BY Aslam Moosajee , Parusha Desai Valodia , Sanjay Kassen AND Shenaaz Munga
High Court yet again sets aside adverse findings by the B-BBEE Commission
A recent South African High Court judgment has yet again set aside findings made by the Broad-Based Black Economic Empowerment Commission. The High Court, in Sasol Oil Limited v The B-BBEE Commission and others on 14 June 2022, reviewed, declared invalid and set aside a decision made by the Commission against Sasol Oil Limited for allegedly not complying with the provisions of the Broad-Based Black Economic Empowerment Act, 2003 (the “B-BBEE Act”).
- In 2006, Sasol Limited and Sasol Oil entered into an empowerment transaction with Tshwarisano LFB Investment Proprietary Limited pursuant to which Tshwarisano acquired 25% of the shareholding of Sasol Oil for the benefit of various Historically Disadvantaged Groups (the “Tshwarisano transaction”). One of the Historically Disadvantaged Groups identified to participate in the Tshwarisano Transaction was Awevest Investment Limited.
- Awevest held (and continues to hold) a minority equity stake in Tshwarisano via a special purpose vehicle. Notably, Awevest funded the acquisition of its equity stake through third-party preference share funding.
- In 2015, nearly nine years following the conclusion of the Tshwarisano transaction, a shareholder of Awevest complained to Sasol Limited that the terms of the preference share agreement entered into between Awevest and the funders (the “prefshare agreement”) unfairly favoured the funders and thereby undermined the purpose of the Tshwarisano transaction. Accordingly, Sasol Limited facilitated a settlement negotiation between Awevest and the funders, which resulted in the conclusion of a settlement agreement.
- In 2017, Sasol Oil was notified that the Commission was investigating a complaint received against it, the essence of which was that Sasol Oil was responsible for the unfair terms set out in the prefshare agreement and, consequently, Sasol Oil knowingly engaged in and perpetuated a fronting practice by claiming black ownership points which flowed from Awevest’s participation in the Tshwarisano transaction.
- Despite Sasol Oil making comprehensive submissions to the Commission, in 2019, the Commission issued adverse findings against it, with certain remedial recommendations nearly two years after the investigation commenced. Sasol Oil approached the High Court to review and set aside the findings and remedial recommendations made by the Commission.
Grounds of review
Sasol Oil based its review application on the provisions of the Promotion of Administrative Justice Act, 2000 (“PAJA”), alternatively on the principle of legality. The primary grounds of review were:
- Sasol Oil had no knowledge of the prefshare agreement;
- Sasol Oil was under the reasonable impression that the dispute between Awevest and the funders was resolved following the resolution facilitated by Sasol Limited;
- Awevest’s B-BBEE credentials (whether included or excluded) had no impact on Tshwarisano’s B-BBEE ownership and, consequently, had no impact on Sasol Oil’s B-BBEE ownership and level ratings;
- Sasol Oil was not afforded a fair hearing;
- the Commission abused its remedial powers; and
- the Commission’s findings were time-barred.
The issues that had to be determined by the High Court included:
- whether the decision by the Commission constitutes procedurally unfair and unlawful administrative action in terms of PAJA;
- whether the decision by the Commission is invalid and unlawful having regard to the principles of legality; and
- whether the Commission should be interdicted from making unlawful demands of Sasol Oil and threatening to invoke its powers against Sasol Oil if it later does not comply with its demands.
High Court judgment
The High Court found that the Commission’s final findings and remedial recommendations are reviewable under PAJA, and the findings were declared to be invalid and were set-aside. In essence, the court held that:
- the Commission’s decision to issue its final findings constitutes administrative action and is to be dealt with in terms of PAJA, but the findings were also subject to scrutiny under the principle of legality. Notably, this judgment departs from the decision in CRRC E-Loco Supply (Pty) Ltd v Broad-Based Black Empowerment Commission and Others, where the court held that the Commission’s investigative powers as provided for in section 13J of the B-BBEE Act do not constitute administrative action as contemplated in PAJA;
- the Commission’s decision was based on incorrect facts and not on admissible evidence. The Commission took irrelevant considerations into account and relevant considerations were not taken into account by the Commission. A similar decision was handed down in Cargo Carriers Proprietary Limited v Broad-Based Black Empowerment Commission and Others, where the court held that “not a single jurisdictional fact for fronting was established” by the Commission;
- the Commission’s findings were made arbitrarily or capriciously within the meaning of section 6(2)(e) of PAJA and were irrational within the meaning of section 6(2)(f)(ii) of PAJA;
- the Commission’s findings were unreasonable within the meaning of section (6)(2)(h) of PAJA;
- to ascribe a fronting intent to Sasol Oil through an agreement to which it was not a party and that was concluded by independent parties is irrational;
- the process followed by the Commission was unfair in that it did not comply with the provisions of PAJA and the B-BBEE Regulations – the Commission only paid lip service to giving Sasol Oil a fair hearing;
- the Commission’s recommendations are reviewable in that the Commission was not authorised to make the recommendations (The B-BBEE Act and the B-BBEE Regulations set the parameters within which the Commission is expected to operate);
- the reasoning of the Commission was demonstrably flawed and the Commission exercised its powers for an ulterior purpose;
- the Commission misdirected itself by concluding that Sasol Oil had misrepresented its B-BBEE status; and
- the final findings contravened regulation 15(4) of the B-BBEE Regulations which prescribe that the Commission must within one year of the complaint issue its findings.
The High Court’s order included an interdict against the Commission from making unlawful demands of Sasol Oil and threatening to invoke powers against Sasol Oil, if it did not comply with the Commission’s unlawful demands.
Corporates will be encouraged by this judgment which reinforces that the Commission must conduct its investigative proceedings in a manner that is fair and lawful, including giving due and proper consideration to all facts and evidence presented before it. The judgment also clarifies that the Commission does not have the power to issue final findings more than one year after it has received a complaint if it is not an investigation in terms of regulation 15(8). The Commission will need to ensure that going forward, it issues final findings within one year of receiving a complaint.
*ENSafrica acted for Sasol Limited and Sasol Oil in this matter.
Head | B-BBEE Practice Group
Executive | Dispute Resolution
Parusha Desai Valodia
Senior Associate | B-BBEE Practice Group
Senior Associate | Dispute Resolution