DECISIONS ON APPEALS – FISHING INDUSTRY NEWS (JUN 2018)


DECISIONS ON APPEALS – THE DELAY DILEMMA

 

With decisions under FRAP 2015/2016 under various fishing sectors having been announced by the Delegated Authority (“DA”) and with the upcoming FRAP 2020 decisions in mind it is appropriate to reflect on the rights of applicants who wish their internal appeals against such decisions to be decided on urgently.

 

The urgency for applicants generally arises from the scenario where the DA makes decisions on rights applications after the previous long term rights have expired so that existing rights holder applicants are placed in a position where their previous rights have expired, they are unsuccessful with their new application but the new rights allocations commence for the successful applicants. In such a scenario an existing fishing operation grinds to a halt while the TAC to the successful applicants is being fished during the time that the unsuccessful applicant is submitting its internal appeal and awaiting a decision thereon.

The obvious solution to this dilemma would be for the initial decisions by the DA to be taken before the termination of existing rights to provide for sufficient time for the appeal process to be finalised. Unfortunately the appeal provisions under the Marine Living Resources Act (“MLRA”) i.e. section 80 and regulation 5, do not directly state that the rights allocations by the DA are suspended pending the outcome of the appeals. In this regard I am of the view that the legislature should take a leaf out of the Environmental Legislation contained in the National Environmental Management Act (“NEMA”) in terms of which an appeal automatically suspends any environmental authorisation, directive or exemption or other decision taken in terms of NEMA pending the outcome of the appeal. That would negate the need for urgent appeal decisions and subsequent urgent court applications to force decisions (as will be discussed below).

 

A further problem with section 80 of the MLRA and the regulations thereto is that it only places a time frame of 30 days on the DA to provide a report to the Minister in respect of any appeal lodged but it does not place a time frame for the Minister to reach a decision on any appeal. As such even though appellants submitting appeals may request an appeal to be decided on an urgent basis and set out the reasons therefore, the track record of the Department and the Minister is in fact not to decide appeals on an urgent basis and more recently numerous court applications have had to be launched to force the Minister to decide appeals on an urgent basis or to commit to a date by when appeals will be determined.

 

Fortunately the legal basis for forcing a decision from an administrator is clearly set out in section 8(2)(a) and (b) read together with sections 6(2)(g) and 6(3)(a) of the Promotion of Administrative Justice Act (“PAJA”). These provisions in effect provide for the institution of High Court proceedings for the judicial review of the failure to take a decision on the ground that there has been unreasonable delay in taking such decision. The key issue in such court applications is showing that there has been an unreasonable delay (particularly where no time frame is set for the Minister under the MLRA to take a decision on appeal). Whether there has been an unreasonable delay generally depends on the circumstances of each particular appeal e.g whether it is a once off appeal in particular circumstances or one of many hundreds of appeals in a rights allocation process.

In this regard we have since the 2006 long term rights allocation process built up a data base of time frames within which appeal decisions have been taken under varying circumstances. In addition, there is also the odd court decision which has determined what constitutes a reasonable time frame for the taking of a decision on appeal.

 

As such, a court determining what an unreasonable delay constitutes would generally be facing an argument on the one hand: that previously existing rights holders who are unsuccessful with their applications and whose businesses/employees relied on the fishing rights for their livelihoods can no longer operate pending the appeals; and on the other hand that the Minister has a vast number of appeals to decide and that these decisions need to be taken together and reasonable time is required for such processing. A tie breaking factor in these circumstances might be that the rights allocations should have been determined long before the expiry of the previous rights in order to avoid this stand-off – being able to do this would be entirely within the hands of the department. Furthermore this dilemma is clearly foreseeable and it is not for a decision maker to bury their heads in the sand and to be oblivious to the commercial realities that face businesses in such circumstances.

For applicants therefore it is essential that urgency is dealt with comprehensively in their appeals so that this will feed into any urgent court application that follows in terms of the aforesaid provisions of PAJA.

