FOODCORP JUDGMENT

The SCA not only dismissed the Foodcorp appeal outright but went further to applaud the Minister.

“In our constitutional order Courts have fulfilled their constitutional duty when the legislator or members of the executive have transgressed the bounds of the power vested in them and have made the necessary orders. In instances such as the present when members of the executive fulfill their constitutional duties and meet the constitutional transformation imperative in impressive fashion Courts should say so.”

This was followed up by a reprimand of the Applicants.

“Finally it needs to be stated that the professed litigation objective of Foodcorp (Pty) Ltd and New Foodcorp Holdings (Pty) Ltd, namely, that they were intent on ensuring responsible and progressive transformation is belied by their actions in competing the composite transaction in question.”

The judgment concerns the transfer of commercial fishing rights policy (the Policy) published in July 2009 by the then Minister of Water and Environmental Affairs (the Minster). Foodcorp’s initial challenge was in the Western Cape High Court where Justice Griesel dismissed Foodcorp’s application to have paragraphs 6.2 and 6.3 of the policy declared unconstitutional, unlawful and invalid. As part of its application Foodcorp had also sought an order declaring that it was not required to obtain authorization from the Minister for a composite share sale transaction concluded on the 10 March 2010 in terms of which shareholding and corporate structure was rearranged.

The Court found that in applying for fishing rights in terms of Section 18 of the Marine Living Resources Act (MLRA) Foodcorp relied on the fact that its majority shareholder was a black owned investment company which held about 58% of Foodcorp’s issued shares. In addition a substantial shareholding in Foodcorp was held by an employee’s share trust of which about 80% of the beneficiaries were historically disadvantaged. The Court went on to record that as a result of the composite share transfer transaction the control of Foodcorp was altered as well as the makeup of its shareholders. Ultimately Foodcorp’s transformation “credentials” were affected as its black shareholding was diluted. The net result was a reduction of black ownership of shares in Foodcorp from the time of allocation of long term rights until the restructuring exercise by approximately 39%. According to the Court “this would have had a stark effect on transformation.”

The SCA confirmed further that in terms of permit conditions the rights holder must inform the Department of changes of ownership and shareholding within 30 days of any change. Also, the General Policy for the allocation of fishing rights confirmed that although a sale of share transaction was not strictly speaking a transfer of a fishing right an approval was required in terms of Section 21 for share transactions which resulted in a change of control of the rights holding entity. The Transfer Policy in question which was only published in July 2009 went further than the General Policy in paragraphs 6.2 and 6.3 in that not only a change of shareholding which leads to a change in control must have the approval of the Minister in terms of Section 21 but also a change of shareholding which results in a company or close corporation not being as transformed as at the date of allocation of the long term right.

Although Foodcorp had effected the composite share transfer transaction already in March 2010 they only lodged a Section 21 Application on the 4 May 2010 which application is still pending – not surprisingly as there are extreme delays in the granting of Section 21 decisions. According to the SCA the Appellant brought the Court application as they assumed that their application would not be looked upon favourably by the Department and also due to the fact that they feared Section 28 proceedings in terms of the MLRA which could lead to the cancellation or suspension of fishing rights.
One of the complaints of Foodcorp in its argument was that the Department “appears to be considering the restructuring transaction solely from the vantage point of black ownership and that a richer concept of transformation taking into account all the factors mentioned in the GP and in codes issued under the Broad Based Black Economic Empowerment Act 53 of 2003 should be adopted.” Their complaint goes further to state that the Department’s approach is now to place “special emphasis on management and beneficial ownership by black people”. The Court did not accept this argument (which is a similar argument to the one Oceana has raised in the SCA in its challenge of the Section 21 policy which judgment is dealt with below). The Courts answer was that the complaints are “misplaced on the evidence” as Foodcorp and its subsidiaries had successfully applied for their fishing rights in various sectors during the long term rights application process when there was a similar emphasis on management and beneficial ownership by black people. In addition at the time of application and now in terms of the MLRA, the General Policy, the transfer policy and the BBBEE Act, a wide range of factors will be taken into account by the Minister with regard to the transfer of rights. According to the Court the BBBEE Act is only one of a number of statutory instruments which give effect to the constitutional imperative of transformation.

As regards to the structure and wording of Section 21 the SCA referred to the finding of the Western Cape High Court that the wording of Section 21 had a “wider, more extended meaning of transfer” and that this was intended by the legislator. The Western Cape High Court in turn had referred to the Bato Star Constitutional Court case where it was made clear that the process of interpreting the MLRA must recognize the policy behind the Act being the need to both preserve marine resources and to transform the fishing industry. Unfortunately the SCA did not confirm directly that Section 21 does extend to the transfer of shares but at the same time did not hold that the Cape High Court was wrong in its interpretation.

“Counsel representing the First and Second Respondents (the Minister) was constrained to concede that there are difficulties in attempting to justify the provisions of paragraph 6.2 and 6.3 as being authorised in terms of Section 21 and to construe it in the manner resorted to by the Cape High Court…. However, it does not necessarily follow that paragraphs 6.2 and 6.3 are without legal underpinning. There is accordingly no need to explore the difficulty of construction”. (Navsa JA)

A further ground put forward by the SCA supporting the need for the approval of the transfer of shares in a rights holding entity, was the permit conditions which are made subject to the general policy and the MLRA. It concluded that “purely on the basis that the permit condition appears to have been contravened by the composite restructuring exercise…the Minister is entitled to require scrutiny of that exercise in terms of paragraph 6.2 and 6.3 of the Transfer Policy.”

OCEANA JUDGMENT

The Oceana appeal was against the judgment of Justice Cleaver in the Western Cape High Court and was also an attempt to challenge the legality of the policy on very similar grounds. The main difference between the Oceana appeal and the Foodcorp appeal is that in the Oceana appeal an additional ground formed the basis of Oceana’s attack on the policy.

