd and Others v Director of the Financial
Intelligence Centre (80978/2016) (2017] ZAGPPHC 576 at [52]- [53].
[17]
Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd
2005 (6) 205 (SCA).
[18]
Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd
2005 (6) 205 (SCA) at [16].
[19]
Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd
2005 (6) 205 (SCA) at [17].
[20]
Minister of Finance v Oakbay Investments (Pty) Ltd and Others;
Oakbay Investments (Pty) Ltd and Others v Director of the Financial
intelligence Centre (8097812016)[2017] ZAGPPHC 576 at [59].
[21]
Transcript page 10, lines 6 11.
[22]
Commission's Advisory Opinion at par 36.
[23]
Commission's Advisory Opinion at par 38.
[24]
Transcript page 80, lines 6-10.
[25]
Tsogo Investment Holding Company (Pty) Ltd and Tsogo Sun Holdings
Limited 019372/LM067Aug14 at [8].
[26]
Applicant's heads of argument page 22, par 71.
[27]
Applicant's heads of argument page 26, par 26.
[28]
Transcript page 114, lines 4-17.
[29]
Record, page 13, par 18.
[30]
Transcript page 21 & page 22, lines 21-25.