To BEE or not to BEE

Sometime last year I woke up and wrote a thread on Twitter about how media reporting on a recent judgment was not only mistaken but had the potential to actively misinform the public about what the case was really about.

The case in question was Minerals Council of South Africa v Minister of Mineral Resources and Energy (Minerals Council) in which the High Court, Pretoria, reviewed and set aside several provisions of the Broad-Based Socio-economic Empowerment Charter for the Mining and Minerals Industry of 2018 (‘Mining Charter’). The news reports that elicited the response in my thread framed the story as another instance of the courts ruling against the government on its Black Economic Empowerment (‘BEE’) measures. That to me was fundamentally incorrect.

As if that wasn’t bad enough, the response of Parliament’s Portfolio Committee on Mineral Resources and Energy was equally distressing. With the department having wisely decided not to appeal the decision, MPs questioned that decision, wondering whether the department had abandoned the “transformation agenda”. It appeared that members of the committee viewed the judgment as a setback to the progress sought to be achieved by the Mining Charter in redressing skewed racial ownership patterns in the mining sector. One  MP even remarked that “the judiciary is taking the country back to its pre-1994 stage (sic)”.

More recently, KwaZulu-Natal premier Sihle Zikalala was quoted as calling for a return to parliamentary sovereignty, saying:

‘It is incorrect that when we want to transform our province and country we are stopped by another arm of the state. When we want to implement BBBEE [broad-based BEE], preferential procurement and radical socioeconomic transformation we are stopped by the courts.’

This was in response to the Constitutional Court’s judgment in Minister of Finance v Afribusiness NPC (Afribusiness) concerning the validity of regulations made by the Minister of Finance under the Preferential Procurement Policy Framework Act (‘Procurement Act’). Zikalala, much like his contemporaries in the portfolio committee, seems to have been convinced that the courts are actively working against government and stymieing its efforts at advancing socioeconomic transformation through the use of BEE measures.

Both these examples highlight something worrying about our public officials: that they had not read either judgment before making these comments, or had been wrongly advised about their content and meaning. In either case, we can safely assume that all they knew about the two cases is what had been reported in the media. Of course, journalists do not necessarily have legal training nor are they required to be legally trained, so one cannot fault them for reporting these cases as they did: as pushback against government’s attempts to expand BEE. But as I highlighted in the thread, this framing is laden with so much more than the seemingly straightforward statement that a court invalidated a BEE measure — regardless of the reasons — and people can draw, from that kind of framing, a more sinister inference: that the courts are anti-transformation, or at the very least, anti-BEE.

Is that so?

Let’s start with the Minerals Council case. There, the applicant asked the court to declare certain provisions of the Mining Charter invalid and set them aside on the basis that the provisions of the Mining Charter were cast in peremptory and mandatory terms, requiring compliance before an application for a mining right or the renewal of an existing right could be granted in terms of the Minerals and Petroleum Resources Development Act (‘MPRDA’). This, the applicant said, could not be done because the Mining Charter was not law in terms of the MPRDA: it was not a form of subordinate legislation within the Minister’s competence. The Minister on the other hand argued that section 100(2) of the MPRDA empowered him to make the Mining Charter as a type of sui generis or unique form of subordinate legislation and that the Mining Charter therefore had the status of law.

Importantly for our purposes, the provisions challenged by the Minerals Council imposed certain standards, ownership thresholds and other numerical targets that any applicant for a mining right had to meet before their application could be granted. These measures, the Minister explained, were aimed at ensuring the participation of historically disadvantaged persons in the mining and minerals sectors and improving the socioeconomic conditions of mining communities. Noble ends indeed.

The question that the court was asked to answer, though, was quite crisp: was the Mining Charter law, as contended for by the Minister, or was it simply a statement of policy, as the Minerals Council contended? The distinction between law and policy here is crucial. If the Mining Charter was a form of subordinate legislation, then compliance was mandatory and any application for a mining right, new or existing, had to meet its requirements. On the other hand, if the Mining Charter was policy it would be binding only on the officials of the department who would have to consider its provisions when assessing an application for a mining right but would ultimately have to decide its fate based on the requirements of the MPRDA and not the Mining Charter itself.

