This is an appeal against a decision of the Administrative Court upholding the penalty imposed on the appellant by the respondent for the non-notification of a merger that it was a party to.FACTUAL BACKGROUNDThe appellant is a holding company registered and operating in Zimbabwe whose shares are tradable on the ...
This is an appeal against a decision of the Administrative Court upholding the penalty imposed on the appellant by the respondent for the non-notification of a merger that it was a party to.
FACTUAL BACKGROUND
The appellant is a holding company registered and operating in Zimbabwe whose shares are tradable on the stock market. The respondent is a statutory body which administers the Competition Act [Chapter 14:28] ('the Act').
In 2012, a company styled Afrifresh Holdings Limited acquired a controlling interest in the appellant. The transaction which resulted in this development was between Emvest Holdings (Pvt) Ltd, one of the appellant's controlling shareholders, and Origin Global Holdings (Pvt) Ltd, a subsidiary of Afrifresh Holdings Limited. Emvest Holdings sold its shares in the appellant to Origin Global Holdings (Pvt) Ltd through the Zimbabwean Stock Exchange. The merger had a value exceeding the prescribed threshold and was thus subject to notification to the respondent.
Upon becoming aware of the merger, the respondent notified the appellant of its intention to penalise it for non-notification of the merger. The respondent regarded the transaction as a notifiable merger which the appellant was obliged to notify in terms of section 34A(3) and (4) of the Competition Act [Chapter 14:28]. The appellant paid part of the merger notification fee and requested a payment plan for the balance which was approved by the respondent.
However, the appellant failed to adhere to the payment plan following which the respondent expressed its intention to penalise it for failing to give notification of the merger. In response, the appellant took the position that the transaction was not a merger and that it had no legal obligation to notify the respondent of the transaction or to pay any penalty for non-notification. Consequently, the respondent penalised the appellant on the basis that the transaction was a merger and that the appellant was a party to it and was thus obliged to notify the same.
Aggrieved by that decision, the appellant noted an appeal to the court a quo.
SUBMISSIONS IN THE COURT A QUO
The appellant argued that the process in which Afrifresh Holdings acquired shares in the appellant did not constitute a merger as defined by the Competition Act, since, at the time of the acquisition of its shares, Afrifresh Holdings was not a competitor, customer or supplier relationship with the appellant. However, the appellant abandoned this argument in light of the decision of the High Court in Innscor Africa Limited & Anor v The Competition and Tariff Commission HH486-17.
The appellant further averred that it could not be penalised in respect of a transaction it was not a party to. The appellant highlighted that the transaction that resulted in Afrifresh Holdings acquiring the controlling interest in it was concluded by separate parties in an open market deal. Thus, it denied being under any legal duty to notify the appellant of the merger.
Per contra, the respondent argued that the appellant was a party to the merger with Afrifresh Holdings and had a duty to notify that transaction. It reasoned that the appellant, being the party which relinquished its controlling interest or the party in whose business the controlling interest was acquired, was a party to the merger in the context of section 34A(1) of the Competition Act. It further argued that the appellant was involved in the merger and could not escape the consequent penalty for non-notification.
THE DETERMINATION OF THE COURT A QUO
The court a quo dismissed the appellant's appeal on the basis that it lacked merit, since, by abandoning its first ground of appeal, the appellant was admitting the existence of a merger. As such, the court reasoned that the appellant could not argue that it did not participate indirectly in the merging of the entities.
The court a quo highlighted that both Assessors in the matter were of the view that the appellant was not a party to the transaction in terms of which Afrifresh Holdings acquired shares in the appellant. As a consequence, it applied the provisions of section 10(1) of the Administrative Court Act [Chapter 7:01] which states that where the President and Assessors' opinions are divided, the decision of the President of the court prevails.
Aggrieved by the decision of the court a quo, the appellant noted an appeal to this Court on the following grounds.
GROUNDS OF APPEAL
1. The court a quo erred in law and misdirected itself in making a decision contrary to section 10(1) of the Administrative Court Act [Chapter 7:01], in (sic) circumstances where the decision to be made was a matter of fact, and where the President did not, or could not have found that the issue was a matter of law.
2. The court a quo erred in law and misdirected itself in dismissing the appeal by relying on the High Court decision of Innscor Africa Limited and Anor v The Competition and Tariff Commission HH486-17.
3. The court a quo erred in law and misdirected itself in holding that since the Appellant has abandoned one of its grounds of appeal, it could not have argued then that it was not a party to the transaction.
4. The court a quo erred and misdirected itself in law and in fact in finding that the Appellant was party to the transaction when in fact and in law it was not, and in dismissing the appeal on this and the aforementioned grounds.
SUBMISSIONS IN THIS COURT
Before the appellant addressed this court, counsel for the respondent raised a preliminary point that the appeal was improperly before the court having been served on the appellant outside the timeframe stipulated by the order granting condonation. Consequently, counsel for the appellant sought condonation for the late service of the Notice of Appeal, which we granted.
On the merits, counsel for the appellant initially argued that the question of whether or not the appellant was a party to the merger was a question of fact. Since the Assessors had taken the position that the appellant was not a party to the merger, their decision ought to have been the decision of the court in terms of section 10 of the Administrative Court Act [Chapter 10:28].
Upon engagement with the court, counsel for the appellant conceded, properly so, that the question of whether or not the appellant was a party to the merger, in the circumstances of this, was one of law, after which he confined his argument to the issue of whether or not the appellant was a party to a merger as defined by the Competition Act.
