By Linda Ensor
The board of the Public Investment Corporation (PIC) is considering options to ensure accountability and recover funds arising from its defaulted loan to Lanseria Airport’s BEE partner, Acapulco.
Finance minister Enoch Godongwana said this included exploring internal consequence management processes, assessing potential civil recovery mechanisms and engaging the relevant oversight and regulatory authorities where required.
The aim was to ensure appropriate action was taken where financial loss or misconduct may have occurred.
These alternative measures were being looked at after the PIC paid more than R400m to Acapulco following the valuation of the airport by an arbitration panel which the PIC strongly disagreed with.
The PIC provided a R333m loan to Acapulco in 2013 for it to buy 25% of Lanseria Holdings. In November 2023, Acapulco defaulted on its obligation to repay the full amount, and the PIC took over its shareholding as stipulated in the loan agreement, subject to a final determination of the valuation of the asset. This left it with a 62.5% stake in the airport.
Following the PIC’s dispute over the R1bn valuation by Crowe JHB for Acapulco’s 25% stake in Lanseria, Acapulco instituted arbitration proceedings for payment in the amount of R411m, being the difference between the valuation of Lanseria and the R629m debt plus interest owed by Acapulco.
In September the arbitration panel handed down the arbitration award in favour of Acapulco, essentially confirming the valuation.
Godongwana said in a written reply to a parliamentary question by DA MP Andrew Bateman that the PIC obtained two separate legal opinions from senior counsel on the prospects of challenging the arbitration panel award, both of whom said there were no prospects of the PIC succeeding.
Advocate Paul Farlam SC said that to succeed the PIC would have to demonstrate a “manifest error” in the arbitration award, a high hurdle. It was not sufficient simply to say the valuation was merely wrong or inaccurate.
As the parties had agreed that the arbitration award was final and not subject to appeal, the only basis on which the PIC could refuse to comply with the arbitration award would therefore be a review of the arbitration panel award under the Arbitration Act.
The act permits a court to set aside an award where a member of the arbitration panel has misconstrued himself/herself in relation to his/her duties as an arbitrator or umpire, or the arbitration panel has committed any gross irregularity in the conduct of the arbitration proceedings, or has exceeded its powers, or an award was improperly obtained.
Farlam concluded that there did not seem to be any basis to set aside the arbitration award under the act. A gross irregularity referred to the conduct of the arbitration proceedings, not the result of those proceedings.
Advocate Vincent Maleka SC reached a similar conclusion, saying that simply arguing the valuation of Crowe was erroneous would not be a ground for the setting aside of the award.
The opinion confirmed there were no sustainable grounds demonstrating bias, gross irregularity, jurisdictional error or a material misdirection that would meet the legal threshold for a review under the Promotion of Administrative Justice Act or common law. On this basis, the prospects of success were assessed as low.
Godongwana said the PIC had accepted this legal advice.
As part of the decision-making process, the PIC board considered the likely cost of litigation, including external legal fees and potential adverse cost orders if a review application was unsuccessful.
Instituting a review in circumstances where prospects of success were limited would create a risk of incurring fruitless and wasteful expenditure, contrary to the provisions of the Public Finance Management Act (PFMA).
“The decision not to proceed therefore reflects responsible financial management and prudent use of public funds,” the minister said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.