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Community Healthcare Holdings (Pty) Ltd and Another v Competition Tribunal and Others (44/CAC/Feb05) [2005] ZACAC 3; [2005] 1 CPLR 38 (CAC) (26 April 2005)
IN THE COMPETITION APPEAL COURT
Case No. 44/CAC/Feb05
In the matter between:
COMMUNITY HEALTHCARE HOLDINGS (PTY) LTD First Appellant
CORNUCOPIA (PTY) LTD Second Appellant
And
THE COMPETITION TRIBUNAL First Respondent
THE COMPETITION COMMISSION Second Respondent
BUSINESS VENTURE INVESTMENTS NO.790 (PTY) Third Respondent
LTD.
AFROX HEALTHCARE LIMITED Fourth Respondent
BRIMSTONE INVESTMENTS CORPORATION LIMITED Fifth Respondent
MVELAPHANDA STRATEGIC INVESTMENTS (PTY) Sixth Respondent
LTD
AFRICAN OXYGEN LIMITED Seventh Respondent
THE MINISTER OF TRADE AND INDUSTRY Eighth Respondent
JUDGMENT
DAVIS JP
Introduction.
[1]
On 8 February 2005 the Competition Tribunal (‘the Tribunal’) dismissed applications
that were brought by the first and second appellants in terms of the provisions of section 53(1)(c)(v) of the Competition Act No.
89 of 1998 (‘the Act’) for leave to be recognized as participants in a merger between the third and fourth respondents
(‘the merger’).
[2]
On the same day the Tribunal refused an application brought by appellants to postpone the hearing
of the merger pending the determination of an appeal and or review against the Tribunal’s decision in the intervention application.
On 2 March 2005 the Tribunal approved the merger subject to certain conditions.
[3]
On 21 February 2005 appellants noted an appeal against the decision of the Tribunal to refuse the
intervention application. On 28 February 2005 appellants filed an application to review the decision of the Tribunal in the intervention
application and in the postponement application. On 3 March 2005 appellants filed an application to review the Tribunal’s decision
to approve the merger.
[4]
Appellants then made strenuous efforts for an expedited hearing before this Court on the basis of
urgency. Upon consideration, the Judge President I came to the view that the appeal that had been launched on 18 February 2005 could
be set down for hearing on 23 March 2005.
[5]
When the further review applications were received by the Registrar of this Court on 3 March 2005,
a letter was sent on 10 March 2005 to the parties in which the Registrar stated the following:
‘The parties have indicated to the Registrar that it made sense to hear the
remaining two review applications at the same time as the appeal set down for 23 March 2005. The Registrar has conveyed to the parties
the direction from the Judge President that the court will only hear matters if parties submissions to the court, by agreement between
them, are made timeously and the matter was ripe for hearing; else each application would run its course until it is ripe for hearing
Further directions from the Judge-President are that the court will only hear the review application on 23 March 2005 if it receives
a complete record and the appellants’ heads of argument by Monday 14 March 2005; and respondents’ heads of argument by
Wednesday 16 March 2005. The court will not accept any further submissions from the parties beyond these dates.’
[6]
On 18 March 2005 appellants served a notice for a consolidation of the appeal against the Tribunal’s
decision, as well as the two review appellants. Notwithstanding competing versions of events leading up to and subsequent to this
consolidation application by the appellants and third to seventh respondents, it was common cause that there had been no proper compliance
as to instructions contained in the Registrar’s letter of 11 March 2005.
[7]
The court was in no position to hear the two review applications on 23 March 2005. Mr Nelson, who
appeared together with Mr Coetzee on behalf of appellants, contended that, given the clear overlapping of issues in the appeal and
review applications, it was necessary to postpone the entire hearing for the various proceedings be properly consolidated and heard
on an appropriate day. Mr Subel, who appeared on behalf of third to seventh respondents submitted that, although there was some overlap
between the applications to review the Tribunal’s decision to refuse the intervention application, and the appeal the latter
was ripe for hearing. Appellants had been intent on providing an expedited hearing, initially in respect of the appeal alone. The
instructions of the court with regard to the timetable had been known to the parties well in advance of the consolidated application.
