We are making the full PDF available to our blog readers. The piece was originally published by Global Competition Review.
The Commission had originally prohibited the proposed merger on 7 December 2010,[1] following a three-month investigation. In the Commission’s assessment, the transaction amounted to a 3 to 2 concentration amongst producers of seeds for the staple food in South Africa, if not much of sub-Saharan Africa. Quite apart from the substance, this sector fell squarely within the Commission’s prioritisation programme, and so was always likely to receive close scrutiny.[2] On the Commission’s assessment, the transaction would give rise to significant unilateral effects, removing an important competitor from the market. The Commission considered the merging parties’ submissions that the transaction would lead to efficiencies from a combination of the two parties’ breeding programmes, but found the claimed benefits unconvincing and unlikely to outweigh the anti-competitive harm.
Following an extensive discovery process and a three-week hearing involving nine witnesses, the Tribunal also decided to prohibit the merger, on 9 December 2011.[3] The Tribunal considered the potential for anti-competitive effects (concluding that the parties were close and effective competitors, and that the transaction would accordingly give rise to very significant anticompetitive effects),[4] and the likelihood of significant efficiencies (concluding that the Parties’ assumptions were “either grossly exaggerated or totally unrealistic”, and that any potential merger-specific efficiencies would lie beyond a 5 year time horizon)[5]. Despite the parties’ characterisation of the industry as a “dynamic innovation market”, maize seeds improve by 1-2% per annum (not exactly Moore’s law)[6] and the wide variety of different growing conditions (and the use of seeds adapted for each region), mean that any particular innovation is unlikely to be universally applied; the Tribunal highlighted the need to account for anticipated non-merger specific innovation as a benchmark against which the parties’ claims should be measured.
Notably, the Tribunal focussed substantial attention on assessing the relevant counterfactual against which the merger should be assessed. While it was common cause that the target firm did not meet the requirements of the failing firm defence, in the course of the Tribunal hearing the parties had argued that the target firm, Pannar, would decline as a competitive force, most rapidly in relation to one specific product area (so-called irrigated region hybrids), but also more generally across its whole product range. Considering local and international approaches to the counterfactual, the Tribunal found that there was no compelling evidence of the certain decline of the target firm (which was still the market leader in relation to the irrigated region hybrids), and concluded that there was no reason not to accept the status quo as the relevant counterfactual.
Following two days of oral argument, the CAC overturned the Tribunal’s prohibition, instead deciding on 28 May 2012[7] that the merger should be allowed subject to conditions, including the imposition of restrictions on price increases on existing Pannar varieties to the level of consumer price inflation for three years, and agreeing to license a list of Pannar varieties for breeding by third parties. The CAC’s reasoning was based on an assumption that the decline of the target firm was “inevitable”[8] albeit uncertain in its timing, although it was again universally accepted that Pannar failed to meet the requirements of a failing firm. On that assumption, the CAC appeared to reverse the onus that would have applied with a failing firm defence, and stated that the Commission[9] had failed to establish the likelihood of an alternative transaction that might preserve Pannar’s assets, in the event of a prohibition. The CAC placed an unusually heavy weight on the interests of private shareholders,[10] as opposed to consumers, which is in distinction to the strict requirements of the failing firm defence, as applied internationally.[11] The CAC ultimately concluded that the relevant counterfactual was the continued decline, eventual demise and exit by Pannar,[12] and against that benchmark, approved the transaction, subject to conditions.
It is unfortunate that the Supreme Court of Appeal denied the Commission leave to appeal on the substance, as the CAC’s approach to the counterfactual has created some uncertainty that may need to be resolved in another case. In any event, the Constitutional Court was only asked to consider the CAC’s costs award.[13]
The CAC had awarded costs against the Commission, not only in respect of the CAC proceedings, but also those before the Tribunal. The Constitutional Court first clarified that the Tribunal has no power to award costs against the Commission (thereby distinguishing the Commission, as a “party”, from a private “complainant” in Tribunal proceedings).[14] Furthermore, the Constitutional Court determined that the CAC is similarly unable to award costs in relation to Tribunal proceedings.[15] Finally, while the CAC has discretion to award costs against the Commission in respect of CAC proceedings, it must properly exercise this discretion.[16] The Constitutional Court noted that while the “Unreasonable, frivolous or vexatious pursuit of a particular stance” may justify a costs order against the Commission, the vigorous pursuit of its case would not. The Court highlighted the distinction between an ordinary civil litigant and the Commission, which is required to pursue its statutory mandate vigorously, often where there is no opposing party or amicus. Ultimately, the Constitutional Court concluded that the lack of reasoning behind the costs award, and the lack of any evidence of “mala fides, irregularity, or unreasonable conduct” by the Commission meant that the costs order had to be set aside.
