Momentum Group v. Chairperson, Competition Commission

[2006] ZACAC 1; Competition Appeal Court Case No: 58/CAC/DEC05
Download Judgment: English
Country: South Africa
Region: Africa
Year: 2006
Court: Competition Appeal Court
Health Topics: Health care and health services, Health systems and financing, Hospitals
Tags: Private hospitals

On 2 September 2005, Momentum Group and African Life Health (ALH) applied to the Competition Commission (Commission) for the approval of a merger between them. On 9 November 2002, the merger was unconditionally approved by the Commission and referred to the Competition Tribunal (Tribunal) for final approval. On 12 December 2005, after a hearing with the parties, the Tribunal approved the merger subject to certain conditions, one in particular that obliged persons holding directorships in both companies to resign from one of those directorships, so as to remain on the board of only one company, within one month of the order. On 23 December 2005, both a notice of appeal and an application for review of the Tribunal’s order were filed with the Competition Appeal Court (Appeal Court). Momentum Group and ALH objected to the conditions imposed by the Tribunal and sought a review of the application on the basis that the conditions were improperly imposed and an appeal from the decision.

The Appeal Court considered whether prohibiting dual directorships of two merged entities reduce the risk of anti-competitive conduct. The grounds upon which the review took place were whether: conditions were imposed by the Tribunal in circumstances where neither the Commission nor any other party disputed that the merger should be approved unconditionally; there any proper evidential basis to justify the conditions (no risk of collusion); the directors who were affected by the order were heard by the Tribunal prior to the conditions being imposed; the conditions were too broad.

The grounds of appeal were whether: the Tribunal exceeded its jurisdiction by imposing the conditions in the circumstances; the Tribunal acted unreasonably or irrationally by imposing conditions in circumstances were the evidence presented to it should have led it to approve the merger unconditionally; there was any evidence that the cross-directorships that the conditions sought to cure created or aggravated the risk of anti-competitive consequences resulting from the merger.

The grounds related to the jurisdiction of the Tribunal to impose conditions where none were sought by either party were dismissed on the basis that the Tribunal may not simply endorse a settlement agreement but must exercise its discretion in deciding whether to approve a merger (with or without conditions).
The Appeal Court found that the conditions imposed on the parties to the merger provided no real safeguard for competition. It further that the order was too broad and confusing.

The market share of ALH was small and its acquisition by Momentum Group would serve to increase the stake in the market of Momentum Group by three percent at most. The Appeal Court held that the policy of the main shareholder, FirstRand was to maintain two separate entities and that the merger would more likely enhance competition by strengthening Momentum Group’s position in the market and that no anti-competitive results would flow from the merger.

The Appeal Court approved the merger with no conditions.

“It is not clear why any increase of market share should encourage co-ordination between the two groups; and even less so where the small increase accrues to a participant in the market that is itself very small.” Para. 18

“Although a market share of 35% post- merger is not insignificant, the market power associated with such market share is diminished in a market that has a large number of competitors, is fiercely contested, exhibits relatively low barriers to entry and effective countervailing power, evidence of which was presented to and accepted by the Commission. A finding, if it has been made, that the approximate 3.3% increase in the aggregated market share of the FirstRand Group tip the scale cannot be correct in the face of uncontested evidence of the fact that no anti-competitive results would flow from the merger.” Para. 19