[DEBATE] : Competition court muddies water, Crotty, Business Report

[Dominic Tweedie]

Business Report, Johannesburg, February 7, 2006


Competition court muddies water


By Ann Crotty

Johannesburg - Whatever is going on with the competition authorities? In the
past week alone the competition appeal court has set aside two competition
tribunal decisions.

This brings to four the number of times in the past year that the court has
overturned decisions by the tribunal. The first of the four was Gold Fields'
appeal last year against the ruling in the high-profile and controversial
bid by Harmony for its rival.

Towards the end of last year was the Nationwide Poles versus Sasol case and
last week we had the Medicross-Prime Cure deal and the Momentum-African Life
Health merger.

The mergers and acquisitions community will have to wait until later this
month to find out the reasons for the court's decisions to set aside the
tribunal's prohibition on the acquisition of Prime Cure by Netcare
subsidiary Medicross and for setting aside the condition attached to the
tribunal's approval of Momentum's acquisition of African Life Health.

However, based on its reasoning in the appeal by Gold Fields and the Sasol
challenge, there appears to be a danger that the court is causing confusion
and uncertainty in the interpretation of competition legislation.

In the Harmony-Gold Fields battle, the court caused considerable
consternation within the legal and investment community when it ruled that
Harmony should have notified the competition authorities of its two-tier bid
to acquire a 34 percent stake in Gold Fields because the two legs were part
of one bid.

Its decision appears to have confounded the investment community and has
largely been ignored in preference to the tribunal's approach, which was
that Harmony's strategy involved two distinct bids, the first of which did
not need to be notified to the competition authorities.

The lack of clarity resulting from the court's decision looked as though it
might be sorted out during last year's battle between Hosken Consolidated
Investments and Johnnic Holdings, which covered similar territory. However,
the battle was resolved without any need to approach the competition appeal
court, so the situation remains unclear.

More recently, the court set aside the tribunal's ruling that Sasol's
creosote pricing behaviour was likely to substantially lessen or prevent
competition in the market.

It said that Nationwide Poles had not proved competition would be
substantially reduced. While they did not necessarily agree with the
tribunal's decision, lawyers who were not acting in the case expressed
dissatisfaction with the appeal court's ruling.

One perplexed corporate lawyer remarked: "It overruled the tribunal but
failed to address the real issues involved. And in the past [the court] has
referred to the unacceptability of using international precedents and yet in
Nationwide Poles when the court had an opportunity to introduce local
jurisprudence into an interpretation of price discrimination it relied on a
minority view in a US case."

Another said there was little sign of any clear principles being established
and even less sign of influence from the policies established by the
post-1994 government.

Far from the useful role that an appeal court should play in restraining
excesses by a lower court or tribunal and in establishing a guiding body of
law, the competition appeal court's involvement has done little more than to
encourage "unsuccessful" parties to pursue more litigation in a higher
court. And increasingly, it seems to be odds-on that if you don't "win" at
the tribunal you will "win" on appeal.

If this situation prevails, it won't be too long before merging parties
start to treat the competition tribunal as an inconvenient halfway station
and focus their efforts and resources on fighting before the court.

Particularly worrying is the tendency of the court to decide cases on the
basis of the legal arguments made by the lawyers before it. This, of course,
would be entirely reasonable in an ordinary court, but in the competition
appeal court it fails to take into consideration the hugely important matter
of the post-1994 policy on competition issues, which the Competition Act and
its preamble attempt to address.

By adopting a strict literal interpretation instead of a purposive
interpretation of the act, the court has "lawyerised" competition
adjudication and has undermined the effectiveness of competition
enforcement.

Indeed, by behaving in such a manner, the court seems to undermine its role
as a specialist court in which judges are expected to be sensitive to
competition issues.

Its sensitivity seems restricted to responding more quickly than, say, the
supreme court of appeal. But by behaving as a court of appeal is expected to
behave, the competition appeal court appears to be making its position, in a
system that now includes redress to the supreme court of appeal, redundant.

Last year in a case brought by the American Natural Soda Ash Corporation
(Ansac) against Botswana Ash (Botash) and the competition commission, the
supreme court of appeal established that it did have jurisdiction over the
competition authorities.

This means that any merging party that is unhappy with the decision of the
competition appeal court can appeal to the supreme court of appeal.

And given that a proposed constitutional amendment will allow appeals to the
constitutional court even on non-constitutional matters raised in
competition cases, it means that parties can now go all the way to the
highest court in the land.

Given that competition cases tend to be more time-sensitive than most legal
cases, the outlook for merger and acquisition activity does look grim. Not
only is there lack of certainty in the process, but there are sufficient
opportunities for appeal to ensure that a determined and well-resourced
party, such as Gold Fields, could prevent any hostile merger activity.

Consider that the Botash case, which involves charges of anti-competitive
behaviour against Ansac, was brought to the competition authorities in 1999.
Ansac's determination and wealth has resulted in so many appeals that the
tribunal has not yet had an opportunity to consider the merits of the case.

This case highlights the sad reality about many legal actions: the
best-resourced party tends to win. In competition law this means that
smaller parties, such as Nationwide Poles in the case against Sasol, do not
have the resources to continue the fight beyond the competition appeal
court.

In addition, under the Competition Act only a party to a proposed
transaction can take the matter on appeal. This means that in the Medicross
and Momentum cases, where the court has awarded costs against the
competition commission, the commission cannot appeal to the supreme court of
appeal.

And given that all the parties to the mergers are happy with the outcome,
they are certainly not going to appeal. So it seems that far from providing
guidance and certainty, the recent disagreements between the tribunal and
the court have led to the sort of confusion that only benefits lawyers.

Surely a better functioning system would see the competition appeal court
acting as a specialist court and the constitutional court being preferred to
the costly and time-consuming supreme court leg.

From: http://busrep.co.za/index.php?fSectionId=553&fArticleId=3099480
<http://busrep.co.za/index.php?fSectionId=553&fArticleId=3099480>

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