Competition Commission v Coca-Cola Beverages Africa (Pty) Ltd and Another
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | T Siwendu AJA (M Victor JA and V Nkosi AJA concurring) |
| Judgment Date | 17 June 2022 |
| Court | Competition Appeal Court |
| Hearing Date | 28 April 2022 |
| Docket Number | 194/CAC/Oct 21 |
Siwendu AJA (Victor JA and Nkosi AJA concurring):
This appeal raises important legal questions about the nature and standard of review envisaged in section 27(1) (c) of the Competition Act 89 of 1998 (the Act) read with Competition Commission Rule 39(2)(b). The pervading concern is whether the section confers the Competition Tribunal (Tribunal) with a "separate and context specific form of review" akin to an appeal. Coupled with the above question is the correct test the Tribunal should apply to decide "merger specific" retrenchments as opposed to retrenchments for "operational reasons" under the Labour Relations Act 66 of 1995 (the LRA).
The appeal flows from a complaint lodged by the Food and Allied Workers Union (FAWU) to the Competition Commission (the Commission) that Coca-Cola Beverages Africa (CCBA) breached certain employment related merger conditions by retrenching 368 employees who were part of the bargaining unit. On 24 October 2019, after investigations and engagements with CCBA, and its attorneys, the Commission issued CCBA with a Notice of Apparent Breach (Notice of Breach) of the employment merger conditions. The consequences of an issue of a Notice of Breach could result in the revocation of merger approval, an imposition of an administrative penalty or an order of divestiture.
Instead of tabling a remedial plan, an alternative available to a party in terms of the Competition Commission Rules (CCRules), CCBA elected to apply to the Tribunal for a review of the Notice of Breach and for an order to set it aside. CCBA also sought an order declaring that it had substantially complied with the merger conditions. There is no contest that the review power in CCRule 39(2)(b) is conferred on the Tribunal to avoid the severe consequences that may flow from a Rule 39(1) Notice of Breach if in fact there has been
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substantial compliance with imposed merger conditions. CCBA succeeded in its application and the Tribunal ruled that it had substantially complied with the merger conditions.
The appeal has as its backdrop the incomparable statutory public interest safeguards and crucible afforded by section 12A(3) [1] through the imposition of merger conditions monitored by the Commission. The issues raised implicate the sensitive interplay between labour law and competition law jurisprudence. The abiding principle is that this Court may only determine employment issues within the scope of the Act. The challenge for the Tribunal and this Court is to observe this careful distinction while giving equal effect to the objectives of the Act. In this instance the importance of labour relations and their protection in section 23, as well as freedom of trade in section 22 of the Constitution are implicated.
Condonation:
The Commission seeks condonation for the late filing of its notice of appeal. It attributes this to internal administrative procedures it had to adhere to and unavailability of its counsel before filing the notice.
At different times, both parties did not adhere to the time frames imposed by the Rules. Even though at first CCBA opposed the application, it did not make submissions in this regard. Ms Engelbrecht (for CCBA) advised the Court that CCBA will abide by its decision.
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The Court determined that condonation should be granted. The case raises important questions of law which are significant to both parties.
Background:
A brief background to the merger and its mechanics is necessary to give a proper context to the issues at hand.
CCBA operates in the non-alcoholic beverages (NABs) market which includes amongst others, the Ready to Drink (RTD) and Carbonated Soft Drinks (CSD) market. Part of the production cycle of these beverages involves sugar, its producers, bottlers and distributors. CCBA manufactures, bottles and distributes the Coca-Cola Company (TCCC) products to wholesalers, formal and informal retailers. Typical points in the supply chain involve production, distribution, marketing and sales.
On 19 March 2015, SABMiller PLC, the Gutsche Family Investments (Pty) Ltd and the TCCC notified the Commission of a large merger. The proposal was to combine the bottling operations of the NAB business in South Africa under a single entity now known as Coca-Cola Beverages South Africa (Pty) Ltd (CCBSA). CCBSA would be a subsidiary of Coca-Cola Beverages Africa Ltd (CCBA).