This ground was based on the provisions of the BBBEE Act. Oceana’s complaint was that the transfer policy failed to properly apply the strategy and codes provided for in the BBBEE Act. Their argument is that the transfer policy defines transformation on a “narrow basis, taking into account only ownership and management control of entities under consideration”. According to Oceana elements such as employment equity, skills development, preferential procurement, enterprise development and socio economic development initiatives which are specifically provided for in the BBBEE Act and codes are “wrongly excluded from the Department’s assessment of transformation in applying the transfer policy”. The bottom line of the Oceana case was that the application of the BBBEE codes was obligatory and therefore the transfer policy was unlawful for failure to apply the codes.

In the Cape High Court, Cleaver J found that although Oceana was a measurable entity in terms of paragraph 3 of the Codes, Section 10(a) of the BBBEE Act stated that the state must take into account and, “as far as is reasonably possible, apply any relevant code of good practice.…” Thereafter Cleaver J concluded that with regard to the transfer of rights in the fishing industry (for various reasons) it would not be reasonably possible to strictly apply the codes. Cleaver J further stated that it may be “that when new licenses come to be issued again in due course, the fishing industry will have been sufficiently transformed to allow the codes to take pride of place, but time will tell” – no longer likely after the SCA judgment.

With respect, surprisingly the SCA went even further than Cleaver J in dismissing Oceana’s BBBEE argument. The court found in fact that Oceana was not a “measurable entity” in terms of paragraph 3.1.3 of the codes as that particular paragraph only referred to enterprises “that undertake any business with any organ of state or public entity” but do not specifically refer to enterprises who apply for the issuing of licenses, concessions or other authorizations. This is in direct conflict with the interpretation of this section by Cleaver J who found that applicants for rights who undertake commercial fishing “in a broader sense” are conducting business with an organ of state and in particular an organ of state which controls “their commercial activities by means of granting them a right to do so”.

The SCA’s approach is that if the legislature had intended to extend the codes to the issuing of licenses and concessions they could have said so. Therefore the SCA concluded that no relevant codes of good practice apply to entities to which licenses, concessions and other statutory authorizations are issued. Therefore as there is no “relevant code of good practice” which applies to entities such as Oceana there is no obligation on the state to apply the BBBEE Act in relation to the granting of statutory authorizations. It is submitted that this finding has a wide ranging effect on all sectors where licenses, permits or rights are issued by the state to private enterprises.

The SCA’s logic was that the General Policy ensures that in the allocation of fishing rights process a variety of factors similar to those catered for by the BBBEE Act were taken into account and the transfer policy must be read as building upon such General Policy so as “to ensure that the objectives of the MLRA are met”. The SCA records further that the transfer policy itself does proclaim that it will employ the BBBEE Act as part of its assessment of transfer applications. To quote Justice Navsa JA:

“The Minister and the Department can hardly be criticized for attempting to do more than is legally required”.

[i.e.by applying the BBBEEE Act where the Department was not legally obliged to do so}.

Furthermore, in the second last paragraph of the judgment the SCA pointed (in my view) to the correct process required for challenging Ministers’ decisions on transfer applications. One should not apply to set aside a general and wide ranging policy on an abstract basis. As stated by the SCA this was “premature.” As an applicant one’s chances are better (provided the grounds exist) to challenge a particular decision on a transfer application where one can measure facts against the elements of the policy to determine whether the Minister has exercised her mind reasonably in the circumstances. However, even on this basis a challenge would have to be based on substantial grounds to show the Minister had not applied her mind or had acted unreasonably, as courts have made it clear in the past that with review applications they will as a starting point give due deference to decisions made by the executive. The final two sentences of the judgment are indicative of the SCA’s sentiment in this matter:

“Lastly it should be stated that in their founding affidavit Oceana and BCP rightly laud the Minister and the Department for facilitating significant transformation of the fishing industry. They state that today the fishing industry is recognized as one of the most transformed sectors of the South African economy. Granting Oceana and BCP the relief they sought would have been a regressive step.”

COMMENTARY

With respect, it is unfortunate that the SCA did not rule conclusively on the interpretation of Section 21 rather than relying on the incorporation of the Transfer Policy and its requirements via the backdoor of permit conditions. Bear in mind the practical consideration that permits in terms of Section 13 of the MLRA are only valid from the date of issue until the date of expiry and in many sectors rights holders (for various reasons) only apply for permits at certain times during the season. As such although a rights holder may hold a commercial fishing right it does not mean that at all times there are valid permits in existence to exercise such right. Therefore a transfer of shares which leads to a change in control or a reduction in black ownership in a rights holding company may occur during a period where the rights holder has no valid permits issued to it and accordingly the rights holder would not be subject to any permit conditions including a condition which incorporates the provisions of the transfer policy. This begs the question can one breach a permit condition after the permit has already expired. It is submitted with respect that relying on the incorporation of the Transfer Policy by means of permit conditions is an uncomfortable marriage in that the permit conditions are really there to regulate the exercise of the fishing right and not to create substantive legislation which in effect extends the ambit of sect 21 – at least with respect to share transfers which result in reductions in black ownership.

If one looks at the conditions attached to the right which are set out in the letter of grant, these refer to the General Policy and the General Policy states that an approval is only required where there is a share transfer which results in a change of control. It does not refer to a reduction in black ownership as a ground for requiring the Minister’s approval.

Another question which was raised in the litigation proceedings but which has not been answered is where there is a minor change in shareholding which does not result in a change in control but which results in the reduction in black ownership? This is clearly not a transfer as envisaged in terms of Section 21 as a wide interpretation of Section 21 can at least only be given to cover a change in control. Therefore we are left with the breach of permit condition argument raised by the Minister as well as the SCA in its findings. Thus if a transfer of shares which reduces black ownership but does not change the control in the rights holding entity occurs during a period where there is no permit issued to a rights holder, what law has the rights holder contravened? The rights holder’s actions may be against what the Transfer Policy stipulates but the Transfer Policy on its own as conceded by the Minister is not a legally binding document.

