Challenging the conversion of order mining rights: Oudekraal principle revisited

2020-02-04

The new South African mining regime took effect in 2004, introducing a use it or lose it system. It abolished all existing prospecting and mining rights, replacing them with old order rights. These old order rights lasted between one and five years, but during this time you could apply to convert it into a right regulated by the new Mineral and Petroleum Resources Development Act (MPRDA Right). If you didn't convert, then the old order right would lapse and any other person could be then be granted a prospecting or mining right over the area.

The conversion process came before the South African Constitutional Court, and the court was asked:

What happens if a person (Gouws) lodged a conversion application for a new order right, but died before it was granted? Can the old order right be transferred to their heirs? Or, does the old order right and the pending conversion application cease to exist, allowing another person to be granted a right over the area?
What happens if the Department of Mineral Resources (DMR) incorrectly grants a conflicting right to a third person (Magnificent Mile Trading (MMT)), instead of to Gouws? If Gouws didn't legally challenge the incorrect grant, is the court prevented from granting the converted right to Gouws?

The court came to Gouws' aid. First, the court said that an old order right was could be transferred on death, and Gouws' old order right was transferred to his estate.

Secondly, the court said that Gouws didn't have to challenge the DMR's unlawful decision to grant a conflicting prospecting right to MMT. This unlawful decision didn't prevent the court from finding that Gouws had a valid old order right and the corresponding exclusive right to be granted an MPRDA Right. Here, the court analysed the Oudekraal Principle and said that the DMR's unlawful decision doesn't have to be treated as legally binding until challenged and set aside by a court. The Oudekraal Principle couldn't be relied on to prevent the grant of a right to Gouws because Gouws' statutory old order right predated MMT's MPRDA Right.

Facts

Gouws had an unused mineral right under the old mining law regime (i.e. the Minerals Act). In terms of the new MPRDA:

Gouws' existing mineral right was replaced with an old order right under the MPRDA.
Gouws' old order right would continue for 1 year. During this time Gouws could apply for an MPRDA Right to replace his old order right.
If Gouws applied for an MPRDA Right, then the old order right would continue to exist until his application is either granted and dealt with in terms of [the MPRDA] or is refused.
However, if Gouws didn't apply for an MPRDA Right, then the old order right would cease to exist.

Gouws asked MMT to help prepare his application for a new MPRDA Right, and told them that there were coal reserves on his farm. Gouws, however, then decided not to use MMT's services.

Gouws' submitted his application during the 1 year exclusivity period. Three days after the exclusivity period expired, MMT submitted an application for a prospecting right over Gouws' coal reserves. During the subsequent years:

Gouws died and was survived by his wife, who later died and was survived by their two children.
The DMR granted MMT's application for a prospecting right over Gouws' farm.
The DMR then granted Gouws' application, but the right recorded the wrong farm name.
Gouws (represented now by an executor) told the DMR that the right had the wrong farm name. The DMR tried to correct the mistake, but this wasn't done properly. This time the right recorded the correct farm, but recorded that it was only for a half share of the coal reserve. Gouws, however, had held two half shares (100%), each share recorded in a separate deed of transfer.

There were now two prospecting rights for coal over Gouws' farm – MMT's full prospecting right, and Gouws' prospecting right for only a half share.

MMT launched a High Court review application in terms of the Promotion of Administrative Justice Act (PAJA) to set aside Gouws' prospecting right on two grounds. First, MMT argued that Gouws' old order right terminated on his death. Secondly, MMT argued that its prospecting right had been granted first, and that the Minister of Mineral Resources couldn't grant a second conflicting prospecting right to Gouws unless Gouws had challenged MMT's right.

Was gouws' old order right transmissible on death?

MMT argued that Gouws' old order right terminated on his death and couldn't be transferred to his heirs. This meant that the Minister couldn't grant Gouws' application, and that MMT's application was the only application that the Minister could grant.

In terms of the MPRDA, MPRDA Rights are transmissible on death. They only lapse on death if there are no successors in title. Ministerial consent to transfer to the successors in title is, however, still be needed.