In his view, a consolidation of the application would not avoid a multiplicity of applications. In addition, a postponement would
have important consequences for costs.
[8]
After consideration of the arguments placed before this court by counsel, the court decided to hear the
appeal separately and accordingly argument then proceeded in respect of the merits of the appeal alone.
The Tribunal’s Reasoning.
[9]
In dismissing the application for intervention, the Tribunal considered the three essential grounds
upon which appellants based their case for intervention. Appellants submitted that the proceedings before the Tribunal were essentially
a continuation of an earlier merger proceeding, which hearing had commenced on 14 July 2004.
[10]
At this hearing the Tribunal was enjoined to consider a large merger filed in terms of which a consortium
of firms purchased the entire share capital are third respondent. Appellants had been recognized as intervenors in these proceedings.
In these proceedings, the main issue for the intervenors appeared to be the role of Medi Clinic, which was a major competitor of
third respondent and along with Nedcare, was one of the three major hospital groups in the country. In this transaction Medi Clinic
was to hold a twenty five per cent. shareholding in Bidco, the purchaser of third respondent. Medi Clinic will be responsible for
much of the financial risk in the transaction. Medi Clinic had entered into a related transaction with Bidco, in terms of which the
latter agreed to sell 2500 of third respondent’s beds to it. These proceedings were adjourned in August 2004.
During the period of adjournment various negotiations ensued. Eventually the relevant parties decide to reconstitute the shareholding
in Bidco. Of particular significance was the removal of Medi Clinic as a shareholder in Bidco.
[11]
The changes in the transaction notwithstanding, appellants contended that these proceedings were not
fresh proceedings but a continuation of the earlier proceeding. The earlier proceeding had never been withdrawn and in terms thereof
appellants had been admitted as intervenors.
[12]
The Tribunal rejected this argument and found that there had been a new filing of a merger transaction,
a fresh fee of R250 000 had been paid, and a new case number had been assigned to the matter. The Competition Commissioner investigated
the filing and prepared a new recommendation for the Tribunal. The Tribunal held that the present filings were not a continuation
of the prior merger and accordingly the appellants were required to apply afresh for intervention.
[13]
The second ground from which appellants based their argument was a related submission, namely that, in
respect of the first appellant, the proceedings were but a sequel to the prior proceedings. To this argument the Tribunal said ‘The
fact that the current proceedings have a history in the prior proceedings does not obviate the need for the first appellant to make
out a case for intervention in terms of section 53(1)(c)(v). It would appear that it is precisely because the applicant’s case
for intervention is so weak that they have relied on the first applicant’s alleged inherited right as laid out in these first
two grounds for intervention’.
[14]
The appellants argued, as a third ground for intervention, that they were entitled to be recognized as
participants in terms of section 53(1)(c)(v) of the Act.
[15]
Section 53(1)(c)(v) provides ‘The following persons may participate in a hearing, in person or
through a representative, and may put questions to witnesses and inspect any books, documents or items presented at the hearing:
(c) if the hearing is in terms of Chapter 3 –
(v) any other person whom the Tribunal recognized as a participant.
[16]
After analyzing the case made out by appellants, the Tribunal in exercising its discretion to refuse
intervention, concluded:
‘The applicants have not made out a case why they should be recognized as participants. If we were to recognize them it would not be
on the basis that they would prove of assistance but only that per chance they might discover some gem that has thus far eluded all
others. This is not a sufficient basis to allow the application especially when weighed against the prejudice to the respondents
who on the eve of their hearing have an expectation that it will proceed’.
Appellants’ Case.
[17]
Mr Nelson submitted that the Tribunal had ignored the history of the matter in the manner in which it
exercised the discretion to recognize participants in terms of section 53(1)(c)(v) of the Act. In support of his submission that
the prior proceedings and the present proceedings could not be separated into discrete transactions, Mr Nelson referred to Rule 34
of the Competition Commission Rules which provides ‘The primary acquiring firm may notify the Commission in Form CC6 that it
has abandoned the intended merger transaction and has no intention to implement it.’