This is clearly an important result for the Commission’s ongoing activities. The Commission had argued before the Constitutional Court that a costs order would have a serious effect on its budget and its stance in defending similar investigations and findings before the CAC. Ideally, competition enforcement should aim to strike a balance between sufficiently robust enforcement to achieve policy objectives and the need to avoid imposing undue or disproportionate costs on the businesses that ultimately drive competition, growth and job creation. Particularly in a developing country context, a certain degree of prioritisation can be helpful in building institutional capability and making the most effective use of limited resources, as well as minimising the burden of investigations. By focussing the most resources and attention on those cases most likely to cause harm, an agency might maximise the benefits of enforcement, while minimising the potential for any inefficiency caused by the investigation process.
In this case, while the CAC took a different view from the Tribunal (and the Commission), it would be difficult to label the Tribunal’s decision (and hence the Commission’s defence at the CAC) as unreasonable or vexatious. In a nutshell, this was a 3 to 2 combination between direct (“horizontal”)[17] competitors in a priority sector, in an industry that, while increasingly influenced by innovation, is slow moving in comparison with “innovation markets” such as those in the ICT sector.
South African merger control is not characterised by many prohibition decisions. Amongst intermediate and large mergers, this is the most recent prohibition decision issued by the Tribunal. There have been around 500 decisions since the previous prohibition, Telkom/BCX in August 2007.[18] Few prohibitions may well point to the outstanding deterrent effect of the Commission’s historical enforcement efforts, but it seems a stretch to consider that the Commission’s (albeit vigorous) defence of the only large/intermediate prohibition decision by the Tribunal in the past 6 years is an indication of a vexatious or overly aggressive approach.
While the Commission will no doubt be heartened by this decision, it will be interesting to see whether the clarifications provided by the Constitutional Court will have any bearing on the Commission’s stance on contentious matters before the CAC in future, in particular those involving more complex theories of harm. Arguably more important will be the anticipated clarification of the approach to mergers involving declining firms in the light of the CAC’s approach to the counterfactual.
[2] See Roberts, Simon (2008) “South African Competition Policy in 2008: Key Priorities of the Competition Commission” Global Competition Policy, April 23rd, 2008. Prioritisation might justify closer scrutiny, or even firmer enforcement, in particular sectors or industrial areas. For an example of where enforcement might depend on sector characteristics, see EdF/British Energy, European Commission Case No COMP/M.5224, 22/12/2008, at para 31, cited in http://www.compcom.co.za/assets/Uploads/events/Fourth-Competition-Law-Conferece/Session-4B/100812-PS-Paper-for-SACC-conference-DRAFT.pdf.
[3] Pioneer Hi-Bred International Inc and Pannar Seed (Pty) Ltd v The Competition Commission and the African Centre for Biosafety, CT CASE NO: 81/AM/DEC10 (“Tribunal Decision”), http://www.comptrib.co.za/assets/Uploads/81AMDec10.pdf
[4] Tribunal Decision paragraphs 282 to 284.
[5] Tribunal Decision paragraphs 317 and 327.
[7] Pioneer Hi-Bred International Inc and Pannar Seed (Pty) Ltd v The Competition Commission and the African Centre for Biosafety, CAC CASE NO.: 113/CAC/NOV11, (“CAC Decision”), http://www.comptrib.co.za/assets/Uploads/113CACNov11-Pioneer-Pannar.pdf
[8] CAC Decision paragraphs 3 and 29.
[9] CAC Decision paragraph 26.
[10] CAC Decision paragraphs 21-26.
[11] See, for example: http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft1047.pdf, http://www.justice.gov/atr/public/guidelines/hmg-2010.pdf
[12] CAC Decision paragraph 28.
[13] The Competition Commission v Pioneer Hi-Bred International Inc, Pannar Seed (Pty) Ltd, and the African Centre for Biosafety, Case CCT 58/13 [2013] ZACC 50, (“Constitutional Court Decision”), http://www.saflii.org/za/cases/ZACC/2013/50.html
[14] Constitutional Court Decision paragraph 40.
[15] Constitutional Court Decision paragraph 43.
[16] Constitutional Court Decision paragraph 46-47.
[17] More precisely, producers of substitutes.
The past 18 months have witnessed significant developments in the investigation and prosecution of cartel conduct in South African competition law. In summary, these developments are the following:
• The Supreme Court of Appeal recognised the availability of ‘opt
out’ class actions for private damages and set out a procedure
through which plaintiffs can seek certification of a class.
• The Constitutional Court extended the availability of class actions
for private damages by recognising ‘opt-in’ class actions
where the interests of justice permit such a procedure.
• The Competition Commission (the Commission) for the first
time utilised a fast-track settlement process in relation to the
prosecution of a widespread cartel in the construction industry.
