Nortons Inc May 2018 News

8 May 2018|In Competition Briefs eBriefs Nortons Inc News

In this edition:

  • BREAKING NEWS: Dawn Consolidated Holdings (Pty) Ltd wins an appeal before the Competition Appeal Court

BREAKING NEWS: Dawn Consolidated Holdings (Pty) Ltd wins an appeal before the Competition Appeal Court

The question before the Competition Appeal Court (“CAC”) was whether, as the Tribunal
had found, a non-compete clause in a shareholders’ agreement constituted market division in contravention of section 4(1)(b)(ii) of the Competition Act.

The shareholders’ agreement that was the subject of this enquiry was concluded between Dawn Consolidated Holdings (Pty) Ltd (“Dawn”) and the Warplas Share Trust (“WST”) in respect of the third appellant, Sangio Pipe (Pty) Ltd (“Sangio”). The second appellant, DPI Plastics (Pty) Ltd (“DPI”), is a wholly-owned subsidiary of Dawn.

The shareholders’ agreement was concluded in April 2007 in the context of a transaction in which Dawn acquired a 49% stake in a high density polyethylene (“HDPE”) pipe manufacturing business, previously wholly-owned by WST. For the purposes of the transaction, the business was transferred to a new company, Sangio, in which Dawn and WST respectively held interests of 49% and 51%.

The two main questions debated before the Tribunal and the CAC were: (i) whether, at the time the shareholders’ agreement was concluded, a horizontal relationship existed between DPI (the relevant Dawn subsidiary) and Sangio (i.e. whether they were actual or potential competitors); and (ii) whether, properly characterised, the non-compete clause constituted market division.

On the first question, the CAC was willing to assume that, immediately prior to making its investment in Sangio, Dawn (and DPI) were competitors of Sangio and thus in a horizontal relationship. However, in his judgment, Rogers JA appears to accept that Dawn’s decision to invest in Sangio terminated its status as a potential competitor in the HDPE piping market – at least for as long as it remained a shareholder in Sangio. This was because, having invested in Sangio and having committed to provide loan funding to that company, Dawn would have had no commercial incentive to undermine Sangio’s business by competing with it. However, Rogers JA indicated that, even if he were to assume in the Commission’s favour on this point (i.e. that Dawn/DPI remained a potential competitor of Sangio even after its decision to invest in Sangio), the Commission failed at the next step (i.e. characterisation).

In regard to the second question (characterisation), the CAC held that the character of a non-compete clause is not to be assessed as if it stood on its own. It must be viewed in the context of the transaction as a whole and the circumstances of the parties when the agreement was concluded. The CAC set out the appropriate characterisation test which should be applied. After applying that test, the CAC found that the non-compete clause was reasonably required for the conclusion and implementation of the shareholders’ agreement. In addition, the CAC found that the non-compete clause was proportionate to the legitimate interests served thereby.

In conclusion, the CAC held that the Commission did not discharge the onus of proving that the non compete clause, properly characterised, amounted to a contravention of section 4(1)(b)(ii). As such, the CAC upheld the appeal, with costs, and set aside the decision of the Tribunal.

Nortons Inc. represented the appellants, Dawn, DPI and Sangio.

CTP JV granted leave to appeal

Earlier this year, the CTP JV (consisting of CTP Limited, Bongani Rainmaker Logistics and Ndabase Printing Solutions) reviewed a decision by the Director-General of the Department of Basic Education to award a tender to the Lebone Consortium (comprising Lebone Litho Printers, Novus Holdings and UTI SA). The tender contract is a flagship programme of the Department of Basic Education to print, package and deliver 60 million workbooks for learners in grade R to grade nine, for a period of three years, with a possible two-year extension. Judgment was handed down on 28 February 2018 in favour of the Department of Basic Education.

The CTP JV was granted leave to appeal to the Supreme Court of Appeal on 26 April 2018.

Nortons Inc. represents the CTP JV.