11 July 2010 by

Tribunal considers legitimacy of shareholders agreement and provides food for thought

The interim relief application brought by Gogga Tracking Solutions (Pty) Ltd (GTS) against Vodacom Service Provider (Pty) Ltd (VSP) has been struck from the Tribunal's roll on the technical basis that GTS was not authorised to bring the application. In upholding the terms of a shareholders' agreement between the shareholders of GTS, which prevented it from engaging in litigation without the consent of all the shareholders, the Tribunal had cause to consider under which circumstances it would have the power to declare provisions of an agreement void. 

GTS had lodged a complaint with the Commission that VSP, being both a wholesale supplier and retailer of data bundles, had engaged in a margin squeeze against GTS (a customer for data bundles and also a competitor in the downstream retail market), by increasing the price at which GTS could obtain data.

GTS then applied for interim relief in an attempt to fast-forward its remedy pending outcome of the complaint investigation. VSP opposed the application on the "short point" that GTS required the consent of both shareholders, which had not been obtained. It is significant to note that VSP was indirectly a substantial shareholder in GTS, via a subsidiary.

GTS argued that the right to curtail legal proceedings as contained in the shareholders' agreement was inapplicable in circumstances where the interests of one shareholder in bringing the application conflicted with that of another's in having the application dismissed. In this instance, it was clearly not in VSP's interest to have the interim relief application brought, an interest which its subsidiary, with shares in GTS, apparently shared.

In a carefully-worded judgment, the Tribunal confirmed that it is only able to declare an agreement or part thereof to be void if it forms an integral element of a prohibited practice. The Tribunal suggested that an "agreement which seeks to extinguish a firm's rights of access to the fora in which competition disputes are resolved" would be sufficiently related to the broader scheme of prohibited practices to merit censure.

In the present instance, GTS alleged only a "conflict of interest" and had failed to allege that the provision was furthermore "designed and implemented... as a mechanism to frustrate GTS's rights of access to ... organs of the competition system." Absent such an averment, the Tribunal was bound to apply the provisions of the agreement as drafted.

Despite upholding the "short point" raised by VSP, the Tribunal was at pains to issue the following important caution: "shareholders should not perceive this decision as a source of encouragement to draft and implement shareholders' agreements in such a manner that their effect is to impede or prevent access by firms with co-shareholders to competition authorities if disputes arise about competition issues. These provisions would be ill-fated and the consequences to the relevant shareholders, if they are unmasked, would be highly unwelcome to them."

The Tribunal also sent a message that such technical arguments, whilst sound, have the effect of potentially delaying a remedy that affected not only the commercial interests of the parties, but also the interests and welfare of all consumers. Accordingly, the Tribunal declined to award any costs to VSP.

As the Tribunal expressly stated that neither the laying of a complaint nor the referral of the complaint (if any) would amount to the institution of legal proceedings by GTS (and would not therefore require shareholder authorisation) the merits of the allegations may well be ventilated in the future.

Chris Charter, Director, Competition
Scarlate Nkiwane, Associate, Competition

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2021 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com