• An amendment to the Competition Act, 89 of 1998 (the Act)
was promulgated giving the Commission the power to institute
market enquiries. The Commission has indicated that it wishes
to conduct a market inquiry into the private health-care sector.
• The Supreme Court of Appeal broadened the scope for the
Competition Tribunal (the Tribunal) to adjudicate complaints
prosecuted by the Commission.
• The Supreme Court of Appeal confirmed that leniency applications
submitted to the Commission by a leniency applicant are
subject to legal privilege unless the Commission makes reference
to the application in a complaint referral to the Tribunal
– in which case it will be taken to have waived privilege.
• The North Gauteng High Court found that a leniency applicant
is not protected from private damages claims – even where it
is not cited by the Commission as a respondent in complaint
proceedings brought before the Tribunal.
The article originally appeared in The African and Middle Eastern Antitrust Review 2014, which is published by Global Competition Review and is available online at: http://globalcompetitionreview.com/reviews/59/the-african-middle-eastern-antitrust-review-2014
NB: AfricanAntitrust.com author and economist Patrick Smith recently also published an article in the same edition of the Review, see: Public Interest Factors in African Competition Policy.
Author and economist Patrick Smith recently published “Public Interest Factors in African Competition Policy“ in The African and Middle Eastern Antitrust Review 2014. The consideration of public interest factors in competition law inquiries has generated much debate over the past few years. Several high profile cases have illustrated the potential for competition decisions,
and in particular merger inquiries, to be significantly affected by non-competition public interest issues.
Our readers have free access to the 
full PDF.
The Review is published by Global Competition Review and is available online at: http://globalcompetitionreview.com/reviews/59/the-african-middle-eastern-antitrust-review-2014
This year’s issue of the Review also features two other AfricanAntitrust.com writers: contributing author, Chabo Peo, whose piece on competition law in Botswana is available at the GCR web site, as well as editor John Oxenham‘s piece on cartels in South Africa, available here.
A full list of contributors to our site can be found at: https://africanantitrust.com/about/
Mark Griffiths is Competition Counsel for Barclays Africa Group and is accountable for competition risk management across the African continent for Barclays. Mark is heavily involved in antitrust and merger matters across twelve African jurisdictions with active competition authorities. He has been involved in a number of pivotal developments across the region.
Prior to his appointment with the Barclays Group in 2007, he was a senior associate (admitted as a solicitor of the Senior Courts of England and Wales) in the EU and Competition practice of Clifford Chance (London). He also previously worked for DG Competition at the European Commission as well as being specialist legal advisor to the House of Lords EU Select Committee on the EU Financial Services Action Plan.
Mark is a regular contributor to a range of legal journals as well as a regular speaker on African competition law at local and international conferences. Mark has attended meetings of the International Competition Network as a NGA. He has an LLB (University of Southampton, UK) and an LLM in European Law (College of Europe, Bruges, Belgium).
A full list of contributors to our site is available here: https://africanantitrust.com/about/
AAT editor John Oxenham‘s paper on “Balancing Public Interest Merger Considerations with the Quest for Multi-Jurisdictional Merger Control Certainty” in the “US-China Law Review.”
Our readers have free access to the full PDF.
Abstract:
The growing importance of public interest considerations, and the uncertainty that it creates, in South Africa and other sub-Saharan jurisdictions, including Zambia, Namibia and Botswana, pose an additional challenge for merging entities attempting to coordinate multi-jurisdictional merger notifications. These difficulties were, most recently, brought to the fore during the much publicized and highly opposed proceedings involving Wal-Mart’s takeover of the South African listed retailer Massmart. While the growing importance of public considerations increases the complexity and cost of multi-jurisdictional merger filings, the author suggests that these challenges can be countered by addressing public interest considerations as an integral part of submissions in support of merger filings in the sub-Saharan African region
Patrick Smith is a partner at RBB Economics. Previously a chemical engineer, Patrick applies economics, econometrics and industrial expertise to competition policy, litigation and arbitration.
He has testified and consulted to parties, agencies and interveners in high-profile, complex and multi-jurisdictional proceedings over the past decade. These include leading roles in cases such as:
Syniverse/MACH, Bread, Universal/EMI, Gold Circle/Kenilworth Racing, Thaba Chueu/SamQuarz, First Quantum v DRC, Pioneer/Pannar, Sun Capital/DSP, Dow/Rohm & Haas, InBev/Anheuser Busch, ABF/GBI, Polymers and Inco/Falconbridge.
Patrick is a regular speaker on antitrust economics at conferences and seminars around the world.
We look forward — as do you, we expect — to reading Patrick’s insightful takes on competition law & economics!
