in the high court of south africa case number: …
TRANSCRIPT
Box 127 IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE DIVISION, CAPE TOWN)
Case Number: 9675/2017
In the matter between -
THE MINISTER OF ENVIRONMENTAL AFFAIRS
and
RECYCLING AND ECONOMIC DEVELOPMENT INITIATIVE OF SOUTH AFRICA NPC
(Registration Number: 201 0/022733/08)
ANSWERING AFFIDAVIT
I, the undersigned
HERMANN FELIX ERDMANN
do hereby make oath and state -
Applicant
Respondent
1. I am an adult male and the Chief Executive Officer of the
Respondent, the Recycling and Economic Development Initiative
of South Africa NPC ("REDISA").
CLIFFE DEKKER HOFMEYR INC Ref: R E Marcus- Tel: 021 481 6396 Email: [email protected]
2
2. I am duly authorised to oppose this application and to depose to
this answering affidavit on behalf of members of the Board of
Directors ("the Board") of the Respondent.
3. The facts contained herein are to the best of my knowledge true
and correct and are, unless otherwise stated or indicated by the
context, within my personal knowledge. Where I make
submissions of a legal nature, I do so on the advice REDISA has
received from its legal representatives.
4. Where I make use of headings in this answering affidavit I do so
for the purposes of convenience only and do not thereby intend to
limit any facts stated under a particular heading only to the topic
covered by such heading.
THE PARTIES
5. The Applicant is the MINISTER OF ENVIRONMENTAL AFFAIRS
whose address for service is care of the State Attorney, Ground
Floor, SALU Building, 255 Thabo Sehume Street, Pretoria,
Gauteng and care of the State Attorney, 22 Long Street, Cape
Town, Western Cape Province (also, for ease of reference, "the
Minister" or "the Department").
6. The Respondent, REDISA, is a not-for-profit company
incorporated under the company laws of the Republic of South
3
Africa with its place of business at its head office at 4th Floor,
Sunclare Building, 21 Dreyer Street, Claremont, Western Cape.
7. The Applicant applied ex parte, and obtained, on 1 June 2017 an
order placing REDISA, a solvent company, in provisional winding
up pursuant to section 81 (1 )(d)(iv) read with section 157(1 )(d) of
the 2008 Companies Act. A copy of the Order is annexed hereto
marked "AA1".
8. The return day of the provisional order of winding-up granted by
this Court is 25 July 2017.
9. I am advised that directors, whom I represent, have residual
powers to oppose the application and to approach this Court to
discharge the Order which was obtained in the circumstances
described below.
10. This answering affidavit is therefore filed in opposition to the Order
obtained by Applicant, in opposition to the application to place
REDISA in liquidation, and to justify the discharge of the
provisional Order as a matter of urgency.
11. As I shall show in this answering affidavit, the Order has already
caused serious harm to RED I SA, and the implementation of what
will later be defined as the Plan. Such harm worsens daily for as
long as the Order is in place.
4
12. REDISA is unable to wait until the return day of 25 July 2017 to
have this matter heard and to have the provisional order
discharged. REDISA will accordingly anticipate the return day,
and will do so as soon as it is able to.
13. The Applicant's founding affidavit runs to nearly 1000 pages,
including annexures, and includes a founding affidavit of some
185 pages. The founding affidavit is allegation, as opposed to
fact, heavy. It is also replete with serious (and incorrect and
misleading) accusations made against not only REDISA, but also
against me personally, against present and former directors of
REDISA, and against individuals and corporate entities with which
REDISA has ongoing commercial relationships. It is largely based
on inadmissible hearsay evidence, and omits to refer to material
portions of relevant factual background.
14. In this answering affidavit, I wish to deal with matters
schematically as follows -
14.1. I first address various points in limine regarding the substantive
and procedural aspects of the proceedings instituted by the
Applicant;
14.2. To contextualise the matter I then summarise briefly REDISA's
constitutional and regulatory framework and provide an
overview of its activities;
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14.3. I then highlight and address certain key issues which emerge
from the founding affidavit;
14.4. Finally, I shall, to the extent that it is necessary to do so, deal
with each of the Applicant's allegations in the required detail.
15. Notwithstanding the magnitude of the papers, the multitude of the
factual allegations made in the papers, and the serious allegations
of impropriety levelled at inter alia REDISA, its directors
collectively and individually, and others, the Applicant saw fit to
bring this application urgently and as an ex parte application.
16. REDISA is advised that when a party brings an ex parte
application it is duty bound to ensure that it places every relevant
fact before the Court at the time that the application is brought.
The reason for this is obvious. The Respondent - in this case
RED ISA- is not given an opportunity to place its side of the story
before the Court when the application is heard.
17. As I shall demonstrate in the course of this answering affidavit, the
Applicant did not place relevant facts before the Court. Indeed,
the Applicant cynically and deliberately withheld highly relevant
information from the Court, which would have materially
influenced the Court in deciding whether or not to grant a
provisional order winding-up RED I SA.
6
18. The Board was taken totally by surprise by the Order obtained by
the Applicant.
19. The impact of the Order is profound. REDISA- which is a private
NPC - has been deprived of status without forewarning, or any
ability to defend itself. I am advised that what the Applicant has
done is substantively and procedurally unlawful. It amounts to the
negation of rights of private persons and legal entities.
20. Moreover, the steps taken by the Applicant, rather than achieving
the preservation of the Plan, will lead to its destruction.
21. The financial predicament in which REDISA has found itself is
entirely caused by the conduct of the Applicant and her
Department. REDISA has been cut off from funding without the
Department or any other organ of State putting any transitional
arrangements in place. Instead the State is collecting and
retaining funds collected from tyre producers for itself contrary to
the Plan. REDISA is expected to survive on its reserves until an
undetermined future date. This is an untenable situation.
22. The Board, in the interests of REDISA and its stakeholders, has
done everything possible to prepare and finalise this answering
affidavit as a matter of great urgency, so that it may have the
provisional order of winding-up discharged. In the premises, it has
been necessary to deal with the Applicant's founding affidavit
7
comprehensively- this has required enormous time and effort on
the part of the Board and its advisers.
23. The Board commenced dealing with this matter urgently. Its
priority was to try to set up a working modus with the provisional
liquidators. Thereafter consultations were held with the attorneys
and counsel. The Board therefore dealt with this matter as
expeditiously as possible in extremely difficult and unusual
circumstances.
24. In the interests of achieving its objectives, REDISA has always
sought to have a close and constructive relationship with the
Applicant and the Department. Given the Applicant's past positive
attitude and REDISA's considerable achievements, the negative
change in the Applicant's sentiments about REDISA in the past
year is difficult to understand. REDISA has observed this
escalating antagonism with dismay and incomprehension.
25. The Applicant's conduct in issuing this application is astounding.
There is no rational justification for it. This will become clear from
what is set out below.
INTRODUCTION
26. Much of the founding affidavit is argumentative, based on
inadmissible hearsay or constitutes a regurgitation of
8
correspondence and reports. I intend in what follows to raise
certain aspects to be raised in limine, and to correct factual
versions without engaging in argument. To the extent that I rely
on versions by expert accountants and third parties, I will annex
their confirmatory affidavits. I will point out material omissions in
the founding papers. Legal submissions will be addressed in
argument by counsel when the matter is heard by the Court.
27. Before dealing with the contents of the founding affidavit, I wish to
identify the following in limine aspects which will be raised when
the matter is called, to indicate why the Applicant is not and never
was entitled to the relief that was granted on 1 June 2017.
POINTS IN LIMINE
(1) URGENCY
28. The Applicant refers to the (unconfirmed) iSolviet report of 3
February 2017, which inter alia recommended:
"A Governance
1. The Minister must consider the appointment of an
administrator or curator with immediate effect so as
to ensure that the remaining funds are utilised
appropriately.
2 . ...
8 Legislative
9
1. The Minister recalls the Plan in terms of the LOA and
the provisions set out in the NEMWAA, 2014.
2.
3. The Minister must call for new plans with immediate
effect to ensure the seamless transfer of all existing
enterprises into any new plan!s so as not to
compromise the existing active waste tyre related
SMMEs, micro-collectors, depots, and transporters.
4. "1
29. Although she summarises the report from pages 145 to 164 of her
founding affidavit, the Applicant does not explain why she did not
act on those recommendations, but allegedly relied on the
contents of BM76, dated 23 May 2017, as a ground for urgency.
30. The reliance on BM76 is misplaced. The business plan recorded:
"Should insufficient funding be allocated from June 1, 2017,
commence industry wind down to meet directors' fiduciary
responsibilities. "2
(Emphasis added)
This the Applicant misreads to mean that:
"... the Board of Directors has resolved to commence winding up
procedures on 1 June 2017, (which) calls for immediate action on
the part of the Department to safeguard what may be left of these
1 "BM70", p 694 at p 761 2 p 929
10
public funds and the assets derived therefrom. "3
(Emphasis added)
31. The second ground relied upon for urgency5 is scandalous and
should be struck from the founding affidavit in terms of Rule 6(15).
32. The third ground for urgency:
("without the RED/SA plan the volume and nature of the waste lyres
produced by the Tyre Industry will simply become unmanageable,
to the detriment and prejudice of the citizens of this country and
infringing upon the fundamental right to the environment under
section 24 of the Constitution")4
ignores that the Applicant cannot unilaterally change the Plan, is
unable "to continue the business of the respondent as a going
concern" (as per the order granted on 1 June 2017) without ending
it, and has no replacement plan to implement through the
provisional liquidator(s) in charge of REDISA and Kusaga Taka
Consulting (Pty) Limited ("KT"). KT is also now in provisional
liquidation. An Order placing KT into provisional liquidation was
granted by this Court at the instance of the Minister- also ex parte
-on 8 June 2017.
33. The Applicant's allegation that public funds are involved is wrong:
the Waste Tyre Management Fee is paid by producers in terms of
3 Founding affidavit, para 105, p 181 4 Founding affidavit, para 110, p 183
11
the Plan5 and does not represent public funds, nor is the REDISA
an organ of state. Further submissions in this context will be made
at the hearing.
34. The matter was accordingly not urgent, and the rule should for that
reason alone be discharged.
(2) EX PARTE APPLICATION
35. The suggestion that REDISA would "dissipate the public funds
(sic) still under its control" 6 is no more than a conclusion which is
not based on any facts. I deny the correctness thereof. No factual
basis for this conclusion is even suggested. There was no
accordingly no reason for granting the Order ex parte.
(3) LOCUS STANDI
36. The Applicant has no locus standi to seek the winding up of
REDISA in terms of section 81(1) of the 2008 Companies Act.
She is neither a creditor, director nor a member of RED I SA. 7
Section 157(d) of the 2008 Companies Act does not apply to an
application for the winding up of a solvent company, but applies to
the alternative procedure for addressing complaints or securing
rights referred to in section 156 of the 2008 Companies Act.
5 "BM2", pp 195-248 6 Funding affidavit, para 121, p 184 7 Founding affidavit, para 5, pp 9-1 0; para 116, pp 185-186
12
37. In addition, the exercise of a right in terms of section 157(1 )(d) of
the 2008 Companies Act is subject to a prior approval by the
Court: before a party launches an application in the public interest,
it must apply for leave to do so from the Court. The purpose is to
place the Court in a position to determine in advance whether the
Applicant is entitled to institute the proceedings. This, the
Applicant has failed to do.
38. The granting of the relief cannot be in the public interest. There
are no public monies involved and REDISA is not an organ of
state. REDISA is solvent. No misappropriation has been shown,
nor has the Applicant's response to REDISA's explanations been
addressed.
39. Added to this is the fact that the Applicant has no alternative plan
to promote the aims of environmental legislation in the event of
the relief being confirmed, and she is unable to proceed with the
Plan in its present format in the absence of funding and the co
operation of the management team of RED ISA and KT, which co
operation she does not enjoy.
(4) NON-DISCLOSURE
40. I am informed that when relief is sought ex parte the power of the
Court to issue an order should be exercised with due caution, with
all practical safeguards against abuse and keeping the
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oppressiveness of the order and its interference with the rights
and obligations of third parties such as the respondent to a
minimum. This is a fortiori the case where the Applicant's
application is brought urgently and rests largely on inadmissible
hearsay evidence.
41. All of this places a high duty on the Applicant to make full
disclosure to the Court of all facts which may have a bearing on
the relief being sought when the Court is approached ex parte.
