Marine Living Resources Act (“MLRA”) – Section 21 litigation update
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 6th 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 also challenged the legality of the transfer policy (31st 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 2nd 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.