A full list of contributors to our site is available here: https://africanantitrust.com/about/
During the recent BRICS international competition conference, held in New Delhi over the last few days, FTC chairwoman Edith Ramirez had sought to steer emerging economies away from mixing industrial policy with antitrust law. She indicated that “proper goals of competition law were best solved when a competition authority is focused on competition effects and consumer welfare, and when its analysis is not “interrupted to meet social and political goals.” (Ramirez cited the well-known case of the Wal-Mart / Massmart merger during which a number of South African government departments had intervened and extracted significant non-competition centric conditions from the merging parties as an example of permitting non-competition factors to intervene in the merger-review process to an undue degree).
Juxtapose this with the comments made at the very same conference, by the newly appointed interim South African Competition Commissioner, Tembinkosi Bonakele. Bonakele had the following to say during an interview regarding the independence of the competition authorities in South Africa:
“In a country which suffers from 35 per cent unemployment, there are increasingly calls for the authority to consider job creation and the development of local industries in its investigation and merger reviews. This is not an unreasonable call. While competition authorities should not be beholden to the government neither can they be loose cannons who claim independence without accountability. Competition policy cannot exist in isolation and each BRICS enforcer faces the need to balance competition law with its government’s political and economic policies. Competition authorities cannot afford to shy away from the debate.”
A number of practitioners have keenly been awaiting Bonekele’s views on the independence of the Competition Commission in the light of the untimely and suspicious departure of the previous commissioner, Shan Ramburuth (in what many commentators have described as evidence of pure uninterrupted interventionism by the Department of Economic Development). It is, particularly, in light of the cloud surrounding (and possible political element involved in) his predecessor’s removal, that these comments of the South African competition commissioner are all the most startling. It is worrying that the prevalent view in developing economies (after all, the venue at issue here was a BRICS conference) appears to open the door for greater non-antitrust intervention rather than less government meddling.
It is certainly the view of the author of this piece — a presentation given this fall at the Inaugural Global Mergers Conference in Paris (Concurrences/Paul Hastings) — that the South African competition authority should rather seek to assert its independence rather than tolerate what appears to be an ever increasing amount of political interventionism.
The newspaper quotes Mr. Norton as counseling against regulating prices in private healthcare, opposing the calls made by the South African Department of Health for such regulation:
“It seems a contradiction in terms that the competition authority, which has a mandate of pursuing free and fair competition in markets with one set of tools, would simultaneously intervene in markets through price setting. … It will be critical for the credibility of the findings that everybody who participates in the process feels that it has been fair, objective and impartial.”
The remarks come ahead of the start of the pre-announced healthcare market inquiry by the country’s antitrust watchdog, the South African Competition Commission, whose findings are expected to be published by the end of 2014.
According to several reports, the issue of race came to the fore during a discussion of illegal cartel conduct in South Africa at a recently held plaintiffs’ firm symposium (organised by Hausfeld LLP and Abrahams Kiewitz). Quoting from Amanda Visser’s BDLive article entitled “Cartels blamed on white men in dark suits” (23 Oct. 2013):
The Black Business Council has come out against cartels in South Africa, with CEO Xolani Qubeka, blaming the practice on “highly educated white male executives in dark suits”.
Mr Qubeka’s comments at a symposium on cartel collusion came after the recent outcry over collusion and cartel activities in the construction industry.
… Mr Qubeka said the Black Business Council aims not only to rid the country of collusive behaviour, but also to instigate criminal cases against the key architects, masquerading as corporate managers, who are committing fraud.
“Consumers in South Africa cannot continue to be abused by highly educated white male executives in dark suits who lock themselves in dark rooms plotting how they can maximise their wealth through self-serving fraudulent schemes against the entire nation,” he said.
Sounds like the infamous old saying about equating cartels to “men in smoke-filled back rooms” — only with more incendiary overtones… Ironically, the speaker Mr. Qubeka (who did not complete high school and is an outspoken critic of the S.A. Black Economic Empowerment (BEE) agenda, according to a May 2013 Sunday Times profile and other articles) used to be a Director of South African telecommunications giant MTN — a corporation that has had its own fair share of competition-based complaints and investigations, as we have reported on this blog.
We observe that the conference-sponsoring Hausfeld firm has historically been perceived as opposing racism and, indeed, has helped pursue claims (including pro bono matters) on behalf of groups suffering from discrimination, such as Holocaust survivors. The firm is currently involved in more traditional plaintiff litigation matters in South Africa, including several miners’ class-action lawsuits against their employers, AngloGold Ashanti Limited (formerly Anglo American), Harmony Gold Mining Company Limited, and Goldfields Limited (based on diseases allegedly contracted by the class members). The firm is also involved, again jointly with Abrahams’, in the bread price-fixing class action in South Africa.
African Antitrust & Competition Law 