SAFLII [Home] [Databases] [WorldLII] [Search] [Feedback]

South Africa: Competition Tribunal

You are here:  SAFLII >> Databases >> South Africa: Competition Tribunal >> 2001 >> [2001] ZACT 14

[Database Search] [Name Search] [Recent Decisions] [Noteup] [Help]

Bulmer SA /Seagram Africa Distillers Corporation / SA Stellenbosch Farmers' Winery Group (101/FN/Dec00; 94/FN/Nov00) [2001] ZACT 14 (19 April 2001)

.RTF of original document

         COMPETITION TRIBUNAL                                        
REPUBLIC OF SOUTH AFRICA
                                                                        Case Nos:       94/FN/Nov00
                                                                                          101/FN/Dec00

In the matter between:

Bulmer SA (Proprietary) Limited                                      First Applicant

Seagram Africa (Proprietary) Limited                                Second Applicant

and                                

Distillers Corporation (SA) Limited                                 First Respondent

Stellenbosch Farmers’ Winery Group (Pty) Ltd                        Second Respondent

The Competition Commission                                           Third Respondent
_______________________________________________________________________

         Reasons for Decision
_______________________________________________________________________


A.       INTRODUCTION

         1.      Summary of the Issues

In this case the first respondent entered into a transaction to purchase the business of the second respondent. Three common shareholders hold 90% of the voting equity in each of the respondents. We have to decide whether the transaction constitutes a merger as defined in the Act. If it does the respondents were in terms of section 13 of the Act under an obligation to notify the transaction to the Competition Commission. The respondents say they were under no such obligation, as the transaction did not lead to a change in the ultimate control of either company. The Competition Commission agreed with this contention, but two of the respondents’ competitors, who are the applicants in this case, did not and they have brought the dispute to us. Prior to us even considering the question we have to decide if we have jurisdiction because the case was brought to us by the competitors and not the Commission.



2.       History of Litigation

1.      
This application is brought by Bulmer SA (Proprietary) Limited (“Bulmers”,) and Seagram Africa (Proprietary) Limited (“Seagrams”) (the Applicants) against Distillers Corporation (SA) Limited (“Distillers” – First Respondent), Stellenbosch Farmers’ Winery Group (Pty) Ltd (“SFW”- Second Respondent, and the Competition Commission (Third Respondent).

2.      
The application is brought in terms of section 62(1) of the Competition Act 89 of 1998. The basis of the application is that the respondents failed to notify a transaction which the applicants contend is a merger as defined in terms of section 12(1) of the Act. They seek an order from the Tribunal declaring the implementation of the merger between SFW and Distillers (the respondents) to be in contravention of section 13 of the Act (compelling the respondents to notify such transaction) and ordering the respondents to sell any assets or interest it has acquired pursuant to the merger. They claim in the alternative an order compelling the respondents to notify the merger to the Commission in terms of Section 13 of the Act within 7 days thereafter.

3.      
The two applications were initially brought separately by Bulmers and Seagrams, but were subsequently consolidated as per agreement at the pre-hearing conference held on 6 February 2001.

4.      
The respondents confirmed at the pre-hearing that the merger had already been implemented.

5.      
The application was supported by the Food and Allied Workers Union and the National Union of Food, Beverages, Wine and Spirit and Allied Workers. We recognized the unions’ as interveners at the hearing. Although the unions did not file any papers themselves they did make written and oral submissions based on the papers filed by the applicants and respondents. These submissions were confined to the legal issues raised by the application.

3.       The Parties

6.      
Bulmers was established in March 1999 as a joint venture company between a South African brewery, Bavaria Brau (Pty) Ltd, and HP Bulmer Limited, an English cider manufacturing company. Its main business activity comprises manufacturing and distributing alcoholic fruit beverage (AFB) products within and throughout South Africa.

7.      
Seagrams is involved in the marketing, wholesale selling and distribution of various brands of liquor nationally.

8.      
Distillers is an investment holding company, involved, through its subsidiaries, in the production and wholesale distribution of branded spirits and wine. Distillers’ produces, markets, sells and distributes various brandies (including Oude Meester, Richelieu, Viceroy, Klipdrift) and premium wines (for example Fleur du Cap, Le Bonheur, Neethlingshof and Grunberger). Other prominent trade marks include the local names J C Le Roux, Drostdy Hof and Amarula Cream as well as acting as an agent for international brands such as Gordon’s gin; Bacardi rum; Grant’s whiskey. Distillers also manufactures and distributes AFB products under the brand names of Bernini and Castello within South Africa.

