Categories of Contract Language

A large part of my daily activities involves drafting legal contracts, and recently I have been looking for resources on the best ways to construct contracts and phrase clauses.

One resource that has really caught my attention is A Manual of Style for Contract Drafting, Third Edition, by Kenneth A Adams.

When it comes to constructing clauses for a contract Adams goes much further than other contract drafting books I have read. Where most books give handy guidelines and lists of words to use or avoid using, Adams takes the entire process one step back.

Adams suggests a process where each clause is analysed, and the language used in the clause is determined by the legal outcomes that the parties intend to flow from the clause. He suggests that each clause in a contract has a function, and the language that a clause uses will be determined by this function. For example, a clause that functions to impose an obligation will be distinguished from one that imposes a prohibition or one that provides one party with discretion.

Each type of contractual language must be used consistently throughout a contract.

Adams breaks contractual language into eleven different categories, with each category serving a different function in a contract. These categories are:

  • Language of Agreement
  • Language of Performance
  • Language of Obligation
  • Language of Discretion
  • Language of Prohibition
  • Language of Policy
  • Language of Declaration
  • Language of Belief
  • Language of Intention
  • Language of Recommendation
  • Expressing Conditions

When drafting a clause you must determine what the clause needs to accomplish and find what the function of the clause is. Once you have determined this then the most appropriate category of language can be used to achieve that function.

The process is not as easy as it seems at first because many clauses can be incorrectly phrased in more than one different contract language. This is illustrated throughout the book in numerous examples. For instance, an obligation to purchase shares can be expressed in various ways:

  • The Purchaser shall purchase the Shares…
  • The Purchaser must purchase the Shares …
  • The Purchaser will purchase the Shares …
  • The Purchaser agrees to purchase the Shares …
  • The Purchaser undertakes to purchase the Shares …
  • The Purchaser shall be obligated to purchase the Shares …
  • The Purchaser is obligated to purchase the Shares … (Adams table 2).

By following the approach suggested by Adams a contract becomes more internally consistent in the language used and easier to read and interpret.

Language of Agreement

“The parties agree as follows.”

The language of agreement expresses the parties’ state of mind. This language should only be used once in each contract; in the lead in to a contract (Adams Para 3.16).

It is common to see language of agreement used throughout a contract, often coupled with a statement of fact or an obligation. For example “the parties agree that the material is free from defects… ” or “the parties agree that the seller will deliver the material on 1 January 2016”.

The use of “the parties agree” is redundant in these examples. These clauses are recorded in a contract, which is an agreement by its very nature.

These examples can also be expressed better using other, more appropriate, language. For example, if one party is supposed to be warranting that the material is free from defects then it should be expressed adequately as a warranty. On the other hand, if “agreed” statement is intended to limit one party’s liability if the statement turns out to be true, then again the limitation of liability can be expressed better using other language.

Language of Performance

“The Seller hereby sells the shares to the Purchaser.”

The language of performance expresses actions that are accomplished by signing the contract (Adams Para 3.19).

The word “hereby” could be omitted from the language, but for certainty sake it is recommended that the word is kept because it is both grammatically correct, and it eliminates a possible interpretation that another sale of shares is being referred to (Adams Para 3.21).

Language of Obligation

“The Indemnified Party shall notify the Indemnifying Party of any claim.”

The language of obligation expresses obligations that are imposed on a party (Adams Para 3.44). It is recommended that the word “shall” should be used as the language of obligation (Adams Para 3.44).

In order to check if you have used the word “shall” correctly and consistently throughout a contract, replace the word “shall” with the words “has [or have] a duty to”, and if the sentence still makes sense then chances are that it the word has been correctly used as part of the language of obligation (Adams Para 3.48 and 3.78).

An example of a clause that fails the suggested test is “This agreement shall be interpreted in accordance with the laws of the Republic of South Africa.” It doesn’t pass the “has a duty to” test because it isn’t imposing an obligation on a party. The correct language to use for this particular clause would the language of policy.

Some consideration must be given to whether “shall” is the appropriate word that should be used for obligations, where other alternatives such as “must” and “will” might suffice. It is suggested that “shall” is the most appropriate word to express an obligation (Adams Para 3.62 – 3.72 and 3.108 – 3.111).

Language of Discretion

“The indemnified party may at its expense retain its own co-counsel.”

The language of discretion is used to convey that a party has the discretion to take a specified action (Adams Para 3.141).

When using the language of discretion, it is important to consider if the discretion is limited. If “the Seller may sell the Shares to Bob”, does this preclude the Seller from selling the Shares to anyone else? Care must be taken to avoid possible ambiguity (Adams Para 3.144 – 3.148).

Another consideration is if the discretion given to a party must be exercised in good faith. When considering this, it must be determined if the duty of good faith applies, and if so, if the legal jurisdiction allows this duty to be waived at all (Adams Para 3.169 – 3.183). The use of the term “in its sole and absolute discretion” when is an attempt to waive the duty of good faith that one part owes to another.

The timing of the exercise to the right must also be considered. When can the right be exercised? Can the right only be exercised once, or can it be exercised “on one or more occasions”? (See Adams 3.197 – 3.204)

Language of Prohibition

“The Customer shall not modify the Equipment without the Lessor’s prior written consent.”

The language of prohibition specifies what a party is prohibited from doing (Adams Para 3.223).

Language of Policy

“The laws of the Republic of South Africa govern all matters arising out of this agreement.”

The language of policy is used for rules that the parties must observe, but that don’t need any express action or inaction by a party (Adams Para 3.240).

Verbs in the language of policy must still be expressed in the present tense.

Language of Declaration

“The Seller states that the Equipment is listed in schedule A.”

The language of declaration is used to state facts. There are two different kinds of declarations:

  • the statement of a fact that is known by one of the parties; and
  • the acknowledgement of a fact by one of the parties (Adams Para 3.271).

It is suggested that only the words “states” or “acknowledges” should be used in the language of declaration, not the often used phrase “represents and warrants” (Adams Para 3.273).

Some thought must, however, be given to the phrase “represents and warrants”. In practice this phrase is used to cover different bases. This is because the breach of a representation and the breach of a warranty give rise to two different legal actions.

In both cases the remedy that is available to a party if the other breaches the contract are:

  • rescission (cancellation) of the contract; and/or
  • a damages claim to compensate for losses.

The difference between the two lies in the legal basis that the remedies stem from. The breach of a representation gives rise to a delictual remedy based on a misrepresentation, while a breach of a warranty gives rise to a claim based on the breach of contract.

Even though there is a legal difference between a representation and a warranty, both of these statements are a statement of fact. There is a strong argument that the verb that introduces the statement of fact (for example represents or warrants) will not alter whether the statement of fact is a representation or warranty, or both (Adams Para 3.278).

It is recommended that the term “represents and warrants” is not used to introduce a statement of fact, but that the general “the Party states that …” is used.

Language of Belief

“The parties believe that this agreement complies with the requirements of the National Credit Act.”

The language of belief is used to state an opinion that the parties to a contract have about the legal implications of an agreement or clause. This is because it is not up to the parties to decide if the agreement complies with the law, but this will later be determined by a court (Adams Para 3.319).

It has, however been suggested that the language of belief shouldn’t be used, but instead the statement should be stated in the language of declaration, namely to state a fact. This may, however, give rise to a cause of action if the statement of fact proves to be incorrect.

Language of Intention

“The parties intend that the Consultant will be an independent contractor.”

The language of intention is used for aspects of a relationship that can’t be established by the parties and is not in their control, but must be interpreted and determined by the court (Adams Para 3.322).

It may, however, still be useful to record the parties’ intention because a court might take into account the parties stated intention when interpreting the contract (Adams Para 3.330).

Language of Recommendation

“The Company recommends that the Participant consult with their personal legal advisor if …”

This language is used in a situation where a party with greater bargaining power wants to draw the other parties attention to a particular clause or legal consequences (Adams Para 3.332).

Expressing Conditions

If the Company receives a Notice of Transfer, it shall transfer the Shares.”

A condition refers to a future event that is uncertain (Adams Para 3.260). It should be expressed as an if/then statement. If [the uncertain event occurs], then [a party shall perform a specific obligation].

The Right to Sue, or be Sued, after Death

On the 13th May 2016 the High Court of South Africa (Gauteng Local Division) handed down its judgement in the class action certification case of Nkala and Others v Harmony Gold Mining Company Limited and Others.

This case certified the classes that will participate in the class action law suit that will be brought against thirty two different mining companies.

In the intended class action the applicant representatives want to institute action on behalf of all current and former underground mine workers who have contracted silicosis or pulmonary tuberculosis (TB), and on behalf of the dependents of these mineworkers who have died of these diseases, after 12 March 1965 (paragraph 40). The court was told that the number of potential class members could be between 17,000 and 500,000 people (paragraph 7).

The claim is based on the mining companies’ alleged breach of duties that they owed to their employees (paragraph 58). These alleged duties include the common law duty to provide a safe and healthy work environment, the duty to comply with the Mine Works Act No 12 of 1911 and the Mine Health and Safety Act No 29 of 1996, and the breach of certain constitutional obligations and rights (paragraph 58).

The court’s judgement will allow the class action to proceed, provided that the judgment is not successfully appealed.

The potential effect of this judgment does, however, extend beyond class action suits and has the potential to impact other cases where damages are claimed in the future. This is because the court’s decision develops the South African common law on the transmissibility of claims for non-patrimonial (general) damages.

The courts development of the common law on the transmissibility of claims for non-patrimonial (general) damages

In its judgment the court took the opportunity to develop the South African common law that regulates the transmissibility of claims for non-patrimonial (general) damages. In other words, the court developed the right that the estate of a deceased person has to sue, or be sued, for non-patrimonial (general) damages after the death of the person who suffered or caused them.

This relevant paragraph of the court’s decision outlining the common law development is:

In conclusion, we hold that the common law should be developed as follows:

A plaintiff who had commenced suing for general damages but who has died whether arising from harm caused by a wrongful act or omission of a person or otherwise, and whose claim has yet to reach the stage of litis contestatio, and who would but for his/her death be entitled to maintain the action and recover the general damages in respect thereof, will be entitled to continue with such action notwithstanding his/her death; and

The person who would have been liable for the general damages if the death of a plaintiff had not ensued remains liable for the said general damages notwithstanding the death of the plaintiff so harmed;

Such action shall be for the benefit of the estate of the person whose death had been so caused;

A defendant who dies while an action against him has commenced for general damages arising from harm caused by his wrongful act or omission and whose case has yet to reach the stage of litis contestatio remains liable for the said general damages notwithstanding his death, and the estate of the defendant shall continue to bear the liability despite the death of the defendant.

Paragraph 220.

But what is the practical effect of this finding? To understand this, it is necessary to look at the distinction in that is drawn between patrimonial and non-patrimonial (general) damages in South African law.

The distinction between patrimonial and non-patrimonial losses

A patrimonial loss is a loss that causes a reduction in the value of a person’s estate, often through the decrease in the value of an asset that is owned (Visser and Potgieter Damages Second Edition 45). One method that can be used to determine the size of a patrimonial loss is by comparing the current value of a person’s estate after a damage causing event, with the value of the person’s estate before the event. The difference in these values would be the patrimonial loss that was suffered.

An example of a patrimonial loss is the damage suffered when a motor car is involved in an accident. The size of this loss can generally be determined based on a comparison of the value of the car before and after the accident.

