Modern Quarrying

by Janine Howard, Associate and Nina Braude, Candidate Attorney, Baker & McKenzie

The Mineral and Petroleum Resources Development Act, 28 of 2002 (MPRDA) ushered in an approach to mining/prospecting rights which aimed to strike a balance between economic efficiency, sustainable economic and social development and equitable access to mineral resources. Beyond these broader objectives, however, both pieces of legislation regulate the mechanics of establishing and running mining and related operations.

Janine Howard BWJanine Howard is an Associate at Baker & Mckenzie’s Corporate and M&A Practice Group in Johannesburg. She is a guest lecturer in mineral law at UCT and has presented various papers focusing on corporate social responsibility and the mining industry in SA.

It is essential that this legislation provides certainty as to the processes and procedures relating to the entities engaged in mining operations, their legal obligation and the consequences thereof.

One of the obligations of all companies under the 2008 Act is to file an annual return with the Companies and Intellectual Property Commission (CIPC). Failure to do so for two or more successive years is grounds for CIPC removing the company from the companies register. This obligation is designed to confirm the company's continued existence and that it remains in business and/or trading. There is an underlying presumption that only companies which serve a legitimate economic purpose should remain recognised as juristic entities.

If then, a mining company fails to submit its annual returns for two consecutive submission periods, fails to remedy the omission and cannot provide good reasons for such failure, it will be subject to deregistration by CIPC. The effect, due to Section 56(c) of the MPRDA is that such company's mining/prospecting rights, permits or permissions will automatically lapse. The difficulty with this is that Section 82(4) of the 2008 Act provides that in the event of deregistration by CIPC for, amongst other reasons, failure to comply with the obligation to submit annual returns, ‘any interested person my apply ... to reinstate the registration of the company’.

Two issues become relevant on reinstatement of registration, namely, whether the re-registered mining company can have its lapsed mining/prospecting rights restored; and the implications for the property rights of third parties who may be adversely affected by the restoration of such rights. This article considers only the first issue. The possible implications of a company's re-registration on third parties are therefore not considered.

The court's response

The question of the impact of restoration of mining/prospecting rights on reinstatement recently came before the Supreme Court of Appeal (SCA) in the case of Palala Resources v Minister of Mineral Resources and Energy (479/15) [2016] ZASCA 80 (30 May 2016) (Palala). However, this case dealt with Section 73(6A) of the Companies Act, 61 of 1973. The proposition in this article is that Palala read with the earlier case of Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd [2015] ZASCA 25; 2015 (4) SA 34 (SCA (Newlands), provides a limited response: where a company has been de-registered through failure to file its annual returns and has its registration reinstated by CIPC, it will be revested of its mining/prospecting rights.

Background to Palala

Palala concerned a prospecting right which was granted to Palala Resources Pty Ltd (Palala) on 20 May 2009, and was valid until 19 May 2011 (Prospecting Right). As a result of a failure to pay annual returns, Palala had its company registration cancelled in terms of 73(5) of the 1973 Act on 16 July 2010. Through the mechanisms provided in section 73(6A) of the 1973 Act, Palala was able to restore its registration just over two months later – a period during which the Prospecting Right remained valid.

Towards the end of 2010, a third party known as Hectocorp (Pty) Ltd (Hectocorp) lodged an application for prospecting rights relating to the piece of land over which the Prospecting Right was held. Notwithstanding Palala objecting to this application, it was accepted by the Department of Mineral Resources (DMR) on the basis that Palala's Prospecting Right had lapsed at the time of its deregistration. On a strict reading of Section 56(c) of the MPRDA, this was correct. However, the DMR failed to address the consequence of Palala having been re-registered in terms of Section 73(6A) of the 1973 Act.

What followed the DMR's decision was a series of appeals by both Palala and Hectoprop, first in terms of the MPRDA's administrative appeals provisions and later in the courts. In the first round of appeals, Palala was successful in overturning the DMR's decision – the Acting Director-General finding that there was insufficient proof of final deregistration. Hectoprop was successful at the second stage, where the Minister of Mineral Resources overturned the Acting Director-General's decision on the basis that finding ‘lack of finalisation of the deregistration process’ was unfounded.
The third round saw Palala taking the matter on review to the Gauteng Division of the High Court, Pretoria. Here, Palala was unsuccessful: the court holding that Palala's Prospecting Right had lapsed upon deregistration and not been retrospectively revived by re-registration. Round four, which gave rise to the judgment discussed in this article, was a further appeal by Palala to the SCA.

