Minister of Justice & Constitutional Development v Saripa

The constitutional court considered the Van Heerden test and  in particular pointed out that arbitrariness and rationality are  separate requirements of the rule of law.  “Restitutionary measures are a vital component of our transformative constitutional order. The drafters of our Constitution were alive to the fact that the abolition of discriminatory laws and the guarantee of equal rights alone would not lead to an egalitarian society envisaged in the Constitution. Something more had to be done in order to dismantle the injustices and inequalities arising from the apartheid legal order. Hence the Bill of Rights, which is a cornerstone of our democratic order, includes remedial measures”. [para 1 without footnotes]

Essence

Van Heerden test means reasonably capable of attaining desired outcome of transformation of the insolvency industry and policy fails the test and both arbitrariness and rationality regarded as separate requirements of the rule of law

Decision

Leave to appeal was granted but the appeal from the judgment of Wallis JA was disallowed with costs.

Judges

(CCT13/17) [2018] ZACC 20 (5 July 2018).

Coram: Zondo ACJ, Cameron J, Froneman J, Jafta J, Kathree˗Setiloane AJ, Kollapen AJ, Madlanga J, Mhlantla J, Theron J and Zondi AJ.

Judgments: Jafta J (majority): [1] to [60] Madlanga J (dissenting): [61] to [104]

Heard on: 2 November 2017 – Decided on: 5 July 2018

Related books

Darcy du Toit et al

Reasons

The constitutional court granted leave to appeal but disallowed the appeal.

Discussion by GilesFiles
Court summary

Section 9(2) of the Constitution — remedial and restitutionary equality — Van Heerden test — arbitrariness and rationality as separate requirements — rule of law

Van Heerden test — reasonably capable of attaining desired outcome of transformation of the insolvency industry — facts on record do not show policy is reasonably likely to achieve equality

Insolvency Act 24 of 1936 — section 158 — policy for the appointment of provisional trustees — ultra vires — displacement of the Master’s discretion

Insolvency Act 24 of 1936 — section 158 — policy for the appointment of provisional trustees — arbitrary — exclusion of citizens born on and after 27 April 1994 — no reasons justifying exclusion

Insolvency Act 24 of 1936 — section 158 — policy for the appointment of provisional trustees — irrational — failure to show policy is reasonably capable of achieving equality

Media summary

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On 5 July 2018 at 10h00 the Constitutional Court handed down a judgment in an application by the Minister of Justice and Constitutional Development (Minister) and the Chief Master of the High Court of South Africa (Chief Master) for leave to appeal against an order of the Supreme Court of Appeal (SCA). The order of the SCA confirmed a decision of the Western Cape High Court (High Court) which declared the Policy on the Appointment of Insolvency Practitioners (Policy), promulgated by the Minister on 7 February 2014, unconstitutional in that it fails to meet the requirements of a restitutionary measure under section 9(2) of the Constitution and is irrational.

The High Court held that the policy unlawfully fettered the discretion of a Master to appoint a provisional insolvency practitioner to an estate. This was because the relevant Master had to appoint the next-in-line practitioner with no regard to the practitioner’s relevant skills in relation to the complexity of the estate in question. The Policy was also found to be irrational for a number of reasons, including the failure of the Minister to have regard to the current underlying demographics of insolvency practitioners and how such demographics would impact the realisation of the goals of the Policy. The High Court also held that the Minister did not have the power to promulgate the Policy.

On appeal, the SCA found the Policy to be irrational. The SCA agreed with the High Court that the Minister did not have the power to promulgate the Policy and that the Policy failed to meet the requirements of a restitutionary measure under section 9(2) of the Constitution. The SCA held that the Policy did not unlawfully fetter a Master’s discretion regarding the appointment of an insolvency practitioner.

In a majority judgment, penned by Jafta J (Zondo ACJ, Cameron J, Kathree-Setiloane AJ, Mhlantla J, Theron J and Zondi AJ concurring), the Constitutional Court found that the Policy removes the Master’s discretion to appoint insolvency practitioners in certain cases. This majority found that, while the Policy targets persons who were disadvantaged by unfair discrimination, it does not appear from the information on record that the Policy is likely to transform the insolvency industry. It concludes that the failure to prove that the policy is reasonably likely to achieve equality must mean that there is no proof of a rational link between the Policy and the purpose sought to be achieved.

