22 July 2020 by and Corporate & Commercial Alert

Decision to award B-BBEE facilitator status for Telkom’s benefit found to be fatally flawed

In Altron TMT Holdings (Pty) Ltd and Another v Minister of Trade & Industry and 4 Others, [2020] ZAGPJHC 162, Altron applied to the High Court for an order to review and set aside a decision made by the then Minister of Trade and Industry (Minister) published in the Government Gazette GN262 on 7 May 2019 (May Notice) to grant B-BBEE Facilitator Status to the Government of South Africa (Government) as a 40.50% shareholder in Telkom SA SOC Limited (Telkom).

On 1 February 2019 the Minister issued a notice for public comment of the intention to grant Telkom B-BBEE Facilitator Status in terms of paragraph 3.6 of the Revised Codes of Good Practice (February Notice). If granted, Telkom would have been regarded, inter alia, as a 100% black-owned entity. Various parties, including Altron made submissions in response to the February Notice.

In April 2019 a submission was made by the B-BBEE Unit of the Department of Trade and Industry to the Minister requesting that the B-BBEE Facilitator Status be granted to “the Government of South Africa represented by the Office of the Presidency” as a result of being a 40.50% shareholder in Telkom. This consequently meant that the Government of South Africa would replace Telkom as the recipient of the B-BBEE Facilitator Status. On 7 May 2019 the Minister published notice of his decision to grant B-BBEE Facilitator Status to the Government.

The High Court concluded that through the granting of B-BBEE Facilitator Status to the Government, the Minister had implemented legislation as provided in section 85(2)(a) of the Constitution, which meant that the Promotion of Administrative Justice Act 3 of 2000 (PAJA) was applicable to the matter along with the principle of legality. This meant that the decision taken by the Minister to grant B-BBEE Facilitator Status was subject to the requirement of a proper consultation process in terms of PAJA.

The High Court found that the published February Notice had cited Telkom as the only party contemplated to be granted B-BBEE Facilitator Status and that the public had provided submissions on that basis. The final decision made by the Minister in the May Notice to grant B-BBEE Facilitator Status to the Government was materially different as the public had not based their submissions on the change in the intended recipient. In short, the Minister had granted the B-BBEE Facilitator Status to the Government without actual public participation. The High Court expressed that the “nature and purpose of the proposed decision must be described with sufficient particularity in the notice so that the right to make representation will be real rather than illusory”, and concluded that for the Minister to have granted the B-BBEE Facilitator Status without the public knowing the true identity of the intended recipient rendered the decision procedurally unfair. “The nature and purpose of the proposed decision are not the same as the nature and purpose of the decision as published. This is a fatal flaw rendering the decision reviewable”, the court said.

Furthermore, the Minister failed to file an affidavit giving his reasons for his decision in the matter. In response to this the High Court stated that, “It is a fundamental principle that the decision maker must provide reasons why he made the decision.…… I find that the evidence is both insufficient to establish that the reasons were relied upon by the decision maker and also that they were the reasons at all. In addition, there is a failure to establish what the facts were upon which the decision taker relied. The reasons for taking a decision are founded both in fact and in the opinion of the decision taker. As neither the facts nor the opinions founding the reasons for the decision are established the decision is reviewable.”

As such, the High Court found that the Minister’s decision was procedurally flawed and set it aside. The court made an exception in that it held that the May Notice would be regarded as valid for the purpose of the B-BBEE status of Telkom and its subsidiaries arising from such Notice in respect of only those contracts entered into and tenders awarded after 7 May 2019 and prior to the date of the court’s order. It would, however, not be treated as valid for the purpose of any renewals or extensions of such contracts and tenders. It is also clear that Telkom cannot continue to recognize its B-BBEE status resulting from the B-BBEE Facilitator Status under any other circumstances.

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