Case  CCT 192/22
[2024] ZACC 03

Hearing Date: 14 November 2023

Judgement Date:17 April 2024

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On 17 April at 14h00, the Constitutional Court handed down judgment in an application for leave to appeal against the order and judgment of the Competition Appeal Court. This application arises from a complaint that Coca-Cola Beverages Africa (Pty) Ltd and its subsidiary, Coca-Cola Beverages South Africa (Pty) Ltd (both are referred to below interchangeably as Coca-Cola), retrenched staff in breach of merger conditions. The first respondent, the Competition Commission (Commission), opposed the application. The second respondent, the Food and Allied Workers Union (FAWU) no longer participated in the litigation.

The matter involves a dispute stemming from a merger approved by the Tribunal in 2016, which created Coca-Cola Beverages South Africa (Pty) Ltd from four separate bottling companies. The merger was approved subject to conditions. The conditions imposed included maintaining aggregate employee numbers from the pre-merger operations for a specified period, prohibiting retrenchment of employees in certain collective bargaining units “as a result of” the merger, and allowing retrenchments outside of the bargaining units only under certain conditions. Additionally, the conditions allowed for necessary retrenchments unrelated to the merger, such as those required by operational requirements in the ordinary course of business. Moreover, there was a requirement to harmonise employment conditions across all four bottlers within a set timeframe. A further merger followed at holding company level during 2017. The conditions remained in place.

Economic challenges were faced by Coca-Cola after the mergers. There was a deterioration in the economy. From 1 April 2018, a sugar tax was imposed. Input prices rose sharply. Sales volumes declined and competitors gained market share. Coca-Cola communicated with FAWU and another union representing employees and with the Commission, indicating that it may have to initiate retrenchments. Ultimately it did so. This led to a complaint being filed with the Commission by FAWU regarding a breach of the merger conditions.

The Commission exchanged correspondence with Coca-Cola’s attorneys pertaining to the complaint. It sought information from Coca-Cola and Coca-Cola sought to persuade it that there had been no breach of the merger conditions. Ultimately, the Commission issued a Notice of Apparent Breach in terms of rule 39(1) of the Commission Rules. Rule 39(1) obliges the Commission to issue such a notice if it appears that a firm has breached a merger condition. On 14 May 2020, Coca-Cola disputed this and applied to the Tribunal to review the Commission’s Notice of Apparent Breach in terms of rule 39(2) of the Commission Rules. Rule 39(2) allows a firm faced with such a notice either to submit a plan to remedy the breach, or, if it disputes the breach, to ask the Tribunal to review the notice of apparent breach “on the grounds that it has substantially complied with its obligations” under the merger conditions.

Before the Competition Tribunal, the focus was on determining whether the retrenchments initiated by Coca-Cola were a result of the merger or merger-specific. The Tribunal reasoned that a factual approach was more appropriate, as opposed to the delictual test for causation, in order to ascertain the true reason for the retrenchments. It emphasised the need for an assessment of the evidence and the probabilities to determine if the retrenchments were aimed at removing duplicate roles due to the merger or were driven by other factors such as the impact of the sugar tax and rising input prices. This approach was also consistent with its previous decision, BB Investments. Ultimately, the Tribunal found that Coca-Cola had substantially complied with the relevant merger condition and set aside the Notice of Breach.

The Commission appealed to the Competition Appeal Court, where the main issues were the nature of the review in terms of rule 39(1) and (2) and the correct test for determining if retrenchments were merger-specific. The Competition Appeal Court criticised the Tribunal for not treating the review as an ordinary review of administrative action. In determining whether the retrenchments were merger-specific, it considered that there should be some nexus between the retrenchments and the incentives of the new controlling shareholder. The Court was moreover of the view that where merging firms are engaged in overlapping activities the nexus is more easily established because duplication provides an incentive for retrenchment. Based on this reasoning, the Competition Appeal Court upheld the appeal and overturned the Tribunal’s decision.

Aggrieved by the decision of the Competition Appeal Court, Coca-Cola launched an application for leave to appeal to this Court. They submitted that both this Court’s constitutional and extended jurisdiction are engaged. They submitted that the application raises important legal questions about the nature and standard of review. As to constitutional jurisdiction, the applicant contended that the question of law raised by this matter has arisen in the context of the “sensitive interplay between labour law and competition law jurisprudence”. Thus, so Coca-Cola contended, sections 22 and 23 of the Constitution are implicated.