What the SCA is clear on is that the policy is not unlawful in that it is squarely in line with the objects of the MLRA and the Constitutional imperative behind the “foundational policy” of the Act.
The SCA rejected the argument of the Applicants that the intention of the legislator could not have been “to prevent bona fide share transactions”. Justice Navsa JA stated as follows:

“The somewhat emotionally laden submission that, if the impugned paragraphs of the Transfer Policy were to remain extant, they would have the effect of prohibiting bona fide share transactions, which could never have been the intention of the legislator, with concomitant negative results for the free market system, is in my view unfounded.”

The Court concluded that Foodcorp had taken advantage of the regulation of the fishing industry in relation to transformation when at the time of applying for rights they had ensured they had adequate transformation credentials. The Court stressed that the corollary to obtaining benefits because of one’s transformation profile is the obligation to ensure that such transformation profile is not harmed “by the pursuit of private advantage”.

In conclusion, while the sentiment and Constitutional imperative of transformation in the fishing industry as confirmed by the SCA cannot be faulted, it is submitted that on another level the question as to whether this policy initiative is actually empowering black persons financially has not been properly aired in the Court proceedings. Ultimately black empowerment must have as an end goal the economic and financial upliftment of black persons. The practical effect of the implementation of this policy and the restriction on the transfer of shares within a rights holding entity, is that black shareholders, although on paper having shares linked to the value of fishing rights in the company, cannot easily liquidate such share holding by transferring such shares to willing buyers. Such black shareholders are in effect limited to selling their shareholding to only black persons. This limitation on the sale of shares by black shareholders in rights holding companies is significant and it is submitted may have reduced the value and liquidity of their shares.

The irony of the matter is that although from a political perspective the Ministerial statistics may show high transformation levels in the fishing industry in terms of black ownership, the reality is that the values of such black ownership / empowerment is severely reduced due to the restrictions now imposed on the transfer of shares crystallized in the SCA judgment.

Finally, with there being no legal obligation to apply the BBBEE Act to allocations and transfers of rights in the fishing industry, it will be interesting to observe what measures the Ministry will adopt and how discretion will be exercised in achieving broad-based empowerment as opposed to limited empowerment which may result from overweighting the ownership criterion.

Aside from the errors in assessment, the performance review letters themselves raise a number of queries regarding the methodology utilised in determining the “mean” averages in the various sectors as well as the right holder rankings. It is apparent on a brief perusal of the performance review letters that right holders who performed best in a particular sector were ranked at number 1 out of the population for the sector while right holders who performed the worst in a sector, for example with a 0 value, were ranked in the middle of the sector population. This of course suggests that there were members of the population who performed more poorly, which is patently impossible where the right holders scored 0 points. What do you have to score to rank near the bottom of the population if a score of 0 does not place you at the bottom?

Given the disappointing nature of the content of the performance review letters and the issues regarding questionable methodology in the determination of means and right holder rankings, the question that now stands to be answered is this:

What rights do right holders have to force DAFF to correct their performance review letters?

If one has regard to the view of DAFF it is quite apparent from the first page of the performance review letters that the Department and the Minister have a strong view in this regard:

“… the Department and the Minister will not entertain any appeals against the results of the performance reviews under section 80 of the Marine Living Resources Act, 1998 (Act 18 of 1998) (“the MLRA”). The results of the performance reviews are not “decisions” taken in terms of the MLRA. The results mainly reflect an assessment by the Department, which in certain instances may result in steps being taken against the right holder in section 28 of the MLRA for the revocation, suspension, cancellation, alteration or reduction of the right”.

So, in the absence of a right of appeal to the Minister to correct the performance review letters, what process has been put in place to protect right holders interests? The answer appears on the last page of the performance review letters where it states that where right holders are dissatisfied with the results of the performance reviews they are advised to send written objections to the DDG. Right holders are then informed that:

“…The Department will file all written objections along with the results of the individual Right Holder but will not engage in any further analysis or communication regarding objections received.”

In other words the objections will be received and, apparently, stored separately from the performance review letters which are presumably stored on a database for future reference. This, of course, means that right holders are fully reliant on DAFF’s ability to safely store both the data and the written objections in separate areas for an extensive period of time and thereafter to be able to access both data and hard copy objections at a later date and to read the performance review letters in conjunction with the hard copy objections which have been archived. This may not satisfy right holders that their objections will be noted in the future let alone read.

The fact of the matter is that the term “decision” is not defined in the MLRA and in order for right holders to accept the view of DAFF they will have to look a little further. The applicable legislation regarding administrative action of this nature is the Promotion of Administrative Justice Act (“PAJA”). In this Act the term “decision” is defined and covers a wide range of activities relating to decision making including actions taken preparatory to the making of a decision. Whether or not right holders agree that no decisions have been taken in the compilation of the performance review letters (Does ranking right holders constitute a decision? Does advising right holders that their performance is above or below average constitute a decision? Does advising right holders that their explanations/submission of information is unsatisfactory constitute a decision?), the real question is if the performance review letters are utilised by future decision makers when allocating rights/quantum, does the performance review process constitute work done in preparation of a decision?

DAFF has already gone on record that it cannot preclude future delegated authorities or the Minister from relying on the performance review letters when future rights allocations or allocations of quantum are made. Given the fact that these performance review letters may well be utilised by future delegated authorities and/or the Minister in determining which right holders should be allocated rights and what quantum/effort should be allocated, is it not critical that the performance review letters reflect an accurate picture?

