Africa Data Centres SA Development (Pty) Ltd v Digital Titan (Pty) Ltd and Another

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: ME Nkosi AJA (D Davis and LG Nuku AJA concurring)
• Judgment Date: 08 July 2022
• Docket Number: 200/CAC/May22
• Hearing Date: 24 June 2022
• Court: Competition Appeal Court
• Citation: 2022 JDR 1900 (CAC)

Nkosi AJA (Davis and Nuku AJA concurring):

Introduction:

[1]

This is an appeal by Africa Data Centres SA Development (Pty) Ltd ("the appellant") against a part of the decision and order of the Competition Tribunal ("the Tribunal") that were issued on 17 May 2022, in terms of which the appellant was recognised as a participant in the large merger proceeding before the Tribunal involving Digital Titan (Pty) Ltd ("the first respondent") and TDE Investments (Pty) Ltd ("the second respondent"), albeit in respect of only two of the three theories of harm it raised as a concern regarding the proposed merger. The part of the decision appealed against is the order in which the Tribunal limited the appellant's participation in the merger proceedings to only two of the three theories of harm which the appellant sought to advance before the Tribunal.

Factual background:

[2]

The factual background to the matter, briefly stated, is that the appellant is currently one of a few main players involved in the business of providing the co-location data centre services in South Africa. One of its direct competitors in the business is Teraco Data Environments (Pty) Ltd ("Teraco"), which is a subsidiary of the second respondent. It was for this reason that the appellant was one of the interested parties approached by the Competition Commission ("the third respondent") for information and comment during its investigation into the proposed merger.

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Nkosi AJA (Davis and Nuku AJA concurring)

[3]

At the conclusion of its investigation the third respondent compiled a report dated 8 April 2022 in which it stated that, inter alia, it was of the view that the proposed transaction was unlikely to substantially prevent or lessen competition in the market for the provision of data centre services in South Africa. This was disputed by the appellant, which then proceeded to lodge an application to the Tribunal ("the intervention application") in terms of section 53(c)(v) of the Competition Act [1] ("the Act") to intervene as a participant during the pending merger proceedings before the Tribunal.

[4]

The appellant's intervention application was based primarily on three theories of harm. These were, firstly, that the merged entity would benefit from the network-effects that would lead to the substantial lessening of competition in the market ("the network-effect theory of harm"); secondly, that there was a material risk that the proposed merger would result in input foreclosure ("the foreclosure theory of harm"); and, thirdly, that absent the proposed merger, the first respondent would likely enter the South African market itself as a provider of co-location data-centre services, and so the likely effect of the proposed merger would be to prevent the entry of a new competitor in the South African co-location and data-centre market ("the new entry theory of harm").

The Tribunal decision:

[5]

The intervention application was heard by the Tribunal on 12 May 2022. On 17 May 2022, the Tribunal issued an order granting the appellant leave to intervene in respect of two of the theories of harm the appellant had raised as its concerns regarding the relevant merger. These were the network-effect theory of harm and the foreclosure theory of harm. On 23 May 2022 the Tribunal issued

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Nkosi AJA (Davis and Nuku AJA concurring)

reasons for its decision, in which it stated that, in its view, the appellant as a competitor could possibly assist it (the Tribunal) in gaining insights into the nature of competition in the relevant markets of its business. Apparently, such view was largely influenced by the legal arguments advanced on behalf of the appellant at the hearing of the intervention application.

[6]

Insofar as the new entry theory of harm is concerned, the Tribunal exercised its discretion by having regard to the interest of the appellant and the extent to which it could assist the Tribunal in its deliberations. In so doing, it found at para 20 that 'it was less clear what additional insights ADC (the appellant) could provide on potential entry by the acquiring firm (first respondent) absent the proposed transaction.' It went on to state that when considering an application for intervention by a direct competitor, the Tribunal ought to guard against merger proceedings, where the Commission is present and has not identified any competition concerns, being unduly protracted by the participation of a competitor who might be incentivised to delay merger proceeding 'for the reason of protecting its own market position.

[7]

The Tribunal was critical of what it perceived to be an apparent attempt by the appellant to duplicate the role of the third respondent, which was statutorily tasked with assisting the Tribunal in its deliberations on all other matters relating to proposed mergers. It also mentioned that, in any event, it has inquisitorial powers in merger proceedings to call for more evidence or to require the third respondent to investigate further any aspect of the proposed transaction that is sought to be fully ventilated.

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Nkosi AJA (Davis and Nuku AJA concurring)

Grounds of appeal:

[8]

The appellant was not satisfied with the Tribunal's decision to grant it leave to intervene in respect of only two of the three theories of harm which formed the basis of its application to intervene in the relevant merger proceedings. Consequently, it appealed to this court against the part of the Tribunal's decision which refused its application to intervene in the merger proceedings in relation to the new entry theory of harm. Therefore, it is within the context of the appellant's concern in relation to the new entry theory of harm that the grounds of appeal are formulated.

[9]

The first ground is that the appellant's argument based on a new entrant theory of harm is recognized in merger analysis not only in South Africa [2] but also in numerous competition law jurisdictions internationally, including the European Union and the United States; the second is that the Tribunal misdirected itself in dismissing the appellant's application to intervene in relation to its concern on the grounds that the third respondent had already conducted 'a thorough investigation' into the proposed transaction and had found that the transaction did not give rise to such concern; the third is that the . . . Tribunal misdirected itself in finding that there was no need for the appellant to duplicate the role of the third respondent in relation to the appellant's concern; and, the fourth is that the Tribunal misdirected itself in failing to find that the appellant was well placed to assist the Tribunal in relation to its concern.

[10]

It was further contended by the appellant in amplification of its grounds of appeal that the Tribunal ought to have found that, as a matter of fact, the third respondent did not investigate its concern thoroughly or at all, despite its

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Nkosi AJA (Davis and Nuku AJA concurring)

request for it to do so; that even if the third respondent had investigated such concern, that should not have been the basis for the...