Non-patrimonial (general) damages on the other hand don’t necessarily directly impact the value of a person’s estate. Non-patrimonial loss includes claims for money that results from:

  • infringement of a person’s physical or mental interests, such as
    • physical and mental pain and suffering;
    • shock;
    • disfigurement;
    • loss of amenities of life; and
    • shortened life expectancy;
  • defamation; and
  • infringement of a person’s dignity (Visser and Potgieter 99 – 115).

Non-patrimonial losses are losses that are suffered that are highly personal in nature, and aren’t as easily quantifiable as patrimonial losses.

The two types of damages aren’t, however, mutually exclusive, and both types of damages can arise from the same action. For example, if a person is physically assaulted they might have to pay for medical attention (a patrimonial loss), but they might also suffer pain and suffering (a non-patrimonial loss). The person who was assaulted would be able to claim compensation for both of these losses that arose from the same action.

The previous common law legal position on the transmissibility of claims

Previously the common law only allowed claims for patrimonial losses to be transmitted. This means that if a patrimonial loss is suffered by a person who later dies, that deceased person’s estate may institute action to recover the patrimonial damages.

The common law did not, however, generally allow the estate of a deceased person to sue a wrongdoer for non-patrimonial losses that was suffered by the deceased. The exception to this rule is that if the deceased had already commenced the required legal action, and if the legal action had reached a stage referred to as “litis contestatio” before death, then the claim is transmitted to the deceased persons estate and it can be pursued (paragraphs 187 to 188).

In a court case the stage of litis contestatio is usually reached when the court pleadings have closed, namely once the issues in dispute have been identified by the parties through the exchange of the required court documents.

The court stated that due to the various court procedures the time between commencing the legal action and the legal action reaching the stage of litis contestatio can be long. If the person commencing the claim for non-patrimonial (general) damages dies during this period, then the claim falls away on death and his estate can’t continue with the legal action. However, if the stage of litis contestatio is reached before death then the deceased person’s estate will be able to proceed with the claim and claim the non-patrimonial (general) damages.

The court considered various foreign legal positions, and held that the South African common law had failed to keep up pace with the procedural development in the law.

The court accordingly decided to develop and alter the South African common law as it applies to the transmissibility of claims for non-patrimonial (general) damages, altering the law to make it so that a claim for non-patrimonial (general) damages it transmissible to a deceased person’s estate provided that the deceased person had merely commenced with the legal action. The court therefore removed the requirement that the court proceedings must have reached a stage of “litis contestatio“.

The practical effect of this development of the common law

The practical effect of this judgement is that claims for non-patrimonial (general) damages are now transmissible once legal action has been commenced.

This means that the estate of a deceased person can now continue with a claim non-patrimonial (general) damages that was suffered by the deceased, provided that the legal action has been instituted before death.

If a claimant dies after instituting legal action but before the issues in dispute have been fully identified by the parties through the exchange of the required court documents, otherwise known as the close of pleadings or litis contestatio, the claim is no longer extinguished and the claimants estate may proceed to recover both the patrimonial and non-patrimonial (general) damages that was suffered.

Note, however, that the parties have stated their intention to appeal the High Court’s judgment, so this might not be the final position on the transmissibility of claims.

A Judicial Opinion on the National Forests Act

The recent high court decision on an application to remove ten milkwood trees from a property in the case of Nanaga Property Trust v Director-General of the Department of Agriculture, Forestry and Fisheries and others ((4689/2014) [2016] ZAECGHC 18 (16 February 2016)), is legally unremarkable yet at the same time highly informative.

The case is unremarkable in the way that court applied the principles of the Promotion of Administrative Justice Act No 3 of 2000 (PAJA) when setting aside a decision taken by the Department of Agriculture, Forestry and Fisheries (DAFF) to refuse an application to remove trees because the decision maker lacked the required authority.

The court, however, went a bit further in its judgement, and Hartle J took the opportunity to express an opinion on how the National Forests Act, No 84 of 1998 (National Forests Act) should be interpreted and applied in the future by DAFF. This was only an opinion (an obiter dictum) and is not binding on the department or on any court in the future, but the opinion could still be useful when assessing similar situations that could arise in the future.

The facts

The Nanaga Property Trust (trust) owned property at Kempton on Sea that was zoned for single residential use. The trust wanted to develop the property further and extend the modest residence that was situated on the property.

The trust submitted building plans to the local municipality, which approved the plans subject to the trust complying with the applicable provisions of the National Forests Act, expressed as follows:

[P]lease note, the National Forests Act (NFA) / Environmental Conservation Act (ECA) applies – it is up to each property owner to ensure that they familiarise themselves and comply with the provisions of the act prior to the clearing of any indigenous vegetation / tress (milkwoods etc.) The necessary permits can be obtained by filing in an application form at our Department … “.

The trust, assisted by its architect, contacted DAFF and was assisted by Ms Layini, a forester, who sent them what was believed to be the correct application form. The application form that was submitted by the trust was, however, incorrect because it was an application for a licence involving trees in a natural forest in terms of section 7 of the National Forests Act, and not the required application for a licence involving protected trees in terms of section 15.

A site inspection of the property was conducted by DAFF, and afterwards the application was refused. The refusal was conveyed through a letter received from Ms Layini. The reason given for the refusal was that:

… [e]xtending the building in any manner that will destroy natural forest cannot be allowed. … Section 3(3) of the National Forest Act states that natural forests must not be destroyed saved (sic) in exceptional circumstances, where, in the opinion of the Minister, a new land use is preferable in terms of its economic, social and environmental benefits. … [E]xceptional circumstances referred to in Section 3 are limited to development of national and provincial strategic importance, which excludes residential development”.

Paragraph 13.

Eight months after the trust addressed a letter of complaint to Ms Layini at DAFF asking for the full record of her decision, the trust launched an application in terms of section 6 of PAJA to review and set aside DAFF’s decision to refuse the application.

The Court’s Decision to Set Aside the Department’s Refusal to Grant a Licence

The National Forests Act gives the minister the power to grant the licences needed in terms of section 7 or section 15 (section 7(1)(b)(i) and 15(1)(b)(i) respectively), but the act also gives the minister wide powers to delegate this power to a named official in the department, the holder of an office in the department, an organ of state, or any person who or which is not an organ of state (section 48(1)).

The questions that the court had to determine were:

  • who made the decision; and
  • was the person who made the decision, whether premised on section 7 or 15 of the National Forests Act, authorised to make the decision by the act itself or any applicable delegation.

DAFF’s answering affidavit in the case was deposed to by Ms Dzivhani, the Deputy Director General for Forestry Regulation and Oversight. Ms Dzivhani did not, however, clarify which official with the delegated authority was expected to consider the trusts application for a licence (paragraph 35 and 38). Later during the proceedings it was alleged that the decision on the trusts application was taken by Ms Sqwabe, the Deputy Director: Forestry Regulation and Support at the regional office (paragraph 30).

The court stated that it was a question of fact whether the decision to refuse the trusts application for a licence was taken by Ms Layini who was the forester that the trust was corresponding with and who had sent the rejection letter, or Ms Sqwabe who was a Deputy Director at the regional office (paragraph 30).

It was alleged by DAFF that the decision was taken by Ms Sqwabe who then instructed Ms Layini to convey the decision, and that Ms Layini was merely acted as a conduit for communication with the trust (paragraph 30 and 44)

The court looked at the facts surrounding the decision that was taken, including that:

  • Ms Sqwabe was only identified as the decision maker once the authority of Ms Layini, the forester, was challenged (paragraph 45 and 49);
  • Ms Sqwabe did not state what day she made her decision (paragraph 46);
  • Ms Sqwabe did not visit the property and did not explain how she could have reached the decision (paragraph 47); and
  • Ms Sqwabe did not state what input she received when making her decision, and what documentation or submissions she relied on (paragraph 47).

When considering the allegations the court found that the decision not to grant the licence application was, in fact, made by Ms Layini (paragraph 49 and 51).

The next question to be determined by the court was whether Ms Layini, the decision maker, was authorised to make the decision to grant or refuse the trusts application.

By considering the act and the written delegations of the minister’s powers, the court found that Ms Layini, a forester, was not authorised in terms of the National Forest Act or any applicable delegation to make the decision (paragraph 51). This lack of authority was also conceded by DAFF during the proceedings (paragraph 30).

It was this lack of authority by Ms Layini that lead to the court deciding to set aside DAFF’s decision to refuse the trusts application for a licence to remove the ten milkwood trees.

When setting aside DAFF’s decision the court declined to substitute its own decision for that of DAFF, leaving it up to the trust to submit a new application, and for DAFF to consider this new application afresh.

The court’s opinion on the proper application of the National Forests Act

After setting aside DAFF’s decision the court expressed an opinion on some of the other arguments that the parties presented in the hope of avoiding litigation between the parties in the future (paragraph 53).

The trust had alleged that its application to remove the ten milkwood trees was misconstrued by DAFF, and that is application was:

  • treated as a request for permission for destruction of a forest (paragraph 73);
  • equated to an application for the change of land use (paragraph 74); and
  • viewed as an application for permission to build (paragraph 75).

When rejecting the trusts application DAFF relied on section 3(3) of the National Forests Act, stating that “natural forests must not be destroyed saved (sic) in exceptional circumstances … which excludes residential development” (paragraph 13).

The court, however, held that the application was not an application for either the destruction of a forest, the change of land use or for permission to build (paragraph 73, 74 and 75), but that all DAFF had to decide was whether it was permissible for the trust to remove the trees when taking into account the acts founding principles (paragraph 76).

The court highlighted that the National Forest Act does not have an absolute prohibition of the removal of trees, and the removal of trees in a forest is permitted in terms of the act (paragraph 83).

The court stated that because DAFF misconstrued the application as the trust alleged, it failed to apply the founding principles in a balanced way (paragraph 81 and 83).

The court then went on to consider what the position would have been if the trusts application would have resulted in the destruction of a forest. The court stated that even in this situation the minister would still have to consider the application, considering whether the change is preferable in terms of its economic, social and environmental benefits as required in terms of section 3(3) of the National Forests Act (paragraph 84).

The court stated that the principles laid out by the Constitutional Court in the decision of Fuel Retailers Association of South Africa v General-Director Environmental Management, Department of Agriculture, Conservation and Environment, Mpumalanga Province and others (2007 (6) SA 4 (CC)) would be applicable when DAFF considers an application that falls in the ambit of section 3 of the National Forests Act (paragraph 84). This includes the principle that:

  • “sustainable development” does not mean the end of socio-economic development, but only regulates the methods used when development takes place;
  • people and their needs must be placed at the forefront of environmental management;
  • that the social, economic and environmental impact of a development must be considered, assessed and evaluated, and a decision must be in light of this assessment and consideration; and
  • a decision must take into account the interests, needs and values of all interested and affected parties (paragraph 86).

By considering the provisions of section 3 of the National Forest Act against the principles laid out by the Constitutional Court, the court laid out 11 factors that may be relevant for DAFF to apply when considering an application that falls under section 3:

  • the nature and degree of vulnerability of the forest type;
  • the forests purpose and place in the grand scheme of things, namely does the forest serve an important function or provide an important habitat that contributes to biodiversity;
  • the constitutional imperative to protect the environment generally;
  • the objects of the National Forest Act as they are relevant to the particular forest and set of facts being considered;
  • the fact that the National Forest Act does make provision for permits to be granted to remove protected trees;
  • the vested development rights that the land owner has in its property;
  • the fact that the plans for the extension of the property was validly approved by the municipality;
  • the actual and projected effect of the removal of the trees;
  • the owners right not be deprived of the use of his property;
  • the social, economic and environmental impact if the permit is granted; and
  • the social, economic and environmental impact if the permit is refused (paragraph 87).