One thing that is clear is that in terms of Regulation 5 of the MLRA, right holders have 30 days to submit their appeal once they have received their decision. It would appear that the performance review letters, which are dated 22 December, were circulated to right holders on or about 23 December 2011. Unfortunately for right holders this would suggest that the expiry date of the 30 day period, assuming right holders have actually received their performance review letters, was Friday, 20 January 2012. However, owing to the fact that not all the necessary information has been supplied by DAFF to enable right holders to determine whether they need to appeal, it can be persuasively argued that right holders have not yet been provided all the information constituting a “decision” as envisaged in Regulation 5. In short DAFF has not supplied any of the data or methodology regarding the calculation of the sector means or the right holder rankings. In order for right holders to determine if they have been properly “assessed” they will need to check this data and re-perform the calculations to determine whether they have been correctly assessed as being above or below the mean or whether the right holder rankings are correct. This information has been requested from DAFF by numerous individual right holders and industry associations and to date has not been forth coming. Accordingly, some right holders and industry associations might hold the view that the 30 day period prescribed in Regulation 5 of the MLRA has not yet commenced running.

Whatever your view or opinion on the matter, we would strongly recommend that you carefully peruse your performance review letter in conjunction with your performance review RFI (Request for Information) form. Any errors that appear should be communicated to DAFF immediately as an objection, as envisaged in the performance review letters, and as an appeal under section 80 of the MLRA. We would strongly recommend that right holders reserve all their rights to supplement their objection/appeals at a later date and to force the Minister if necessary to decide the appeals. We also strongly recommend that you reserve the right to do this at any stage up to and including the allocation of future long term rights, in order to avoid DAFF and the Minister relying on the fact that too much time has passed between the provision of the right holders performance review letters and the use thereof in the allocation of future long term rights.

One would hope that sanity would prevail at DAFF and that the sheer volume of errors in the performance review letters will count against them ever being utilised by the Minister or a future delegated authority in any decision process. However, until such time as such an undertaking is given by the Minister and/or DAFF we recommend that right holders protect their interests and act.

_________________________________________________________________________

In this entry:

1. Marine Resources

2. Admiralty Jurisdiction and Shipping

3. Commercial

4. Conclusion

________________________________________________________________________________

1.         Marine Resources

• Small Scale Fisheries Policy:

As a result of an Equality Court Judgment which prescribed that interim relief should be granted to certain small scale fishers, and that a small scale policy should make provision for such fishers in the future, the Department of Agriculture Forestry and Fisheries (DAFF) commenced with the drafting and work shopping of a smalls scale fisheries policy. Much of the work shopping has occurred at Nedlac level.

The main issues appear to be the extent of application of the policy, what will constitute communities in terms of the policy, which fisheries will be affected and how will the policy affect the existing commercial fisheries including the limited commercial rights holders.

It is expected that once finalized the small scale policy will affect the new general policy and sector specific policies which will have to be published prior to future commercial fishing rights allocations.

• Performance Reviews

The Performance Review process has not been finalized in that the results of the performance reviews in the main commercial clusters have not been released to rights holders. The reasons for the delay in the release of such results vary with some speculating that it is merely an administrative delay and others yet speculating that the results will not support any future policy changes from the Minister or the Department and hence are being relooked at.

In our view the results should have an effect on future policies and future rights allocation processes. In fact in the Performance Review process it was stipulated that the results would be utilised by the Department for future reference in rights allocation processes.

• Future Rights Allocations

At the end of 2013 existing rights in a number of sectors are up for reallocation and accordingly a new general commercial fisheries policy and sector specific policies will have to be finalized prior to these allocations. As mentioned previously it is our view that the small scale policy will have an effect on the future general policy and sector policies.

• Marine Living Resources Act / Amendments

It is also envisaged that with the finalization of the new small scale policy will also come amendments to the Marine Living Resources Act (MLRA) particularly relating to Section 14 and the Minister’s power to determine the allocation of the TAC / TAE to different sectors. However it is also envisaged that other amendments may occur e.g. relating to the Consultative Advisory Forum and other administrative processes under the Act.

In our view the CAF is an important legislative provision under the MLRA which is not being complied with by the Minister who has been in breach thereof for many years. This leads to the issue of co-management of the fisheries by the Department and industry. A new level of co-management should be achieved with organizations such as Fish SA (representing all the main sector associations) having an important role to play in advising the Minister. Preferably such consultation should happen through the utilization of the CAF provisions in the Act.

A recent example of excellent co-operation between the Department and industry was the amendment of the permit conditions in the hake sector, hopefully this will lead the way for the review of permit conditions in all of the other sectors.

• Compliance

On the compliance side it would appear that this year there was a firm focus on fish processing establishments and ensuring that each establishment had a valid permit throughout the year. The Department extends this need for a permit to “fish and chips shops” and so it is important that fish retailers who process fish in any way have their permits in order.

• Section 21 transfers of rights

After some pressure put on the Department through court proceedings, there seems to have been some progress on the determination of fishing rights transfers. There is still a backlog however. Of concern is that there appears to be no set order in which the applications are being dealt with. The result is that some applications lodged 3 years ago are undecided and applications lodged 3 months ago are decided. This is unfair administrative action in our view and certainly challengeable.

In 2012 it will be interesting to see what the Supreme Court of Appeal decides in respect of the Foodcor and Oceana sect 21 challenges. The State successfully defended these challenges in the Cape High Court.

2.         Admiralty Jurisdiction and Shipping:

• Maritime Law Association of South Africa

Peter Edwards serves on the executive committee of the Maritime Law Association of South Africa and informs us that the MLASA annual conference was recently held in August 2011 in the Drakensburg. One of the main items on the agenda at the conference was the amendment of the Admiralty Jurisdiction Regulation Act (AJRA). After considerable work had been done at sub-committee level a final list of proposed amendments to the AJRA was agreed upon for submission to the Department of Justice. If passed these amendments should clear up certain ambiguities and uncertainties which are present in the AJRA and have given rise to issues in practice.

