MALABA
CJ:
This
is an appeal against the judgment of the High Court holding that a
conglomerate is a “merger” as defined in terms of section 2 of
the Competition Act [Chapter
14:28]
(“the Act”) and, therefore, notifiable to the respondent in terms
of section 3A of the Act if its value exceeded the statutory
threshold.
On
the date of hearing, a concession was made to the effect that the
appeal lacked merit. The parties advanced argument on costs. The
Court made the order that the appeal be dismissed with costs.
It
became necessary for the Court to give a full judgment on the meaning
of section 2 of the Act.
Factual
background
The
first appellant is a limited liability company incorporated in terms
of law, trading in the food industry. The second appellant is also a
limited liability company incorporated in terms of law, trading in
motor spares and accessories. The respondent is a body corporate
established in terms of section 4 of the Act.
Sometime
in 2015 the first appellant acquired a controlling interest in the
second appellant. In terms of section 34 of the Act, as read with the
Competition (Notifiable Merger Thresholds) Regulations 2002 (SI 195
of 2002) (“the Regulations”), all mergers in terms of the Act
with a value above the threshold value of US$1.2 million had to be
notified to the respondent.
The
appellants' conglomerate had a value above the prescribed
threshold.
The
appellants took the view that their union was not notifiable in terms
of the Act as read with the Regulations because it was a
conglomerate. A conglomerate is a corporation formed by merging
unrelated firms. They alleged that a conglomerate was not a merger in
terms of the Act. The appellants based their view on an opinion given
by an advocate.
The
respondent had initially agreed to the position that the appellants'
union, being a conglomerate, did not fall within the statutory
definition of “merger” and was thus not notifiable. It later took
the view that conglomerates were covered by the definition of
“merger” in the Act and were required to be notified if their
value exceeded the statutory threshold.
The
respondent instituted proceedings in the court a
quo,
seeking an order declaring the conglomerate formed by the appellants
notifiable and compelling them to pay fees in terms of section 34A of
the Act as read with the Regulations.
The
parties proceeded by way of a case stated in terms of Rule 199 of the
High Court Rules, 1971.
The
statement of agreed facts presented by the parties was as follows:
“1.
The first defendant and the second defendant entered into a
conglomerate merger in 2015, through the acquisition by the first
defendant of a controlling interest in the second defendant.
2.
The first and second defendants are not competitors nor are they
customer and supplier.
3.
The plaintiff has insisted on notification of the merger between the
defendants on the basis that it is covered by the definition of a
merger in section 2 of the Competition Act [Chapter
14:28].
4.
The defendants insist that a conglomerate merger is not a notifiable
merger in terms of section 2 of the Competition Act [Chapter
14:28].”
The
legal issue which the parties placed before the court a
quo
for determination was whether or not the conglomerate formed by the
appellants was a merger in terms of the Act.
The
determination of the issue depended on the interpretation of the
words “or other person” in the definition of “merger” by
section 2 of the Act.
The
respondent urged the court a
quo to
apply the literal rule of interpretation in ascertaining the meaning
of “merger”, as used in the Act. It contended that the words “or
other person” referred to a person falling outside the categories
of persons specifically mentioned in the definition.
The
appellants urged the court a
quo
to apply the eiusdem
generis
or noscitur
a sociis
rule to ascertain the meaning of the words “or other person”.
According
to this interpretation, the words “or other person” would refer
to a person who shared qualities similar to those falling within the
classes of the persons referred to in the definition of “merger”.
The
court a
quo
held that the conglomerate formed by the appellants was a merger in
terms of section 2 of the Act. That meant that it was notifiable to
the respondent.
The
appellants appealed against the decision of the court a
quo
on the following grounds:
"1.
The court a
quo
erred in law and misdirected itself by holding that the term 'or
other person' in the
definition
of a 'merger' when used in its ordinary grammatical meaning
includes any other person not specified in that definition who
acquires a controlling interest in the business of another.
2.
The court a
quo
erred in law and misdirected itself in holding that the effect of the
use of the term 'or other person' in the definition of a merger
is to extend the definition of a merger to other classes of persons
not previously specifically mentioned.
3.
The court a
quo
erred in law and misdirected itself by holding that the term 'or
other person' in the definition of merger ought to be interpreted
broadly.
4.
The court a
quo
erred in law and misdirected itself in holding that the term 'or
other person' in the definition of merger ought not to be
interpreted eiusdem
generis
and noscitur
a sociis.
5.
The court a
quo
erred in law and misdirected itself in holding that the application
of the eiusdem
generis
rule would render the term 'or other person' meaningless or
result in an absurdity.
6.
The court a
quo
erred in law and misdirected itself in holding that the transaction
between the appellants, commonly known as conglomerate merger, was a
merger as envisaged by section 2 of the Competition Act.”
