M Schutte Contractors CC and Another v Broad-based Black Economic Empowerment Commission and Another (3800/2022) [2023] ZAFSHC 422 (24 October 2023)

Key Facts

Issues

• The Commission's report concluded that the Corporation's Memorandum of Agreement (MOA) constituted a fronting practice under the B-BBEE Act, as Mr. Mothuli, a 26% member, was excluded from decision-making, financial control, and economic benefits. The applicants dispute this, arguing that Mr. Mothuli actively participated as both a member and employee, and the court agreed the Commission's findings were not supported by facts.
• The applicants argue the Commission's recommendations (e.g., payment of compensation, training mandates, and potential criminal charges) lack a clear legal basis in the B-BBEE Act or its regulations. The court found these recommendations reviewable, as the Commission overstepped its powers by imposing actions not explicitly authorized by the Act and by failing to follow due process in their formulation.
• The applicants assert the Commission violated procedural fairness under the Promotion of Administrative Justice Act (PAJA) by not holding a formal hearing, failing to consider their written responses, and making deductions without evidence. The court agreed, noting the Commission's findings were based on incomplete or ignored facts, rendering the process unfair and the decision reviewable.
• The applicants challenge the Commission's failure to comply with the one-year time limit under Regulation 15(4) for finalizing the investigation, which concluded in 2022 despite the complaint being filed in 2017. The Commission attributed the delay to limited resources and the 2020 lockdown, but the court found the explanation insufficient and unreasonable, granting condonation for the delay while emphasizing the Commission's non-compliance with procedural timelines.

Holdings

• The first respondent pays the costs of the condonation application.
• Condonation is granted to the first respondent for the late filing of its answering affidavit.
• The final findings of the Commission, dated 7 March 2022, are reviewed and set aside due to material factual errors and procedural unfairness in the investigation process.
• The first respondent is ordered to pay the costs of the application.

Remedies

• The First Respondent is ordered to pay the costs of the application.
• The first respondent is ordered to pay the costs of the condonation application.
• Condonation is granted to the first respondent for the late filing of its answering affidavit.
• The final findings of the Commission dated 7 March 2022 are reviewed and set aside by the court.

Legal Principles

• The court emphasized that administrative decisions by the B-BBEE Commission must not be arbitrary and must comply with constitutional requirements for lawful, rational, and procedurally fair action. This aligns with the principle that public power should be exercised in accordance with the rule of law.
• The court addressed the Commission's failure to discern the true nature of the MOA and financial arrangements, which were alleged to be superficially compliant but substantively indicative of fronting. The principle of substance over form was applied to evaluate whether the legal structure of the Corporation masked inequitable economic realities.
• The court held that the Commission's final findings and recommendations were ultra vires due to non-compliance with Regulation 15(4) timelines and procedural shortcomings. The review under PAJA focused on whether the Commission's actions were irrational, procedurally unfair, or otherwise unlawful.

Precedent Name

• Tebeila Institute of Leadership Education, Governance and Training v Limpopo College of Nursing and Another
• Sasol Oil Limited v The B-BEE Commission and Others
• Competition Commission of South Africa v Pickfords Removals SA (Pty) Limited
• Maleka v Health Professionals Council of South Africa and Others
• Greys Marine Hout Bay (Pty) Ltd and Others v Minister of Public Works and Others
• Steenkamp and Others v Edcon Limited
• Biowatch Trust v Registrar Genetic Resources and Others
• Pharmaceuticals Manufacturers Association of SA: In re Ex Parte President of the Republic of South Africa
• Pepcor Retirement Fund and Another v Financial Services Board and Another
• Competition Commission of South Africa v Pioneer Hi-Bred International Inc and Others
• Mbina-Mthembu v Public Protector
• Viking Pony Africa Pumps (Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems (Pty) Ltd and Another
• Cargo Carriers Proprietary Limited v Broad-Based Black Empowerment Commission and Others
• Interwaste (Pty) Ltd and Others v Broad-Based Black Economic Empowerment Commission and Others

Cited Statute

• Promotion of Administrative Justice Act, 3 of 2000
• Broad-Based Black Economic Empowerment Act, 53 of 2002
• Competition Act, 89 of 1998
• Close Corporations Act
• Constitution of the Republic of South Africa, 108 of 1996

Judge Name

• Cronjé
• Van Zyl
• Daniso

Passage Text

• [86] Sasol Oil held that a decision based on incorrect facts is reviewable. The salient factual errors committed by the Commission can, in my view, be summarised as follows: 86.1 The Commission failed to appreciate the division of labour and responsibilities in the MOA... 86.10 Notwithstanding all the indicators to the contrary, the Commission concluded that 'black ownership cannot be successfully confirmed in practical terms for exercising voting rights, economic interest and net value'; and 86.11 It is unfortunate that it attacked the integrity of Mrs Schutte...
• [88] Is there a legal basis in either the Act or PAJA for the recommendations of the Commission? In Sasol Oil the Court expressed itself as follows: '[54] The recommendations were that Sasol Oil's directors...'
• [91]... the costs of the condonation application. 2. The first respondent pays the costs of the condonation application. 3. The final findings of the Commission, dated 7 March 2022, is reviewed and set aside.