High Court Condemns Abuse of Power by B-BBEE Commission

In the recent Pretoria High Court judgement of Sasol Oil Limited v The B-BBEE Commission and Others (21415/2020) [2022] ZAGPPHC (14 June 2022), Judge Baqwa condemned the abuse of power by the Broad-Based Black Economic Empowerment Commission (‘the Commission’) and set aside its findings of its investigation relating to a transaction between Sasol Oil Limited (‘Sasol Oil’) and Tshwarisano LFB Investment (Pty) Ltd (‘Tshwarisano’), a black-controlled company.

Written By of Cowan-Harper-Madikizela Attorneys

The Review Application

Sasol Oil brought an application to review and set aside the decision of the Commission that Sasol Oil had knowingly engaged in black economic empowerment (‘BEE’) fronting practices. Sasol Oil argued that the decision by the Commission was based on erroneous and unlawful adverse findings.

Sasol Oil’s application was brought under the Promotion of Administrative Justice Act 3 of 2000 (‘the PAJA’). The court had to consider the following in the application:

  1. whether the decision by the Commission constituted procedurally unfair and unlawful administrative action;
  2. whether the decision was invalid and unlawful having regard to the principle of legality and the Broad-Based Black Economic Empowerment Regulations (‘the Regulations’);
  3. whether the Commission should be interdicted from making unlawful demands of Sasol Oil and threatening to invoke its powers against Sasol Oil if it did not comply with such demands.

The Factual Background

In 2006 Sasol Oil sold 25% of its shares to Tshwarisano which is a black-controlled company. During the sale, one of the shareholders of Tshwarisano, Golden Falls 467 (Pty) Ltd (‘Golden Falls’), did not have sufficient funds to pay the purchase price of the shares. A group of funders, which included white funders, agreed to finance the acquisition of the shares by subscribing for redeemable preference shares in Golden Falls (‘the preference share agreement’).

Another party indirectly involved in the sale of shares was Awevest Investment Limited (‘Awevest’). Awevest is the sole shareholder of Golden Falls and is an investment company consisting of two groups of African women represented by Queen Elizabeth Sangion (‘Ms Sangion’). Ms Sangion is the chairperson of the African Women Co-ordinated Investment company (‘AWCI’) a black-controlled.

In 2015, Ms Sangion complained to Sasol Oil that the preference share agreement entered into between Golden Falls and the above-mentioned group of funders unfairly favoured the funders and thus undermined the BEE purpose of the sale of the shares to Tshwarisano. Sasol Oil considered Ms Sangion’s complaint and took up the matter with all parties involved through a facilitated negotiation. This resulted in a settlement being signed in 2016 between Awevest, African Women Enterprise Investments (Pty) Ltd, Golden Falls, Astra Group Holdings (Pty) Ltd and other respondents (‘the settlement agreement’).

Two years later, Sasol Oil received a notice from the Commission that it was investigating a complaint by Ms Sangion in terms of the Broad-Based Black Economic Empowerment Act 53 of 2003 (‘B-BBEE Act’). Ms Sangion’s complaint was that Sasol Oil was responsible for the unfair terms of the preference share agreement. The Commission interpreted the complaint as an accusation that Sasol had knowingly engaged in fronting practices since it claimed a BEE rating on the basis that Golden Falls’ shares in Tshwarisano were held by a black-controlled company while in truth the white funders were the true beneficiaries of the shares.

In response to the complaint Sasol Oil made comprehensive submissions stating that:

  1. it denied awareness of the preference share agreement until Ms Sangion approached it in 2015;
  2. it referred to the settlement agreement which it had assumed had resolved the complaint;
  3. it had no reasons to doubt that Golden Falls was not only a black-controlled company but also that it was a beneficial owner of its shares in Tshwarisano and it submitted that its BEE rating did not in any way depend on the question of whether Golden Falls was the true beneficial owner of the shares in Tshwarisano.

Decision by the Court

The Commission issued its final findings on 7 October 2019 and assumed therein that Sasol Oil knew of the preference share agreement. This was Sasol Oil’s first ground of review. The Court found that this incorrect assumption by the Commission was not based on admissible evidence.

In terms of Sasol Oil’s second ground of review, the Court found that despite being aware of Sasol Oil’s attempt  to have the matter settled and the subsequent settlement agreement, the Commission still criticized Sasol Oil by  stating that it had failed to take material steps to combat the possible fronting that was being perpetuated  through the preference share agreement and that Sasol Oil had also failed to follow through to ensure that the  matter was satisfactorily resolved. The Court found that Sasol Oil was entitled to remain under the impression  that the matter had been resolved through settlement and stated that the Commission’s finding in this respect  was irrational and astounding.

The Court referred to section 6 of the PAJA and held that the Commission’s findings were reviewable in that they  were made because the Commission took into account irrelevant considerations but did not consider relevant  considerations. As a result, the Court stated that the Commission’s findings were irrational.

The third ground of review was that the transaction complained of had no effect on Sasol Oil’s BEE rating, but the Commission had found that the black ownership which Sasol Oil claimed through Tshwarisano, Golden Falls and Awevest was flawed and “makes a mockery of what broad-based economic empowerment stands for”.

The Court found that the above reasoning of the Commission was flawed and referred to the Code of Good Practice GN 1019 of 11 October 2013 which prescribes the rules of scoring black ownership of a measured entity. The evidence provided by Sasol Oil showed that black shareholders in Tshwarisano always exceeded 51, even if one excluded the shares held by Golden Falls. As a result, Tshwarisano would therefore be classified as 100% black because its black shareholders exceeded 51%. The Court concluded that the Commission had misdirected itself in this finding.

The Court held that the Commission ascribing a fronting intent to Sasol Oil through an agreement to which it was not a party and which was concluded by independent parties was irrational. The Commission's findings were declared invalid and set aside under the PAJA.

The Court also considered that in terms of Regulation 15(4) of the Regulations the Commission had one year after receiving the complaint to make its findings. As the Commission had taken over two years to issue its findings, the Court held that for this reason alone the Commission’s findings were reviewable.

The Court further held that the Commission had abused its power when making its recommendations which required Sasol Oil’s directors and executives to undergo BEE training, that Sasol undertake to abide by the B-BBEE Act, that it publicly apologize for its role in the violation of the B-BBEE Act and that Sasol Oil had to contribute 10% of its annual turnover to a bursary fund. The Commission was also interdicted from making unlawful demands from Sasol Oil.

The above case will hopefully serve as a deterrent to the Commission to not abuse its power in future and to conduct its investigations in an objective manner in line with the B-BBEE Act, the relevant Regulations and Codes.

Gael Barrable

Gael Barrable
Partner in Employment

Maricia Smith

Maricia Smith
Associate of Employment

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