Brief Summary

Competition Law — Notice of Apparent Breach — Coca-Cola Beverages Africa (Pty) Ltd challenged a Notice issued by the Competition Commission alleging breach of merger conditions following the retrenchment of 368 employees. The Commission's investigation was initiated after a complaint from the Food and Allied Workers Union, asserting that the retrenchments violated conditions aimed at maintaining employment levels post-merger. The legal issue centered on whether the retrenchments constituted a breach of the merger conditions imposed during the approval of the first and second mergers. The Tribunal held that the retrenchments were justified based on operational requirements and did not constitute a breach of the merger conditions, as the company had maintained its overall headcount and complied with the necessary consultation processes.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were a review application brought in the Competition Tribunal in terms of section 27(1)(c) of the Competition Act read with Rule 39(2)(b) of the Rules for the Conduct of Proceedings in the Competition Commission. The applicant, Coca-Cola Beverages Africa (Pty) Ltd (CCBA), sought to review and set aside a Notice of Apparent Breach issued by the Competition Commission of South Africa. The Food and Allied Workers Union (FAWU) intervened and was granted participation rights.

The Commission’s Notice asserted an apparent breach of conditions attached to the approval of two Coca-Cola-related mergers. The dispute arose after Coca-Cola Beverages South Africa (Pty) Ltd (CCBSA), a subsidiary of CCBA, retrenched 368 employees with effect from 31 May 2019 following a consultation process conducted under the Labour Relations Act.

Procedurally, FAWU first lodged a complaint with the Commission under section 49B of the Competition Act in March 2019. The Commission investigated and issued the Notice on 24 October 2019. CCBA did not immediately invoke Rule 39 review proceedings within the initial time period, but instead engaged with the Commission through submissions and supplementary submissions. After further correspondence from the Commission on 29 April 2020, CCBA launched the review application on 14 May 2020. The matter was heard on 18 March 2021, and the Tribunal issued its order and reasons on 18 August 2021.

The general subject-matter of the dispute concerned whether the 2019 retrenchments were “merger-specific” (and therefore prohibited by the merger conditions) or whether they were permissible retrenchments attributable to operational requirements in the ordinary course of business, which the conditions expressly excluded from “retrenchments as a result of the merger”.

2. Material Facts

Two merger transactions were relevant. The first merger, approved on 10 May 2016, consolidated independent Coca-Cola bottlers into CCBA and included public interest conditions relating to employment. Two conditions were central. First, CCBA undertook for at least three years to maintain at least the number of employees employed in aggregate by the merging parties as at the approval date (clause 9.1). Second, CCBA undertook that it would not retrench bargaining unit employees “as a result of the merger” (clause 9.2), while clarifying that retrenchments did not include “necessary steps” under section 189 of the Labour Relations Act where operational requirements in the ordinary course of business, not merger-specific, necessitated such steps (clause 9.4.5). The same 2016 merger conditions were preserved and extended in a second merger approved on 27 September 2017, which extended the relevant period to run for no less than three years from implementation of the second transaction.

In January 2019, CCBSA informed the Commission that it had been operating under difficult circumstances for two years, citing declining profits and pressures including rising input costs, macro-economic forces, and the Health Promotion Levy (“sugar tax”) introduced in April 2018. CCBSA indicated it intended instituting a consultation process under section 189 of the Labour Relations Act. On 21 January 2019, it issued a section 189A notice contemplating dismissals in the logistics and commercial functions, describing its operational requirement as optimising structures to reduce costs and transition to a more efficient structure.

The consultation process commenced on 5 February 2019 and concluded on 16 April 2019 without resolution. CCBSA then terminated the employment of 368 employees with effect from 31 May 2019 where employees could not be placed in alternative roles or refused alternative roles.

