DIAMOND MANUFACURING IN SOUTH AFRICA – COMPANY LAW VS THE POLICY OF BENEFICIATION IN SOUTH AFRICA
The applicant in the matter was the Black Empowerment contingency (BEE Company) of a South African Diamond Manufacturing company.
The defendant was the South African Diamond Manufacturing company (SADM).
The SADM had succeeded in winning a tender in respect of a rough diamond parcel – the winning bid being $ 1.8 million.
One of the rough diamonds in the parcel was valued at just under US$ 1 million.
The SADM proceeded to cut and polish and generally manufacture all the diamonds in the parcel in its factory in South Africa.
However, when it came to finalising the $ 1 million diamond, the board of directors of the SADM decided that the cutting and polishing of the final facets of this diamond should be attended to by experts in Antwerp.
The decision of the board of directors of the SADM was based on the fact that their existing factory staff was not sufficiently qualified and experienced to deal with the cutting and polishing of the last few facets. It also must be understood that these facets would make a significant difference to the ultimate selling price of the diamond.
The SADM therefore made all arrangements with the export centre at the South African diamond Regulator for the diamond to be exported to Antwerp where the recognised experts in dealing with these kinds of matters were to be found.
A few hours before the diamond was about to be couriered to Antwerp, the BEE contingency brought an application to the Diamond Regulator to stop the diamond from being sent abroad.
The matter came before a Tribunal of three Senior Advocates appointed by the regulator.
There was therefore now a dispute between the SADM company itself and its Black Empowerment contingency which altogether held 26% of the shareholding in the SADM.
The applicants, ie the Black Empowerment contingency, contended the following:
- The entire policy of beneficiation in South Africa was being circumvented if the diamond was allowed to be finally cut and polished in Antwerp;
- If the existing staff in South Africa were not sufficiently qualified to finalise the cutting and polishing of this diamond, they should be trained by the SADM to do so;
- Training was a very important aspect of beneficiation and this was an obligation on the part of the SADM which they should comply with;
- The SADM were only granted their licence to manufacture diamonds in South Africa on the basis that they would comply with existing policy of the Diamond Regulator.
The defendant, ie. the SADM, contended that:
- The diamond in question was far too expensive to allow its final stages to be dealt with by inexperienced cutters and polishers;
- The risk in having unqualified cutters and polishers deal with a diamond of this nature could result in the diamond being smashed on the machine and therefore the entire value of the diamond being lost to the SADM;
- Thirdly, the representatives of Black Empowerment contingent and the board of directors of the company had been outvoted when the board of the SADM had voted in favour of the diamond being sent to Antwerp for the purposes of the manufacturing to be finalised;
- The company law must certainly supersede and dominate and have precedence over any policy established by the diamond regulator.
The Tribunal held that, notwithstanding policy which may be practiced by the regulator in respect of beneficiation and notwithstanding that beneficiation was a critical part of transformation in South Africa, the company law still trumped any policy of this nature and therefore the diamond was allowed to go.
Michael is the Senior Partner at Cranko Karp and Associates Inc and practices mainly in the fields of Corporate and Commercial Law.