The million dollar question often asked is what period would constitute sufficient time for the deciding of appeals in such circumstances. As a rule of thumb and bearing in mind that the DA has only a statutory period of 30 days to do a report to the Minister on an appeal, one would feel that a period of 4 months is sufficient for a Minister to finalise decisions on appeals. However, ultimately it will depend on the circumstances of each case and a period of 2 months for instance may be sufficient where it is a once off decision to be taken and is not part of a group of many appeals.

 

By way of advice for applicants, it is important to bear in mind that constant correspondence with the Department regarding the progress on appeals is of vital importance to set up future proceedings. From the Department’s point of view, the litigation could easily be avoided once appeals are lodged or demands are made for time frames. The department should simply issue a reply setting out a realistic time frame which can be complied with – to date however, undertakings on time frames for appeal decisions only seem to be given after a court application has been issued and served. Hopefully things will develop positively in this regard in the future.



PRE-FRAP 2020 RESTRUCTURING – FISHING INDUSTRY NEWS (APR 2018)


PRE-FRAP 2020 RESTRUCTURING – SOONER RATHER THAN LATER

 

2020 marks the next significant set of fishing rights allocations with the all-important Hake Trawl and Small Pelagic sectors now eventually coming up for re-allocation.

If anything FRAP 2015/2016 has been an indication that the Department (DAFF) is looking to shake things up particularly in that “category B & C” new entrants appear to be the flavour of the day. Category B new entrants have rights in other sectors whereas category C new entrants are not rights holders at all. In the 2006 long term rights application process despite the terms of section 18(5) of the Marine Living Resources Act (MLRA) – which obligated the Minister to have “particular regard to the need to permit new entrants”, in many of the main line commercial sectors the DAFF did not allow for any new entrants simply stating that the sectors were already oversubscribed.

 

Section 18(5) appears to be the main justification now for DAFF’s policy swing towards the admission of new entrants. During FRAP 2015/2016 this policy shift towards new entrants was even at the expense of 100% black owned existing rights holders who had performed and invested. Nevertheless their allocations were cut to accommodate new entrants who in turn were meant to bolster empowerment. This is certainly an anomaly which DAFF needs to carefully consider in future allocations. They should be promoting performing transformed applicants who have invested rather than penalising them.

The bottom line is that those rights holders and the groups to which they belong need to carefully consider the lessons learnt in the FRAP 2015/2016 process – which hasn’t actually been finalised yet with certain appeals still outstanding – and if necessary to effect restructuring to place them in the strongest possible position for the 2020 rights allocations. Although 2020 is the D-date for the expiry of rights it is important to note that the process for new rights allocations will most likely start very soon with the publishing of draft sector policies which will culminate in the invitation for applications for rights possibly as soon as 2019.

Re-structuring can take various forms and depending on the rights holder or the group can be complex or simple. However there are certain key steps which will consume time and hence the need for haste if a restructure decision has been taken:

 

  • Attorneys and accountants will have to be consulted with regard to the preparing of the necessary agreements and giving of the necessary financial/tax advice;
  • There may be pre-emption rights in terms of the relevant shareholders agreements which need to be complied with;
  • If the right is being transferred from one entity to another or there is a change in control or empowerment within a rights holder a section 21 application will have to be prepared and submitted, and a decision awaited – these decisions can take up to six months;
  • Depending on the size of the transaction Competition Commission approval may be required which can also take a number of months to obtain and will also require the briefing of specialist attorneys;
  • Other technical provisions which may need to be complied with are the notification provisions under the Insolvency Act as well as under BEE legislation.
  • If vessels or immovable property are being transferred there is the necessary paper work and registration processes required to implement these transfers – if vessels are bonded then banks will have to be approached to cancel and reregister bonds;
  • If there are employees involved and the employer’s identity is to be changed there are certain notifications also to be given in terms of labour legislation and in certain instances employment contracts may need to be revised;
  • If assets or changing ownerships insurance brokers will have to be approached to amend existing policies;

 

It is also important that the new structure has some time to operate commercially to form a track record prior to the expiry of the current fishing rights.