The MLASA Conference was again very well attended with both local and foreign delegates. The 2012 Conference is planned for St Helena Bay on the West Coast. More details will follow once booking arrangements have been finalized.

• Marine Insurance

On the Marine Insurance side the Appeal Court judgment of the “Mieke” has again sparked interest in the drafting of a South African Marine Insurance Act which will stand apart from the current Short Term Insurance Act. Inter alia, a new Marine Insurance Act for South Africa will mean that we will not rely solely on the English Marine Insurance Act which is often incorporated into Marine Policies covering insured interests within South Africa.

• Main Admiralty Judgments throughout 2011

MV “Cleopatra Dream”

The Supreme Court of Appeal dealt with the elements required for a salvage claim and in particular “voluntariness”.

MV “MSC Gina”

Dealt with the various elements required to be present in a security arrest application.

MT “Fairmount Fuji”

Dealt with the requirements in respect of security and counter security applications.

MV “Alina II”

Dealt with the issue as to whether there can be actions in personam and in rem in respect of the same cause of action.

MV “Explorer”

The Namibian Appeal Court dealt with the Old English Vice Admiralty Rules which are still applicable in Namibia and in particular relating to the admiralty claims of equipping a vessel or supplying necessaries to a vessel.

It is hoped that 2012 will be the year when Namibia promulgates its own Admiralty Jurisdiction legislation which is up to date with modern trends and conventions as the Old Vice Admiralty rules from the 1800’s are very outdated. Certainly with Walvis Bay becoming a very busy port for Namibia it would bode well for the country to have up to date admiralty / shipping legislation.

• Port Regulator

The creation of the office of the Port Regulator in our view has thus far been successful in that objective decisions have been taken and importantly not all in favour of the port.

• Sheriffs’ of Cape Town

We have been informed that in future there will be a number of Sheriffs for the district of Cape Town and from an admiralty point of view the Sheriff who has jurisdiction of the Port of Cape Town will be a different Sheriff from the Sheriff who will have jurisdiction over vessels which are at anchorage. As such arrest papers which have to be served on vessels at anchorage will have to be served by two different Sheriffs, one to serve on the vessel and one to serve on the Port Captain. It will be interesting to see which Sheriff will have to take responsibility for the preservation of the vessel particularly in circumstances where the vessel is originally arrested at anchorage and thereafter berths in the port.

3.         Commercial  

• New Companies Act

The new Companies Act is currently in play and many seminars and conferences have been held regarding the implications of this Act. It is important for practitioners and those in business alike to familiarize themselves with the provisions of the new Act, and in particular to establish where the main changes are from the previous Act. Of importance for instance is the fact that within a two year period Memoranda of Incorporation must be filed for all companies. Our firm has developed a comprehensive presentation on the new Companies Act which will be offered to clients in the New Year.

• Drafting of Agreements

Agreements which are drafted should take into account the provisions of the new Companies Act as well as the provisions of the Consumer Protection Act. In addition there is a substantive move towards the use of plain and clear language in agreements which is referred to in both the Consumer Protection Act and New Companies Act.

Having said this, it is also our view that going forward simple “one page” agreements are not the order of the day but rather more comprehensive agreements which are clear and deal with each aspect of the commercial relationship with specific provisions for issues such as breach of contract and dispute resolution to name but a few.

4.         Conclusion

In conclusion the professional and support staff at Dawson Edwards & Associates wishes its clients, colleagues and service providers a relaxing and enjoyable Christmas period and a successful 2012!

We trust you will find the content of this entry of interest and welcome any queries or comments.

Best regards

PETER EDWARDS

MANAGING DIRECTOR

DAWSON EDWARDS AND ASSOCIATES

www.dawsons.co.za

(Please note that our office closes from 22 December 2011 to 3 January 2012. For urgent matters please contact Alistair Downing on 082 648 7261)

Attached is a copy of the speech made by the firm’s managing director Peter Edwards as well as a few photographs of the event.

The firm would like to thank its clients and service providers who attended the celebration and who have supported us over the years.

 1.         WELCOME

Let me start by firstly thanking all of you for taking the time to be here and to share this occasion with us.

I realize that many of you here are competitors but for this evening if you would take the gloves off and leave any weapons at the door.

Having said that, although we have had the venue swept for Competition Commission bugs, it is not advisable to get too close to each other and in particular to discuss beach prices, voorskots, agterskots and the like.

2.            FIRM’S HISTORY

As far as the history of our firm goes, relative to some of the other Cape firms, at 15 years old we are still in my view a young firm.

We originated from the firm Field & Co. started by the late Roger Field about 30 years ago.

Field & Co. was the first boutique firm of maritime attorneys, which dealt exclusively with matters of a maritime nature.

In 1996 Field & Co. was approached by the then firm of Muller Gruss Attorneys with a takeover proposal. At this stage Peter Dawson was now a director in Field & Co. Roger Field elected to join Muller Gruss but Peter Dawson decided to start a new firm and continue with the concept of an exclusive maritime practice.

This was the birth of our firm which started trading as Dawson & Associates in what can only be described  “sweat shop offices” in Spin Street, Cape Town.

3.         LANDMARKS ALONG THE WAY

The following constitute landmarks in the firm’s voyage:

• Myself joining the firm at the beginning of 1998;
• The firm buying its own offices in Gardens where we still continue to practice from;
• Peter Dawson leaving the firm to immigrate to New Zealand at the end of 2001, and the practice changing its  name to “Dawson, Edwards & Associates”;
• Alistair Downing, my fellow director, joining the firm in 2003 to start his articles
• Grant Clark, my fellow director rejoining the firm in 2004 as a professional assistant having left the firm at the end of 1997 when he finished his articles.

4.         ETHOS

What is the ethos of our firm? Our ethos is reflected in the firm’s logo being the lighthouse.This venue is appropriate in that a few meters from where I am standing is the base of the second oldest lighthouse built in South Africa, being the Mouille Point lighthouse and not far down the road the Green Point light house being the oldest light house in the country.