9.      
SFW is a producer and wholesaler of wine, spirits and alcoholic fruit beverages within South Africa. As a leading wine producer, it boasts names such as Nederburg, Zonnebloem, Graca, Chateau Libertas and Plaisir de Merle. Its spirit brands include Mellow-Wood and Old Buck gin; Mainstay cane spirit; Romanoff Vodka. It has the distribution rights in SA for Martell brandy and Bols brandy. It is the market leader in the AFB market with brand names such as Hunters Dry, Hunters Gold, Crown, Savannah, Esprit, Montello and Manhattan.

10.     
Presently, the corporate structuring of both SFW and Distillers is divided in a three-way split:

•         Rembrandt-KWV Investments (“RemKWV”) holds 60% of the shares. RemKWV is a joint holding company of Rembrandt and KWV, in which each holds a 50% interest. KWV’s interest in RemKWV is held through a listed subsidiary, KWV Investments Limited in which KWV owns approximately 54%;

•         SAB holds 30% through its wholly owned subsidiary Other Beverages Industries (Pty) Ltd (“OBI”);

•         The general public holds the remaining 10%.

4.       Developments in the Liquor Industry

11.      Prior to 1979, two separate companies, Oude Meester Group Limited (“OMG”) and SFW competed with each other in the liquor industry. Other major firms in the industry comprised SAB and Ko-operatiewe Wijnbouwers Vereniging van Zuid-Afrika Beperkt (“KWV”).

12.     
With governmental consent, a significant restructuring in the industry occurred in 1979, when a new entity, Cape Wine and Distillers Limited (“CWD”) was formed. This arose in pursuance of an arrangement between SAB, SFW, OMG and KWV. This restructuring gave effect to an agreement between the parties in terms of which the liquor industry was effectively divided between the various players. SAB purchased the Rembrandt Group’s beer interests in exchange for agreeing to limit its involvement in wine and spirits to its 30% investment holding in CWD. Similarly, the Rembrandt Group undertook to abdicate its beer interests so as no longer to have any interests whatsoever in the beer market. Further in terms of this agreement, SFW and OMG became wholly owned subsidiaries of CWD.

13.     
CWD was listed on the Johannesburg Stock Exchange with its shareholding divided as follows:

a.      
30% held by The Rembrandt Group;
b.      
30% held by SAB;
c.      
30% held by KWV; and
d.      
10% held by the public.

SAB
 30%

KWV

CWD
 30%

PUBLIC

RG

 30%
10%






OMG

SFW





14.     
Rembrandt and KWV subsequently formed a jointly-owned holding company, Rembrandt-KWV Investments Limited, in which they consolidated their respective shares in CWD to a 60% shareholding.

15.     
In 1988 another shake-up of the industry occurred when SFW and OMG were separately listed on the Johannesburg Stock Exchange. CWD retained the activities of SFW and was renamed SFW and OMG’s interests were transferred to a new entity, Distillers Corporation.

16.     
On 8 June 2000, the legal representatives of the respondents contacted the Commission asking it to clarify whether the proposed transaction to merge the businesses of SFW and Distillers constituted a notifiable transaction. On 7 August 2000, the Commission concluded in a letter addressed to the respondents’ legal representatives, that the proposed transaction would not constitute a merger as defined in section 12 of the Act and accordingly was not notifiable in terms of section 13. Based upon this direction, the respondents proceeded to issue cautionary announcements advising of the proposed merger.

17.     
In terms of an agreement dated 20 September 2000 (amended on 9 October 2000) the respondents effected a transaction whereby Distillers was to acquire all the principal assets and liabilities of SFW. The purchase consideration in respect of the SFW assets, in the amount of R515 157 950,31, was to be settled through the issue by Distillers to SFW of 55 580 000 Distillers ordinary shares in the share capital of Distillers. These Consideration Shares were to be distributed by way of a dividend in specie and reduction in share capital to the SFW shareholders.

18.     
On 10 October 2000 the Commission, after further enquiry, again addressed correspondence to the respondents’ legal representatives, this time advising them that the transaction between SFW and Distillers did, in fact, constitute a merger as defined insofar as it did not in the Commission’s view constitute an internal restructuring, and advising them of the requirement to notify the transaction within 7 days in accordance with the Act.