Mr Nelson submitted that no evidence was placed before the Tribunal concerning the alleged withdrawal of the prior pleadings. There
was also no evidence that a notice had ever been filed in terms of Form CT8. There was thus no basis from which the Tribunal could
have found that the ‘prior proceedings had been abandoned and with them any right of participation’.
[18]
Mr Nelson then proceeded to attack the reasoning employed by the Tribunal in refusing to recognize appellants
in terms of section 53(1)(c)(v) of the Act. He referred to the manner in which the Tribunal had interpreted this section in the light
of Rule 46 of the Tribunal Rules and in particular Rule 46(1) which provides ‘At any time that the initiating document is filed
with the Tribunal, any person who has a material interest in the relevant matter may apply to intervene in the Tribunal proceedings by filing a notice of motion in Form CT6 which must (a) include a concise statement
of the nature of the person’s interest in the proceedings and the matters in respect of which the person will make representations;
and
(b) be served on every other participant in the proceedings’ (my emphasis).
[19]
Mr Nelson submitted that the Tribunal should have held that Rule 46 cannot be employed to interpret or
limit the clear wording of section 53(1)(c)(v) of the Act which does not require that a person, seeking the right to participate
in large merger proceedings, must show ‘a material interest in a relevant matter’. In this regard Mr Nelson referred
to the judgment of Jali JA in Anglo SA Capital (Pty) Ltd. Industrial Development Corporation of South Africa and Another 2004 (6) SA 196(CAC) at 16: ‘The language of the statute is clear. There is no reference to interest at all. The mere requirement
is that the party must be recognized by the Tribunal as a participant. The recognition could be on the basis of some other grounds,
other than an interest in the matter as stipulated in the common law. Even if it were to be argued that the party must have an interest,
such interest is not qualified. In other words, there is no threshold for the interest for a party to participate. In the absence
of specified criteria for participation this Court should be reluctant to read in a test such as ‘substantial and material
interest. Where the legislature had sought to set out express criteria for participation in the statute it had done so’.
[20]
Mr Nelson contended that the overriding concern in the present case was whether a large merger could
be justified on substantial public interest grounds. The Tribunal accordingly had to use every resource at its disposal to ensure
that it arrived at an informed decision on this critical issue. In his view, appellants could have brought a unique and distinct
prospective’ to the proceedings in that, as black empowered businesses, appellants could have provided the Tribunal with evidence
which would have contributed to informed decision regarding the substantial public interest grounds in the present case. Accordingly,
the Tribunal had failed to exercise a proper discretion in considering the basis for intervention by applicant.
Evaluation.
[21]
The Nature of the Proceedings.
Mr Subel contended that appellant’s arguments that the original merger filing endured and that they were already participants
in the proceedings was in direct conflict with the uncontested evidence placed before this Court. In an answering affidavit on behalf
of third to seventh respondent. Mr Hogben, the managing director of seventh respondent stated:
‘The Commission adopted the view that the restructuring of the proposed transaction resulted in a new merger for competition law purposes.
Without conceding the correctness of this view, the merging parties prepared a complete merger file in respect of the new arrangements….The
new filing was lodged with the Commission on 11 December 2004. The second merger filing fee in the amount of R250 000 (+ VAT) was
paid by the merging parties to the Commission. A new case number…. was allocated to the matter. When the Commission made its
recommendation to the Tribunal on 20 January 2005 the Tribunal similarly allocated a new case number…to the matter.’
[22]
Mr Hogben then continues:
‘I am advised that, during its investigation of the new filing the Commission contacted the deponent to the applicants’ founding
affidavit to enquire whether he wished to make submissions regarding the new filing. Save for a request for access to the merger
filing (which was denied on the basis that it comprised “restricted information” in terms of the Competition Act and
its Rules) neither the deponent nor any other representative of either of the applicants availed himself or herself of the opportunity
too make submissions to the Commission as regards the new filing’.