When Peter Dawson started the firm his goal was to be a lighthouse for his clients in order to help them navigate their businesses through the stormy seas of commerce. At the same time he wanted to maintain the integrity and independence of the firm so that it would be visible in the maritime and legal landscape as an upstanding firm and a leader in its field.

I believe we have maintained this ethos of independence and excellence since the firm’s inception. The three directors of the firm being Grant, Alistair and myself own and manage the firm and are involved in its day to day running. We do not compete amongst ourselves for clients, billing or work in order to reach fee targets set by higher powers. We do not strive to build our own individual empires within the firm.

Our prime focus is to provide clients with the best solution to their brief and to add value from our in depth knowledge and experience accumulated from years of involvement in our specialized fields. This we enjoy doing with passion.

In turn our independence allows for thinking out of the box and providing alternative solutions.

We strive to stay lean and mean and abreast of developments in our industry and the industries of our clients. In a London survey of South African maritime firms we were once described as a firm which punches above its weight.

At this juncture Grant has asked me to mention a particular example of value adding to clients. This related to our involvement in the Longterm Fishing Rights Appeals and Review Process where our intricate understanding of the allocation system and points scoring mechanism allowed us to claw back millions of rands worth of fish for clients.

Maintaining the firms exclusivity and independence has not always been easy, with take over approaches having been made to us over the years, all of which we have turned down.

5.         WORK MAKEUP

Although our ethos over the years has remained steady the makeup of our workload has changed significantly. Originally the firms focus was on shipping and admiralty litigation.

This has evolved over the years and along with the usual admiralty and shipping litigation we now do large amounts of commercial, fisheries and environmental work.

6.            THANK YOU

 We are grateful to many for the enjoyable years that our firm has had in practice.

Our first thank you must go of course to you our clients who have supported us over the years. We aim to continue adding value where we can to your businesses.

Internally we must thank our own support staff who are equally passionate about the firm and the services we provide. Your commitment and loyalty over the years is truly valued.

As regards my fellow directors Grant and Alistair, it has been a privilege working with you over the years and I look forward to the years ahead. There is a seemless co-operation between us, with each of us adding their special ingredient to the smooth running of the firm.

On my behalf and on behalf of the other directors I must also thank our wives and families for their support and patience over the years. Law is a consuming passion and in our field urgent arrests and applications on weekends or public holidays are common occurrences.

We also have our service providers to thank, and in particular Grant Thornton our auditors who have always provided a professional service.

7.         LOOKING FORWARD

When doing business in South Africa we always seem to be in exciting and challenging times.

Looking forward in our industry we see the following issues:

• Maintaining South Africa’s standard of legal expertise both at judicial level and in practice. Rule of law from our perspective is key to stability in this country;
• Making our ports more attractive to foreign vessels. This in our view will depend on the cost structures of the port and its efficiency. From the government’s perspective there is a new maritime policy in place and the challenge will be the implementation and achievement of the goals set out in this policy;
• Environmental issues will become more and more prevalent and the sophisticated environmental legislation which this country has in passed will be key to maintaining the bio-diversity of this country and the sharing of its natural resources amongst competing users. The proposed nuclear power plant at Thyspunt off the East Coast opposite prime fishing grounds is a clear example of this issue;
• As regards the fishing industry the usual issues remain. Efficient fisheries management, new ministerial policies and in particular the small scale policy and how it will relate to the current commercial sector, the transfers of  rights, future rights allocations, amendments to current legislation, the implementation of black economic empowerment ;
• On the commercial side, one should not underestimate the effect of the New Companies Act, the Consumer Protection Act and the increasing application of Competition legislation.

8.            CONCLUSION

In conclusion, may I thank all the staff at my office for the organizing of this event together with the Hotel School, and once again thank you to all of you for sharing this event with us.

We wish you plain sailing and full steam ahead over the years to come.

Please enjoy the rest of the evening and be careful not to drink and drive – if you elect to drink and drive Alistair should have some of his cards to hand out.

Thank You.

Historically, there is a common practice within the fishing industry that skippers on fishing vessels act as independent contractors whilst rendering their service to the vessel owner. As a result of this it has been assumed that between skipper and owner the relationship is not that of an employer/employee.

There have been several arbitration decisions in respect of skippers which have reached the conclusion that they are not employees based on factors which include, inter alia, the complete control that skippers have over their crews whilst at sea, the determination of their own incomes which is usually on a commission basis, and further that their day to day activities are not controlled by the vessel owners.

There has, however, been a recent judgment handed down by the Labour Court which has held that a skipper employed by a vessel owner was in fact an employee in terms of the Labour Relations Act, and furthermore his dismissal by the vessel owner constituted an unfair dismissal and accordingly a referral in accordance with section 191(2A) of the LRA was lodged.   

1. Applicable laws

By virtue of section 355 of the Merchant Shipping Act of 1951, the Labour Relations Act of 1956 applies to seamen which in turn facilitates the referral of an unfair dismissal to the Commission for Conciliation, Mediation & Arbitration (CCMA) should the skipper constitute an ‘employee’ as defined in section 213 of the Labour Relations Act. The definition of “employee” contained therein is:

(a)   Any person, excluding an independent contractor, who works for another person or for the state and who receives, or is entitled to receive any remuneration and;

(b)    Any other person who in any manner assists in carrying on or conducting the business of an employer, and “employed” and “employment” have meanings corresponding to that of ‘employee’.

1. The tests formulated by the Courts

There has been much litigation on the distinction between an independent contractor and an employee and the courts have formulated several tests in order to make the distinction. These include, the ‘control test’ which considers the extent of control that the purported employer exercises over the employee, the ‘organisational test’ which enquires into whether the employee forms an integral part of the business and the ‘dominant impression test’ which determines whether the dominant impression is one of an employment contract or that of an independent contractor.