This the Applicant failed to do: she failed, for example, to disclose
the following relevant facts to the Court:
41.1. The history of prior litigation between the parties which
culminated in the judgment by Davis J under case 24404/2016
in the above Honourable Court in a judgment delivered on 28
December 2016 (as defined hereinafter). A copy of the
judgment is annexed marked "AA 2".
41.2. She also failed to disclose to the Court that there is pending
litigation in the Gauteng Division of this Court, Pretoria between
REDISA (as Applicant) and herself as First Respondent, with
the Minister of Finance cited as the Second Respondent.
41.3. In an application brought under case number 70446/16 by
REDISA, an order was sought reviewing and setting aside the
adoption by the applicant of the National Pricing Strategy for
14
waste management published by the Applicant under notice
number 904 in Government Gazette 40200 on 11 August 2016,
plus an order for costs and ancillary relief. The backdrop to the
application is to be found in sections 13A and 138 of the Waste
Act (as defined hereunder), which was inserted by section 6 of
Act 26 of 2014 as a new Chapter 3A.
41.4. In the second pending application, brought between the same
parties under case number 97731/16, RED ISA inter alia seeks
a review and setting aside of regulation 9U)(A) of the Waste
Tyre Regulations 2009, published by the Applicant herein in
Government Gazette 40470 on 2 December 2016, as well as
paragraph 14 of that notice also published on 2 December
2016. Paragraph 16 of my founding affidavit filed in that
application reads as follows:
"16. The applicant accordingly seeks, in terms of section
33 of the Constitution, section 6 of the Promotion of
Administrative Justice Act, 3 of 2000 ("PAJA") and
the doctrine of legality, to review, set aside and
declare invalid the impugned regulations (to the
extent necessary) on the following grounds:
16.1 Firstly, they are irrational, unreasonable,
unlawful and/or unconstitutional because
they destroy the efficacy of the RED/SA Plan,
without putting other "reasonable legislative
or other measures" in place that would serve
to "prevent pollution and ecological
degradation" and to "secure ecologically
15
sustainable development ... while promoting
justifiable economic and social development"
as envisaged in section 24(b) of the
Constitution. Put differently, the impugned
Regulations amount to an impermissible
retrogressive step in respect of environmental
protection.
16.2 Secondly, the Minister failed adequately to
consult with parties who have a particular,
discrete interest in the RED/SA Plan such as
the small businesses in the downstream
supply chain that depend on it for their
existence, or with RED/SA, regarding the
effect of the impugned Regulations and on
how to mitigate the serious environmental
consequences that they entail;
16.3 Thirdly, Regulation 14 constitutes a "mid
stream" amendment to the RED/SA Plan that
does not comply with the requirements of
section 32 of the National Environmental
Management: Waste Act, 59 of 2008 ("the
Waste Act'), or with the requirements for a
review of an Integrated Industry Waste
Management Plan (including the RED/SA
Plan) set out in Regulation 12 of the Waste
Tyre Regulations;
16.4 Fourth, in making Regulation 9ljA), the
Minister failed to take into account the
relevant consideration that the Pricing
Strategy is not only invalid and falls to be set
aside, but is also incapable of being "aligned
with" by Industry Waste Management Plans
16
(including the RED/SA Plan}, for the reasons
set out in the Pricing Strategy Application,
which reasons are included in this Application
by reference.
16.5 Fifth, the making of Regulation 90A) was
arbitrary and/or unreasonable because there
is no mechanism by means of which RED/SA
can lawfully comply with it."
41.5. Lengthy, but incomplete, answering affidavits were delivered by
the Applicant in that application, but months outside the time
periods prescribed by the rules of court. This had led to a delay
in finalising both applications, and REDISA is only now on the
verge of filing replying affidavits in both these pending
applications.
41.6. I verily believe that both applications have excellent prospects
of being granted. They clearly have a bearing on the present
application; there is an overlap in the contents of the affidavits
filed in this application as compared to those filed in the pending
applications.
41.7. The core documents will be placed before the Court when the
matter is argued to support a submission that disclosure of this
litigation should have been made when the ex parte application
was moved.
17
42. The Integrated Industry Waste Tyre Management Plan ("the
Plan")8 was adopted in terms of section 32(1 )(5) and (6) of the
National Environmental Management: Waste Act, 2008 ("the
Waste Act") for a period of five years from 30 November 2012. 9
The Plan can only be reviewed in accordance with the provisions
of the Waste Act. 10 The Applicant realised this, and was in the
process of launching such a review. She stated in her letter of 30
May 2017:
"RED/SA is hereby informed that I am initiating the next phase
in the consideration of the possible withdrawal of my approval
of the RED/SA Plan. For this purpose I shall in due course
publish a notice to call for consultation on my intention to
consider the withdrawal of my approval of the RED/SA Plan.
You are hereby invited to participate in the public participation
phase of this process and to timeously submit to the
Department your comments in this regard. '11
43. On the same day she signed the founding affidavit in this
application in Sao Paulo, Brazil. 12
44. The decision to launch the present application appears to have
8 "BM20" 9 "BM4"
been taken on 30 May 2017, after the Applicant received
REDISA's representation of 23 May 201713 which is now relied
10 In terms of section 28( 1 ), 29( 1) read with section 34 11 "BM76" at p 909 12 p 193 13 "BM76A"
18
upon as the ground for urgency. 14
45. The Applicant does not explain why she took the decision on 30
May 201715 when she decided to launch the urgent proceedings
on the same day, especially as the 23 May 2017 meeting was by
agreement to be followed by a more detailed business plan to be
delivered by RED I SA. This was in fact done on 31 May 2017, 16 a
fact also not disclosed to the Court in the ex parte application.
46. None of this was addressed in the founding papers.
47. It will be submitted that this leads to the ineluctable conclusion that
this application was inter alia brought to obviate the need for the
Applicant to have to argue the pending proceedings in the
Gauteng Division, Pretoria, and to avoid the need for her to follow
the provisions of the Waste Act in order to amend the Plan.
48. The Applicant's recent public pronouncements regarding REDISA
in public are not referred to or explained in the founding affidavit;
by way of example:
48.1. "South Africa's Waste Tyre Management Plan, RED/SA, was
recently a finalist in 'The Circulars' 2016 at the WEF, which
recognises innovation and achievement in the circular
14 Founding affidavit, paras 99-110, pp 178-183 15 "BM76" 16 "R2" hereto
19
economy. This shows you just how many South African
companies, big and small, are making an impact in moving our
economy away from so-called 'take, make, waste', to more
sustainable business practises. We want to see more such
initiatives that are at the cutting edge of innovation: initiatives
that create and promote new business opportunities, and new
jobs."17
48.2. "Support and development of waste entrepreneurs and small
businesses in this space has been identified as a key area for
my department.
To do so however necessitates partnership with the private
sector to grow these new business projects. The waste sector
is one of the most important contributors to the generation of
jobs in the green sector, with an estimated value of R 25 billion
to the South African economy.
South Africa's Waste Tyre Management Plan, REO/SA, was
recently a finalist in 'The Circulars' 2016 at the [World Economic
Forum], which recognizes innovation and achievement in the
circular economy. This shows you just how much South African
companies, big and small, are making an impact in moving our
economy away from so-called 'take, make, waste: to more
sustainable business practices.
We want to see more such initiatives that are at the cutting edge
of innovation: initiatives that create and promote new business
17 Speech by the applicant made at the 5th Waste Khoro in Durban in 2016
20
opportunities, and new jobs."18
48.3. In an article published in the Cape Times as recently as 1Q
May 2017 under the heading "Introducing Circular Economy
Policy" the Applicant is quoted to have written:
"While implementation of the circular economy is new South
Africa, the country's tyre industry serves as an important
case study of how it can successfully turn "waste into worth".
As a result, in the past few years it has succeeded in
generating new jobs, establishing a number of viable small
businesses, and recycling a growing percentage of South
Africa's waste tyres.
The Tyre Plan makes the entire operation possible by
managing the operations of, and revenue in, the sector.
It also helps what is referred to as west pickers organise
themselves into co-operatives, generates jobs for waste
transporters, sets up the necessary storage depots as new
small businesses, and provides financial and other aid to
many of the recycling plants needed to repurpose the spent
tyres."19
48.4. When the Applicant changed her mind as to the competence,
honesty and ability of RED ISA is accordingly not addressed. It
will be submitted that the alleged change of heart is
inexplicable, and reflects adversely on the bona fides of the
Applicant.
18 Applicant's address delivered at the 5th Waste Khoro at Durban on 31 May 2016
19 "CR3" hereto
21
(5) INADMISSIBLE EVIDENCE
49. Much of the Applicant's case is based on inadmissible hearsay
evidence20 and her opinion on matters where she has no
qualification to express one. It is unexplained how these
contentions are to be reconciled with the contrary reports of PWC.
(6) SCOPE OF THE ORDER
50. Paragraph 7 of the order granted by the Court on 1 June 2017
provides:
"It is directed that the powers of the provisional liquidator be
extended to include the power and the authority to continue to
conduct the business of the respondent as a going concern."
51. This order is, with respect, not capable of being enforced, as it
does not address:
51.1. where the funding for the business of REDISA would come
from;
51.2. how the provisional liquidators will conduct the business
without the co-operation of REDISA's employees, which they
do not enjoy; and
2° For example "BM70", read with founding affidavit, paras 89-90, pp 145-164
22
51.3. how the provisional liquidators are to proceed without an
amendment to the Plan, which amendment has not been
agreed to or promulgated.
The Directive Application
52. The Applicant has attempted before (and in the recent past) -
unsuccessfully- to take control of RED I SA.
53. I again refer to case number 24404/2016 issued by REDISA in
December 2016 out of this Honourable Court. A copy of the
papers in that matter will be made available to the Honourable
Court at the hearing of this application.
54. The essence of that application was the following -
54.1. The Minister had requested REDISA to give a detailed
response to the previous "reports" issued by iSolveit;
54.2. Given the detail and complexity of what was requested, and to
ensure a comprehensive history of the engagement with
iSolveit was set out, REDISA requested an extension of time
until 30 November 2016 to file this response. The Minister
agreed to such extension;
54.3. On 29 November 2016, the day before the response was due
23
to be delivered to the Minister, the Minister issued an Interim
Directive "with immediate effect" (hereinafter "the Interim
Directive" or "the Directive").
54.4. The Interim Directive effectively sought to remove control of the
business from REDISA.
54.5. The Interim Directive states in terms-
"'Except with my written prior approval-
1.1. RED/SA shall cease any process for the acquisition of
assets or the disposal of any of its assets;
1.2. RED/SA shall not enter into any new contract with any
other party whatsoever;
1.3. RED/SA shall not incur any labilities whatsoever;
1.4. RED/SA shall not deviate in any way whatsoever from
the approved RED/SA 1/WTMP."
54.6. The second page of the Interim Directive issues instructions to
RED ISA to hand over certain information to the Minister.
54. 7. The Interim Directive was an attempt by the Minister (the
Applicant in this matter), to take control of the Plan without
24
cause, and prevent the Board carrying out its duties in terms of
the Plan.
54.8. REDISA launched urgent proceedings to set out the Interim
Directive and to obtain its urgent suspension pending a return
day.
54.9. The grounds for setting aside the Interim Directive were set out
by me in paragraph 7 of my founding affidavit in that application.
In sum, REDISA contended that the Interim Directive was
fatally flawed inter alia because -
54.9.1. Section 32(1 )(a) of the Waste Act, whether or not it is read
with section 1 0(3) of the Interpretation Act, does not
empower the Minister to issue the Directive;
54.9.2. the Directive is inconsistent with the applicable constitutional
and statutory framework (which includes section 24 of the
Bill of Rights, the Waste Act and the Waste Tyre
Regulations)21 and is therefore both irrational and unlawful;
54.9.3. the Directive is also irrational because it bears no objectively
rational connection to the information before the Minister and
because the Minister's stated reason for issuing the Directive
21 Published in terms of the Environment Conservation Act, No 73 of 1989, under Government Notice R149 in Government Gazette 31901 of 13 February 2009.
54.9.4.
54.9.5.
54.9.6.
54.9.7.
54.9.8.
54.9.9.
54.10.