The majority reasoned that the most serious defect in the Policy is to be found in a particular category from which practitioners are to be appointed in alphabetical order. The problematic category (category D) is the largest category in the Policy and includes white male practitioners but also practitioners from other races if they became citizens on or after 27 April 1994. The majority found that appointing practitioners in alphabetical order from category D is unlikely to achieve equality in the future. Doing so only entrenches the status quo. Since white males are in the majority, most appointments would go to them. Moreover, the category impermissibly discriminates against other races on the ground that they became citizens on or after 27 April 1994. By placing all those who became citizens on or after 27 April 1994 in category D, the Policy effectively punishes all young practitioners who were born on or after that date. This undermines in a serious manner the progressive realisation of equality which the other parts of the Policy are designed to achieve. The arbitrariness of the Policy is apparent from the failure by the Minister to provide reasons justifying why disadvantaged people should be treated differently, on account of the date on which they became citizens.

In the result, the majority granted leave to appeal but dismissed the appeal with costs.

In a minority judgment, Madlanga J (Kollapen AJ and Froneman J concurring) holds that the appointment process in terms of the Policy should not be compartmentalised into discrete components but rather that what must be considered is what the policy seeks to achieve and whether the process as a whole is consonant with that. Therefore, the minority judgment holds, there is no need to read Clauses 7.1 and 7.3 separately in order to determine whether the Master may exercise a discretion in the appointment process. The minority judgment argues that if all the practitioners on Masters’ lists are suitably qualified, there is no need for the Master to be able to exercise a discretion to not appoint a practitioner who is suitably qualified and is next-in-line to be appointed. For these reasons, the minority judgment holds that the Minister did have the power to promulgate the Policy and that it is not inconsistent with section 18 of the Insolvency Act.

With regard to the majority’s view that the Policy is not reasonably capable of achieving equality due to the paucity of information regarding its implementation, the minority judgment holds that the information on record plainly shows that if properly applied, the Policy will afford significant advantage to section 9(2) beneficiaries and that will in turn uplift those beneficiaries and transform the insolvency industry. In any event, the minority judgment holds, it is not a requirement under the Van Heerden test that a remedial measure must be able to predict its future outcomes with precision.

The minority judgment holds that there is no irrationality in the Policy’s distribution of work according to South Africa’s demographics in order to promote equality. The minority judgment also holds that because of the continued dominance of white practitioners – particularly white men – in the insolvency industry, using the current demographic make-up of the profession would perpetuate the very imbalance that the policy seeks to remedy. It therefore holds that the Policy bears a rational connection to the achievement of equality and that the differentiation of categories of persons affected by the policy is not one that was arrived at irrationally.

Finally, the minority judgment agrees with the majority that the placement of practitioners who became citizens on or after 27 April 1994 in category D is arbitrary and constitutionally invalid. However, it finds that this invalidity does not affect the Policy as a whole.

In the result, the minority would have granted leave and upheld the appeal except insofar as the policy places practitioners who became citizens on or after 27 April 1994 in category D. The minority would have invalidated the Policy to the extent of that placement.

Quotations from judgment

Note: Footnotes omitted and emphasis added

Introduction

[1] Restitutionary measures are a vital component of our transformative constitutional order. The drafters of our Constitution were alive to the fact that the abolition of discriminatory laws and the guarantee of equal rights alone would not lead to an egalitarian society envisaged in the Constitution. Something more had to be done in order to dismantle the injustices and inequalities arising from the apartheid legal order. Hence the Bill of Rights, which is a cornerstone of our democratic order, includes remedial measures.

[2] Section 9(2) of the Constitution is one of the provisions that authorises the adoption of remedial measures to address inequality and advance persons who were disadvantaged by unfair discrimination. This section provides:

“Equality includes the full and equal enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.”

[3] At the heart of this matter is the policy adopted by the Minister of Justice and Constitutional Development which regulates the Master’s powers to appoint trustees under the Insolvency Act. This policy was also designed to govern the appointment of provisional liquidators in terms of the Companies Act and liquidators in terms of the Close Corporations Act.

Background

[4] Acting in terms of section 158 of the Insolvency Act, section 10(1A)(a) of the Close Corporations Act and section 339 of the Companies Act read with section 158(2) of the Insolvency Act, the Minister determined the impugned policy. Section 158(2) mandates the Minister to determine policy for the appointment of trustees by the Master “in order to promote consistency, fairness, transparency and the achievement of equality for persons previously disadvantaged by unfair discrimination”. Upon learning about the policy and before it was implemented the South African Restructuring and Insolvency Practitioners Association and the Concerned Insolvency Practitioners Association instituted separate review applications in the Western Cape Division of the High Court.

[5] The National Association of Managing Agents, Solidarity and the Vereeniging Van Regslui vir Afrikaans joined the Associations as applicants in the High Court. All these parties will be referred to as the Associations in this judgment. They cited the Minister and the Chief Master of the High Court as the respondents. By agreement the two applications were heard together and a single judgment was produced by the High Court.