The three criteria that have emerged as primary determinants of whether or not there is an employment relationship are the following:

• The degree of control exercised by the employer over the employee;
• The degree to which the employer’s position forms an integral part of the employer’s organization; 
• The extent to which the employee is economically dependent on the employer.

1. Recent Labour Court Judgment

In the recent Labour Court Judgment in the matter of J & J Freeze Trust v The Statutory Council for the Squid and Related Fisheries of South Africa, handed down by the Honorable Molahlehi J, it was held that the skipper of a fishing vessel was in fact an employee and not an independent contractor. The facts of the case were that the skipper skippered a vessel for a period of about a year. The relationship between him and the owners of the vessel soured and he was relieved of his duties. The skipper then referred the matter (under the premise of an unfair dismissal) to the Statutory Council for the Squid and Related Fisheries of South Africa whereupon the vessel owner took exception to the referral based on the fact that the Council did not have jurisdiction as the skipper was not an employee but an independent contractor. The matter was thereafter referred to an arbitrator who found that the Council did have jurisdiction to hear the alleged unfair dismissal. The applicant then appealed the decision of the arbitrator at the Labour Court where Molahlehi J confirmed the findings of the arbitrator and concluded that the skipper was an employee and had been unfairly dismissed.

The parties had entered into a written contract of employment, but the court held that the written agreement between the parties was insufficient on its own to determine the true nature of the relationship between the parties. Molahlehi J considered the contract in light of the de facto circumstances and other facts associated with the provisions contained in the agreement. The following factors were taken into consideration:

• The contract of employment clearly categorized the skipper as an employee;
• His duties as skipper were clearly defined in his contract of employment;
• The employment contract provided for a three month probationary period, after which the skipper was to be employed on a permanent basis;
• The skipper’s income, although his earnings were on a commission basis, was effected through a salary advice which further categorized the skipper as an employee;
• The contract made provision for a three month termination period which in turn meant that the skipper was not able to gain employment on another vessel as and how he wished;
• The skipper was not able to dock the vessel when and how he desired (he required the permission of the shore skipper first);
• The written agreement further made the skipper an integral part of the business which in turn made him economically dependent on the vessel owners;
• The vessel owner had confirmed the status of the skipper as an employee with an estate agent when the skipper was looking to purchase a house;
• The skipper had been hired to manage the crew and not to catch the fish; the crew was responsible for catching the fish.

Although there had been several earlier decisions that found skippers to be independent contractors, the assessment of what the de facto relationship is will depend primarily on the facts and merits of each individual case. The applicant in this case sought to argue that the following factors gave an indication that the skipper was an independent contractor:

• It did not deduct UIF from the salary of the skipper;
• It had no control over him whilst he was at sea;
• The skipper was responsible for employing his own crew;
• He determined the amount of money he received for each fishing trip;
• His tax liability was determined in terms of a tax directive;
• He was at liberty to work on any other vessel of his choice.

Molahlehi J having considered the above factors as well as the various tests, held that despite the written provisions in the agreement which pointed towards an independent contractor, the factual implementation of the provisions gave the distinct impression that an employer/employee relationship did in fact exist.

1. Conclusion

What is clear now is that each case is assessed on its individual merits and that the courts will not simply accept the written terms of an agreement in order to determine the relationship between the skipper and the owner. The contract between the parties cannot change the factual basis of the relationship. Therefore the circumstances and working conditions of the skipper must also be examined in order to determine whether there is in fact an employee/employer relationship.  

This case should serve as a warning to vessel owners who hire skippers to operate their vessels under the guise that they are independent contractors whilst at the same time enjoying certain rights that are available to employers.

Therefore, “Independent Contractor Agreements” with skippers must be carefully drafted and the implementation thereof in practice must reflect the contractual relationship identified in the agreement.     

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It is with pride that the board of directors and staff at Dawson Edwards and Associates announce that as of the 1^st of October 2011 the firm has been practicing for 15 years. A birthday celebration is being planned and will be announced to clients, colleagues and acquaintances shortly.

As some of you may remember, our firm was conceived when the boutique maritime firm of Field and Sims disbanded and Peter Dawson an attorney at that firm, decided to start his own firm in October 1996. The firm originally rented offices on the corner of Spin and Plein street in the centre of Cape Town until March 2000 when we purchased our offices in the leafy and historic suburb of Gardens where we have been practicing from ever since.

Key to our firms success is its key focus on maritime and related commercial matters. A noticeable recent development in the firms practice is the increase in the number of environmental issues being dealt with which may be due to an increase in the competing users of our marine resources.

Despite much activity with the takeovers and mergers of law firms throughout South Africa including maritime practices, Dawsons has resisted the temptation (and proposals) to become part of larger corporate practices. Throughout its years the firm has prided itself on being able to service small, medium and corporate clients both local and international. The independence and specilisation of our firm allows us the flexibility to continue servicing such a varied client base. Hence the decision to maintain the identity and profile of the firm which has been our formula for success over the past 15 years.

Our independence and profile in turn has also allowed us to be involved with a wider range of clients and interests in the maritime sector giving our practitioners a broader and fulfilling experience in matters of the sea.

We would like to take this opportunity to again thank all those who have been clients of our firm over the years and who have supported our practice. Thank you also to our suppliers and service providers and of course our colleagues in the legal fraternity.

As with many industries in South Africa the legal profession faces its own challenges but we are of the view that the profession still has a solid core of attorneys, advocates and judges who carry out their practices ethically, professionally and efficiently and who take pride in contributing towards the great legal system which this country still has intact.

