The Bargain, Not the Windfall
- Aug 13
- 7 min read
For more than three years, a provincial development agency did not think it owned any part of a chrome mining right. Then a sale it was about to lose sent its lawyers into the fine print, and they found a clause. On the strength of that clause the agency claimed 40 per cent of the mining right itself: a right it had never applied for, never qualified to hold, and never paid for. It took the claim to the High Court, lost, and pressed on to the Supreme Court of Appeal.
Three of the five judges who heard the appeal rejected the claim. Two would have upheld it. That the case divided a full court is what makes it worth reading, because the division exposes what a court is really doing when it reads a clause in a mining right, and what happens when the purpose of the legislation and the bargain the parties actually struck pull in opposite directions.
The Bargain, Not the Windfall
How a court reads a clause in a mining right
Every commercial arrangement is built to a design. The people who make it are trying to achieve something particular, and they choose their words to give effect to it. When a dispute later turns on what the words mean, the court's task is to find that design, not to reward a party who picks out one convenient sentence and reads it in isolation. The Supreme Court of Appeal has put the point crisply to say that commercial contracts are constructed with a design in mind, and their architects choose words to give effect to that design.
That principle decided a chrome mining dispute in which I acted for the company that held the right and for its business rescue practitioners. The claim against us was on the surface appealing, because it rested on a clause that had been carelessly drafted. But a careless phrase is not a design, and the claim asked the court to prefer the phrase to the actual bargain, being the true deal that was done. The question the case answers is what a court should do with a condition, which in this case was an empowerment condition, in a mining right when the literal words, read on their own, would hand a party far more than the commercial arrangement ever intended it to have.
The answer, by a majority, was that the court reads for the design. It gives the clause the meaning the parties' arrangement actually had, and it prefers a meaning that advances the objects of the mining legislation to one that would defeat them. A minority would have decided the other way, in the name of transformation. The choice between those two approaches determined the outcome, and it will recur whenever an empowerment condition is loosely worded.
What was the design?
Empowerment in South African mining is, at its foundation, about drawing historically disadvantaged persons into the ownership of and participation in the industry. The Mineral and Petroleum Resources Development Act, or MPRDA, sets that among its objects, and the Mining Charter, issued under the MPRDA, has for years expressed it as a target for black ownership of mining companies. Most empowerment is therefore built where ownership sits, at the level of the shares in the company, and not in the mineral right that the company happens to hold.
The Charter itself belongs to the regulatory framework; it is not written into any particular right, and it is the right and its conditions that bind the holder. The Department does sometimes record the empowerment position in the right itself, out of an abundance of caution rather than because the statute demands it, as it did here. Where that is done, the recordal takes effect as a condition of the right. That is why the wording of such a condition requires closer attention, because the Charter can be debated in the abstract, but the holder must live with the condition as written.
The arrangement in this case followed that pattern. The right, an old order chrome right first held in the 1970s, belonged to the operating company. Following on a strategic investment for expansion, he whole of that company was owned by a second company, and the shares in the second company were held 60 per cent by a foreign investor and 40 per cent by the provincial agency. The agency was not itself a historically disadvantaged party, so the two shareholders had agreed that the agency would bring in an approved black economic empowerment partner and would dilute its own 40 per cent to 10 per cent, the new partner taking 30, which would have aligned with the Charter. For reasons that are interesting but beside the present point, the agency delayed in identifying that partner, and the change in shareholding had not happened by the time the dispute arose.
That structure was the design, and it lived upstream, in the shares. When the old order right was converted in 2014, the converted right carried a condition, headed as a provision relating to the empowerment objects of the MPRDA, which recorded that arrangement. At face value, the condition relieved the agency of its obligation to dilute and provided that its 40 per cent shareholding would in due course pass to the State's own mining company on notice from the Minister. Read against the arrangement it was recording, the condition was doing shareholder work. Its subject was the shareholding in the holding company, not a share of the mineral right itself.
What did this sloppy drafting give the agency?
