Competition & Tariff Commission v. Ashram Investments (Private) Limited and Others (91 of 2024) 2024 ZWSC 91 (3 October 2024).
The recent Supreme Court judgment has sparked interest on the role and powers granted to the Competition Tariff Commission (CTC) under the Competition Act [Chapter 14:28] (the Act), particularly in merger approvals and penalty enforcement for non-compliance with notifiable merger rules. To prevent prejudicial monopolistic tendencies and promote public interest, courts have shown reluctance to interfere with CTC decisions, thereby discouraging disregard for the law and promoting competition.
Background
Innscor Africa Limited is a company that wholly owns Ashram Investments Limited. In 2013 Ashram wanted to acquire 59% shareholding in both Podutrade (Pvt) Limited and Profeeds (Pvt) Limited to which CTC did not approve. In 2015 the parties decided to go further with the merger under 49% shareholding and only notified the CTC about the merger (3 years 9 months later) in February 2019 after their new legal practitioner had advised them to do so in December 2017. The biggest challenge with the merger being that Innscor has shares in National Foods. National Foods and Profeeds are the largest and second largest competitors in the stock feed market and Innscor also has shares in Irvine’s which is a major customer of both. The merger raised concerns over a monopoly being created in the stock feeds market and controversy as to what constitutes a merger contrary to public interest.
Objective
This commentary highlights key points from the case law under review.
What is a Merger in Zim Law
Section 2 of the Act” defines a merger as the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person whether that controlling interest is achieved as a result of the purchase or lease of the shares or assets, amalgamation or any other means, of a competitor, supplier, customer or other person.
Degree of Judicial Oversight
A reading of the Preamble and s5 of the Act show that the intention of the legislature was to create a specialised body that fosters competition, prevent restrictive practices, and regulate mergers and monopolies in Zimbabwe. The court recognised that CTC has all due responsibility to decide which practices are harmful or not to competition. This also means the decisions of CTC will not be lightly interfered with without fully taking into consideration the relevant laws which it has to comply with. The fear of the courts is that if every decision of the CTC can be lightly interfered with then it defeats reasons for its creation, encourage companies to disregard the law, form monopolies or indulge in unlawful conduct. Hence the role and decisions of the CTC are not only regulatory but penal and deterrent in nature thus encouraging lawful competition.
Notifiable Merger: Level of Share Holding vs Threshold Set by the Minister
One of the Arguments raised by the Respondents in this case was that the reason for the failure to timeously notify CTC was due to the fact that a 49% shareholding is a threshold below 50%. However in Zimbabwe, under SI 126 of 2020 section 5, merging companies whose combined annual turnover in or from Zimbabwe or whose combined assets in Zimbabwe are valued at or more than ZW$ 10 000 000.00 have the prerequisite responsibility of notifying CTC of the merger within 30 days of conclusion of the merger agreement (s34A (1) (a) of the Act).This means a company can have a shareholding of 5% and still be required to notify CTC. It is not about the level of shareholding but whether one meets the threshold set which is something companies should be wary of.
Monopoly
A monopoly is a situation in which a single person exercises, or two or more persons with a substantial economic connection exercise, substantial market control over any commodity or service (s2 of the Act). The future of competition in the stock feed market is high as it has also been joined by players such as the Korea Programme for Innovation on Agriculture (KOPIA) forging deeper agriculture and trade cooperation in Zimbabwe. However, with competition also comes the desire for major players to remain in control which is not bad as it is the aim of every corporate, however, monopoly means it gets to the point where one player controls the economy with the option of providing goods at exorbitant prices or substandard goods.
CTC Merger Evaluation Criteria: Effect on Public Interest
What Is the Reasonable Likelihood of a Monopoly Occuring: Long-Term Effects
Before the CTC approves of a notifiable merger, one of its critical considerations is the broad test in s32 (4) of the Act, ‘the likelihood of events’. Is there a likelihood that the merger will lessen among other things competition or will likely result in a monopoly situation. The likelihood of a monopoly also means the merger is contrary to public interest.
National Foods and Profeeds being the largest and second largest stock feed competitors was already befitting of the likelihood of a monopoly being formed. With the Influence of Innscor as stated by the court, Profeeds stock feeds shops went from 19 to 40 and Innscor’s share in the market had risen to 57% with the next biggest competitor at 11%. The fact that there are 20 other players in the market or the fact that there has been an increase in employment is not enough to rule off the likelihood of the merger being against public interest.
‘The Commission should not only look into the current effects of the merger or those of the near future. It should consider these and also look into the likely effects of the merger in the long-term. It should not adopt a simplistic approach to the assessment of the long-term effects of a merger but should be guided by the reasonable likelihood of such events occurring.’
This means initially the monopoly might look favorable by creating employment and programs like the training of farmers. However, ‘in the long run’ means when there is potential of a concentration in power then what the future holds for the stock feeds market and for the livestock industry as a whole is the likelihood of:
- An increase in prices which the consumer would be forced to adhere to as the industry will scarcely have any competition.
- The likelihood of substandard goods being produced at high prices.
- Small businesses struggling to compete and forced to close.
- Barriers to entry into the market
- Elimination of effective competition
Thus in Zimbabwe the most crucial take for a merger to be approved is not more about its economic benefit to the merging parties but whether it is in line with competition law and policy and its outlook in the long run. It is the discretion of the CTC on whether there is an existence of a monopoly in the long-run and whether it is prejudicial to competition.
Penalty Clause: S34a (4) Interpretation of Preceding Financial Year
The failure to notify CTC of a notifiable merger gives the CTC discretion to impose a penalty that may not exceed ten per centum of either or both of the merging parties’ annual turnover in Zimbabwe as reflected in the accounts of any party concerned for the preceding financial year.
The issue was whether the preceding year for the calculation of a penalty is the year preceding the notification of a merger or the year preceding the merger.
The Court did not explicitly address the issue however, the appeal succeeded in favour of CTC in its entirety with the question imposed being one of the grounds for appeal. Thus preceding financial year means the year preceding the imposition of the penalty.
Factors Considered in the Evaluation of a Penalty
According to section 34A (5) of the Act When determining an appropriate penalty, the Commission shall consider the following factors—
(a) the nature, duration, gravity and extent of the contravention; and
(b) any loss or damage suffered a s a result of the contravention; and
(c) the behaviour of the parties concerned; and
(d) the market circumstances in which the contravention took place; and
(e) the level of profit derived from the contravention; and
(f) the degree to which the parties have co-operated with the Commission ; and
(g) whether the parties have previously been found in contravention of this Act.
Whether you fail to give notice within the stipulated time or you continue with the merger without approval all factors above will be considered as a whole and it is on all of these factors that determines whether CTC can impose a penalty or not.
Conclusion
The recent Supreme Court Judgment sheds light on merger regulation and competition law in Zimbabwe. The CTC has the responsibility and discretion to approve mergers based on its relevant laws and policy to which the courts will not lightly interfere with. Further, there is a broad criteria for the evaluation of mergers. For this reason it is recommended to consult with knowledgeable counsel when undertaking a merger and where parties are not clear seek an advisory opinion from the CTC before undertaking a merger.
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