REPUBLIC OF SOUTH AFRICA
IN THE COMPETITION APPEAL COURT OF SOUTH AFRICA
CAC CASE NO: 154/CAC/Sept17
In the matter between:
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
TSOGO SUN HOLDINGS LIMITED
and
THE COMPETITION COMMISSION
JUDGMENT
VICTOR et MNGUNI AJJA:
FIRST APPELLANT
SECOND APPELLANT
RESPONDENT
[1] Two issues require determination in this appeal. The first concerns the
question whether the Competition Tribunal ('the Tribunal;) has jurisdiction to
entertain a matter in circumstances where a party has not notified a transaction in
terms of s 13 of the Competition Act 89 of 1998 ('the Act'). The second concerns
whether an acquiring company, having obtained an unconditional prior approval from
2
the Competition Commission (the Commission) to acquire sole control of an entity
over which it exerts control must still obtain merger approval before entering into a
subsequent transaction with that entity.
[2] These issues arose in this appeal under the following circumstances : Prior to
2014 Tsogo Sun Holdings Limited ('Tsogo') was subject to the joint control of
Hosken Consolidated Investments Limited (HCI) and SABMiller pie (SABMiller). In
2014 SABMiller announced that it was divesting itself of its shareholding in Tsogo
which would have the effect of leaving HCI as the sole controller of Tsogo. In the
same year HCI sought merger approval from the competition authorities for the
acquisition by HCI of sole control of Tsogo. HCI and Tsogo sought such merger
approval because HCI intended to acquire over 50 per cent of the shares in Tsogo
within the meaning of s 12(2)(a) of the Act. The Commission conducted an
investigation of the proposed transact ion and made recommendations to the Tribunal
that the proposed transaction should be approved without conditions.
[3] The Commission and the Tribunal evaluated the merger on the basis that HCI
would acquire and exercise sole control over the gaming of Tsogo. The Tribunal
unconditionally approved the merger on that basis. Pursuant to this merger approval,
HCI increased its shareholding in Tsogo to approximately 47.5 per cent, thereby
exercising sole control over Tsogo within the meaning of s 12(2) (g) and (c) of the
Act. Now HCI wishes to consolidate all its gaming interests (other than betting and
lottery interests) currently held i'n its Niveus subsidiary into the Tsogo Group which
will result in an increase of 50 per cent in its shareholding in Tsogo, resulting in the
same outcome contemplated in the 2014 merger approval.
3
[4] At this stage the entities which are role players in this application need to be
introduced. HCI is a listed black empowerment investment holding company in the
financial sector which currently has a beneficial shareholding of 47, 61 per cent in
Tsogo, primarily held through Tsogo Investment Holding Company (Pty) Ltd ('TIHC').
HCI currently indirectly holds 100 per cent of the shareholding of TIHC through TIH
Prefco (Pty) Ltd which in turn holds 90, 357 per cent of TIHC. Tsogo is a level 1
BBBEE contributor status company listed in the travel and leisure sector. With its
shareholding of 47, 61 per cent, HCI is the de facto sole controller of Tsogo and is
the largest shareholder in Tsogo by a considerable margin.
[5] The Tsogo Group's operations can be subdivided into two principal business
activities which are gaming and hotels. Tsogo's gaming interests are held through
Tsogo and Tsogo Sun Gaming (Pty) Ltd. The Tsogo Group, through its various
subsidiary companies currently operates 14 gaming and entertainment complexes in
the country. Tsogo's non-casino hotel interests are held through Sun Hotels (Pty) Ltd
and Southern Sun Offshore (Pty) Ltd and their respective subsidiaries and its casino
hotels through each licenced Tsogo Group Company. Southern Sun Hotels manages
all of these non-hotel interests and offers a variety of hotel brands tailored to suit
individual guest requirements from world class luxury to budget priced hotels.
[6] Apart from its controlling shareholding in Tsogo, HCI also has a controlling
interest in Niveus (52.28%), which wholly owns Niveus Investment 19 Limited
('Game Co') which, in turn, wholly owns Galaxy Gaming and Entertaining Proprietary
Limited ('Galaxy Gaming') and Vukani Gaming Corporation Proprietary Limited
\
4
('Vukani Gaming'). Game Co comprises of all of the South African gaming interests
of Niveus other than its sports betting and lottery interests.
[7] The Commission was informed that the proposed transaction involves a
number of steps which will ultimately entail the transfer of the special purpose
vehicle, Game Co, to Tsogo.
[8] The Commission was asked to confirm the proposed consolidation of all of
HCl's gaming interests (other than its sports betting and lottery interests) under
Tsogo through the transfer of the said gaming interests currently owned by one of
HCl's subsidiary companies, Niveus, to Tsogo would not constitute a notifiable
merger for the purposes of s 12 of the Act. The rationale offered for the proposed
transaction is to consolidate the HCI group's South African gaming interests under
Tsogo over which HCI exerts sole control. HCI and Tsogo contend that, by this
consolidation, Niveus shareholders will be able to realise the value of their
investments in the Limited Payment Machine ('LPM') and bingo industries and
provide the Niveus shareholders with more diversified exposure in gaming, leisure
and property through the Tsogo consideration shares.
[9] The pre and post transaction structures can be depicted thus:
Pre-Transaction
Hosken Consolidated Investments Limited
52.28%
I I
Niveus
Investments
Limited
100%
, I
Niveus Invest 19
Limited
("GameCo ")
~~ 100% ___ ...... ----
100%
Niveus
Invest 1
(Pty) Ltd
60%
[ Kuruman ]
Vukani
Gaming
Galaxy
Gaming
100%
, '
TIH Prefco (Pty)
Ltd
100%
w
TIHC Investments
(Pty) Ltd
90.357%
w
Tsogo
Investments
Holdings
Company (Pty) ltd
47.61%
, I
Tsogo Sun
Holdings Limited
5
Post-Transaction
Hosken Consolidated Investments Limited
' '
Tsogo Investment
Holding Company
(Pty) Ltd
. '
Minimum 50.91 %
Maximum 51.63%
Tsogo Sun
Holdings Limited
' '
Minimum 75%
Maximum 100%
Niveus Invest 19
Limited
("GameCo ")
~I~ ___ ....., -----100% 100%
Niveus
Invest 1
(Pty) Ltd
60%
[ Kuruman
Vukani
Gaming
Galaxy
Gaming
6
[10] On 7 August 2017, the representatives of the Commission met.with the legal
representatives of HCI and Tsogo to discuss HCl's request for an advisory opinion.