Findings of Palala and revesting of prospecting rights in terms of the 1973 Act

Majiedt JA, for the SCA found, in Palala's favour, that the re-registration of a legal entity in terms of Section 73(6A) of the 1973 Act has retroactive application as a result of the deeming provision contained therein. This provides that where the registration of a company is restored ‘the company shall be deemed to have continued in existence as if it had not been deregistered’. Therefore, when Palala was re-registered, its assets, including the Prospecting Right, reverted to it as if it had never been de-registered.

Majiedt JA went on to state that there is no conflict between Section 56(c) of the MPRDA and Section 73(6A) of the 1973 Act, as they contemplate different events at different moments in time. The first moment is that of de-registration of a company. At that point, Section 56(c) of the MPRDA provides that rights, permits or permissions held by the entity lapse. This is logical in that a ‘non’-entity cannot in law hold mining/prospecting rights. The second moment is that of re-registration of a company. Not catered for in the MPRDA (a potential lacunae), the legal consequences are determined by Section 73(6A) of the 1973 Act. In other words, re-registration of a company should automatically result in revesting of such company's property.

Taking the aforegoing into account, the SCA upheld the appeal and found that the Prospecting Right had reverted to Palala upon its being re-registered. Accordingly, the SCA ordered that the application to renew the Prospecting Right, lodged previously by Palala, be remitted to the Minister to be considered anew. It should be noted that in this case, no rights had been awarded to any third parties in the interim. It was therefore relatively easy for the SCA in Palala to provide a pragmatic solution.

Implications under the 2008 Act

Section 82(3) of the 2008 Act is, broadly, the equivalent of Section 73(6A) of the 1973 Act. Critically, however, the 2008 Act's provision for re-registration has excluded the ‘deeming’ provision which lay behind the Palala decision. It is, however, possible to apply Majiet AJ's reasoning to the 2008 Act if regard is had to the Newlands case.

Newlands expressly considered whether Section 82(4) of the 2008 Act had retroactive application in the context of corporate activities during the period between deregistration and re-registration. Notwithstanding, the narrow scope of Newlands, the SCA addressed the question of retroactive implications of re-registration with reference to property (which would include mining/prospective rights).

The Newlands court found that, despite the absence of the deeming provision from Section 82(4), the section has the effect of re-vesting the company's property automatically on reinstatement of the company to the companies' register.

In the case of a re-enactment of a provision which has language inserted or omitted, it can be presumed that any such additions or omissions are deliberate expressions of legislative intent.

Brand JA, writing for the SCA, rejected this approach on the grounds that the 2008 Act was not an amendment or re-enactment of the 1973 Act, but rather an entirely new scheme governing South African company law. The presumption regarding legislative intent could thus be discounted.

Secondly, Brand JA noted that the 2008 Act provided for reinstatement of registration, and not merely re-registration. Accordingly, he reasoned that the effect of Section 82(4) should be substantive, and not merely administrative. This reasoning was supported by the practical implications of reinstatement. Reinstatement would have no purpose, reasoned the court, if it did not have the effect of ‘revesting the company with title to its property’.

The effect of reading Palala together with Newlands is that the consequences of a re-registration of a company in terms of Section 73(6A) of the 1973 Act may be extended to a company which is re-registered in terms of Section 82(4) of the 2008 Act – at least insofar as this applies to its property. Consequently, if a company is de-registered in terms of Section 82(3) of the Companies Act (reasons for deregistration including failure to file annual returns) and if such company is subsequently reinstated in terms of Section 82(4), it will automatically regain its property, including its mining/prospecting rights.

Discussion

In many respects, the above reading of the effect of re-registration of a company which holds a mining/prospecting right is a pragmatic one. However, it does appear to give effect to the objects of both the MPRDA and 2008 Act.