25
is incompatible with the factual history of exchanges
between the parties and their agents;
the Directive is also irrational because it is internally
contradictory;
the Directive is unlawful because it is inconsistent with the
applicable waste management strategy and therefore
inconsistent with the Waste Act;
the Directive ignores, and pre-empts the outcome of, the
ongoing engagement process between the Minister and
RED I SA;
the Minister's decision to issue the Directive was
unreasonable;
the Minister failed to observe any form of procedural fairness
in issuing the Directive; and
The Directive also amounts to an unlawful usurpation by the
Minister of the powers and obligations of directors to manage
RED ISA in terms of section 66 of the 2008 Companies Act.
The Minister opposed the application for the interim relief. The
matter was argued before Davis J who granted the relief sought
by REDISA and made, in the course of his judgment, various
highly critical remarks regarding the Applicant's conduct in the
matter. I have referred to the judgment before, and it is
54.11.
54.12.
26
annexed marked AA2.
Thereafter the Minister withdrew her opposition to that
application, and tendered the wasted costs. A copy of the
Order taken by agreement in that application is annexed hereto
marked "AA3".
The manner in which the Applicant proceeded in that
application has parallels to the way in which she has proceeded
in this matter.
Capita Selecta
(1} The Department's Undertaking to Fund REDISA
55. By virtue of the Amendment Act, defined below, the Department
(through SARS) now collects the levy of R2.30 per kg of waste
tyre from producers.
56. On 22 February 2017, during the Minister of Finance's annual
budget speech, the Minister of Finance indicated that the
"Recycling and Economic Development Initiative of South Africa:
Waste Management Bureau (tyre recycling initiatives)" would be
allocated an amount of R210,000,000 (two hundred and ten
million rand) for the 2016/2017 fiscal year.
27
57. In consequence, the Appropriation Bill [B5 of 2017] ("the Bill") was
published on 22 February 2017.
58. Vote 27 on Environmental Affairs records R21 0 million for "Tyre
recycling initiatives" (page 26 of the Bill).
59. The budgetary allocation constitutes a promise by the State to
provide sufficient funding to allow the REDISA plan to continue to
operate until the end of November 2017, which gives rise to a
legitimate expectation on the part of REDISA. It amounts to an
enforceable undertaking to provide sufficient funding for the
REDISA plan between March 2017 and November 2017. I say so
for the following reasons:
59.1. The Plan is the only Industry Waste Management Plan in place
that provides for the collection and remediation of waste tyres.
59.2. There is a clear relationship between the R21 0 million
allocation to REDISA in the Bill and the Tyre Tax recently
introduced by the Amendment Act.
59.3. Before its introduction, the Tyre Tax was foreshadowed by the
2016 budget review presented by the Applicant annexed
marked "AA 4"), chapter 4 of which stated that:
"The tyre levy proposed in the 2015 Budget is intended to
28
reduce waste while encouraging reuse, recvcling and
recoverv, and discouraging disposal into landfills. This levy
will be implemented at a rate of R2.30/kg of tyre, effective
1 October 2016... The levv will replace the current fee
arrangements for tvres, as regulated bv the Department of
Environmental Affairs." (Emphasis added.)
59.4. The Tyre Tax is accordingly intended to "replace" REDISA's
previous ability to collect levies from producers in the amount
of R2.30/kg.
59.5. Prior to the Amendment Act, producers paid a fee to REDISA
under the Plan. Producers paid this fee on the basis that, in
exchange, REDISA would discharge the producer's obligations
under the Waste Tyre Regulations. The Amendment
Regulations have since prohibited REDISA from receiving a
fee. Instead, producers are now paying an equivalent amount
to the fee in the form of the Tyre Tax to SARS.
59.6. On this basis, producers are entitled to receive an equivalent
remediation service in return for paying an equivalent amount
under the Tyre Tax. The Department must provide REDISA
with a sufficient appropriation so that producers do not receive
a diminishing (and eventually non-functioning) remediation
service in return for paying the Tyre Tax.
29
(2) The legal and environmental consequences of REDISA's funding
crisis
60. Unless the issue of REDISA's funding is resolved, REDISA will
have to radically scale back the extent of its implementation of the
Plan, with the consequence of drastically reducing the rate of
collection and remediation of waste tyres that RED ISA is currently
achieving.
61. The effect of stopping the collection of tyres has the practical
implications of condemning various players in the tyre industry to
illegality under inter alia the Waste Tyre Regulations.
62. These include:
62.1. Regulation 16(1) of the Waste Tyre Regulations provides that
the "waste tyre storage area for a tyre dealer shall not exceed
500m2". However, in practice most dealers have an available
storage space of 200m2. If waste tyres are not collected
regularly, but a tyre dealer continues to sell new tyres and to
receive used ones, he or she will inevitably exceed that
maximum storage footprint. If the processes under the Plan
were to cease, numerous tyre dealers would be in breach of
their regulatory obligations to store tyres in a matter of weeks.
62.2. The Waste Tyre Regulations prohibits dealers from disposing
30
of waste tyres at waste disposal facilities, including landfill sites.
Tyre dealers will in consequence be left with very few options
to deal with waste tyres, including dumping, selling directly to
waste tyre processors or forming their own waste tyre storage
site, all of which are undesirable from an environmental
perspective and/or unlawful.
62.3. Not complying with the requirements for the storage of waste is
an offence and a holder of waste (which is very widely defined
to include, among others, anyone who generates, stores or
accumulates waste) will be liable to a fine of R5,000,000 or 5
years or both such fine and imprisonment and any additional
penalty under the National Environmental Management Act
107 of 1998.
63. The adverse environmental consequences if REDISA was to stop
disposing of waste tyres in an environmentally friendly manner in
terms of the Plan include:
63.1. When waste tyres naturally decompose, the heavy metals
contained in it breakdown and can leach into the environment
if there is no human intervention. Many of these chemicals are
carcinogenic and mutagenic.
63.2. Whole waste tyres take up more space in landfills; they are
bulky in comparison to their mass and often float to the top of
31
landfill sites. The tyres fill up available space quickly and
landfills become unstable if large portions of the waste are
tyres.
63.3. Stagnant water that gathers in whole waste tyres creates a
breeding ground for pests and vermin, especially mosquitoes,
which are vectors for many diseases.
63.4. Abandoned tyres are often used as a fuel source. Disposing of
tyres through indiscriminate burning causes pyrolysis of the
rubber, resulting in oily waste or effluent being released, which
causes leaching.
63.5. In addition to toxic effluent, tyre fires produce hazardous air
emissions, including smoke containing a range of toxic and
carcinogenic compounds, and have adverse health
implications. Long-term health effects of exposure to these
compounds may cause cataracts, kidney and liver damage,
and jaundice. Long-term exposure to low levels of these
compounds also shows an increased risk of skin, lung, bladder,
and gastrointestinal cancers.
64. What emerges quite plainly from the content of the presentation is
the crisis in which REDISA has been placed arises solely because
of the cessation of funding to RED I SA. This funding was entirely
in the hands of the Department, Treasury and the State. It elected
32
to cut off this funding without putting in place any transitional
arrangements, despite being aware of the critical importance of
doing so I refer to the Treasury's letter dated 6 October 2016,
annexure "AA 5" hereto .
65. Moreover, despite the fact it was in a position to provide
assistance - through funds SARS was collecting from producers
instead of REDISA - the Applicant and/or the Department has
refused to make this funding available to REDISA.
66. In the course of the 23 May 2017 meeting REDISA made it plain
that REDISA would deliver as soon as it could, an expansion of
this presentation to the finest detail.
67. On 29 May 2017, the Minister requested a meeting to discuss the
way forward, and requested an agenda for this meeting. I point
out that-
67.1. This was the day before the Minister signed the founding
affidavit in the ex parte winding up application; and
67.2. REDISA sent the detailed business plan together with a
covering letter and covering email attaching a proposed
agenda on 31 May 2017 at 5:32 PM. A copy of the covering
email with attachments, including the business plan, is annexed
hereto marked "AA 6".
33
(3) CONSTITUTIONAl AND STATUTORY FRAMEWORK OF THE
PlAN
68. In terms of section 24 of the Bill of Rights, everyone has the right
to an environment that is not harmful to their health and well
being, as well as the right to have the environment protected
through reasonable legislative and other measures that prevent
pollution and secure ecologically sustainable development. The
State is obliged to respect, promote, protect and fulfil the rights in
the Bill of Rights. The Waste Act was one of the mechanisms
enacted to give effect to section 24 of the Constitution and to
discharge the State's obligations to protect and fulfil the
fundamental right to a healthy environment.
69. The objects of the Waste Act include providing reasonable
measures for recycling and recovering waste, treating and safely
disposing of waste as a last resort and securing ecologically
sustainable development while promoting justifiable economic
and social development. Under the Waste Act the Applicant is
duty-bound to ensure that waste is re-used, recycled and
recovered in an environmentally sound manner. The Applicant
must discharge this duty by inter alia establishing a binding
national waste management strategy, to which effect must be
given when exercising a power under the Waste Act.
70. Included among the Waste Act's waste management measures
34
are "industry waste management plans". Such plans, which may
be formulated by either a private entity or by an organ of state,
essentially regulate how a particular industry's waste is to be
avoided, minimised, recycled, developed and disposed of. Waste
management plans accordingly ensure that a particular industry's
waste is treated in accordance with the State's obligation to
protect the environment.
71. The Applicant's predecessor promulgated the Waste Tyre
Regulations under the Environment Conservation Act ("the ECA").
Notwithstanding the repeal of the operative provisions of the ECA,
the Waste Tyre Regulations remain valid under the Waste Act.
72. In similar fashion to the provisions of the Waste Act, the Waste
Tyre Regulations also make provision for the preparation, content,
approval and review of waste tyre management plans, referred to
as "integrated industry waste tyre management plans"
(IIWWTMP). Integrated industry waste management plans
approved under the Waste Tyre Regulations must be regarded as
industry waste management plans under the Waste Act.
73. Waste tyre management plans are thus critical components of the
State's efforts to ensure an environmentally sensitive and
development-oriented waste tyre recycling industry in terms of
both the Waste Act and the Waste Tyre Regulations. Compliance
with such plans (after they have been duly approved by the
35
Applicant) is obligatory and non-compliance is made subject to
criminal sanction. While there may be several approved plans for
a particular industry, a waste producer in that industry must
comply with at least one such plan.
74. In May 2012, the Applicant published the National Waste
Management Strategy ("the Strategy") pursuant to her obligations
under the Waste Act.
75. The current statutory regime therefore imposes an obligation on
the manufacturers and importers oftyres (collectively "producers")
to subscribe to an industry waste management plan that provides
for the collection and remediation of their products once they have
been used and discarded (thus becoming waste).
76. To give effect to this scheme, in 2009, the Applicant enacted the
Waste Tyre Regulations, 2009 ("Waste Tyre Regulations"). The
purpose of the Waste Tyre Regulations is to regulate the
management of waste tyres. It achieves this through approved
integrated waste management plans, which identify the manner in
which waste tyres are to be collected and remediated.
77. Given that there is currently no alternative approved Integrated
Waste Management Plan for the tyre industry, all producers are
obliged to subscribe to the terms of the Plan. If a producer does
not subscribe to the Plan they are prohibited under the Waste Tyre
36
Regulations from manufacturing, importing, distributing or selling
new or recycled tyres.
78. The Plan amounts to a legislative or other measure that protects
the environment within the meaning of section 24(b) of the
Constitution.
79. The Plan was approved by the Applicant on 30 November 2012
under Government Notice No. 988 in Government Gazette 35927.
80. The Plan is, at present, the only Industry Waste Management Plan
in place that provides for the collection and remediation of waste
tyres. It was the product of many years of effort before its
promulgation.
81. REDISA operates the only plan for waste management that gives
effect to the Strategy, and its vision of co-regulation, self
regulation and responsible user behaviour.
82. The Plan, as implemented by REDISA and as referred to by the
Applicant, has received international recognition for the role that it
plays in the management of waste streams in the South African
tyre industry.
83. The Plan operates on an indefinite basis reviewable every
37
5 years, the first review being November 2017. Regulation 12 of
the Waste Tyre Regulations and paragraph 2.5 of the Applicant's
approval of the Plan provide that the Plan "must be revised and
resubmitted for approval by the Applicant at 5 year intervals or
sooner if the Applicant or the producer identifies that amendments
are required''.
84. This means that REDISA is obliged to resubmit the Plan before 30
November 2017, and has a legitimate expectation that the Plan
will be properly considered and approved, subject to such
amendments as the Applicant thinks appropriate.
