Business Law & Tax (September 9 2024)

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BUSINESS LAW & TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Managing ugly face of fashion

• Excess production of clothes has to be reined in by legislation

The fashion industry’ s battle between profit, people and planet has reached the international stage

Legislative regulation has entered the arena and is taking different forms across nations The impacts are obvious: mounting textile waste in the Global South, ongoing garment worker exploitation and unfair competition for local industries which threatens economic stability

Locally, consumers have expressed dissatisfaction with the SA Revenue Service’ s (Sars) announcement, in reaction to the request by the retail-clothing textiles, footwear and leather sector (RCTFL), that clothing imported through e-commerce platforms such as Shein and Temu will attract VAT from September 1 2024, and full customs duties of 45% from November 1 2024

This type of government reaction is not limited to SA, as countries clutch at tax systems to protect local

industries from alleged affordable fast fashion Customs duties are imposed on certain imported goods to protect specific local industries and to generate funds for the government

Following a global increase in trade in smallvalue goods primarily transported through courier and express mail services, in early 1990 the World Customs Organisation published guidelines for the immediate release of consignments by customs (immediate release guidelines) to expedite the clearance of such goods

The immediate release guidelines provided a basis for Sars’ implementation of a concession imposing a flat rate of 20% in custom duties on items valued below R500 and exempting such items from the payment of VAT

Since the 1990s e-commerce platforms have expanded

CUSTOMS DUTIES ARE IMPOSED ON CERTAIN IMPORTED GOODS TO PROTECT SPECIFIC LOCAL INDUSTRIES AND TO GENERATE FUNDS

exponentially, leading to increased imports of “small” value goods, including fast fashion items

Sars’ concession does not apply to manufacturers and retailers in the local RCTFL industry, which pay full customs duties and VAT on the importation of high-volume and high-value consignments The Sars concession applied to “small” value goods has perpetuated the notion that fast fashion is afford-

able” , and has resulted in an unfair advantage for e-commerce platforms to the detriment of our local RCTFL industry The Sars commissioner has estimated that these loopholes and the increase in global e-commerce trade has resulted in tax losses of R3 5bn

The latest trend catching the attention of the EU is the extended producer responsibility (EPR) scheme for textiles An EPR mechanism

aims to hold producers, and often importers, brand owners and in some instances retailers responsible for the entire life cycle of a product

The ultimate goal is a “cradle-to-cradle” instead of a “cradle-to-grave” fate for products included in the EPR scheme The shift from a linear production to a circular one is supported through levies to ensure proper disposal and, preferably, recycling and upcycling of products as well as incorporating technology and design into production to avoid waste The EPR levy is a type of tax, paid to the entity managing the recycling and disposal of the regulated product

FRENCH SCHEME

Although Italy, the Netherlands and Sweden have recently implemented or started implementation of EPR schemes for textiles, France, a trail-blazer in the fashion world, started its EPR scheme for textile products, household linen and footwear in January 2007

The French EPR scheme for textiles charges between €0 01 and €0 06 per clothing item and, sadly, these measures have not been enough to curb overconsumption for various reasons, including the lack of infrastructure required to recycle and upcycle the collected clothing

Perhaps the failings of the French EPR system will contain lessons for future schemes or the design of new legislation

In this regard, and to protect the French clothing industry, new laws have been proposed including an approved bill with a mechanism to evaluate fashion

LOOPHOLES AND THE INCREASE IN GLOBAL E-COMMERCE TRADE HAS RESULTED

IN TAX LOSSES OF R3.5BN

companies with an eco-point system and levy €5 and up to €10 per clothing item by 2030 if a low score is achieved The score will be displayed on clothing items to deter fast fashion consumption entirely or, at least, to limit it

Of course, criticism has been noted, especially with recent reports of unfair working conditions for those producing for the luxury clothing sector Profit takes centre stage no matter the label, but the message from governments collectively is clear: overproduction, overconsumption and the ugly impact of fashion have to be managed through legislation

MATERIAL GAINS
/123RF SEREZNIY

BUSINESS LAW & TAX

LATERAL THINKING

SA and the greylist blues

• Government must step up and be counted for the country to be removed from the list

Is SA doing enough to get off the dreaded greylist as early as next year?

Both the finance minister and National Treasury have highlighted progress in the past year and have said SA is on track to be removed from the list by June 2025, nearly two-and-a-half years after the initial black mark against the country’ s name

The greylist is not a good place to be for an emerging market desperate for foreign

investment It raises the cost of doing business, scares potential investors away and also damages your global standing

However, I have heard that the government is engaging the Financial Action Task Force (FATF) to keep it updated on progress, which is positive

The FATF, which sets

global standards for combating money laundering and terrorism financing, initially placed SA on the watchlist for numerous deficiencies in its anti-money laundering and terrorist financing rules

The next few months are of utmost importance as SA must implement the necessary changes to address all 22 Action Items These changes must be in place before the FATF plenary in February 2025, a pivotal event where the FATF will assess whether SA has adequately addressed the identified deficiencies

Following this, the FATF will conduct an onsite visit in April/May 2025 to confirm the assessment and recommend to the June 2025 FATF plenary regarding SA’ s removal from the greylist

What steps have been taken?

Well, they all look good on paper The General Laws

Carbon taxes likely to hike clothes prices

The European Commission has promulgated an amendment to the Waste Framework Directive resulting in the EU Textile EPR Directive, which requires all EU member states to introduce a mandatory and uniform extended producer responsibility (EPR) scheme for textiles [The collection system must be in place by January 2025 ]

Criticism of the directive notes that it aims to ensure profits for recycling rather than dealing with the problem: overproduction and overconsumption of clothing

such as Ghana, to assist with the management, recycling and disposal of the secondhand clothing exported there Ghana has the world s largest second-hand clothing market, Kantamanto Market

The directive includes a ban on illegal export of textile waste but misses the fact that second-hand clothing exporting is allegedly carried out legally Reports have indicated that donating secondhand clothing to the Global South is currently cheaper than recycling and/or disposing of the textile waste in the consuming country

(Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, kicked off in 2023 to address the slide The act introduced a sweeping range of integrated reforms to five pieces of legislation which regulated vastly different areas of concern trusts; nonprofit organisations; companies; and matters concerning the Financial Intelligence Centre

Amended legislation included the Trust Property Control Act; the Non-profit Organisations Act; the Financial Intelligence Centre Act; the Companies Act; and the Financial Sector Regulation Act