 

If you intend restructuring or making changes within your group prior to FRAP 2020, the message is clear, these need to be done sooner rather than later.



BROTHERS AND SISTERS BEWARE – FISHING INDUSTRY NEWS (DEC 2017)


FISHING INDUSTRY NEWS ARTICLE

DECEMBER 2017

 

BROTHERS AND SISTERS BEWARE!

 

A policy phenomenon which appeared in FRAP 2015/16 sector policies can have devastating effects on a group’s historic fishing allocations.

Despite there being no mention of it in the 2013 General Policy which applies to all the sectors being allocated in 2015/16, the brother / sister and holding company / subsidiary criterion has snuck its way into 2015/16 sector policies. The relevant provisions state:

“(f)       APPLICANT’S INVOLMENTS AND RELATIONSHIP WITH OTHER APPLICANTS

 

            (i)         ENTITY AND SUBSIDIARIES INVOLVEMENT

 

A company and its subsidiaries may not be granted more than one right in a fishery, so as to avoid fronts and monopolies and to promote broader access to the Horse Mackerel resource. Applicants are required to disclose their relationship to other applicants for the allocation of rights in the fishery, as well as in other commercial fisheries. If an entity and its subsidiary both apply for a right in the same fishery, the holding / umbrella / parent company will be preferred with due regard being taken to the department’s transformation objectives.

 

            (ii)        BROTHER / SISTER CORPORATIONS

 

If two or more entities which are owned and controlled by the same person or persons or shareholders apply for a commercial fishing right in the fishery, and qualify for allocation of such rights, then the department may consider allocating a fishing right to one of the qualifying entities only “or dividing the TAC / TAE between the qualifying entities”.

 

To date the above sector policy provisions have been applied in the Hake Inshore, Horse Mackerel and West Coast Rock Lobster Sectors in such a way that certain group’s historic allocations have been considerably reduced.

How does it work?

Essentially if two companies, A and B, are owned say 61% (ownership and control) by company C, and both A and B applied for a fishing right in the same sector, the DA could allocate only one right to either A or B (or divide tae/tac between the two) – of key importance is that the one right is not a right with the previous combined TAC or TAE of A and B, but rather a right with the historic quantum of only one of these previous rights holders (or a portion thereof). In these circumstances a group’s historic combined quantum (previously housed in separate entities) could be halved by a stroke of a pen.

 

The same principle would also apply in a situation where a holding company X and subsidiary Y (owned by X with a majority shareholding) both applied in the same sector. One right could be allocated to the holding company X and no right allocated to the subsidiary with the result that the historic combined tac/tae is potentially halved or substantially reduced.

 

What is the department’s logic in applying such principles?

 

The policy states that it is “to avoid fronts and monopolies and to promote broader access to” the resource.

Whilst these goals may be admirable, these policy provisions do not actually achieve such goals. In particular it makes little sense to reduce a group’s allocations using purely this principle where a group has built up employment, investment and infrastructure commensurate with the historic combined allocations of the group companies. Whereas a group which holds its allocations in one rights holding entity (rather than split into various entities) and which has lesser or the same scoring credentials as the former group, is not subjected to such a cut in allocation due to principles.

Therefore the application of this principle is arbitrary in nature and likely to be challenged depending on whether the losing party has the muscle to take on the establishment.

 

Looking ahead to 2020 allocations, the sector policies for these allocations are likely to contain the same or similar policy provisions.

One could attempt to object to these provisions when commenting in the public participation process preceding such policies; or to launch a legal challenge against the application of such provisions.

However, the smart move (and subject to other commercial considerations) maybe to restructure and where possible consolidate rights allocations per sector into one sector entity. If this option is chosen the initiation of such restructure should be sooner rather than later for the following reasons:

 

  • The consolidation of rights will require a Section 21 application in terms of the MLRA, which traditionally can take 6 (six) months or even 1 (one) year to obtain;
  • Under the new structure it would be important to have a number of years performance prior to the 2020 rights allocation process.

No doubt FRAP 2015/2016 will also highlight other issues which will have to be looked at by aspiring applicants with 2020 looming.