85. Were the Plan (and thus REDISA) not to persist beyond its initial
five-year term a number of problems would arise. RED ISA cannot
simply wind-down without irreversibly and retrogressively
affecting the Plan. The reasons for this include:
85.1. REDISA, and its various contractual relationships, sustains the
existence of the Network as defined below:
85.1.1.
85.1.2.
Terminating REDISA (and thus the Network) means the
significant start-up costs incurred in establishing the Network
would have to be incurred twice in order to re-establish the
Network;
In addition to costs, the Network was established through a
85.1.3.
85.1.4.
38
complex and large network of contractual and institutional
relations - all managed by a bespoke computer data system
designed to ensure real time monitoring and control of the
transactions;
The significant breach of trust and erosion of goodwill
caused by terminating the Network may be irreparable,
possibly making the re-establishment of the Network an
impossibility;
The Network provides an exponential return on investment
over time. Its efficiencies are only likely to be realised
beyond its initial five-year term;
85.2. In order to implement the Plan, REDISA has had to conclude a
number of long-term contracts that span numerous years.
These contracts are essential to the existence of the Network.
Winding down would necessitate REDISA cancelling these
contracts, opening it to contractual liability and a resultant
breach of other statutory obligations.
86. I am advised that, REDISA, in performing a constitutional function
undertakes certain public law obligations. Aligned to this are
requirements of transparency and accountability. For RED ISA to
comply with these public law obligations vis-a-vis its contractual
counter parties it requires long-term financial stability.
39
87. Moreover, what has been achieved under the Plan so far
constitutes a legislative or other measure contemplated in section
24(b) of the Constitution. It follows that, whatever the State does
in regard to the Plan, it is constitutionally obliged to ensure that:
87.1. There is no regression from the remediation and collection
rates achieved to date under the Plan; and
87.2. The Plan, including in particular the functioning remediation
Network that has been established under the plan, must
continue to operate after November 2017.
88. The Department is required to ensure that the Network created
under the Plan continues to function effectively, and sustains the
collection and remediation rate that has been achieved to date.
Failure to ensure this would amount to an impermissible
retrogressive measure under section 24(b) of the Constitution.
(4) THE PLAN
89. I am advised that REDISA is required to comply with various
duties under: (i) the 2008 Companies Act; (ii) the Income Tax Act
58 of 1962 ("ITA"); and (iii) the REDISA Plan. These impose the
following legal obligations upon REDISA.
90. The Board must proactively ascertain the financial status and
position of REDISA with a view to considering its ability to trade
40
and meet REDISA's obligations, as and when they fall due.
91. Section 4 of the 2008 Companies Act specifies the manner in
which REDISA's directors must determine its solvency and
liquidity.
92. In determining solvency, it requires that directors consider "all
reasonably foreseeable financial circumstances of the company
at that time" as well as "any reasonably foreseeable contingent
assets and liabilities".
93. In determining liquidity, it requires that directors consider "all
reasonably foreseeable financial circumstances of the company
at that time".
94. This places a predictive duty on the Board to consider matters
which may not be reflected in REDISA's accounting records and
financial statements.
95. Section 22 of the 2008 Companies Act provides that RED ISA may
not carry on its business recklessly, with gross negligence, or with
the intent to defraud any person. It would be reckless for REDISA
to incur further debts knowing that there is no real prospect of
RED ISA paying these debts as they fall due.
96. The 2008 Companies Act and the common law impose various
41
fiduciary duties on the directors of REDISA, including a duty to act
in good faith and promote the best interests of the company, as
well as the duty to act with skill, care and diligence. In insolvent
circumstances REDISA's directors also owe a duty to act in the
best interests of REDISA's creditors.
97. Aligned to this is the duty of REDISA's directors under the 2008
Companies Act as well as the statutory prohibition on reckless
trading. In order for RED ISA to operate lawfully, it must either: (a)
obtain and/or maintain its revenue stream; or (b) reduce its
expenditure, scaling back on its operations by aligning its activity
with its financial reserves.
98. The aim of the Plan is the sustainable remediation of the serious
environmental problem created by waste tyres.
99. In this context, the Plan was established to achieve ambitious
goals through a process of building and supporting a waste tyre
recycling industry. There is no comparable operation in South
Africa in this or any other waste stream. REDISA's challenge of
meeting the environmental objective of dealing with waste tyres
whilst also creating the maximum number of jobs and
opportunities for new micro-, small and medium businesses, and
targeting specifically the previously disadvantaged sectors of our
community, meant that it would be a pioneering initiative. The Plan
recognised this in that much of the detail in the plan was qualified
42
as "estimated" or "projected'.
100. The model informing the Plan is a radically innovative way of both
protecting the environment and, over time, creating a self
sustaining industry (and with it- employment) in which tyres are
collected, stored and processed, whether through recycling or
other means. It is an endeavour to turn a product that has no value
into one that has value, and therefore one which is collected and
processed. In the low growth, low employment economy of South
Africa, promoting a circular economy offers a model for
sustainable growth.
101. The funding model for an Integrated Industry Waste Management
Plan has everything to do with the capacity to encourage a circular
economy, a linear economy or a combination of both. This is
because the extent of the waste fee creates economic incentives
for product design and re-design, thereby encouraging or
discouraging greater resource productivity and the manufacture of
products that are either more or less environmentally friendly in
terms of their biological and technical nutrients. By differentiating
the fee, it will be possible to create direct incentives for product
design changes by tyre manufacturers, by charging lower fees for
more environmentally friendly tyres and higher fees for less
environmentally friendly tyres.
102. The Plan is self-funding in the sense that RED ISA collects the fee
43
directly from producers, rather than being administered as a tax,
collected by the national revenue service.
103. Due to the chemical composition of tyres, their storage and
disposal have potential adverse environmental and health
impacts. It is therefore essential that waste tyres are disposed of
in an orderly, effective and environmentally sustainable manner.
At present, nearly one million waste tyres are generated per
month in South Africa.
104. In addition to "new" waste tyres being generated all the time there
remains, in addition, a huge stockpile of waste tyres that has
accumulated over many decades that also require disposal. Such
disposal must be done in an orderly and environmentally
responsible manner.
105. The Plan is also an EPR scheme in terms of which producers'
contract with REDISA for it to take on their responsibility for the
collection and remediation of waste tyres for a fee.
106. The features of the Plan that indicate that it is an EPR scheme are
the following:
106.1. The Waste Tyre Regulations in terms of which it was adopted
imposes a responsibility on producers for the management of
waste tyres after they have been used by consumers;
106.2.
106.3.
44
RED ISA is a Producer Responsibility Organisation ("PRO") that
provides a service, namely fulfilment of the producers'
extended product responsibilities in the form of the collection
and remediation of waste tyres; and
Until the Amendment Regulations were introduced, producers
have paid the REDISA fee to REDISA for the provision of that
service.
107. The Supreme Court of Appeal has held that IWMP's constitute
subordinate legislation and "are of importance from the
perspective" of the environmental right contained in section 24 of
the Constitution.
108. Eliminating waste tyres imposes a number of obligations on
REDISA: tyres have to be collected, transported, stored and pre
processed in waste tyre depots, transported to firms in industries
that can use the waste tyres to develop new products or uses for
the tyres, such as recyclers, tyre-derived fuel manufacturers,
rubber crumb producers, pyrolysis processors, or other
downstream industries.
109. Because very few downstream industries for waste tyres currently
exist in South Africa, REDISA used the revenue it previously
raised from the waste tyre management fee to establish and
subsidise an entire nascent industry. This included:
109.1.
109.2.
109.3.
109.4.
109.5.
109.6.
109.7.
45
paying waste pickers (otherwise referred to as "micro
collectors") to collect tyres and micro-depots to store them in
townships and informal settlements;
paying transporters to collect tyres from retailers,
municipalities, micro-depots and other collection points and
then to transport them to storage and pre-processing depots;
paying depot owners to pre-process tyres and store them;
paying secondary transporters to collect pre-processed tyres or
waste tyres from depots and transport them to processors such
as cement kilns, pyrolysis plants, and crumbling plants;
providing processors of pre-processes or waste tyres at no
cost, thereby subsidising their input costs;
guaranteeing existing and new processors of waste tyres
(including, but not limited to, recyclers) a supply of waste tyres
over a three to five year period in order to ensure the fixed
investments they made in capital equipment to establish plants
or to expand their operations were worthwhile and that their
businesses were viable; and
directly subsidising the retrofitting of capital equipment or
expansion of operations among existing firms, to enable them
46
to use waste tyres in their production process.
(collectively, these interconnected components are referred to as
"the Network").
These activities are conducted on behalf REDISA by KT as
approved in the Plan.
110. In order to create the Network, it was necessary to develop the
institutional structure involving the establishment of micro-depots
and recruitment of waste pickers; contracting with transporters;
establishment of storage depots; contracting with secondary
transporters; contracting with processors and subsidising the
retrofitting of their plants or extension of their operations.
111. Under the Plan, RED ISA takes on the producers' responsibility for
the collection and remediation of waste, for a fee. The REDISA
fee is set out in paragraph 16 of the Plan at "R2.30 + VAT per kg
of manufactured and/or imported tyres and casings". The fee has
not changed since inception of the Plan. In consequence, the Plan
employs a self-funding model based on the polluter-pays principle.
112. This model has meaningfully contributed to the reduction and
remediation of waste tyres. This has the effect of preventing
pollution and ecological degradation and the promotion of
ecologically sustainable development.
47
113. The financial and performance figures set out above are accurate
and have been independently audited by PWC as part of
REDISA's continuing performance monitoring.
114. REDISA itself has received clean unqualified annual financial
audits from the auditor KPMG since inception.
115. REDISA has reporting and audit obligations in terms of clause 2.1
of the letter of approval. These obligations have been met, and
exceeded.
116. The Applicant may amend the Plan (per clause 2.4 of the letter of
approval), and the Plan may be reviewed and amended by the
Applicant (per clause 2.5 of the letter of approval).
117. The Applicant is entitled therefore to receive disclosures on
REDISA's performance, and to review and amend the Plan if she
so wishes. This is as far as her powers extend in terms of the Plan
she herself promulgated.
118. At no stage has the Applicant exercised her powers of review and
amendment of the Plan.
119. The Applicant has however seen fit to support an amendment to
the pricing model to cut off REDISA's income, and to initiate other
unsuccessful legislative attacks (of which this is the latest), aimed
48
at undermining REDISA's very existence.
(5) EXPORT OF WASTE TYRES
120. A key grievance expressed by the Applicant in the present
application is that the export of waste tyres is not permitted in
terms of the Plan.
121. Even if this conclusion were correct- it is not- the Applicant
would not be entitled to wind up REDISA. She could review and
amend the Plan to exclude these activities.
122. But such a step would, in an event, be entirely counter-productive
for the reasons set out below.
123. REDISA collects and provides waste tyres to downstream
industries that could use such waste tyres in their own production
systems. The Applicant merely has to look at the regular monthly
reports submitted by REDISA to the Department to see that this
conclusion is wrong.
124. By way of recent example, I hereto marked "AA 7" the most
recent monthly report submitted to the Department for the month
of February 2017. Among the items reported on are the Tonnages
Processed: Crumb, Pyrolysis, and TDF (tyre derived fuel). These
are waste tyres that are transported by REDISA from depots to
49
firms that can use them to develop new products or uses for tyres,
such as recyclers, tyre derived fuel manufacturers, rubber crumb
producers, pyrolysis processers and other downstream industries.
125. Markets for products from recycled tyres are however still under
development and need to either grow organically or be stimulated
with interventions to grow to the levels where they can match the
volume of waste tyres arising.
126. Because demand in downstream industries requiring waste tyres
is still low (albeit increasing over time) in South Africa, REDISA
uses the revenue from the waste tyre management fee to
subsidise these downstream industries in different ways. These
include providing them with waste tyres at no cost, which means
their input costs are subsidised; guaranteeing existing and new
processors of waste tyres (including, but not limited to recyclers)
a supply of waste tyres per annum in order to ensure that the fixed
investments they make in capital equipment to establish plants are
worthwhile; and directly subsidising the retrofitting of capital
equipment of existing firms in order to enable them to use waste
tyres in their production process.
127. In the past 5 years, many processing plants with plans to process
waste tyres were established, and some cement producers
retrofitted their kilns to accept tyres as Tyre Derived Fuel ("TDF").