At that meeting the Commission requested certain information from HCI and Tsogo
7
relating to the shareholding structures of the companies in question. The requested
information was supplied to the Commission on 8 August 2017. On 1 O August 2017
the Commission requested further information from HCI and Tsogo relating to the
voting patterns of HCI through TIHC at Tsogo's shareholders annual meetings. The
requested-information was furnished to the Commission on the same date.
The Commissions Advisory opinion
[11] On 16 August 2017 the Commission issued its advisory opinion in which it
expressed the view that the proposed transaction was notifiable for, inter alia, the
following reasons:
(a) The proposed transaction would result in the crossing of a bright line as HCI
through TIHC would increase its shareholding in Tsogo from the current 47.61
per cent to more than 50 per cent resulting in HCI beneficially owning more
than one half of the issued share capital of Tsogo within the contemplation of
s 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 legislature deemed should be notified to the
Commission. In short, the crossing of this bright line triggers notification of a
merger.
(b) Circumstances had changed since 2014 and the structure of the market had
altered which meant that a merger investigation rather than an advisory
opinion was appropriate. The Commission also emphasised that a non
binding opinion was part of its advocacy role and it could not be held to the
terms of a non-binding agreement.
-
8
(c) The Commission considered that the transaction involved a different firm
namely Niveus, and other factors would be relevant such as the public interest
which may involve considerations of retrenchment. The Commission opined
that the past authorisation was for a specific transaction and that different
considerations would apply to this transaction as it had different transactional
structure. The Commission found it to be a notifiable transaction and that it
had to be notified prior to its implementation. The appellants argued to the
contrary. The consequences that flow from this difference of opinion between
the Commission and the appellants is, in our view, a live dispute between the
parties.
[12] The Commission made it clear in its advisory opinion that the views
expressed therein were not binding on the Commission or any party and that its
views may change on the basis of further information provided by HCI and Tsogo.
The Commission also emphasised that it provides the advisory opinions to the
parties on request as part of its advocacy functions. HCI and Tsogo contended that
the reasons advanced by the Commission in reaching the conclusion that the
transaction should be notified were flawed because HCI already has sole control of
Tsogo, pursuant to approval by the Tribunal in 2014 and HCI and Tsogo were not
seeking the acquisition of sole control. In the second instance, HCI and Tsogo
contended that there is no time limit imposed in the Act for the validity of an approval
under the merger control provisions.
9
Tribunal Decision
[13] Arising from this legal uncertainty HCI and Tsogo approached the Tribunal on
urgent basis seeking an order as foreshadowed in the notice of motion. At the
hearing of the matter before the Tribunal, the parties were requested to address the
Tribunal on the question of whether the Tribunal enjoyed jurisdiction to consider this
application because the Tribunal took the view that a transaction is only triggered
when that transaction has first been notified to the Commission.
[14] On 12 September 2017 the Tribunal heard and dismissed the application and
stated that the reasons for such an order will be issued in due course. On 29
September 2017 the Tribunal gave its reasons. The Tribunal found that it does not
have the power to grant declaratory relief in terms of s 27(1) 1 and also in terms of s
582 of the Act. An analysis of s 58 demonstrates the wide range of powers the
1 Section 27(1) reads as follows: '27. Functions of Competition Tribunal.-(1) The Competition
Tribunal may-
(a) adjudicate on any conduct prohibited in terms of Chapter 2, to determine whether
prohibited conduct has occurred, and, if so, to impose any remedy provided for in this Act;
(b) adjudicate on any other matter that may, in terms of this Ac~ be considered by it, and
make any order provided for in this Act;
(c) hear appeals from, or review any decision of, the Competition Commission that may in
terms of this Act be referred to it; and
(d) make any ruling or order necessary or incidental to the performance of its functions in
terms of this Act.'
2 Section 58 reads as follows:'58. Orders of Competition Trlbunal.- (1) In addition to its other
powers in terms of this Act, the Competition Tribunal may-
(a) make an appropriate order in relation to a prohibited practice, including-
(i) interdicting any prohibited practice,
(ii) ordering a party to supply or distribute goods or services to another party on
terms reasonably required to end a prohibited practice,
terms reasonably required to end a prohibited practice,
(iii) imposing an administrative penalty, in terms of section 59, with or without the
addition of any other order in terms of this section;
(iv) ordering divestiture, subject to section 60;
(v) declaring conduct of a firm to be a prohibited practice in terms of this Act, for
purposes of section 65;
(vi) declaring the whole or any part of an agreement to be void;
(vii) ordering access to an essential facility on terms reasonably required;
10
Tribunal enjoys. Obviously the transaction must be considered on a case-by-case
basis. It also 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 3 and
(b) confirm a consent agreement in terms of section 49D as an order of the Tribunal; or
(c) subject to sections 13 (6) and 14 (2), condone, on good cause shown, any non
compliance of-
(i) the Competition Commission or Competition Tribunal rules; or
(ii) a time limit set out in this Act
(2) At any time, the Competition Tribunal may adjourn a hearing for a reasonable period of
time, if there is reason to believe that the hearing relates to a prohibited practice that might qualify for
exemption in terms of section 10.
(3) Despite any other provision of this Act, if the Competition Tribunal adjourns a
hearing in terms of subsection (2), the respondent may apply for an exemption during
that adjournment.'
3 Tribunal Rule 31 reads as follows: '31. Preliminary merger decislons.-(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) For an order extending time in terms of section 14A (2).