The court stated that from the court papers filed by DAFF it was apparent that there was no consideration, assessment or evaluation of the social, economic and environmental impact of the particular application.

The final decision of the court to set aside the refusal of DAFF to grant the trusts application did not hinge on the departments failure to consider the application properly. From the court’s judgement it is, however, clear that Hartle J held the opinion that each application must be considered, assessed and evaluated against the applicable constitutional principles, and the failure to do so could be fatal to a decision taken by DAFF.

A Primer – Financial Provisions for Environmental Rehabilitation

On 20 November 2015 the Financial Provisioning Regulations 2015 was published and became effective (GN R1147 in GG 39425 of 20 November 2015).

The regulations intend to regulate the financial provisions that holders of rights and permits must give in terms of the National Environmental Management Act, No 107 of 1998 (NEMA) for the cost associated with the management, rehabilitation and remediation of environmental impacts that result from prospecting, exploration, mining or production operations that are undertaken in South Africa (regulation 2 and 3).

This note highlights some of the regulations that holders of rights and permits should be aware of. A note setting out the transitional arrangements for financial provisions can be found here.

The requirement to provide a financial provision

Before conducting any prospecting or mining for minerals, or exploration or production of petroleum resources, a person must be grant granted an environmental authorisation in terms of NEMA (section 5A(a) of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA).

One requirement of being granted the environmental authorisation is that the applicant must provide the prescribed financial provision (section 24P(1) of NEMA). This financial provision is intended to cater for the rehabilitation, closure and on-going post decommissioning management of negative environmental impacts that may arise from the operations.

No prospecting or mining for minerals, or exploration or production of petroleum resources can take place unless the financial provision is in place and an environmental authorisation has been granted.

Methods that can be used to provide the financial provision

There are three financial vehicles that can be used to give the necessary financial provision. These vehicles can be used individually or as a combination. They are (regulation 8(1)):

  • financial guarantee issued by a registered bank, insurer or underwriter;
  • cash that must be deposited into an account administered by the Minister of Mineral Resources (“Minister“); or
  • a contribution to a trust fund established specifically for this purpose, provided that:
    • the trust fund can’t be used for annual rehabilitation, or for the final rehabilitation, decommissioning and closure at the end of life of the operations (regulation 8(1)(c)(i)); and
    • the trust is established in terms of a trust deed that complies with the prescribed format (regulation 8(7)).

Quantum of the financial provision

The financial provision must be equal to the actual costs for implementing the following plans and reports for a period of at least 10 years (regulation 7):

  • rehabilitation and remediation, as reflected in the “annual rehabilitation plan” (regulation 5(a) and 6(a));
  • decommissioning and closure at the end of life of the operations, as reflected in the “final rehabilitation, decommissioning and mine closure plan” (regulation 5(b) and 6(b)); and
  • remediation of latent and residual environmental impacts, including the pumping and treatment of polluted or extraneous water, as reflected in the “environmental risk assessment report” (regulation 5(c) and 6(c)).

These plans and reports are prescribed in the regulations (appendix 3, 4 and 5), so care must be taken to make sure that the plans and reports are compliant, and that they contain the prescribed minimum information (regulation 12(1), (2), and (3)).

The quantum must be determined by a specialist (regulation 9(1)), and in the determination the liability can’t be deferred against any assets at mine closure, or mine infrastructure salvage value (regulation 9(2)).

If the Minister is not satisfied with the determination, the Minister may request that the determination or assessment be:

  • adjusted to a satisfactory amount;
  • reviewed externally by another specialist; or
  • confirmed by an independent assessor (regulation 14(2)(c)).

The holder of the right or permit is responsible for all costs related to the determination or assessment of the financial provision (regulation 14(3)).

Compulsory annual review and adjustment

An annual review of the adequacy of the financial provision must be done (regulation 11(2)), and must be submitted within 3 months of the end of the company’s financial year (regulation 11(3)(c)(ii)). This period can be extended by a maximum of 3 months if an application for extension, with reasons, is submitted to the Minister (regulation 12(7) and (8)).

The results of the assessment must:

  • be audited and signed by an independent auditor;
  • be included in the “environmental audit report” prepared according to the Environmental Impact Assessment Regulations 2014;
  • be signed off by the chief executive officer, or person appointed in a similar position, and
  • be submitted to the Minister (regulation 11(3) and 13(3)).

The independent auditor’s declaration must reconcile the financial provision with the estimates of rehabilitation exposure and liabilities (regulation 12(5)), and must include any contingent liabilities and restricted cash that may be associated with the financial provision liability (regulation 12(6)).

If there is a shortfall in the quantum of the financial provision, the financial provision must be increased within 90 days from the signature of the auditor’s report (regulation 11(4)(a)).

Any excess in the quantum of the financial provision can only be deferred against future assessments (regulation 11(4)(b)).

The public’s right of access to information

The holder of a right or permit must make its environmental management programme available to the public (regulation 13(1)).

The environmental management programme must:

  • be published on the holders public website, if the holder has one;
  • be available at the site office of the operations; and
  • be accessible to the public on request.

Placing operations under care and maintenance

A holder of a right or permit must lodge an application with the Minister if they want to place their operations under care and maintenance (regulation 16(1)). No operation may be placed under care and maintenance without the Ministers approval (regulation 16(6)).

The application to place operations under care and maintenance must include:

  • an explanation of the merits of placing the operation under care and maintenance; and
  • a “care and maintenance plan“, that contains the minimum prescribed information (regulation 16(2) and appendix 6).

Permission to place an operation under care and maintenance can be granted for a maximum of 5 years, with or without conditions, and at the end of this period the approval will be reviewed by the Minister (regulation 16(4)).

The care and maintenance plan must be audited and updated annually (regulation 16(5)(b)).

The withdrawal of the financial guarantee by financial institutions

If a financial institution wants to withdraw the guarantee that it has provided for the financial provision:

  • the financial institution must give the Minister at least four months written notice of its intention by registered mail (regulation 8(3)(a)); and
  • the Minister must then give the holder of the right or permit 60 days to provide an alternate arrangement for the required financial provision (regulation 8(4)).

If the holder of the right or permit can’t provide an alternate arrangement within the 60 day period, the Minister must call on the financial guarantee. This money is then held by the Minister until an alternate arrangement can be provided for the financial provision (regulation 8(5)).

If the holder of the right or permit does provide an alternate arrangement then the Minister must release the first guarantee within 7 days of receiving the alternate financial provision.

A Primer – Mineral And Petroleum Resources Royalty Act

The Mineral And Petroleum Resources Royalty Act, No 28 of 2008 (MPRRA) imposes compulsory royalty payments that must be paid by any person who transfers a mineral resource that was extracted in South Africa (section 2). The royalty is paid to the South African Government (section 2).

The registration of persons that must make royalty payments, and the administration of the royalty payments, are regulated in accordance with the separate Mineral And Petroleum Resources Royalty (Administration) Act, No 28 of 2008 (MPRRAA).

Imposition of royalty charges

A royalty is imposed on an extractor when:

  • there is a transfer;
  • of a mineral resource;
  • that was extracted within South Africa (section 2).

The point where the royalty is imposed is on the “transfer”, not the extraction, of the mineral resource (section 2). “Transfer” is defined as the first instance that the mineral resource is disposed of, consumed, stolen, destroyed, or lost (section 1).

This definition ensures that a royalty is imposed only once on the first transfer, even in cases where there are a series of transfers after the minerals extraction.

Royalty rate

There are two different royalty rates that may be applied, one applicable to refined mineral resources, and the other applicable to unrefined mineral resources (section 3). The two rates are:

  • refined mineral resources:
    • 0.5 + [earnings before interest and taxes / (gross sales in respect of refined mineral resources X 12.5)] X 100;
    • maximum rate of 5% (section 4(1) as read with section 4(3)(a)).
  • unrefined mineral resources:
    • 0.5 + [earnings before interest and taxes / (gross sales in respect of unrefined mineral resources X 9)] X 100;
    • maximum rate of 7% (section 4(2) as read with section 4(3)(b)).

The MPRRA sets out specific formulas that must be used when calculating earnings before interest and taxes (“EBIT”) and gross sales (section 5 and 6 respectively). These formulas excludes the inclusion of certain expenditures, and may result in different results being reached compared to the use of the traditional accounting formulas.

The MPRRA also includes provisions that may exempt certain extractors, or provide relief under certain circumstances.

Exemption for small business

The MPRRA exempts small business extractors from royalties if they comply with various requirements (section 7).

An extractor is exempted from royalties if:

  • the gross sales of the extractor is R10 million or less;
  • the royalty that would be imposed for that year is R100,000 or less; and
  • the extractor is a resident of South Africa for income tax purposes (section 7(1)(a) to (c)).

This exemption does not apply if:

  • the extractor holds more than a 50% interest in another extractor;
  • any other extractor holds a right to participate in more than 50% of the profits of the extractor;
  • any person holds the right to participate in more than 50 per cent of the profits of the extractor and any other extractor; or
  • the extractor is an unincorporated body of persons (section 7(2)(a) to (d) as read with section 4 of the MPRRAA).

Exemption for sampling activities

An extractor is exempt from paying royalties on samples won in the course of prospecting or exploration operations for the purposes of testing, identification, analysis, and sampling, provided that the gross sales of those mineral resources doesn’t exceed R100,000 (section 8).

Rollover relief for transfers between extractors

When mineral resources are transferred from one extractor to another, the transfer will be exempt from royalties if:

  • both extractors are registered to pay royalties in terms of the MPRRAA; and
  • both extractors agree in writing that the rollover relief will be applied (section 8A).

Rollover relief for disposals involving going concerns

When there is a transfer of a mineral resource between two extractors as part of a disposal of a business as a going concern is not regarded as a transfer for purposes of payment of royalties.

A Primer – National Water Act

The National Water Act, No 36 of 1998 (NWA) was enacted to ensure that water resources are protected and conserved in a sustainable and equitable manner (sections 2 and 3). The entitlement to use water is regulated by requiring a user to acquire a water use licence before commencing with various activities.

Definition of “water use”

“Water use” is defined broadly in the NWA, and includes:

  • taking water from a water resource;
  • storing water;
  • impeding or diverting the flow of water in a watercourse;
  • discharging of waste water into a water resource;
  • altering the bed, banks, course or characteristics of a watercourse; and
  • removing or disposing of water found underground (section 21).

Requirement for a water use licence

A water use licence is required is for any water use unless the water use:

  • falls in the list of permissible uses that are set out in schedule 1;
  • is permitted in terms of a general authorisation that are published by notice in the government gazette; or
  • was a continuation of an existing lawful use prior to the commencement of the NWA (section 22).

A person is not automatically entitled to use water for prospecting, mining, exploration or production solely because a right has been granted for the activity in terms of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) (section 5(3)(d)). The use of water for these activities are still regulated by the Water Act and a separate water use licence is needed if the water use falls outside of the scope of the general authorisations under the NWA.

The general authorisations issued in terms of the NWA allows prospecting, mining, and quarrying companies, and other “small industrial users”, to use and store certain quantities of groundwater and surface water without needing a water licence (item 1.7 of GN 399 in GG 26187 of 26 March 2004).

The specific quantities are allowed, are however, dependant on the drainage regions where the activities will take place, and are subject to the water use not being excessive or detrimental to other water users.

Even if the water use falls within the authorisation and a water licence is not required, a water user may still be required to register as a water user.

Before commencing with any activities that may need water, it is necessary for a person to determine if the use of water is regulated by the NWA, and if so:

  • are the activities exempted from requiring a water licence because the quantities fall within the thresholds set out in the general authorisations;
  • is registration as a water user required even though a separate water use licence is not needed?

