The high court in Pretoria has overturned a controversial 2019 decision by former trade & industry minister Rob Davies that gave Telkom privileged black economic empowerment status by the government.

At the time, Davies agreed to give Telkom BEE “facilitator status”. The partially state-owned telecommunications operator welcomed the decision, saying it would boost its empowerment credentials and its competitiveness.

Specifically, Davies said in a notice dated 5 April 2019, and published in the Government Gazette of 7 May 2019, that he granted the final approval for the facilitator status to the “government of South Africa, represented by the office of the presidency, for the full shares of 40.5% held in Telkom”. The status was granted for a period of 10 years, or until 5 April 2029. It’s not clear why the status was granted to government and not Telkom directly.

But the high court has now overturned Davies’ decision, handing victory to Altron, which brought the application against the minister, and to MTN South Africa, which filed to join Altron as a co-applicant. The court ordered Davies, Telkom and subsidiary BCX to pay the legal costs of both Altron and MTN, including the costs of two counsel in each case.

The judgment was handed down on 8 June 2020, but has not been reported in the media until now.

The amended B-BBEE codes of good practice empower the trade & industry minister to designate certain organs of state or public entities as B-BBEE facilitators. This meant, until the judgment against Davies, that any entity doing business with Telkom was required to regard the company as 100% black owned.

‘Not a public entity’

Following the publication of Davies’ decision on Telkom, Altron sought a “declarator” that Telkom is not under the “ownership control” of the government and is not a “public entity” in terms of the Public Finance Management Act. Alternatively, Altron wanted the court to state that Telkom is an inappropriate public entity for the purposes of being granting B-BBEE facilitator status in terms of the ICT sector codes.

Altron said Davies’ decision — or the process leading to it — was “procedurally unfair and irrational; the minister failed to furnish reasons for the decision; and the decision was substantively unreasonable, irrational and unlawful”.

It said the relevant empowerment legislation obliges the minister — before he issues, replaces or amends a BEE code of good practice — to publish the draft code or amendment in the Government Gazette for public comment and to grant interested persons a period of at least 60 days to comment.

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“The notice published by Davies concerned the application of Telkom for B-BBEE facilitator status. No such application was ever made. An application was cobbled together by the department of trade & industry; the BEE chief directorate requested the designation; the director-general recommended the designation to the minister; and the minister approved the designation. The department of trade & industry was both the applicant and a participant in the decision-making process.

“There is a material difference between the decision proposed in the notice and the decision which was made. The notice suggested a decision would be made to grant Telkom facilitator status whereas the final approval granted facilitator status to the government of South Africa represented by the office of the presidency. This difference materially impacts upon what was proposed to be done, what the public perceived was proposed to be done, and what the public was invited to comment upon.”

Despite setting aside the minister’s decision, the high court said judgment would not affect Telkom’s B-BBEE status, nor those of its subsidiary companies, for the purposes of any tender or contract awarded or concluded after 7 May 2019 and prior to the date of the order (8 June 2020).

Chris Potgieter, Altron executive for legal services, welcomed the judgment. He said Davies’ decision to grant BEE facilitator status to Telkom meant that BCX would benefit in terms of its own BEE rating. “That placed all the other competitors at a disadvantage,” Potgieter said. “We felt that was unfair and was never the intention of the BEE legislation…”

He said the process followed by Davies was “totally flawed”. Specifically, there was “major criticism about the procedural aspects. People shouldn’t ride roughshod over proper administrative procedures. We felt we had to take a stand.”