Section 82(4) of the 2008 Act (and Section 73(6A) of the 1973 Act), as interpreted by Palala and Newlands, apply in the very limited circumstances of de-registration for failure to submit annual returns and subsequent reinstatement on application by the company itself. The annual lodging of returns is a requirement designed to ensure that CIPC is able to adhere to its statutory mandate to maintain an accurate register of companies. This, in turn, ensures economic efficiency and protects persons engaging in business activities by providing for a verification process regarding the legitimacy of a prospective business partner.

The companies' legislation, however, acknowledges that it is possible that non-submission of annual returns may be a matter of administrative error (or non-compliance) and thus provides for reinstatement as a remedy. Such remedy furthers the objective of facilitating economic activity and preventing regulation from being unduly obstructive. The prejudicial effects on economic activity as a whole if reinstatement was not also substantive would, arguably, be far greater than the potential prejudicial effect of restoration on third parties.

From a mining law perspective, it is necessary to juxtapose the notion of economic efficiency with the MPRDA's ‘use it or it lose it’ approach. The Palala matter concerned a very short period of time between de-registration and re-registration. However, at least two scenarios bear consideration. The first is where, notwithstanding non-submission of annual returns, a mining company, ignorant of its deregistration, continues its operations. These inevitably involve extensive capital investment, provide employment for large numbers of persons and support multiple secondary industries.

Automatic divesting of the mining/prospecting right which is foundational to such operations without automatic revesting on reinstatement, would certainly undermine any notion of continuity in operations and economic efficiency. It would also, arguably, counter the practical implications of using such a right to contribute to economic development.

The converse is where de-registration persists for an extended period of time, another entity applies for and is granted a mining/prospecting right, commences operations and is then divested of such rights on reinstatement of the original entity. This would undoubtedly counter the objectives of both the companies' legislation and MPRDA. However, in practice, it is very unlikely that such a situation would arise. Palala is a case in point – and one in which the problem of de-registration was identified long before Hectoprop had got anywhere near an operational stage.

It is arguable that in a case where a company persists in its default, notwithstanding being alerted to its de-registration and non-compliance, it should be penalised. Whether the penalty of being divested of its property is proportionate to the default is perhaps debatable (and may well fall foul of the constitutional prohibition on arbitrary deprivation of property). However, if the MPRDA is understood as not providing for unqualified property rights, a case can be made for rights-holders having to demonstrate ‘responsible use’. This might well include proper adherence to all relevant legislation designed to regulate and promote economic activity.

Such legislation would include the 2008 Act and therefore, on this approach, failure to intervene and ensure prompt reinstatement might well justify permanent divestment of a company's property. The rationale behind such divestment of property rights would be that responsible use of rights is required where such rights are awarded by the State who holds the related (critical) resources in trust. Such rationale would almost certainly not prove arbitrary.

In this regard, it is worth noting that the MPRDA provides for interventions, not only for failure to mine mineral resources ‘optimally’ but also in instances where mining operations show consistent lack of profitability or require scaling-down of the labour force. This recognition of the importance of sustaining mining operations as going concerns, and the potential economic and social impact if this is not the case, is supported by the parallel requirement in the companies legislation, to file annual returns (as discussed above).

Conclusion

As the law currently stands, a rights-holder that is de-registered through failure to submit its annual returns to CIPC should, on reinstatement, be revested of its rights under the MPRDA. The effect is to permit continuity in mining and/or prospecting operations and thus to give effect to the objects of economic sustainability which are common to both the MPRDA and 2008 Act.

It remains to be seen whether, in the future, if confronted with more complex scenarios, the courts will opt for the same pragmatic approach. Palala has offered a temporary solution – and one which, because of the narrow factual grounds on which it was decided – may not be particularly robust.

A more complex case, which might involve third-party rights, a prolonged period of deregistration, third-party expenditure or a combination of the aforegoing, may well require greater interrogation of the notion that re-registration must entail revesting of property rights. In such a situation, the courts may find themselves unable to rely on Palala and will instead have to develop an approach which is not only pragmatic, but also gives effect to the overlapping objectives of both South Africa's minerals' and companies' legislation. Should such an approach be taken, it is possible that the mining/prospecting rights in question will not revert to the re-registered company and the recourse available to such company may not be commiserate with the revesting of such rights.

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