The court held that the Mining Charter could not have the status of law and was thus a statement of policy. Here’s why:

• First, the court said that the MPRDA recognised only two kinds of subordinate legal instruments: (a) regulations and (b) terms and conditions attached to, inter alia, any right granted under the MPRDA. The Mining Charter, contrary to the Minister’s claim, was not recognised by the MPRDA as a legal instrument. This means that any prescriptive measures imposed by the Minister could only be done through regulations or by attaching conditions to a right that has already been granted.

• Second, the court held that the way in which the Mining Charter came into being was markedly different from how regulations were made. It was not a unilateral act by the Minister. Drawing on the history of previous charters, the court held that the initial charter of 2004 had been a pact between the mining sector, labour and the government, and that each party had countersigned it. That is simply not how legislation is made, the court said. Indeed, even the language of section 100(2) itself required the Minister to “develop” a charter not to “make” a charter, as is the case with regulations.

• Finally, the language of section 100(2)(b) itself was not peremptory. It required the Mining Charter to “set out … how the objects [of the MPRDA] can be achieved.” The language was permissive and not peremptory — the Mining Charter had only to set out how the objects of the MPRDA as set out in it can be achieved by existing and prospective rights-holders and not how they must be achieved.

Importantly, though, the court set out in some detail how the Minister could still ensure that the objects of the MPRDA were met without the Mining Charter having the status of law. For instance, the MPRDA allows the Minister to incorporate any terms and conditions into a mining right, to consider the terms of any empowerment agreement to which the applicant for such a right is a party, and once granted, a rights-holder would incur certain reporting obligations in relation to compliance with the objects of the MPRDA as set out in section 2. In addition, section 107(1)(k) and (l) granted the Minister wide enough regulation-making powers to make regulations on “any matter which may or must be prescribed for in terms of” the MPRDA and “any other matter the regulation of which may be necessary or expedient in order to achieve the objects of” the MPRDA. The Mining Charter, then, was not even necessary, least of all to have the status of law, to achieve the objects of the MPRDA.

In Afribusiness we encounter a similar issue. This time, the Minister of Finance has made regulations in terms of the Procurement Act. Here, the question is different: since regulations are a form of subordinate legislation, the question here is whether the Minister was properly empowered to make them. The Minister promulgated the Procurement Regulations, 2017 (‘regulations’) which, among other things, set pre-qualification criteria for state tenders in order to advance certain groups of people (this is authorised by section 217(2) of the Constitution). In terms of the regulations, only tenderers who met the pre-qualification criteria could be eligible to tender for state contracts. In particular, regulation 3(b) required organs of state to “determine whether pre-qualification criteria are applicable to the tender”. Regulation 4 then set out the criteria including B-BBEE level contributor status, status as an exempt micro enterprise or a qualifying small enterprise, black, women, youth and disability majority (51%+) ownership requirements, etc. Regulation 9 set out similar pre-qualification criteria as regulation 4 but was applicable where subcontracting was a condition for the successful award of a tender.

Afribusiness challenged the regulations for being ultra vires or beyond the scope of the Minister’s powers. This, it said, was because the Minister had effectively replaced the points system put in place by the Procurement Act with the pre-qualification criteria in the regulations. Also, the Minister had effectively imposed a preferential procurement policy on all state organs in contravention of section 2(1) of the Procurement Act, which requires every organ of state to determine its own preferential procurement policy within the framework it sets out. In response, the Minister said all he had sought to do was to give content to the Procurement Act’s definition of an “acceptable tender” which is any tender that “complies with the specifications and conditions of tender as set out in the tender document”. In this way, the pre-qualification criteria merely set out what an acceptable tender was.

The Minister also argued that he had been empowered by section 5(1) of the Procurement Act to make regulations “regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects” of the Act. This, he said, was wide regulatory power which he sought to exercise in order to achieve the Procurement Act’s stated objectives, and on whose exercise the court must defer to his judgement.

The court was split. Writing for the minority, Mhlantla J held that the regulation-making power in section 5(1) was a “wide-ranging power as it does not specifically prescribe the nature and extent of the regulations that can be promulgated”. For Mhlantla J, two considerations were important: one, that the power related to the making of regulations on “any matter” and was not restricted only to certain issues, and two, that the “only restriction placed on the Minister’s power to promulgate regulations is that the regulations should act in furtherance of the objects of the Procurement Act”. In the minority’s view, as long as the Minister acted “in furtherance of” the Procurement Act’s objects, the regulations would be “necessary or expedient” to achieve those objects per section 5(1).