[23]
These averments remained uncontested. As Mr Subel correctly observed, the definition of party to a merger
in section 1(1)(xviii) and acquiring firm in section 1(1)(i) of the Act required that there be a new filing, having regard to the
change in the composition of the shareholders of Bidco. Respondents’ evidence, which was uncontested by appellants, revealed
that both, in terms of legal form and substance, a new application had been made to the Competition authorities based upon a significantly
different shareholding in Bidco. There was no evidential basis for the submissions of appellants that the second proceedings were
not a continuation of the first proceedings or that appellants were in any way led to believe by way of the conduct of the Tribunal
that they had an expectation to be admitted (or remain) as intervenors in the new proceedings.
The Application of Section 53(1)(c)(v).
[24]
The evaluation of appellants contentions with regard to the application of s 53(1)(c)(v) requires an examination of the section as
well as the judgment which analysed the scope thereof, namely Anglo SA, supra. In his judgment in Anglo SA Capital, supra at 17, Jali JA said
‘It is clear that Rule 46 sets out a higher threshold than the one which is required in terms of the Act for a party to be able to
participate. The threshold is the common law test which is relied upon by the appellants….In any event regulations or (rules
in this case) which have been drafted by the legislature cannot be treated together with the Act as a single piece of legislation,
nor can these regulations be employed as an aid to the interpretation of the Act….Thus, rule 46 cannot be used to interpret
provisions of the Act and in particular, section 53(1) and to restrict express provision of section 53(1)(c)’.
[25]
The Court held that the discretion given to the Tribunal in terms of section 53(1)(c)(v) could not be
restricted to a decision as to whether an applicant had “a material interest’ in the matter. The Court did not restrict
its analysis to this point. It held further that the granting of leave to a party to participate might be discretionary but that
such discretion could not be unfettered. It had to be exercised in a judicial manner (at 21).
[26]
In giving guidance to the Tribunal and the exercise of its discretion, the Court said the following:
‘The Tribunal (and the Commission where applicable) are the critical bodies enjoined to regulate competition matters with a view to
discouraging restrictive practices, abusive dominance and controlling mergers and thus promote the purposes of the Act as set out
in section 2. In seeking to achieve this goal they might even institute their own investigation and call for their own evidence.
In so doing, the Tribunal is not confined to submissions or evidence placed before it by the parties to the merger or people who
have “an interest” in the merger. In particular, the various consideration which the Tribunal can take into account in
assessing whether a merger is justified on public interest grounds in terms of section 12 A (3) make it clear that the Tribunal might
admit persons beyond those persons or bodies who are directly or indirectly involved in the merger’. at 17-18.
[27]
In applying these considerations to the application by the Industrial Development Corporation to be admitted as an intervenor, the Court said
‘First respondent seeks the right to participate in the proceedings based on the provisions of the Act, which seems to set out criteria,
which do not necessarily limit access to persons having material or substantial interest in the matter. For example, it is apparent
from the Act that the Minister or a trade union may be notified of a merger although they are not party to the merger proceedings.
They may seek to participate even if they do not have a substantial material interest contemplated in the cases referred to above
The purpose thereof is to ensure that the objectives of the Act are achieved’. at 18.
[28]
The approach adopted by this Court in Anglo SA , supra can be summarized thus:
28.1.
The requirement of material and substantial interest, which is manifestly the appropriate test for ordinary
litigation, was too restrictive a test to be applied by the Tribunal in the exercise of its discretion in terms of section 53(1)(c)(v).
28.2
A party who is able to ensure a material and substantial interest would fall within the class of parties
who may be admitted upon the exercise of their judicial discretion by the Tribunal.
28.3
A party who is unable to show a material substantial interest in the matter may well be admitted if it
is able to provide evidence of its ability to assist the Tribunal in the latter’s consideration of the application of the various
purposes of the Act as contained in section 1 thereof to the relevant merger transaction.