The combined processing capacities of all those plants comprise
50
the national waste tyre processing capacity.
128. However, with the current market conditions placing a strain on
market demand for the output of many plants, much of the
available capacity is currently standing idle. National processing
capacity cannot be viewed in isolation from actual processors'
demand for waste tyres which is in turn driven by the market
demand for the recycled tyre products.
129. The Plan is silent on the export of waste tyres. The Applicant's
claim that REDISA is exporting the problems of one country and
making them the environmental problems of another therefore has
no basis.
130. REDISA uses the export of waste tyres as a variable "release
valve" in circumstances where there is excess supply of waste
tyres over demand. Instead of stockpiling the excess supply and
filling depots beyond their capacity, the export of those waste tyres
facilitates international recycling. Excess waste tyres are collected
and pre-processed in South Africa, and then taken to a processor
with an export license that has concluded an off-take agreement
with an international recycling plant.
131. Before an off-take contract can be concluded between a licensed
processor and an international re-cycling plant, it must be
authorised by REDISA after a due diligence process has been
51
conducted on that foreign plant. Part of such exercise includes
obtaining from that international plant letters confirming that the
waste tyres will be appropriately re-processed.
132. An example of one such letter, known in the industry as end-use
disposition confirmation, is attached hereto marked "AA 8".
133. Since June 2016, REDISA has reported on these exports to the
Department. At the last meeting held with the Department in
October 2016, these exports were discussed. No concerns such
as this now expressed by the Applicant in her founding affidavit
were expressed by her officials at any meetings where the export
of waste tyres has been discussed.
134. If REDISA was not facilitating the export of these excess waste
tyres, this would result in some jobs being lost in the pre-export
processing stage, which includes cutting, baling and packaging of
waste tyres for export.
135. The Applicant's assertion that such export makes no real
contribution to the economy of South Africa, or that it does not
contribute to the promised job-creation, is incorrect. Such export
has the triple benefit of relieving waste tyre build up in South
Africa, creating local industry and ensuring that waste tyres are
responsibly processed and re-used in a country which needs
them.
52
136. The Applicant's recent description of REDISA's practice of
facilitating the export of waste tyres as the "take, make, dispose"
approach is the direct opposite of how she has previously
described RED I SA's implementation of the Plan. In her speech at
the Fifth Waste Khoro on 1 and 2 June 2016 referred to above
where she acknowledged REDISA's recognition by the WEF as
an innovator in achieving the circular economy, the Applicant said
the following:
"This shows you just how much South African companies, big and small, are making an impact in moving our economy away from so-called 'take', 'make', 'waste', to more sustainable business practices. We want to see more such initiatives that are at the cutting edge of innovation; initiatives that create and promote new business opportunities, and new jobs."
137. mention this since one of the Applicant's complaints in her
founding affidavit in this application is that the Plan has not
reached certain targets. The reality of actual local waste tyre
demand is the principal reason for this. It is something which
REDISA is addressing as a priority.
138. As to hard facts, in the 2016 calendar year, 92,192 tons of waste
tyres were collected and 77% of that tonnage (71 ,202 tons) was
delivered to processors locally and internationally, the remainder
being the stock currently held at REDISA depots.
139. For the same period 65% of the waste tyres were delivered to local
53
processors and 35% to international processors. As additional
local demand comes online, tyres will always be diverted from
international to local processing. It is worth noting that, although
international processing is the least favoured solution, it does
create substantial jobs in South Africa in the pre-processing,
packing and transporting of waste tyres to the ports.
140. In addition, by avoiding a demand/supply imbalance, the entire
waste management industry is able to be kept on line since
demand and supply is kept in equilibrium and jobs across
transportation, depots and pre-processing are sustained.
141. However, the supply of waste tyres continues to exceed the
demand and processing capacity, these being at a nascent stage
of its development in the South African industry.
142. I deny that the export of waste tyres makes no real contribution to
the economy, or that it amounts to the export of an environmental
problem to another country.
143. The exercise of engaging with and helping processors to increase
their markets is usually conducted directly between REDISA and
the processors concerned. It is therefore difficult to report on an
outcome other than that a consultation has been undertaken. The
claims of obstruction are denied - in fact, improving local
consumption is key objective of REDISA.
54
144. The allegation that there are approximately 6,000 tons per month
of waste tyres that are used as fuel to produce energy is incorrect.
The correct figure cited in the REDISA report is 1 ,090 tons per
month. 6,000 tons is the volume that was allocated to TDF over
an 11-month period, not per month.
145. Out of the 18 processors in RED I SA's books that have been active
and taking tyres in 2016, 6 run pyrolysis plants and combined on
average they took 1 ,097 tons per month averaging 183 tons per
month per processor. Active crumbing processors took 820 tons
per month in 2016 and there are also 6 of them, giving an average
of 137 tons per processor per month. The 500 tons per month per
processor for pyrolysis and crumbing reflected is a reasonable
estimate, but historical data indicates that it is optimistic rather
than conservative.
146. REDISA constantly engages with industry to improve local waste
tyre demand.
(6) THE ISOLVEIT REPORT
14 7. As I have mentioned, the Directive application dealt in detail with
RED I SA's performance in terms of the Plan as well as its financial
performance and disclosures.
148. I have also mentioned that in the answering affidavit filed on her
55
behalf in the Directive application, the Applicant did not provide a
meaningful response to the substance of the allegations made in
the founding affidavit. Rather, the Applicant took a number of
unmeritorious in limine points, all of which were rejected by Davis
J in his judgment.
149. The letter of 30 November 2016 (BM 66) addressed to the
Applicant at her request sets out in comprehensive detail the
history of this engagement.
150. The Applicant has seen fit, however, to annex only the letter itself.
It is the annexes to that letter (and the documentation delivered to
the Applicant), which set out the supporting facts.
151. In order to place the full facts before this Court, and to provide the
necessary context to the Applicant's allegations, I annex marked
"AA 9" the letter of 30 November 2016. A copy of the complete
document, which runs to well over 700 pages, will be made
available to the Court as required. I have made reference to
aspects of this letter in the affidavit, but given its size with all its
annexes, did not want to annex it hereto in its totality.
152. REDISA never received a response to BM 66 from the Applicant,
until the day, unbeknownst to REDISA, the ex parte application
was launched.
56
153. A response to this letter dated 30 May 2017 was in fact only
delivered by email at 1 Oh05 on 1 June 2017 ( it is BM76 to the
founding affidavit). This was first time the Applicant attempted to
deal with the 30 November 2016 letter. This is the same day the
Order was taken ex parte. To the extent that this letter contradicts
our response of 30 November 2016 it is denied. As with the
founding affidavit itself, new allegations are introduced for the first
time in this letter.
154. REDISA has also never received for comment, despite being
advised that this would happen, a copy of the final iSolveit Report
dated 3 February 2017.
155. Indeed, the first time REDISA received the final iSolveit Report
was as an annexure to the founding affidavit.
156. The Applicant places considerable reliance on this iSolveit Report.
The iSolveit Report is unsupported by any affidavit, and thus
constitutes inadmissible hearsay. It should be struck from the
founding affidavit. In any event, it is a gross abuse of process not
to have made this report available to REDISA for comment prior
to launching these proceedings, and not to have disclosed this fact
to the Court when seeking the ex parte Order.
157. I mention that iSolveit is not an accredited auditor. Its methodology
met no accepted audit standards. As set out in the 30 November
57
2016 letter, iSolveit attempted to solicit R1 ,000,000.00 from
REDISA, presumably in return for a reciprocal benefit - I refer in
this regard to paragraph 6 of the letter of 30 November 2016.
(7) The engagement with iSolveit
158. In February 2016, the Department appointed iSolveit to undertake
an "audit on RED/SA for alignment with the National
Environmental: Waste Amendment Act, 2014". The reference to
the "Amendment Act" is a reference to Act 26 of 2014, which
amended the Waste Act by inter alia empowering the Applicant to
determine a "pricing strategy for waste management charges",
including the funding of industry waste management plans.
159. The basis of the Applicant's power to order such has never been
clear to REDISA. However, in the interests of transparency and
because it had nothing to hide, REDISA did not challenge the
Applicant's decision to initiate the audit and cooperated fully with
iSolveit.
160. The ostensible purpose of the audit in any event was to present
proposals to assist REDISA in a transition to a different funding
model.
161. On 25 February 2016 representatives of REDISA met with
iSolveit. Following that meeting, REDISA received a letter from
58
iSolveit on 29 February 2016 setting out a request for information.
A copy of the minute of the meeting is annexed hereto and marked
"AA 10" and a copy of the correspondence from iSolveit is
annexed hereto and marked "AA 11 ".
162. As is evident from the minute, since the inception of the audit there
seems to have been a lack of clarity- as between the Department
and iSolveit - as to the nature and scope of the latter's mandate.
The purpose of the audit, however, was to evaluate REDISA's
ability to align with the amendment to the Waste Act described
above.
163. From 7 March 2016, and on an ongoing basis, REDISA either
provided iSolveit with the information sought by it, or made the
relevant documentation available for inspection. This is referred
to in the 30 November 2016 letter.
164. Shirish Bhoola Consultants (presumably at the instance of
iSolveit) also performed inspections and interviews at REDISA's
office on 16, 17 and 18 March 2016. These were the only
inspections performed throughout the "audit" exercise.
165. On 11 June 2016 iSolveit provided the Department with a
document entitled "Final Report". REDISA was furnished with a
copy of the "Final Report" on 13 June 2016.
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166. This is not the final iSolveit Report annexed to the Applicant's
founding affidavit in this application.
167. The "Final Report" claims that a detailed work plan was agreed to
by REDISA. This is not accurate.
168. On the strength of the contents of the "Final Report" the
Department stated that REDISA had not provided iSolveit with
certain information and documents and required REDISA to
provide such documentation on an urgent basis, by 20 June 2016.
This was, however, incorrect: the information and documentation
had either already been provided, or had not been requested by
iSolveit. REDISA explained this extensively in the 30 November
2016 letter and its annexes referred to herein.
169. On the same day that iSolveit issued the "Final Report" to the
Department (a Saturday), it also requested additional information
from REDISA.
170. The information sought and the issues raised by iSolveit in this
correspondence were addressed in REDISA's subsequent
response to the Department, to which I refer below.
171. On 21 June 2016, following a discussion with departmental
officials, RED ISA responded to the Department's letter of 13 June
2016 and indicated that a comprehensive response- outlining "75
60
points requiring correction" -would be forthcoming.
172. On 23 June 2016, the Department granted REDISA an extension
to provide the comprehensive response referred to in the
preceding paragraph.
173. REDISA, having been granted an extension, furnished the
Department with a comprehensive response to the "Final Report"
on 27 June 2016. REDISA responded on an item-by-item basis,
taking issue with many of the findings and conclusions in the "Final
Report". Indeed, RED ISA comprehensively dealt with each of the
ostensible findings made by iSolveit. A copy of REDISA's
response with matrix is annexed hereto and marked "AA 12 ".
17 4. Bullet point 25 of the "Final Report" raises the concern of a conflict
of interest at Board level between REDISA and KT. As will be
seen from the response, full information had been provided on this
issue on 7 March 2016 and 1 April 2016 prior to the delivery of the
"Final Report". The response sets this out this engagement and
disclosure.
175. The conclusion appearing in the "Final Report" is not a rational
one when regard is had to these responses.
176. Following REDISA's response, the Department requested a
meeting between the Department, iSolveit and REDISA, which
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meeting was held on 15 July 2016. A copy of the proposed
agenda for this meeting is annexed hereto and marked "AA13 ".
177. At this meeting an "action list" was generated which set out the
information that iSolveit claimed it still required. A copy of the
"action list" is annexed hereto and marked "AA 14 ".
178. The information on the "action list" had either already been
provided to iSolveit (I refer to AA 12) or had not previously been
requested by iSolveit. However, in order to satisfy the Department
and in accordance with REDISA's ongoing commitment to
accountability, REDISA decided to again provide all of the
information that had already been provided, and to provide the
information that had been requested for the first time.
179. On 21 July 2016, while REDISA was in the process of compiling
the documentation for submission, Anshu Padayachee of iSolveit
indicated to me and to Stacey Davidson (another director of
REDISA) that REDISA should not submit the further
documentation that had been requested, that continued
participation in the review was a waste of time and that REDISA
should simply accept the State's desired outcome of removing
REDISA's ability to collect a fee. We rejected this overture.
