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Like diamonds, a mining company's liability for water pollution may be forever

October 2014

Acid mine drainage has been at the forefront of extensive debate, both in the media, and in various governmental and industry forums. Pollution, generally, of South Africa's water resources, seen as the life-blood of the country, has received extensive media coverage, and the public outcry, has been significant. The judgment of the Supreme Court of Appeal of South Africa in Harmony Gold Mining Company Limited v Regional Director: Freestate Department of Water Affairs (971/12)(2013) ZASCA206 (4 December 2013)( the Harmony Judgment), which seems to indicate that a mining company, even after disposal of mining operations by way of sale of business, and a sale of the surface of the land on under or which mining operations were historically conducted, cannot escape liability for past activities, has been heralded, by many commentators, as a step in the right direction.

At the same time, the judgment will no doubt be of concern to many mining companies that have disposed of their mining operations and, in some cases, vast surface holdings, historically. Typically, historical disposal transactions made provision for retention or transfer of liabilities to the purchaser or acquirer, and the seller/disposer was, subject to regulatory approvals, and the terms and conditions of the relevant agreements, entitled to accept that no further liabilities would flow from the transaction, with regard to historical environmental liabilities.

The Harmony Judgment seems to have changed this position. The Harmony Judgment must, however, be viewed in the context of the specific facts, leading to the appeal, to the Supreme Court of Appeal.

Various directives were issued by the Acting Regional Director of the Department of Water Affairs (the Regional Director) during 2005, in terms of section 19(3) of the National Water Act 36 of 1998 (the Water Act). The Harmony Judgment had to address a directive issued to Harmony and to other gold mining companies that undertook gold mining operations in the Klerksdorp-Orkney-Stillfontein-Hartebeesfontein (KOSH) area in the Northwest Province, namely AngloGold Ashanti Limited, Simmer & Jack Mines Limited, Simmer & Jack Investments (Pty) Limited, and Stillfontein Gold Mining Company Limited.

The directive issued in terms of section 19(3) of the Water Act (the Directive) required the gold companies to take anti-pollution measures in respect of ground and surface water contamination caused by their gold mining activities. Harmony had ceased to be engaged in mining operations in the KOSH area on 27 February 2008, and argued that because it no longer had any connection to the land in question, the Directive became invalid or unenforceable against it.

Historically, gold mining operations by a number of different gold mining companies had been undertaken in the KOSH area since approximately 1952. The extensive underground mining operations resulted in the mines in the KOSH area being linked underground. The interconnecting tunnels, shafts, mined out areas and natural fissures create a pathway through which the underground water flows from the aquifers into shallower mines, and shafts and from there into the deeper mines. The rock from which the gold bearing ore is removed contains pyrite (iron sulphide), which oxidises when exposed to oxygen. Sulphuric acid (also referred to as "acid rock" or "acid mine drainage") is formed when the iron oxide comes into contact with water and it creates acidic conditions that cause salt, iron and other heavy metals present in the mineral rock to dissolve in the water. The view is that the uncontrolled release of untreated acid mine drainage into the environment results in pollution of underground and surface water resources.

The Directive issued on 1 November 2005, to, among others, Harmony, recorded that the five mining companies "…are owners of land, persons in control of land, occupiers of land or users of land, on which mining activities or processes are or were performed or undertaken, or in respect of which on which a situation exists, which causes, has caused or is likely to cause pollution of a water resource…". The mining companies were directed to "…submit an agreement and a joint proposal towards the long-term sustainable management of water arising from mining activities in the KOSH area". Harmony was specifically instructed, in the interim, to take various steps, to extract and treat underground water, with the costs being shared, by the five mining companies. Essentially, the Directive required the gold mining companies to manage, collect, treat and use or dispose of subterranean water that might affect the current and future operations of mines in the KOSH area and to share the costs of taking the measures equally.