19.     
Upon receiving this notification, the respondents’ legal representative met with the Commission’s legal counsel to discuss the matter. In pursuance of this meeting the Commissioner contacted the respondents’ legal representative and advised him that the Commission had reconsidered its position and accepted that the transaction did not constitute a merger within the definition of section 12 of the Act and, in light hereof, the transaction could proceed.

20.     
The applicants were unhappy with the Commission’s decision. They had at all times vigorously contended that these companies are separate and distinct juristic and business competitors and as a consequence, the merger of the two companies would significantly affect and hamper competition in the liquor industry.

21.     
Seagrams accordingly launched an application against the respondents in the Cape High Court on 10 November 2000. The action was founded on Seagrams’ contention that the transaction between SFW and Distillers constituted a merger in terms of the Act. The applicant sought an interdict restraining the respondents from implementing the merger, alternatively an order referring the matter to the Competition Tribunal. In his judgement, Jali J ruled that section 65(3) made it clear that the High Court did not have jurisdiction to hear the matter, insofar as it related to competition issues. By virtue of the same reasoning, the court could not grant a referral order to the Competition Tribunal.

B.       THE APPLICATION
        
         1.      Appropriate Act

Since 1 February 2001 the Competition Act has been extensively amended by the Competition Second Amendment Act, Act no 39 of 2000. One of the provisions that has been amended has been section 12 which provides for the definition of a merger. We asked the parties if the amendment would have any bearing on our decision. All were in agreement that for the purpose of the issues in this case the change in definition did not lead to a different conclusion. On balance the parties concluded that the previous definition applied, as this was the provision in operation at the time when the transaction, assuming it was a merger, would have had to have been notified. Counsel for the respondents however urged us to indicate in our decision which section applied to the transaction although we were not enlightened why we should do so if nothing turned on this designation. We agree with the parties that nothing turns on this point and we decline to make any finding as to which version of the Act applies to the current transaction. For the purpose of our decision we have referred to the provisions of the Act as they were immediately prior to 1 February 2001 as the parties all addressed their arguments to us based on the Act as it was then.

2.       Jurisdiction

The respondents argued that a prerequisite in order for us to have jurisdiction is that the matter must be “referred” to us. As authority for this proposition they draw our attention to section 27 of the Act, which provides for the functions of the Tribunal and states:

27(1) Upon a matter being referred to it in terms of this Act, the Competition Tribunal may –

a)      
Grant an exemption from the provisions of this Act
b)      
Authorize a merger, with or without conditions or prohibit a merger
c)      
Adjudicate in relation to any conduct prohibited in terms of Chapter 2 or 3, by determining whether prohibited conduct has occurred, and if so, impose a remedy provided for in Chapter 6;or
d)      
Grant an order for costs in terms of section 57. (Our underlining)

They argue that on a proper construction of the Act this means a “referral” by the Commission. Since this matter is before us by way of an application brought by the applicants and has not been referred to us by the Competition Commission we cannot have jurisdiction.

Implicit in this argument are two important assumptions. Firstly that section 27 is exhaustive with respect to how matters may be brought before us. Secondly, that when the section speaks of a “referral” it means a referral by the Commission and not by another person.

The expression “referral” is not defined in the Act so the respondents have drawn our attention to certain other sections in Chapter 3 where the word is always used in the context of the Commission referring something to the Tribunal. They further rely on the rules of the Tribunal to bolster this interpretation. The relevant provision is rule 42 which, provides for procedures not otherwise provided for in the rules. Since, as appears later, the applicants place reliance on this rule as well, it is set out in full below.

         42 “Initiating other proceedings
         (1)      Any proceedings not otherwise provided for in these Rules may be initiated only by filing a Notice of Motion in Form CT 6 and supporting affidavit setting out the facts on which the application is based.

         (2)      The applicant must serve a copy of the Notice of Motion and affidavit on each respondent named in the Notice, within 5 business days after filing it.
        
         (3)      A Notice of Motion in terms of this Rule must -
(a)      depending on the context –

(i)     
set out the Commission's decision that is being appealed or reviewed;
(ii)     set out the decision of the Tribunal that the applicant seeks to have varied or rescinded;
         (iii)    set out the Tribunal Rule in respect of which the applicant seeks condonation; or
                           (iv)     allege conduct referred to in
         (aa) section 61(1)(c) in respect of which the Commission seeks an administrative fine; or
(bb)    
section 62(1) in respect of which the Commission seeks an order of divestiture;

(b)      indicate the order sought; and
(c)      state the name and address of each person in respect of whom an order is sought.