On the merits, Coca-Cola, on the nature and standard of review, claimed that a review under rule 39(2)(b) is not a conventional administrative law review, but a special statutory review. On the test for merger specificity, Coca-Cola contended that the Competition Appeal Court was incorrect in adopting and applying the BB Investment test for merger specificity. Coca-Cola contended that, in determining whether retrenchments are merger specific, it must be determined whether the merger is the factual and legal cause of the retrenchments. Coca-Cola further contended that the retrenchments were not merger specific. Coca-Cola contended that the Competition Appeal Court impermissibly interfered with the factual findings of the Tribunal. Coca-Cola relied on the case of Competition Commission of South Africa v Mediclinic Southern Africa (Pty) Ltd for this contention.

The Commission contended that leave to appeal should be refused for the following reasons: Coca-Cola has consistently changed its case, thus causing prejudice to the Commission; Coca-Cola has impermissibly raised several novel points for the first time in this Court; Coca-Cola’s case merely concerns the misapplication of an existing legal test; and Coca-Cola has failed to show that any constitutional rights have been implicated in this matter or that the Competition Appeal Court interpreted any legislation in a manner that is inconsistent with the Constitution. In response to the argument that Coca-Cola has consistently changed its case, Coca-Cola submitted that the questions of law central to this matter have remained the same from the outset.

On the merits, the Commission contended that the Competition Appeal Court was correct in finding that when rule 39(2)(b) refers to a review, it means a review in the normal sense and not a reconsideration or appeal. On the test for merger specificity, the Commission argued that the approach in BB Investment must be adopted. On the evidence, the Commission contended that it was clear that the retrenchments were merger specific. Four firms were conducting overlapping functions so duplication was to be expected and there was an incentive to retrench. It contended that a letter from Coca-Cola’s attorneys had conceded that the retrenchments sought to address such duplication.

The main issues before this Court were: whether this Court’s jurisdiction is engaged and leave to appeal should be granted; what the nature and standard of the review powers of the Tribunal are under rule 39(2)(b) of the Commission’s Rules; what the correct test is for determining whether retrenchments are merger specific; and whether the Competition Appeal Court was entitled to interfere with the factual findings of the Tribunal.

In a unanimous judgment penned by Dodson AJ, the Court found that the application before the court raises constitutional matters, particularly regarding section 33(3)(a) of the Bill of Rights and legislation giving effect to the right of judicial review of administrative action. Here national legislation confers a general right of review on a tribunal. Subordinate legislation under it arguably creates a bespoke form of review. How is subordinate legislation to be interpreted in relation to both the national legislation and the right to administrative justice in determining the nature and standard of review?

Additionally, the Court found that the matter raises arguable points of law of general public importance. The Court stated the point of law as: “What is the test when the Tribunal decides under rule 39(2) whether a firm has substantially complied with a merger condition imposed under section 12A(3)(b) of the Act restricting retrenchments?”. The Court found that this point of law raises questions in regard to the test for causation in such cases, that are similarly points of law of general public importance.

In relation to the interests of justice, the Court found the Tribunal and the Competition Appeal Court both relied on the same authority (mainly BB Investment) for the test for causal nexus but arrived at different conclusions, leading to uncertainty in an important area of regulation of the economy. A judgment from this Court may provide clarity and help resolve these important legal questions. The appeal raised important issues, the resolution of which was in the public interest. The appeal carried reasonable prospects of success. It was therefore in the interests of justice to grant leave to appeal.

In dealing with the nature and standard of review, the Court said that it must proceed on the assumption that rule 39(1) and (2) are constitutionally valid as their constitutionality had not been challenged by either party. Applying section 39(2) of the Constitution, the rule must be interpreted based on the constitutional requirements of fairness and justification underlying the right to administrative justice. The purpose of the rule is to ensure compliance with merger conditions promptly, and it operates as a proactive mechanism once a breach appears.

The Court criticised the Competition Appeal Court’s approach, in terms of the review powers that section 27(1)(c) of the Act grants the Tribunal. It disagreed with the Competition Appeal Court’s view of section 27(1)(c) as contemplating only an ordinary judicial review. Instead, it found that either section 27(1)(b) or (c) could readily include a special statutory review.