[29]
Significantly in both the Anglo SA, supra case as well as the decision of the Tribunal in Healthbridge (Pty) Ltd. v Digital Health Care Solutions (Pty) Ltd: in re Digital Health Care Solutions (Pty) Ltd v Competition Commission and Another 2003 [1] CTLR 187(CT)] at 192-193, the applicants for intervention set out in their founding affidavits the matters upon which they sought
to make representations. They identified their interests and specified the scope and nature of their proposed participation. In Anglo SA, supra case, the applicant for intervention provided a report by expert economists aimed at disputing certain views expressed in
an economists report furnished on behalf of the merging parties. The intervening applicants sought to highlight material inadequacies
in this report.
[30]
By contrast, in the present case, appellants failed to provide the Tribunal or this Court with any details
as to the contribution it might make to proceedings before the Tribunal, were they to have been admitted as intervenors. In the founding
affidavit deposed on behalf of appellants by Mr Dewald Dempers, chief executive officer of first appellant, he states with regard
to first appellant that it was incorporated in 2000 as a subsidiary of Community Investment Holdings and that it is a significant
black owned health care provider in the private hospital market. He then states that ‘one of its guiding principles is to establish
the biggest active operating BEE companies (sic) in the healthcare sector and therefore it is seeking to expand its infrastructure
in the South African Healthcare arena.’.
[31]
Mr Dempers averred that first appellant ‘has a valuable perspective to present to the Tribunal
being both a small participant in the private hospital market in South Africa as well as being a BEE participant in the market. Community
Health Care therefore has a direct interest in the merger which, in its view amounts to the acquisition by another BEE entrant with
no prior expertise in the hospital industry of a shareholding in another of its competitors’. Turning to second applicant Mr
Dempers stated that ‘To the extent that it is also a shareholder within the healthcare industry [second appellant] shares the
identical concerns with those of the First Applicant but as a shareholder, has certain further defined concerns which have been addressed
by both to the First Respondent and to the attorneys who represent all the other Respondents…’
[32]
An examination of the case made out by appellants reveals the following:
32.1.
Appellants concrete concerns with the proposed merger, were set out in a letter of 12 March 2004 by Mr A Norton,
acting on behalf of appellants. Indeed Mr Dempers claims that this letter summarized the ‘preliminary concerns’ of first
appellant. An examination of this letter reveals that each and every concern specified therein is based on a transaction in which
Medi-Clinic would participate as a shareholder in Bidco. As already noted, the restructured agreement provided for the acquisition
by respondents from Medi-Clinic of all the shares in Bidco previously earmarked for Medi-Clinic with effect from 30 November 2004.
Accordingly Medi-Clinic would not be a shareholder in Bidco. Thus, the basis, upon which the concerns set out in the letter of 12
March 2004 were predicated, were no longer relevant to appellants, application for intervention in the proceedings.
32.2.
Mr Dempers asserts that the second appellant which was a quoted company was also a shareholder within the
Health Care industry, that it shared the identical concerns with those of first appellant but ‘as a shareholder, has certain
further defined concerns.’ An examination of the letter addressed to the first appellant and to the attorneys who represent
respondents reveals no further indication as to what case second appellant sought to put before the Tribunal.
32.3
The Tribunal found appellants’ papers wanting, in that no information was provided to the Tribunal
as to what contribution appellants could make to the proceedings. The Tribunal found the founding affidavit to be vague and the replying
affidavit quite unsatisfactory, in that ‘it did nothing to address the serious criticisms raised by the respondents in their
answering affidavit’
32.4
Significantly, the Tribunal afforded Mr Dempers an opportunity to testify at the hearing. After an evaluation
thereof, it concluded ‘Mr Dempers’ evidence in no way bolstered the application; rather it demonstrated that when sweeping
claims were probed the applicants can offer no more than speculation’. The following passage of Mr Dempers own evidence is
instructive. Mr Dempers was asked by Mr Subel, acting on behalf of the respondents ‘And when you say that you have serious
concerns that this would give rise to substantial prevention and lessening of competition in the market, in what way?’ He replied
‘the statement that I have just made, our concerns have been shown in the previous Tribunal hearing. That’s why your
clients have gone and re-engineered and restructured this whole transaction. (sic) But at this stage I still believe that it is exactly
the same strategy as what was on the table during the course of the previous proceedings’.