Yet it is concerning that the Financial Intelligence Centre recently complained of a certain level of “wilful noncompliance” by legal practitioners, estate agents, trust service providers, company service providers and

casinos, where the average return rates of the required risk and compliance information is only about 63%

This is despite these business sectors being the most vulnerable This noncompliance threatens SA’ s efforts to exit the greylist and combat corruption

However, the most pressing challenge remains SA’ s apparent failure to combat terrorism financing This is not just a matter of lax legislation and poor policing but a critical issue that demands immediate attention The government’ s current focus on a few small law firms and estate agents many of

SA MUST TAKE URGENT ACTION AGAINST ANY GROUPS WITH LINKS

TO TERRORISM

which are already up to their eyeballs in red tape may be diverting attention from this larger problem

Simply put, SA must take urgent action against any groups with links to terrorism, and this commitment will need to see far greater emphasis on legal action against everyone involved in the “financing” chain

The days of accepting funds from friends with dubious backgrounds and even more sinister intentions, political, religious or otherwise, must end

This is the area of the greylisting where government must step up and be counted If it does not, hopes of getting off the list will be pushed out again, making SA a longer-serving malcontent than countries such as Botswana Morocco, Mauritius and Zimbabwe all of which are already off the list

GOING OUT OF FASHION?

Interestingly, the OR Foundation has proposed that a portion of the EPR levies collected are provided to countries in the Global South,

While textile waste is growing in SA, the issues are unique and centre on protection of the retail clothing textile footwear leather (RCTFL) industry against the influx of alleged affordable clothing

It is hoped that the increase in custom duty and VAT for small clothing imports will level the playing fields for our local industry However, perhaps a novel solution for SA is necessary before the piles of textiles become a serious problem Could an EPR scheme assist in the RCTFL industry?

In SA, the paper and plastic packaging, lighting and electronic and electrical goods, and portable battery sectors are regulated by the National Environmental Management: Waste Act, 2008 read with the Extended Producer Responsibility Regulations, 2020

The implementation of the EPR regulations is not with-

• Climate Change Act has implications for costs incurred in energy, logistics, transport and packaging IT IS HOPED THAT THE INCREASE IN CUSTOM DUTY AND VAT FOR ‘SMALL’ CLOTHING IMPORTS WILL LEVEL THE PLAYING FIELDS

out difficulty and, more recently, the department of forestry, fisheries & the environment has started administrative proceedings for companies that have not yet at least registered in terms of the EPR regulations

The existing EPR regulations apply to a broad number of parties, including those that import identified products However, to the extent the producer of the product that is imported is not registered in SA, the agent or retailer is responsible for the implementation of EPR regulations In the case of an e-commerce platform, this is likely to provide a legal gap

Perhaps SA could incorporate the new legislation being developed in France, with relevant localisation that is, the requirement for

international e-commerce platforms to include the EPR levy on the cost of the clothing item, which will be for the consumer s purse

Co-operation with ecommerce platforms may be difficult Perhaps the EPR levy could be applied in addition to the custom duty and VAT at the border?

With a focus on sustainability and the promulgation of the Climate Change Act, we can expect clothing prices in SA to increase in the near future with the carbon tax Most significant is the indirect impact of carbon taxes on energy and logistical costs such as electricity usage at retail outlets or distribution and warehousing facilities

Logistics costs will be affected in relation to transport use such as aviation and

shipping, while packaging costs may also increase as glass and paper manufacturers tend to be emissions intensive

Textiles and clothing are included as an identified industry The increase in manufacture of textiles and clothing in SA is a focus of government with the 2030 RCTFL Master Plan, signed by the department of trade, industry & competition, industry organisations and leading retailers

However, the master plan has been criticised for a lack of focus on sustainability in the industry The carbon tax and impending sectoral emission targets may provide a basis for manufacturing to reduce the emission of greenhouse gases in an effort to decarbonise the industry

BUSINESS LAW & TAX

Navigating the legalities of web scraping

• It is not illegal in SA, but a thorough understanding of the applicable laws, such as Popia, is needed

Web scraping, the automated process of extracting large amounts of data from websites, has become an indispensable tool for businesses, researchers and developers

It allows for the aggregation of information on a scale that would manually be impossible, powering applications such as price comparison tools, sentiment analysis, content aggregation or distribution, and competitive market research

However, as web scraping has evolved, so too have the legal and ethical challenges surrounding its use This article discusses the legal risks, considerations and potential consequences associated with web scraping under SA

law Web scraping is not illegal in SA; however, the legality of web scraping depends on the nature of the content accessed and how it is used

COPYRIGHT AND TRADEMARK

The content on a website is often protected by copyright, and scraping data could infringe on the copyright holder's rights

The Copyright Act protects, among others, literary works (which includes tables and compilations, including tables and compilations of data stored or embodied in a computer or a medium used

A PERSON INVOLVED IN WEB SCRAPING MUST BE CAREFUL TO AVOID INFRINGING ON INTELLECTUAL PROPERTY RIGHTS

in conjunction with a computer), broadcasting scripts, music, sound recordings and a computer

In SA, the legality of web scraping depends on the nature of the content accessed and whether the intended use would constitute a copyright infringement under the Copyright Act

Using certain logos or names on a website may also result in a trademark infringement

A person involved in web scraping must be careful to avoid infringing on intellectual property rights, which could result in significant legal penalties

DATA PROTECTION AND PRIVACY

An unintended consequence of web or data scraping is the potential collection of personal information In SA, this triggers the application of the Protection of Personal Information Act, 2013 (Popia)

CONTENT CONUNDRUM

Processing personal information without a lawful basis is against the law and constitutes an infringement of Popia Persons engaging in web scraping must implement strict measures to ensure that no personal information is inadvertently collected during their activities, because noncompliance with Popia can lead to severe penalties, including fines and imprisonment

BREACH OF WEBSITE TERMS AND CONDITIONS

Most websites have terms and conditions that explicitly outline the permissions or prohibitions regarding web and data scraping If scraping activities violate these terms, the website owner may block access to the site or take legal action, such as obtaining an interdict to stop the activity or filing a lawsuit for damages

It is essential to review and understand the terms and conditions of any website

before engaging in data scraping to avoid potential legal disputes

CYBERCRIME AND SECURITY MEASURES

Under the Cybercrimes Act, activities such as unlawful access to data, unlawful interception of data, and circumventing security measures are considered cybercrimes Techniques that bypass a website’ s security features, such as breaking digital locks or using deception, could be deemed unlawful

