The Community merger rules can apply to transactions carried out outside the Community but liable to impede competition significantly in the Community
Gencor Ltd is a company incorporated under South African law which operates in the mineral resources and metals industries. It holds 46.5% of Implats, the rest of whose capital is spread amongst third parties. Implats is a South African company bringing together Gencor's activities in the platinum group metals («PGM») sector.
Lonrho plc is a company incorporated under English law which operates in various sectors, in particular in mining and metals. It holds 73% of Eastplats and Westplats («LPD»), companies incorporated under South African law which bring together Lonrho's activities in the PGM sector. Gencor has a 27% stake in LPD.
Gencor and Lonrho proposed to acquire joint control of Implats and then to grant Implats sole control of LPD.
Following that transaction, Implats would have held sole control of LPD, eliminating competition between those two undertakings, so far as concerns not only PGM mining and production in South Africa but also the marketing of PGMs in the Community where Implats and LPD achieved significant sales. Thus, the market would no longer have been supplied by three South African PGM suppliers, but by two (Implats/LPD and Amplats, the leading supplier worldwide).
The South African Competition Board did not oppose the concentration in the light of South African competition law.
Gencor and Lonrho notified the series of agreements relating to the concentration to the Commission, as required by Community law.
By decision of 24 April 1996, the Commission declared that the concentration was incompatible with the common market on the ground that it would have led to a collective dominant position on the part of the entity arising from the concentration and Amplats in the world platinum and rhodium market.
Gencor brought an action before the Court of First Instance for the annulment of that decision by the Commission.
Gencor contended in particular that Regulation No 4064/89 was concerned only with mergers carried out within the Community. The Commission could not apply it to a transaction which related to economic activities carried on in a non-member country and had been approved by the appropriate authorities of that country (in this case South Africa). Therefore, Gencor argued, the regulation was inapplicable to the concentration, given that the main field of activity of the undertakings carrying out the transaction (here the mining and refining of PGMs) was in South Africa. It added that the principle of territoriality of laws, a fundamental principle of public international law, applied to the Community.
The Court examined first of all whether the Community mergers regulation applied in this case and then whether its application to a concentration of this kind was contrary to public international law.
The Court pointed out that the regulation applies to all concentrations with a Community dimension. Under the regulation, a concentration has a Community dimension if a number of conditions relating to the volume of turnover, in particular in the Community, are met. The regulation does not require, on the other hand, that in order for a concentration to be regarded as having a Community dimension, the undertakings in question must be established in the Community or that the production activities covered by the concentration must be carried out on Community territory. The Community legislation ascribes importance to the criterion of sale within the common market rather than to that of production. Gencor and Lonrho carry out sales in the Community to a value of more than ECU 250 million, the threshold set by the regulation in order for it to apply.
The Court also referred to the regulation's objective of ensuring that competition is not distorted in the common market. Concentrations which, while relating to mining and/or production activities outside the Community, create or strengthen a dominant position, thereby significantly impeding effective competition in the common market, thus fall within the scope of the regulation.
The Court then found that it was compatible with public international law to apply the regulation, in view of the foreseeable, immediate and substantial effect of the concentration in the Community.
The Court concluded that the Commission's decision was not inconsistent with either the Community mergers regulation or rules of public international law.
The Court stated, finally, that the Community legislation also applied to collective dominant positions and not only to individual dominant positions. There is a collective dominant position where the dominant position is held by the undertaking which results from the concentration (in this case Implats/LPD) and one or more undertakings not involved in the concentration (in this case Amplats).
The Court reached this conclusion by relying on the objective of the regulation: to ensure that the process of reorganising undertakings as a result of the completion of the internal market does not inflict damage on competition. If it were accepted that only concentrations creating a dominant position for the parties to the concentration were covered by the regulation, the regulation would lose its effectiveness.
The Court therefore dismissed the action brought by Gencor and confirmed the Commission's decision.
NB: an appeal, limited to points of law, may be brought before the Court of Justice of the European Communities against that decision of the Court of First Instance within two months of its notification.
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