The much awaited Supreme Court of Appeal (SCA) judgments on the Foodcorp and Oceana challenges to the Section 21 policy were handed down on the 28th and 29th March 2012 respectively. Justice Navsa JA handed down judgments in both matters which were heard together.


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.”


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”.

[ 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.”


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.

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