Although the circumvention of security measures has not yet been definitively tested as a cybercrime under SA law, one should exercise caution and avoid any actions that could be construed as unauthorised access or interference with a website’ s operations

Based on the above it is clear that web scraping presents a complex array of legal

challenges To navigate these issues effectively, one must have a thorough understanding of the applicable laws and ensure that their activities comply with legal requirements

This includes conducting comprehensive legal reviews before engaging in web scraping, implementing safeguards to prevent the collection of personal information, and respecting the terms and conditions of websites

EVOLVING

As the legal framework continues to evolve, particularly in data protection and cybercrime, staying informed and vigilant will be crucial for those looking to legally leverage the power of web scraping in SA

Proactive legal compliance not only mitigates the risk of legal repercussions but also allows for continued innovation and legal, safe use of web scraping

Employer’ s salary obligations in spotlight

Most labour rights, including contractual rights, are enforceable between employers and employees But in today’ s economy, proving the existence of an employment relationship can be complicated

This was demonstrated yet again in the recent case of Nieftagodien v Yikusasa Building Contractors (Pty) Ltd [2024] JOL 63745 (LC)

Nieftagodien had been employed as a clerk of works (CoW) by Mtawelanga MCC, a company contracted to carry out a building project for the Eastern Cape s department of public works (DPW) His contract was for the duration of the project and stated that it was for payment purposes only

The effect of this term is unclear, since Nieftagodien was clearly appointed for the purpose of performing his contractual duties, and his contract must have triggered all the terms implied by com-

mon law that were not excluded, including the employer’ s duty to pay remuneration

However, the clause went on to state that Nieftagodien would “report to the principal agent (ie Matrix Urban Designers & Architecture (MUDA) appointed by the DPW to represent its interests) The reason for this was that a CoW must be completely independent in ensuring a contract is carried out according to specifications

In essence, therefore, Nieftagodien was performing quality control on behalf of PWD His role could be compared to that of a compliance officer employed to ensure the employer is meeting the applicable rules and norms It is therefore his contractual duty to exercise his judgment independently

The problem started when Mtwalenga ceded its contract with the DPW to the respondent, YBC However, YBC did not recognise Nieftagodien as its employee, although it did

agree to serve as a “platform” for the payment of his salary out of funds received from the DPW

Then, in April 2019, payments by the DPW and, with it, Nieftagodien s salary came to an end Nieftagodien s claim in the present matter was for payment of his arrear salary for the final 10 months of the contract from YBC on the basis YBC had taken over as his employer

This claim was based purely on the breach of his employment contract The issue, therefore, was simply whether there was an employment contract between him and YBC

The labour court found there was not First, it held Mtwalenga s cession of the DPW contract to YBC was not a business transfer in terms of section 197 of the LRA Second, there was no agreement as to the transfer of Nieftagodien s employment contract from Mtwalenga to YBC

This was really the end of

the matter However, the court went on to find that it must consider the realities and substance of the parties relationship in order to determine whether it was an employment relationship (as opposed to an employment contract) between them

The labour appeal court, it noted, has set out three key criteria for identifying an employment relationship in the broader sense:

● The employer s right of supervision and control;

● The employee s integration into the employer s organisation; and

● The employee s economic dependence on the employer

But, even on this broader inquiry, the outcome was inconclusive

First, Nieftagodien did not work under the control of YBC He served as the eyes and ears of the principal agent , which required him to be independent of YBC in order to supervise its work Second, Nieftagodien was not economically dependent on

YBC, since the DPW was the source of his salary and YBC merely paid it over Third, he did not form part of the structure of YBC’ s business

The court accordingly concluded that Nieftagodien was not an employee of YBC and, on this basis, dismissed his claim The court also noted that it was not required to decide whether Nieftagodien was an independent contractor or whether he was employed by any other person

The uncertainty in which Nieftagodien was left could not have been greater On the one hand, he had performed his duties in terms of his contract of employment for a period of 10 months for which he had not been paid

On the other hand, there appeared to be no employer from which he could recover his unpaid salary

The basic facts can be summed up as follows:

● Nieftagodien s contract of employment was with Mtwalenga

● It was not transferred to

YBC

● Mtwalenga transferred its contract with the DPW to YBC, which presumably included the duty to appoint a CoW

● There is no evidence that YBC did so, since Nieftagodien (appointed by Mtawelanga) continued in that role

● Mtawelanga s transfer of its contract with PWD did not relieve it of its contractual relationship with Nieftagodien

Nor did the fact that Nieftagodien was required to perform his duties independently of YBC s control make him an independent contractor

No doubt, an independent contractor could serve as a CoW, but in the present case that did not happen In essence, an independent contractor is a person conducting a business independently of the employer There was no evidence that Nieftagodien did so This means Nieftagodien remained an employee of Mtwalenga, which remained liable for payment of his salary

/123RF HSTRONGART

BUSINESS LAW & TAX

IP management made simple

• Tips and tricks: an in-house counsel’ s guide to protecting your company ’ s intellectual property

The responsibility for the management of an intellectual property (IP) portfolio for any business is a daunting task For that reason, many entities create a dedicated position within their broader legal team to oversee and safeguard their IP

Having been thrown into this role myself in my career, I have compiled a list of a few tips and tricks which may stand you in good stead on your first day on the job as inhouse counsel, tasked with protecting your company ’ s IP:

● Know the business

Understand which types of IP your company generates For instance, does your company produce pharmaceutical products or create manufacturing methods for which patents, know-how and trademarks all feature? Or is the FMCG sector primarily the field in which your company operates, in which trademarks and copyright in packaging are the name of the game? Understanding the nature of the goods/services which your company offers is the first step to knowing what to protect

● Perform an IP audit/due diligence An IP audit is a thorough review and analysis of a business’ s IP assets The purpose of an audit is to

assess the value and potential risks associated with a business ’ s IP portfolio Once you have a clearer understanding of the nature of the IP owned by your business, you will be better placed to draft a meaningful and realistic IP budget

● Draft an IP budget An IP budget is a financial plan that outlines the projected expenses associated with managing, protecting and enforcing a company ’ s IP assets Typically, the costs would include filing and reg-