(b) An appeal against directions by the Commission concerning the application of the
Threshold requirements and fee calculations, in terms of Competition Commission
Rule 26 (3).
(c) An appeal against an opinion of the Commission concerning the jurisdiction of the Act,
in terms of Competition Commission Rule 33.
(d) An appeal against Form CC 13 (2) issued by the Commission in terms of Competition
Commission Rule 30.
(e) An appeal against a Demand for Corrected Information issued by the Commission, in
terms of Competition Commission Rule 32.
( f) For an order for a remission of filing fees, in terms of Competition Commission Rule
34 (2).
34 (2).
(2) A person appealing against Form CC 13 (2) in terms of both Competition Commission Rule
30 (4) and Competition Commission Rule 33 (3) must combine both appeals on a single Notice of
Motion.
(3) A Notice of Motion and affidavit filed in terms of this Rule-
(a) must be served on the Commission, or if the Commission is the applicant, on the firm
that filed the Merger Notice; and,
(b) if the applicant seeks an order in terms of Competition Commission Rule 33 (3), must
also be served on the other primary firm.
(4) Upon receiving a Notice of Motion and affidavit filed in terms of this Rule, the registrar must
set the matter down for hearing at the earliest convenient date.
11
Commission Rule 33. It also found that notification of a transaction to the
Commission is a jurisdictional requirement to trigger their function. The Tribunal
found that HCI and Tsogo were not entitled to approach the Tribunal directly for the
order that they sought. The Tribunal also held that even if they accepted jurisdiction
is triggered by a direct application they would in any event find no justification for the
exercise of their discretion in favour of HCI and Tsogo.
[15] Although the Tribunal found that it does not have jurisdiction to consider the
matter, it nevertheless went on to consider whether it ought to exercise its discreti~n
in favour of HCI and Tsogo. The Tribunal concluded that there was no live dispute
between the parties that required its intervention. The Tribunal went further and
stated that the applicants approached the Commission for an advisory opinion. They
were not required to do so but the fact that they did suggest 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.
(5) A motion in terms of sub-rule (1) (a) may be heard by a single member of the Tribunal in
terms of section 31 (5).
(6) Division E, other than the requirements set out in Rule 42 (1) and (3), does not apply to a
Notice of Motion brought in terms of this Rule.
(7) Upon hearing an appea.l in terms of Competition Commission Rule 30 (3), the Tribunal may
make an order-
(a) Setting aside Form CC 13 (2) entirely;
(b) Confirming any or all of the requirements set out in Form CC 13 (2);
(c) Substituting other requirements for any of the requirements set out in Form CC 13 (2);
or ·
(d) Combining any or all of the requirements set out in Form CC 13 (2) with additional or
substitute requirements.'
12
[16] Aggrieved by these findings, HCI and Tsogo launched this appeal contending
that the Tribunal should have found that it has jurisdiction to grant declaratory relief
sought by HCI and Tsogo on the same legal basis that it has jurisdiction to interdict
the implementation of notifiable mergers and to order their notification to the
competition authorities for approval under the Act and in particular in terms of s 27
(1) (d) of the Act. The primary thrust of HCI and Tsogo's attack against the
Commission's advisory opinion is that the proposed transaction constitutes the
further implementation of a merger approval previously granted to HCI to acquire
sole control of Tsogo and that, even if the proposed transaction involves an
acquisition of an additional instance of control within the meaning of s 12(1), HCI and
Tsogo have already obtained approval for such acquisition of control in the form of
the 2014 merger approval.
[17] This is then the convenient stage to deal with the two issues as foreshadowed
in para 1 above. We first deal with the question relating to the jurisdiction.
(18] Counsel for HCI and Tsogo contended that in terms of s 27 (1) of the Act, in
particular, s 27 (1) (d) thereof, the powers of the Tribunal are wide and include the
power to grant declaratory relief in the circumstances of this case. To bolster his
submission, he referred to a number of the decisions where the Tribunal had
exercised its discretion and granted declaratory relief. First is Bulmer.4 In this case
the Tribunal held that it has the power to declare that a specific transaction
constitutes a merger and to order its notification by the parties to the transaction.
4 Bulmer SA (Proprietary) Limited and another v Distillers Corporation (SA) Limited and others Case
No: 94/FN/Nov00;101/FN/Dec00.
-
13
This decision of the Tribunal was confirmed by this Court on appeal.5 Second is
Goldfields.6 In this case this Court held that the Tribunal had the power to grant
interdictory relief to prevent the implementation of a notifiable merger. This court
stated in this regard that, if, in exercising its merger powers, the Tribunal found that a
proposed transaction constituted a merger and the parties were intent on
implementation, say before notification, it would be a legislative curiosity if the
Tribunal did not have the power to grant an appropriate order to prevent a breach of
the Act in circumstances where the breach was so flagrant. This court interdicted
Harmony from voting any of the rights associated with the shares it had acquired as
a result of the so-called early settlement offer putting beyond any doubt that the
competition authorities have the power to interdict the implementation of mergers
and the power to compel the notification of mergers by the parties to the merger in
question.
[19) Third is Supersport.7 In this case the Tribunal made a declaratory order
regarding the notifiability of the relevant transaction in that case as a merger. Fourth
is Novus.8 In this case this court ordered the parties to notify an agreement as a
merger having found that the new agreement falls within the meaning of s 12(1).
Fifth is SABc9. In this case this court overturned the Tribunal's decision not to order
the transaction parties to notify the transaction between them as a merger. In this
5 Distillers Corporation (South Africa) Umited & another v Bulmer (SA) (Pty) Ltd & another
08/CAC/May01.
6 Gold Fields Umited v 'Harmony Gold Mining Company U171ited and Another 43/CAC/Nov04.
7 Caxton CTP Publishers and Printers Limited and Naspers Ltd/Electronic Medial Network
Ltd/Supersport International Holdings Ltd/Competition Commission (16/FN/Mar04) [2004] ZACT 25
(13 April 2004) para 45.
