‘Damning’ high court judgment sets aside Mining Charter’s re-empowerment obligations

A full bench of the Gauteng High Court this week ruled against the minister of Mineral and Energy Resources and in favour of the Minerals Council of SA, setting aside a number of key clauses within the Mining Charter III, including the re-empowerment clause which required mining rights holders to maintain black economic empowerment (BEE) ownership targets of 26% for pre-existing mining rights and 30% for new mining rights.

Also set aside were the charter’s procurement, supplier and enterprise development targets, and some of its penalty and enforcement provisions.

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“The judgment vindicates my long-held view that the charter, in all its iterations, was nothing more than a socio-economic compact between government, labour and the mining industry,” says Peter Leon, global co-chair for Africa at law firm Herbert Smith Freehills. “The original charter, signed in October 2002, reflected exactly this principle. Regrettably the 2010 and 2018 versions purported to turn what was no more than a compact into a binding legislative instrument with all the associated regulatory uncertainty.

“Hopefully this carefully reasoned and strong judgment will give the DMRE cause to reflect on what has gone wrong in the last ten years and put the industry back on a much needed path of regulatory certainty and predictability.”

The case was originally brought in May 2020 by the Minerals Council against the minister and 13 other defendants, including a number of trade unions and community groups. The ruling says the question in dispute was whether the minister has the power in terms of Section 100(2) of the Mineral and Petroleum Resources Development Act (MPRDA) to make law in the form of subordinate legislation, and whether the charter constitutes law or policy.

The minister and other respondents argued that the minister did indeed have the power to make law through the charter, which would then impose binding obligations on mineral rights holders.

The Minerals Council disagreed, arguing that the charter is a formal policy document, and is only binding on holders of mining rights “to the extent that its terms have been lawfully incorporated by the minister into such mining rights.”

In response to the judgment, the Minerals Council South Africa says it welcomes the ruling that “the Mining Charter 2018 is a policy document, that the continuing consequences of previous black economic empowerment deals should be recognised and that the specific challenged provisions in the document should be removed.

“The Minerals Council and its members remain fully committed to the transformational objects of the Mineral and Petroleum Resources Development Act (MPRDA), but the objectives must create policy and regulatory certainty for long-term investment and inclusive growth in the sector.”

The minister had argued that the transformation objects of the MPRDA cannot be achieved unless the charter is binding subordinate legislation. The Gauteng High Court said the flaw in this argument is that it ignores the enforcement structure provided by the MPRDA.

The minister is able to enforce empowerment obligations through the issue of mining rights, which impose obligations on the rights holder in terms of the act, not the charter. Some of the enforcement tools available to the minister include the approval of a social and labour plan which, if violated, allow the minister to suspend or cancel the right.

The minister claimed he needed the power to make subordinate legislation in the form of the charter to advance the transformation of the mining sector – which, he said, it had failed to do despite previous charters. In support of this argument, he presented in-house studies to the court, though these were disputed by studies presented by the Minerals Council showing there had, indeed, been substantial transformation in the sector.

The minister also argued that incorporating charter provisions in mining rights would be ineffectual in achieving transformation because of the relatively short duration of mining rights.

The impact

Commenting on the judgment, Herbert Smith Freehills says the court once again confirmed the “once empowered, always empowered” principle.

This means that the Historically Disadvantaged South African (HDSA) ownership status of existing mining right holders who wish to renew or transfer their rights must automatically be recognised by the DMRE (Department of Mineral Resources and Energy).

“The judgment has a materially positive impact on the security of tenure of existing mining rights holders. As a result, existing mining right holders now know that if they previously satisfied the empowerment requirements imposed under any version of the charter, they will not be required to do so again,” says Herbert Smith Freehills.

In view of the fact that the court has determined the charter to be a policy document rather than a legally-binding instrument, mining right holders may, but are not legally obliged to, comply with the remaining requirements imposed under the charter.  This is subject to two qualifications:

• Not all of the provisions of the charter were reviewed and set aside. For example, the clauses which concern employment equity, human resource development, mine community development, and housing and living conditions still form part of the charter. These clauses will not automatically impose obligations on the holders of existing mining rights, but may do so if such requirements are incorporated as specific terms or conditions of the mining right.
• Second, the clauses which are set aside have now been removed from Mining Charter III. A significant example is the charter’s procurement, supplier and enterprise development requirements.

The judgment also set aside provisions in the 2018 Charter related to the Diamonds Act and Precious Metals Act to impose targets set out in the charter on licence holders under those acts.

Also removed from the charter by the judgment were provisions in the 2018 Charter related to mining companies not complying with ownership and mine community development requirement and thus being in breach of the MPRDA.

Under the previous version, this meant rights holders could potentially have their mining rights suspended or cancelled.

“The Minerals Council will continue to engage the DMRE on a constructive basis to create the necessary policy and regulatory certainty and to attract much greater investment into the exploration and mining sectors,” says the Minerals Council statement.