The Court outlined a comprehensive interpretation of rule 39(2)(b) that provides a single permissible ground of review – whether Coca-Cola has substantially complied with its merger obligations. The Court found that this approach involves an objective inquiry into whether there was an actual breach, not just an apparent breach. The Court highlighted that holding a firm liable based on an apparent and not an actual breach could lead to injustice and a breach of the rule of law.

Therefore, the Court concluded that the Competition Appeal Court erred regarding the nature and standard of review under rule 39(2)(b).

As regards causal nexus, the Court noted that the Tribunal adopted a test based on assessing probabilities to determine whether there was a sufficient nexus between the merger and subsequent retrenchments, considering whether the merger or operational requirements were the true reason for the retrenchments. It further noted the Competition Appeal Court rejected this approach, opting instead for a test focusing on whether there is “some nexus” between the retrenchments and the merger or the incentives of the new controller, as said had been held in BB Investment. The Court highlighted that due to the nature of mergers giving the newly merged firm control over the enterprise, there will always be some connection between the merger and subsequent decisions. This broad nexus approach, however, could lead to inevitable findings of merger specificity and breach, even if other more immediate or dominant reasons existed for retrenchments. This could undermine the integrity of the causal analysis.

The Court found that the focus should be on the actual decisions and conduct of the merged firm at the time of the alleged breach, taking into account all post-merger developments, including the lapse of time since the merger, which could diminish the probability of a direct link to the merger. The Court noted that the full test in BB Investments includes an examination of the pre-merger counterfactual, assessing what would have happened if the merger had not taken place, as well as evaluating whether the impugned decision-making was “sufficiently closely related to the merger.” These crucial aspects of the test were not fully considered or applied by the Competition Appeal Court in its judgment. The phrase “as a result of the merger,” is recognised causal terminology. It discussed legal causation in the contractual context, and stressed the need for a blend of rigor and fairness in applying the legal causation enquiry. The Court concluded that, whilst inappropriately based on the second judgment in its decision in Aveng, the Tribunal had nevertheless adopted the correct approach in determining the causal link between the merger and subsequent retrenchments was correct.

Relying on Mediclinic and Imerys, the Court said that a measure of deference must be applied in appeals against decisions of the Tribunal, taking into account that it is a specialist tribunal.

The Court emphasised that appellate courts will not lightly interfere with the factual findings of a court of first instance. The Court then enquired whether the Competition Appeal Court had been justified in interfering with the Tribunal’s decision on the facts.

The Court considered that if the retrenched employees were subsequently rehired or replaced at lower salaries without eliminating duplicate posts, this suggested a cost-saving motive rather than one linked to the merger. It elaborated that while this may be unfair under labour legislation, it did not necessarily give rise to a breach of the merger conditions.

The Court found that the complaint that the retrenchment and rehiring of employees at a lower cost was aimed at avoiding the harmonisation condition was not included in the Notice of Apparent Breach. It would therefore be procedurally unfair to find against Coca-Cola on this basis. The Court found that the Commission’s contention that Coca-Cola was obliged in terms of the wording of rule 39(2)(b) to prove substantial compliance with all conditions, regardless of what is alluded to in the Notice of Apparent Breach, was unsustainable.

The Court addressed the Commission’s contention that the retrenchments were aimed at eliminating duplicated posts due to the merger. It found that the fact that the four bottling entities operated before and after the merger separately, in geographically distinct areas, meant that duplication would not have come about through the merger. It found substantial evidence presented by Coca-Cola indicating that retrenchments were indeed primarily due to broader operational challenges, namely the deterioration in economic conditions, the impact of the sugar tax, and increased input costs. Additionally, the Court disagreed with the Competition Appeal Court’s criticism of the Tribunal’s imposition of an evidentiary burden on the Commission. Ultimately, the Court concluded that the Competition Appeal Court had no basis to overturn the Tribunal’s findings.

The Court concluded that the Competition Appeal Court mischaracterised the nature of the appeal and applied the wrong tests in respect of both review and causation. Further, there was no basis in law or fact for overturning the judgment of the Tribunal. In terms of costs, the Court found that Coca-Cola had not made out any such case to suggest that the Commission had acted unreasonably, frivolously or, vexatiously.

As a result, the Court granted leave to appeal, upheld the appeal, overturned the decision of the Competition Appeal Court and replaced it with a decision dismissing the appeal against the Tribunal’s decision. It ordered that each party bear its own costs in the Competition Appeal Court and the Constitutional Court. 

The Full judgment  here