FOSTERING A STRONG CULTURE OF IP AWARENESS THROUGHOUT YOUR COMPANY IS ONE OF YOUR KEY RESPONSIBILITIES

istration fees, maintenance fees, enforcement and litigation costs, licensing and royalties, monitoring and surveillance, and training and education An effective IP budget would help your company to allocate resources strategically, prioritise key initiatives and ensure that the IP assets are managed effectively while optimising cost-efficiency

● Get buy-in from the broader leadership team A company ’ s leadership team needs to understand why an effective IP budget will lead to

revenue growth It is important to educate your team on the return on investment (ROI) of IP assets and create a common goal to work towards This can be achieved by providing training on the value of IP, demonstrating how IP initiatives align with the company ’ s business goals and strategy, quantifying the ROI of IP by presenting data and case studies, highlighting the risk of inaction associated with neglecting or undervaluing IP and developing a comprehensive business case for specific IP initiatives (outline costs, benefits, risks and timelines)

● Establish an IP management framework An IP management framework is a structured set of guidelines that an organisation follows to identify, protect, manage and exploit its IP assets It includes policies, procedures and practices designed to maximise the value of IP within an organisation It is important for you to establish clear policies and procedures for the creation, protection and management of IP assets

Define roles and responsibilities for IP management, separating the components of IP, including IP creation, filing, enforcement and compliance and assigning a dedicated person to each role

● Risk management Naturally, overseeing the overall IP portfolio of your company will both come with its bene-

fits and risks Risk management means assessing potential hazards and deciding on the most effective ways to deal with them A serious risk that may be encountered with IP is accidentally infringing a third party’ s rights while conducting business There are, however, several other IP risks to consider, each of which may take a different form, for example: employees using mobile devices containing company secrets; important product developments not being adequately protected; narrowly defining IP and overlooking valuable assets; and counterfeit products entering the market You will need to develop strategies for protecting IP assets, including filing applications for patents and trademarks, and taking transfer of and safeguarding copyright, as necessary In addition, you will need to implement measures to safeguard trade secrets and confidential information, such as nondisclosure agreements

CONSUMER

and access controls Implementing systems for monitoring and detecting potential infringement or misuse of IP assets and developing protocols or enforcing IP rights is also crucial ● IP training/education Fostering a strong culture of IP awareness throughout your company is one of your key responsibilities You play a vital role in creating and implementing continuous professional development programmes for inventors and stakeholders across relevant departments For instance, R&D teams need to be coached on identifying patentable inventions and following proper documentation procedures, as well as the risks of premature or inadvertent disclosure prior to protection being obtained Similarly, marketing and brand representatives should be informed about projecting the company s brand identity effectively in the market Regularly reviewing everyone s contribution to rein-

forcing the overarching IP strategy will benefit the entire enterprise ● Outside counsel Should you find is necessary to use the services of outside law firms to manage your IP portfolio, it is strongly recommended that you engage the services of attorneys who are experts in their field Experienced IP attorneys can play a critical role in protecting, maximising and strategically managing IP assets, ultimately contributing to the organisation’ s success and competitive advantage Safeguarding your company ’ s IP is a multifaceted task that requires careful planning, strategic thinking and proactive management An in-house counsel tasked with this responsibility holds a pivotal role in ensuring the protection and optimisation of your company s IP assets By following the tips and tricks outlined above, you can navigate the complexities of IP management with confidence

Smart regulation needed to light up growth

The idea of a regulatory landscape that encourages innovation, investment and growth will be mouthwatering for businesses and a welcomed step forward for everyone who cares about the regulatory burden on our GDP

Guidance along this path can be obtained from the May 2024 UK policy paper on that subject The UK government has recognised that the impact of red tape on the GDP could be as high as 3% to 4% (£70bn) and that the regulatory landscape is too complicated, slow and burdensome to achieve its purpose The three key levers for smart regulation are a change in culture and mindset across regulators to ensure they deliver a world-

PAT R I C K B R AC H E R

class service to society, setting strategic directions and outcomes for regulators, and for the government to lead by example This requires the adoption of a service mindset

Helpfully, the policy paper sets out guiding principles of smarter regulation Regulations require clear guidance to consumers and businesses, transparent communication with stakeholders of the reasons for the decisions made, and accountability for these

decisions

Regulators need to balance risks when making decisions and avoid excessive risk aversion in favour of delivering the best outcomes Regulations must be applied proportionately to avoid unnecessary costs, which is particularly important for small businesses, and must be strictly necessary and in line with regulatory best practice

A pro-innovative approach is needed to encourage emerging technology and new business processes unless they are proved harmful

The workforce must have the time and experience available to tackle the challenges of tomorrow Where possible, regulators must act together so that businesses and citizens do

not need to interact with multiple regulators in their ordinary course of business

A collaborative, responsive and timely engagement with businesses and citizens, with clear explanations, are important for enforcement and awareness of business imperatives Where possible, a permissive approach allowing businesses to run their day-to-day activities unburdened by regulatory intervention may be appropriate

Regulators need to ensure a skilled and capable workforce The corollary of elaborate and complicated regulations is that the regulatory workforce is unable to keep up to date themselves, and changes in staff set back the efficiency and timing of regulatory

response

A clear understanding is necessary as to how regulations are applied and felt by businesses and consumers

There are very good reasons why, in SA, the fair treatment of customers has to be jealously guarded It should not be guarded at the total expense of innovation, investment and growth

There are many examples worldwide where the reduction of the regulatory burden produces an inflow of innovative business Singapore, and Delaware as the centre for company

REGULATORS NEED TO BALANCE RISKS WHEN MAKING DECISIONS

law governance, are examples that immediately come to mind

The Promotion of Administrative Justice Act allows a court to set aside regulations if irrelevant considerations are taken into account or relevant considerations are not considered If we had government policy similar to the proposed UK policy, regulations could be tested against the important principles of innovation, investment and growth

None of this is anything other than stating the obvious, but unfortunately the obvious is hidden from view by the overgrowth on the legislative landscape

● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright

BUSINESS LAW & TAX

Sahpra takes a step in the right direction

• Medicines regulator issues new draft BBBEE policy for the issuing of licences and concessions

On July 5 2024, the SA Health Products Regulatory Authority (Sahpra) issued a communication to industry stakeholders in relation to its revised broad-based BEE (BBBEE) policy document