[6] The Associations divided the relief they sought into two parts. With regard to the first part they obtained an interdict restraining the applicants from implementing the policy in question pending a finalisation of the review application. The second part comprised a claim for the review and setting aside of the policy which was impugned on these grounds—

a. the Minister exceeded his powers in making the policy which also fettered the Master’s discretion;
b. the policy was irrational;
c. the policy violated the right to equality; and
d. the Minister failed to afford relevant stakeholders an opportunity to make representations before adopting the policy.

[7] With regard to the Minister’s alleged failure to afford stakeholders a hearing in Parliament, the High Court held that the enabling provision did not oblige the Minister to do more than follow the consultation process which had been undertaken before the adoption of the policy. The High Court dismissed this ground on the basis that it lacked substance.

[8] However, the other grounds were upheld. Relying on Van Heerden, the High Court reformulated the rationality test. It stated that “a measure must be rationally related to the information available to its designer/formulator at the time of making his/her decisions” and “must bear a rational relationship to its objectives”.

[9] Following its formulation of the rationality test, the High Court reviewed the statistical information relied upon by the applicants for the proposition that the insolvency industry needed to be transformed. Upholding the construction that the information was inaccurate and insufficient, the High Court held:

“It is not for a court to interfere with the Minister’s decision to adopt a particular ratio against any other. That lies firmly within the executive power. However, there must be at least some evidence that whatever scheme he adopts is done so on a rational basis. It is difficult to understand how a proper determination of an appropriate policy could be made with significant gaps in the information considered by the Minister.”

[10] In relation to whether the policy met the requirements of section 9(2) of the Constitution, the High Court considered it necessary to determine whether the impugned policy established quotas and whether it catered for the interests of creditors. The Court concluded that the ratios provided for in the policy were rigid and amounted to quotas which were not permitted under section 9(2).

[11] Regarding the omission in the policy to promote the interests of creditors the High Court stated:

“The policy cannot, in forming the basis for ‘transformation of the insolvency industry’, change a feature of the industry’s regulatory framework which requires a proper match between liquidator/trustee and a particular estate.”

[12] Consequently, the policy was declared invalid for being inconsistent with the Constitution. Dissatisfied with this declaration of invalidity, the Minister and the Chief Master appealed to the Supreme Court of Appeal. That Court upheld the High Court’s conclusion to the effect that the policy does not meet the requirements of section 9(2) of the Constitution.

[13] The main reason advanced in support of this conclusion was that, owing to its rigidity, the policy was arbitrary and capricious. The Supreme Court of Appeal reasoned:

“In an endeavour to overcome the rigidity of clause 7.1 counsel for the Minister and Chief Master argued that the requisite flexibility was to be found in the Master’s powers under clause 7.3. She submitted that this vested the Master with a discretion in every case. I disagree. Clause 7.3 does not permit a departure from the appointment process prescribed in clause 7.1 of the policy. It provides the Master with a mechanism, in an ill-defined range of cases, to compensate to some degree for the fact that the policy dictates the appointment of someone not qualified to undertake the task, either because of its complexity, or because of their unsuitability – the two are not mutually exclusive. This power of appointment does not resolve the fact that clause 7.1 requires the Master to make an appointment in accordance with a rigid quota. After all the unqualified person is still to be appointed and to have their share in the fees accruing from the administration of the estate, even though the reason for invoking clause 7.3 is that they are not qualified or unsuitable to perform that task. The Master’s ability to insert a backstop into the process does not detract from the need in every case to comply with clause 7.1. The system is arbitrary and capricious.”

[14] Notably, the Supreme Court of Appeal held that remedial measures, like the policy we are dealing with here, must be implemented progressively. The Court stated:

“Remedial measures must therefore operate in a progressive manner assisting those who, in the past, were deprived, in one way or another, of the opportunity to practise in the insolvency profession. Such remedial measures must not, however, encroach, in an unjustifiable manner, upon the human dignity of those affected by them. In particular, as stressed by Moseneke J in para 41 of Van Heerden, when dealing with remedial measures, it is not sufficient that they may work to the benefit of the previously disadvantaged. They must not be arbitrary, capricious or display naked preference. If they do they can hardly be said to achieve the constitutionally authorised end. One form of arbitrariness, caprice or naked preference is the implementation of a quota system, or one so rigid as to be substantially indistinguishable from a quota.”

[15] In the second concurring judgment, the Supreme Court of Appeal added a further ground for holding that the impugned policy was invalid. It was held that the policy was defective because it omitted to cater for the wishes and interests of the creditors and as a result the policy did not serve the purpose of the relevant legislation, which is to promote the interests of creditors. It was declared that as a consequence of the omission, the Minister had exceeded his power in promulgating the policy.