FAWU lodged a complaint with the Commission on 28 March 2019 alleging a potential violation of the Tribunal’s merger ruling that no job losses should occur as a result of approval. The Commission initially requested information from CCBA focused on the number of employees retrenched, reasons for retrenchment, and current headcount. CCBA’s responses stated that 368 employees were to be retrenched and that the then-current headcount exceeded the relevant 2016 headcount. CCBA attributed the retrenchments to economic pressures including the sugar tax (stated to amount to R2.1 billion for April–December 2018), weak economic conditions affecting sales, and anticipated increases in raw material costs, particularly sugar.

A disputed factual issue emerged as to the reason for retrenchment. CCBA maintained that retrenchments were driven by operational requirements arising from post-merger economic conditions and cost pressures. The Commission, however, ultimately asserted that retrenchments were merger-specific, initially on the basis that they reflected rationalisation to remove duplications and reduce staff costs associated with the merged bottling operations, and later advancing an additional theory that retrenchments and rehiring at lower wages undermined the merger-related harmonisation obligations contained in union agreements incorporated into the merger conditions.

A further material procedural feature was that the Commission’s grounds for asserting breach shifted over time. The Notice itself did not specify which condition had been breached, and the Commission’s accompanying correspondence evolved from an apparent concern with employee headcount, to an allegation of merger-specific duplication-related retrenchments, and later to an allegation connected to harmonisation of terms and conditions under the union-related conditions.

3. Legal Issues

The central legal questions were whether, for purposes of Rule 39(2)(b), CCBA had substantially complied with its obligations under the merger conditions, particularly clause 9.2, and whether the Commission’s issuance of the Notice could be sustained on the basis that the retrenchments were “as a result of the merger” rather than a consequence of operational requirements.

The dispute primarily concerned the application of law to fact. It required the Tribunal to interpret the merger conditions (including the relationship between clauses 9.1, 9.2 and 9.4), to identify the correct approach to determining whether retrenchments were “merger-specific”, and then to evaluate the competing factual explanations for the retrenchments on the probabilities.

A further issue concerned the nature and scope of review under section 27(1)(c) and Rule 39(2)(b), and whether the review was limited to substantial compliance or extended to legality, reasonableness and procedural fairness. In addition, an issue arose as to condonation (or the effective triggering of the Rule 39 time periods) given that CCBA instituted review proceedings months after the October 2019 Notice, after extended engagement with the Commission.

4. Court’s Reasoning

The Tribunal first addressed the nature of review under section 27(1)(c). It held that, in context, a review does not amount to an appeal on the merits, but concerns whether the decision is lawful, reasonable and procedurally fair. The Tribunal then explained that Rule 39(2)(b) provides a specific, context-driven form of review in merger-condition breach matters: the Tribunal must determine whether the firm has substantially complied with merger obligations. In the Tribunal’s view, that determination necessarily involves consideration of legality, reasonableness and procedural fairness.

The Tribunal then interpreted the employment conditions by reference to the public interest purpose in section 12A(3)(b) of the Competition Act, namely the merger’s effect on employment. It distinguished between two mechanisms commonly used in merger conditions: maintaining employment at or above a specified level for a period, and prohibiting merger-specific retrenchments. It emphasised that the Competition Act’s concern is not the protection of individual jobs in the labour-law sense, but limiting merger-related job losses. It relied on earlier Tribunal authority recognising a jurisdictional distinction between merger-specific employment loss (within competition law oversight) and operational employment loss (primarily a labour law matter).

On the interpretation of the specific conditions, the Tribunal held that clause 9, read as a whole, permitted retrenchments for operational requirements, because clause 9.4 expressly excluded from “retrenchments as a result of the merger” those retrenchments necessitated by operational requirements in the ordinary course and addressed through section 189 procedures. The Tribunal recorded that the Commission had initially adopted an interpretation suggesting a moratorium applicable more broadly, but that this was later corrected, and the timing point fell away because clause 9.2 prohibited merger-specific retrenchments whenever they occur.