A Primer – National Environmental Management Waste Act

The National Environmental Management: Waste Act, No 59 of 2008 (the “Waste Act“) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). It aims to regulate waste management in order to protect health and the environment through the minimisation of the consumption of natural resources and generation of waste, ensuring the treating and safe disposal of waste, and the prevention of pollution and ecological degradation (section 2(a)).

The act sets certain standards and requirements that are applicable to all waste. The act also lists certain waste management activities cannot be conducted by any person unless the activity is conducted in accordance with the prescribed standards and a waste management licence is issued if required for the activity (section 20). To determine whether a waste management licence is needed the following questions must be answered.

Definition of “waste”

Is the substance a “waste” regulated in terms of the act?

Waste is defined very broadly in the act, and includes:

  • any substance or material that is unwanted, discarded or abandoned or is intended to be discarded or disposed of;
  • all substances listed in schedule 3 of the act; and
  • any other substance the minister identifies as waste by notice published in the government gazette (section 1).

Listed activities in terms of the Waste Act

If the substance is waste, is the intended activity listed as an activity that requires a waste management licence? The listed activities are, again, listed broadly and include a wide range of activities such as storage, recycling, treatment and disposal of waste, and the construction of facilities to accomplish these activities (GN 921 in GG 37083 of 29 November 2013).

The requirement to get a licence before conducting these activities may depend on the place where the activity is conducted and the volumes that are involved (GN 921).

For the mineral and petroleum industry the regulation of residue stockpiles and residue deposits as waste is particularly significant. These activities were previously excluded from regulation under the Waste Act (repealed section 4(b)). The act was, however, amended in 2014 as part of the effort to create a single environmental management system to regulate environmental management in South Africa. Residue stockpiles and residue deposits, defined to include all waste resulting from exploration, mining, quarrying, and physical and chemical treatment of minerals, are now a listed waste for the purposes of the Waste Act (sections 1 and schedule 3).

Depending on the activities that are conducted by mineral and petroleum companies, a waste management licence may have to be obtained in respect of stockpiles and deposits. This is in addition to the general requirement that all stockpiles and deposits must be managed in the manner prescribed by the act and deposited on a site designated for that purpose in the applicable environmental management plan or programme (the EMP) (sections 24S of NEMA, and sections 1 and 43A of the Waste Act).

A Primer – National Environmental Management Biodiversity Act

The National Environmental Management: Biodiversity Act, No 10 of 2004 (NEMBA) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). NEMBA aims to provide for the management and conservation of South Africa’s biodiversity within the framework of NEMA. These objectives are promoted by giving protections to ecosystems and species that are threatened or in need of protection (section 51).

Numerous species of flora and fauna have also been identified as a threatened or protected species, and two hundred and twenty five threatened ecosystems have already been identified in terms of NEMBA (sections 52, 56 and GN 1002 in GG 34809 of 9 December 2011).

NEMBA restrictions

A permit must be acquired before conducting any “restricted activities” involving any protected species of flora or fauna (section 57(1)). These restricted activities include:

  • cutting, chopping off, uprooting, damaging or destroying any specimen; and
  • conveying, moving or trans-locating any specimen (section 1).

NEMBA doesn’t have any exemptions for the mineral and petroleum industry, and may have an impact on planned prospecting, mining, exploration or production activities.

A Primer – National Environmental Management Protected Areas Act

The National Environmental Management: Protected Areas Act, No 57 of 2003 (NEMPAA) is a complimentary act to the National Environmental Management Act, No 107 of 1998 (NEMA). NEMPAA aims to provide for the protection and conservation of ecologically viable areas that are representative of South Africa’s biological diversity. This objective is accomplished through the declaration and management of protected these identified areas (section 2).

The restrictions on the development of protected areas in NEMPAA are in addition to any restrictions placed on prospecting or mining of minerals, or exploration or production of petroleum resources, in terms of the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA). In the event of any conflicts between these two acts, the provisions of NEMPAA will prevail if the conflict concerns the management or development of protected areas (NEMPAA section 7(1)(a)).

The MPRDA prohibits any right for the prospecting or mining of minerals from being granted over residential areas, public roads, public railways, public cemeteries, land being used for public or government purposes or over any other area identified by the Minister of Mineral Resources, unless the minister is satisfied that the granting of the right is in the national interest, the operations will take place within the framework of the national environmental policies and the interests of other holders of prospecting or mining rights will not be adversely affected (section 48).

Restrictions imposed by NEMPAA

In addition to the restrictions under the MPRDA, NEMPAA could potentially affect the mineral and petroleum industry in two ways. First, despite being granted the required mineral right in terms of the MPRDA, no person may conduct prospecting, mining, exploration or any related activities in any:

  • nature reserve or national park;
  • protected environment without the prescribed permissions;
  • world heritage site;
  • marine protected area; or
  • protected forest areas, forest nature reserves and forest wilderness areas that have been declared in terms of the National forests Act, No 84 of 1998 (section 48(1) and 48A(1)(g)).

Further, if an area has been or is proposed to be declared as part of a national protected area or as part of a national park after a mineral right is granted, the responsible minister is empowered to expropriate or cancel a mineral right, servitude or any other privately held right in the land (sections 80, 81, 82 and 84). When cancelling or expropriating any rights the provisions of the Constitution of the Republic of South Africa and the Expropriation Act, No 63 of 1975, are applicable. These require the right holder to be compensated for the expropriated right.

A Primer – National Environmental Management Act

The National Environmental Management Act, No 107 of 1998 (NEMA) is the principle act that governs environmental management in South Africa. NEMA was enacted with the objectives of ensuring sustainable development and use of natural resources. This act is complimented by other specific environmental management acts, each regulating more specific environmental concerns. These complimentary acts include the NEMA: Protected Areas Act, NEMA: Biodiversity Act and the National Water Act.

During 2013 and 2014 NEMA and the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) underwent a series of amendments. These amendments sought to remove all of the provisions regulating environmental management from the MPRDA and insert provisions to regulate the mineral and petroleum industry into NEMA. This created a single environmental management system that now regulates environmental management in South Africa.

Environmental authorisations in terms of NEMA

The key provisions in NEMA that are applicable to the mineral and petroleum industry are that must be considered is the requirement to obtain regulatory approval before commencing with certain listed activities (section 23 and 24). Before any prospecting, mining, exploration or production of mineral or petroleum resources, or any other incidental work, can be undertaken a person must granted an environmental authorisation in terms of NEMA in addition to the permit or right required in terms of the MPRDA (section 5A(a) and (b) of the MPRDA and section 24 of NEMA).

The application for the required environmental authorisation is done as part of the application for a right or permit in terms of the MPRDA. When submitting an application for a right or permit in terms of the MPRDA an applicant is required to submit an environmental management programme (section 24N(1A) of NEMA), also referred to as an EMP, within the following periods once an application has been accepted:

  • Prospecting Right: 60 days (section 16(4)(a) of the MPRDA);
  • Mining Right: 180 days (section 22(4)(a) of the MPRDA);
  • Mining Permit: Simultaneously (section 27(2) of the MPRDA);
  • Reconnaissance Permit: 60 days (section 74(4)(b) of the MPRDA);
  • Exploration Right: 120 days (section 79(4)(b) of the MPRDA);
  • Production Right: 180 days (section 83(4)(b) of the MPRDA).

It must be kept in mind that NEMA regulates more than just the mineral and petroleum industry. As a result, some activities that are conducted as part of the mining or production operations might be regulated separately under NEMA. Depending on the circumstances the EMP that is submitted as part of the MPRDA application procedure might have to be extended to address these additional incidental activities or a separate environmental authorisation might need to be considered. Some of the additional listed activities that could be applicable to the mineral and petroleum industry are:

  • the construction of infrastructure for the generation of electricity;
  • the construction of coal storage facilities;
  • construction of facilities for the bulk transportation of sewerage or storm water;
  • construction of canals, bridges, dams, reservoirs and bulk storm water outlets;
  • earth moving activities in, or within one hundred meters of the sea, an estuary or littoral active zone;
  • construction of roads with a reserve wider than thirteen and a half meters or without a reserve wider than eight meters;
  • the physical alteration of more than twenty hectares of undeveloped land for industrial use;
  • construction of railway lines; and
  • the bulk transport of dangerous goods.

Additional considerations in NEMA

In addition to the requirement to obtain authorisation to conduct certain activities, NEMA also regulates the following matters that should be taken into consideration:

  • the requirement to provide a “financial provision“, such as a bank guarantee, that can be used to undertake rehabilitation and mine closure (section 24P);
  • performance monitoring and assessment (section 24Q);
  • the management of residue stockpiles and residue deposits, including discard, tailings, dumps and waste rock (section 24S); and
  • the continuing environmental obligations and mine closure requirements (section 24R).

A Primer – Mineral and Petroleum Resources Development Act

Since 1 May 2004 the Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA) has been the principle piece of legislation that regulates the South African mineral and petroleum sector. This act will generally be applicable to any project that involves the any prospecting for or mining of minerals, or any exploration for or production of petroleum resources.

The MPRDA was enacted with the objectives of promoting local and rural development, ensuring equal access to minerals, and eradicating discriminatory practices in the industry, while still guaranteeing security of tenure to participants in the industry and increasing the industries international competitiveness.

One of the fundamental changes that were brought about by the MPRDA was the abolishment of the right for persons to privately own minerals and petroleum rights. The state is now the custodian of all mineral and petroleum resources and these resources are held by the state for the benefit of all South Africans (section 3(1)). To ensure security of tenure for holders of mineral and petroleum rights that were held under the previous mineral regime, these holders were granted a five year period to convert their rights to a right issued in terms of the MPRDA.

The requirement to be granted a licence

Before conducting any prospecting or mining of minerals, or exploration or production of petroleum resources, a person must first be granted a permit or right from the Department of Mineral Resources authorising the intended activity.

The MPRDA regulates minerals and petroleum as defined in the act. These terms are defined broadly but the definitions do contain exceptions.

A mineral is defined as any solid, liquid or gaseous substance occurring naturally in or on the earth or in or under water that was formed by or subjected to geological processes. Importantly, the definition of “mineral” includes sand, stone, rock, gravel, clay and soil, and all minerals in residue stockpiles or residue deposits (including dumps, debris, discard, tailings and slimes) (section 1). The definition of mineral excludes water and peat (section 1).

Petroleum is defined as any liquid, solid hydrocarbon or combustible gas existing in a natural condition in the earth’s crust. The definition excludes coal, bituminous shale, stratified deposits from which oil can be obtained by destructive, distillation, and gasses rising from marshes or other surface deposits (section 1).

The licence application procedure

Before conducting any prospecting or mining of minerals, or exploration or production of petroleum resources, a person must:

  • be granted a right by the Minister of Mineral Resources authorising the intended activity in terms of the MPRDA (section 5A(b));
  • be granted an environmental authorisation in terms of the National Environmental Management Act (NEMA) (section 5A(a));
  • conduct consultations with all landowners and other persons that could be interested in, or affected by, the intended operations; and
  • give the landowner or occupier of the land at least twenty one days’ notice of the intended activities (section 5A(c)).

The application procedure for a right is designed to ensure that the objectives of the MPRDA are promoted by ensuring that all interested and affected parties are notified of the application and that the black economic empowerment objectives in the MPRDA are also promoted.

All interested and affected parties must be notified of the pending application and are called upon to raise any objection that they may have against the application (section 10). The applicant is also required to hold consultations with the landowners and occupiers of the property and all other interested and affected parties (sections 16(4)(b), 22(4)(b) and 27(5)(a)).