32.5
Mr Dempers was then pressed further by Mr Subel to be more specific. He stated ‘I would like to
know and see what the terms and arrangements are as far as those rights are concerned. Because if those rights entitles the role
players at the top structure of First Rand Bank to have a significant influence over the business of Bidco, the same players have
got a significant influence over the business of Medi-Clinic. It lays the ground for possible working together’. Mr Subel then
asked: ‘Really what this is about is you want access to information so that you can personally access whether there is or isn’t
a threat to competition, to which Mr Dempers replied ‘I would like access to information (sic) to be able to determine whether
this transaction is going to influence us in a negative way, the way it could possibly do going forward. Yes, you are 100% correct.’
[33]
Although invited to specify what contribution appellants could make to the proceedings, Mr Dempers’
testimony before the Tribunal provided no indication as to how appellants sought to assist the Tribunal in discharging its statutory
duties. Mr Dempers was also not able to provide evidence of any substantial material interest which the appellants might have had
in the proceedings, which were designed with the objective of assessing whether the merger would substantially prevent or lessen
competition. Rather, Mr Dempers conceded that the entire motivation for appellants application to intervene was to protect their
own commercial interests. Mr Dempers said so specifically: ‘Yes so my first consideration is definitely the competitiveness
and the future of our organization and not necessarily the macro economics at play’.
[34]
For these reasons, the Tribunal was correct to conclude that the set of considerations presented by appellants
as the basis for their application were not concerns which represented a genuine interest in terms of the objectives of the Competition
Act. Assertions about the first appellants own commercial interest were insufficient to bring the application within the scope of
s 53(1)(c)(v) of the Act. Nowhere in the papers did appellants provide any indication of evidence it could or would lead before the
Tribunal.
Conclusion.
[35]
When appellants case is carefully analysed, it amounts to the following:
1.
They wished to protect their own commercial interest, notwithstanding that there was no indication
on their papers as to how the merger would affect any of the objectives sought to be promoted in terms of the Act.
2.
Appellants sought to contend that as, black economic empowerment companies, they could make
a contribution to the Tribunal’s deliberations. Notwithstanding countless invitations made for them to elucidate thereon, they
were unable to specify on what basis such a contribution could be made nor the content thereof.
[36]
In my view, given the skeletal nature of their justification for intervention, the Tribunal was more
than justified in refusing the application. In coming to this conclusion it carefully evaluated the evidence set out above and exercised
its discretion in a judicial manner.
[37]
There is a further matter with which I need to deal. On 29 March, 2005, 5 days after the hearing, a replying
affidavit deposed to by Ms Lisa Campbell was received. It is a prolix document and whether it deserves consideration, having been
filed in so extraordinary circumstances is doubtful. Suffice to say it seeks to justify appellants conduct in persisting with the
consolidation application. The short response is that nowhere is a satisfactory reason given for why the appellants acted in a manner
clearly contrary to the Registrar’s letter of 11 March 2005. The dispute about whether the Registrar’s letter was of
10 or 11 March 2005 plainly being irrelevant. Much of Ms Campbell’s affidavit turns on allegations that third to seventh respondents
were uncooperative. The point however, is that directions were given to the parties by the Registrar on behalf of the Judge President.
There is an unacceptable practice among some who appear in this Court to treat these directions in a rather cavalier fashion. Private
dealings which seek to circumvent directions are unacceptable and cannot be counternanced.
[38]
For these reasons, the application is dismissed with costs, including the costs of two counsel where
two counsel were employed.
[39]
Given the finding of this Court that the consolidation application was brought prematurely and in violation
of the specific instructions of the Registrar in terms of the letter 11 March 2005, the consolidation application is dismissed with
costs which are to be paid by the applicants on an attorney and client scale, including the costs of two counsel where two counsel
were employed.
_____________
DAVIS J.P.
JALI J A & MALAN AJA concurred
Counsel for Appellants: AJ Nelson SC and RM Pearse
Instructed by: Rothbart Inc
Counsel for 3rd to 7th Respondents: A subel SC and Allan Coetzee
Instructed by: Edward Nathan
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