The policy document relates to the issuance of licences pursuant to section 22C(1)(b) of the Medicines and Related Substances Act No 101 of 1965 in an effort to align with the transformative BBBEE principles enshrined in the BBBEE Act No 53 of 2003 Sahpra is an organ of state and a public entity As such, it is required to align itself with the provisions of section 10(1)(a) of the BBBEE Act,

which provides that “[e]very organ of state and public entity must apply any relevant code of good practice issued in terms of this act in determining qualification criteria for the issuing of licences, concessions or other authorisations in respect of economic activity in terms of any law”

THE CURRENT DRAFT BBBEE LICENCE POLICY DOES NOT AFFECT THE REGISTRATION PROCESS FOR MEDICINES AND MEDICAL DEVICES

The Medicines Act provides for the monitoring, evaluation, regulation, investigation, inspection, registration and control of health products, scheduled substances,

clinical trials and related matters in the public interest

Section 22C(1)(b) of the Medicines Act authorises Sahpra to issue licences that enable medical device/ in vitro diagnostic establishments, manufacturers, wholesalers and distributors to manufacture, import, export, distribute or wholesale medicines, scheduled substances, and/or medical devices as the case may be Sahpra’ s current draft BBBEE licence policy is aimed at encouraging persons who apply for licences in terms of section 22C(1)(b) of the Medicines Act to comply with the BBBEE Act, in an effort to achieve broad-based and meaningful participation in the economy

In April 2023 Sahpra published a BBBEE policy for the issuance of licences as per section 22C of the Medicines Act, which provided for its implementation to occur over two phases

The first phase contemplated Sahpra requiring applicants to submit their BBBEE level certificate when applying for a section 22C(1)(b) licence Sahpra would then verify the applicant’ s BBBEE level status If an applicant failed to submit their BBBEE level certificate or if such a certificate could not be verifiable, Sahpra would not issue a section 22C(1)(b) licence to such applicant

The second phase of implementation then used the relevant applicant’ s BBBEE level to review and issue such licences

The current draft BBBEE licence policy has changed the abovementioned position The first phase of implementation of the current draft BBBEE licence policy does not prevent applicants who have failed to submit their BBBEE level certificate or whose certificates are not verifiable from obtaining a

TAXING MATTERS

section 22C(1)(b) licence

Failure to comply with the current draft BBBEE policy does not dispossess applicants of their licences, nor does it automatically render their application unsuccessful but it does place them at the “back of the line” as the applications of those that have met the BBBEE criteria will be prioritised

It is key to note the current draft BBBEE licence policy does not affect the registration process for medicines and medical devices

Further, it does not cover matters pertaining to employment equity and preferential procurement

The current draft BBBEE licence policy simply seeks to ensure the pharmaceutical industry moves towards developing BBBEE sector codes and/or criteria similar to what has been successfully implemented in other sectors of the economy

Although the current draft

BBBEE licence policy still contemplates its implementation process following two phases, the outcomes of the phases have been amended to reflect Sahpra’ s revised position with respect to the current draft BBBEE licence policy

Notably, the current draft licence policy provides that Sahpra will use the information gathered from applicants to understand the industry landscape and inform the development of criteria to be applied in a future policy document

Accordingly, the development of a sector code/criteria will consider the information/lessons gathered about the industry landscape in phase one, in which consultation with relevant stakeholders shall take place in phase two

The current draft BBBEE licence policy was open for submissions and comments until September 9

Tax and interest paid on money borrowed

Bradley Zebert, Estian Haupt & Leonard Willemse AJM Tax

One of the requirements to qualify as a deduction in terms of section 11(a) of the Income Tax Act No 58 of 1962 is that the expenditure in question must be incurred in the carrying on of any trade

The term trade is not defined in the act, but has been held to require a taxpayer to take active steps, being something more than watching over existing investments that are not income-producing and are not intended or expected to be so With reference to interest paid and interest earned, Practice Note 31, dated October 3 1994, clearly states that interest paid to borrow funds for purposes of on-lending such funds at a higher rate complied with the trade requirement

However, where a person (not being a moneylender) incurs expenditure to passively earn interest on surplus funds (for example, taking out a loan and investing it to earn interest), a trade may not be present In these circumstances, Practice Note 31 confirmed the SA Revenue Service s (Sars) treatment that such expenditure would be allowed as a deduction to the extent that it does not exceed such income

On November 16 2022

Sars indicated its intention to withdraw Practice Note 31 for years of assessment commencing on or after March 1 2023 In other words, the administrative concession made by Sars would fall away Following public representations, the National Treasury proposed the introduction of section 11G into the act, effective for years of assessment commencing on or after January 1 2025 On August 1

2024, the Treasury published the Draft Taxation Laws

Amendment Bill, 2024 with no further proposed amendments to section 11G of the act To coincide with the effective date of section 11G of the act, Practice Note 31 will be withdrawn effective for years of assessment commencing on or after January 1 2025

Section 11G – Deduction of expenses incurred in the production of interest

The initial version of the proposed section 11G of the act was much more limited than Practice Note 31 in that it applied only to back-to-back lending arrangements in a group of companies In the draft response document dated October 25 2023 it was confirmed that the withdrawal of Practice Note 31 should not adversely affect business funding As a result, the proposed section 11G was expanded to apply to any person who incurs interest

expenditure in the production of interest income (limited to interest income) In terms of the final version of section 11G (due to come into operation for years of assessment commencing on or after January 1 2025), interest (as defined in section 24J) incurred shall be allowed as a deduction to the extent that it is (i) incurred in the production of interest that is included in the income of that person and (ii) not incurred in carrying on a trade The deduction will be limited to the interest income by or accrued to the taxpayer

Although section 11G of the act appears to apply

similarly to Practice Note 31, there is one major difference in that Practice Note 31 was not limited to interest incurred Rather, Practice Note 31 applied to any expenditure incurred in the production of interest

Under section 11G of the act, however, only interest (as defined in section 24J) incurred will be allowed as a deduction Among other things, section 24J of the act defines interest to include the gross amount of any (common law) interest or similar finance charges, discounts or premiums payable or receivable in terms of or in respect of a financial arrangement

It is, therefore, possible that expenditure previously allowed as a deduction under Practice Note 31 will no longer qualify as a deduction under section 11G of the act

TAKEAWAY FOR TAXPAYERS

Although the withdrawal of

Practice Note 31 coincides with the introduction of section 11G of the act, it is important for taxpayers to reconsider any deductions claimed with respect to interest expenditure It is crucial to ensure compliance with tax legislation on an annual basis and to not merely repeat prior year treatment This is particularly true where previous positions (or a Practice Note in this instance) are changed and replaced with new provisions (ie section 11G) We recommend that advice and assistance be sought from reputable tax advisers if you are uncertain of the new requirements for a deduction of interest incurred