The concession was properly made given that it is common cause that the appellant was not directly involved in the transaction that resulted in the merger. A determination of who had the legal obligation in the circumstances necessitates a finding of whether the appellant is a party as defined in terms of the Competition Act. The court a quo needed to determine who constituted the various parties to the merger. This called on it to interpret the relevant provisions of the Competition Act, thereby constituting a question of law.
Counsel for the appellant submitted that section 2 of the Competition Act ought to be interpreted narrowly to mean that parties to a merger are the parties who engage in the transaction which results in a merger. He further highlighted the difficulty associated with a broad categorisation of parties to a merger, envisaging a scenario in which the party in whom the controlling interest is acquired is not aware that a merger has been formed.
Counsel for the appellant, however, admitted that the appellant had a share register and would have known of the change in its shareholding.
In rebuttal, counsel for the respondent submitted that the appellant was a party to a merger as it was the entity in whose business a controlling interest was acquired. He insisted that the determinant factor is the change in shareholding control as opposed to the immediate parties to the transaction. He further argued that the appellant was encompassed in the definition of a merger, and, as such, was a party to a merger.
To buttress his point, counsel for the respondent drew the court's attention to the South African Competition Act 89 of 1998, which classifies the several parties to a merger.
That Act provides that “a party to a merger is an acquiring firm or target firm,” the former being the entity which establishes a controlling interest in another (Afrifresh Holdings), and, the latter, the party in whose business the controlling interest is acquired (the appellant).
In conclusion, he argued that the penalty imposed on the appellant was proper in the circumstances as the appellant was obliged to notify the respondent of the transaction.
ISSUE FOR DETERMINATION
The sole issue for consideration is whether the appellant fits into the description of the possible parties to a merger envisaged by section 2 of the Competition Act. Put differently, whether the entity in which a controlling interest is acquired can be described as a party, even if it took no part in the transaction which resulted in the merger.
If the answer is in the affirmative, the obligation to notify the respondent attaches in terms of section 34A(1), as does the consequent penalty for non-notification.
THE LAW
Section 13A(1) of the South African Competition Act No.89 of 1998, which is strikingly similar to our section 34A of the Competition Act [Chapter 14:28], provides:
“13A. Notification and implementation of other mergers
(1) A party to an intermediate or a large merger must notify the Competition Commission of that merger in the prescribed manner and form.”
Section 59(1)(d)(i) and (iv) of the South African Competition Act No.89 of 1998 provides as follows:
"(1) The Competition Tribunal may impose an administrative penalty only -
(d) If the parties to a merger have -
(i) Failed to give notice of the merger as required by Chapter 3;
(iv) Proceeded to implement the merger without the approval of the Competition Commission or Competition Tribunal, as required by this Act."
A party to a merger is defined, in section 1(1)(xvii) of the South African Competition Act No.89 of 1998, as 'an acquiring firm or a target firm', which entities are jointly obliged to notify the Commission of a proposed merger.
An acquiring firm, as defined in section (1)(i) of the South African Competition Act No.89 of 1998, is:
“…, a firm –
(a) That, as a result of a transaction in any circumstances set out in section 12, would directly or indirectly acquire, or establish direct or indirect control over the whole or part of the business of another firm;
(b) That has direct or indirect control over the whole or part of the business of a firm contemplated in paragraph (a); or
(c) The whole or part of whose business is directly or indirectly controlled by a firm contemplated in paragraph (a) or (b).”
A target firm is described, in section 1(1)(xxxiii) of the South African Competition Act No.89 of 1998, as:
“(xxxiii) 'target firm' means a firm –
(a) The whole or part of whose business would be directly or indirectly controlled by an acquiring firm as a result of a transaction in any circumstances set out in section 12;
(b) That, as a result of a transaction in any circumstances set out in section 12, would directly or indirectly transfer direct or indirect control of the whole or part of its business to an acquiring firm; or
(c) The whole or part of whose business is directly or indirectly controlled by a firm contemplated in paragraph (a) or (b);”
Applying these provisions to the present case would mean that the appellant and Afrifresh Holdings are the merging parties, the appellant being the target firm, in whose business a controlling interest is established, and Afrifresh Holdings as the acquiring firm, which establishes control over the appellant's business.
The obligation to notify rests upon the merging parties.
Similarly, the Common Market for Eastern and Southern Africa (COMESA) Merger Assessment Guidelines, 2014, state:
“'merging party' means any acquiring undertaking or target undertaking;
'party' means any merging party; if a merger has been implemented, any merged undertaking.”
However, our Competition Act [Chapter 14:28] does not define who can be a party to a merger, thus, this has to be construed from the description of a merger.
Section 2 of the Competition Act [Chapter 14:28] defines a merger as:
“The direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person whether that controlling interest is achieved as a result of —
(a) The purchase or lease of the shares or assets of a competitor, supplier, customer or other person;
(b) The amalgamation or combination with a competitor, supplier, customer or other person; or
(c) Any means other than as specified in paragraph (a) or (b).”...,.
Before concluding, I wish to observe that there might be need for our Competition Act to be amended to include the definition of 'a party to a merger' as was done in the South African Act through The Competition Second Amendment Act, 2000. This would bring clarity to the issue and might obviate the need for parties to engage in litigation such as the present one.