8 Caxton CTP Publishers and Printers Limited and Media 24 Holdings Ltd, Novus (Pty) Ltd, Adbait
(Pty) Ltd, Lambert Philips Retief 136/CAC/March 2015.
9 See footnote 26 below
14
case this court held that the Tribunal has inquisitorial powers and that these should
be deployed to determine whether or not the transact ion constituted a merger.
[20) In Johnic10 the Tribunal accepted that it had the power to grant a declaratory
order that the transaction in question constituted a merger:
'95. Any doubt which may have existed previously about the Tribunal's powers to
issue an interdict sought by a firm on the basis that another is implementing a merger
which has yet to be ruled upon by the competition authorities ... has been dispelled
by the decision of the CAC in the first of the Goldfields!Harmony cases, where this
power was affirmed and such an interdict was granted.'
[21) In Cape Empowerment Trust Ltd v Sanlam Life Insurance Ltd and another11
the Tribunal accepted that it had the power to grant an interdict restraining the
implementation of a transaction pending receipt of a merger approval.
[22] In terms of s 62 of the Act, the Tribunal and this Court have exclusive
jurisdiction to hear any matter that the Act defines 12:
,o Johnie Holdings Limited v Hosken Consolidated Investments Limited and Another Case Number
65/FN/Jul05.
11 [2006] 1 CPLR 410 (CT).
12 '62. Appellate jurisdiction.-(1) The Competition Tribunal and Competition Appeal
Court share exclusive jurisdiction in respect of the following matters:
(a) Interpretation and application of Chapters 2, 3 and 5, other than-
(i) a question or matter referred to in subsection (2); or
(ii) a review of a certificate issued by the Minister of Finance in terms of
section 18 (2); and
(b) the functions referred to in sections 21 (1 ), 27 (1) and 37, other than a question or
matter referred to in subsection (2).'
15
[23] The Commission accepts that the Tribunal and this court have made orders of
various kinds in rel~tion as to whether a transaction constitutes a merger such as
Johnnie, Gold Fields and Cape Empowerment Trust, Distillers. The Commission
however argues that the orders are not declaratory orders but are merely analogous
to declaratory orders.
[24) On a fair reading of these cases, we find that it is manifest that the orders
granted therein are akin to declaratory orders. The Tribunal contends that, despite
the fact that the Tribunal had previously made orders relating to a determination of
whether a transaction constitutes a merger, this did not apply to advisory opinions of
the Commission. It applied to mergers where there has already been notification to
the Commission. In our view this conclusion by the Tribunal is a misdirection.
[25] Ordinarily the High Court would, but for the exclusive jurisdiction provisions
contained in the Act, have the power to grant the declaratory relief sought in this
application. It therefore follows that a party who seeks declaratory relief regarding
the notifiability of a transaction under the Act would not be able to approach the High
Court for such relief. The only body that HCI and Tsogo can approach for such
declaratory relief is the Tribunal and, on appeal, this court. It seems to us that if this
court were to endorse the Tribunal's finding that it did not have the power to grant
declaratory relief, a party seeking such relief in respect of the notifiability of
transactions under the Act would be deprived of the right to seek such relief from any
forum and would be left without a remedy. In the circumstances, this will result in an
untenable situation where a party will be deprived of their right to access to court
16
enshrined in s 34 of the Constitution.13 In any event, in Seagram14 the High Court
confirmed the exclusivity of the competition authorities in respect of the merger
control provisions.
I26] As correctly pointed out by Counsel for HCI and Tsogo it would lead to an
incomprehensible reading of the Act to concluded that if the Act conferred upon the
Tribunal the power (i) to declare that a transaction constitutes a merger, (ii) to order
the parties to notify the merger, and (iii) to order the parties not to implement the
transaction, pending approval, but, at the same time, preclude the Tribunal from
being able to issue declaratory relief that a transaction does not constitute a merger
when approached by the parties for such relief. In our view, the jurisdictional basis
has been established that the Tribunal's powers do include orders for declaratory
relief. This then is dispositive of the jurisdictional issue. The exclusivity provisions as
contained in s 62 of the Act would result in an unsatisfactory interpretation of the
powers of the Tribunal and results in a barrier to justice.
[27] Having found that the Tribunal's jurisdiction under the Act was triggered, the
next step is to determine whether, in the circumstances of this case, the Tribunal
ought to have exercised its discretion in favour of HCI and Tsogo. At the outset it
must be emphasised that declaratory orders can provide legal certainty to each party
in a matter when this could resolve or assist in a dispute. Declaratory orders are
discretionary and the facts must justify the relief. It is settled that once the
Commission had given approval it was a "once-off affair" and in this case there were
13 The Const itution of the Republic of South Africa, 1996.
14 Seagram Africa (Pty) Ltd v Stellenbosch Farmers ' Winery Group Ltd& others [2001] 1 All SA 484
(C).
17
no conditions imposed relating to mode or timing of the acquisition or exercise of
control. 15
[28] In Ex parte Nelf 6 it became settled law that a live dispute is a requirement for
the granting of a declaratory order. The full court in Minister of Finance v Oakbay
Investments 17 stated the following:
'[59) Herbstein and van Winsen extrapolate from decided cases factors Courts
have taken into account to determine whether judicial discretion should be
exercised positively or negatively in an application for declaratory relief.
These include:
(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.' (Footnotes omitted)
[29] In Rail Commuters18 O'Regan J held that a declaratory order is a flexible
remedy which can assist in clarifying legal and constitutional obligations. In Shells
Annandale Farm19 Davis J in relation to a tax matter accepted that where a matter is
not abstract or academic a declarator is appropriate but the court still had to exercise
15 In Caxton and CTP Publishers and Printers Limited and Others v Multichoice (Pty) Limited and Others Case
Number 140/CAC/March2016.
18 1963 (1) SA 754 (A).
17 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.
18 Rail Commuters Action Group v Transnet Limited tla Metrorail 2005 (2) SA 359 (CC).
18 Shells Annandale Farm (Pty) Ltd v Commissioner for the SARS 2000 JOL 5948 (C).
18
its discretion. He also cautioned against a floodgate of declarators where parties
may seek to obviate p~ocedural provisions of a statute.
