When Lions roar!

The landmark court ruling in the ‘Altron TMT Holdings (Pty) Ltd

and Another v Minister of Trade & Industry and 4 Others’ case

bore witness to those at the top of the food chain in the ICT sector

challenging a decision made at the highest level of Government.

The process and subsequent outcome have set a precedent in

the B-BBEE space for the future. The Government must rationally,

transparently implement and account for the B-BBEE policies it

develops.

It all began on 1st February 2019 when the Minister of that time,

Dr Rob Davies, issued a notice for public comment of the intent

to grant Telkom B-BBEE Facilitator Status to the Government

(Facilitator Status), where paragraph 3.6 of the Amended Codes of

Good Practice outlines this. Upon being granted Facilitator Status,

Telkom and its subsidiaries would be regarded, inter alia, as 100%

‘Black’-owned. The reason for the South African Government,

represented by the Office of the Presidency, issuing this Notice is

that they are a 40.5% shareholder in Telkom.

Before leaving office in May 2019, Minister Rob Davies set the cat

amongst the pigeons when he signed Government Gazette GN262

of 2019 on 5th April 2019, stating:

“The Government of South Africa Broad-based Black Economic

Empowerment Facilitator Status for the equity held in Telkom SA

SOC Limited;

I, Dr Rob Davies, Minister of Trade and Industry, hereby:

> Designate and grant the final approval for the Broad-Based

Black Economic Empowerment Facilitator Status to the

Government of South Africa, represented by the Office of the

Presidency, for the full shares of 40.5% held in Telkom South

Africa State-Owned Company. The status is granted in terms of

the Amended Broad-Based Black Economic Empowerment

Codes of Good Practice, paragraph 3.6, Statement 100.

> Grant the Status for a period of ten years effective from the

date of my signature1

.”

What does granting Facilitator Status to the

Government mean?

As government Ownership, either full or partial, within any concern

can not be measured, the Minister may issue a Notice in the

Gazette and designate certain public entities as B-BBEE Facilitators

(Facilitators). In calculating their Ownership score, organisations

must treat Facilitators as having rights of Ownership held by:

> 100% ‘Black’ People;

> 40% ‘Black’ Women;

> 10% ‘Black’ Designated Groups:

> without any acquisition debts; and

> without any third-party rights.

The result is that as a Facilitator, a portion of Telkom SA and its

subsidiaries would be 100% ‘Black’-owned, irrespective of the

reality. In other words, a Facilitator would not have to account for

Economic Interest, Voting Rights or Net Value, but simply produce

confirmation of its Facilitator Status.

The ICT Sector Council welcomed the 16th May 2019 decision

to grant Telkom and its subsidiaries Facilitator Status to the

Government. Chairperson of the ICT Sector Council, Andile

Tlhoaele, stated that this would improve Telkom’s B-BBEE

rating, thus enable it to compete fairly in the market, and stated:

“The ICT Sector Council had engaged with Telkom and the

Department of Telecommunications and Postal Services to support

this move and is delighted that Telkom can move forward with

transforming the telecommunications sub-sector.” The statement

further acknowledged the unique position of Telkom insofar that the

South African Government is the majority shareholder3

.

Telkom and its subsidiaries as Facilitators joined the ranks of Denel,

Industrial Development Corporation, Petro SA and the National

Empowerment Fund, to name but a few.

Following the Gazette, Telkom SA SOC Limited and its subsidiaries

Troudon (Pty) Ltd, the Gyro Group (Pty) Ltd and BCX, due to

material changes in their Ownership structures, re-evaluated their

B-BBEE scorecards. B-BBEE Certificates were then reissued to

include the application of the newly granted Facilitator Status.

> A consolidated group B-BBEE Certificate issued for Telkom

SA SOC Limited and its subsidiaries Troudon (Pty) Ltd and the

Gyro Group (Pty) Ltd, before applying the Facilitator Status, had

100% Preferential Procurement Recognition and a Status

Level 4. Following the Facilitator Status application,

their reissued B-BBEE Certificate featured 125% Preferential

Procurement Recognition and a Status Level 2.

> Similarly, BCX, a Telkom subsidiary that trades off an

independent B-BBEE Certificate, had 110% Preferential

Procurement Recognition and a Status Level 3. Following

the application of Facilitator Status, they showcased 135%

Preferential Procurement Recognition and a Status Level 1.

In a competitive market, Preferential Procurement Recognition can be the leverage for gaining and retaining business. It is further evident that

once Facilitator Status was applied to Telkom and its subsidiaries’ scorecards, they gained procurement leverage. A B-BBEE Facilitator would

have a lesser burden in the following areas:

> Ownership as a Priority Element triggers the Discounting Principle for not achieving sub-minimum targets. Subsequently, there would be

one more minor priority element measured.

> A B-BBEE investment and strategy with four instead of five focus areas.

> Positive results on the Ownership element when submitting an annual transformation report are requirements for organisations listed on

the Johannesburg Stock Exchange.

> Lessening the impact of the Ownership Net Value calculation following a fluctuation in share prices due to

the lockdown.