[16] The Court proceeded to conclude:

“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.”

Leave to Appeal

[17] The Minister and the Chief Master seek leave to appeal the order issued by the Supreme Court of Appeal. The matter raises important constitutional issues. It concerns the exercise of a public power to determine policy designed to transform and redress the inequality in the insolvency industry. In defending the impugned policy the Minister and the Chief Master invoked section 9(2) of the Constitution. Therefore, jurisdiction is established.

[18] What remains for consideration is whether it will be in the interests of justice to grant leave. The legal conclusions reached by the Supreme Court of Appeal are at the centre of this enquiry. Those conclusions impose conditions under which the relevant power may be exercised in the context of section 9(2). Some of those conditions appear to have been imposed in error. There are reasonable prospects of success which warrant the granting of leave.

The policy

[19] Before I analyse the conclusion and reasoning of the Supreme Court of Appeal it is necessary to set out the impugned policy. Of the seven clauses in the policy, the Associations attacked only two clauses, namely the sixth and seventh clauses. These clauses are essential to the structure and implementation of the policy.

Clause 6 requires that insolvency practitioners who become eligible to be appointed as trustees must appear on a Master’s list. This list must be divided into four categories. category A must comprise African, Coloured, Indian and Chinese females who became South African citizens before 27 April 1994. This being the date on which democracy was established and a constitutional order came into existence. Notably the category does not include people who became citizens on or after 27 April 1994 who belong to these groups which were disadvantaged by the discriminatory laws and practices of the apartheid era.

[20] Category B consists of African, Coloured, Indian and Chinese men who became South African citizens before 27 April 1994. Category C must reflect white women who became citizens before 27 April 1994. Curiously category D comprises white men irrespective of when they became citizens. Additionally African, Coloured, Indian and Chinese practitioners who became citizens on or after 27 April 1994 fall under this category regardless of whether they are men or women. White women who gained citizenship on or after that date also come under this category. For undisclosed reasons, there is no distinction drawn between men and women falling under the previously disadvantaged groups.

[21] The names of practitioners in each category must be “arranged in alphabetical order according to their surnames”. But the names that are added to the list after its completion do not have to be arranged in this order. They must simply be added at the end of the relevant category. The list must also distinguish between senior and junior practitioners within each category. A senior practitioner is defined as a practitioner who has been appointed as a trustee at least once in each year of the preceding five years.

[22] The list is crucial to the implementation of the policy. Clause 7 regulates the appointment of trustees. It reads:

“Appointment of insolvency practitioners by Masters of High Courts
7.1 Insolvency practitioners must be appointed consecutively in the ratio A4: B3: C2: D1, where—
‘A’ represents African, Coloured, Indian and Chinese females who became South African citizens before 27 April 1994;
‘B’ represents African, Coloured, Indian and Chinese males who became South African citizens before 27 April 1994;
‘C’ represents White females who became South African citizens before 27 April 1994;
‘D’ represents African, Coloured, Indian and Chinese females and males, and White females, who have become South African citizens on or after 27 April 1994 and White males who are South African citizens,
and the numbers 4: 3: 2: 1 represent the number of insolvency practitioners that must be appointed in that sequence in respect of each such category.
7.2 Within the different categories on a Master’s List, insolvency practitioners must, subject to paragraph 7.3, be appointed in alphabetical order.
7.3 The Master may, having regard to the complexity of the matter and the suitability of the next-in-line insolvency practitioner but subject to any applicable law, appoint a senior practitioner jointly with the junior or senior practitioner appointed in alphabetical order. If the Master makes such a joint appointment, the Master must record the reason therefor and, on request, provide the other insolvency practitioner therewith.”

[23] In mandatory terms, this clause obliges the Master to appoint practitioners “consecutively in the ratio A4: B3: C2: D1”. This means that, when the Master needs to appoint a trustee, she must first look at the practitioners in category A, before she can proceed to the other categories. She may not appoint from the other categories until four practitioners from category A have been appointed. Their appointment must be made in alphabetical order. The clause does not tell us what order must be followed in respect of practitioners who are added to the list after its compilation. It will be recalled that their names are simply added at the end of the list.

[24] Once the Master has appointed four practitioners from category A, she may proceed to the next category, namely category B. She is required to appoint at least three practitioners from this category before she can go to category C in which she may appoint a minimum of two practitioners before proceeding to category D. In the latter category she may appoint only one practitioner and must then move back to category A. This is the position despite the fact that category D is probably the biggest as it consists of all races.

