03 Jun 2016

Lapsed Mineral Rights: Lazarus Rises from the Dead

Practice Area(s): Mining, Minerals & Energy |

Our readers may recall that we have previously reported on the case of Palala Resources (Pty) Ltd v Hectocorp (Pty) Ltd.

In short, we commented on the High Court's decision that a company's mineral right automatically lapses on deregistration due to failure to lodge annual returns.

This decision, and its implications, has now been reversed by the Supreme Court of Appeal ("Appeal Court"), and rightly so.

Previously, the High Court held that the effect of section 56 (c) of the MPRDA is that, upon deregistration, the right, permit or permission lapses, and is forever lost to the company, notwithstanding the restoration of the company's registration in terms of section 73(6A) of the (old) Companies Act, 1973.

Section 73(6A) of the Companies Act states that when a company's registration is restored, the company shall be deemed to have continued in existence as if it has not been deregistered. This means that the restoration of registration operates retrospectively and that all the company's corporate activities are validated during such deregistered period, even to the detriment of third parties.

According to the Appeal Court, this decision of the High Court leads to an anomalous situation, in that "while it permits a deregistered company to regain its legal personality upon restoration, it does not allow it to regain the assets it lost following deregistration".

The Appeal Court reasoned that the legislature is presumed to know the law and that when it enacted section 56(c) of the MPRDA it must have been aware that companies could be restored to the register with automatic retrospective effect. This means, according to the Supreme Court of Appeal, that if the legislature wished to ensure the finality of the lapsing of the mineral right on deregistration, it would have expressly excluded mineral rights from the rights that are restored to the company on restoration to the register, which it has not done.

Against this reasoning, the Appeal Court held that no sound reasons exist for the lapsing of Palala Resources' mineral right when its other assets and other rights are revested upon restoration.

So, like Lazarus, previously lapsed mining rights (owing to deregistration of the company in terms of the old Companies Act) must now be restored to the resurrected company.

However, it is important to note that this decision is not applicable to companies that are deregistered in terms of the new Companies Act, 71 of 2008. According to the decision held in Bright Bay Property Service (Pty) Ltd v The Moravian Church in South Africa, Case No 3130/12, the applicable provisions of the new Companies Act do not contain the equivalent retrospective provisions found in the old Companies Act. Therefore, in terms of the new Companies Act, a mineral right lapses on deregistration of a company and cannot be revived on restoration of the Company.

Since the new Companies Act will apply in most circumstances, companies that are holders of mineral or petroleum rights should take care to avoid deregistration at all costs.