Ruling clears the way for CEF to set aside controversial oil sale contracts

A judgment in the Supreme Court of Appeal (SCA) has cleared the way for the Central Energy Fund (CEF) to pursue legal proceedings to set aside sales contracts for the sale of 10-million barrels of strategic oil reserves to various companies.

The case has its genesis in the review application brought in the high court by the state-owned national energy utility and its subsidiary, the Strategic Fuel Fund Association (SFF), against its own decisions taken in 2015 to sell the barrels at low prices to various companies.

Before the review application could begin, three of the companies — Contango Trading, Natixis and Glencore Energy UK — sought various documents that the CEF and the SFF referred to in their founding application. These were a “legal review”; two opinions from senior counsel; and two reports furnished by auditing firms KPMG and PwC.

The sale of the strategic stocks lies at the centre of much of the ongoing intrigue at the CEF. The stocks, which were held by the state to ensure energy security, were sold far below the prevailing market price and without the necessary permissions by the SFF. 

In its founding affidavit, the former CEF chair Luvo Makasi explained that then energy minister Tina Joemat-Pettersson, in June 2016, directed the CEF to conduct a “legal review” of all the contracts conducted by the fund over two years. The review was completed in December 2016. The CEF then engaged senior counsel for legal advice on the outcomes of the review.

The CEF and the SFF refused to disclose the requested materials, stating that the review was a legal process and that the opinions were privileged. This forced the three companies to bring applications to compel the production of the records.

The high court dismissed the companies’ applications and held that none of the three reports should be made available.

In the judgment passed on Friday, the SCA ruled that the CEF and the SFF should not produce the “legal review” and is also not required to produce the two legal opinions.

Judge Azhar Cachalia, who dealt with the question of the “legal review” and the two audit reports, held that reference to a “legal review” was not a reference to a document and was accordingly not liable to be disclosed.

On the KPMG and PwC reports, Cachalia held that the purpose for which these were obtained was unrelated to the claim of litigation privilege. He said the reports had been commissioned for the purpose of dealing with the financial and fiscal consequences of the disposal contracts being invalid and liable to being set aside.

In a separate judgment dealing with the issue of opinions obtained from legal counsel, judge of appeal Malcolm Wallis said the legal opinions are privileged and the CEF and SFF are not obliged to produce them.