[30] In Cordianf-0 the Supreme Court of Appeal postulated a two-stage approach
to the consideration of an application for declaratory relief. Firstly the applicant must
have an interest in an existing, future or contingent right or obligation and secondly if
the court is satisfied of such a condition then it has to exercise its discretion by
deciding to either refuse or grant the order sought.
[31] As regards the first leg of the test, HCI and Tsogo clearly have a legal interest
in the declaratory relief sought in their application as it relates to the question
whether or not they have a legal obligation to notify the proposed transaction to the
competition authorities for approval. In addition, the relief sought relates to an
existing or contingent right or obligation of HCI and Tsogo, in particular, the question
whether or not they are obliged to notify the proposed transaction to the competition
authorities for approval. As regards the second leg of the test, there is a live dispute
between HCI and Tsogo and the Commission regarding the notifiability of the
proposed transaction. The legal uncertainty has been created due to the stance
taken in the Commission's advisory opinion that the proposed transaction constitutes
a notifiable merger. In Seagrarrf1 the High Court observed that an advisory opinion,
albeit not binding, reflects the views of the Commission on a particular matter (i.e ..
the notifiability of transactions), and can be acted upon. In Bulme?-2 the Tribunal
stated that it would be "highly artificial" not to regard an advisory opinion as reflecting
the Commission's position on the notifiability of a transaction.
20 Cordiant Trading CC v Daimler Chryste, Financial Services (Pty) Ltd 2005 (6) SA 205 (SCA).
21 Seagram note 13 above.
22 Note 5 above at 458.
19
[32] The Commission confirmed in its answering affidavit in the present matter that
it regards the proposed transaction as a notifiable merger, and went so far as to
make a counter-application for an order directing HCI and Tsogo to notify the
proposed transaction to the Commission as a notifiable merger. The fact that the
Commission withdrew that counter-application during the Tribunal hearing does not
detract from the fact that there is clearly a dispute between the parties, and legal
uncertainty, regarding the notifiability of the proposed transaction under the Act. The
declaratory relief sought by HCI and Tsogo will settle the dispute between the parties
regarding the notifiability of the proposed transaction, and remove the legal
uncertainty in relation thereto.
[33] In Goldfields23 this Court held that the Tribunal did have power to grant
interdictory relief. This court found that the Tribunal in issuing an interdict found:
'that the Tribunal in exercising its merger powers found that a transaction constituted
a merger but the parties were intent on implementation before notification it would be
a legislative curiosity if the Tribunal did not have the power to grant an appropriate
order to prevent a breach of the Act'.
[34] In summary, HCI and Tsogo have a legal interest in the declaratory relief as it
relates to whether there is a legal obligation to notify the competition authorities
about the proposed transaction. There is a live dispute between the appellants and
the respondent regarding the notification of the transaction. There is legal
uncertainty and the Commission has already indicated a set intention that the
23 Goldfields Limited v Harmony Goldmining Company Limited and Another 43/CAC/Nov04.
20
transaction is a notifiable merger. In African Media Entertainment24 the court found
that a non-binding advisory opinion reflects the views of the Commission on a
particular matter such as notitiability of transactions and can be acted on.
[35] As already stated, prior to 2014, Tsogo was subject to the joint control of HCI
through various subsidiary companies and SABMiller pie. In 2014, SABMiller
announced that it was divesting itself of its shareholding in Tsogo which would have
the effect of leaving HCI as the sole controller of Tsogo in 2014, HCI notified the
Commission of its intention to acquire sole control over Tsogo. After investigation of
the merger as notified, the Commission recommended that the merger be approved
unconditionally and following a hearing, the Tribunal approved the transaction
without conditions as reflected in its decision in TIHC and Tsogo, ('the 2014 Tsogo
Decision'). In its decision, the Tribunal recorded that the primary target firm is Tsogo
which is jointly controlled by TIHC and SABSA Holdings Ltd (SABSA) with 41.3 per
cent and 39.6 per cent respectively and that post-merger HCI will ultimately acquire
sole control of Tsogo.
[36] This will occur through Tsogo purchasing the shares in GameCo from HCI
and the other shareholders of Niveus, after the shares in GameCo have been
unbundled by Niveus. Tsogo will pay for these shares through a combination of
shares and cash, which will result in HCI acquiring a shareholding in excess of 50
percent in Tsogo. HCI controls Tsogo through various subsidiary companies and all
of the subsidiaries through which it holds shares in Tsogo.
24 African Media Entertainment Limited v David Lewis NO and Others Case Number 68/CAC/Mar07.Africa (Pty) Umited
and Stellenbosch Farmer's Winery Umited, Stellenbosch Farmer's Winery Group Limited Distillers
Corporation SA Limited 7759/00C BD.
21
[37] The merger that was approved unconditionally by the Tribunal in the 2014
Tsogo decision was the acquisition of sole control by HCI over Tsogo. It was also
expressly recognised in the Tribunal's decision that HCI would acquire control of
Tsogo by ultimately increasing its shareholding in Tsogo to over 50 per cent.
Consequently, the Commission and the Tribunal conducted the merger assessment
required in terms of section 12A of the Act on the basis that HCI would exert sole
control over the gaming interests of both Tsogo and Niveus. In unconditionally
approving HCl's move from joint to sole control of Tsogo, the Tribunal concluded that
such ~cquisition of control did not give rise to any concerns under s 12A of the Act,
notwithstanding that HCI also enjoyed sole control of Niveus's gaming interests.