[25] Clause 7 does not permit the Master to deviate from the method of appointment outlined above. But if the estate to be managed is complex and the practitioner next in line for appointment is not suitable, the clause mandates the Master to appoint a suitably qualified senior practitioner in addition to the unsuitable practitioner. This is the only occasion where the Master is allowed to depart from the alphabetical order of appointments.

[26] It is now convenient to consider the legal conclusions and reasoning of the Supreme Court of Appeal.

Ultra Vires

[27] In simple terms the concept means that a functionary has acted outside her powers and as a result the function performed becomes invalid. The rule forms part of the principle of legality which is an integral component of the rule of law. In Affordable Medicines this Court affirmed the principle in these terms:

“The exercise of public power must therefore comply with the Constitution, which is the supreme law, and the doctrine of legality, which is part of that law. The doctrine of legality, which is an incident of the rule of law, is one of the constitutional controls through which the exercise of public power is regulated by the Constitution. It entails that both the legislature and the executive ‘are constrained by the principle that they may exercise no power and perform no function beyond that conferred upon them by law’. In this sense the Constitution entrenches the principle of legality and provides the foundation for the control of public power.”

[28] Ordinarily, the ultra vires principle applies where the repository of the public power performs a function outside of the scope of the power conferred. If the functionary had no power at all, then the validity of the relevant action is not impugned with reference to this principle. It has to be challenged on other grounds. In applying the principle in Affordable Medicines the Court stated:

“In exercising the power to make regulations, the Minister had to comply with the Constitution, which is the supreme law, and the empowering provisions of the Medicines Act. If, in making regulations the Minister exceeds the powers conferred by the empowering provisions of the Medicines Act, the Minister acts ultra vires (beyond the powers) and in breach of the doctrine of legality. The finding that the Minister acted ultra vires is in effect a finding that the Minister acted in a manner that is inconsistent with the Constitution and his or her conduct is invalid. What would have been ultra vires under common law by reason of a functionary exceeding his or her powers, is now invalid under the Constitution as an infringement of the principle of legality. The question, therefore, is whether the Minister acted ultra vires in making regulations that link a licence to compound and dispense medicines to specific premises. The answer to this question must be sought in the empowering provisions.”

[29] Here it is not disputed that the Minister was mandated by section 158(2) of the Insolvency Act to promulgate the impugned policy. It will be recalled that this provision authorises the Minister to determine policy for the appointment of trustees. Therefore, he would have acted ultra vires, if, in doing so, he had exceeded the conferred power. Before the Supreme Court of Appeal, the Associations had contended that by obliging the Master to appoint a practitioner who is next-in-line on the list, the policy does not regulate the exercise of a discretion by the Master but completely erodes the discretion. Section 18 of the Insolvency Act confers the power of appointing provisional trustees on the Master and not the Minister. This appointment is however subject to the policy determined by the Minister in terms of section 158. The contention made was that in effect the policy appoints the trustees.

[30] The Minister and the Chief Master countered this argument by submitting, with reference to clause 7.3 of the policy, that the Master has a discretion to exercise where the matter is complex and the next-in-line practitioner is not suitable. From a close examination of this clause, it appears that the discretion enjoyed by the Master relates to the appointment of a senior practitioner to join the unsuitable one. The clause stipulates that the Master may appoint a senior practitioner “jointly with the junior or senior practitioner appointed in alphabetical order”. What emerges from the text of the clause is that the Master has no power to exclude the unsuitable practitioner. Even if the unsuitable practitioner is senior, the Master may only pair her with the second senior, brought in by reason of the complexity of the matter.

[31] Although, on the face of it, there is merit in the argument that the Master’s discretion is dislodged in respect of the practitioner appointed according to the alphabetical order, the Supreme Court of Appeal did not address this argument. That Court evaluated an allied submission to the effect that the policy impermissibly fettered the Master’s discretion. The Court rejected this point on the ground that by subjecting the exercise of power by the Master to the Minister’s policy, section 18 of the Insolvency Act fetters the Master’s discretion. Therefore, the Master did not have an unfettered discretion. While accepting that “there is a considerable restriction informed by clause 7.1” on the Master’s discretion, the Court held that “some discretion remains in terms of clause 7.3”.

[32] While it is true that clause 7.3 retains “a limited residual discretion for the Master”, this clause does not apply to the bulk of appointments which are made in terms of clause 7.1. In respect of those appointments, it appears that the Master has no discretion but to appoint whoever is next-in-line, even if the practitioner is unsuitable. Clause 7.3 is triggered only if two conditions are present. These are: a complex estate and the unsuitability of the next-in-line practitioner. In that event, the Master is free to appoint a suitable senior practitioner to partner with the unsuitable one. Accordingly, clause 7.3 is no answer to the displacement of the Master’s discretion in respect of appointments to which clause 7.1 applies.