The
issue for determination was whether or not the court a
quo
was correct in its interpretation of the definition of “merger”
in section 2 of the Act to include a conglomerate. The Court held
that the court a
quo
adopted the correct interpretation of section 2 of the Act. The
following are the reasons for the decision.
The
appellants' argument
Mr
Hashiti
had submitted that a conglomerate did not fall within the definition
of a merger in section 2 of the Act. He had argued that in
interpreting the words
“or
other person”, the eiusdem
generis
rule ought to have been applied by the court a
quo.
His
argument was basically that the words “or other person” could not
be interpreted widely to mean persons outside the class of those
mentioned specifically in the definition. He contended that the words
“or other person” were intended to extend the definition to cover
“persons” in business relationships at the time they merged.
Mr
Hashiti
further submitted that the Legislature's insertion of the words “or
other person” in the definition of merger in section 2 of the Act
was not intended to include a conglomerate or any mergers other than
those formed between persons who were in some form of a business
relationship. The basis of his argument was that had it been the
Legislature's intention to include conglomerates and other
unforeseen mergers in the definition, it would have simply defined a
merger as the “acquiring of a controlling interest” without
specifically mentioning the categories of customer, competitor and
supplier.
Whether
or not a conglomerate is included in the definition of merger in
terms of section 2 of the Act
Competition
in any marketplace for the production or supply of goods or services
is necessary for achieving economic growth and development.
Competition policy is formulated to encourage, improve and protect
the competition process for the benefit of consumers through
monitoring and regulating business conduct that is actually or
potentially anti-competitive and capable of depriving consumers of
the benefits associated with a competitive market.
One
of the forms of business conduct which competition policy seeks to
monitor and regulate is corporate merger. Corporate mergers are an
important tool for effecting corporate restructuring transactions
that are necessary for enhancing general efficiency in the market and
ensuring business survival especially in harsh economic environments.
However,
corporate mergers can sometimes be harmful or potentially harmful to
the competitive structure of the market, thereby negating the gains
of competition.
An
effective merger regulatory framework is necessary for the
achievement and maintenance of the balance between the promotion of
beneficial corporate restructuring transactions on one hand and
protection of the competitive process on the other.
There
are three types of mergers recognised under competition law -
vertical, horizontal and conglomerate.
Vertical
mergers are those mergers that take place between two related
companies as in the case of a customer merging with its supplier.
Horizontal mergers are those that take place between companies that
are in direct competition with each other. Conglomerate mergers are
those between two or more firms that engage in unrelated business
activities with different customer bases. Such entities are not
competitors and do not have a customer and supplier relationship.
All
the three types of mergers are potentially harmful to competition
notwithstanding the fact that conglomerates are not entered into by
competitors, suppliers and customers.
Mergers may cause the elimination of effective competition, thereby
creating dominant companies that have the capacity and potential of
engaging in anti-competitive practices detrimental to consumer
welfare, such as price increases and poor service delivery.
For
the reason that all mergers recognised under competition law have the
potential to negatively affect competition in the market, special
laws have been designed to regulate mergers.
The
Competition Act [Chapter
14:28]
Act No 7 of 1996 came into force in 1998. Section 2 of the Act
defined a merger as follows:
“'merger'
means –
(a)
the acquisition of a controlling interest in -
(i)
an undertaking involved in the production or distribution of any
commodity or service; or
(ii)
an asset which is or may be utilised for or in connection with the
production or distribution of any commodity;
where
the person who acquires the controlling interest already has a
controlling interest in any undertaking involved in the production or
distribution of the same commodity or service; or
(b)
the acquisition of a controlling interest in an undertaking whose
business consists wholly or substantially in –
(i)
supplying a commodity or service to the person who acquires the
controlling interest; or
(ii)
distributing a commodity or service produced by the person who
acquires the controlling interest;”
This
definition was clear as to the types of mergers it covered.
Part
(a) covered situations where a person acquired a controlling interest
in an undertaking producing the same commodity or service
(competitors). That was a horizontal merger. Part (b) covered
situations where a person acquired a controlling interest in a
supplier of commodities or distributor of services. That was a
vertical merger.
The
definition was amended in 2001 by Act 29 of 2001.
Section 2
of the Act as amended now defines a merger as follows:
“'merger'
means 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 — …”.
(the emphasis is mine)
The
Legislature's intention in amending the definition of merger could
not have been to cover the vertical and horizontal mergers only, as
originally provided for under the 1996 Act. The addition of the words
“or other person” to the substance of the definition was intended
to
broaden the definition to include mergers between parties who did not
fall within or were not sharing any characteristics with those in the
categories of competitor, supplier and customer. The meaning of
“merger” was broadened to cover a situation where one or more
persons acquired or established a controlling interest in an
undertaking not falling within the categories of a competitor,
supplier or customer.
