26 Aug 2014

Mining Minerals & Energy Law Department Update, Failure to lodge Annual Returns results in the loss of a Mineral Right

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

In a recent judgment the Gauteng High Court, Pretoria, held that the holder of a prospecting right, forever lost the prospecting right when the holder was deregistered in terms of the Companies Act, despite the subsequent restoration of the holder's registration.

In this case (Palala Resources (Pty)Ltd v Hectocorp (Pty) Ltd) Palala Resources (Pty) Ltd was deregistered due to its failure to lodge its annual returns.

The effect of this was that Palala's Prospecting Right atomically lapsed upon deregistration, in terms of section 56(c) of the MPRDA.

The Court was called upon to decide whether Palala's Prospecting Right would revive once Palala's registration was restored. 

In terms of section 73(6A) of the (old) Companies Act, 1973 (it was common cause in that case that the 1973 Companies Act was applicable), when a company's registration is restored, the company shall be deemed to have continued in existence as if it had not been deregistered.

Palala argued that, since, upon the restoration of its registration, it is deemed to have continued in existence as if it had not been deregistered, it must mean that its previously lapsed Prospecting Right would be revived.

However, the Court found that the operation of the deeming provision in the Companies Act does not go so far as to revive rights that have lost their legal validity and become void. The only effect of the deeming provision is to revive legal personality – only rights that are still valid will revert to the restored company.

The Court held that the effect of section 56(c) is that, upon deregistration, the right, permit or permission lapses, and is forever lost to the holder.

This case confirms the finding of the Western Cape High Court in the case of Bright Bay Property Service (Pty) Ltd v The Moravian Church in South Africa, Case No 3130/12, which involved the (new) Companies Act, 2008, and which arrived at the same conclusion regarding the absolute effect of section 56(c) of the MPRDA.

In light of the potential devastating consequences resulting from deregistration, all companies that hold mineral or petroleum rights, permits, permissions, or licenses should take care to avoid deregistration at all costs.