[38] Counsel for the Commission submitted that the contentions advanced on
behalf of HCI and Tsogo which appear to be premised on a unitary concept of
control are of no assistance to HCI and Tsogo because it does not change following
the implementation of the proposed transaction. Relying on Bulmer25 and
Distellers26, he submitted that notification is intended to be as extensive as possible;
hence the breadth of the language in s 12. Once a transaction presents the essential
features of a merger it is notifiable. If this were not the case, there would be a danger
that mergers that may have adverse effects might go undetected because the
jurisdictional barriers in terms of s 12 had been set too high. It follows that the Act
was designed to ensure that the competition authorities examine the widest possible
range of potential merger transactions to examine whether competition was impaired
25 Bulmer SA (proprietary) limited and another v Distillers Corporation (SA) Limited and others case
number 94/FN/Nov*0101 /FN/DecOO.
26 Distillers Corporation (South Africa) Limited and another v Bulmer (SA) (Pty) Ltd and another
08/CAC/May01.
22
and this purpose provides a strong pro-pointer in favour of a broad interpretation of s
12.
[39] He submitted that this Court's judgement in Distillers is binding authority for
the proposition that the provisions of s 12(1) do not exclude a transaction between a
company and its wholly owned subsidiary. In this regard, in responding to the
contention by the appellant in Distillers that, when s 12(1) of the Act refers to 'the
direct or indirect acquisition or direct or indirect establishment of control', it is
exclusively to 'ultimate control' and, unless 'ultimate control' changes as a result of
the transaction in question, such a transaction falls outside the scope of s 12 of the
Act, this Court disagreed. It held that such an interpretation is not mandated by the
express wording of s 12(1). To the contrary, s 12(1) makes no express provision for
the exclusion of transactions between a company and its wholly owned subsidiary,
from the definition of merger.
[40] Counsel for the Commission expressed the view that the legal question
relating to whether s 12(1) of the Act applies to a transaction between a company
and its subsidiary is a question that has already been settled by this Court and that
this is an important factor that has a bearing on the exercise of this court's discretion
against granting the declaratory relief sought.
[41] On the question of sole control, HCI and Tsogo referred to the voting patterns
at Tsogo's most recent shareholders' meetings which revealed that at the 2015
Tsogo's annual general meeting HCI voted its full allocation of 43, 18 per cent as its
per shareholding at the time and its full allocation of 47, 6 per cent at the 2016
annual general meeting. The Commission accepted that a minority shareholder may
23
be deemed to have acquired sole control on a legal or de facto basis in accordance
with historic voting patterns at shareholder meetings. HCI achieved a majority of 51,
09 per cent and 56, 84 per cent votes at the Annual General Meetings and this was
acknowledged by the Commission in paragraph 9.1 and 9.2 of its advisory opinion.
The Commission however argued that this represented volatility. HCl's voter turnout
based on control over Tsogo and that a 2 year assessment of the voting patterns of
shareholders at meeting was too short a period to assess stable sole control. The
Commission did not suggest an appropriate historic benchmark period which was
required to establish stable sole control. We are of the view that it is significant that
HCI did command majority of votes in Tsogo.
[42] The importance of de facto control was also recognised in Caxton.27 In this
matter the Commission accepted that HCI has acquired sole control over Tsogo by
virtue of its shareholding. It also accepted that HCI exercised sole control over Tsogo
under sections 12(2) (g) and (c) of the Act by virtue of its shareholding. The
Commission also accepted that since 2014 HCI had exercised sole control over
Tsogo in accordance with s 12(2) (g) and (c) of the Act by virtue of its shareholding.
The appellants contend that this potentially volatile situation will be countered
because the proposed transaction will move to majority control in terms of s12 (2) (a)
of the Act, thus moving HCI away from the dependence of other shareholders at the
meetings. In AME28 'manifestly control per se is relevant to determining whether a
merger exists and thus whether the Tribunal has jurisdiction to examine the
transactions in terms of the factors set out in s12.'
Supra
28 African Media Entertainment Limited v David Lewis NO and Others Case Number 68/CAC/Mar07.
24
[43] Counsel for HCI and Tsogo argued that the 2014 Tsogo decision led to the
acquisition of sole control by HCI over Tsogo. At that time the competition
authorities had conducted a merger assessment in terms of section 12A of the Act
and were aware that in time HCI would exert sole control over the gaming interests
of Tsogo and Niveus. At the same time HCI also enjoyed sole control of Niveus
gaming interests. He correctly submitted that, in analysing s12 (2), it becomes clear
that the section does not purport to define control in terms of an exhaustive list. In
this regard he pointed out that very often, at the time of merger notification, details
may not be clear, for example as to how many shares will be purchased by the
acquiring firm or when they will be purchased or from which shareholders but these
factors do not prevent merger approval. He emphasised that the important factor in
assessing whether the transaction constitutes a merger or not is the question of prior
and post transaction control. He argued that in this case the facts insofar as HCl's
pre and post transaction control are clear.
Is a Rule 33 application necessary?
[44] In Etho~ 9 the Tribunal required the parties to file an application to have the
question of jurisdiction determined. From what is stated above, it follows that the
content of the appeal in terms of Rule 33 would be precisely the same information as
the application for declaratory relief. Counsel for HCI and Tsego submitted that the
Rule 33 procedure would be costly, unnecessary waste of time and would be
pointless. Based on the facts in this case and in particular the approval granted in
2014 we find that a Rule 33 application is unnecessary.
29 Ethos Private Equity Fund IV and Tsebo Outsourcing Group (Pty) Limited Case Number
30/LM/Juno3.
25
[45] HCI and Tsogo contend that the acquisition of sole control is a "once-off' affair
and accordingly that, once they have received approval for HCI to acquire sole
control over ~sago, there is no requirement for HCI to obtain any further permission
to increase its shareholding in Tsogo over 50 per cent or to restructure the assets
over which it holds sole control. In any event, HCI and Tsogo contend that the
current proposed transaction does not involve an acquisition of control within the
meaning of s 12(1) of the Act, given that HCI already exerts sole control over Tsogo
in terms of the 2014 merger approval. In Ethos30 this court found that a change of
control is a once-off affair. Even if a firm has notified sole control at a time when that
control is attenuated in some respects by other shareholders and it later acquires an
unfettered right, provided that sole control has been notified and that this formed the
basis of the decision, no subsequent notification is required.