The respondents argue that since sub-rules 42(3)(a) (iv)(aa) and (bb) mention the section 61 and 62 proceeding as one in which the “Commission” seeks an order i.e a specific party, as opposed for instance to rule 42(3)(a) (iii) which refers to the “applicant” i.e. a general party, this bolsters their interpretation that only the Commission may refer such a matter. In answer to the applicants’ criticism that they were using the rules to interpret the Act the respondents say that this is an aspect of procedure properly reserved for the rules and the Act itself does not determine the issue.

We find no support for the respondents view in the text. In the first place even if we assume section 27 is exhaustive of the Tribunal’s functions, which we doubt, there is no basis for reading the word “referral” to mean a referral by the Commission only. Had the legislature intended to use the word referral only in relation to the Commission it would have either defined the word restrictively in the definition section of the Act, which it hasn’t, or qualified its usage in section 27, which it hasn’t. The respondents approach requires one to search for the word referral in the Act and having found that in Chapter 3 its usage happily coincides with an action expected of the Commission it must therefore mean that the two are wedded to one another and hence when we see the phrase in section 27 “referral to the Tribunal” this must be decoded to mean referral by the Commission. The approach collapses when we reach section 51(2) when we find referral associated with a complainant’s non–referral and in section 65(2)(b) where a civil court must “refer” a matter to the Tribunal. It is quite clear that the Act uses the word referral in a general sense and without confining it to the Commission.

On a purely textual interpretation there is nothing in section 27 which suggests that a matter cannot be referred to the Tribunal by a party other than the Commission. We are of course required to make our decision in terms of section 62 of the Act. That section is again silent as to who may invoke our jurisdiction. The respondents thus oblige us to read into this section the words “subject to section 27” and then read into section 27 the words on referral by the Commission. It is unlikely that the legislature could have intended that the Act required this amount of surgery.

The respondents also invoked a purposive argument to support their interpretation. The Act through section 65(3) gives us exclusive jurisdiction over subject matter not over process. This latter aspect is important because the Act creates a hierarchy of institutions commencing with the Commission and ultimately ending up with the Competition Appeal Court. The fact that the Supreme Court of Appeal may have jurisdiction over a dispute of a particular nature does not mean that the dispute may be heard by them directly without it being processed up through the hierarchy of courts, so by analogy in our Act they argue that all matters must commence at Commission level and from there be referred to the Tribunal. This is designed to ensure the orderly and proper governance of the Act so that the investigator investigates and the adjudicator adjudicates. Whilst there is much to be said for this argument it is not supported by the structure of the Act.

In the first place the Act does provide instances of referrals to the Tribunal which need not involve the Commission as the originating party. A civil court can refer a matter directly in terms of section 65(2) as we have observed earlier. A party can bring an interim relief application directly without the Commission first investigating it. All that is required is that the complaint has been submitted to the Tribunal. The Commission may remain passive throughout these proceedings contrary thus to the purpose suggested by the respondents.

Secondly the respondents’ interpretation leads one into a jurisdictional paradox. What happens in a case such as this where the Commission decides it does not have jurisdiction over a merger. A party who believes that this decision is erroneous cannot go the High Court as that court does not have jurisdiction over the interpretation of section 12 as this section is in Chapter 3 of the Act and section 65(3) states:

“The Competition Tribunal and the Competition Appeal Court share exclusive jurisdiction in respect of the following matters:
                 
a)      
Interpretation and application of the provisions of Chapters 2,3 and 6, other than this section; and
b)      
The functions referred to in sections 21(1), 27(1) and 37(1).”

This is not idle speculation on our part. Seagram’s took this course of action initially in the Cape High Court in the matter of Seagram Africa (Pty) Ltd and Stellenbosch Farmers’ Winery Group Ltd, Stellenbosch Farmers’ Winery Ltd, Distillers Corporation (SA) Ltd7759/00, CPD and the court held it had no jurisdiction.

In that matter Jali J, held as follows on the question whether the applicant in that matter, Seagram’s could refer the matter to the Tribunal:

“I cannot see a problem with the applicant [i.e. Seagram’s] referring this matter to the Tribunal itself if it is not satisfied with the Commission’s position. I’ve already found that the referral to the Tribunal need not be done by the parties to the merger only. If the applicant is concerned about the merger then it is within its rights to refer same to the Tribunal and for the Tribunal to deal with the same.”