Broad based black economic empowerment requirements (local participation)

The black economic empowerment objectives in the MPRDA are promoted during the application procedure. The empowerment objectives require the promotion of access to resources and the expansion of opportunities for disadvantaged persons, women and communities to enter into the mineral and petroleum industry.

Before a prospecting right, mining right, exploration right or production right is granted the minister must be satisfied that the granting of the right will substantially and meaningfully expand the opportunities for these groups (sections 17(1)(f), 23(1)(h), 80(1)(g) and 84(1)(i) as read with section 2(d)).

The empowerment requirements are expanded on in the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Metals Industry that was published in 2010. The charter has various elements that must be complied with to ensure that the project will satisfy the empowerment requirements and qualify for a licence.

Generally, in order for the empowerment objectives to be satisfied and the application to be granted a minimum of twenty six per cent of the project should be owned by historically disadvantaged South Africans, and historically disadvantaged South Africans should participate in the management of the company.

Categories of licences that can be granted in terms of the MPRDA

The following licences can be granted in terms of the MPRDA:

To prospect for minerals:

  • A reconnaissance permission:
    • Granted for a non-renewable period of 1 year (section 14).
    • Allows only for the search of minerals by geological, geophysical and photo geological surveys or through the use of remote sensing techniques (section 5A as read with section 1).
  • A prospecting right:
    • Granted for a maximum period of 5 years (section 17(6)).
    • Renewable for 1 further single period that can’t exceed 3 years (section 18(4)).
    • Allows for prospecting by any means, including methods that disturb the surface or subsurface of the earth, whether on land, under sea or under water (section 5A read with section 1).
    • Diamonds and bulk samples of other minerals that are found during the prospecting operations can only be disposed of with the consent of the minister (section 20(2)). This consent is typically granted in the form of a bulk sampling permit.

To mine for minerals

  • A mining right:
    • Granted for a maximum period of 30 years (section 23(6)).
    • Renewable for further periods. Each further period may not exceed 30 years (section 24(4)).
  • A mining permit:
    • A mining permit is intended for small scale mining operations and may only be issued if (i) the mineral can be mined optimally in 2 years; and (ii) the area is 5 hectares or less.
    • Granted for a maximum period of 2 years (section 27(8)(a)).
    • May be renewed a maximum of 3 times. Each renewal may not be longer than 1 year (section 27(8)(b)).

To explore for petroleum

  • A reconnaissance permit:
    • Granted for a non-renewable period of 1 year (section 74(4)).
    • Allows only for the search of petroleum by geological, geophysical and photo geological surveys or through the use of remote sensing techniques (section 5A as read with section 1).
  • A technical cooperation permit:
    • Granted for a non-renewable period of 1 year (section 77(4)).
    • Allows the holder to conduct a technical cooperation study and grants the holder the exclusive right to later apply for an exploration right over the area (section 77(4) and section 78(1)).
  • An exploration right:
    • Granted for a maximum period of 3 years (section 80(5)).
    • May be renewed a maximum of 3 times. Each renewal may not be longer than 2 years (section 81(5)).

To produce petroleum

  • A production right:
    • Granted for a maximum period of 30 years (section 84(4)).
    • Renewable for further periods. Each further period may not exceed 30 years (section 85(4)).

A Guide to the Mineral and Petroleum Industry in South Africa

What laws apply to the mineral and petroleum industry in South Africa? What potential pitfalls must a person look out for when they consider entering into these industries in South Africa?

Unfortunately this isn’t an easy or quick question to answer because the applicable laws and regulations will depend on the projects scope and characteristics – the intended mining or production activities, infrastructure requirements and the project location. But there are two acts that can serve as a starting point. The principle act regulating the mineral and petroleum sector is the Mineral and Petroleum Resources Development Act (MPRDA), and the principle act regulating environmental management is the National Environmental Management Act (NEMA).

In any project it may, however, be necessary to consider various other laws and regulations. The purpose of this note is to give a starting point for a more in depth exploration of the laws applicable to the mineral and petroleum industry.

The following list has links to discussions on some of the acts and regulations in South Africa that may be considered. This list is unfortunately incomplete and non-exhaustive.

Mineral and petroleum licensing and permitting

Environmental management

Water management

Taxation

  • Income Tax Act, No 58 of 1962 (Income Tax Act);
  • Mineral and Petroleum Resources Royalty Act, No 28 of 2008 (Royalty Act);
  • Mineral and Petroleum Resources Royalty (Administration) Act, No 29 of 2008 (Royalty Admin Act).

Industry specific legislation:

  • Diamonds Act, No 56 of 1986 (Diamonds Act);
  • Petroleum Products Act, No 120 of 1977 (Petroleum Products Act);
  • Precious Metals Act, No 37 of 2005 (Precious Metals Act).

The Perils of Shareholders Agreements in South Africa

How enforceable are the clauses in your company’s shareholders agreement?

Unfortunately, for many shareholders an investigation into the legal aspects regulating shareholders agreements will lead to the conclusion that many of the provisions in their shareholders’ agreements are void.

When buying shares in a private company or forming a new private company, it is common practice to enter into a shareholders agreement with company’s other shareholders. The shareholders agreement is intended to regulate the important internal governance structures of the company like the appointment of directors and the calling of directors and shareholders meetings, and in many instances give important protection mechanisms to minority shareholders.

In many cases shareholders agreements are concluded without the shareholders considering the impact that the company’s constitutional documents (the company’s memorandum of incorporation (MOI) might have on the validity of the shareholders agreement.

This means that it is common for a company’s MOI to render many clauses in a shareholders agreement void and unenforceable if there is a dispute between the shareholders.

To understand why, I will briefly explain how the practice of concluding shareholders agreements without the necessity to consider the company’s MOI developed in terms of the old Companies Act (Act No 61 of 1973), and the significant changes that the new Companies Act (Act No 71 of 2008) had on this practice.

The historical use of shareholders agreements

Under the old Companies Act a company’s constitutional documents were its memorandum of association and articles of association. These documents, and any amendments to them, had to be registered at the Registrar of Companies and became public documents that were open to inspection. An amendment to the articles of association needs to be registered, and this makes the provisions that regulate the company’s internal affairs public.

A shareholders agreement was, however, a private contract that didn’t need to be registered. It could be concluded between the shareholders at any time, even after the company’s incorporation, and it was enforceable between the shareholders and the company even though it was not registered.

A shareholders agreement could be used to regulate important aspects of the company without amending its articles of association and making those provisions public.

Provisions in the shareholders agreements were often in direct conflict with the company’s articles of association. To counteract this a shareholders agreement would typically include a clause stating that if there was any conflict, the shareholders agreement would be the document that takes precedence. Under the old Companies Act a provision like this, making a private shareholders agreement trump the company’s public registered constitutional documents, was permitted in law.

Practically this lead to a situation where a private company’s constitutional documents could effectively be ignored by its shareholders, and the shareholders would merely regulate the affairs of the company through a shareholders agreement.

Changes to shareholders agreements under the new Companies Act

The new Companies Act has, however, dramatically changed the possible scope and effectiveness of shareholders agreements in two ways:

  • it has altered how conflicting clauses the MOI and a shareholders agreement are resolved; and
  • it has curtailed what the shareholders are entitled to regulate in a shareholders agreement by now providing that some issues can’t be changed or regulated at all (unalterable provisions), and that some issues can be regulated but only if they are regulated in the MOI (alterable provisions).

The new Companies Act: Conflicts between the MOI and shareholders agreements

Shareholders agreements aren’t prohibited under the new Companies Act, but it does limit the potential ambit of shareholders agreements by requiring that any shareholders agreement must be consistent with the provisions of the act and with the company’s MOI (section 15(7)).

If there is any inconsistency between the shareholders agreement and either the Companies Act or the company’s MOI, then the conflicting provision in the shareholders’ agreement is void and will be unenforceable (section 15(7)).

A clause in a shareholders agreement that provides that the shareholders agreement will take precedence over the memorandum of incorporation if there is a conflict is void, first because the clause would itself be a provision that is inconsistent with the act (section 15(7)), and secondly because it would fall afoul of the acts anti avoidance provisions by attempting to defeat or reduce the effect of the acts prohibitions or requirements (section 6(1)). These types of provisions would not provide any assistance to the shareholders if they attempt to enforce a conflicting provision in a shareholders agreement.

Under the new Companies Act shareholders are still entitled to enter into shareholders agreements, but they must now inspect the company’s MOI before concluding these agreements to make sure that the shareholders agreement doesn’t conflict with the MOI.

If there is a conflict between what is in the MOI and what is in the shareholders’ agreement, the clause in the shareholders’ agreement is void and gives the shareholders’ no protection.

The new Companies Act: Unalterable and alterable provisions

A legal aspect that is related to the requirement that a shareholders agreement must be consistent with the company’s MOI, is the introduction of the concept of “unalterable” and “alterable” provisions by the new Companies Act.

The new Companies Act contains provisions and principles that are stipulated as unalterable. A company’s MOI can’t contain any clause that negates, restricts, limits, qualifies, extends or alters the substance or effect of an unalterable provision (section 15(2)(d)). Any attempt to alter these unalterable provisions in the MOI will be void (section 15(1)).

Likewise, these unalterable provisions of the Companies Act can’t be negated or altered by the shareholders in a shareholders agreement because these provisions in the shareholders’ agreement would be contrary to the act, and void (section 15(7)).

Opposed to unalterable provisions, the new Companies Act contains provisions and principles that are specifically stipulated as being alterable. These alterable provisions may, however, only be altered if they are expressly altered by the company in its MOI (section 19(1)(c)(ii)). (A company did have a two year transitional period to update its MOI, but this period ended on 30 April 2013. I have previously written an overview of the Companies Acts transitional period for shareholders agreements here.)

Any attempt by the shareholders to alter an alterable provision by concluding a shareholders agreement will be void because these provisions in the shareholders’ agreement would be contrary to the act (section 15(7)).

Limitations placed on shareholders agreements

A shareholders agreement:

  • can’t be used to alter an unalterable provision in the Companies Act; and
  • can’t be used to alter an alterable provision in the Companies Act; and
  • can’t conflict with any provision in the company’s MOI.

These legal restrictions didn’t exist under the old Companies Act, meaning that shareholders agreements prepared according to the old Companies Act could be void under the current act. Also, it means that when preparing new shareholders agreements care should be taken to ensure that the new shareholders agreement complies with the new Companies Act.

Unfortunately it is not possible to give a complete list of unalterable and alterable provisions in this article, but a list of the most common clauses that are found in shareholders agreements, that may be void because they conflict with the Companies Act are briefly discussed.

Unalterable provisions

The following provisions can’t be altered at all, and any clause in a shareholders agreement that conflicts with them will be void:

  • A private company must restrict the offer of shares to the public (section 8(2)(b));
  • A private company must restrict the transferability of its shares (section 8(2)(b));
  • If a company has more than 2 shareholders, a meeting may not begin or a matter may not be decided, unless 3 or more shareholders are present (section 64(3);
  • Private and public companies must provide for the election by shareholders of at least 50% of the directors, and 50% of any alternate directors (section 66(4)(b));
  • A company may only pay remuneration to its directors for their service as directors if the remuneration has been approved by special resolution within the previous 2 years (section 66(8) and (9));
  • The Companies Act takeover regulations apply to private companies if the percentage of the issued securities of that company that have been transferred within the period of 24 months immediately before the date of a particular affected transaction or offer exceeds the prescribed percentage (section 118(1)).

Categories of provisions that are alterable only in the MOI

These are alterable provisions that can only be altered in a company’s MOI. An attempt to regulate these matters in a shareholders agreement will be void.