[46] Confronted with these difficulties counsel for the Commission sought to
overcome them by submitting that the 2014 Tsogo Transaction involved the exit of a
significant minority shareholder, SABMiller, and the acquisition by HCI through TIHC
of additional shares in Tsogo. However, in the proposed transaction, not only will
HCI through TIHC acquire additional shares in Tsogo, the proposed transaction also
involves the transfer of a business GameCo which currently houses the gaming
interests of HCI. As a result, GameCo, the wholly owned subsidiary of Niveus, will no
longer be directly controlled by Niveus, rather GameCo would be directly controlled
by Tsogo with a shareholding of between 75 per cent to 100 percent.
30 Ethos Private Equity Fund IV v The Tsebo Outsourcing Group (Pty) Ltd.
26
[47) He submitted that the commission's recommendation and the Tribunal's
decision was to approve the 2014 Tsogo transaction was based on the following
submissions:
(a) In respect of the competitive assessment, it should be noted that in the 2014
Tsogo Transaction, the Commission did not conclude on the relevant product
market but it assessed the effects of the 2014 Tsogo transaction on the
narrow market for casino gaming and found to be no geographic overlap
between the activities of the merging parties due to the distance between the
Kuruman Casino and Tsogo Sun's casinos. The Commission then concluded
that the 2014 Tsogo transaction was unlikely to substantially prevent or lessen
competition in the casino gaming market.
(b) The Commission noted that Tsogo did not own any LPMs, Bingos and sport
betting facilities in Kuruman and the Northern Cape Province. The
Commission then found that on the broader product market that included
other forms of gambling Tsogo was unlikely to constrain the Kuruman Casino
given that it did not operate any gambling activities in the Kuruman region or
area. The Commission noted that HCI also did not own any LPMs, Bingos and
sport betting facilities in Kuruman and the Northern Cape Province resulting in
the Commission to conclude that, the Kuruman casino, which was not
operational at the time of the Commission's assessment which was to operate
in the Kuruman and the Northern Cape Province would not result in any
market share accretion and/or market concentration since HCI did not at that
time perform any gambling activities in the area or region.
27
(c) With regard to the public interest in the 2014 Tsogo Transaction, HCI, through
TIHC, submitted that the transaction would not result in any job losses or
retrenchments as the businesses of HCI and Tsogo will not be integrated. In
the Commission's investigation report in the 2014 Tsogo transaction the
merging parties submitted that 'it is not envisaged that the transaction will
bring significant change in the operations of Tsogo Sun as HCI through TIHC
is prior to the proposed transaction already a controlling shareholder of
Tsogo.' As such, no duplication of functions was expected as a result of the
merger. The merging parties further submitted that 'Tsogo Sun's casino and
hotel operations will continue to be managed and operated in the same
manner as they were prior to the proposed transaction by the same
management team and employees. The day-to-day operations of all the
casinos and hotels within the Tsogo will be unaffected by the proposed
transaction, which will simply result in one of the previous joint controlling
shareholders of the company acquiring a majority equity interest in the
business'.
[48] The Commission submitted that the merger control scheme in the Act is an
investigative system; therefore, the declaratory orders are not well suited for an
investigative system which has its bespoke processes. This has direct implications
on the discretion that a court has to exercise when confronted with an application for
declaratory relief especially when such declaratory relief emanates from the issue of
a non-binding advisory opinion.
28
(49] Counsel for the Commission further submitted that in the current proposed
transactions many variables remain unknown. In the new merger filing HCI and
Tsogo would have to submit their strategic plans including human resource plans in
relation to the proposed transaction. The plans will have to indicate whether or not
an integration of the two businesses is envisaged; whether there will be any
duplication of roles; whether there will be any changes in management and daily
operations of the gaming activities of the merging parties. In the Commission's
experience firms' strategic plans including human resource plans are never always
constant and are subject to review and changes from time to time. He argued that a
merger filing is therefore required in order to conduct this assessment.
(50] Counsel submitted that in the 2014 Tsogo transaction, the Commission
contacted all the relevant unions who had been duly served with the merger filing.
The unions indicated that the 2014 Tsogo transaction would not raise any public
interest concerns. He asserted that in the present case, the Commission would need
to solicit the views of the relevant unions to establish whether or not the restructuring
will raise public interest concerns. He submitted that the competitive and public
interest assessments cannot be undertaken under the guise of an advisory opinion
and must be undertaken in a merger investigation.
(51] He submitted that the subsequent acquisition of a majority shareholding in
Tsogo and the combination of the Niveus gaming interests under Tsogo, constitutes
a separately notifiable merger as it involves a further acquisition of control in terms of
s 12(2) (a) of the Act. As indicated above, the Commission accepts that HCI applied
29
for (and was granted) approval to acquire sole control over Tsogo on the basis of an
intended shareholding in Tsogo of over 50 per cent. Counsel contended that
because that 50 per cent shareholding will now come about pursuant to a
subsequent transaction that is distinct from the transaction contemplated in the 2014
merger approval, a further merger notification and approval is now required, with a
further merger assessment under section 12A of the Act.
[52) The grant of a declaratory order in this kind of case must be considered very
carefully. The power should be exercised sparingly, lest the investigative powers of
the Tribunal be undermined. But this case is one of those rare exceptions. As
already stated, it is common cause that HCI was granted approval to, and did in fact,
acquire sole control of Tsogo following the 2014 merger approval, pursuant to its
increased shareholding in Tsogo of 47.5 per cent. By virtue of that shareholding, HCI
acquired sole control of Tsogo in terms of section 12(2)(g) and section 12(2)(c) of the
Act. HCI currently exercises sole control of Tsogo. There is no further acquisition of
establishment of control that is brought about by its acquisition of over 50 percent of
the shares in Tsogo within the meaning of s 12(2) (a) of the Act and this is a further
implementation of an existing sole control structure which was approved by the
Tribunal in 2014 and which permitted HCI to conduct the operations of Tsogo as it
saw fit.
