Trial
1.
DUBE
J:
This is a competition law matter and concerns the definition of the
term “merger” in terms of the Competition Act [Chapter 14:28]
[hereinafter referred to as the Act].
2.
The parties brought this matter as a stated case in terms of Order 29
Rule 199 of the High Court Rules 1971. The agreed facts of this
matter are defined in terms of a statement of agreed facts as
follows:
“1.
The first defendant and 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].”
3.
The issue the court was requested to determine is whether or not a
conglomerate merger between the defendants is a notifiable merger in
terms of section 2 of the Act. The determination of this matter rests
solely on an interpretation of the phrase 'or other person' as
used in the definition of “merger”. The plaintiff urged the court
to apply the literal rule of interpretation to discern the ambit of
the word “merger” in the Act whilst the defendants urged the
court to interpret the phrase 'or other person' ejusdem
generis or noscitor a sociis.
4.
The word “merger” is defined in section 2 of the Act 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 -
(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 or, supplier,
customer or other person; or
(c)
Any means other than as specified in paragraph (a) or (b);''
5.
Our Competition Act is moulded along the same lines as the South
African Competition Act No.89 of 1998. The original definition of
“merger” in this Act was similar to ours. The definition prior to
it being amended in the year 2000 provided in section
12
as follows:
“Merger
defined
(1)
For the purposes 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 –
(a)
Purchase or lease of the shares, interest, or asserts of that
competitor, supplier, customer or other person;
(b)
Amalgamation or combination with that competitor, supplier, customer
or other person; or
(c)
Any other means.''
6.
The two definitions are clearly similar. In this respect, the
definition given to the term “merger” in the South African Act
will be considered in determining the meaning of the word 'merger'
in our own Act.
7.
The new definition in the South African Competition Act has been
improved and reads as follows:
“12.
Merger defined
(1)(a)
For purposes of this Act, a merger occurs when one or more firms
directly or indirectly acquire or establish direct or indirect
control over the whole or part of the business of another firm.
(b)
A merger contemplated in paragraph (a) may be achieved in any manner,
including through -
(i)
purchase or lease of the shares, an interest or assets of the other
firm in question; or
(ii)
Amalgamation or other combination with the other firm in question.”
This
definition is simple and all-inclusive of all mergers.
8.
The approach to interpretation of statutes is to employ first the
golden rule of interpretation which is the literal rule. In Nyamande
and Anor v Zuva Petroleum
SC43/15, the court remarked that the time honoured and golden rule of
statutory interpretation is that you give the words of a statute
their ordinary meaning. The rule entails giving the statute its
ordinary grammatical meaning. This must be done unless if there is an
ambiguity or absurdity ensuing from the interpretation, in which case
other cannons of interpretation will require to be used. In the case
of ambiguity in a provision, aids such as maxims may be resorted to
in ascertaining the language and grammatical meaning of a provision.
9.
The ejusdem
generis
rule is employed only where resort to the literal rule will result in
an absurdity. In his book Introduction
to Zimbabwean Law (Weaver Press, Harare) 2010
@ p154 Professor L Madhuku examines the meaning and application of
the ejusdem
generis
rule and states that the rule literally means “of the same kind”.
He states that “where general words follow an enumeration of things
or items of the same class or genus, the general word must be
interpreted as restricted only to the things of that particular
class.”
10.
He states further that for the maxim to apply, the items enumerated
must constitute a genus. He relies on a similar approach by G Cockram
(1987),
The
Interpretation of Statutes,
3rd
ed, Cape Town; Juta and Co, at p153 where he states as follows:
“where
a list of items which form the genus or class is followed by a
general expression, the general expression is, in the absence of a
contrary intention in the statute, construed ejusdem generis to
include any other particular words.”
11.
He makes reference to the case of Quazi
v Quazi
1980
AC 744
in which the court explained that when the word 'other' is used
in a statute:
“The
presumption then is that the draughtsman's mind was directed only
to the genius indicated by the specific words and that he did not, by
his addition of the word 'other' to the list, intend to stray
beyond its boundaries, but merely to bring within the ambit of the
enacting words those species which complete the genius but have been
omitted from the preceding list either inadvertently in the interests
of brevity.”
12.
The ejusdem
generis
rule applies where -
(1)
The subject of enumeration constitutes a class or category.
(2)
That class or category is not exhausted by the enumeration.
(3)
The general term follows the enumeration.
(4)
There is no indication of a different legislative intent.
13.
The interpretation sought should not have the effect of rendering
words in a statue redundant, superfluous or useless. See Commissioner
of Taxes v Edgars Stores Ltd 2001
(1) ZLR 147 (S).