These aspects of a company and its management can only be regulated in the MOI:

  • Management of the Company:
    • the removal of the boards power to make binding interim rules that are incidental to the governance of the company (section 15(3));

Ensuring that the Shareholders Agreement complies with the Companies Act

When buying shares in a private company or forming a new private company, it is important to ensure that when a shareholders’ agreement is entered into, that the shareholders agreement is fully valid.

A comparison between the shareholders’ agreement and the company’s MOI must be done:

  • no changes can be made to an unalterable provision of the Companies Act at all;
  • if the shareholders want to change the application of any alterable provisions, this must be done in the MOI because the provision will be void if it is only in the shareholders’ agreement;
  • if there is any inconsistencies between the MOI and the shareholders’ agreement, the provision in the shareholders’ agreement will be void.

An important observation to take away from this discussion is that the MOI, not the shareholders’ agreement, should be the primary focus for shareholders.

How enforceable are the clauses in your company’s shareholders agreement?

When the Minister of Mineral Resources Ignores You

If a commercial transaction is concluded with a person that holds a right issued by the Department of Mineral Resources (“the department”) care must be exercised to ensure that the required regulatory approvals needed for the implementation of the transaction has been granted. Examples of commercial transactions that need ministerial approval in terms of the Mineral and Petroleum Resources Development Act No 28 of 2002 (MPRDA) before they can be implemented include agreements that would result in:

  • a transfer a prospecting right or mining right, for example a sale, cession or donation of the right;
  • a transfer any interest in prospecting right or mining right, for example the transfer of an undivided share in a right; and
  • a transfer a controlling interest in a company holds a prospecting right or mining right, for example a sale of shares agreement or an issue and allotment of new shares resulting in a change of control (section 11(1) of the MPRDA).

To get consent to implement these transactions a formal application must be submitted to the department. Unfortunately, the legislation does not provide any maximum time limits that are applicable when considering the application. In most cases an application submitted to the department is approved without too much delay, but in some cases months, if not years, may pass without the application for consent being considered.

Delays in the approval process can have drastic consequences on commercial transactions because without the required consent they can’t become effective and can’t be implemented by the parties. What can a person do if there is a significant delay in the approval process after the application for ministerial consent has been submitted? The most common answer is for a person to bring an application to court, and ask the court to grant an order forcing the department to perform its duty. This court relief is referred to as a mandatory interdict, or a mandamus. In many situations this relief would be a sufficient; the matter is referred back to the department for consideration within a court specified time line.

The purpose of this article is, however, to explore alternate legal remedies that could be used if there is a significant delay in the approval process. Particularly:

  • Can a person bring a court application for a court order granting an application that was submitted in terms of the MPRDA, without the need to refer the matter back to the minister for consideration?

The general right to just administrative action

Any action taken by an organ of state must be (i) lawful; (ii) reasonable; and (iii) procedurally fair. If an action does not meet with these requirements a person who has been affected by the action has the right to approach a court to “review” the infringing action, and ask the court for appropriate relief. This right of judicial review stems from the Constitution of the Republic of South Africa 1996 (the Constitution), and is given effect by the Promotion of Administrative Justice Act 3 of 2000 (PAJA) (in particular see section 33 of the Constitution).

Both actions and inactions of the government can be reviewed by a court. This is because an “administrative action” is defined to include any decision taken, or the failure or refusal to take a decision, by an organ of state when exercising a public power or performing a public function in terms of legislation (the definition of “administrative action” as read with the definition of “failure” contained in section 1).

A court has wide powers when reviewing an administrative decision (see section 8 of PAJA). In cases where the government’s administrative action amounts to the failure or refusal to take a decision, then the court may grant any order that it just and equitable, including an order:

  • directing the taking of a decision; or
  • declaring the rights of the parties in relation to the taking of a decision.

Accordingly, if the minister fails to consider an application that has been submitted by a person in terms of the MPRDA, the ministers inaction will be “an administrative action”, and falls within the ambit of PAJA. Under these circumstances a person should be able to approach the court for appropriate relief.

The right to approach a court directly for relief in terms of PAJA is, however, curtailed if the applicable legislation, such as the MPRDA, contains an internal appeal procedure (section 6(2)(g) and 7(2)(a) of PAJA).

Court action versus the department’s internal appeal process

A person’s right to approach the court to review an administrative decision in terms of PAJA is not unlimited. A person can’t approach a court until any internal appeal process in the applicable law, such as the MPRDA, has been exhausted (section 7(2)(a) of PAJA). It is intended that a person’s first port of call should be the legislated internal appeal procedure. A person can only approach a court if the applicable act doesn’t have an appeal procedure, or after the appeal procedure has been followed. Exceptions to this rule do, however, exist, and a person is entitled to approach the court directly without first exhausting the internal appeal procedure is there are “exceptional circumstances” (section 7(2)(c) of PAJA).

To phrase these requirements differently, a court can be approached to review an administrative action if:

  • an internal appeal was submitted but it was unsuccessful (section 7(2)(a) of PAJA); or
  • the particular law has no internal appeal procedure that is applicable; or
  • the particular law has an internal appeal procedure, but there are exceptional circumstances that are applicable, the court exempts the applicant from having to follow the internal appeal procedure (section 7(2)(c) of PAJA).

What is the correct legal process if the minister fails to consider an application that has been submitted by a person in terms of the MPRDA? This will depend on whether the MPRDA contains an internal remedy that can be relied on when the minister fails to take any action.

Can the MPRDA’s internal appeal procedure be used when the minister fails to take a decision?

Is there an internal appeal in situations where the minister fails to take a decision, or does the internal appeal procedure in the MPRDA only apply to decisions that have actually been taken? Is it correct to argue that the internal appeal procedure must be followed in a situation where the minister fails to make a decision in terms of the MPRDA?

If the internal appeal procedure doesn’t apply to a failure to take a decision then there will be no requirement to institute an internal appeal. In these circumstances a person will be entitled to approach the court immediately without having to prove that there are exceptional circumstances that allow the court to exempt the person from the internal appeal requirements.

In order to answer this question the internal appeal procedure that is set out in the MPRDA must be examined.

The internal appeal procedure in terms of the Mineral and Petroleum Resources Development Act

The MPRDA has an internal appeal process that can be relied on in some circumstances (section 96). This internal appeal process can be summarised as follows:

  • A person is prohibited from applying to court for the review of an “administrative decision” of the department until they have exhausted the remedies set out in the MPRDA (section 96(3)).
  • A person whose rights or legitimate expectations have been materially and adversely affected, or who is aggrieved by any “administrative decision”, may appeal within 30 days of becoming aware of such administrative decision (section 96(1)), setting out:
    • the actions appealed against; and
    • the grounds on which the appeal is based (regulation 74(2)).
  • A copy of the appeal will be dispatched by the department to:
    • the person in the department responsible for the administrative decision, who must then within 21 days submit written reasons for the administrative decision appealed against (regulations 74(5)(a) and 74(6)); and
    • any other person, whose rights may be affected by the outcome of the appeal, who must then within 21 days submit a replying submission indicating the extent and nature of his or her rights, and how they will be affected by the appeal (regulations 74(5)(a) and 74(7)).
  • The department will then dispatch the written reasons and any replying submissions that it received to the appellant, and the appellant is then afforded 21 days to reply to these reasons and submissions (regulation 74(8)).
  • Within 30 days from the receipt of the appellant’s response, the minister or director-general must either:
    • confirm the administrative decision concerned;
    • set aside the administrative decision concerned;
    • amend the administrative decision concerned; or
    • substitute any other administrative decision for the administrative decision concerned (regulation 74(9).
  • The lodging of an appeal does not suspend the administrative decision, unless it is suspended by the director-general or the minister (section 96(2)(a)).

Does this procedure apply when the minister fails to take a decision?

As discussed, a person does not have the right to approach a court to review any administrative action unless any internal appeal procedure in the MPRDA has been exhausted or unless there are exceptional circumstances that allow the court to exempt the person from the internal appeal requirements.

The MPRDA does have an internal appeal process (section 96), but does the MPRDA’s internal appeal procedure apply in situations where the minister fails to take a decision?

An “administrative action” is defined in PAJA to include the failure to take a decision, but the MPRDA’s appeal procedure doesn’t use this term. The MPRDA’s internal appeal procedure states that it applies to “administrative decisions”, a term that is not defined.

The wording and context of the internal appeal procedure supports a conclusion that the term “administrative decision” can only relate to decisions that have actually been taken, and doesn’t apply to a failure to take a decision:

  • The MPRDA requires that any “decision taken” must be taken within a reasonable time, must be in writing, and must be accompanied by written reasons for the decision (sections 6(1) and (2)). In a situation where the minister has failed to consider an application there will be no “decision” taken. This non-decision is not capable of being reduced to writing, and similarly it will not be possible to give any reasons for the non-decision.
  • An internal appeal must be lodged within 30 days of becoming aware of the administrative decision (section 96(1)). It is impossible to comply with this requirement if no positive action is taken, especially when the MPRDA does not prescribe a fixed duration during which the decision must be taken. If the minister has an indeterminable amount of time to consider the application, when must this 30 day period be calculated from?
  • The internal appeal procedure is worded to apply to an administrative decision that “was taken” (section 96(1)(b)). The language of the section clearly implies that there must have been some form of act by the minister, not just a failure to take a decision.
  • The internal appeal procedure does not automatically suspend the decision that is appeal against (section 96(2)(a)). In a situation where there has been no decision at all, this provision can’t be applied because there is nothing to suspend.
  • As part of the internal appeal procedure, a person must be provided with written reason by the person who took the decision that is appealed against (regulations 74(5) and 74(6)). In a case where no decision has been taken at all, it is not possible for the department to comply with the regulation and give “written reasons for the administrative decision”.

The conclusion that the term “administrative decision” can only relate to decisions that have actually been taken, and not to a failure to take a decision, can also be demonstrated by considering what the final appeal procedure could be if the term “administrative decision” did include the failure to take an action.

  • What would the legal situation then be if the minister either failed or refused to consider the appeal in the required time lines?
  • An internal appeal would be submitted, and it would request that the minister either (i) amends the department’s failure to take a decision; or (ii) substitutes the failure to take a decision with a positive decision to grant the application (regulations 74(9)(c) and (d)).
  • What would the legal situation then be if the minister ignored an application that was submitted an internal appeal would have to be lodged with the department against this failure to take a decision.
    • Would this failure to consider the appeal fall also under the definition of an “administrative decision” in terms of the MPRDA? Would a person be prevented from applying to a court to review the failure to consider the appeal until the internal remedies in the MPRDA have been exhausted, requiring the appellant to lodge a second internal appeal against the ministers failure to determine the first appeal (section 96(3))?
    • Must the person now bring an application to court, and ask the court to grant an order forcing the minister to perform their duty and determine the first appeal (ie a mandamus)? If so, then the person has now expended considerable time and resources to bring a court action just to place it in the same position where it was immediately after lodging the appeal, namely its appeal has been lodged and the minister is now compelled (in terms of the court order this time) to comply with the required time lines.
  • When the minister considers the appeal, the minister may decide that the appeal fails, and to substitute the failure to take a decision with a decision to refuse the application.
    • In this case the person will then have to lodge an internal appeal against the ministers decision to refuse the application.
    • Once the internal appeal procedure has been exhausted, the applicant would then only be entitled to approach a court to review the administrative action.

This process is a far cry away from that an internal appeal process should achieve; a quick and cost effective method to resolve irregularities before instituting legal action.