The Tribunal then considered the appropriate approach to determining merger-specificity. It rejected CCBA’s invitation to adopt a delictual causation test as inappropriate to the enquiry. Instead, given the nature of the review, the wording of the condition, and the presence of competing explanations for the retrenchments, it adopted an approach requiring the Tribunal to determine, on the probabilities, the true reason for the retrenchments. It drew support from one of the judgments in NUMSA v Aveng Trident Steel, and stated that, where there are irreconcilable versions, the dispute should be resolved by applying the evaluative method described in Stellenbosch Farmers’ Winery Group Ltd v Martell Et Cie.

Applying those principles, the Tribunal characterised the Commission’s case as ultimately resting on three asserted bases for merger-specificity: removal of duplicates attributable to the merger, reduction of staff costs by retrenching and rehiring in similar roles at lower remuneration, and an alleged attempt to avoid harmonisation obligations under clause 11 of the conditions. The Tribunal reasoned that the “reduction of staff costs” allegation was not truly independent because cost-cutting was not disputed; what mattered was whether the cost-cutting was driven by merger-related duplication incentives or by post-merger operational pressures. The Tribunal treated the harmonisation-related basis as unsupported, because the Commission did not explain how retrenching higher-paid employees would affect the harmonisation process, which the Tribunal read as being anchored to minimum levels applicable to ABI Bottling at the relevant time and not dependent on what individual employees earned. The Tribunal also found that the Commission did not demonstrate factually that the alleged rehiring at lower wages impacted the harmonisation negotiations, and criticised the absence of investigation and evidence in this regard.

The Tribunal held that, on the core factual dispute, the Commission failed to adequately investigate and establish that removal of duplicates was the principal motivation. It found that although the Commission relied on the merger report’s identification of duplication-prone areas, and on CCBA’s admission that some retrenched employees occupied duplicate positions, the Commission did not produce evidence identifying which retrenched roles were duplicates, or the extent to which duplicates drove the retrenchment exercise. Against this, the Tribunal accepted that CCBA’s evidence of challenging macro-economic conditions, the imposition of a substantial sugar tax burden, and anticipated increases in raw material costs was not meaningfully disputed, and that these factors supported CCBA’s explanation that the retrenchments were part of broader cost-cutting in response to economic needs. The Tribunal considered the Commission’s reliance on profitability in 2018 to be insufficient to negate the asserted operational pressures, and it found the Commission had mischaracterised CCBA’s position as attributing the decline solely to the sugar tax, whereas CCBA consistently relied on multiple causes.

On the probabilities, the Tribunal concluded that it was unlikely that the retrenchments were principally motivated by the removal of duplicates, and that the more probable reason was CCBA’s operational rationale grounded in economic pressure. It aligned this conclusion with the Labour Relations Act concept of “operational requirements”, which includes requirements based on the economic needs of an employer, and held that the retrenchments therefore fell within the category expressly excluded from “retrenchments as a result of the merger” by the merger conditions.

The Tribunal lastly addressed the time-related issue. It reasoned that the Commission’s shifting grounds raised a question about the effective validity of the Notice, and it considered that the Commission’s later letter of 29 April 2020, read with the original Notice, effectively constituted notice for purposes of Rule 39. It nonetheless held that even if condonation were required, CCBA had shown sufficient cause, taking into account the explanation for the delay (including the Commission’s consent to further submissions), the seriousness of the non-compliance, the shifting grounds advanced by the Commission, and the merits.

5. Outcome and Relief

The Tribunal declared that CCBA had substantially complied with its obligations in respect of clause 9.2 of the merger conditions. It set aside the Commission’s Notice of Apparent Breach dated 24 October 2019.

No costs order was recorded in the Tribunal’s order as set out in the reasons.