In Musiwo
v GMB 2009
(1) ZLR 304 (S)
the court remarked that the ejusdem
generis
rule is not a rule of general application and has to be applied with
caution. The tendency by the courts is to construe general words in
their ordinary sense. See Anderson v Anderson 1 QB 752.
14.
In order to get a full understanding of the definition of the word
“merger” as given in the Act, it is pertinent to first have an
understanding of what a merger is. Competition law recognises three
types of mergers being, vertical, horizontal and conglomerate
mergers. Horizontal mergers are mergers that take place between
companies that are in direct competition with each other. An example
of a horizontal merger is a merger of two businesses with similar
products that are in competition to each other. An example of a
horizontal merger is that between Daimler and Chrysler, two car
manufacturing companies that merged.
15.
Vertical mergers are those mergers that take place between two
related companies as in the case of a customer and a company or where
a supplier and a company merge. An example of a vertical merger is
one between a tyre manufacturing company and a retailer selling or
marketing the tyres. A conglomerate merger is a term that is used to
denote a merger between large 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.
There is no economic relationship between the acquired company and
the acquiring company.
16.
A conglomerate merger is able to diversify its activities and manage
a wide range of activities through the merger. The merger may result
in an increase of its market share and power. A conglomerate merger
may create a monopoly resulting in it pushing other companies out of
the market and may impair competition on the market. The Act
specifically refers to acquisitions of a controlling interest in the
business of a competitor, customer or supplier only and hence
directly speaks to vertical and horizontal mergers only. There is no
specific reference made in the Act to conglomerate mergers.
17.
The respondents are engaged in two different industries. The two
businesses do not pose competition to each other. Geribran is
involved in the sale of motor spares and accessories whilst Innscor
is in the food industry. What has transpired in this instance is that
two companies involved in two unrelated businesses have merged. The
parties are in agreement that this sort of merger constitutes a
conglomerate merger.
18.
The defendants relied on an opinion given by Advocate
de Bourbon on the Caledonia Holdings (Africa) Ltd Merger,
when the defendants merged, for the proposition that a conglomerate
merger is not a merger as envisaged by the definition of a merger in
the Act and is not a notifiable merger. The opinion concluded that
conglomerate mergers are not covered in the Act. The defendants also
rely on a report titled UNCTAD
Voluntary Peer Review of Competition Law and Policy: Zimbabwe, An
Overview.
The paper states that the term “merger” as defined in our Act
covers both horizontal and vertical mergers. It states that the
definition of merger in the Act does not include pure conglomerate
mergers and joint ventures resulting in the establishment of “green
field” enterprises and that the general provision under section
2(1)
cannot justify the omission of a specific provision to cover such
mergers. The report suggests that the shortcoming be rectified.
19.
The applicant initially accepted this position and accepted that the
merger was a non-notifiable merger. The plaintiff now takes the view
that conglomerate mergers are mergers in terms of the definition of
“merger” given in our Act and require to be notified. The
plaintiff insists on the defendants notifying it of the merger and
paying the levies due to it.
20.
The way in which section 12(1) of the South African Competition Act
has been interpreted by the South African Competition Tribunal before
the amendment is relevant. The South African Competition Tribunal has
interpreted the word “merger” and defined the phrase 'other
person' in the context of their old section
12
which was identical to ours then. In Bulmer
SA (Pty) Ltd v Distillers Corporation (SA) Ltd
(1)
[2001-2002] CPLR 448 (CT), the respondents purchased the business of
another company.
21.
The Competition Tribunal was faced with a question regarding whether
the transaction constituted a merger as defined in the South African
Competition Act requiring the respondents to notify the Competition
Commission of the merger. The respondents had argued that they had no
duty to notify the Commission of the merger for the reason that the
transaction did not lead to changes in the ultimate control of either
company. It interpreted the definition of a merger to include all
mergers. The court held as follows:
“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.”
22.
The case highlights the need for a wide interpretation of the word
“merger” in order to protect competition. Another very important
case is Imperial
Holdings Ltd v Safair (Pty) Ltd 908/lm/Jan
00 [2000] ZACT, where court evaluated a conglomerate merger which had
been notified. The definition of merger in the South African
Competition Act was amended in the aftermath of this decision.
23.
There has been diverse opinion regarding the requirement for
notification of a conglomerate merger. Commenting on the provisions
of section 12(1)(a) of the South African Competition Act, D Lewis in
his speech, The
Competition Act 1998–Merger Regulation,
concludes that the definition in the South African Act which is
identical to ours includes horizontal, vertical and conglomerate
mergers. He states on p2 of his speech as follows:
“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.''