The difficulty was that the condition was badly written. The Minister's intention that the shares should pass to the State-owned mining company did not sit easily with the standardised wording used in these clause in mining rights, and what resulted was a clause whose wording resembled Frankenstein's monster. It described the parties to the arrangement as the holder and the empowering partner, when the arrangement had in fact been made by the two shareholders. And it said, in a single loose phrase, that the agency would hold 40 per cent 'of stake' in the right without an obligation to dilute. Read literally, and read on its own, that phrase gave the agency 40 per cent of the mining right itself.
Follow that reading to its end and the results are striking. On the agency's own construction its interest in the right, taking its direct and indirect holdings together, would have swelled to almost two thirds, while the company that had applied for the right, qualified for it, financed it and worked it kept a diminished share of its asset. A party that had never applied, never met the statutory requirements and paid nothing would receive, by operation of a drafting slip, an interest worth a great deal of money. Curiously, the agency itself did not know any of this until its lawyers found the clause, years after the event, whereupon it bid R450 million to buy the very right it now claimed it already owned. The literal reading was not the bargain. It was the reverse of the bargain.
How does a court find the true design?
The modern approach to interpretation in our law was drawn together over a decade ago by Wallis JA in the Endumeni judgment, and every commercial lawyer works with it. Meaning is found by reading the words in the light of their context and their evident purpose, all at once, as a single exercise rather than a sequence of stages. A sensible and businesslike meaning is preferred to one that is senseless or that defeats the object of the provision. The court must not rewrite the words to suit its own sense of what is commercial, but neither may it read them blind to why they were written.
Read in that way, the condition told the parties' story and not the agency's. The phrase without an obligation to dilute was included because the drafter knew that the agency carried an obligation to dilute, and that obligation existed only at the level of its shareholding. The stake in the right was therefore the shareholding stake, and the new agreement the clause called for was an amendment to the shareholders' agreement, removing the dilution obligation. The later conduct of the parties confirmed it, including the agency's own long silence and the minutes in which the shareholders recorded that it was their agreement, and not the right, that had to be amended. The majority of the SCA judges gave the condition a commercially sensible meaning that served the empowerment objects of the MPRDA rather than defeating them. It honoured the arrangement the parties had actually made.
Can transformation redraw the design?
The minority would have gone the other way, and its reasoning deserves to be stated at its strongest, because it rests on something the MPRDA genuinely values. The objects of the legislation and the Mining Charter exist to draw historically disadvantaged persons into real and lasting benefit, not to use them as a means of getting an old right converted and then to leave them with nothing. On that view the interest of a minority empowerment shareholder warrants protection, the Minister is entitled to impose empowerment conditions when he grants or converts a right, and the condition here should be given effect in that spirit. Two experienced judges found the argument strong enough to uphold the claim, and it would be wrong to treat their view as anything less than serious.
It did not prevail, for a reason worth holding onto. Purpose serves the design; it does not overwrite it. The empowerment objects of the MPRDA are pursued through the arrangement the parties made, and this arrangement placed the agency's interest in the shares, not in the asset. The transformation reading also had little to grip on the facts, because the agency never identified the empowerment partner on whom the entire structure depended. Reading a windfall into a careless phrase would not have advanced empowerment. It would have enriched a provincial agency at the expense of the company that had done the work, and called the result redress.
Where does the value actually sit?
There is a practical lesson here that outlasts the particular fight. If your empowerment value lives in a shareholding, protect it in the instrument that creates it, keep that instrument current, and see that the governance around it reflects what you believe you hold. Do not assume that a mention of your name in the conditions of a mining right, drafted by someone else and never negotiated by you, has quietly made you an owner of the asset. It has not, and the day you build a case on it is likely to be an expensive one.
The strength of an empowerment interest is a function of how carefully it was designed, not of how conveniently a stray phrase can later be read. When the dispute comes, and in this industry it often does, a court will look past the wording to the arrangement beneath it.
The windfall lived in the phrase.
The bargain lived in the design,
and it is the design that a court will enforce.
Written by:
Wessel Badenhorst
August 2026