180. On the same day and on the following day, REDISA provided the
documents specified in the "action list", together with detailed
62
responses. A copy of the relevant correspondence and
documentation is annexed hereto and marked "AA 15".
181. In terms of items 12 and 17 of the "action list", iSolveit was
supposed to provide REDISA with a format document and a
sample list of contracts. iSolveit never did so.
182. On 12 August 2016, iSolveit issued a document entitled the "Key
Findings Report". This is annexed hereto marked "AA 16". The
Key Findings Report stated that it was based on a "cursory
perusal" of the information submitted by RED ISA after the filing of
the "Final Report". The Key Findings Report concluded that "once
a further examination of additional information" had been
undertaken, "further recommendations" would be submitted. It
also stated that certain information from REDISA remained
outstanding.
183. It was simply incorrect that certain documentation remained
outstanding - all requested information had, to the extent
possible, been itemised by REDISA and provided to iSolveit on or
before 22 July 2016. In instances where the relevant
documentation could not be provided by REDISA, iSolveit was
directed to individuals who should be approached for the required
information.
184. On 12 August 2016 the Department and REDISA held a meeting
63
to discuss the Key Findings Report. At the meeting REDISA
requested the opportunity to respond to certain elements of the
Key Findings Report and to provide certain information. REDISA
was instructed to do so by 19 August 2016. It was impossible for
RED ISA to provide the voluminous documentation required by the
Department within such a short period of time.
185. A copy of the draft agenda and minutes of this meeting, together
with a list of "Action Items", is annexed hereto and marked "AA
17 ".While the minutes refer to "outstanding documents", REDISA
had either previously provided the requested documentation as
per the correspondence above, or directed iSolveit to individuals
who should be approached for the desired information. However,
in order to avoid becoming involved in unhelpful disputes with the
Department, REDISA elected not to dispute the minutes and to
provide the new information requested, as well as to provide
information that it had already furnished to iSolveit.
186. On 2 September 2016 REDISA provided the Department with a
copy of its Annual Financial Statements. The financial statements
were provided on this date because they had only then been
completed by the auditor, KPMG, and approved by the Board and
the Audit Committee.
187. REDISA issued its response to the Key Findings Report on
7 September 2016. The response noted that the Key Findings
64
Report appeared to retract many of the findings and
recommendations contained in the "Final Report". REDISA also
noted that the Key Findings Report appeared to be of an interim
nature and therefore elected to respond more fully once a final
report was issued. A copy of REDISA's response is annexed
hereto and marked "AA 18".
188. On the same day as it responded to the Key Findings Report
REDISA delivered two boxes of documents to the Department,
being copies of those documents that REDISA had provided to
iSolveit during the course of the audit process.
189. The Director-General of the Department responded to RED ISA on
17 October 2016, a copy of which response is annexed hereto and
marked "AA 19". The Director-General contended that REDISA
had shown a "lack of cooperation" in providing documentation and
information to finalise the performance audit, that it had "unduly
delayed" the performance audit report and that it had provided
"incomplete/unclear documentation".
190. These contentions are demonstrably wrong. As is evident from
what I have set out in detail above, REDISA has cooperated with
iSolveit and the Department fully and in good faith and provided
the requested documentation to the fullest extent possible. Where
it has been unable to provide documentation, it has cooperated
fully with the Department and iSolveit by helping them to identify
65
where the documentation might be located, and in whose
possession it might be.
191. The Director-General was correct on one issue, however, namely
that the "clarification of the Financial Statements" had been
omitted. However, this omission arose for the reasons set out
below. Clarification was provided within days of this issue being
brought to REDISA's attention. REDISA simply did not have
enough time to deal with this particular issue in the midst of
everything else that had to be done.
192. Reverting to the Director-General's letter, annexure "AA 19 "
hereto, she indicated that the Department would "finalize the
performance audit findings that were presented to you on 12
August 2016, based on the information received to date."
193. I responded to the Director-General on 23 October 2016, as
appears from annexure "AA 20" hereto. I acknowledged that one
item of information (the clarification of the financial statements)
had not been provided to the Department and I explained why the
item had not been provided. I also attached the outstanding
information to its response.
194. The clarification of the financial statements aside, I reiterated
REDISA's view that it had responded proactively and sufficiently
to all requests for information and documentation. As was the
66
case at the time, I remain both surprised and very concerned that
the Department could hold the view that REDISA had failed to
account as required or to provide information requested during the
performance audit process.
195. In the letter of 23 October 2016 I moreover pointed out that
iSolveit's findings in the Key Findings Report were, by its own
admission, "cursory" and therefore could not constitute a sufficient
basis for a final performance audit. I also requested the
opportunity to respond to any findings other than those of iSolveit
prior to the finalization of the performance audit. This appears
from the 30 November 2016 letter.
196. On 1 November 2016, the Applicant sent me a letter (dated 31
October 2016) informing me of the Department's conclusions
regarding REDISA's performance in the light of "the iSo/veit report
and the analysis conduct by the DEA ". A copy of this letter is
annexed marked "AA 21" - I have left out the minute referred to
therein which is attached to a previous annexure.
197. The Applicant bemoaned REDISA's alleged "lack of cooperation"
with the performance audit process and its submission of
information that is "incomplete or unclear". For the avoidance of
doubt, I reiterate that REDISA cooperated with iSolveit and the
Department fully and in good faith and provided all requested
documentation as soon as was reasonably possible. I am not
67
aware of any instance of a lack of cooperation, or of any
documentation that remains outstanding, or of any information
that is incomplete or unclear.
198. The Applicant went on to identify various instances of REDISA's
alleged deviation from the REDISA Plan, non-compliance with
applicable regulatory provisions and "lack of accountability". The
Applicant requested REDISA, within 15 working days, to provide
"written reasons, substantiated with documentary evidence ... as
to why I should not consider the withdrawal of the REO/SA
1/WTMPT [ie the REDISA Plan]."
199. On 3 November 2016 REDISA requested an extension in order to
provide the Applicant with the substantiated reasons she sought,
with reference to documentary evidence.
200. On 8 November 2016, the Applicant granted REDISA until 30
November 2016 to provide the written reasons referred to in the
preceding paragraph. A copy of her correspondence is annexed
hereto and marked "AA 22 ".
201. Notwithstanding the Applicant's communication of 31 October
2016, on 14 November 2016 iSolveit indicated that the
performance audit process was still ongoing and, in this regard,
requested further information from REDISA. A copy of the the
covering email is annexed hereto marked "AA 23 ".
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202. REDISA duly submitted its representations to the Department on
30 November 2016 as the Applicant had required it to do. A copy
of the representations is annexed hereto d marked "AA 9 ".
203. However, on the day before such representations were due (i.e.
on 29 November 2016) the Applicant, without any forewarning,
issued the Directive. The Directive came into force with
immediate effect. The Directive was set aside shortly afterwards
pursuant to REDISA having launched the Directive application.
have already dealt extensively with the Directive application.
204. As I have already mentioned, until 1 June 2017 there has never
been a response to what is set out in the 30 November 2016 letter
and its annexes.
205. This was so notwithstanding REDISA's constant efforts to engage
with the Department to discuss the very serious issues arising
because of lack of transitional arrangements set up by the
Department to continue the Plan. I have dealt with this in detail
above.
206. As stated above, a close scrutiny of what is set out in the letter of
30 November 2016 and its annexes undermines the assertion by
the Applicant that there has been any failure by REDISA to
engage with the Applicant or the Department in this matter, or to
make detailed financial and performance information available to
69
them.
207. To the extent the final iSolveit Report of 3 February 2017 seeks to
constitute such a response, this was never furnished to REDISA.
Indeed, REDISA only became aware of this document when it saw
it as an attachment to the founding affidavit delivered after the
Order had been granted against it.
208. To assist the Court in navigating the information presented in the
letter of 30 November 2016, and its annexures, I highlight the
following:
208.1.
208.2.
208.3.
The letter contains a detailed, paragraph by paragraph, reply to
each of the Applicant's concerns. To facilitate this, the
Applicant's letter of complaint was converted to a word
document, and I replied in red on a paragraph by paragraph
(and point by point) basis;
Reference is made to the detailed annexures supporting each
of my responses. A list of such annexures was also provided.
The annexures, in turn, refer to extensive further
documentation all of which has been delivered to the Applicant.
Indeed, some 27 lever arch files of documentation addressing
the detailed response to each of these compliance notices have
been delivered to the Minister.
208.4.
208.5.
70
REDISA commissioned the independent auditors PWC (who
are not REDISA's auditors) to conduct a full performance
review mirroring the mandate given to iSolveit. This took PWC
a couple of months to complete. It was a far more thorough
investigation than that conducted by iSolveit- it will be recalled
that Mr Bhoola spent less than 3 days at REDISA.
PWC had access to all source documentation (as did iSolveit).
The PWC report was furnished to the Applicant. The findings of
the PWC are very different to those of iSolveit. The Applicant
has either ignored them, or dismissed them out of hand.
209. Any suggestion by the Applicant or her Department that REDISA
has been reluctant to engage with the Department flies in the face
of the objective facts.
210. The Applicant elected -deliberately it would seem - not to place
this material and highly relevant information before the Court
when it sought the provisionally winding up of REDISA on an ex
parte basis.
(8) THE RELATIONSHIP BETWEEN REDISA AND KT
211. In her founding affidavit, the Applicant makes the incorrect and
damaging allegation that REDISA and its appointed management
company, KT, as well as their respective company officers, enjoy
71
an improper relationship.
212. The Plan refers to the appointment of an external management
company.
213. It was KT (and its shareholders) which took it upon themselves to
develop and present the Plan to the Applicant at considerable risk
and expense to KT (and its shareholders).
214. The Plan took many years to formulate and develop. Even after
this considerable investment in time and resources there was no
guarantee the Plan would be approved. Indeed, such approval
only came after an arduous process.
215. The Applicant and the Department were well aware of the
intended structure of the Plan, and the respective roles of KT and
RED ISA in the implementation of the Plan, should it be approved.
The Applicant and the Department were also well aware of the
identity of the shareholders of KT. In our engagements with the
Applicant and the Department this was discussed and was quite
clear. Since these engagements were informal, no detailed
minutes were kept. If they believed there was a conflict of interest
the Applicant (and the Department) should not have approved the
Plan in the form that they did.
216. REDISA also dealt with the issue of the relationship between KT
72
and REDISA in its engagement with iSolveit, and in the letter of
30 November 2016.
217. One of the reasons for establishing a separate management
company is explained in clause 28 of the Plan.
218. RED ISA is the custodian of valuable commercial information- the
management company, as a private company, receives detailed
information from subscribers and others which it then presents to
REDISA in aggregated form. In this way exposure of specific
information to third parties is prevented.
219. There are further important reasons for this separation. This type
of structure was seen as a more efficient way to develop
management expertise for waste streams. It should be borne in
mind that there was at that stage very little of this practical
expertise available internationally.
220. One option was for REDISA to buy this expertise from external
consultants such as Accenture or Mckinsey, but these entities do
not have this expertise themselves, and they would have had to
develop it at REDISA's expense, anyway. This would have been
a very costly exercise.
221. REDISA was presented with an opportunity to develop world
leading South African management expertise in a new industry by
73
building up this capability in a local management company.
222. This approach has been successful. The Plan, as managed by
KT, has received international recognition and praise as "best
practice". Until recently the Applicant seems to have shared the
same view.
223. At a more pragmatic level, separation of control and operational
functions in different entities is also common and desirable
corporate practice.
224. Once the Plan was promulgated it was a key management
consideration that the Boards of REDISA and KT be entirely
separate to ensure independent decision making.
225. The fact that certain of its directors are shareholders of KT does
not of itself create conflict of interest. As will be seen from the
Experian report obtained by Applicant, no directors of RED ISA are
directors of KT and vice versa.
226. Companies are by law managed by their directors and executives,
not their shareholders. Conflict only arises where decision making
is compromised through improper corporate governance.
227. The decision-making processes of REDISA and KT ensure that
this never happens. The directors are mindful of and comply with
74
their obligations in terms of section 75(5) of the 2008 Companies
Act. In instances where they have a personal interest in the
outcome of company decisions the necessary steps are taken to
ensure no conflict of interest arises. There is independent and
unequivocal audit confirmation by KPMG that, in circumstances
where decisions may be made by KT in regard to matters affecting
its relationship with RED I SA, the RED ISA appointed shareholders
of KT recuse themselves. This is not an "allegation", but an
audited fact.
