Parks Tau vs Sandton’s legal titans

Government’s insistence on pushing through Black empowerment rules, often without considering feedback, is being challenged. Not by just anybody – this time, by the sharpest legal minds in South Africa.
5 mins read

Driving through Sandton, Africa’s wealthiest commercial hub, you’ll notice glistening corporate head offices among bustling taxi ranks, endless construction, and luxury hotels. And then another hallmark: South Africa’s top law firms, clustered within an area of just over half a square kilometre.

Parks Tau, the minister of trade, industry and competition, has picked a fight with all of them – and the battleground is broad-based BEE (BBBEE).

To be fair, this clash didn’t begin with Tau. His predecessors, Ebrahim Patel and Rob Davies, had already stirred the pot. Tau, however, delivered the blow that now risks his department being dragged to court for allegedly failing to listen.

In September last year, the department of trade, industry and competition (DTIC) approved and gazetted the Legal Sector Code, aimed at speeding up transformation in an industry dominated by the likes of Bowmans, Cliffe Dekker Hofmeyr, ENSafrica, Webber Wentzel and Werksmans. The legal sector has long been criticised for its supposed lack of diversity.

These new rules immediately replaced the generic BBBEE codes that govern sectors without their own charters, imposing far more ambitious targets for ownership, management control and skills development. Crucially, the code came into effect without any transition or grace period, rendering millions of rand spent under the generic codes as “wasted”.

Norton Rose Fulbright South Africa (NRFSA) has been the first to retaliate, filing a two-part lawsuit in December asking that the Pretoria high court suspend the implementation of the code. It also wants the court to find the industry code unlawful and unconstitutional. The DTIC has been given until January 24 to respond to the suspension application, with the filing due to be made on March 4.

The firm, part of an operation spanning more than 50 cities worldwide with over 3,000 lawyers, has offered to withdraw its application if the ministry agrees to suspend the code until its legality and constitutionality are determined by the court.

At the heart of the matter, argues NRFSA CEO Brent Botha, is not the opposition to “meaningful and sustainable transformation of the legal profession”. As he says in the court filing: “It is the height of irrationality to require immediate compliance with the Legal Sector Code in circumstances where full compliance is, quite literally, impossible.”

Firms stand to lose business

The stakes for law firms are high. A drop in BBBEE status from level one, which NRFSA has maintained for four years, to level six will prevent it from securing work with state entities. Private sector clients, especially banks and companies that need to earn BBBEE points by contracting with high-ranking firms, are also likely to shun them.

In its court papers, NRFSA highlights one example in which a drop to level six would cost it one private client contributing R10m in associated income in 2024. It also warns that foreign-owned firms operating in South Africa, which are not subject to the code, or competitors in accounting and consulting sectors not governed by the Legal Sector Code, could gobble up their market share.

NRFSA argues the legal code is backward-looking, so the BBBEE certificate it was granted in April last year will expire in three months. It also unjustifiably deviates too far from the generic codes and will cause “severe and irreparable” damage by imposing “targets that are unreasonable, impractical and unrealistic, given the nature of large law firms”.

By its calculations, between January and October last year, the firm spent R98.8m on suppliers that were recognised under the generic BBBEE codes, R42.3m of which was on vendors that were at least 51% Black owned. However, under the Legal Sector Code, R28.4m of this spend no longer qualifies.

Further, the new rules prohibit deductions for R26.1m spent on foreign suppliers, reducing the proportion of spending that qualifies under BBBEE calculations.

When the Legal Practice Council released the first draft of the Legal Sector Code in November 2020, followed by a second draft in March 2021, NRFSA – along with Bowmans, Cliffe Dekker Hofmeyr, ENSafrica, Webber Wentzel and Werksmans – raised concerns that the code’s departure from the generic ones was unnecessary and counter-transformative.

But by July 2022, the draft was gazetted without incorporating any of their submissions.

The ministry held consultations in March 2023, inviting feedback on revised drafts. However, NRFSA contends that no substantive changes were made, nor was its input considered. Botha’s affidavit argues that the drafters of the code failed to understand how law firms operate (an alarming oversight given that input was provided by many associations representing the industry).

For instance, the code punishes law firms for the purchase of legal services from advocates. These, as Botha points out, are not “procured by the law firm itself, but by its clients” – in other words, they’re out of its control. (That again is worrying, given that a representative group of advocates was involved in the drafting of the code).

What’s more, the new rules disproportionately emphasise legal practitioners in management, sidelining essential non-legal staff in finance, human resources and IT, who are critical to operations.

Black federation condemns challenge

In helping to draft the code, the Legal Practice Council also relied on studies that used outdated data, some going back as far as 2007. One of these studies surveyed only 5% of legal professionals working for big firms, NRFSA’s Botha points out.

That the code came into effect after the establishment of the government of national unity isn’t lost on the DA, but it has to pick its battles even though it is opposed to the concept of BBBEE, says Toby Chance, the DA’s spokesperson on trade, industry and competition.

Besides, the DA’s co-deputy minister in the DTIC, Andrew Whitfield, is frozen out of doing something because it falls outside of the portfolio delegated to him by the minister, says Chance.

For Kganki Matabane, the CEO of the Black Business Council, an umbrella body for professionals, associations and chambers, the legal action by NRFSA “must be condemned”.

“Opposing transformation is effectively arguing for the status quo – structural inequality to remain and to protect undeserved privileges,” he says.

He wants the DTIC, justice ministry and Legal Practice Council, which sets norms and standards for the industry, to defend the code so that Black lawyers and their firms can gain access to “lucrative specialised work” that has been “monopolised” by the large majority white-owned companies.

DTIC spokesperson Yamkela Fanisi tells Currency that the department hasn’t yet been able to “fully discuss” the matter due to other “more pressing” issues, and will comment as soon as it has been considered.

The minister of justice and constitutional development, Mmamoloko Kubayi, has instructed her “legal section to review the documents and advise on a suitable course of action”, says ministry spokesperson Terrence Manase. “We will also collaborate with the DTIC as necessary, given their role as first respondent.”

Other codes at stake

Pule Seleka, the chair of the Legal Practice Council, didn’t answer several calls to a number Currency had for him, or respond to WhatsApp messages. An email sent to the secretary for its council members didn’t get an immediate response either.

Paul Janisch, the owner of a BBBEE consultancy and a harsh critic of many of the policies introduced under Davies and the sector codes, believes other law firms will follow suit.

And he argues that a ruling in favour of NRFSA could set a precedent for other industry codes that have deviated extensively from the generic one.

These could include the marketing, advertising and communication sector code, and the codes for ICT, tourism, construction and defence, he says. One of the main issues is that submissions from different industries are frequently ignored, Janisch says. “It’s a feature in government.”

For many BEE critics, the case may serve as a long-awaited takedown of the ANC government’s consistent failure to acknowledge and consider business realities, despite the commendable aim of creating a fairer society. “They’re up against the biggest concentration of legal intellect in Sub-Saharan Africa,” says Janisch. “I can’t see how they’re going to win.”

This story has been updated with comment from the minister of justice and constitutional development.

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Vernon Wessels

With more than 20 years navigating global markets and billion-dollar bond deals, Vernon is a financial journalism heavyweight. As Bloomberg’s ex-South African bureau chief, he spearheaded African market coverage and mentored the next generation of finance trailblazers.

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