Altron TMT Holdings (Pty) Ltd and Another (The Applicants) believed the Minister’s decision to grant Facilitator Status was flawed, both from a

procedural and substantive perspective. Subsequently, they resolved to take the Minister’s decision on review to the High Court. MTN joined

The Applicants, with the Minister, Telkom and BCX opposing the application.

The application, led by Altron, sought a declaration that Telkom was not under the “ownership control” of the Government, as that phrase

is defined in the Public Finance Management Act of 1999 (PFMA) and is not a “public entity” in terms of the PFMA. In the alternative, The

Applicants sought a declaration that Telkom and its subsidiaries as a collective are an inappropriate public entity to grant Facilitator Status to in

terms of the ICT Sector Code published in Section 9 (1) B-BBEE Act 2003.

The application argued that the decision-making process and reasoning for reaching the decision are not provided on oath as the decision maker, Minister Davies, failed to file an affidavit in these proceedings. Besides, a supplementary affidavit suggested no evidence that public

submissions were presented before the Minister for consideration. The Minister’s second submission did not contain a summary of or reference

representations made over the 30 day commentary period.

The Applicants’ case relied on the following three grounds of review:

1 The decision or the process leading to it was procedurally unfair and irrational;

2 The Minister failed to furnish reasons for the decision; and

3 The decision was substantively unreasonable, irrational and unlawful.

The matter was formally heard in June 2020, where Judge Colin Lamont made the following finding:

The High Court concluded that through granting Facilitator Status to the Government, the Minister had implemented legislation as provided

in section 85(2)(a) of the Constitution, which meant that the Promotion of Administrative Justice Act 3 of 2000 (PAJA) applied to the matter

along with the principle of legality. In other words, the Minister’s decision to grant Facilitator Status was subject to the requirement of a proper

consultation process in terms of PAJA.

The High Court found that the published February Notice cited Telkom as the only party contemplated for Facilitator Status; thus, the public

commentary submissions were on that basis. The Minister’s final decision in the May Notice to grant Facilitator Status to the Government was

materially different, as the public had not based their submissions on the intended change in participants. In short, the Minister had granted

the Facilitator Status to the Government without actual public participation. The High Court expressed that the “nature and purpose of the

proposed decision must be described with sufficient particularity in the notice so that the right to make representation will be real rather than

illusory”. It concluded that the Minister granted the Facilitator Status without the public knowing the intended recipient’s true identity, which

rendered the decision procedurally unfair. “The nature and purpose of the proposed decision are not the same as the nature and purpose of

the decision as published. This is a fatal flaw rendering the decision reviewable”, as stated by the court.

Furthermore, the Minister failed to file an affidavit giving his reasons for his decision in the matter. In response, the High Court stated that “It is

a fundamental principle that the decision-maker must explain why he made the decision.…… I find that the evidence is insufficient to establish

that the reasons were relied upon by the decision-maker and that they were the reasons at all. Besides, there is a failure to establish what the

facts were upon which the decision taker relied. The reasons for making a decision are founded both in fact and in the decision taker’s opinion.

As neither the facts nor the opinions founding the reasons for the decision are established, the decision is reviewable.”

As such, the High Court found that the Minister’s decision was procedurally flawed and set it aside. The court made an exception in that it held

that the Notice issued in May 2019 is valid for the B-BBEE status of Telkom and its subsidiaries arising from such Notice in respect of only

those contracts entered into, and tenders awarded, after 7th May 2019 and before the date of the court’s order. However, it would not be valid

for any renewals or extensions of such contracts and tenders4

.

In setting aside the B-BBEE Facilitator Status, Judge Lamont made a legal cost order against the Minister, Telkom and BCX. The Applicants

welcomed the judgement. Telkom and its subsidiaries, again due to material changes in their Ownership structure, applied for a re-evaluation

followed by a reissue of their B-BBEE Certificates, which reflect as follows:

> The consolidated group B-BBEE Certificate reissued for Telkom SA SOC Limited and its subsidiaries Troudon (Pty) Ltd and the Gyro

Group (Pty) Ltd, following the removal the Facilitator Status, has 110% Preferential Procurement Recognition with a Status Level 3.

> Similarly, BCX, a Telkom subsidiary that trades off an independent B-BBEE Certificate, following the removal of the B-BBEE Facilitator

Status, features 125% Preferential Procurement Recognition and a Status Level 2.

Although this application was lengthy and costly, it demonstrates the absolute leverage Preferential Procurement Recognition has in the

decision-making process. Examples of Preferential Procurement Recognition, based on a R10m purchase, are as follows:

Important take-aways from the Telkom Facilitator Status case are that:

> The government acted beyond its powers;

> The judicial structures do provide an effective mechanism to address any such overreach if interested or affected parties wish to take

corrective action; and

> B-BBEE credentials influence buying decisions materially, to the degree that makes initiating corrective action worthwhile.

One has to bear in mind the B-BBEE Act’s intent and rule of thumb that is always ‘Beneficiaries before a scorecard’.