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South Africa: Bowmans assists Coca-Cola Beverages Africa in key competition case before the Constitutional Court

18 April 2024
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Overview

  • A recent Constitutional Court judgment, which is likely to have a significant impact on the assessment of corporate mergers against the public interest backdrop, confirmed the correct test for merger specificity of retrenchments.
  • It delineates that the assessments concerning public interest in terms of the Competition Act should be grounded on merger-specific considerations and the legitimate reasons for particular outcomes that are cogently related to the applicable facts and circumstances.
  • The decision means that South African firms remain entitled to make strategic and related decisions in their interests to ensure sustainability.

On 17 April 2024, the Constitutional Court handed down a landmark judgment in Coca-Cola Beverages Africa (Pty) Limited v Competition Commission & Food and Allied Workers Union. The case considers the correct test for merger specificity of retrenchments and is likely to have a significant impact on the assessment of corporate mergers against the public interest backdrop.

The judgment delineates that the assessments with respect to the public interest in terms of the Competition Act, 89 of 1998 (Competition Act) should be grounded on merger specific considerations and the legitimate reasons for particular outcomes that are cogently related to the applicable facts and circumstances. The decision means that South African businesses, in particular those that are the subject of merger conditions, remain entitled to make strategic and related decisions in their interests to ensure sustainability in the context of changing market and economic circumstances – and that considerations otherwise should be based on merger specific factors.

The decision brings into focus the debate around the correct interpretation to be applied to the public interest provisions of the Competition Act, and whether the approach of the Competition Commission (Commission) has the beneficial outcomes it claims in all circumstances. 

The matter relates to the conditional approval granted by the Competition Tribunal (Tribunal) in 2016 for the large merger between various bottling operations associated with Coca-Cola, bringing the entities under one umbrella. The conditions imposed by the Tribunal included the following commitments:

  • maintaining the aggregate number of employees for a period of three years;
  • no merger-specific retrenchments of bargaining unit employees; and
  • a limit of 250 retrenchments outside of the bargaining units.

Following business challenges, including the imposition of the sugar tax in 2018, escalating input costs and other economic factors, CCBA informed the Commission that retrenchments for operational reasons may be required, and subsequently undertook a retrenchment process for operational reasons.

This prompted the Food and Allied Workers Union (FAWU) to submit a complaint to the Commission in 2019, alleging that the contemplated retrenchments breached the conditions imposed by the Tribunal. The Commission subsequently issued a Notice of Apparent Breach in 2020 (Notice).

In May 2020, CCBA applied to the Tribunal for the review of the Notice. The Tribunal considered whether the retrenchments were indeed merger specific, as alleged by FAWU, and ultimately granted a decision in favour of CCBA. The Tribunal set aside the Notice and noted that CCBA had substantially complied with the relevant merger conditions. In light of the factors advanced by CCBA, including the rising input prices, adverse macroeconomic circumstances, and the need to reduce costs to address the impact of the sugar tax, the Tribunal held that the merger could not be taken as the principal reason for the retrenchments.

Following the Tribunal’s decision, the Commission filed an appeal to the Competition Appeal Court (CAC). The CAC considered whether the Tribunal had applied the correct test for distinguishing “merger specific” retrenchments from retrenchments for operational requirements and whether the Tribunal had correctly exercised its powers of review.

The CAC overturned the Tribunal’s decision, as the Court’s view was that the Commission had only to establish “some nexus” between the merger and the retrenchments in order to show causation. In this regard, adopting a “principal reason” approach would erode the safeguards provided to employees by the Competition Act. Accordingly, the CAC held that the Tribunal had erred in its determination of the standard of review.

Following the CAC judgment, CCBA launched an appeal in the Constitutional Court, submitting that the retrenchments were not merger specific, and that the proximate, real and dominant cause of the retrenchments was the adverse economic circumstances and related factors that it had described to the Commission – and recognised by the Tribunal.

The Constitutional Court noted that, in the context of a newly-merged firm, there will always be “some nexus” between the merger and the subsequent decisions taken by a firm. On the approach taken by the CAC, a finding of merger specificity would therefore be inevitable under any scenario. The Constitutional Court was not convinced that a breach of merger conditions could be established where the principal reason for the breach lay elsewhere. This, the Court found, was inconsistent with the wording of the Competition Act and with the conditions imposed by the Tribunal.

CCBA argued before the Constitutional Court that the Tribunal had been correct in assessing the matter as a special statutory review, as opposed to an ordinary administrative law review. The Constitutional Court was persuaded by this argument, agreeing that the Tribunal had wide powers of review and had exercised its discretion accordingly (in particular, that CCBA had substantially complied with its obligations  under the merger conditions).

The unanimous Constitutional Court judgment upheld CCBA’s appeal and found that the CAC had applied the wrong approach, in respect of both the nature of the review and the test for causation – and had failed to give appropriate deference to Tribunal’s findings on the facts and cogent and well-reasoned decision.

Consistent with that noted above, the decision supports a cogent and economically grounded approach to the interpretation of the Competition Act that reflects the realities of the commercial circumstances being experienced by South African businesses. The case demonstrates that an overly doctrinal and narrow approach (not reflective of the facts) may be misdirected with the consequence that the justifiable and important objectives of the Competition Act – in particular with reference to employment and transformation – are, counter-intuitively, undermined.

The Bowmans team representing CCBA was led by Derek Lötter and Claire Reidy and included Aneesa Ravat and Ave Ralarala. Wim Trengove SC and Greta Engelbrecht SC appeared for CCBA before the Constitutional Court.