228. REDISA's directors therefore do not participate in, and cannot
influence, REDISA decisions about KT. This is accepted, sound
and correct practice which is built into the governance system to
ensure that decisions are not compromised by any conflict of
interest. A copy of the relevant extract - page 10 - management
report for 2014 prepared by KPMG is attached to this response as
annexure "AA 24".
229. None of the executive directors of REDISA are members of its
audit and risk committee.
230. REDISA and KT comply with all recognized requirements of
corporate governance as contained in company law and the
relevant guidelines set out in the KING Ill code of corporate
governance.
75
231. During their (brief) engagement at REDISA's head office, all of
REDISA's company secretarial documentation, including board
and committee meeting minutes, was made available for iSolveit
to interrogate. Not a single example of any decision taken by
REDISA which was made contrary to any principle of good
governance has been provided to REDISA by iSolveit. There are
no facts to support such a conclusion.
232. The problem with the iSolveit finding that the structure set out in
the approved Plan creates a conflict of interest is this: it is an
unsupported and unfounded conclusion which fails to take into
account that disclosed and accepted corporate procedures exist
at REDISA, and are rigorously applied precisely to prevent any
conflict arising.
233. iSolveit has come to a finding which has been reached without any
regard to the facts.
234. The Plan was set up on the basis that its governance structure
would be independent of the tyre industry to ensure there would
be no external influence on decision making, and to promote
transparency and job creation. This is one of the strengths of the
Plan. This requirement was approved and confirmed in the
Minister's approval letter. This independence has been retained
throughout as confirmed by the independent audit.
76
235. The fee which KT earns for its services is clearly set out in the
Plan. It was approved on this basis by the Applicant. When the
Plan was formulated and promulgated there was no guarantee it
would succeed. The persons who carried out the Herculean task
of developing the Plan did so at huge risk.
236. REDISA's audited financial statements disclose that the only
financial relationship it has with KT is payment of the agreed
monthly fee by REDISA to KT.
237. All activities of KT on behalf of REDISA are fully accounted for.
All this information has been presented to the Applicant and the
Department as part of regular monthly reports.
238. The most recent such report dated February 2017- which shows
the level of information provided - is already attached hereto as
annexure "AA 7".
239. The Applicant has confused KT's obligations to report on, and
account for, its management activities for REDISA - and how it
spends REDISA's money for this purpose - with the expenditure
of its own money. KT is responsible to ensure that it meets its
obligations as a management company. How it allocates its
human and financial resources to achieve this outcome is its own
business.
77
240. Like REDISA, KT has received unqualified audit reports from its
auditor since its inception.
241. KT is responsible, under the guidance of RED ISA and the Plan to
manage the key activities set out below. There are detailed
underlying procedures and teams allocated for all these activities.
242. The key administrative activities delegated to KT as the
management company appointed pursuant to the Plan are set out
set out inter alia in paragraph 25 of the Plan.
243. KT discharges all of these administrative activities. Through their
engagement with KT's officials, the Department's officials are fully
aware of the scope and extent of KT's administrative activities,
undertaken in the discharge of its obligations under the Plan.
244. The recurring allegation that the management contract between
KT and REDISA was never provided is false. It was provided to
iSolveit on 17 March 2016, and re-submitted electronically on 21
July 2016. All of this is dealt with in the letter of 30 November
2016.
245. REDISA does not co-own any assets with KT.
246. REDISA and KT do not share office space and iSolveit has been
furnished with a copy of the lease agreement confirming this.
78
24 7. There is therefore no basis whatsoever for any allegation of
impropriety in the relationship between REDISA and KT.
(9) THE MANAGEMENT STRUCTURE OF REDISA
248. Another criticism made by the Applicant in her founding affidavit
is that the management structure of REDISA itself is top heavy,
and too expensive, and that its roll is blurred with that of KT.
249. There is no basis to this allegation either, as was explained in the
letter of 30 November 2016 and its annexures.
250. REDISA exists to ensure that the Plan is implemented, and to
ensure that KT delivers the Plan's strategic objectives. It has the
overall oversight role for the implementation of the Plan.
251. REDISA accordingly takes overall accountability for the Plan, and
constitutes the executive control function for its implementation.
252. REDISA has a small executive team of three of the most senior
persons engaged in the Plan. These are the persons who, at
considerable initial personal risk, conceptualized, developed and
implemented the Plan. They did so from scratch, and they
continue to do be involved in the implementation of the Plan.
253. RED ISA also employed a chief financial officer, Andre Botha, who
79
is a qualified chartered accountant, and who supervised the
overall financial management of the Plan. This "Head Office" team
is assisted by 3 secretaries.
254. As set out in the Plan, REDISA also has retained responsibility for
supervising training, communications and stakeholder
engagement, since these are strategic responsibilities.
255. The remuneration of executives and directors has been
benchmarked by an independent review by PWC, and is in line
with accepted standards. A copy of this detailed benchmark report
is attached as annexure 19 to the 30 November 2016 letter, but is
annexed hereto for convenience as" AA 25 ".
256. The remuneration of this executive team is determined by a
remuneration committee of non-executive directors of REDISA in
line with proper corporate governance. The remuneration
committee consists of the non-executive directors of REDISA,
who are entitled to call in external advisers to assist them - in line
with the King Ill Report on corporate governance. There is
accordingly no basis for the conclusion that REDISA's executive
team is "expensive" or otherwise overpaid in relation to its
responsibilities.
(10) THE PRODUCT TESTING INSTITUTE (PTI)
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257. The Applicant states in her founding affidavit in this application
that the expenditure on the PTI in Nelson Mandela Bay was not
known or approved by her, that it is not in accordance with the
Plan, and that it is undesirable. These allegations are simply
wrong.
258. This issue too was dealt with extensively in the letter of 30
November 2016 and its annexures.
259. The PTI is part of the development of the improved local capacity
for handling waste tyres. The PTI was established in order to gain
a better understanding of the quality of tyres manufactured and
imported into South Africa, and their impact on the environment.
The objective is to encourage producers to produce a better
quality tyre in the future. One of the aims of the PTI is to ensure
that technologies employed locally produce a competitive quality
of recycled products.
260. A copy of the report regarding the establishment of the PTI was
attached to the letter of 30 November 2016 as annexure 41 -this
report itself dates back to 6 December 2013. A copy of the Board's
resolution regarding the establishment and functioning of the PTI
was attached to the letter of 30 November 2016 as annexure 42.
261. REDISA was requested by the Applicant to investigate whether
there was any alternative capacity at the South African National
81
Energy Development Institute ('SANEDI") or the CSIR to
undertake tyre testing. REDISA established that there was no
such alternative capacity, and communicated this the Department.
At the same time REDISA advised the Department of its intention
to develop a tyre testing facility. The development of the PTI was
therefore known by the Department as long ago as 6 December
2013.
262. Had the Department had any concerns in this regard, it could and
should have raised them at the time that REDISA communicated
its intentions. A copy of the relevant email correspondence is
attached to the letter of 30 November 2016 as annexure 41. The
relevant information and documentation has also been provided
to iSolveit.
263. The establishment of this testing facility is, in any event, in line
with approved objectives of the Plan.
264. Clause 25.12 of the Plan provides for research and development
for the purpose of "developing recycling technologies".
265. The Plan is regarded internationally as best practice. The
development of the tyre testing facility, in collaboration with the
Nelson Mandela Bay University (in the heartland of the South
African tyre industry) and Stellenbosch University, of a "state of
the art" research facility to further recycling technologies will
82
advance the objectives of the Plan to reduce waste (by improving
the quality, durability and recyclability of tyres), and will also
promote local capacity to absorb and process waste tyres, and
hence also help to address critical lack of employment in South
Africa by attracting local and foreign investment.
266. This will ultimately lead to a significant reduction in waste
production and ensure that local supply does not exceed
processing capacity. There will accordingly be a balancing of
supply and demand.
267. This should also have the benefit of reducing the levy since over
time the industry will become self-sustaining. Self-sustainability
has always been part and parcel of REDISA's ultimate aim of
creating a truly circular "green" economy.
268. The PTI will, as part of its function, assist in assessing and rating
tyres for recycling purposes.
269. This will also establish which types of tyres are best suited for
which types of recycling. The PTI is intended to set the
international standards for quality and recycling of tyres.
270. The projects being carried out by the PTI will therefore establish
South Africa as a world leader in independent tyre research, with
unique local expertise. The establishment of this facility is
83
therefore in line with the objectives of the Plan, and the outcomes
of the Plan.
271. Since this facility is a collaboration between REDISA and NMMU,
it was appropriate to establish a separate NPC for this purpose.
This transaction has also been recorded in the financial
statements of REDISA.
272. This separately established NPC has recently employed three
employees, and nobody earns income from it. The allegation that
it is a vehicle for my enrichment (or the enrichment of others) is
false and defamatory.
273. The academics and executives of REDISA and the university
serve this institution as part of their obligations to REDISA (or KT
as the case may be). I believe that the same approach applies to
the university representatives in the NPC. REDISA does not pay
them anything.
27 4. As part of its research and development obligations, RED ISA is
funding students at the Nelson Mandela Metropolitan and
Stellenbosch Universities to undertake research aimed at making
the pyrolysis industry more commercially viable. Annexure 41 to
the letter of 30 November 2016 also addresses REDISA's
research initiatives at these universities.
84
275. I turn now to deal, to the extent necessary, with the specific
allegations made by the Applicant in her founding affidavit.
276. In the interests of brevity, and given that this answering affidavit is
already a lengthy document, I shall attempt to address only those
paragraphs of the answering affidavit which I have not already
dealt with. I shall also cross-refer to what I have already stated in
this answering affidavit, where this is possible.
277. Moreover, and as is apparent from what I have already said, many
of the averments made by the Applicant in her answering affidavit
have already been dealt with in other proceedings to which the
Applicant and REDISA are parties.
278. The Applicant has also seen fit to introduce material into this
application which RED ISA has never been afforded an opportunity
to deal with before. A prime example of this is the final iSolveit
Report. The Applicant has also placed misleading and untrue
information before this Court, which REDISA could not deal with
because the Order in this matter was granted on an ex parte basis.
Had REDISA been able to deal with these allegations, there can
be no doubt that the Court would not have granted a provisional
order of winding up. Certainly, it would not have permitted
Applicant to take an Order on an ex parte basis.
REDISA's answer to particular paragraphs in the founding affidavit
85
Ad the founding affidavit generally
279. To the extent that any factual allegation is not pertinently
addressed but conflicts with what has been said above, it should
be considered to be denied.
280. Ad paragraphs 1 to 3
I admit the identity of the parties. For the reasons set out in this
answering affidavit, I deny that much of what the Applicant has
stated is true and correct.
281. Ad paragraphs 4 to 6
For the reasons stated elsewhere in this answering affidavit, and
as will be argued at the hearing of this application in due course,
the Applicant has not made out a case for the extended standing
that she relies on. Moreover, the Applicant should not have
succeeded in obtaining ex parte the relief that she did.
282. Ad paragraphs 8 to 17
I have dealt with the background to the formation of REDISA, and
the approval of the Plan, as well as its legal and regulatory
framework, extensively above.
283.
283.1.
283.2.
284.
284.1.
284.2.
284.3.
86
Ad paragraph 20
The case advanced in this application by the Applicant is that
the Department has engaged constructively with REDISA
throughout, and it is REDISA which has been obstructive. This
is not borne out by the objective facts as evidenced in these
meeting reports and REDISA's responses thereto.
The founding papers in this application are replete with
instances of the Applicant deliberately excluded reference to
interactions which are adverse to her objective in this
application.
Ad paragraphs 21 and 22
The Applicant has failed to include reference to meetings where
the pricing policy and alignment were dealt with in detail, as
referred to above.
The Applicant has also failed to refer to the detailed business
plan furnished by REDISA to the Department with the 31 May
2017 ("AA 6" hereto referred to above) following the
presentation on 23 May 2017.
In the premises, I do not understand why the Applicant places
reliance on figures presented to her in November 2015 and
284.4.
284.5.
285.
285.1.
285.2.
87
February 2016.
The simple fact is that REDISA finds itself in the position that it
does because of the Applicant's failure to put in place
appropriate transitional arrangements for REDISA's funding.