If we adopt the respondents’ current interpretation neither does the Tribunal have jurisdiction. When asked by the Tribunal what remedy a party in the position of the applicants would have the respondents lamely suggested that this would be by way of a mandamus to the High Court against the Commission. The applicants have pointed out that this is quite unsatisfactory. If the High Court has no review power by virtue of the exclusive jurisdiction conferred on the Competition Tribunal and Competition Appeal Court in terms of section 65(3) then for the same reason it cannot enjoy the power to entertain a mandamus, which could not be adjudicated upon without consideration of section 12 a section whose interpretation is the exclusive preserve of the competition authorities.

The applicants cannot be denied a remedy - even the respondents concede as much although their solution is unsatisfactory. In our view the position contended for by the applicants is correct and the Tribunal does have jurisdiction. Not only does this accord with a much simpler reading of the Act it is also consistent with the overriding purpose of the Act which is to give exclusive jurisdiction to the competition authorities over issues that require specialist interpretation such as the ambit of section 12.

It is for this reason not necessary for us to delve into the debate over Rule 42 alluded to earlier. If the Act gives the applicants this remedy we do not have to search for it in the rules. Be that as its may at least two sub-rules would seem of possible application and it is unnecessary to decide which, for nothing turns on it. Nor indeed, as the applicants have pointed out, is Rule 42(3) exhaustive of all the possible permutations an application can take. The phrase in 42(3)(a) “depending on the context” says that if you bring one of these application then this is what you need to allege. It does not purport to be a closed list of all possible applications that may be brought. On this interpretation what Rule 42(1) does is to provide a residual procedure for “proceedings not otherwise provided for”. Rule 42(3)(a) applies only to those specific applications that it mentions. If we follow this approach the general rule (rule 42(1)) can live together with the specific one (rule 42(3)) .On the respondents interpretation we have the one rule giving a general right only to have it curtailed by a subsequent one.

There is another more fundamental problem with the respondents’ interpretation of Rule 42. If their interpretation is correct it means that applications to the Tribunal in terms of sections 61 and 62 are the prerogative of the Commission only. The rule is thus being interpreted then not as a procedural supplement to the Act, but as a means for denying other parties legal standing to bring such application. Whilst the Act is silent on the aspect of who has standing to bring such applications it does not delegate the issue of standing to the rules. On the contrary as we see in section 21(4), the section in terms of which rules are made, on the issue of participation, the rules must be confined to “ manner and form”. An interpretation of Rule 42(3) as a rule that grants standing would thus be ultra vires the Act. We reject this interpretation of Rule 42(3) in favour of an interpretation that is both intra vires the Act and makes sense of why a special procedure was expressly provided for the Commission.

The rule is not saying only the Commission may bring such an application. All its says is that where the Commission is the applicant it must “allege conduct..” Its purpose is to serve as a procedural direction for the Commission since in the ordinary course it is the party most likely to bring these applications given its function to ensure compliance with the Act.

We must also not lose sight of the fact that the applicants have not come here directly without regard to the Commission. The Commission had been appraised of the transaction and declined jurisdiction – thus good governance as to hierarchy has not been flouted it has been followed. Indeed this application is no different in principle to the procedure the Act recognizes for the non-referral of a complaint. This is an instance of interested parties referring us a transaction after the Commission has effectively “non-referred”.

The applicants also argued that an alternative procedural basis for them to bring the application could also be found in Rule 42(3)(a)(i) which provides for Commission decisions to be reviewed or appealed. The respondents attempted to counter this point by suggesting that the Commission had not made a decision but had merely furnished an advisory opinion. This distinction is highly artificial and without substance. It is quite clear that the Commission has decided that it has no jurisdiction and has abided by that decision; if not, it would have contended otherwise in these proceedings as it had the opportunity to do so since it is cited by both applicants as a respondent. Secondly the language of the Commission’s letter to the respondents’ attorney, states unequivocally “this will assist the Commission in making a final determination on the merger.”

We find therefore that we have jurisdiction to hear this matter. In interpreting the Act to ascertain whether we have jurisdiction we must not lose sight of the applicants constitutional rights to have a remedy to resolve disputes in an appropriate forum and for administrative justice. The legislature has in section 65(3) vested the Tribunal and Competition Appeal Court with the exclusive jurisdiction to interpret specific provisions of the Act. As Jali J expressed it:

“It is clear that these institution were created by the legislature with the clear intention of excluding the jurisdiction of the High Court in competition matters.

The interpretation we have given and the conclusion we have come to respects both the legislative intent of our Act and the applicants’ constitutional rights.