Historically, African Rainbow Minerals Gold Limited (ARMGold) used to own land on which it operated shafts at its Vaal River operations at Orkney in the KOSH area. Harmony acquired the issued share capital of ARMGold during September 2003. It thereafter managed the gold mining operations of ARMGold at Orkney. ARMGold however retained ownership of the land. On 29 August 2007, ARMGold entered into a sale of business agreement with Pamodzi Gold Orkney (Pty) Limited (Pamodzi) in terms of which Pamodzi acquired the entire gold mining business and land of ARMGold in the KOSH area, and it assumed all of Harmony's obligations, including those arising from the Directive, in respect of the mining operations at Orkney. The sale became unconditional and was implemented on 27 February 2008 when Harmony ceased to manage those mining operations. Pamodzi was provisionally liquidated on 20 March 2009 and subsequently placed under final liquidation.

The key elements of Harmony's argument before the court, was that the Directive, remained valid only for so long as the person to whom it was issued, owns, control, occupies or uses the land in question. Harmony argued that this was clear from the provisions of section 19(1) of the Water Act, and that, on disposal, it was no longer a person contemplated in section 19(1) of the Water Act. The argument was based on the disposal of the land in question to Pamodzi, as from 6 January 2009, when the land was transferred to Pamodzi, and it ceased to be a land owner as contemplated in section 19(1) of the Water Act, on this date.

The court rejected Harmony's argument in this regard, and found that the powers vested in the Minister by section 19(3) of the Water Act, were wide-ranging powers, and that the Minister could direct any person who failed to take the measures required under section 19(1) of the Water Act, to take specific measures, including remedying the effects of the pollution, and that the powers vested in the Minister in terms of section 19(3) included the issuing of a Directive, to a person, who historically fell within the parameters of section 19(1) of the Water Act, and that the Minister's powers could not be restricted to the circumstances where the person was an existing land owner or person in existing control of the activities. The court held that a failure to comply with the provisions of section 19(1) of the Water Act, historically, vested the Minister with the power to issue directives in terms of section 19(3) of the Water Act to the person, even though the person may no longer be the land owner or in control of the mining operations on the land.

In coming to the conclusions that it did, the court relied significantly on the constitutional imperatives in section 24 of the Constitution, the purpose of the Water Act, and the general principles contained in the National Environmental Management Act, 1998.

The court, in rejecting Harmony's appeal, in essence determined that, despite the disposal of the business as a going concern, and the sale of the land, to Pamodzi, Harmony remained liable for compliance with the Directive.

Unfortunately, the judgment does leave a number of questions unanswered. Firstly, it does not specifically address the circumstances where the disposal is by way of an acquisition of the shares, in the company, which conducted the mining operations and/or which was the owner of the surface. Secondly, the court did not specifically address Harmony's argument on appeal that the Directive, by implication, came to an end when it became clear that the agreement between the gold mining companies, required in terms of the Directive, could not be reached. Thirdly, Harmony contended, on appeal, that on its own terms, the Directive was not envisaged to operate against a "non-land holder", and that the Directive ceased to have effect in relation to Harmony, when Harmony severed its ties with the land.

In response to this argument, while the court held that, in its view, the argument had no merit, it stated "in any event, Harmony has thus far complied with its obligations arising from the Directive even though it had not been the land owner since 27 February 2008." This seems to be a situation of "damned if you do and damned if you don’t". Had Harmony simply ceased to manage and treat the water, it would no doubt have been criticised.

The judgment also raises the interesting question of why the court focused on Harmony, when there was a predecessor in title to Harmony, when it acquired the shareholding in ARMGold, and why Pamodzi, did not feature. With regard to Pamodzi, one can only assume that the court was well aware of the status of Pamodzi (in liquidation), and realised that any attempt to place liability, on Pamodzi would be fruitless.

For now, it seems that, like a diamond, liability for historical water pollution may be forever, and that the Minister has the discretion to pick and chose where continued liabilty will lay, going forward.

The team

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