Madlanga J, for the majority, disagreed. For him, the words “necessary or expedient” were limitations on the Minister’s power. Stressing that the regulations were nothing short of a comprehensive preferential procurement policy for all organs of state, Madlanga J held that the exercise of the regulation-making power in this case was contrary to section 2(1) of the Procurement Act. Because section 2(1) empowered each organ of state to determine its own preferential procurement policy, the words “necessary or expedient” could not be read to empower the Minister to make regulations on the same issue that organs of state had been specifically empowered by the Procurement Act to do. Far from vesting wide discretionary powers in the Minister, section 5(1) instead limited his regulation-making power to those regulations that were either “necessary” or “expedient” for the purposes of achieving the objects of the Procurement Act. Since the statute already empowered organs of state to make their own preferential procurement policies, it could not be “necessary” (unavoidable, needing to be done) for the Minister to make regulations imposing his own policy, nor could it have been “expedient” (practical, convenient) for the Procurement Act to vest in the Minister a power that it had already vested in organs of state in section 2(1). The result was that the regulations were ultra vires the Procurement Act and were set aside.

Notice here that I have barely said anything about the fairness, reasonableness or even desirability of either the Mining Charter or the regulations as measures to advance transformation. There is a reason for this. In both cases, the dispositive issue — that is, the issue that resolves the dispute — relates to the powers of the functionary concerned. To determine the limits and contours of these powers, the courts in each case referred to the legislation enacted by Parliament and applied it. In each case, the Minister concerned had sought to exercise powers that they simply did not have, and in each case, the courts are sensitive to the need for empowerment or remedial measures and accept that the Constitution requires them. But equally, the Constitution requires the proper exercise of all public power: powers that are granted should be exercised for the purpose for which they were granted and by the functionary to whom they were granted. Whether or not the ends pursued are laudable or fit some other definition of ‘good’, the law does not license the wanton exercise of public power anyhowly (new cool word I just learned!).

For all their predominance of the South African political imagination, BEE (narrowly) and affirmative action (broadly) barely occupy the courts’ attention. Of the handful of affirmative action cases that have reached the Constitutional Court (think Van Heerden, Barnard, Solidarity), the government has in large part been successful, and even in the most recent striking down of a measure on equality grounds — SARIPA (2018), the court was split 7-3 on whether the policy concerned was a valid affirmative action measure (the judgment says 8-2 but trust me, dawg). In that case, too, the Minister of Justice was not precluded from simply designing the policy differently to advance transformation in the insolvency industry.

This makes the reactions of both the portfolio committee and premier Zikalala all the more hilarious (they aren’t really funny, but I hate crying). In the first instance, the portfolio committee was upset that the department would not appeal a judgment that merely applied the law as passed by the selfsame Parliament of which they are members. Heck, even the department said that “the transformation agenda would be more swiftly achieved through a parliamentary process, namely amending the [MPRDA]”. If only we had MPs to do that. Zikalala’s panacea, which is reflective of the growing and concerning fetishism for parliamentary sovereignty in the ANC, is a nonstarter. Even under such a system, the courts would still have the power to decide whether the powers purportedly exercised by the Minister were ultra vires the empowering legislation — which was plainly the case — without a supreme constitution. And look, I don’t mean to criticise journalists (God knows they have it rough), but as the biggest purveyors of news and information in this country, their reporting on delicate issues such as BEE could be a little better.

To answer, then, the vexed question of whether the courts are anti-transformation: No. A quick SAFLII search (“section 9(2)” + “unconstitutional”) should answer that, but that’s what I’m here for. What we are faced with is an attempt to find a scapegoat for, frankly, failure on the part of government to take meaningful steps to achieve socioeconomic transformation. Naturally, it is easier to simply throw one’s hands up and say “look at your beloved Constitutional Court, destroying BEE!” than to do the hard work of designing well-thought out policies that meet constitutional muster.

Section 9(2) of the Constitution empowers the state to take “legislative and other measures to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination”. It is a power ultimately vested in Parliament, which it may lawfully delegate to the appropriate Minister, and which it must exercise with some wisdom and foresight. Achieving transformation does not mean by any means necessary, it means lawfully and through the Constitution, for which purpose it was designed.