● Bradley Zebert is senior associate, Estian Haupt is associate director: SA Direct Tax, and Leonard Willemse is associate director: SA Indirect Tax at tax specialists AJM Tax

BUSINESS LAW & TAX

Trademarks and bikers born to be wild

• High court directs registrar to refuse logo application by former member of motorcycle club

In this article we discuss a recent SA court judgment, Lee Riders Motorcycle Club v Nigel Jacobs and the registrar of trade marks

The case deals with a falling out among bikers about trademarks

In SA there is a bikers’ club called Lee Riders Motorcycle Club Lee Riders was established in 1984 to “advance the interests of its members, all of whom are motorcycle enthusiasts” Lee Riders is not a corporate entity but a voluntary association

Get your motor running Lee Riders claimed that it had used the trademark Lee Riders since 1984, as well as a device mark (logo) since 2000 and that it is the common law owner of these trademarks It claimed that the trademarks are used in the areas of sporting and cultural activities

Head out on the highway Nigel Jacobs was a member of Lee Riders until 2015, when he resigned On May 13 2015, Jacobs filed an application to register the trademark Lee Riders Logo The application was advertised and did not encounter opposition

Looking for adventure For reasons that are somewhat obscure (including Covid-19) the matter was transferred from the registry to the high court, where Lee Riders sought an order granting an extension of the period to oppose the trademark application, as well as an order that the registrar of trademarks be directed to refuse the trademark

THE ASSOCIATION HAS SEPARATE LEGAL STANDING FROM ITS MEMBERS.

IT HAS AT ALL TIMES BEEN THE PROPRIETOR OF THE TRADEMARK

application or withdraw the acceptance

Whatever comes our way Judges are generally born to be mild, not wild Judge Swanepoel (Gauteng division) accordingly made these sober observations:

● Lee Riders was established in 1984;

● Its constitution was adopted in 1990 (and has been updated since);

● It has used the trademark Lee Riders since 1984 and the device mark since 2000

The judge said that the former member, Nigel Jacobs, did not deny that the mark he was seeking to register was for all intents identical to the original mark of Lee Riders Jacobs also did not deny that Lee Riders had established a reputation in the mark that he was now trying to register

The judge made the following notable findings: The test for proprietorship of a mark “First, he must establish a goodwill or reputation attached to the goods or ser-

vices which he supplies in the mind of the purchasing public by association with the identifying get-up such that the get-up is recognised by the public as distinctive specifically of the plaintiff’ s good or services ” see Reckitt & Colman Products Ltd v Borden Inc and Others Reputation

“There is no real attack to the proposition that the applicant has established a reputation in respect of the word and device marks, that its name and logo are identified with it, and that it has been so for a number of years

“The club was established in 1984 by approximately 10 members the fact is that the name was adopted and the logo was designed for use by the applicant ” Legal standing

“The first respondent (Nigel Jacobs) contends that the members who left the club are the proprietors of the

trademarks That cannot be correct There is no dispute that the applicant still exists as a voluntary association

The association has separate legal standing from its members It has at all times been the proprietor of the trademark and there can be no basis in law whereby disgruntled members who, having left the club, can claim proprietorship in the trademarks ” No claim to proprietorship

“It is, in any event, not disputed that the first respondent (Nigel Jacobs) has no claim to proprietorship in the trademarks ” Deception and confusion

“The applicant’ s reliance of Section 10(12) and 10(13) of the act is, in my view, correct It provides that a trademark that is inherently deceptive, or where its use may be likely to deceive or cause confusion, may not be registered

There can be no doubt that

the use of the same name and logo by two different clubs in the same recreational field would deceive and cause confusion ” No undue delays “The applicant’ s opposition to the application was not unduly delayed It sought and was granted an extension to April 30 2020, which was a period at the height of the Covid-19 pandemic, when most of the world’ s commerce and administration was shut down The application for a further extension came four days after the last day for opposition, and seems to me to have been justified ” The upshot The registrar of trademarks was directed to refuse the application by Jacobs for Lee Riders Logo in class 41 in terms of various sections of the Trade Marks Act The clear message is don’t steal someone else’ s trademark, devise your own!

Recourse when trust in the trust breaks down

Peter Blanckenberg

Blanckenberg and Associates Inc

In a recent Supreme Court of Appeal judgment, Snyman v De Kooker NO and others (400/2023) [2024] ZACSA

119, the court dealt with a situation where the appellant had received a payment from the Road Accident Fund into an inter vivos trust, the terms of the trust, inter alia, being that the awarded funds were for the exclusive benefit of the appellant (beneficiary) Some time thereafter, the beneficiary became dissatisfied with the performance of the trustees appointed to the trust (the trustees had been recommended by a curator ad litem, who had assisted the beneficiary during her claim against the Road Accident Fund while the beneficiary was still recovering from her injuries)

For the purpose of this

article, I shall focus on only two points raised in the unanimous judgment

First, if a beneficiary of a trust is of the view that the trustees are acting negligently (which would include poor financial reporting) or fraudulently, what recourse does the beneficiary have, presuming that the beneficiary can demonstrate some or all of the above behaviour, against the trustees?

In terms of Section 20 of the Trust Property Control Act a trustee may, on application by the master or any person having an interest in the trust at any time be removed from his office by the court if the court is satisfied that his removal will be in the interests of the trust and its beneficiaries

In its discussion of unacceptable behaviour by trustees, the court dealt, inter alia, with the concepts of the breakdown of trust between

beneficiaries and their trustees, and ”conduct which imperils the trust property

The court considered that both these concepts should be included in the interpretation of Section 20(1) of the act

In the circumstances before the court, the court criticised the behaviour of the trustees, particularly in regard to their inadequate financial reporting of the activities of the trust For various reasons the court did not remove the trustees although, it is submitted, the court could have done so had it so chosen

The second issue, for the purposes of this article, deals with the terms and conditions of the trust and, more particularly, the fact that the trust s terms and conditions were more appropriate for a commercial trust and accordingly inappropriate for the needs of the beneficiary

The court, unsurprisingly, found that many provisions of the trust gave the trustees a mandate that was not only excessive but also inappropriate and/or irrelevant

