DMR seeks to sort out the past to ensure future works better
Decision to appeal court ruling should not affect Mining Charter 3
● The government’s decision to appeal a high court ruling on provisions of the first two versions of the Mining Charter could mean the industry has to wait a little longer for the certainty and confidence it needs.
The Department of Mineral Resources this week filed an application for leave to appeal the judgment by the High Court in Pretoria on April 4 that found in favour of the Chamber of Mines on the “once empowered, always empowered” rule. The department wants to take up the issue with the Supreme Court of Appeal.
In a statement, the department said it was appealing on the grounds that the judgment had “dire implications for the economic transformation imperatives of the constitution, the mining sector and South Africa at large”.
It added: “The department is concerned by the implications of the majority judgment on the attainment of the objective to sustainably transform South Africa’s mining industry by bringing in new entrants and empowering workers and communities in mining towns.”
The Chamber of Mines said in a statement that it regarded the original 2004 Mining Charter and the 2010 revision as valid.
It said the department’s appeal “appears to centre on the majority judges’ obiter dictum comments about the legality of the 2010 charter and the enforceability of the charters”.
The declaratory order issued by the court dealt with “the recognition of the continuing consequences of previous BEE ownership transactions”, it said. “The chamber argued that . . . BEE ownership transactions should be recognised for regulatory certainty purposes even where the BEE partner has sold or transferred part or all of its equity.”
Negotiating strategy
Warren Beech, head of mining at law firm Hogan Lovells, said the department’s appeal was a strategic move linked to discussions on Mining Charter 3, which was first outlined in June.
He said the appeal, dealing as it did with the 2010 charter, was not going to have a material impact if Minister of Mineral Resources Gwede Mantashe stuck to the timeline of finalising the new version by the end of next month.
“It’s only going to have a perception impact and a negotiation impact,” Beech said.
He said the department appeared to be appealing only a narrow component of the high court ruling.
In the ruling on the application for a declaratory order, the high court backed the chamber’s view that the existing mining charters did not require mining companies to continually top up their black shareholding to keep it above 26%.
Peter Leon, a partner at Herbert Smith Freehills, said the court implied that the 2010 version and the latest one might not have a sound legal basis. He said it was his understanding that the department’s appeal was intended to ensure that Mining Charter 3 was legally watertight.
“You can fix the shortcomings [of previous mining charters] going forward but you can’t fix it going backwards. The real issue is going backwards and telling mining companies they have to continue empowering themselves,” Leon said.
He said the question of how to handle the calculation of 26% should not be dealt with in the appeal but should be taken care of in the drafting of Mining Charter 3, which will set the ground rules for future BEE transactions.
“If the charter was clear on that calculation from when it was drafted, we wouldn’t be sitting with this problem,” Leon said.
Neither the 2004 nor the 2010 charters had been “adequately drafted”. The second charter tried to improve on the first “but did not do a good job, so we need clarity on how to calculate that”, Leon said.
“Therefore, clarity will be for moving forward, not looking back.”
Leon said it was crucial that the new Mining Charter addressed the shortcomings of its predecessors. It would provide an opportunity to clarify how black empowerment deals were recognised and what should happen when an empowerment partner sold its shareholding.
Mantashe’s predecessor as minister of mineral resources, Mosebenzi Zwane, tried to address this issue by insisting that when a black partner sold shares, another black shareholder had to be brought in.
Melanie de Nysschen, principal of corporate finance at Bravura Holdings, said the court in Pretoria did not rule on whether the department could make it mandatory for companies to have a minimum 26% black shareholding to secure a mining right.
De Nysschen said the court only said “you don’t have to top up if you have done it once before, so it felt like the confirmation of the once empowered, always empowered principle would stay”.
Mantashe said on the sidelines of a meeting with community members in Burgersfort, Limpopo, held shortly after the Pretoria judgment, that the department would appeal it because there were companies that had acted in bad faith and dumped their BEE shareholders. These companies needed to be held to account, the minister said.
De Nysschen said this was the correct context in which to see the application to appeal.
There were companies that had “absolutely bad intentions and in some instances [committed] fraud” to appear to be in compliance with the empowerment requirements, she said.
“The BEE commission came in to address these kinds of issues, these groupings of bad apples within a well-intended regulatory regime.”
Worrisome grey areas
De Nysschen said it was not surprising that the department was taking the matter further because the high court had not created enough clarity for either the government or the industry.
“There’s still too much vagueness and that for me is a worry,” she said.
But she noted that the judiciary did not legislate, which was why it was important for the industry and the Department of Mineral Resources to engage and address the issue.
Beech agreed that the department was likely to be granted leave to appeal because one of the three judges in the Pretoria hearing had dissented from the majority verdict, and in such a complex case a higher court could conceivably come to a different decision.
De Nysschen said the appeal process, dealing as it did with the previous charters, would not necessarily impede finalisation of Mining Charter 3.
The Chamber of Mines postponed a separate legal action for the review of the new charter after President Cyril Ramaphosa said in his state of the nation address in February that he would do all in his power to resolve differences over it.
If the charter was clear on that calculation from when it was drafted, we wouldn’t be sitting with this problem