Court finds Tourism Relief Fund was ‘unlawful’ and ‘invalid’

NGO AfriForum and trade union Solidarity, in separate urgent review applications, took the Minister of Tourism to court in 2020 for introducing a broad-based black economic empowerment (B-BBEE) compliance component into the eligibility scoring system for Covid-19 relief funding from the Tourism Relief Fund.

The Pretoria High Court combined the two applications and dismissed the joint application in April 2020.

The two parties took the matter on appeal, and the Supreme Court of Appeal, in a judgment handed down on September 22, 2021, overturned the high court’s judgment.

The respondents, which included the Department of Tourism, are directed to pay the costs of the applicants, including the costs of two counsel.

In essence

The court held that the minister’s exercise of power in regard to introducing a B-BBEE eligibility component constituted ‘administrative action’, as defined in the Promotion of Administrative Justice Act 3 of 2000 (PAJA), and was thus subject to review.

The SCA found that the minister was not legally obliged to include the Tourism Sector B-BBEE Code in the qualification criteria, and her decision was consequently unlawful.

The SCA also held that funds already disbursed from the Tourism Relief Fund cannot be recovered.

It is to be noted that all the funds have already been disbursed.

Background

The initial hard Covid-19 lockdown imposed by the government on March 26, 2020 had a severe impact on the economy, particularly the tourism sector.

The minister established the Tourism Relief Fund as one of the measures put in place by government to assist businesses adversely affected by the lockdown, and R200 million was allocated to the initiative to provide once-off payments of up to R50 000 to businesses in the tourism industry that were affected.

Legal regime regulating government’s management of the pandemic

Various regulations were issued under the Disaster Management Act, 2002 (DMA), granting authority to different ministers to “make directions” within their functional areas of operation, including taking steps necessary to alleviate, contain and minimise the effects of the national state of disaster.

Jurisdictional basis for the review

The court had to decide:

• Whether the minister’s direction constituted administrative action as defined in PAJA, and thus whether the minister’s exercise of power was subject to review in terms of Section 6 of that act; or
• If the minister’s exercise of power was reviewable in terms of the principle of legality sourced in the Constitution’s founding value of the rule of law.

In Minister of Defence and Another v Xulu [2018] ZASCA 65; 2018 (6) SA 460 (SCA) para 50, the court held that “development of a coherent administrative law demands that litigants and courts start with PAJA, and, only when PAJA does not apply, should they look to the principle of legality and any other permissible grounds of review lying outside PAJA”.

In other words, the court would first look at PAJA, and if PAJA did not apply, it would then look at other grounds of review lying outside the PAJA.

The court would only turn to the merits of the case once it had decided the jurisdictional basis for the review.

The minister had argued that she was obliged by statute to include in her direction B-BBEE criteria for eligibility to financial assistance.

The court opined that “this is the crux of the case: if she is correct, then the appeals must fail because she would have done what the law required her to do; but if she is incorrect, the appeals may succeed because in making the direction on the basis of an incorrect interpretation of the law, she may have committed a material error of law”.

Case law

Previous case law:

• In Esau and Others v Minister of Co-operative Governance and Traditional Affairs and Others [2021] ZASCA 9; 2021 (3) SA 593 (SCA), it was held that the making of regulations by the Minister of Co-operative Governance and Traditional Affairs (COGTA) in terms of s 27(2) of the DMA constituted administrative action as defined in the PAJA.
• In Grey’s Marine Hout Bay (Pty) Ltd and Others v Minister of Public Works and Others [2005] ZASCA 43; 2005 (6) SA 313 (SCA) Nugent JA pointed out that administrative action involves “the conduct of the bureaucracy (whoever the bureaucratic functionary might be) in carrying out the daily functions of the state, which necessarily involves the application of policy, usually after its translation into law, with direct and immediate consequences for individuals or groups of individuals”.

The minister’s arguments

The minister in her answering affidavit argued that:

• She did not “impose a race-based eligibility criterion for access to assistance from the Fund”, but based eligibility on a scoring system which relied on the B-BBEE status level of applicants;
• She was legally bound to include in the criteria for funding the B-BBEE status level of applicants in accordance with the Tourism Sector Code; and
• There was a statutory obligation imposed on her by Section 10 of the B-BBEE Act to apply B-BBEE criteria for eligibility to the fund, and that AfriForum “cannot interdict or review something that is required by statute”.

The court explained that the purposes of the DMA and the B-BBEE Act “are very different”.

The DMA is aimed at “preventing or limiting disasters, mitigating their impact and enabling post-disaster recovery”, while the B-BBEE Act is aimed at “promoting black economic empowerment in order to enable black people to participate meaningfully in the economy”.

The court pointed out that the DMA’s empowering provisions for the making of regulations do not include B-BBEE objectives, and agreed with H W R Wade and C F Forsyth Administrative Law (8 ed) (2000) at 386 that statutory powers must be used with “scrupulous attention to their true purposes and for reasons that are relevant and proper”.

The court referred to the judgment of Bernstein and Others v Bester NO and Others [1996] ZACC 2; 1996 (2) SA 751 (CC); 1996 (4) BCLR 449 (CC) para 46, that a “statutory power may only be used for a valid statutory purpose” and “may not be misused in order to secure an ulterior purpose” (per ex parte Speaker of the National Assembly: In re Dispute Concerning the Constitutionality of Certain Provisions of the National Education Policy Bill 83 of 1995 [1996] ZACC 3; 1996 (3) SA 289 (CC); 1996 (4) BCLR 518 (CC) para 33).

Minister’s action invalid

The court, citing case law, opined that when a person exercising public power has committed themselves unequivocally to a basis for their authority to exercise that power, they stand or fall by that choice.

And they cannot “rely on some other source of empowerment which may enable them to do what they have purported to do”. (Minister of Education v Harris [2001] ZACC 25; 2001 (4) SA 1297 (CC); 2001 (11) BCLR 1157 (CC).)

The court noted that the minister unequivocally relied on the B-BBEE Act to include the B-BBEE status level as a criterion for eligibility for grants from the fund, and her counsel conceded that it was not open to the minister to justify the inclusion of the B-BBEE status levels on any other basis.

The court referred to Hira and Another v Booysen and Another 1992 (4) SA 69 (A), which articulated that administrative action can be reviewed if “the action was materially influenced by an error of law”.

The court found that the minister “erroneously” believed that she was bound by the B-BBEE Act to include the B-BBEE code in the selection criteria: “Her error was material because it distorted her discretion in the sense that it caused her to fail to apply her mind properly to the criteria that should have been used for eligibility … ” and her action was therefore invalid.

Counsel for AfriForum suggested, and counsel for Solidarity agreed, that there was no point in seeking to review or set aside the minister’s actions as the whole fund had already been disbursed, and the disbursed funds cannot be recovered from the beneficiaries.

By Barbara Curson

This article first appeared on Moneyweb and was republished with permission. Read the original article here.