East Rand Member District of Chartered Accountants and Another v Independent Regulatory Board for Auditors and Others

The first appellant is a voluntary association of chartered accountants, with the second appellant serving as its chairman. Approximately fifteen percent of members are registered auditors practising in small to medium sized firms, subject to regulation by the first respondent, the Independent Regulatory Board for Auditors (IRBA), a statutory body established under the Auditing Professions Act 26 of 2005. On 28 July 2016, the IRBA decided to introduce Mandatory Audit Firm Rotation (MAFR) after consulting stakeholders. The IRBA issued consultation papers and received comments from stakeholders including the appellants, who objected to the MAFR. Despite these objections, on 28 March 2017 the IRBA decided to introduce the final rule, which was promulgated on 5 June 2017 in Government Gazette No 40888, to take effect on 1 April 2023. The MAFR prohibited audit firms from serving as auditors of public interest entities for more than 10 consecutive financial years, with a mandatory cooling-off period of five years before reappointment. The appellants requested reasons for the decision on 22 September 2017 under PAJA, which were provided on 1 December 2017. On 29 May 2018 (179 days after receiving reasons), the appellants instituted review proceedings to set aside the MAFR. The high court dismissed the application on the basis of delay and lack of prospects of success.

• Whether the appellants unreasonably delayed in instituting the review proceedings under section 7(1) of PAJA
• Whether the promulgation of the MAFR was ultra vires the Auditing Professions Act 26 of 2005
• Whether the IRBA had the statutory power under sections 4 and 10 of the Act to promulgate the MAFR
• Whether the preceding policy decisions were ripe for review before the promulgation of the final rule

1. Leave to appeal is granted. 2. The appeal is upheld with costs, including costs of two counsel where employed. 3. Attorneys for both parties shall only recover from their clients 50% of costs associated with preparation, perusal and copying of the appeal record. 4. The high court order is set aside and substituted with: (a) The application succeeds with costs; (b) The Mandatory Audit Firm Rotation Rule as promulgated on 5 June 2017 in Government Gazette No 40888 is reviewed and set aside.

The binding legal principles established are: (1) Policy decisions by regulatory bodies are not ripe for review until they are implemented through a legislative instrument that has final effect and adverse consequences (applying Esau). (2) When reasons for an administrative decision are requested under section 5 of PAJA, the 180-day period for instituting review proceedings under section 7(1) commences from the date the reasons are provided, not from the date of the initial decision. (3) A statutory body exercising delegated rule-making powers may only prescribe rules on matters that the enabling legislation expressly permits or requires to be prescribed. (4) Section 10(1)(a) of the Auditing Professions Act confines the IRBA's rule-making power to prescribing standards of professional competence, ethics, conduct and auditing standards as set out in section 4 of the Act. (5) A rule that imposes broad restrictions on companies and audit firms regarding appointments, rather than prescribing professional standards, falls outside the scope of powers conferred by sections 4 and 10(1)(a) of the Act and is therefore ultra vires. (6) A regulatory body cannot rely on a statutory provision as the basis for its rule-making power if it did not rely on that provision when promulgating the rule or in its opposing papers during litigation.

The court made several significant obiter observations: (1) The IRBA's own delay of approximately 70 days in providing reasons after the request was made (from 22 September to 1 December 2017) contributed to any delay in instituting proceedings, and if time was of the essence, the IRBA could have provided reasons earlier. (2) While the reasons were provided on 1 December 2017, they amounted to no more than a regurgitation of what was conveyed in public notices preceding the publication of the MAFR. (3) The real effect of the MAFR would only be fully known or felt some 10 years from the date of its implementation (1 April 2023), which was relevant to assessing the reasonableness of any delay. (4) The court expressed strong displeasure at the preparation of an unnecessarily voluminous record of 15 volumes comprising 2633 pages, much of which consisted of reports and unnecessary material not required for adjudication, when the record should not have exceeded seven volumes. This echoed concerns expressed in previous cases about disregard for the rules in record preparation and the consequent costs to parties. (5) Both parties bore responsibility for the bloated state of the record. (6) Regarding the punitive costs claim, the court noted that many of the appellants' complaints about the IRBA's conduct had already been addressed by an earlier interlocutory order by Basson J granting costs on a punitive scale, and the appellants had abandoned a subsequent striking out application relating to other interlocutory disputes.

This case is significant for establishing important principles regarding: (1) the ripeness doctrine in administrative law - that policy decisions are not reviewable until implemented through legislative instruments; (2) the proper interpretation of statutory rule-making powers of regulatory bodies, confirming that such bodies cannot exceed the powers conferred by their enabling legislation; (3) the calculation of time periods under PAJA where reasons are requested - the 180-day period runs from when reasons are provided, not from the date of the decision; (4) the limits on professional regulatory bodies' powers to impose restrictions beyond prescribing professional standards; and (5) costs consequences for parties who contribute to unnecessarily voluminous court records. The judgment reinforces the principle from Fedsure that statutory bodies may not exercise powers not conferred by their enabling legislation and must act consistently with such legislation. It has important implications for professional regulation in South Africa and the limits of regulatory bodies' rule-making powers.