What
determines the applicability of the definition of “merger” for
purposes of the Act is the existence of a controlling interest by one
or more persons in the whole or part of the business of another
person. The definition is inclusive. In other words, the definition
was deliberately widened to include all types of mergers. Without the
words “or other person”, the definition of “merger” would
have been exhaustive as it would apply only to businesses or
undertakings falling within each of the categories specifically
stated. The word “other” describes a person who would not belong
to any of the categories of persons specifically mentioned.
The
definition of a merger in section 2 of the Act is similar to the
definition of merger in the South African Competition Act 89 of 1998
which reads as follows:
“12.
(1) For the purpose of this Chapter, 'merger' means the direct or
indirect acquisition or direct or indirect establishment of control
by one or more persons over all significant interests in the whole or
part of the business of a
competitor, supplier, customer or other person
whether that control is achieved as a result of - …”.
Commenting
on the definition of merger in the South African Competition Act,
David Lewis - the then Chairperson of the Competition Tribunal - in a
speech titled The
Competition Act 1998 – Merger Regulation,
said:
“There
are a number of key features of merger regulation under the Act that
you should appreciate upfront - firstly, it
incorporates vertical, horizontal and conglomerate mergers;
secondly, it is about acquisition of control and the mechanisms for
acquiring control are broadly defined; thirdly control itself is
broadly construed. In short, the merger definition is inclusive –
there are few business combinations that would fall outside of the
definition of merger. This contrasts markedly with the previous Act
that dealt with horizontal mergers only - that is, mergers between
competitors only.” (My emphasis)
In
interpreting the same provision of the South African Competition Act
of 1998, the South African Competition Tribunal in the case of Bulmer
SA (Pty) Ltd v Distillers Corporation (SA) Ltd
(1) [2001-2002] CPLR 448 (CT), 464 said the following:
“Section
12 refers to a competitor, supplier, customer or 'other person'.
The inclusion of the category of 'other person' considerably
widens the ambit beyond the more obvious concerns about horizontal
and vertical mergers to include all mergers.”
From
the above, it is clear that the South African definition of a merger,
similar to the definition of a merger in section 2 of the Act, was
held to include other mergers outside the horizontal and vertical
mergers mentioned. In the same vein, the respondent's argument that
the definition of a merger in the Act is inclusive of mergers other
than horizontal and vertical mergers cannot be faulted.
For
clarity, however, the South African Competition Act of 1998 has since
been amended by Act No. 39 of 2000 to specifically include all
mergers, but it is clear from the above authorities that even before
that amendment the words “or other person” in the former
definition of “merger” were held to include conglomerate mergers.
Commenting
on the interpretation of the words “or other person”,
Ignatious
Nzero, in an article titled “Is
there a gap in the definition of corporate mergers in Zimbabwe's
Competition Act? Revisiting the Caledonia Holdings (Africa)
Limited/Blanket Mine (1983) (Private) Limited Merger” 2015
78.4 THRHR 589 at p600, stated that:
“The
phrase 'or other person' can be construed as a catch all phrase
that is meant to capture all other forms of mergers outside those
specified as between competitors, suppliers and customers. If the
legislature really intended to maintain a same line of persons, it is
submitted that it would have used the word 'and', not 'or'.
'And' means in addition to the list provided, suggesting in
addition to competitor, supplier and customer whereas 'or'
suggests a diversion from the list. Thus, the use of 'or' entails
that the legislature intended to expand the list to include even
those persons outside the specified list. There is nothing in the
statute or anywhere else to suggest that such a construction is
wrong…”.
The
words “or other person” in this context cannot be interpreted
eiusdem
generis
as advocated by the appellants. The eiusdem
generis
rule was defined by the learned author Gail-Maryse Cockram, The
Interpretation of Statutes
3ed p153, as follows:
“Where
a list of items which form a genus
or class is followed by a general expression, the general expression
is, in the absence of a contrary intention in the statute, construed
eiusdem
generis
to
include only other things of the same class as the particular words.”
The
eiusdem
generis
rule is not a rule of general application to be applied every time
general words follow particular words. The rule would be applicable
where a general expression follows a list of items that form a genus.
The categories of “customer, supplier and competitor” do not
constitute a list of items that form a genus.
In
S
v Makandigona
1981 (4) SA 439 (ZAD) at 443H-444A the court reiterated that:
“It
must be remembered that the eiusdem
generis
rule is only one of many rules of construction; it is not to be
invoked automatically whenever general words follow particular words.
Thus Craies
on Statute Law
7ed says at 181:
'The
eiusdem
generis
rule is one to be applied with caution and not pushed too far, as in
the case of many decisions, which treat it as automatically
applicable, and not as being what it is, a mere presumption, in the
absence of other indications of the intention of the legislature.'”