Legality

[33] In the second concurring judgment, the Supreme Court of Appeal held that the impugned policy was in “breach of the principle of legality” because it omitted to direct the Master to promote the interests of the creditors when appointing provisional trustees. It was stated that this duty flows from the fact that the overarching purpose of the Insolvency Act is to protect and advance the interests of creditors. While accepting that the Minister formulated and designed the policy to achieve transformation, which is one of the objects of section 158(2), the Supreme Court of Appeal held that the Minister acted in violation of the principle of legality by not adopting a policy that is consistent with the overall purpose of the Insolvency Act.

[34] In support of this conclusion that Court reasoned:

“Given the purpose of the legislation with which we are concerned, it seems to me that the actions of the Minister in determining the policy under section 158 of the Act, and the actions that the Master must undertake in terms of that policy, must be in accordance with the interests of creditors in the liquidation of the estate or the winding up of the company or close corporation. As the policy was formulated on the basis that those interests were irrelevant, and on its face it does not recognise or serve those interests it was in my view outside the legitimate powers vested in the Minister and its promulgation involved a breach of the principle of legality.”

[35] I disagree for two reasons.

First, the expressly stated objectives of the policy are “to promote consistency, fairness, transparency and the achievement of equality for persons previously disadvantaged by unfair discrimination”. The attainment of some of these objectives, especially fairness, would advance the interests of creditors. The policy seeks to achieve fairness to creditors by requiring that the alphabetical list contains only appropriately qualified insolvency practitioners and, where a complex matter arises, and the appointed practitioner is inappropriate to manage the estate, the Master may then also appoint a suitable senior practitioner.

In addition, the policy requires that every practitioner appointed must timeously lodge a bond of security with the Master and it disqualifies a practitioner who has a conflict of interest from appointment in respect of the estate where a conflict arises. This illustrates the synergy between the overall objective of the Insolvency Act and section 158(2) which sets out the purposes for the policy the Minister is mandated to make.

[36] Second, when the Master appoints provisional trustees under section 18 of the Insolvency Act, the objective is to protect the interests of creditors. While the process of appointment must accord with the policy determined by the Minister, the overarching purpose is to preserve the assets of the insolvent estate for the benefit of creditors. Before the first meeting of creditors, the Master steps into their shoes and is authorised to give directions to the provisional trustee, which could be given by creditors at a meeting. In addition, a provisional trustee may not sell the assets of the estate without authorisation by the Master. Therefore, the scheme of appointment created by the Insolvency Act and the policy made by the Minister are in line with the overarching purpose of the Insolvency Act.

[37] The Supreme Court of Appeal relied on Gauteng Gambling Board for the proposition that the impugned policy should have required the Master to have regard to the wishes and interests of creditors. But that case does not support this proposition. It addressed the issue of professing to exercise power for the attainment of the purpose for which the power was conferred, while in fact exercising it to achieve a different purpose. This was not the position here. The Minister exercised power to attain the purpose of the empowering provision. Accordingly, reliance on Gauteng Gambling Board was misplaced.

Section 9(2)

[38] This section of the Constitution insulates from attack measures adopted to protect or advance people who were disadvantaged by unfair discrimination. In Van Heerden this Court construed the provision as laying down three requirements which must be met by a restitutionary measure for it not to constitute unfair discrimination.

  • The first is whether the measure targets people or a category of people who had been disadvantaged by unfair discrimination.
  • The second is whether the measure is designed to protect and advance such people.
  • The third is whether the measure promotes the achievement of equality.

[39] For a restitutionary measure to comply with section 9(2) of the Constitution, it must be reasonably capable of achieving equality. Formulating this requirement in Van Heerden, the Court said:

“The second question is whether the measure is ‘designed to protect or advance’ those disadvantaged by unfair discrimination. In essence, the remedial measures are directed at an envisaged future outcome. The future is hard to predict. However, they must be reasonably capable of attaining the desired outcome. If the remedial measures are arbitrary, capricious or display naked preference they could hardly be said to be designed to achieve the constitutionally authorised end. Moreover, if it is clear that they are not reasonably likely to achieve the end of advancing or benefiting the interests of those who have been disadvantaged by unfair discrimination, they would not constitute measures contemplated by section 9(2).”