Thus, the question that arose before the court was how a beneficiary deals with a situation where the provisions of the trust deed are inappropriate

Section 13 of the act provides that if a trust instrument contains any provision which brings about consequences which, in the opinion of the court, the founder of a trust did not contemplate or foresee and which –● Hampers the achievement of the objects of the founder; or ● Prejudices the interest of the beneficiaries; or

● Is in conflict with the public interest, the court may, on the application of any person who in the opinion of the

court has a sufficient interest in the trust property, delete or vary any such provision or make any order [the] court deems just, including an order terminating the trust

The court held that the terms of the trust were so inappropriate that the trust should be terminated and that a new inter vivos trust should be created in its place The court further ordered that such new inter vivos trust should first be copied to the master of the high court for

THE COURT CRITICISED

THE BEHAVIOUR OF THE TRUSTEES, PARTICULARLY IN REGARD TO THEIR INADEQUATE FINANCIAL REPORTING

comment and approval, and thereafter be forwarded to a judge of the supreme court of appeal (in chambers) for consideration and approval, all prior to registration of such trust

In summary, in voicing its displeasure regarding the conduct of the trustees, the court ordered, inter alia, that:

● The trustees disclose in the fullest detail all the financial transactions of the trust, from its date of inception to the present, including the invoicing of all fees recovered by the trustees and, further, paid by the trustees to third parties other than the beneficiary;

● Upon proper performance of the above order, the trust be terminated, a new trust be formed and all trust property be transferred from the one to the other; and

● The trustees pay out of their own personal funds the legal costs of the application by the beneficiary

BUSINESS LAW & TAX

Paving way for future that is sustainable

adaptation

In a significant move to combat climate change, President Cyril Ramaphosa signed the Climate Change Act into law on July 23 2024

Although not yet operational, the act will come into effect when the president issues a proclamation This legislation marks the first time SA has enacted a dedicated law aimed at addressing climate change

The act is designed to develop an effective climate change response and to facilitate a just transition to a low-carbon, climate-resilient economy It aligns SA’ s climate policies with global commitments under the Paris Agreement, demonstrating the country’ s commitment to contributing to global efforts against climate change

vulnerable communities from adverse effects

One of the cornerstone provisions is the introduction of carbon budgets First contemplated in the National Climate Change Response White Paper of October 2011, carbon budgets will finally come to fruition under the act Companies emitting significant greenhouse gases (GHGs) will be allocated carbon budgets and must prepare and submit a GHG mitigation plan to the minis-

THE ENERGY SECTOR WILL SHIFT TO RENEWABLE ENERGY SOURCES AND IMPROVED ENERGY EFFICIENCY STANDARDS

approach to climate action

The act will affect several sectors significantly, including energy, agriculture, water resources, forestry, aviation, maritime, fisheries, human health, industry, human settlements and disaster management The energy sector will shift to renewable energy sources and improved energy efficiency standards

Agriculture and food production will need to adopt sustainable practices to reduce emissions and enhance resilience to climate impacts The management of water resources will be crucial, given the increasing variability of water availability due to climate change Forestry and fisheries will also need to implement measures to protect ecosystems and biodiversity

menting sustainable land-use practices Adaptation actions aim to strengthen the resilience of communities and ecosystems against the impacts of climate change, such as extreme weather events and rising sea levels

These measures aim to minimise job losses and promote new opportunities in the green economy, ensuring that the transition to a lowcarbon economy is just and inclusive

Major emitting entities are now required to comply with mandatory carbon budgets, with specific time frames for implementation and compliance The act also establishes a monitoring and reporting system to track progress and ensure accountability This ensures the act’ s provisions are effectively enforced, driving tangible progress in reducing emissions

and failing to comply with measures that facilitate phasing down or phasing out synthetic GHG

If convicted of an offence, a person is liable to a fine of up to R5m or imprisonment for up to five years For a second or subsequent conviction, this increases to R10m and 10 years ’ imprisonment

However, the act does not include penalties for failing to achieve a carbon budget or sectoral emission target, which may hinder SA’ s goal of reducing GHG emissions in line with its commitments under the Paris Agreement

Its purpose is to help SA align with applicable international climate agreements and promote sustainable development

The act is part of a broader international and regional trend towards more robust climate action Globally, the Paris Agreement has been a significant driver, committing countries to limit global warming to well below 2°C and to pursue efforts to limit it to 1 5°C African nations have increasingly emphasised the need for a “just transition” that addresses both climate change and social inequality

The Africa Climate Summit in 2023 underscored this by mobilising nearly $26bn in commitments for climate action across the continent, emphasising the need for sustainable development and resilience building Additionally, SA has been a leader in advocating for climate justice, calling on high-income countries to finance decarbonisation efforts in lower-income nations The act aligns SA with these international and regional efforts, positioning it as a proactive player in the global climate arena

The act provides a comprehensive framework to mitigate the impacts of climate change while promoting sustainable development It balances economic growth with environmental protection, ensuring SA meets its development goals without compromising planetary health Emphasising social equity, the act aims to protect

ter of forestry, fisheries & the environment for approval This is expected to drive significant reductions in emissions across various sectors

Additionally, the act will affect human health, industry, human settlements and disaster management, requiring comprehensive strategies to mitigate and adapt to climaterelated risks

The act identifies certain conduct as offences, such as failing to provide required data, information, documents, samples or materials to the minister, or providing false or misleading information

The act also establishes a national GHG emission trajectory, setting a clear path for reducing emissions over time It also requires various ministers to develop and implement measures to meet sector-specific emission targets, ensuring a co-ordinated

The act includes both mitigation and adaptation actions to enhance SA’ s capacity to reduce emissions and build climate resilience Mitigation efforts focus on reducing GHG emissions through measures such as promoting renewable energy, improving energy efficiency and imple-

Offences include failing to prepare a carbon mitigation plan for submission to the minister when allocated a carbon budget, failing to comply with or contravening a notice from the minister regarding phasing down and phasing out synthetic GHG emissions and declarations,

The act outlines the functions of the presidential climate commission, which existed prior to the enactment of the act The commission is an independent, multistakeholder body tasked with overseeing and facilitating a just and equitable transition to a low-emissions and climate-resilient economy Its responsibilities include advising on climate change responses, monitoring progress towards mitigation and adaptation goals, and ensuring the transition supports vulnerable communities and promotes new job opportunities in the green economy