At
p601 of the article referred to above, Nzero makes the observation
that the application of the eiusdem
generis
rule to the words “or other person” would be a misinterpretation
of the provisions of section 2 of the Act. He criticised the legal
opinion that suggested that the application of the eiusdem
generis
rule in the interpretation of section 2 of the Act was appropriate.
He stated:
“It
is submitted that the application of the rule (eiusdem
generis)
in determining the meaning of the phrase 'or other person' as
used in the statutory definition of a merger results in absurdity, as
it would mean that only economic activities having an effect on the
economy of Zimbabwe in the same class as competitor, supplier and
customer would constitute a merger whereas other economic activities
with similar effect on the economy of Zimbabwe, but which are not in
the same genus or class as 'competitor, supplier, customer',
would not constitute a merger. It is submitted that there is enough
ammunition provided in the statute to determine the extent to which
the legislature intended the statute to apply in general and the
types of mergers covered in particular. As such, the application of
the eiusdem
generis
rule was not necessary as it had the effect of creating an artificial
gap in the statutory merger definition. The rule should not be
applied as a general rule of application, but rather cautiously to
avoid misinterpretation of statutory provisions. In particular, in
constructing the meaning of 'or other person' used in section 2,
it must be remembered that the eiusdem
generis
rule is only one of many rules of construction; it is not to be
invoked automatically whenever general words follow particular
words.”
Interpreting
words in their context requires the courts to pay due regard not only
to the meaning assigned to the grammatical use of language but also
the context, which requires consideration of the rest of the statute
as well as its subject matter and its content.
This
position was affirmed in the case of Stellenbosch
Farmers' Winery Ltd
v Distillers
Corp (SA) Ltd 1962
(1) SA 458 (AD) 476, as quoted by GM Cockram, p41 of
The Interpretation of Statutes
3rd
ed,
as follows:
“It
is the duty of the court to read the section of the Act which
requires interpretation sensibly, i.e. with due regard, on the hand,
to the meaning which permitted grammatical usage assigns to the words
used in the section in question, and, on the other hand, to the
contextual scene, which involves consideration of the language of the
rest of the statute as well as the matter of the statute, its
apparent scope and purpose, and, within limits, its background.”
To
determine the context in which the words “or other person” have
been used, the scope and purpose of the provision in question and the
Act at large must be determined first. The scope and purpose of the
Act, as provided for in the Act's long title, reads as follows:
“AN
ACT to promote and maintain competition in the economy of Zimbabwe;
to establish an Industry and Trade Competition Commission and to
provide for its functions; to provide for the prevention and control
of restrictive practices, the regulation of mergers, the prevention
and control of monopoly situations and the prohibition of unfair
trade practices; and to provide for matters connected with or
incidental to the foregoing.”
It
is clear from this title that, among other things, the Act aims to
promote and maintain competition in the economy by regulating
anti-competitive mergers.
Merger
regulation is at the core of competition law and in the spirit of
regulating anti-competitive mergers, the Legislature enacted the
current wide definition which covers all mergers which must be
notified to the respondent.
In
terms of the Act, when a merger is notified the respondent decides if
the merger undermines competition.
Conglomerate
mergers, although not entered into with competitors, suppliers or
customers, just like horizontal and vertical mergers, affect
competition. All mergers have the capacity to undermine competition.
The
contention by the appellants was that if the Legislature had intended
to cover all types of mergers because of their potential negative
effects on competition it would have said so without specifying the
categories of customer, supplier and competitor.
The
Legislature has a discretion on how it chooses to express its
intention in the enactment of laws. The question of whether the
intention behind a statutory provision is inelegantly expressed
should not concern a court. The duty of a court is to ascertain the
intention of the Legislature however it is expressed.
In
Van
Heerden v Queen's Hotel (Pty) Ltd
1973 (2) SA 14 (RAD), 21, the court explained that:
“In
interpreting statutes, courts are not concerned with the elegance of
the language used. Statutory instruments are not usually remarkable
for the elegance of their language. The court must interpret the
words in a statutory instrument so as to give effect to the true
intention of the legislature, and once that intention is clear, the
fact that the language used in expressing it may not be as elegant as
some would like, is not a matter of consequence, especially if the
language is grammatical and easily understood.”
Disposition
It
was for these reasons that the Court was satisfied that the
concession by counsel for the appellant that the appeal lacked merit
was well-founded and, accordingly, dismissed the appeal with costs.
HLATSHWAYO
JA: I agree
PATEL
JA: I agree
Lunga
Attorneys,
appellants' legal practitioners
Chihambakwe,
Mutizwa & Partners,
respondent's legal practitioners