[40] While the policy targets persons who were disadvantaged by unfair discrimination, it does not appear from the information on record that the policy is likely to transform the insolvency industry. Vital to its success is the Master’s list from which appointments are to be made. But there is no clarity on whether a single list would be applied throughout the country or each Master would have their own list. If a single list were to apply it is not clear how it would be applied by each Master. In light of the paucity of information on the implementation of the policy, it cannot be said that the policy is likely to achieve the goal of equality.

[41] But the most serious defect in the policy is to be found in category D. It will be recalled that this is the largest category because it does not only include white male practitioners but also practitioners from other races if they became citizens on or after 27 April 1994. Here lies the problem. On the Minister’s version, the purpose of the policy is to address the inequality created by the racist practices of apartheid which resulted in the current situation of white males constituting a majority among practitioners. The implementation of category D is unlikely to achieve equality in the future. This is because appointing one practitioner in alphabetical order from this category entrenches the status quo. Since white males are in the majority, most appointments would go to them.

[42] Therefore category D perpetuates the disadvantage which the policy seeks to eradicate. It lumps African, Coloured, Indian and Chinese practitioners with the advantaged white males who dominate the entire industry in terms of numbers and affords everybody in this category an equal opportunity of being appointed.

Moreover, the category impermissibly discriminates against other races on the ground that they became citizens on or after 27 April 1994. To this extent the policy does not constitute a restitutionary measure envisaged in section 9(2) of the Constitution. A section 9(2) measure may not discriminate against persons belonging to the disadvantaged group whose interests it seeks to advance.

[43] As observed in Van Heerden, the section 9(2) remedial measures are “directed at an envisaged future outcome”. By placing all those who became citizens on or after 27 April 1994 in category D, the policy effectively punishes all young practitioners who were born on or after that date. This undermines in a serious manner the progressive realisation of equality which the other parts of the policy are designed to achieve.

[44] It is apparent from the statement quoted in paragraph 41 that there is an overlap between the second and the third requirements laid down in Van Heerden. While addressing the second requirement which demands that the restitutionary measure be designed to protect and advance those who were disadvantaged by unfair discrimination, Moseneke J stated that such measure “must be reasonably capable of attaining the desired outcome”. The outcome referred to here is the achievement of equality.

[45] And later when dealing with the third requirement Moseneke J said:

“The third and last requirement is that the measure ‘promotes the achievement of equality’. Determining whether a measure will in the long run promote the achievement of equality requires an appreciation of the effect of the measure in the context of our broader society. It must be accepted that the achievement of this goal may often come at a price for those who were previously advantaged. Action needs to be taken to advance the position of those who have suffered unfair discrimination in the past.”

[46] What is common to both the second and third requirements is the reasonable likelihood that the restitutionary measure concerned would achieve the purpose of equality. It is important to note that during the implementation of such measures, it is inevitable that those who were previously advantaged would be affected adversely. This is the price demanded by the Constitution to remedy the injustices of the past order and to attain social justice.

[47] In the course of articulating the second requirement, reference was also made to arbitrariness and capriciousness. It was stated that measures that are arbitrary, capricious or display naked preference could not be said to be designed to achieve a constitutionally authorised purpose. While this is correct, the statement must not however be read as incorporating into the second requirement the demand that a restitutionary measure should not be arbitrary or capricious. These are separate requirements of the Constitution which are not restricted to restitutionary measures contemplated in section 9(2) but apply to the exercise of public power generally. Just as the exercise of such power must meet the rationality standard.

[48] The facts placed on record by the applicants do not show that the policy is likely to achieve equality. Therefore, the second and third requirements stipulated in Van Heerden were not satisfied.

Arbitrariness

[49] The Constitution proscribes arbitrary action and requires that every action taken in the exercise of public power must be underpinned by plausible reasons. Such reasons must justify the action taken. If action is taken for no reason or no justifiable reason it is arbitrary. In Makwanyane Ackerman J stated:

“We have moved from a past characterised by much which was arbitrary and unequal in the operation of the law to a present and a future in a constitutional state where state action must be such that it is capable of being analysed and justified rationally. The idea of the constitutional state presupposes a system whose operation can be rationally tested against or in terms of the law. Arbitrariness, by its very nature, is dissonant with these core concepts of our new constitutional order. Neither arbitrary action nor laws or rules which are inherently arbitrary or must lead to arbitrary application can, in any real sense, be tested against the precepts or principles of the Constitution.”

This statement was later affirmed by this Court in Pharmaceutical Manufacturers.

