In Johannes v Waterzone (Pty) Ltd and Others (4669/2024) [2026] ZAMPMHC 39 the High Court underscored that BEE engagements must be implemented on bona fide terms and in a manner that advances the underlying purpose of the Broad-Based Black Economic Empowerment Act 53 of 2003 (BEE Act). While also addressing the effects that may arise once such arrangements come to an end, the judgement reaffirmed fundamental contractual principles of interpretation and rectification.

Brief facts

The applicant, Mr Johannes, a Black male, was introduced into the first respondent (company) as a director and 26% shareholder. As made apparent by the High Court, the company’s intention for setting up this arrangement was to satisfy its BEE requirements and continue securing contracts within the mining sector. Despite the applicant’s position as shareholder and director of the company, for over 14 years, he was not involved in the company’s operations nor properly informed on all the aspects of the company (be that financial or regulatory). As stated by the court, the applicant was placed in this position on the basis of convenience and used for his status.

At a later stage (around February 2020), when the company’s BEE rating was held to be insufficient by some of its contractors, the parties entered into a share option agreement. As accepted by the court, the catalyst to the proceedings before it was a meeting in August 2024 where the applicant was asked to step aside and make way for a Black woman. The company’s motive was to improve its BEE scorecard. The applicant refused to hand over his shares and resign, ultimately leading to a breakdown in the parties’ relationship and the launch of disciplinary enquiries into the applicant’s employment. During this period the parties concluded a mutual separation agreement, which notably only addressed the termination of the applicant’s employment and not the share buyback. The relief the applicant sought included enforcing the mutual separation agreement, protecting his shareholding rights, and obtaining access to the company records.

The importance of BEE and its bona fide application

In its reasoning the High Court placed significant reliance on the preamble and purpose of the BEE Act, outlining what empowerment truly is and what undermines it. The court provided that the BEE Act, as the empowering legislation, was not intended to serve as a box-ticking compliance tool through which companies could confer financial benefits on Black individuals merely to entitle those companies to satisfy their compliance and continue securing contracts. Instead, as held by the court:

“[T]he Act was incorporated to redistribute knowledge, experience, business acumen, and the practical know-how of how certain companies operate in order to enable previously disadvantaged groups to acquire such experience that would enable them to perform on the same footing as other individuals who secured some sort of advantage previously to which other individuals were excluded.”

The court went on to state that:

“[A]fter 23 years, it is inexcusable and sad that a court is necessitated to write on what can only be regarded as an irregular application of the Broad-Based Black Economic Empowerment Act and a misappreciation of what the act seeks to achieve.”

While pointing out the evident faults in the company using the applicant merely for his status, the court was not blind to the fact that there are always two parties to a commercial undertaking and that for 14 years the applicant appeared content with not becoming involved in the company’s operations.

Ultimately what the court was asked to consider was the mutual separation agreement and whether it ought to be rectified to include the repurchase of the applicant’s shares. While both sides wanted the agreement to be enforced, only the company wanted it to be rectified to provide for the purchase of the applicant’s shares. The court, relying on Brits v Van Heerden [2001] (3) SA 257 (C) and Leyland SA (Pty) Ltd v Rex Evans Motors (Pty) Ltd [1980] (4) SA 271 (WLD), provided that the onus for proving rectification, on a balance of probabilities, is that the written agreement does not correctly express what the parties had intended to set out therein.

The court also reaffirmed several fundamental contractual principles, restating the Constitutional Court’s view in Beadica 231 and Others v Trustees for the time being of Oregon Trust and Others (CCT 109/19) [2020] SACC 13 that contractual relations are the bedrock of economic activity and that our economic development is largely dependent on the willingness of parties to enter into contractual relationships. Furthermore, in line with the principles of pacta sunt servanda, a signed agreement is binding on the parties. The privacy and sanctity of contract entails that obligations must be honoured where parties enter into contractual agreements freely and voluntarily.

Citing Brisley v Drotsky [2002] (4) 1 (SCA) at 11B – where the court reaffirmed the rationale in SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren [1964] (4) SA 760 (A) handed down more than 40 years ago – the High Court then also noted that:

“Save for the face value of the wording of the document, which only deals with the termination of the applicant’s employment with the first respondent, the contract contains what is commonly referred to as a ‘non-variation’ clause. Although it would not be the case that no contract with a non-variation clause could ever be rectified, the existence of this clause in a contract cannot be disregarded.”

In considering the company’s rectification defence (to the applicant’s claim to access to information and documentation as a shareholder of the company), the court held that it had to be satisfied that the defence raised was bona fide and substantiated sufficiently. It was only once this threshold is met that the court will accept the defence as real. As the company failed to show its bona fides and prove that it was the common continuing intention of the parties to make provision for the share buyback, the rectification defence was rejected.

The court found in favour of the applicant, resulting in the mutual separation agreement being enforced as written, the applicant retaining his shareholding in the company and the company being compelled to furnish the requested information and documents.

Analysis

While there have been a few cases that have referenced conduct or circumstances that could amount to a fronting practice as defined in the BEE Act, there has not yet been and reported judgment involving an indictment for the commission of a fronting practice.

In Johannes and others (see for example Dimension Data Facilities (Pty) Ltd and Others v Identity Property CO (Pty) Ltd and Others (2022/040174) [2024] ZAGPJHC 1209) we are now seeing the courts engage with the BEE Act and, importantly, its objects and purpose. The common law is being developed and of particular interest is what this case and others tell us about what the courts are likely to consider fronting practices and undermining the objects the BEE Act and its application.

Here the court specifically notes that:

“The non-involvement of a director or shareholder, or the failure to provide information or documentation to a director or shareholder, seemingly only because such a party is either a minority shareholder or a so-called B-BBEE partner, is unacceptable and offends public policy.”

This seems self-evident but is also a caution against concluding contracts that have this effect.

Moreover, the court specifically expresses its disapproval for so called ‘tick-box’ compliance when it states that:

“The act was not enacted or intended solely for historically White-owned companies to hand over money to Black individuals, thereby entitling such companies to continue securing contracts because they had now met certain compliance requirements.”

This statement is of particular significance as it points to one of the central kernels of the mischief created by fronting, papering a transaction or scheme without actually intending to give effect to the objects and purposes of the BEE Act which that scheme or transaction is intended to bring about.

The judgment serves as a reminder that BEE compliance is not a box-ticking exercise and critiques the duality of BEE compliance, noting that while companies treat compliance as a box-ticking exercise those placed in positions to benefit from such arrangements are not ignorant of their standing. If you are placed in beneficial positions for purposes of BEE, you have a duty to ensure your participation is both effective and meaningful. If you are placed in the position as director, you have a fiduciary duty to obtain the relevant information for your involvement and when you are a shareholder you need to ensure that you exercise your rights appropriately.

While the judgment clearly emphasised fundamental contractual principles and strongly criticised the apparent misuse of BEE arrangements, it does raise an important question: where a court is asked to enforce an otherwise contractually sound agreement that is tainted by apparent and evidenced non-compliance with the provisions of the BEE Act, will it nevertheless enforce that agreement?