Former Chief Justice Declares Karpowership Shareholders' Agreement Discriminatory

In a landmark ruling that is set to reshape the business landscape regarding Black Economic Empowerment (BEE) partnerships in South Africa, former chief justice Sandile Ngcobo has emphatically criticized the shareholders' agreement between Karpowership's Turkish owner, Karadeniz, and its BEE partners for being discriminatory.

The case came into the spotlight when Powergroup SA, owned by prominent South African business figures Sechaba Moletsane, Ravin Rajoo, Sureshan Moodley, and George Mokoena, entered arbitration against Karadeniz. They challenged their eviction from a lucrative R218-billion deal to provide Eskom with emergency power over the next two decades.

At the heart of the dispute was a demand from Karadeniz to Powergroup SA to finance part of a required $5 million injection. When Powergroup SA failed to comply, Karadeniz exercised an option within their agreement that saw them seize Powergroup's 49% stake at a nominal sum of R83—an action that has now been challenged and overturned by the arbitration ruling.

Karadeniz's intent to protect its interests manifested through clauses in the shareholders' agreement that targeted Powergroup exclusively. Justice Ngcobo, upon reviewing the confidential arbitration ruling viewed by investigative unit amaBhungane, declared these clauses inherently biased and oppressive.

The ruling underscored the problematic nature of the call option and trigger events, which appeared solely crafted to the advantage of Karadeniz. These provisions shielded Karadeniz from breaches in the agreement while imposing strict and inequitable terms on Powergroup, directly contravening the company's constitutional right to equality.

During arbitration, Karadeniz's legal representatives contended that the unilateral clauses were justified to prevent Powergroup from receiving a 'free ride'. However, Justice Ngcobo refuted this line of reasoning, identifying no substantial evidence to support the assumptions underlying Karadeniz’s discriminatory stance. Rather, he suggested that there was an implicit bias against Powergroup on the premise of its BEE status, which runs counter to South Africa's foundational value of equality.

Furthermore, the arbitration also considered the notion of "fronting," a serious offense under the Empowerment Act, punishable with jail time. Although Justice Ngcobo refrained from making a specific ruling on this matter, he acknowledged the validity of the argument surrounding the potential violation of the anti-fronting provisions in the Act.

The result of Justice Ngcobo's binding ruling is a reversal of the shareholder's status quo, mandating Karadeniz to return the 49% stake in Powergroup within 21 days. This decision represents a significant affirmation of the rights of BEE partners in commercial agreements and serves as a reminder of the constitutional protections against discrimination.

Justice Ngcobo's ruling, although delivering a blow to Karadeniz, did acknowledge Powergroup's failure to heed previous capital calls, theoretically allowing Karadeniz to re-initiate proceedings to oust Powergroup once more from the deal, but under the correct and equitable terms.