Cases Cited

Sidumo and Another v Rustenburg Platinum Mines Ltd and Others [2007] 12 BLLR 1097 (CC) was cited in relation to the coexistence of general administrative-law standards under section 33 of the Constitution with specialised statutory review schemes. National Union of Metalworkers of South Africa and others v Aveng Trident Steel (a division of Aveng Africa (Pty) Ltd) and Another 2012 (2) BCLR 168 (CC) was cited regarding approaches to determining the true reason for dismissal in the presence of competing explanations. Stellenbosch Farmers’ Winery Group Ltd v Martell Et Cie 2003 (1) SA 11 (SCA) was cited for the approach to resolving factual disputes by evaluating credibility, reliability, and probabilities. Goldfields Ltd v Harmony Gold Mining Company Ltd and Another [2005] 1 CPLR 297 (CT) was cited on the difficulty of distinguishing operational retrenchments from merger-related retrenchments and the risk of disguise. BB Investments, BB Investment Company (Pty) Ltd v Adcock Ingram Holdings (Pty) Ltd [2014] 2 CPLR 451 (CT) was cited for the concept of merger-specific employment loss requiring a nexus to incentives of the new controller and for caution against mechanistic attribution of post-merger changes to the merger.

Legislation Cited

Competition Act (section 27(1)(c), section 49B, section 12A(3)(b)) was referenced as the statutory framework for the Tribunal’s review power, complaint initiation, and public interest assessment. Labour Relations Act 66 of 1995 (section 189, section 189A, section 187(1)(c)) was referenced in relation to operational requirements retrenchments and comparative labour-law concepts. The Constitution of the Republic of South Africa, 1996 (section 33) was referenced regarding the right to lawful, reasonable and procedurally fair administrative action.

Rules of Court Cited

Rules for the Conduct of Proceedings in the Competition Commission published under GN R857 in GG 21504 of 1 September 2000 were referenced, particularly Rule 39(2)(b) governing review of a Notice of Apparent Breach on substantial compliance grounds, and the time-bound choices available to a firm following receipt of such a notice under Rule 39.

Held

The Tribunal held that the correct enquiry under Rule 39(2)(b) was whether CCBA had substantially complied with the relevant merger conditions, and that this required evaluating whether the retrenchments were merger-specific or instead arose from operational requirements contemplated by clause 9.4. On the probabilities, the Tribunal found that the Commission had not shown that the retrenchments were driven by merger-related duplication rationalisation, and it accepted CCBA’s explanation that the retrenchments were attributable to adverse economic conditions, including the substantial sugar tax burden and other cost pressures. It therefore held that CCBA had substantially complied with clause 9.2 and that the Notice of Apparent Breach had to be set aside.

LEGAL PRINCIPLES

The Tribunal applied the principle that review under section 27(1)(c) is concerned with the lawfulness, reasonableness and procedural fairness of the impugned decision, while recognising that Rule 39(2)(b) establishes a specialised, context-specific review mechanism focused on whether a firm has substantially complied with merger approval conditions.

In interpreting merger conditions concerning employment, the Tribunal applied the distinction between merger-specific employment loss and operational employment loss. It treated merger conditions as mechanisms aimed at limiting employment loss attributable to merger incentives (such as duplication removal), while acknowledging that conditions may expressly permit retrenchments based on operational requirements in the ordinary course of business.

For determining the true reason for contested conduct where competing explanations are advanced, the Tribunal applied an evidentiary and probabilistic evaluation approach rather than a delictual causation test. It endorsed resolution of factual disputes through the method associated with Stellenbosch Farmers’ Winery, requiring an assessment of probabilities and whether the burden of proof has been discharged, and it recognised the practical difficulty in distinguishing operational retrenchments from disguised merger-specific retrenchments.

On procedural timing, the Tribunal applied condonation principles by weighing the explanation for delay, the degree of non-compliance, prospects of success, the interests of finality, and the broader interests of justice, and it linked this assessment to the Commission’s conduct in permitting extended submissions and shifting the asserted grounds of breach.

Coca-Cola Beverages Africa (Pty) Ltd v Competition Commission of South Africa and Another (RVW150May20) [2021] ZACT 101 (18 August 2021)