The purpose of presenting information to the Applicant and the
Department in 2015 and 2016 was to show how drastic the
consequences of a cessation of funding would be. The
Applicant and The Department nevertheless proceeded on the
basis that none of this mattered.
What the Applicant seeks to achieve is to bring REDISA to its
knees so that the rump of its operations can be taken over, or
its operations transferred, to another entity or the State without
following a lawful process.
Ad paragraph 23
The initial submission on the issue of funding requested was
submitted, under great pressure from Treasury, on 5 February
2017. REDISA had little more than a day to prepare this
submission. PWC was only given time to prepare a high-level
report, and to expect it to be entirely accurate is manifestly
unreasonable.
The business plan delivered on 31 May 2017 - which is
285.3.
285.4.
285.5.
285.6.
285.7.
88
annexed hereto as part of marked "AA 6" - is RED I SA's best
estimate of how it can operate in the absence of funding.
Reliance by the Applicant on 2015 and 2016 forecasts is
misleading when much more recent and accurate figures have
been presented to her and to the Department.
The current management contract was given to iSolveit on
several occasions in 2016. REDISA assumes that iSolveit
would have brought this management contract to the attention
of the Applicant or, at the very least, someone within the
Department who would have reported this fact to her.
The amount received by KT is the amount that it is entitled to
receive in terms of the Plan. It is applied to manage the Plan.
All information on how this is done, and how the money is
spent, is reported to the Department on a monthly basis. Such
expenditure is fully audited and accounted for.
As far as the rest of this paragraph amounts to a critique of the
PWC report of April 2016, I confirm that this was an
independently conducted review performed by a reputable
audit company of international standing and repute.
The Applicant is not an auditor. She has also not provided any
forensic analysis of the PWC report on oath in her founding
89
affidavit.
286. Ad paragraph 24
287. This meeting has been taken out of context.
288. Various meetings took place which addressed the new pricing
funding model proposed by the Department. The Department has
for a considerable time been pushing for a change in approach to
that offered by the Plan.
289. I summarise these meetings below.
289.1. Meeting of 10 October 2014
289.1.1. By October 2014, a decision had been taken by the State to
change the funding model for the Plan.
289.1.2.
289.1.3.
The reason given for the change in funding model was that
Treasury considered the fee that subscribers to the Plan
were required to pay the Applicant constituted a tax and
accordingly had to be collected by SARS.
Although a draft Pricing Strategy had already been
circulated, it had not been published for comment. RED ISA
offered to furnish the Department with opinions prepared by
289.1.4.
289.2.
289.2.1.
289.2.2.
289.2.2.1.
289.2.2.2.
90
two respected senior counsel which both concluded that the
fee under the Plan did not constitute a tax.
REDISA was seeking to persuade the Treasury that it was
not necessary to change the funding model.
Meeting of 3 June 2015
This was an informal meeting between Mark Gordon and
Kgauta Mokwena representing the Department and Stacey
Davidson and myself representing REDISA. The purpose of
the meeting was to explore ways in which the impasse
between the Applicant and REDISA concerning the change
in the funding model could be bridged. It had nothing to do
with alignment.
The discussions ranged over many matters concerning-
the nature of the Plan and REDISA's role as a PRO in that
Plan, namely taking on the tyre industry's obligation to
collect, store and remediate waste tyres;
how REDISA functioned through the incubation of small
black businesses, the procurement of contractors to
collect, transport and store waste tyres and the subsidy
and procurement of processors to process waste tyres;
289.2.2.3.
289.2.2.4.
289.2.3.
289.3.
289.3.1.
91
the need and modalities of funding waste management
plans and the PROs that implement the plans; and
the importance of a regulatory framework for waste
management plans, including other waste streams, and
the Waste Bureau's oversight role.
During the course of the discussions, I proposed a solution
on the assumption that what was driving the imposition of a
tax was Treasury's need for additional revenue. The
proposal was that REDISA continued to be directly funded
by its subscribers and that an environmental levy of one
Rand would be imposed on REDISA. It would necessitate a
change in the fee to accommodate the additional tax. The
Department's representative, Mark Gordon, responded by
saying that he would put this to Treasury as a possible
solution.
Meeting of 15 July 2015
In this meeting, the Department stated that it was currently
looking at the comments received in respect of the draft
strategy published on 2 February 2015 and developing a
responses data base on the comments. It was still a long
way from publishing a final Pricing Strategy, which was only
published over a year later. The Department stated that it
289.4.
289.4.1.
289.4.2.
289.4.3.
92
had developed a draft policy and draft business case for the
Waste Bureau for consultation with stakeholders. To the best
of my knowledge, no policy or business case has ever been
published or circulated for consultation.
Meeting of 3 February 2016
By this time, the Department and Treasury were clearly
intent on introducing its new proposed funding model in the
course of 2016 regardless of the consequences. The
members of Treasury who attended the meeting refused to
give their surnames. What was clear was that the decision
had been taken to change the funding model come what
may.
When it became apparent that no provision was made in the
2016/17 Budget for REDISA despite the fact that the
intention at the time was to cut off funding on 1 April 2016,
REDISA advised that it would be forced to cease its
operations because it would be reckless to trade without any
guarantee of revenue.
I mention this issue to confirm that RED I SA's concerns about
the consequence of having its finding cut off, and the need
for the authorities to put alternative arrangements in place,
289.5.
289.5.1.
289.5.2.
290.
290.1.
93
has been a live issue for a long time.
The July 2016 Meetings
On 19 July 2016, a meeting was held with Treasury. One of
the purposes of the meeting was to present and discuss the
RED ISA business plan (BM8 to the founding affidavit at page
334 of the record), which included budgets 2017 to 2021.
The Applicant has failed to any of this in the course of her
185-page founding affidavit.
Because of this omission, the impression created is that
REDISA simply presented its proposals at this meeting out
of the blue. In fact, the proposals were the consequence of
a lengthy period of consultation and analysis that took place
for more than a year.
Ad paragraph 25
What was discussed, in conjunction with the business plan, on
19 July 2016 was discussed in the context of a long history of
prior discussions. It was, and remains, REDISA's view that the
new funding model is unworkable. The pricing strategy has
already been challenged by REDISA in the pending Pricing
Strategy application.
290.2.
290.3.
291.
291.1.
291.2.
94
REDISA's approach in the Pricing Strategy application was
based on a recent judgment of the Constitutional Court.
The presentation made at the meeting of 19 July 2016 confirms
that at this meeting REDISA presented a business plan taking
into account its budgets and forecasts for the period 2016 to
2021. Allegations that REDISA has failed to submit its business
plans to address potential transitional arrangements are wrong.
Ad sub-paragraph 25.6
KT receives payment of what it is entitled to receive in terms of
the Plan. Paragraph 11 of the transitional business plan
delivered to the Department on 31 May 2017 sets out details of
the budgeted administration cost for the period 1 June 2017 to
30 September 2017. These are KT's costs (not REDISA's).
REDISA's head office costs are estimated to be R19,681 ,706
for this period, whereas the industry management fee (which
KT receives and applies to manage the Plan) is estimated to be
approximately R50 million for the period. The breakdown of
these costs and fees are contained in an annexure to the
transitional business plan sent to the Department on 31 May
2017.
292. Ad paragraph 26
292.1.
292.2.
292.3.
95
The manner in which the Plan was presented and approved by
Applicant fits in with the Strategy. It remains the view of
REDISA - extensively supported through consultations with
experts - that the Plan which it has proposed is the most
suitable for effective waste tyre recycling. The Plan has been
substantially successful.
The Plan does not operate within the confines of the Public
Finance Management system. This was a deliberate policy
decision on the part of the State as it did not want to assume
the risk and responsibility of implementing the Plan (other than
overall high level oversight capacity. I refer to points 3 and 10
of annexure "AA 26", an email of 14 July 2010 addressed by
D Fischer, a deputy director general of the Department at the
time- which sets out the required structure of the Plan.
As stated by the Department, "The 1/WTMP (which ultimately
became the Plan) makes reference in several places to a
statutory fund, this is not a mechanism that is contemplated in
the regulations. The waste tyre regulations have been
developed to give effect to producer responsibility. A statutory
fund is not contemplated ... The section on the cost of
implementing the system will need to be completely reviewed,
the current plan indicates a statutory body with government
managing the system. This is not the intention of the
regulations. The intention is that industry will administer the
292.4.
292.5.
293.
293.1.
293.2.
293.3.
96
entire plan once approved and report to government."
(Emphasis added)
Considering the failure of the model implemented for the
recycling of plastic bags, where since 2003 the levy has been
collected but the State has been unable to demonstrate the
value, public benefit and environmental remediation which was
intended through the collection of levies on plastic bags, this
made commercial sense.
The Plan was then drafted as a self-regulating, self-funded
EPRO in line with government strategy and as approved by the
Applicant.
Ad paragraph 27
I confirm that the submission was made.
The legal conclusions set out in the submission were based on
advice received from senior counsel.
The allegation that REDISA has not addressed and explained
the effect of the amended funding model on the Plan is thus
wrong. The Applicant repeatedly refers in her founding affidavit
to REDISA's continued submissions regarding the negative
293.4.
293.5.
293.5.1.
293.5.2.
293.5.3.
293.5.4.
294.
294.1.
294.2.
97
impact of changing the funding model.
What the Applicant overlooks in paragraph 27.10, is the fact
that the REDISA funding model is not at all the same as the
funding of a State institution. The decision to fund REDISA
differently was a decision which was deliberately taken by the
Department.
The fundamental dilemma that RED! SA faces is that-
It is not entitled to receive funding since 1 February 2017;
It has not been advised how it will be funded by the State (be
it by the Department or by Treasury);
It has no guarantee of future funding; and
It is not the recipient of the funds which the Treasury has
already collected from producers (some R21 0 million).
Ad sub-paragraph 27.14
The budget presented last year has been revised with
reference to the PWC presentations of April 2017 and the
REDISA transitional business plan of 31 May 2017.
The funding model was prepared in February 2016. It has since
294.3.
295.
98
been substantially refined.
The Applicant has been informed from documentation recently
received by her from RED I SA, that this estimation is optimistic.
Ad sub-paragraph 27.15
One of the concerns that RED! SA has expressed about the new
funding model is that it does not address credits for tyres that are
exported. Tyres which are exported by local manufacturers do not
become a waste problem for South Africa - this is why the Plan
provides for a credit to be paid to producers. The new funding
model provides for no such credit.
296. Ad sub-paragraph 27.18
297.
297.1.
There is nothing wrong with REDISA advocating the waste tyre
diversion strategy which it believes is the correct way to deal with
this waste stream with reference to its own operational experience
(and which is in line with the supposed government Strategy).
Ad paragraph 28
REDISA has disclosed precisely how the money received from
subscribers to the Plan is expended in rolling out the Plan. It
has been accounted for, audited and is entirely transparent.
297.2.
297.2.1.
297.2.2.
297.2.3.
298.
298.1.
298.2.
298.3.
99
The Plan only requires an annual report to the Applicant.
REDISA, in fact-
Provides monthly reports;
Has had, of its own volition, detailed monthly management
operational meetings with representatives of the
Department; and
The Applicant's statements here are irreconcilable with her
public utterances referred to above.
Ad paragraph 29
I confirm that Scopa presented its response document. Scopa,
which is an instrument of Government, supports the State's
view on the way forward.
In sub-paragraph 29.2 Scopa anticipated that revenues
deposited into the National Revenue Fund would be used to
support the waste tyre management process. Scopa
envisaged that RED I SA, or whatever waste tyre management
plan was in place, would be supported by funds collected in the
National Revenue Fund.
As yet, and for reasons detailed above, no such payments have
298.4.
298.5.
299.
299.1.
100
been received by REDISA, nor has there been any indication
that payments will be received in the future. The relevant
departments of State, including the Applicant, have failed to
ensure that there are adequate transitional arrangements in
place to secure the viability of the Plan.
The Scopa report was based, notwithstanding REDISA's
submissions, on incomplete information presented to it by the
Department.
As regards the issues around governance, these were dealt
with comprehensively in the letter of 30 November 2016 and its
annexes.
Ad paragraph 30
The Applicant makes no reference to the litigation, both past
and pending, between the parties.
300. Ad paragraph 31
The Applicant has not provided any evidence in her founding
affidavit in support of her allegations about misuse of funds. I deny
these allegations, and refer to what has been said.
301. Ad paragraphs 32 and 33