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Coca-Cola Beverages vs Competition Commission proved problems in judiciary persist


In real life, Professor Balthazar is one of South Africa’s foremost legal minds. He chooses to remain anonymous, so it doesn’t interfere with his daily duties.

There has been much debate concerning both the efficiency of the Constitutional Court and its present ability to produce judgments of the highest quality. As an example, Tim Cohen in Daily Maverick not only discussed these questions, but pertinently raised the question of the Courts’ capacity to decide complex commercial cases.

Turning to efficiency, no judgments were delivered in the first three months of this year. 

Finally, the Court, as if to answer these questions, awoke in April. It delivered a judgment on 17 April in the case concerning Coca-Cola Beverages Africa (Pty) Ltd v The Competition Commission

(For the record, it has delivered two other judgments in April concerning Capitec Bank and Nedbank.)

Read more in Daily Maverick: After the Bell: Is the Constitutional Court in decline? It’s complicated

The Coca-Cola case involved a merger which had been approved by the Competition Tribunal in 2016 which created Coca-Cola Beverages South Africa (Pty) Ltd from four separate bottling companies. The conditions were imposed before the merger was approved, which included the maintenance of aggregate employee numbers as at the pre-merger operations for a specific period. The conditions included the prohibition of the retrenchment of employees in certain collective bargaining units as a result of the merger together with allowing retrenchments of those who fell outside of the bargaining units, but only under certain conditions.

Subsequent to the merger, Coca-Cola faced a number of economic challenges including the deterioration of the economy and the imposition of a sugar tax. Sales volumes had declined and various competitors had gained market share. Certain retrenchments followed shortly thereafter which led to a complaint by the Food and Allied Workers Union (Fawu) that the specific merger conditions had been breached.

When the matter was heard by the Competition Tribunal, much of the attention before that body concerned whether the retrenchments which had been initiated were merger-specific. The essence of the dispute was that Coca-Cola initiated retrenchments which led to a complaint being filed with the Commission by Fawu in which it contended that there had been breaches of the merger conditions.  

The Commission was sympathetic to this complaint and issued what is referred to as a Notice of Apparent Breach in terms of Rule 39 (1) of the Commission Rules, which obliges the Commission to issue such a notice if it appears that there has been a breach of merger conditions.

Subsequent to the issue of this notice, Coca-Cola invoked Rule 39 (2) of the Commission Rules requesting the Competition Tribunal to review the Notice of Apparent Breach on the grounds that it was substantially compliant with its obligations in respect of the conditional approval of the merger.

When the matter came before the Competition Tribunal, it held that the nature of a review under Rule 39 (2) (b) was to provide a separate and “context specific” form of review, namely to determine whether, in this case, Coca-Cola had substantially complied with the merger conditions.

Looking at the conditions which were imposed on Coca-Cola, it was clear to the Tribunal that Coca-Cola was required to retain the number of its employees as at the date on which the merger was approved and it was not permitted to retrench for merger-specific reasons. It could, however, retrench employees on grounds of operational requirements.

For this reason, the core dispute was whether the fact that it was faced with increased costs and diminished sales and retrenchment was a product of post-merger circumstances, or whether it had initiated merger specific removal of employees, for example, because of duplication of posts as a result of the merger. 

Examining the explanation provided from Coca-Cola as well as the Commission, the Tribunal found that the probabilities dictated that the retrenchments were not principally motivated by the removal of duplicate posts but were in response to the economic needs of an employer and therefore constituted retrenchments due to operational requirements.

The Competition Appeal Court overturned this decision.

It relied on s 27 (1) of the Competition Act to find that it had a broad power of review of the decision of the Commission to issue a notice. In its view, the evidence dictated that there was no basis to overturn the Commission’s finding that, as a result of the merger, there was a well-founded expectation of duplication of posts and thus an incentive on the part of the merged entity to retrench to reduce costly duplication of posts.

If this approach had held, it would have provided the Commission with expansive powers to intrude into the business operations of a firm post-merger on the basis that some link, however tenuous, had been shown between the merger and the reconstruction of a company including the retrenchment of certain employees.

It would have most certainly deterred incoming investment.

However, the Constitutional Court upheld Coca-Cola’s appeal against this questionable approach. Rule 39 (2) provides that a permissible defined ground for review is that the merged firm had substantially complied with its obligations and that there was therefore no breach of the conditions which had been central to the approval of the merger in the first place. 

As the court said:

“The Competition Appeal Court’s interpretation has potentially grave and unjustified consequences for a merged firm. The firm may have to provide and implement a plan for remedying the apparent breach or face punitive proceedings for revocation an administrative penalty or possibly divestiture in circumstances where the Commission reasonably but wrongly believed to have been a breach or where there was an apparent but no actual breach.’

Returning to Tim Cohen’s observations, the problem with the Constitutional Court’s judgment is that it is overwritten, not particularly clear and compares unfavourably to the lucid and well written and reasoned approach of the Tribunal, ironically the very body that Cohen views as unfavourable and, and to be fair, sometimes with good reason.

Instead of pages of jurisprudential anxiety, the Court could have followed the precise logic of the Tribunal and found that the key inquiry was located exclusively in the need to link an impugned retrenchment directly or at least predominantly to the merger. Only then could the Commission justifiably conclude that there was a breach of merger conditions.

In summary, the right result was reached in circumstances where the lack of clarity, duplication of reasoning with a multitude of justifications for its order being offered will present problems for lower courts seeking to divine the appropriate test. What has happened to compliance with the canons for writing judgments – brevity, simplicity and clarity?

Yet again one is driven back to focus on the appointment process. Thanks in the main, one suspects, to the manner in which the Judicial Service Commission (JSC) has conducted its hearings, many of the best of our judges and legal practitioners are reluctant to be nominated for judicial office. Hence, the JSC has over a number of years been an obstacle rather than a promoter of judicial excellence. And en passant, what about the Electoral Court, which at the time of writing has still failed to produce reasons for its order in favour of Jacob Zuma? Once it granted an order, reasons for its order should have been produced in days!

A new government should, if it wishes to promote the resilience of the constitutional project, initiate a change to the Constitution to alter the composition of the JSC – fewer politicians and at least a few from civil society in a smaller body than the present complement. If we fail to effect this change the trend towards a weaker judiciary in general and the Constitutional Court in particular, sadly, will continue. DM


Comments - Please in order to comment.

  • Sydney Kaye says:

    Allowing the ConCourt to hear non-Constitutional issues was a big mistake.

    • Michele Rivarola says:

      And pray you why would that be? The CC has made some far reaching judgements on commercial agreements, sure some open to question but nevertheless important to the future of our jurisprudence

      • Tim Price says:

        You missed the point, which has been made by others as well, namely that the CC cannot cope with the work load now that virtually any person with an axe to grind can take their case on appeal there.

    • Geoff Coles says:

      I agree Syd, Court of Appeal the final arbitor… but i have huge doubts iro the Competitions Commission too…… interfering and political.

  • Skinyela Skinyela says:

    “A new government should, if it wishes to promote the resilience of the constitutional project, initiate a change to the Constitution to alter the composition of the JSC – fewer politicians and at least a few from civil society”

    They will need the support of 2/3 majority in the house in order to amend the constitution.

    I doubt anyone will get it anytime soon, if ever.

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