A recent judgment of the Supreme Court of Appeal has raised some
interesting questions in relation to the above question –
but left them unanswered.
In settling the question of whether an obligation to pay royalties
in terms of a mineral lease concluded before the Mineral and
Petroleum Resources Development Act, 2002 ("MPRDA") came
into effect was extinguished by the new system of mining rights
under the MPRDA , the SCA has raised some disquieting questions
which go to the heart of what the terms and conditions of a
converted mining right are.
In reaching its decision that the royalty obligation did not
continue, the court considered one of the MPRDA's transitional
provisions which provides that:
'no terms and conditions applicable to the old order mining
right remain in force if they are contrary to any provision of the
Constitution or [the MPRDA]'.
In effect, what the court found was that the obligation to pay a
royalty under a mineral lease was contrary to the provisions of the
MPRDA. The court did not, however, fully examine whether the effect
of the provision quoted above is that the terms and conditions
attaching to an old order mining right are continued in the mining
right obtained on conversion, to the extent that such terms and
conditions are not contrary to the provisions of the Constitution
or the MPRDA. The court suggests that, if this were the case, then
each term or condition of an old order right would have to be
examined in light of and against the provisions of the Constitution
and the MPRDA to determine whether it is contrary to either of
them. If the term is incompatible then it cannot form part of the
converted mining right. If it is compatible, then it can.
If it is correct that certain terms of an old order right survive
its conversion, a cascade of questions follows. Which terms
survive? Only those specified in the conversion application, or all
of them which are not contrary to the MPRDA? One example of the
complexities raised by the SCA's judgment: a common term of an
old order mining right was that no contracting or subcontracting
involving machinery was allowed without the written consent of the
DMR. There is no similar provision in the MPRDA, which expressly
contemplates the appointment of a contractor but has no reference
to consent required. Does such a term survive?
A preferable view may be that upon conversion, all terms and
conditions of the old order right cease, and are replaced with
those of the converted mining right which are contained in the
standard, DMR-issued notarially executed document evidencing the
converted mining right. This approach avoids the uncertainty of the
approach discussed by the SCA in its judgment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