Since the submission of comments by interested and affected parties in early November 2010 there has been little progress in the development of the proposed policy for the Small-Scale Fisheries sector. In a hearing before the portfolio committee in early February 2011 the acting DDG for the Department of Agriculture, Forestry and Fisheries (“DAFF”) indicated that it was an intention of the Department to commence a limited roll out of the policy in June 2011. Needless to say this has not occurred as the Nedlac process has not yet been finalised. In the middle of September 2011 an amended draft policy was circulated to the various constituencies within Nedlac and it is this document that will be debated and discussed by the Nedlac task team in order to provide Nedlac with a report on the proposed policy. At this stage the task team has only just begun its series of meetings in order to debate the proposed policy but the proposed time line is that the matter be finalised before the end of 2011. DAFF still remains committed to implementing the policy at the beginning of 2012, this, however, appears unlikely as not only must the policy first be finalised but thereafter an implementation plan needs to be developed and the Marine Living Resources Act needs to be amended to include references to the new Small-Scale Fisheries sector in order that TAC / TAE can be allocated to this fishery. It appears that there is still a long road ahead before the policy is implemented.

Foodcor Matter

As reported in previous newsletters, Foodcor was unsuccessful in its application to the Western Cape High Court to challenge the lawfulness of certain paragraphs of the rights transfer policy which relate to the applicability of Section 21 of the MLRA to the transfer of shares in fishing rights holding companies.

Justice Griesel dismissed Foodcor’s application on the 6^th of December 2010. Foodcor are appealing such judgment to the Supreme Court of Appeal and heads of argument have recently been filed by both parties.

In terms of paragraph 6.2 and 6.3 of the transfer policy, ministerial approval under Section 21 of the MLRA is also required for share sale transactions which result in a change of control of a rights holder, or the rights holder not being as transformed as at the date of allocation of the right.

Foodcor argue that the requirements of the ministerial approval in paragraphs 6.2 and 6.3 of the transfer policy are unlawful on 3 bases:

• The said paragraphs are ultra vires section 21 of the MLRA, in that bona fida share sales do not result in the transfer of commercial fishing rights;
• The said paragraphs are unlawfully vague, in that

a) no criteria are provided to determine when the need for ministerial approval is triggered; and

b) once the requirement for authorization is triggered, no criteria are provided to assist applicants seeking approval; and

• The said paragraphs are irrational, with regard to the application and consequences.

The State argues that share transfers which lead to a change in control in the rights holding company require the consent of the Minister on the following bases:

• On a proper interpretation of Section 21 (2) of the MLRA, such transactions constitute a transfer of a commercial fishing right, and require the consent of the Minister. The transfer policy sets out the guidelines which the Minister will apply in exercising her discretion as to whether to grant such consent.
• In any event compliance with the transfer policy is a condition subject to which permits are issued. The validity of the permit conditions have not been challenged by Foodcor.
• There is no merit in the complaints that paragraphs 6.2 and 6.3 of the transfer policy are either vague or irrational.

A date for appeal hearing has yet to be set. We will keep a close watch on this matter as it will have a profound effect on the fishing industry and in particular rights holders.

Oceana Matter

Oceana also challenged the legality of the transfer policy (31^st of July 2009) or alternatively certain paragraphs of such policy. There application was also dismissed by the Western Cape High Court in terms of a judgment handed down by Justice Cleave on the 2^nd of June 2011. The core provision of the transfer policy upon which Oceana based there challenge is contained in paragraph 2.9 which stated that “for the purposes of a transfer of a commercial fishing right the level of transformation would be assessed on the basis of ownership and management control.”

Oceana argues inter alia, that by referring only to ownership and management control in the transfer policy the Minister has ignored other elements of the B-BBEE Act codes of good practice which they submit the Minister is obliged to take into account. The Minister argues inter alia that Section 10 of the B-BBEE Act provides that the codes of good practice can be applied but only where reasonably possible. The Minister sets out a number of reasons why in the application of the B-BBEE codes for purposes of the transfer of rights would not be reasonably possible.

Leave to appeal this judgment has been given to Oceana and the record of appeal has recently been finalized. Heads of argument on both sides are expected shortly.

This is another matter on which we will keep a close eye, as it may also have a great impact on the industry.

Over the years there has been uncertainty about whether a company’s failure to comply with the requirements of Section 228 of the Companies Act (which is now succeed by Section 112 read with 115 of the new Act) can be override the Turquand Rule. The Supreme Court of Appeal has now held that the Turquand Rule cannot remedy long compliance with these formalities of the Companies Act.

Therefore where a company is disposing of its sole asset or the majority of its assets there must be a prior special resolution of its shareholders in place as provided for in terms of the aforesaid sections of the New Companies Act.

For more on this issue, we refer you to an article as included in the Law Society’s monthly De Rebus Magazine (September issue) which discusses this case and the topic in general.

On the 20th of September 2011 Peter Edwards of our firm acting on behalf of the National Council of SPCA’s of South Africa, the World Society for the Protection of Animals and Seal Alert SA attended a stakeholders meeting called by the Constitutional Ombudsman of Namibia relating to Namibia’s controversial seal harvest. The meeting was called pursuant to our firm (on behalf of its clients) submitting a formal complaint to the Ombudsman to investigate various aspects of the harvest. The Ombudsman has now commenced an investigation and the stakeholders meeting forms part of such investigation.

The main thrust of the arguments presented related to whether or not the harvesting regulations were sufficient for the humane killing of the seals and whether or not these regulations were in fact being properly implemented by the sealers and the rights holders. Submissions based on video footage were that the regulations were not being complied with and were in any event inadequate in light of international standards of humane killing of animals. This in turn lead to breaches of the Namibian Animal Protection Act – the same legislation applicable in South Africa.

Internationally there are bans on the import of seal products into the United States of America and now recently into the European Union. The main reason for the bans is the inhumane and cruel manner in which the seals are slaughtered which has been confirmed by scientific studies.

The Ombudsman is now in possession of voluminous presentations and scientific papers which he has undertaken to review as part of his investigation. The results of his findings will be of interest particularly in light of the fact that South Africa after a commission of enquiry in the 1990’s have since stopped the harvesting of seals.