I would submit that the term “administrative decision” in terms of the MPRDA has a narrower definition than “administrative action” under PAJA, and that this term should not be interpreted to include situations where there has been a failure to take a decision, but only to include situations where a decision has indeed been taken which is prejudicial.

The alternative: Reliance on exceptional circumstances to bypass an internal appeal process

Even if the above argument is rejected, PAJA allows a person to bypass any applicable internal appeal process if there are exceptional circumstances that would allow the court to exempt the non-compliance with the internal appeal procedure (section 7(2)(c)). It would be prudent for any person who wants to bring a court action without first lodging an internal appeal to ask the court to grant an exemption from having to lodge in internal appeal, as an alternative to the argument that there is no internal appeal.

The “exceptional circumstances” that are typically accepted by the courts when granting an exemption from complying with internal appeal procedures are discussed in the next section.

Appropriate legal action and possible relief

If the minister ignores an application that has been submitted and does not consider it at all, an affected person will be able to approach the court in terms of PAJA directly without first exhausting the internal appeal procedure because the internal appeal procedure will not be applicable in these circumstances. As an alternative, an affected person can ask the court for an exemption from the internal appeal process if there are exceptional circumstances that are applicable.

An affected person can approach the court as soon as there has been an unreasonable delay in taking a decision (sections 6(2)(g) and 6(3)(a) of PAJA). It is possible to ask the court to grant any order that it just and equitable (section 8(2) of PAJA), including an order:

  • substituting or varying an administrative action (section 8(1)(c)(ii)(aa));
  • directing the taking of a decision (section 8(2)(a)); or
  • declaring the rights of the affected person (section 8(2)(b). (It might be noted that the legal action listed has relief in terms of both sections 8(1) and 8(2) of PAJA, even though the failure to take an administrative action falls in the ambit of section 8(2). I submit that the wording of section 8(2), permitting the grant of any order that is just and equitable, would not preclude the court from substituting its decision where the minister has failed to act. See the discussion by C Hoexter (Hoexter, C. 2012. Administrative Law in South Africa. Cape Town: Juta, at pg. 557) for further argument in support of this submission).

There has been a lot of recent discussion about the legal doctrine of the separation of powers; how the courts (judiciary) should not overstep its role and perform acts that fall into the realm that should be occupied ministers (the executive). PAJA does, however, directly empower the court to come to the aid of a person when the executive acts unlawfully, and allows the court to effectively make a decision on behalf of the minister when the minister fails to take a decision in a reasonable time (see sections 8(1)(c)(ii)(aa) and 8(2)(a) of PAJA; de Ville, JR. 2003. Judicial Review of Administrative Action in South Africa. Durban: LexisNexis Butterworths, at pg. 370; Hoexter, C. 2012. Administrative Law in South Africa. Cape Town: Juta, at pg. 552).

There are four situations where a court will be prepared to substitute its decision with the decision of the minister, without referring the matter back to the minister for decision. These are:

  • when the end result is a forgone conclusion;
  • when any further delay will cause unjustifiable prejudice;
  • when the original decision maker has exhibited bias or incompetence; or
  • where the court is as well qualified as the original authority to make the decision (Hoexter, 2012, pgs. 552 – 557).

For many applications the MPRDA doesn’t allow the minister to use any discretion when considering the application. The power granted to the minister is not a discretionary power; the minister must grant consent if the requirements for transfer are complied with. If the requirements are met the result is a forgone conclusion; the minister must grant the application.

Applications where the minister is compelled to grant a compliant application include applications for consent to transfer a right (section 11(2)), applications for prospecting rights (section 17(1)) and applications for mining rights (section 23(1)).

For these categories of applications it can be argued that, (i) the court is as qualified as the minister to make the decision, and (ii) that the end result of the application is a foregone conclusion. Once the court has had the opportunity to review and consider the application that was submitted, the court will be as well qualified as the minister to determine if the application placed before it meets the objective criteria the applicable section, and grant the application if all the requirements are met.

In addition to meeting these two requirements for substitution of a decision by the court, a person may also be able to advance reasons to show the court that further delay will cause unjustifiable prejudice.

Based on these considerations I submit that a person would be entitled to approach a court for direct relief and ask the court to substitute its decision with the minister’s decision.

Conclusion (Too Long; Didn’t Read)

What should be done if an application has been submitted to the Department of Mineral Resources, and the department has failed to take any action or consider the application?

  • If time is not of the essence in the underlying commercial transaction, a court application can be brought asking for an order to force the department to perform its duty. The matter would then be referred back to the department for consideration within a court specified time line.
  • If time is of the essence, a person can approach a court for direct relief and ask the court to grant the application, effectively substituting its decision with the minister’s decision. In order to be successful it must be argued that:
    • the MPRDA’s internal appeal process does not apply to situations where the minister fails to take a decision, alternatively that there are exceptional circumstances that would allow the court to exempt the non-compliance with the internal appeal procedure; and
    • the end result is a forgone conclusion; or
    • when any further delay will cause unjustifiable prejudice; or
    • when the original decision maker has exhibited bias or incompetence; or
    • where the court is as well qualified as the original authority to make the decision.

Related Reading:

South African Mining and Prospecting Rights May Expire Sooner than Anticipated

Prospecting and mining rights in South Africa are granted in terms of the Mineral and Petroleum Resources Development Act No 28 of 2002 (MPRDA) for a fixed duration. Prospecting rights are granted for a maximum period of 5 years renewable for a further single period not exceeding 3 years, and mining rights are granted for a maximum period of 30 years renewable for further 30 year periods.

In the case of the Minister of Mineral Resources vs Mawetse (SA) Mining Corporation (Pty) Ltd ((20069/14) [2015] ZASCA 82), the South African Supreame Court of Appeal was was asked to determine what date the duration of a right should be calculated from. The court held that the duration of rights must not be calculated from the date that the right was notarially executed, or calculated with reference to the termination dates that are contained in the right itself. The court determined that the duration of the right should be calculated from the date that the applicant for the right was informed that the right would be granted.

Application procedure

To understand the reasoning of the court, and why the decision will lead to uncertainty in practice, the procedure followed by the Department of Mineral Resources (DMR) when a company applies for a right in terms of the MPRDA should be outlined:

  • An applicant for a mining right or prospecting right must make payment of a non-refundable application fee and lodge its application in the prescribed manner at the offices of the regional manager in whose region the land is situated.
  • The regional manager must accept the application for consideration if the formal requirements for its lodging have been complied with and if no other person holds or has submitted an application for a prospecting right or mining right over the land for the same mineral.
  • After the acceptance of the application the regional manager must make it known that an application has been received, must call on interested parties to submit comments on the application, and must notify the applicant that it must submit the required environmental reports.
  • If the requirements for the grant of the right have been complied with, the applicant will be notified that the right has been granted, will be advised of any conditions attached to the grant of the right, and will be requested to make itself available at the regional offices to notarially execute the right.
  • The DMR’s practice is to calculate the duration of a right from the date of its execution, and record the expiry date calculated using this method as a clause in the in the right.

Facts and Legal Decision

The facts of the Mawetse case are the following:

  • In November 2006 Dilokong Chrome Mine (Pty) Limited applied for a prospecting right.
  • In December 2006 the regional manager issued a letter of acceptance, and requested Dilokong to give effect to the empowerment provisions of the MPRDA and submit supporting documents to evidence its compliance.
  • In July 2007 the deputy director general of the DMR wrote to Dilokong to confirm that the right had been granted for a period of four years.
  • During November 2007, on the date on which the prospecting right was to be executed, Dilokong was informed that the right would not be executed by the department because Dilokong had failed to comply with the empowerment criteria.
  • The environmental management plan submitted by Dilokong was never approved and the prospecting right was never executed.
  • In September 2009 Mawetse applied for rights in respect of the same mineral and land as Dilokong’s application. Mawetse’s application was, however, rejected on the basis that Dilokong had been granted rights over the area.

The decision to reject Mawetse’s application was taken on review. One of Mawetse’s contentions was that there was no conflicting right because Dilokong’s right had been granted for four years, and more than four years had already lapsed since Dilokong’s application had been aproved. In response Dilokong argued that the period that its right was granted for had not started running because the right had not yet been executed, and had not become effective.

The court stated that a right is granted for a limited period and expires through the effluxion of time. To determine if a right has expired, it is necessary to determine the date that the right was granted. The court held that there are three distinct legal processes that must be distinguished from each other, namely (i) the granting of the right; (ii) the execution of the right; and (iii) the coming into effect of the right.

The court rejected the argument advanced by Dilokong that the DDG’s approval had not started running because the right had not been executed and had not become effective, stating that this argument was untenable because it would mean that the area was effectively sterilised in favour of Dilokong. The court held that the period of Dilokong’s prospecting right must be calculated from the date on which it was informed that its application was successful and that the right was granted, namely in July 2007.

The court held that Dilokong’s prospecting right, which had been granted during July 2007, had lapsed due to its expiry, notwithstanding that the right had not been executed and that the right had not become effective.

Practical Implications of the Decision

The decision in the case of Minister of Mineral Resources v Mawetse (SA) Mining Corporation (Pty) Ltd has two important implications for mineral rights granted in terms of the MPRDA:

  • first, the departmental practice of calculating the duration of a right from the date of the rights execution is not sanctioned by the provisions of the MPRDA; and
  • secondly, a right, including the exclusive right to apply for a renewal thereof or the exclusive right to apply for a mining right in the case of a holder of a prospecting right, will lapse on the expiry of the period which is calculated from the date on which the decision to grant the right was communicated to the applicant, not calculated from the date of execution of the right.

Mounting a Samba Share in Debian GNU/Linux

Samba allows a computer running GNU/Linux to connect with and share files with a computer over a Microsoft Windows based network.

To mount a drive or folder that is shared over Samba or over a Windows based
network as a drive on your computer there are three steps:

  • install cifs-utils;
  • create a mount point on your system where the folder is to be mounted; and
  • mount the shared folder.

The first step is to install cifs-utils, which is a “protocol provides support for cross-platform file sharing with Microsoft Windows, OS X, and other Unix systems”.

As root, use:

# apt-get install cifs-utils

Next is to create a mount point where the shared folder will be mounted. This
can be any folder. To make a new folder, as root, use:

# mkdir /netfiles/music

The final step is to mount the shared drive using the “mount” command. The type of file system to be mounted will be specified as “cifs”, to use the cifs-utils protocol.

The standard form for the mount command is

"mount -t <type> <device> <directory>"

For example, lets say there is music shared over a local home network. If the folder is shared with the name “music” from a computer which has an IP address of 192.168.X.XX, this will be the information of the “device”, namely the item to mount. The “directory” is the mount point that has been created on the GNU/Linux computer. As an extra option you can put in your username that is needed to connect.

The command used to mount will be:

# mount -t cifs //192.168.X.XXX/music //netfiles/music -o username=XXX

Installing and Configuring Redshift in Debian GNU/Linux

According to the Redshift man page:

Redshift adjusts the colour temperature of your screen according to your surroundings. This may help your eyes hurt less if you are working in front of the screen at night.

The colour temperature is set according to the position of the sun. A different colour temperature is set during night and daytime. During twilight and early morning, the colour temperature transitions smoothly from night to daytime temperature to allow your eyes to slowly adapt.

Install Redshift

To install Redshift run the following command with root access:

# apt-get install redshift

Configuring Redshift

I found that the programme needs some configurations before it will run properly. After running Redshift for the first time I received this message:

Trying location provider `geoclue'... 
Unable to obtain master client: The name org.freedesktop.Geoclue. Master was not provided by any .service files
Failed to start provider geoclue. 
Trying next provider... 
Trying location provider `manual'... 
Latitude and longitude must be set.

