The state is in for a bruising legal battle over fishing rights, which could have far reaching, precedent-setting consequences for transformation, not only in the fishing industry but across the economy.

JSE-listed fishing company Oceana and its subsidiary, Blue Continent Products, are taking government to court, frustrated that its five applications over the past two years, seeking the transfer of fishing rights or quotas from third parties, are being declined or ignored by Marine & Coastal Management (MCM).

At the centre of their legal challenge is a transfer policy, effected last July, which states the minister in charge of MCM must approve every transfer. It also lays out the rules for the transfer of rights, placing importance on black ownership and management instead of the broad based socioeconomic impact.

The policy is trying to ensure that a 100 percent black-owned rights holder should sell its rights to another 100 percent black owned entity so as to not dilute the transformation. For example, if you're 80 percent black-owned, you can't transfer to a 70 percent black-owned company.

But Oceana is challenging this policy, saying it's unlawful, invalid and should be set aside. It argues that government is assessing transformation too narrowly - it doesn't use the broad-based black economic empowerment (BBBEE) codes of good practice. Elements of employment equity, preferential procurement, skills development, enterprise development, and socioeconomic development, which account for 70 percent of the weighting of the BBBEE scorecard, are excluded in the transfer policy.

Oceana is now a level 4 player with a BBBEE recognition of 100 percent in terms of the codes of good practice, and wants to be a level 3. But it is not considered transformed enough to acquire a fishing right from a 100 percent black-owned and managed company.

Quotas are used as a means of transformation in terms of the Marine Living Resources Act of 1998. "The aim was to move from a largely white-owned fishing industry to an industry that is largely black-owned. Huge progress has been made and government does not want to reverse those gains," says a lawyer.

The bottom line is companies want to source additional quota so they can catch more fish and be profitable. But for Blue Continent Products, the transfer policy means that it can never acquire quotas unless other black-owned companies were offered and declined those rights. That's because it's part of listed entity Oceana and will never be 100 percent black-owned.

The unintended consequence is that companies like Surmon Fishing, which is 100 percent black-owned and applied to transfer its rights to Blue Continent Products, cannot exit their investments when they want to.

Blue Continent Products director Sunil Ranchod says in court papers that MCM's "failure to determine applications in circumstances where it was legally obliged to do so" has been "damaging" to the future of the fishing business.

As a result many other companies have taken the view that they will transfer rights without seeking the department's permission. "By doing things the right way [seeking permission] we are prejudicing our ability to grow our business," says Oceana CEO Francois Kuttel "We have a number of deals hanging while we wait for approval."

For Kuttel what is most frustrating is that the transfer policy does not consider broader issues, like companies' contribution to job creation and sustained economic growth to fishing communities.

"This is a difficult business and no-one appreciates our contribution. We inject R30m/year in salaries and related payments in Lamberts Bay alone," he says. That's for a potato chip factory Oceana invested in to keep retrenched workers gainfully employed.

Oceana and Blue Continent Products are waiting for government to file an answering affidavit.