CONSENT AGREEMENTS FOR THE PREMATURE IMPLEMENTATION OF MERGERS

CONSENT AGREEMENTS FOR THE PREMATURE IMPLEMENTATION OF MERGERS
Rudolph Labuschagne

The recent proceedings before the Competition Tribunal ("the Tribunal") during which the Competition Commission ("The Commission") applied to have the settlement agreement reached between itself and South African Airways (Proprietary) Limited ("SAA") confirmed as a consent order has placed the interpretation of section 49D of the Competition Act, Act No.89 of 1998 as amended ("the Act") firmly in the spotlight. The settlement agreement reached between the Commission and SAA relates to a complaint lodged by Comair Limited ("Comair") during October 2003 against certain practices of SAA. The complaint was investigated by the Commission and referred for adjudication to the Tribunal during October 2004.

Section 49D of the Act read with Commission Rule 18 and Tribunal Rules 24 & 25 provide for a process in terms of which the Commission and a respondent, during, on or after completion of the Commission’s investigation, may agree on the terms of an appropriate order. The Commission may then apply to the Tribunal to have the settlement reached between the Commission and any respondent confirmed as a consent order. In terms of section 64 of the Act any decision, judgement or order of the Tribunal may be served, executed and enforced as if it were an order of the High Court.

The Commission’s application to have the settlement reached with SAA confirmed as a consent order ("the SAA consent order proceedings") was, however, opposed by both Comair and Nationwide Airlines (Proprietary) Limited on a variety of grounds. The most contentious issue was whether or not the correct interpretation of section 49D of the Act requires an admission by the respondent that it contravened a section or provision of the Act. The alleged unsatisfactory undertakings of SAA contained in the draft consent order, the competence of the Commission in receiving any monies and the Tribunal levying or confirming the payment of a fine in the absence of a clear admission of a contravention of the Act as well as whether or not the confirmation of a consent order amounts to "completed proceedings" was also debated and argued during the SAA consent order proceedings. It is uncertain and remains to be seen how the Tribunal (and even the Competition Appeal Court or the Supreme Court of Appeal) will interpret the provisions of section 49D of the Act. What is certain is that the Competition Regulators are really for the first time required to thoroughly consider the correct interpretation of the provisions and regulations that provide for the conclusion and confirmation of consent orders.

In addition to having been applied in consent proceedings relating to complaints, section 49D has, through uncontested application, also been applied in instances where the Commission and offending merging parties have agreed on appropriate terms of a settlement with regards to the premature implementation of a merger. Section 13A(3) of the Act prohibits parties to a merger to implement a merger until it has been approved, with or without conditions, by the Commission, Tribunal or Competition Appeal Court. Merging parties that contravene the requirement contained in section 13A(3) and proceeds to implement a merger prior to obtaining the required approval, are, in terms of section 59(1)(d)(i) or (iv) of the Act, at risk of being ordered to pay an administrative penalty. It has become standard practice that merging parties that have implemented a merger prior to obtaining the required approval and who are being taken to task by the Commission will negotiate a suitable and appropriate settlement with the Commission. The settlement may include undertakings by the merging parties and usually provides for the payment of an administrative penalty. The settlement agreement for a premature implementation of the merger is then usually, in terms of section 49D of the Act, confirmed as a "consent order" in the same manner as a settlement agreement pertaining to a complaint is confirmed as a consent order.

To date, six matters pertaining to an alleged contravention of section 13A(3) of the Act have been heard and adjudicated on by the Tribunal. Two of these matters were contested applications brought by the Commission against the contravening merging parties. The remaining four matters related to proceedings before the Tribunal during which the various settlements reached between the Commission and the contravening merging parties were confirmed by the Tribunal as "consent orders". All four of these matters contain references (either in the Tribunal’s order or in the settlement agreement) to the phrase "consent order" or section 49D of the Act.

Section 49D of the Act, Commission Rule 18 and Tribunal Rules 24 & 25, however, contains references and phrases which suggest that the procedure provided for in these provisions are reserved exclusively for settlements reached in complaint proceedings and do not cater for settlements reached in instances where merging firms have contravened section 13A(3) of the Act. Section 49D of the Act, Commission Rule 18 and Tribunal Rules 24 & 25 contain phrases such as "the investigation of a complaint", "the respondent" and "the complainant". "Complainant" is defined in the Act as a person who has submitted a complaint in terms of section 49B(2)(b) of the Act. "Respondent" is defined in the Act as a firm against whom a complaint of a prohibited practice has been initiated. "Prohibited practice", for its part, is defined in the Act as a practice prohibited in Chapter 2 of the Act. Chapter 2 of the Act deals exclusively with prohibited practices and not mergers. Section 49D furthermore resorts under Part C of chapter 5 of the Act and is headed "Complaint procedures".

It seems evident that the procedure provided for in section 49D of the Act, Commission Rule 18 and Tribunal Rules 24 & 25 cater only for settlement agreements reached in complaint proceedings and may not, on a strict interpretation of the Act, be applied in matters where the Commission has reached agreement with parties who have prematurely implemented a notifiable merger. The aforementioned provisions specifically regulate settlements in complaint proceedings and it is doubtful whether one can argue that the provisions should apply in general to all possible settlements reached between the Commission and third parties. That being said, the practice of applying section 49D of the Act to dispose of premature implementation matters in which the Commission and the contravening merging parties have agreed on the terms of a "consent order" is a simple, expedient and efficient way to deal with a usually un-contentious matter. In the event that the Tribunal has reservations about the terms of the settlement reached between the Commission and the merging parties, it may during the course of the hearing ask for clarification or additional submissions from the Commission and the merging parties (as the Tribunal has done in the Tiso case) or refuse to confirm the draft order.

Some practitioners have suggested that the process can be simplified even further by (subject to the requirement contained in section 26(1)(c) of the Act) hearing consent order applications in chambers or via telephone as provided for in section 52(2A) of the Act. This process will not only contribute to a speedy and convenient conclusion of the matter but will also result in a cheaper conclusion of the matter, as practitioners and clients will not be required to attend the hearing in person. Considering the Tribunal’s commitment to transparency, however, it seems unlikely that matters, however simple, will be heard in chambers without some or other compelling reason.

A narrow and strict interpretation of section 49D of the Act will deny practitioners, their clients and regulators of a simple, efficient and relatively inexpensive method of concluding matters relating to the premature implementation of mergers. If this procedure may in future not be applied, the Commission will seemingly have to follow the usual route of making application to the Tribunal in terms of Tribunal Rule 42(3)(a) by filing a Notice of Motion supported by a founding affidavit. This procedure seems to be superfluous in instances were the Commission and the merging parties have already agreed on suitable terms of settlement.

The SAA consent order proceedings have, as mentioned above, for the first time required the regulators to thoroughly consider the proper interpretation of section 49D of the Act. The eventual outcome of the SAA consent order proceedings and findings pertaining to the requirements for a proper and complete consent order in complaint proceedings may have an effect on the application of section 49D of the Act in premature implementation of mergers.

There is no obvious reason why the procure provided for in section 49D may not be expanded upon to also provide for settlements reached between the Commission and contravening merging parties. It has widely been reported that Government and specifically the Department of Trade and Industry intends to review current competition policy and certain provisions of the Act. Expanding the ambit of section 49D of the Act to also cater for settlements reached in premature implementation of mergers will remove any doubt about the scope of application of section 49D of the Act and will ensure the continued efficient, expedient and relatively inexpensive conclusion of matters that are usually not contentious.