The SCA disallowed the Minister’s appeal against the judgment of Katz AJ in the high court and this is what Wallis JA stated in a concurring judgment:
‘[65] In my opinion it is precisely that type of breach of the principle of legality that has occurred here. In their legitimate desire to address past discrimination and disadvantage, the Minister and the Chief Master have overlooked the fundamental purpose of the legislation that governs the sequestration of estates and the winding-up of companies and close corporations, which is to serve the interests of creditors as conceived by the creditors themselves. The policy that has been promulgated is not directed at that purpose and disavows the need for the process of appointment that it governs to have regard to the views or interests of creditors. That is an exercise of power for a purpose other than any for which it was bestowed. It should not be difficult for the Minister and the Chief Master to devise a policy that serves both purposes instead of trying to serve one at the expense of the other’.
Minister of Justice and Constitutional Development and Another v South African Restructuring and Insolvency Practitioners Association and Others (693/15) [2016] ZASCA 196 (2 December 2016) per Mathopo JA (Mpati P, Wallis, Swain and Van der Merwe JJA concurring)
Excerpts without footnotes
[1] This appeal concerns the constitutionality of a policy that seeks to regulate the appointment of insolvency practitioners, primarily as provisional trustees and liquidators, but also as co-trustees and co-liquidators, as well as appointments to certain other comparable positions under various statutes. In this judgment I will deal with the policy as if it applied only to appointments of trustees on insolvency, but it must be read mutatis mutandis as applying to and including all the appointments that are the subject of the policy. Where I refer expressly to liquidators, as opposed to trustees, I am referring to liquidators, either provisional or final, appointed in terms of the Companies Act 61 of 1973, as amended, or under the Close Corporations Act 69 of 1984.
. . . . .
Equality submissions
[21] The mainstay of the appellant’s argument was that the policy was intended to form the basis of transformation of the insolvency industry. The respondents accept that the object of the policy was to promote consistency, fairness, transparency and the achievement of equality for insolvency practitioners previously disadvantaged by unfair discrimination. SARIPA contended that the policy will not achieve these objectives and that it would undermine the transformation already achieved in the industry mainly by detracting materially from the business of skilled previously disadvantaged practitioners.
. . . . .
[23] In support of their submissions, the appellants relied on the three pronged test espoused in Minister of Finance & another v Van Heerden 2004 (6) SA 121 (CC) para 37 where Moseneke J said the following:
‘When a measure is challenged as violating the equality provision, its defender may meet the claim by showing that the measure is contemplated by s 9(2) in that it promotes the achievement of equality and is designed to protect and advance persons disadvantaged by unfair discrimination. It seems to me that to determine whether a measure falls within s 9(2) the enquiry is threefold.
The first yardstick relates to whether the measure targets persons or categories of persons who have been disadvantaged by unfair discrimination;
the second is whether the measure is designed to protect or advance such persons or categories of persons; and
the third requirement is whether the measure promotes the achievement of equality.’
. . . . .
[27] It was contended by SARIPA that the policy discriminated against white males, white females and African, Indian, Chinese or Coloured males, in varying degrees. They also submitted that it discriminated against African, Indian, Coloured and Chinese persons who became South African citizens after 27 April 1994.
Having regard to the test in Van Heerden, the policy was almost an absolute barrier to white males, who would be assigned no more than 10% of the available work, even though many of them were active in the profession. They submitted that the ‘rigid race and gender-based’ categories and ratios amounted to the imposition of quotas as opposed to numerical targets, rendering the policy constitutionally impermissible.
. . . . .
[35] In its recent decision in Solidarity v Department of Correctional Services, the Constitutional Court was divided over whether the Department of Correctional Services’ policy regarding appointments embodied a quota. The difference between the two judgments (Zondo J and Nugent AJ) was that Zondo J held that the power of the National Commissioner to depart from the strict numerical categorisation by race and gender in the policy – which was almost identical to the policy in the present case – saved it from being an impermissible quota.
Here there is no such general discretion. The policy is entirely dependent on a strict racial and gender allocation of appointments and is arbitrary with no saving discretion. The Master has a remedial power that does not avoid the result of the policy being applied. That is not the kind of general discretion that Zondo J held saved the policy before the Constitutional Court.
. . . . .
[41] CIPA’s submissions with regards to the discretion of the Master were essentially that except for clause 7.3, the Master was given no discretion in terms of the policy. No allowance was made for the aptitudes pertinent to the industry, and the wishes of the creditors and other persons of interest were not catered for. They are joined in this submission by NAMA who contended that by excluding creditors, from the decision about who to appoint as provisional trustees or liquidators, creditors were potentially prejudiced. The policy took away any discretion the Master might have, and reduced the Master’s function to one of rubberstamping.
. . . . .