[53) S 12(2) therefore does not list different kinds of control, each of which is
separately notifiable but illustrates different ways in which control might be acquired
within the meaning of section 12(1) of the Act. Once sole control has been approved
and acquired in one of the ways contemplated in section 12(2), it does not require
30
separate approval if it is subsequently implemented in one of the other ways
contemplated in section 12(2). Merger approval is thus a "once off' affair. We find
that the proposed transaction does not constitute a notifiable merger because the
competition authorities have previously approved the acquisition of sole control of
Tsogo in 2014 by HCI, and because HCI already exerts sole control of Tsogo
pursuant to the 2014 merger approval. We were unable to find any authority on the
proposition. While the Commission's argument about crossing bright lines raises
important policy considerations, the latter would, on the present wording of the Act
require amendment to be given the kind of legislative force advocated by the
Commission.
Sole Control
[54] Much of the debate centred on the nature of the control exerted by appellants
over Tsogo. Appellants referred to the voting patterns at Tsogo's most recent
shareholders meeting and found that it was stable in that the minority of institutional
investors were acquiescent.
[55] We are of the view that it is significant that HCI commanded the majority of
votes in Tsogo. The importance of de facto control was also recognised in Caxton,
supra. In the present matter the Commission accepted that HCI had acquired sole
control over Tsogo by virtue of its shareholding. It also accepted that HCI exercised
sole control over Tsogo under sections 12(2) (g) and (c) of the Act by virtue of its.
shareholding. The Commission also accepted that the since 2014 HCI exercised
sole control over Tsogo in accordance with s 12(2)(g) and (c) of the Act by virtue of
its shareholding. The appellants contend that this potentially volatile situation will be
31
countered because the proposed transaction will move HCI to a position of majority
control in terms of s12(2)(a) of the Act. This moves HCI away from the dependence
of other shareholders at the meetings.
[56) The appellants submit that it is clear that the 2014 Tsogo decision led to the
acquisition of sole control by HCI over Tsogo. At that time the Commission and the
Tribunal conducted a merger assessment in terms of section 12A of the Act. It was
aware that in time HCI would exert sole control over the gaming interests of both
Tsogo and Niveus. At the same time HCI also enjoyed sole control of Niveus'
gaming interests.
[57] In analysing s12 (2), it is clear that it does not purport to define control in
terms of an exhaustive list. The appellants argue that very often at the time of
merger notification details may not be clear, for example, as to how many shares will
be purchased by the acquiring firm or when they will be purchased or from which
shareholders. These factors do not prevent merger approval. The important factor
therefore in assessing whether a transaction is simply that or whether the transaction
constitutes a merger is the question of prior and post transaction control. In this
case, the facts are clear concerning HCl's pre and post transaction control.
[58] The present internal restructuring by HCI of its assets does not give rise to a
situation of a change in qualitative control. A helpful test was suggested regarding
sole control in the Official Journal of the European Union C95/16
'(54) Sole control is acquired if one undertaking alone can exercise decisive influence
on an undertaking ... determine the strategic commercial decisions of the other
32
undertaking and where one shareholder can veto strategic in an undertaking' has
sole control.'
Conclusion
[58] In our view the Commission cannot require the notification of a transaction
based on a reason that it wishes to assess the implications of such transaction. It is
important to emphasise that the effects of an acquisition of control are considered
and determined when the approval of the merger is sought and obtained which is
done on a forward-looking assessment of the likelihood of competition harm and the
public interest and cannot be revisited once it has been determined.
[59] Having carefully considered the particular facts of this case we are driven to
conclude that the Tribunal has the jurisdiction to grant declaratory relief; that the
requirements for the exercise of that jurisdiction are met and that the proposed
transaction in this case does not amount to a notifiable merger under the Act.
(60] Coming to the issue of urgency, HCI and Tsogo have predicated urgency on
the fact that the proposed transaction involves a series of interconnected
transactions between three listed companies with the purchase price to be
discharged by a combination of cash and shares. The long stop date for regulatory
approval on the agreement was originally 30 September 2017 and the parties are
currently seeking to negotiate a brief extension of this date. They assert that there is
an urgent need for regulatory certainty regarding the notifiability of the proposed
transaction prior to the expiry of the long-stop date. Consistent with the urgency of
this matter, HCI and Tsogo have sought to achieve certainty regarding their legal
.. .. 33
obligations with all due expedition. The Tribunal dealt with the issue of urgency in
para 76 of its decision. In light of the decision that we have come to on the merit of
the application, we find it unnecessary to deal with the issue.
[61] What remains to be considered is the question of costs. The general rule is
that in the ordinary course costs follow the result. However, in this application
Counsel for the Commission submitted that the facts of this case do not warrant an
order for costs against the Commission. Counsel for HCI and Tsogo rightly so
conceded.
Order
1. The appeal is upheld.
2. It is declared that the proposed transaction in terms of which Hosken
Consolidated Investments Limited will increase its shareholding in Tsogo to
more than 50 per cent and will consolidate all of its gaming interests (other
than its sports betting and lottery interests) under Tsogo Sun Holdings
Limited, an entity over which it exerts sole control pursuant to a decision of
the Tribunal in 2014 (Case No. 019372), by transferring such gaming interests
owned indirectly by one of its subsidiary companies, Niveus Investments
Limited to Tsogo Sun Holdings Limited, does not require approval by the
completion authorities in terms of the merger control provisions of the
Competition Act 89 of 1998.
..
VICTOR AJA
__Jt_/1~un.'
Mtk~NIAJA
DAVIS JP concurred
Appearances
Heard:
Delivered:
For the Applicants:
Assisted by:
INSTRUCTED BY:
REF.:
TEL.:
02 October 2017
October 2017
Mr D. Unterhalter SC and Mr J. Wilson SC
Ms S. Pudifin-Jones and Mr N. Luthuli
Nortons Inc.
34
.... . "
For the Respondents :
INSTRUCTED BY:
REF:
TEL:
Mr B Majenge, Mr K Ayayee and Ms L Phaladi
Competition Commission
35