24.
Commenting on the definition of a “merger” in our own Act,
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, states that section
2
is clear that it covers conglomerate mergers and are notifiable. He
criticised the legal opinion by Advocate de Bourbon that suggests
that the application of the ejusdem
generis
rule excludes conglomerate merger transactions from the scope of the
definition of a merger. His views are that the phrase 'or other
person' must be interpreted broadly to cover conglomerate mergers.
He states as follows:
“It
is submitted that the application of the rule (ejusdem 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 ejusdem 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 ejusdem generis rule is only one of
many rules of construction; it is not to be invoked automatically
whenever general words follow particular words.''
25.
What these authorities do is highlight is that there is a gap in the
definition of “merger” as given in our Act and the old section 12
of the South African Act. They propose a broad approach to the
definition of 'merger'. The authorities also discount the use of
the ejusdem
generis
rule as a tool of interpretation of the word on the premise that it
creates an artificial gap in the definition and leads to an
absurdity. Their view is that a conglomerate merger falls within the
definition of merger as defined in section
2
and is a notifiable merger.
26.
Coming to the merits of the application, the Competition Act aims to
promote and maintain competition in the economy by regulating
acquisitions, anti-competitive business practices, and abuse of
market power and anti-competitive mergers. Its focus is on control of
restrictive trade practices, anti-competitive mergers and unfair
trade practices. The intention of the legislature in enacting the
current definition of a merger was to protect and regulate
competition and have as wide a bracket as possible covering all
mergers that have to be notified to the plaintiff, with those mergers
which create serious competition challenges receiving extra attention
by way of approval of the merger with conditions or complete
prohibition of that merger. In this way, the Competition Commission
is able to scrutinise all mergers and keep those mergers that create
competition in check. Only mergers which need not be notified are
those which do not meet the monetary threshold of 1,2 million in
terms of turnover, in terms of the regulations.
27.
The determination of this matter rests on the court giving meaning to
the phrase 'or other person'. Section
two
defines a “merger” as an acquisition or establishment of a
controlling interest in the business of a competitor, supplier,
customer 'or other person.' The classes of persons specified
under section
2
cover horizontal and vertical mergers only. There is no clarity with
regards conglomerate mergers. The definition includes a general
provision including 'other person'. Reference to 'or other
person' when used in its ordinary grammatical sense and meaning
includes any 'other person' not specified in the definition of
merger who acquires or establishes a controlling interest in the
business of another. It becomes clear that the effect of the use of
'other person' is to extent the definition of merger to other
classes of persons not previously specifically mentioned. It means
that 'other person' refers to persons who are capable of merging.
28.
The word 'other person' has to be interpreted from the
perspective that it becomes the only type of merger which is not
either a horizontal or a vertical merger, that is, a conglomerate
merger. 'Other person' includes all persons who are not
competitors, suppliers or customers of a merging party. 'Other
person' ought to be interpreted broadly. This approach allows the
Commission to examine “a wide range of transactions which could
result in an alteration of the market structure and in particular
reduces the level of competition in the relevant market:'' see
the Distillers
Corporation case (supra).
My
view is that the definition does not limit the mergers to the list of
persons specified. The reference to 'other person' covers those
mergers not covered in the definition and seeks to include other
unspecified persons including conglomerate mergers.
29.
Conglomerate mergers although not entered into by competitors,
suppliers or customers, affect competition. When two companies come
together in a conglomerate, although they may not be in the same
trade, the effect is that their business is strengthened financially.
In some cases the production capacity may increase. Once two entities
merge to form a conglomerate, the joint business is strengthened
financially and its production increased thereby controlling the
market. This may result in other businesses being pushed out of the
market by the merger thereby impairing competition. Conglomerate
mergers therefore affect competition. The inclusion of the phrase 'or
other person' must have been to ensure that every type of merger is
covered by the definition. The legislature wanted to cover unforeseen
mergers and ensure that all mergers that have an effect on
competition are notified.
30.
My conclusion is that the definition of merger in section 2 of the
Act is all inclusive and covers all mergers. A conglomerate merger
qualifies as a merger in terms of section
2
and is covered under the phrase 'other person'. The inclusion of
the words 'other person' widens the bracket to include all
mergers. The merger between the defendants falls under the definition
of merger as envisaged by section 2 of the Act. The defendants are
required to notify the plaintiff of the merger and pay the prescribed
notification fee in terms of section
34A(2)
of The Competition Act as read with the Competition (Notification of
Mergers) Regulations, 2000. Once the meaning of the phrase is
ascertainable using the grammatical approach, there is no need to
apply the ejusdem
generis
rule.
