The government has conceded on the unlawfulness of unsanctioned BEE requirements under the Air Services Licensing Act 115 of 1990. This is a big deal, so take the few minutes to grind your way through this explanation.

Sakeliga NPC had approached the High Court for an order declaring the conduct of the Air Service Licensing Council unlawful and unconstitutional for introducing requirements not contemplated in the statutory licensing regime through additional race-based and transformation requirements for the issuing of licences apparently in line with the criteria of section 10(1) of the Broad-Based Black Economic Empowerment Act 53 of 2003. The High Court granted the order since the government and the other respondents conceded on the matter.

According to Sakeliga, the application process for air services licenses is costly, long, and complicated.  It typically involves assessing the safety and reliability of the proposed air service, compliance with residency requirements and effective control and use of South African aircraft. Therefore, this matter concerned the consideration of requirements that are apparently outside the powers of the Air Services Licensing Council for approval of these licenses.

This conduct was made worse by the failure of the Council to engage in good time and faith, openly and transparently, to even indicate on record whether the impugned policies and practices are indeed being employed (the poor levels of transparency permeates our concerns about how policy is formulated in South Africa). Sakeliga argued that there was evidence that the Council, through a pattern of unlawful ad hoc procedures and orchestrated policies sought to introduce race-based criteria as part of licensing requirements under the Air Services Licensing Act. The conduct of the Council demanding the submission of transformation plans, the making of race-based commitments by applicants regarding transformation and their ownership structures and setting race based criteria as relevant criteria for the consideration of an application under the Act, was prejudicial to  current and aspiring aviation operators.

This had created a ‘climate of prejudicial uncertainty’ with applicants complaining of public hearings becoming the forum through which the Council set arbitrary targets for different applicants regarding the racial make-up of the ownership structures. Sakeliga also alleged that it had received several reports indicating that members of the Council were making threats regarding the approval of licenses. Specifically, applicants could face refusal of new applications or renewal of existing licenses if they cannot commit to either implementing a transformation plan or making other promises related to the restructuring of their ownership structures during the application process.

The legal representatives of Sakeliga requested confirmation through formal correspondence whether it was accurate that race-based black economic empowerment considerations played a role in the issuing of airline licences. This was done on 18 December 2023 and again on 29 January 2024. No response of any substance was received either confirming or denying whether considerations outside of those contained in the statute and regulations played a role in the issuing of licences. Despite the demand, the Council was unable and unwilling to provide a substantive legal basis for its impugned conduct.

This unusual situation placed potential license applicants at a significant disadvantage. No one actually knew exactly what the requirements for a successful license application would be, especially regarding the racial composition and structure of an applicant entity, as the ‘rules’ are made up as the application goes along and depending upon the level of willingness to comply which the Council receives from participants. Eventually, through correspondence dated 14 May 2024, just short of five months after the initial request was made, the Council confirmed that BEE considerations indeed played a role in the processing of licence applications. It is unclear when this decision was made and when, through its conduct, the policy was implemented. Sakeliga argued that this meant that such decision was procedurally unfair and made in bad faith.

Sakeliga also questioned the nature of the Council who thought they were an organ of state or a public entity. This was seen as  factually and legally incorrect and thus, they argued that this in itself was sufficient to set aside the unlawful impugned conduct and/or policy, as the case may be. This led to the argument that this action was outside the scope of the Council’s power under the Act, irrational, involved consideration of irrelevant considerations and that they were acting under a clear material error of law and fact, constituted an unlawful dictate and reflected bias because it is not based on relevant legal criteria. This was case was anchored in the right to just administrative action as substantiated by the Promotion of Administrative Justice Act.

There was also a direct constitutional attack on the basis of the right to equality under law and the right to freedom of trade, occupation, or profession. The right to property could be implicated if the denial or delay of an airline license affects the use and enjoyment of property, such as aircraft or facilities owned by a licensee applicant.

Ultimately, the State conceded on all grounds, and the order was granted.

This decision has significant implications for the EE Targets which also implicate the right to equality, dignity, freedom of occupation and the right to property. This could set the scene for the bigger tussle between the government and Sakeliga on the equity aspects of our law that has now entered our industrial policy. As is clear in this case, legal certainty and process matter. If the government regards equity as a goal of our industrial policy,  we need to get the process right to avoid uncertainty and to make the policy work. This requires an open, transparent, iterative, and responsive process that is evidence based. The decision makers also need to embark on a process that ensures a horizontal consultation to understand the externalities, coordination issues and information asymmetry in their decision. Uncertainty as can be seen in this industry, creates atrophy. Atrophy stultifies investment and without investment, there can be no question of industrial policy.

You can’t have good policy outcomes if the process around that policy is compromised. Want to know more about how to deal with bad policy processes?

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