By Jannes van der Merwe & Joshua Eveleigh
On 3 October 2024, the Supreme Court of Zimbabwe (“SCZ”) delivered a judgment in the matter of the Competition Tariff Commission v. Ashram Investments (Private) Limited, and Others, setting aside the order of the Administrative Court (“Court a quo”), which had previously set aside the order of the Competition Tariff Commission (“CTC”) (the appellant before the SCZ).
The decision by the CTC dates back to 2014, when the CTC rejected a merger application where Ashram Investments would obtain control of Profeeds and Produtrade. The CTC rejected the merger on the grounds that Profeeds and Ashram, which is wholly owned by Innscor, had shares in National Foods and Irvines (collectively referred to as “the Respondents”). The proposed merger was likely to give Profeeds and National Foods a monopoly in the stock feeds market. Subsequently, in 2015, the Respondents agreed to merge the entities and obtained 49% of the shares of the target entities, in an attempt to circumvent the regulatory framework.
By doing so, the Respondents obtained an increasing stake in the stock feeds market, where the vertically integrated Respondents operated together. Inscorr, through its subsidiary Irvines[1] and National Foods[2], operates in the stock feed market, spanning their activities over eggs, day old chicks and stock feed manufacturing. Profeeds is also in the market of manufacturing stock feed and poultry feed. [3]
The Respondents were advised to notify the CTC about the implemented mergers, which they did in 2019. The CTC investigated the matter and informed the Respondents, in terms of Section 31(5) of the Competition Act [Chapter 14:28] (“the Act”), that Ashram should divest from Profeeds and that the CTC would impose a penalty for the Respondents’ contraventions of the Act. The Respondents were given an opportunity to make representations regarding the CTC’s broad terms order.
The CTC held that the merger was not in the public interest and was likely to create a monopoly within the market, and that the Respondents failed to notify the CTC of the proposed merger as the Respondents surpassed the notifiable monetary threshold; accordingly, the CTC prohibited the merger. The Respondents appealed to the Court a quo, which upheld the appeal.
The CTC appealed the decision of the Court a quo to the SCZ on the principal grounds that the Court a quo’s findings were grossly unreasonable or irrational, and that it failed to determine that the merger was contrary to the public interest, resulting in a monopoly.
The SCZ opined that the Court a quo erred in allowing the merger. Further, the SCZ held that in terms of the Act, competition must be in the interest of the public and that parties must adhere to the provisions set out in the Act.
The SCZ considered the evidence indicating that, despite the short-term benefits that the Respondents might rely on, the Court a quo failed to consider the long-term effects of the proposed merger and the consequences that arise from a monopolistic enterprise.
The SCZ held that:
“Monopolistic tendencies must be carefully assessed because they may initially appear favorable, but in the long run, they may, when the monopolists get to the point where the market has no other option but to buy their goods, turn around and control even the economy of a country by producing highly priced goods or substandard goods sold at high prices.”
The SCZ relied on the Akzo matter where the COMESA Competition Commission had prohibited a monopolistic merger in Zimbabwe, where it was found that the merger of two strong paint brands would result in there being no effective competition in the market. The SCZ stated that:
“In the present case the court a quo ought to have upheld the prohibition of the merger taking into consideration the merging of Profeeds and National Foods which resulted in the concentration of industrial power in the two biggest companies in the stock feed industry. There are striking similarities between this case and the Akzo case”
This judgment has set a new precedent in Zimbabwe, reaffirming the sound principles set out in the Act and the consequences for parties who wish to jump the gun to circumvent legislation and regulatory authorities.
Footnotes:
[1] https://irvinesgroup.com/our-offering/
[2] https://nationalfoods.co.zw/stockfeeds/
[3] https://www.profeeds.co.zw/products