A literal interpretation of the phrase 'other person' does not
lead to an absurdity. There is no justification in applying the
ejusdem
generis
rule.
31.
The approach urged upon by the defendants that the enumerated words
create a class of entities that are in the same market and further
that a conglomerate merger does not fall under the definition of
'other person' is erroneous. This seems to be the reason why the
defendants advocate for the ejusdem
generis
rule. If one applies the ejusdem
generis
rule, the general phrase must be interpreted to mean things of that
particular class. This will mean that only vertical and horizontal
mergers are covered under the definition. The interpretation ignores
conglomerate mergers which although they involve non competitors,
still create competition to other entities in that the merger will be
in a stronger position than before.
32.
The problem with that interpretation is that it ends up exhausting
the particular class or genus class, leaving the phrase 'or other
person' with no purpose in the definition. From a competition
perspective, if you can only have competitors, suppliers and
customers, the end result will be that 'other person' has no
meaning and the genus would have been exhausted. If the class is
exhausted by the enumerated words, then the rule cannot be applied.
33.
The problem with the respondent's argument is that they don't
identify who is covered under 'other person'. If the ejusdem
generis
rule is used 'other person' becomes meaningless. I agree with the
view expressed by I Nzenza that the use of the ejusdem
generis
rule would result in an absurdity as a conglomerate still has the
same effect as vertical and horizontal mergers on the economy of this
country. The merger will affect the balance of economic activity in
Zimbabwe.
34.
The court is being asked to interpret the law and set the record
straight and correct the anomaly. In Tregers
Industries (Private) Limited v Commissioner General of the Zimbabwe
Revenue Authority
2006
(2) ZLR 62 (H)
@ 70 the court remarked as follows:
“The
applicant argued that the respondent is 'estopped' by the actions
of his subordinates from denying that the applicant's
interpretation of section of the Act is correct. I do not accept this
submission. What the applicant is saying is that irrespective of the
correct interpretation, the fact that the respondent's employees
accepted that the goods in question were zero rated estops the
respondent from arguing to the contrary. As a matter of law that
cannot be correct. If an interpretation of the law is not correct,
then that interpretation is not correct. The fact that respondent's
employees may not have looked into the matter more carefully cannot
estop the respondent from arguing that such interpretation is not
correct”.
35.
A litigant who has relied on a wrong interpretation of the law is
entitled to approach the courts seeking a correct interpretation of
the law. Nothing stops the plaintiff from insisting on the correct
legal position being followed. A statutory body cannot be estopped
from changing its legal position in relation to its statutory
obligations and rights. This is specially so where public monies are
concerned. The plaintiff is not barred from seeking to correct the
position and claiming the outstanding monies for levies due to it in
terms of the Act.
36.
The original crafters of the definition of 'merger' having seen a
gap in the definition have improved it yet we still seem to want to
hang onto the definition. Consequently, the definition of “merger”
in the Act needs reconceptualization. In order to ensure effective
control of mergers, the definition of “merger” in the Act
requires being wide. A definition that is simple and all-inclusive is
desirable. We are lagging behind South Africa. Our drafters have been
caught flat footed. The legal drafters have a tendency of copying and
pasting statutory provisions from other jurisdictions. They then sit
and relax and do not follow up on developments in those other
jurisdictions and update their laws. The South Africans amended their
own definition of “merger” way back in the year 2000 and we are
still faced with an archaic definition of the term 'merger'.
In
the result it is ordered as follows:
1.
It is declared that there is a notifiable merger between the first
and the second defendants, in a manner obliging the defendants to
notify the plaintiff thereof in terms of section 34A(2) of the
Competition Act [Chapter 14:28] as read with the Competition
(Notification of Mergers) Regulations, 2002 (S.I.270
of 2002)
(as amended);
2.
The first and second defendants jointly and severally, the one paying
the other to be absolved are to comply with section 34A(2) of the
Competition Act [Chapter 14:28] as read with the Competition
(Notification of Mergers) Regulations, 2002 (S.I.
270 of 2002)
(as amended) by notifying of this merger and paying the merger
notification fee in the sum of $50,000.00 within seven (7) days from
the date of this order;
3.
Interest thereon at the prescribed rate of interest, currently 5% per
annum, calculated from the date of issue of the summons to date of
full payment, both dates inclusive; and
4.
Costs of suit.
Chihambakwe,
Mutizwa and Partners, plaintiff's legal practitioner
Lunga
Gonese Attorney, for defendants legal practitioner
