High Court decision a victory for supporters of once empowered always empowered principle

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A judgment handed down on 4 April 2017 by the High Court of South Africa, Gauteng Division, Pretoria is a victory for supporters of the "once empowered, always empowered" principle, finding that mining right holders will be able to retain their empowerment status even if their empowerment partners dispose of their stake in the firm holding the mining right.

By way of background, the Chamber of Mines (CoM) brought an application seeking declaratory relief in order to obtain certainty regarding the empowerment obligations of the holders of mining rights granted in terms of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA). The Minister of Mineral Resources (Minister) had published the Scorecard for the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry (including the Charter) (Original Charter) and acting under the auspices of section 100(2)(a) of the MPRDA, the Amendment of the Broad-Based Socio Economic Empowerment Charter for the South African Mining and Minerals Industry (2010 Charter), setting, inter alia, the ownership target for Historically Disadvantaged South Africans (HDSA) at 26%.

The Court characterised the principal dispute between the CoM and the Minister as being whether or not the 26% HDSA ownership target must be continually met following the grant of a mining right under the MPRDA.

The matter was heard by a full bench, comprised of Barrie AJ, Mabuse J and Siwendu J. The Court ruled in favour of the applicant, with Barrie AJ writing the majority judgment (Mabuse J concurring) and Siwendu J the dissenting judgment.

Key points

This dispute pertains to instances in which companies holding mining rights had concluded Black Economic Empowerment (BEE) transactions, and in doing so had achieved the 26% HDSA ownership target, but have since seen their HDSA participation/ownership levels fall below 26% as a result of HDSA participants disposing of their interests. The CoM was of the view that the MPRDA does not place a duty of continuing compliance upon the holder of a mining right. By contrast, the Minister took the view that such obligation is indeed recurring, and that a failure to meet it constitutes a contravention of the charters, the terms of the mining right granted and provisions of the MPRDA.

The pertinent issues which the Court was tasked with deciding were:

  • whether a mining company has a perpetual and recurring obligation to meet a 26% HDSA ownership target after the grant of a mining right or the conversion of an old order mining right; and
  • whether the Minister can use the enforcement powers in the MPRDA to compel continuous compliance with the 26% target.

From the outset, the majority judgment was clear that the Original Charter could not be interpreted to specify an ongoing commitment that a 26% HDSA ownership level would be achieved and maintained indefinitely. He found that even if the Original Charter had included such an undertaking, it would not in and of itself have created an enforceable obligation for mining right holders. Noting that the references in the MPRDA to "(t)he charter contemplated in section 100" do not provide that such charter would have a binding effect, Barrie AJ concluded that the original charter only has legal significance through application of other sections of the MPRDA that refer to it. The significance of the 2010 Charter is similarly indirect.

Of most relevance to the Court was section 23(1)(h) of the MPRDA, in terms of which the Minister is obliged, among other things, to consider and come to a conclusion on whether the granting of a mining right will "…further the objects referred to in section 2(d) and (f) and in accordance with the charter contemplated in section 100 and the prescribed social and labour plan".  To ensure that the granting of a right would achieve this goal, the Minister could impose terms and conditions upon the applicant, such as that the agreement, or agreements constituting the BEE transaction, to which the applicant had committed itself, would be incorporated in the mining right granted.  Failure to comply with such terms would entitle the Minister to cancel or suspend a mining right in terms of section 47(1)(b) of the MPRDA read with sections 98(a)(vi) and 99.  However, where such ownership requirements are not terms and conditions of the mining right granted, they are not enforceable.  Barrie AJ was steadfast in his conclusion, stating that he could not, on the basis of a reasonable interpretation, and with due regard to the spirit, purport and objects of the Bill of Rights, construe sections 23 or 25 of the MPRDA as imposing any self-standing obligation on the holder of a mining right to comply with the "charter contemplated in section 100", in whatever incarnation, in circumstances where no such obligation has been imposed in the mining right at the time when the mining right was granted.

In light of the above, Barrie AJ declared, inter alia, that:

  • once the Minister or his/her delegate is satisfied in terms of section 23(1)(h) of the MPRDA that the grant of a mining right applied for in section 22 will further the objects of the MPRDA referred to in section 2(d) and (f) in accordance with the Charter, the holder thereof is not legally obliged to restore the percentage ownership, however measured, controlled by Historically Disadvantaged Persons (HDP) or HDSAs to the 26% target referred to in the Original Charter and the 2010 Charter where such percentage falls below 26%, unless such obligation is specified as an obligation in terms of the conditions stated in the right;
  • a failure by a holder of a mining right or converted mining right to meet the requirements of the Original Charter or the 2010 Charter does not constitute a breach of a material term or condition of the mining right for the purposes of section 47(1)(a) of the MPRDA, and further does not constitute an offence for the purposes of section 98(a)(viii), read with section 99, unless an obligation to meet such a requirement is specified as an obligation in the terms and conditions of the mining right itself; and
  • neither the Original Charter nor the 2010 Charter requires the holder to continue to enter into further BEE empowerment transactions to address losses in HDSA or HDP participation ownership once it has been achieved, unless otherwise specified.

In the dissenting judgment, Siwendu J concluded that compliance with the Mining Charter is a statutory condition for the grant of a mining right. The 26% HDSA ownership requirement cannot be extricated from the mining right and must be held throughout the life of the mining right. Furthermore, Siwendu J concluded that the Original Charter was intended to cater for those transactions concluded before the coming into effect of the MPRDA and the Original Charter. The 2010 Charter, being a statutory instrument with a force of law, only applies to rights granted after its promulgation.

Next Steps

The dissenting judgment of Siwendu J may prompt the Minister and/or the Department of Mineral Resources (DMR) to appeal the ruling of the High Court. Should the DMR decide to challenge the High Court decision, it would need to seek leave to appeal the High Court's order. It would likely do so by way of an application for leave to appeal to the Supreme Court of Appeal, which application would be heard by the original High Court bench. Should the application for leave to appeal be granted, the appeal would be heard by the Supreme Court of Appeal. Any application for leave to appeal the order ultimately handed down by the Supreme Court of Appeal would need to be made to the Constitutional Court.

A copy of the full judgment is available here.

A copy of the CoM media statement is available here.​​​​​​​