The merger of the bottlers was the first of two contemplated transactions. It was reported that the second transaction would entail an introduction of a new controlling shareholder for CCBA. I understood further from the Commission's investigation report that at the time, TCCC planned to exit the African bottling market. The estimated time horizon for the second transaction was between 18 to 24 months.
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The first transaction involved the merger of four of the five authorised TCCC Bottlers, namely:
Coca-Cola Shanduka Beverages South Africa (Pty) Ltd (CCSB);
Waveside (Pty) Ltd (Waveside) / Coca-Cola Canners of Southern Africa (Canners);
Coca-Cola Fortune (CCF) / Coca-Cola Sabco (Pty) Ltd (Sabco); and
ABI Bottling (Pty) Ltd (ABI).
The transaction excluded Peninsular Beverage Company (Pty) Ltd (PenBev). It envisaged that CCBSA would be held by the three shareholders in the following proportions: SABMiller (54%), TCCC (12%) and Gutsche Family Investments (Pty) Ltd (GFI) (34%).
Thus, the first CCBA transaction resulted in the consolidation of various local Coca-Cola bottling operations. The bottling assets were to be jointly housed in a new company called Coca-Cola Beverages SA (CCBSA), which would be a subsidiary of Coca-Cola Beverages Africa Limited (CCBA). The local bottling company's Head Office would be relocated, managed and directed from South Africa. The company would remain a tax resident of South Africa. After the implementation of the transaction, CCBSA as the newly authorised TCCC bottler would retain the distribution function. Geographic location [2] of the operations would remain in the various provinces.
Investigations reported based on submissions made to the Commission that bottlers do not compete with one another because of pre-existing vertical restraints imposed by TCCC as part of its distribution operating model. As a result, the bottlers are contractually precluded from trading in or with customers in the same geographic area by virtue of the Standard International Bottling
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Agreement (SIBA) imposed by TCCC. It was reported that the territorial provisions are designed to encourage each bottler to invest in the necessary capital, distribution infrastructure and management talent in order to compete with TCCC's rival brands.
Consequently, it was accepted that the merger would not result in the combination of the manufacturing operations of the four entities. The Commission reported that the merging parties considered their position analogous to the findings of the Competition Appeal Court (CAC) in Competition Commission v South African Breweries Ltd and Others [3] . The CAC found there was no geographical horizontal overlap between the bottlers before the merger.
The Commission identified a number of competition and public interest concerns. These included inter alia, the impact the transaction would have on employment. Merger conditions were deemed necessary to avoid the negative impact on the NAB market in South Africa which would affect employment and localisation. When regard is had to the reported total employee complement of the merging parties at the time, the investigation revealed a concentration of employees in the Sales, Manufacturing and Logistics areas of the business.
Given the proposed consolidation, it was reported that the merging parties would close about six of the separate offices because one office was required after the merger. The merging parties disclosed that the implementation of the proposed transaction will result in a duplication of about 250 positions at an executive, managerial, administrative and technical level. The merging parties anticipated that there would be no involuntary retrenchments amongst employees who form part of the bargaining unit. It was stated that: 'This will
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therefore result in a number of positions within the bottling operations being duplicated and, hence – the need to retrench post-merger.'
Ultimately, in 2017, TCCC acquired SABMiller's majority bottling interest in CCBA and became the controlling shareholder wielding approximately 66% of the interest. When the Commission approved the second transaction, it reported that the merging parties stated that it would not have an effect on employment as the day-to-day operations of CCBA would not change post-merger. They agreed that the conditions which applied in the first CCBA transaction would continue to apply to the merging parties in this transaction, including CCBA and TCCC. The Tribunal approved the second transaction on 27 September 2017.
Even though the net public interest determined by the Commission is not apparent from the papers, it is safe to conclude that the imposition of the conditions to protect and preserve employment is a sign post that the public interest was substantial. The relevant conditions were:
'9 EMPLOYMENT CONDITIONS
9.1 Notwithstanding any other provision in this paragraph 9, CCBA commits that, for a period of no less than three years from the Approval Date, it will maintain at least the number of Employees as...
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