Unfortunately the man page isn’t that detailed when it comes to setting up a configuration file. The command:

$ info redshift

gives slightly more detail regarding setting up a configuration file, stating that a “configuration file with the name `redshift.conf’ can optionally be placed in `~/.config/’ “.

To create a configuration file using the example given in the info file:

# vi ~/.config/redshift.conf

Insert the following into the configuration file:

[redshift]
temp-day=5700
temp-night=3500
transition=1
gamma=0.8
location-provider=manual
adjustment-method=randr
[manual]
lat=-27.1 lon=27.5
[randr]
screen=0 screen=1

First, the latitude (lat) and longitude (lon) values should be set to your current location, with negative values representing west and south respectively. My example uses the location of Johannesburg, South Africa.

Secondly, this configuration file if for two screens. If your system only has one screen, delete the line that says “screen=1”.

Running Redshift from the Terminal

Once Redshift is installed and a configuration file is set up, the programme can be run through the terminal by invoking:

$ redshift

Running the programme with this command will, however, leave the process running in the terminal window and it will not return the shell prompt. The result is that the process will terminate as soon as the terminal window is closed.

To prevent this the process must be started in the background using the following:

$ redshift &

The process will now run and the shell prompt will be returned. This will allow you to close the terminal without killing the Redshift process.

Searching for Minerals in South Africa: Applications for Prospecting Rights

The South African mineral and petroleum sector is regulated primarily in terms of the South African Mineral and Petroleum Resources Development Act, No 28 of 2002 (MPRDA).

In terms of the MPRDA the state is the custodian of all mineral resources in South Africa and are held for the benefit of all South Africans; no person may prospect for any mineral unless that person has been granted a relevant right by the state, acting through the Minister of Mineral Resources (section 3(1) as read with 5A)”.

The MPRDA provides for two different rights which allow the holder to search for minerals. Prospecting rights allows the holder to conduct “prospecting operations”, while reconnaissance permissions allows the holder may conduct “reconnaissance operations”.

The work which is permitted under a prospecting licence is more substantial than that permitted under a reconnaissance permission. Reconnaissance permissions only allow the holder to search for minerals by geological, geophysical and photo geological surveys and by using remote sensing techniques. Prospecting rights allow the holder to disturb the surface or subsurface of the earth. The MPRDA defines prospecting as:

"intentionally searching for any mineral by means of any method:

(a) which disturbs the surface or subsurface of the earth, including 
    any portion of the earth that is under sea or under other water; or

(b) in or on any residue stockpile or residue deposit, in order to 
    establish the economic existence of any mineral and to determine 
    the extent and economic value thereof; or 

(c) in the sea or other water on land."

The conduct of any reconnaissance or prospecting without the first obtaining the required reconnaissance permissions or prospecting right constitutes an offence. On conviction a person who is found to have been in contravention of the act may be liable for payment of a fine or to imprisonment for a period not exceeding six months, or to an fine and imprisonment (section 98(a)(viii) as read with 99(2)).

It is therefore imperative that any person who intends to search for minerals in South Africa ensures that they obtain the required right.

I will briefly set out the application procedure to apply for a prospecting right. It should be noted that some of the provisions in the MPRDA currently regulating applications for prospecting rights will be amended in terms of the Mineral and Petroleum Resources Development Amendment Act, No 49 of 2008, parts of which are already in operation and parts of which will only come into operation in the future. Further substantial amendments have a also been proposed in terms of the Mineral and Petroleum Resources Amendment Bill B
15B-2013.

Care should be taken to ensure that the correct procedure which is applicable at the time of submitting the application is followed.

Procedure followed in the application for a prospecting right

A person who wishes to apply for a prospecting right in terms of the MPRDA must make payment of the non-refundable application fee and lodge an application in the prescribed manner at the offices of the regional manager in whose region the land is situated (section 16(1)).

The application for a prospecting right must be accompanied by the following documents:

  • a plan of the land to which the application relates prepared in accordance with accepted standards, which must include, inter alia, the north point, scale and the co-ordinates, location, name, number, extent and boundaries of the land (regulation 2(2) plan);
  • a full prospecting work programme, prepared in accordance with regulation 7;
  • documentary proof of the applicant’s technical ability and financial resources to comply with the prospecting work programme;
  • title deeds in respect of the land;
  • copies of the applicants identity document if the applicant is an individual or constitutional documents if the applicant is a company.

The regional manager is obliged to accept the application for consideration if the formal requirements for its lodging have been complied with and if no other person holds or has submitted an application for a prospecting right or mining right over the land for the same mineral. This requirement ensures that persons cannot obtain prospecting rights in the same area where rights have already been granted to another person for the same minerals. Nothing, however, precludes a person from submitting an application for a prospecting right in respect of a different mineral that is not included in a holder’s existing right (section 16(2)).

Within fourteen days after the acceptance of the application the regional manager must make it known that an application has been received and must call on interested parties to submit comments within thirty days of the notice. If objections are received they must be forwarded for consideration to the Regional Mining Development and Environmental Committee in order for them to consider the objections and advise the minister appropriately (section 10).

The regional manager must also within fourteen days after the acceptance of the application notify the applicant in writing that they are required to submit an environmental management plan and that they are required to notify the land owner, lawful occupier or any other affected party in writing of the application and consult with the aforesaid persons (section 16(4)).

The applicant must deliver the result of its consultations to the regional manager within thirty days (section 16(4)(b)).

Once the regional manager has received the environmental management plan and the consultation outcomes the regional manager must forward the application to the minister for the minister’s consideration (section 16(5)).

The minister is obliged to grant the prospecting right within thirty days of receiving the application from the regional manager if:

  • the applicant has the financial and technical capability to conduct the proposed prospecting optimally in accordance with the prospecting work programme;
  • the estimated expenditure is compatible with the proposed prospecting operation and duration of the prospecting work programme;
  • the prospecting will not result in undue pollution, ecological degradation or damage to the environment;
  • the applicant has the ability to comply with the provisions of the Mine Health and Safety Act, No 29 of 1996 (MHSA);
  • the applicant is not in contravention with any relevant provisions of the MPRDA; and
  • the applicant will substantially and meaningfully expand opportunities for historically disadvantaged persons to enter into and actively participate in the mineral industry (section 17(1)).

A prospecting right can be granted for an initial period not exceeding five years, and may be renewed once for a further three year period provided that a renewal application is submitted and the requirements of the act are complied with (section 17(5) and 18(4)).

A prospecting right becomes effective on the date on which the prospecting right is executed. Once the prospecting right has become effective the holder is granted various rights, including the right to enter land with their employees for the purposes of conducting their prospecting work (section 17(5)
as read with the definition of “effective date” and section 5).

Consequences of not following correct procedures

Section 96 the MPRDA provides an internal appeal procedure which may be used by any person whose rights or legitimate expectations have been materially and adversely affected by the granting of a prospecting licence. This right of appeal can be exercised at any time after a prospecting right has been granted, provided that it is exercised within thirty days of the person becoming aware of the grant of the licence (section 96(1)).

The internal appeal procedure, or subsequent court review which may be taken in terms of the Promotion of Administrative Justice Act, No 3 of 2000 (PAJA), may result in the prospecting licence being set aside if the correct procedure was not adhered to by the applicant when applying for the prospecting licence. This includes if there was a failure to conduct adequate consultations with affected persons.

In order to ensure that the grant of a prospecting right cannot be set aside on appeal or judicial review it is imperative that an applicant follows the correct procedures are complied with during the application process.

GNU/Linux Debian: Adding Non-Free Repositories, Moving to the Testing Distribution and Choosing the Best Mirrors

The GNU/Linux Debian sources.list is a file that does various functions:

  • it lists the address from where packages (programmes) are downloaded and installed from;
  • it lists the components (main, contrib or non-free) that you want to use; and
  • it lists which distribution (stable, testing or unstable) you want to download; currently there are three different distributions to choose from: stable; testing; and unstable.

The sources.list file is stored in /etc/apt/sources.list and can be edited as root with the following (if nano is not available on the system you can fall back to “vi” or any other editor):

# nano /etc/apt/sources.list

This is an example of a default sources.list file:

deb http://http.debian.net/debian wheezy main
deb-src http://http.debian.net/debian wheezy main
deb http://http.debian.net/debian wheezy-updates main
deb-src http://http.debian.net/debian wheezy-updates main
deb http://security.debian.org/ wheezy/updates main
deb-src http://security.debian.org/ wheezy/updates main

From this example file you can easily determine that:

  • it downloads packages from http://http.debian.net/debian;
  • it uses the “main” components only, and does not include any non-free components; and
  • it uses the stable (Wheezy) distribution.

Adding non-free repositories and moving to the testing distribution

There may be some occasions when it might be necessary to install software from a non-free repository, for example if your hardware needs a proprietary firmware blob to operate properly.

To add the contrib and non-free repositories simply edit the sources.list and add the words “contrib non-free” after the word “main” everywhere it appears inthe file.

To change the distribution from stable (wheezy) to testing (jessie) simply edit the sources.list and replace the words wheezy with the word testing everywhere it appears in the file.

# nano /etc/apt/sources.list

Edit the files to look similar to this (note: I have not reproduced the whole file again), save the file and exit:

deb http://http.debian.net/debian testing main contrib non-free
deb-src http://http.debian.net/debian testing main contrib non-free

Changing the download mirror

The official list of Debian mirror sites is at http://www.debian.org/mirror/list

One problem is that South Africa does not have a primary mirror site, just secondary mirrors, which raises the question: Is it better to download from a local secondary mirror, or a foreign primary mirror?

To help select the best mirror available from your location you can use the programme “netselect-apt” which can determine and suggest the site with the least latency. Running netselect-apt overwrites your existing sources.list, so making a backup first is advised.

# apt-get install netselect-apt
# netselect-apt

Once the best mirror has been determined you can edit your original sources.list file and change the mirrors to the suggested mirror. The security update mirrors should not, however, be changed.

Update the system with the latest packages

Once the sources.list file is updated is is then necessary to update your system with the latest packages from you newly selected distribution and repository.

This is done as root with the following:

# apt-get update
# apt-get upgrade

“Update” is used to resynchronize the package index files from their sources and “upgrade” is used to install the newest versions of all packages currently installed on the system.

If you are moving from on distribution to another (moving from stable to testing), or if after running apt-get upgrade there is a message saying that certain packages were held back, you may want to do a dist-upgrade instead:

# apt-get update
# apt-get dist-upgrade

How to Install FOSS ATI Radeon Drivers on GNU/Linux Debian

After reinstalling my GNU/Linux Debian system I encountered problems with my ATI Radeon graphics drivers. I have always used the Free (FOSS) drivers, so it was unsettling that it now seemed to not be working; the screen resolutions were all wrong and couldn’t be changed.

After a bit of time I discovered that the FOSS ATI Radeon drivers were installed, but the proprietary non-free firmware blob wasn’t, which lead to this problem.

To fix this problem you need to:

  • install the non-free firmware for the graphics card from the non-free repository; and
  • install the FOSS ATI Radeon drivers if not already installed.

To add the non-free repository edit the “/etc/apt/sources.list” file as root. If nano is not available on the system you can fall back to “vi” for editing.

# nano /etc/apt/sources.list

Add the words contrib non-free after the word main where it appears in the file. Save the file and exit. I have previously done a more detailed explanation of the sources.list file and how to add non-free repositories.

Now you need to update and then install the required firmware and drivers as root:

# apt-get update 
# apt-get install firmware-linux-nonfree 
# apt-get install xserver-xorg-video-ati