[50] Although the policy we are concerned with here was adopted in pursuit of a laudable purpose of transforming the insolvency industry, which everyone agrees needs to be transformed, the implementation of the policy contains arbitrary terms. The policy differentiates between people who were disadvantaged by discriminatory laws and practices of the past era. Those who became citizens before 27 April 1994 enjoy the benefits flowing from the policy. It will be recalled that during the apartheid era millions of black people were stripped of their South African citizenship and were declared to be citizens of the so-called independent homelands. For no apparent reason, and the applicants have provided none, the policy restricts its application to disadvantaged people, who became citizens before 27 April 1994. This was the date on which South Africa became a democracy.

[51] Disadvantaged people who became citizens on 27 April 1994 are denied the benefits of the policy. And the policy also does not apply to those who became citizens after that date. Instead, the policy places all these people in the same category as white males and affords them the same benefits. Again, no reasons were advanced for treating previously disadvantaged people in the same manner as those who were advantaged, in a measure designed to eliminate consequences of unfair discrimination and achieve equality.

[52] In the absence of reasons justifying it, the unequal operation of the policy is arbitrary and leads to impermissible differentiation. Makwanyane informs us that:

“Arbitrariness must also inevitably, by its very nature, lead to the unequal treatment of persons. Arbitrary action, or decision making, is incapable of providing a rational explanation as to why similarly placed persons are treated in a substantially different way. Without such a rational justifying mechanism, unequal treatment must follow.”

[53] It is apparent from this statement that arbitrariness inevitably leads to unequal treatment proscribed by the Constitution. I have already illustrated how unequally the policy treats previously disadvantaged people purely on the basis of the date on which they became citizens. While it is permissible for the state to differentiate between people, it may not do so in an arbitrary fashion. In Prinsloo this Court held:

“In regard to mere differentiation the constitutional state is expected to act in a rational manner. It should not regulate in an arbitrary manner or manifest ‘naked preferences’ that serve no legitimate governmental purpose, for that would be inconsistent with the rule of law and the fundamental premises of the constitutional state. The purpose of this aspect of equality is, therefore, to ensure that the state is bound to function in a rational manner. This has been said to promote the need for governmental action to relate to a defensible vision of the public good, as well as to enhance the coherence and integrity of legislation.”

[54] The failure by the Minister to provide reasons justifying why disadvantaged people should be treated differently, on account of the date on which they became citizens, establishes the arbitrariness of the policy. Every action or decision taken in the exercise of public power must be supported by plausible reasons. Those reasons must show that power was exercised to achieve a legitimate government purpose, for which that specific power was conferred. It is those reasons which may insulate the exercise of power against a challenge on the ground of arbitrariness.

Rationality

[55] While there may be an overlap between arbitrariness and rationality these are separate concepts against which the exercise of public power is tested. Arbitrariness is established by the absence of reasons or reasons which do not justify the action taken. Rationality does not speak to justification of the action but to a different issue. Rationality seeks to determine the link between the purpose and the means chosen to achieve such purpose. It is a standard lower than arbitrariness. All that is required for rationality to be satisfied is the connection between the means and the purpose. Put differently, the means chosen to achieve a particular purpose must reasonably be capable of accomplishing that purpose. They need not be the best means or the only means through which the purpose may be attained.

[56] The discretion to choose suitable means is that of the repository of public power. The exercise of that discretion is not susceptible to review on the ground of irrationality unless there is no rational link between the chosen means and the objective for which power was conferred. In Albutt this Court formulated the rationality test in these terms:

“The executive has a wide discretion in selecting the means to achieve its constitutionally permissible objectives. Courts may not interfere with the means selected simply because they do not like them, or because there are other more appropriate means that could have been selected. But, where the decision is challenged on the ground of rationality, courts are obliged to examine the means selected to determine whether they are rationally related to the objective sought to be achieved. What must be stressed is that the purpose of the enquiry is to determine not whether there are other means that could have been used, but whether the means selected are rationally related to the objective sought to be achieved. And if objectively speaking they are not, they fall short of the standard demanded by the Constitution.”

[57] Here the primary purpose of the impugned policy is the transformation of the insolvency industry. This is one of the purposes of section 158 of the Insolvency Act which empowers the Minister to make policy. In other words, the impugned policy constitutes the means adopted by the Minister to achieve transformation and equality in an industry dominated by white males. What needs to be determined is whether there is a rational link between the policy and transformation towards equality in the industry concerned.

[58] I have already found that the policy is not reasonably capable of achieving equality. The reasons supporting this finding are equally applicable to the rationality enquiry. This is so because the failure to prove that the policy is reasonably likely to achieve equality must mean that there is no proof of a rational link between the policy and the purpose sought to be achieved. Accordingly, I hold that the impugned policy is also irrational. Consequently, the appeal must fail.

Costs

[59] Since the Minister and the Chief Master have failed in their appeal, they are liable for costs.