The MPRDA is, however, silent on the question of the transmissibility of old order rights. It was generally accepted that old order right couldn't be transferred after the MPRDA came into effect. This was because the transferee wouldn't fall under the definition of a holder, defined as a person who had to have held the right immediately before the MPRDA came into effect. For the same reason, it was generally accepted that this would prevent old order rights from being transferred on the death.

However, the court emphasised that an old order right consisted of a package of rights, which included a personal right and a limited real right. The personal right was the right to apply for an MPRDA Right. The limited real right depends on the nature of the old order right. For example, a holder of an old order mining right would continue to have the right to mine until the application for a new right was granted or refused.

The court held that an old order right (which includes the right to continue prospecting or mining) has value and is an asset, and doesn't merely evaporate on the holder's death. The old order right, accordingly, could be controlled by the executor of Gouws' estate in terms of the Administration of Estates Act.

Gouws' failure to challenge mmt's right

MMT argued that, because Gouws hadn't legally challenged the Minister's decision to grant MMT's right, the court wasn't able to set MMT's right aside and grant a right to Gouws. MMT relied on the Ouderkraal Principle which states that an unlawful administrative decision (such as the Minister's unlawful decision to grant a right to MMT), must be treated as lawful until it is set aside by a court. MMT argued that because Gouws hadn't challenged the Minister's unlawful decision, the unlawful decision must be treated as lawful, precluding the grant of a licence to Gouws.

The court, however, said that this was an incorrect application of the Oudekraal principle, and that the principle is not applicable.

The court said that the Oudekraal principle only applies to acts that are consequent upon an initial unlawful administrative act, and that owe their existence to the unlawful decision. For example, if a second administrative decision depends on the existence of a first administrative decision, and if the first administrative decision was unlawful, then the second administrative decision will have legal effect until such time as the first unlawful act is set aside by a court. You have to challenge and knock down the unlawful foundation that the consequent acts are built on in order to topple the subsequent consequent legal actions built on top of it.

In Gouws' case, the Oudekraal principle didn't apply because Gouws' application was not consequent on the unlawful decision to grant MMT a right. The court stated that a defensive challenge would have been necessary if Mr Gouws' right could not continue to exist in the face of the unlawful Magnificent Mile award. This was not the case.

Gouws' old order right came into effect by operation of law on 1 May 2004. In terms of the MPRDA, Gouws' old order right continues to exist until the application for a new right was granted and dealt with in terms of [the MPRDA] or is refused. Gouws' old order right already existed when MMT applied for its right, and would still have been in existence when the Minister granted MMT's application. Gouws' old order right wasn't consequent on the Minister's decision to grant MMT's application.

The court stated that the Oudekraal Principle couldn't be used by MMT to wipe out Gouws' limited real right (the old order right), which existed before both MMT's application and the Ministers unlawful decision to grant a right to MMT. The court said that MMT's application could not feature in the consideration and grant of Gouws' application. MMT's application can only be considered after Gouws' application has been finalised, and Gouws' application must be dealt with on its own merits, unaffected by MMT's application and its purported grant. It must be remembered here, that this case dealt specifically with an old order right, and not two conflicting rights that had been granted in terms of the MPRDA.

Effect of gouws' application only being granted in respect of a half share

Unfortunately, this question isn't addressed in detail by the court. The court only states in paragraph 41:

... We know that insofar as Mr Gouws' application is concerned, two purported grants were made ... None of these grants related to what Mr Gouws had applied for, This must mean his application is yet to be decided ...

Here, the court appears to state that if an a decision maker takes a decision, which is incorrect or in error, then that decision has no legal effect, and no decision has been taken. This simple reading can't be correct. It's unfortunate that the court didn't set out its reasoning for finding that the application hadn't yet been decided. The reasoning may, however, lie in the fact that the case dealt with an old order right, which only terminates in terms of the MPRDA once the application for a new right is granted and dealt with in terms of [the MPRDA] or is refused.

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