[47] The real problem is that in the absence of proper information about the basis upon which the policy was formulated, and proper information concerning the current demographics of insolvency practitioners, one cannot say that the policy was formulated, on a rational basis properly directed at the legitimate goal of removing the effects of past discrimination and furthering the advancement of persons from previously disadvantaged groups. The absence of any explanation at all for its manifestly discriminatory impact on young people is telling. The impression is given that the ratio is arbitrary and cobbled together with no apparent justificatory basis.
. . . . .
Wallis JA (Mpati P, Swain and Mathopo JA concurring)
[53] I have had the pleasure of reading the judgment of Mathopo JA with which I am in entire agreement. I write this addendum to his judgment to deal with my concern that in formulating and publishing the policy the Minister has disregarded a significant constraint on his powers and thereby infringed the principle of legality or, as it was said in the past, acted ultra vires.
[54] My starting point is that we are dealing with the legislation that governs the liquidation of insolvent estates and the winding up of companies and close corporations. Noticeably missing from the submissions on behalf of the Minister and the Chief Master was any argument addressed to that fact. A brief resumé of the law in this regard and the purpose of this legislation is therefore called for. I start with the statement in Walker v Syfret NO,[1] where Innes J said that the effect of a sequestration order is to bring about a concursus creditorum which has the effect that:
‘[T]he hand of the law is laid upon the estate, and at once the rights of the general body of creditors have to be taken into consideration. No transaction can thereafter be entered into with regard to estate matters by a single creditor to the prejudice of the general body. The claim of each creditor must be dealt with as it existed at the issue of the order.’
Nothing can be done thereafter to affect the rights and obligations of creditors in the insolvent estate.[2] What was true in 1911 remains true over a century later.[3]
[55] This passage highlights the fundamental purpose of insolvency legislation, which is to secure the realisation of the remaining assets of the insolvent and the distribution of the resulting amounts among creditors in accordance with the order of preference laid down by law. Although the Master plays a vital role in overseeing the process of winding-up an estate,[4] the process is nonetheless creditor-driven. It is the majority of creditors in number or value of claims that have the right to elect trustees or nominate liquidators. They have the right to take decisions in respect of the manner in which the assets falling into the estate, or constituting property of the corporate body, in winding-up are to be dealt with.[5] The logic of this is obvious. It is the creditors who stand to lose as a result of the insolvency. They are the best judges of their own interests and they are the people best situated to instruct the trustee or liquidator how to go about the process of liquidation or winding-up. They are the people who can judge whether it is desirable to borrow more money in order to complete a building project in the hope of a substantial payment, or to commence litigation with a view to recovering amounts owing to the estate, to give but two examples. It is after all their money that is being spent on this and their money that is at risk.
. . . . .
[61] The problems with this approach are manifest. If the matter is in the hands of creditors they will follow the maxim of horses for courses and select as trustees or liquidators persons with knowledge of the area of business in which the insolvency has occurred. With the roster the next-in-line will be appointed even though what is involved is a mine or a farm or some other business requiring specialised knowledge, such as a chain of pharmacies or a major retailer. The creditors must tolerate the appointment even though there is a substantial risk that the steps the appointee takes in the course of liquidation or winding-up are inimical to their interests. All they can do is ask the Master to exercise the discretion under clause 7.3 of the policy. But the sale of an asset at an under price, or at a time that is not propitious for realising maximum value, is beyond their powers to prevent.
[62] There can be no objection to the broad purpose of consistency, fairness, transparency and the elimination of the impact of past discrimination. Nor can there be any objection to the elimination of certain undesirable features of the appointment process, ranging from importuning to solicitation to outright dishonesty, that the Chief Master claims were endemic under the old system. But in my view it remains a requirement that any policy that is put in place for the appointment of trustees and liquidators must be consistent with the purpose of our insolvency legislation and be directed at serving the interests of creditors. In formulating this policy their interests have quite deliberately been disregarded at any stage prior to the first meeting of creditors. That is what the explanatory document said and it was echoed in the affidavit of the Chief Master.
. . . . .
[64] There is a fundamental principle that must be observed in this regard. It was summarised in Gauteng Gambling Board[1] where Navsa JA, speaking for a unanimous court said:
‘More than six decades ago this court in Van Eck NO and Van Rensburg NO v Etna Stores 1947 (2) SA 984 (A) said the following:
“For to profess to make use of a power which has been given by statute for one purpose only, while in fact using it for a different purpose, is to act in fraudem legis, construing that term in the more restricted manner adopted by the majority of this Court in the case of Dadoo Ltd v Krugersdorp Municipal Council (1920 AD 530). . . Such a use is a mere simulatio or pretext. . . . And I should add that, of course, if the person exercising the power avowedly uses it for some purpose other than that for which alone it has been given, he acts simply contra legem: where, however, he professes to use it for its legitimate purpose, while in fact using it for another, he acts in fraudem legis.”
In present-day jurisprudence acting with an ulterior motive or purpose is subsumed under the principle of legality.’