By engaging with stakeholders, including government, business, labour and civil society, the commission aims to create a unified vision for a sustainable future

The enactment of the act represents a significant step in SA’ s commitment to addressing climate change It provides a robust legal framework for co-ordinated climate action across the country, positioning it as a leader in climate policy on the African continent The act also highlights SA’ s proactive approach to international climate commitments

The Climate Change Act is a landmark piece of legislation underscoring SA s dedication to combating climate change and fostering a sustainable future

As the world grapples with the impacts of climate change, the act addresses the urgent need to reduce emissions and promotes economic and social resilience, ensuring a just transition for all South Africans • Act will boost climate mitigation and

Why WhatsApp may have to pay a $220m fine in Nigeria

Ahmore

The Federal Competition and Consumer Protection Commission, being the foremost agency in Nigeria responsible for the promotion, protection and enforcement of competition and consumer protection, initiated an investigation against WhatsApp in 2021

The investigation aimed to consider the concern, based on perceived evidence, of consumer abuse in terms of the Federal Competition and Consumer Protection Act, 2018 (FCCPA) and the Nigerian Data Protection Regulation, 2019 (NDPR)

The approach adopted was indeed to investigate WhatsApp LLC from both a

consumer protection and competition standpoint, as well as data protection perspective, since data protection has been recognised as a consumer protection issue in Nigeria Based on the fact that Meta Platform Inc is WhatsApp s parent company and exercises control over the business practices of WhatsApp, it was included in the investigation

The commission took note that WhatsApp introduced an updated privacy policy, which became effective on May 15 2021 The commission took note of the evidence based on publicly available information and consumer feedback that suggested the policy was forced on Nigerian WhatsApp users

in a manner that did not align with applicable standards of fairness The voluntariness of acceptance or consent to the policy in terms of standards stipulated in terms of the NDPR and FCCPA was deemed questionable

DOMINANCE

Following a lengthy investigation, the commission concluded WhatsApp and Meta are dominant in the defined market, due to the huge amount of data collected, as well as their technological link, network and lock-in effects; the accumulation of which led that commission to the conclusion WhatsApp and Meta have an ability, intention and likelihood for abuse with respect to exclu-

sionary practices, barriers to entry and consumer abuse

The investigation focused on certain core issues, including the disparity in treatment of consumers in different jurisdictions under similar regulatory frameworks and prevailing legal standards Specifically, the protection afforded Nigerian users under the NDPR is similar to European users under the General Data Protection Regulation, yet WhatsApp adopted different policies in both jurisdictions

In addition, considering scope, purpose, uses and sharing (including sharing with third parties and such uses, including Meta); different treatment between European and Nigerian WhatsApp

users; the removal of particular provisions from the prevailing privacy policy; Meta s role/relationship as a business service provider, and the manner in which the privacy policy was imposed in Nigeria, were noted

DISCRIMINATION

It was concluded that WhatsApp violated the rights of its users by introducing its updated privacy policy in a manner that is a clear departure from regulatory provisions governing consent freely obtained and consent withdrawal Furthermore, the investigative panel pointed to discrimination of Nigerian users, tying and illegal transfer of data outside Nigeria without the necessary con-

sent being obtained The dominance finding, in its turn, resulted in the findings of network effects, lock-in effects, and market power, as well as a user interface that prevented consumers from switching

The ability of regulators to scrutinise business practices should not be underestimated The legal risks from a data privacy, consumer protection and competition law perspective ought to be taken into account every step of the way when new products are developed, policies drafted and procedures put in place

The decision by the regulator was announced on July 19 2024 Let s keep an eye on the way forward considering the suggested $220m fine

Investment ripe in African retail sector

• Prime opportunity for private equity funds to rescue retail companies across the continent

The retail sector in SA has experienced significant distress in the past year, with several high-profile retail businesses entering business rescue proceedings

Retail giants such as AutoZone, West Pack Lifestyle and The Cross Trainer, for example, have all recently entered business rescue, highlighting the growing financial pressures faced by companies in the sector

Every challenge is also an opportunity and private equity firms are uniquely placed to step in and acquire distressed assets at attractive valuations, assisting to turn them around in the process

According to statistics by Trading Economics, consumer spending in SA amounted to R3 09bn in the first quarter of 2024, down slightly from R3 1bn in the fourth quarter of 2023 Factors such as high inflation and interest rates, increasing unemployment, global geopolitical challenges and resultant supply chain constraints have continued to dampen consumer confi-

dence, leading to decreased sales and heightened financial stress for retailers

South African retail businesses such as AutoZone, the auto parts retailer, have struggled under heavy debt, demonstrating the vulnerability of niche markets within the sector West Pack Lifestyle, despite being a popular household name, recently entered voluntary business rescue, indicating that even well-established brands are not immune to the economic climate The Cross Trainer, an athletic and footwear retailer, has also faced financial distress, highlighting how shifts in consumer preferences and financial constraints are impacting even specialised retail sectors

New numbers released in August by StatsSA, however, show a slight increase in consumer spending, with retail sales increasing by 4 1% year on year in June, up from the 1 1% increase recorded in

PULLQUOTE IN CAPS FOR DEPTH OF BOX BUT NOT LESS THAN FOUR LINES OF COPY/ OR MORE THAN 8, LINE SPACE ON TOP

May And while global high interest rates have slowed growth around the world, PE funds have benefited from the higher rates, with dry powder that was not deployed in challenging market conditions accumulating at record levels

A recent study by the South African Venture Capital and Private Equity Association also puts private equity fundraising in SA at a 13-year high in 2023, with funds being raised in excess of R28bn, a 43% jump from 2022 With interest rates expected to decrease in the months ahead and consumer spending likely increasing as a result, PE firms are well placed to acquire, and have in many instances been specifically seeking out, investments in the retail sector

The current economic conditions have also created opportunities for take-private transactions in the retail sector, particularly for listed companies with small-tomid market capitalisations that are trading at discounts to their net asset values (NAV) In 2023, the JSE recorded 12 delistings, with 13 recorded in 2022 Many small to midcap listings on the JSE have also struggled with the administrative burden and

SHOP ‘TIL YOU DROP

significant costs relating to being listed, which the JSE is addressing via an ongoing simplification of its listing requirements Certain companies have dealt with share prices that value them at a significant discount to their NAV In these scenarios, existing majority investors may be of the view there is more value to be found by taking the company private

KENYA

The same trend is evident in Kenya, where businesses in the retail sector are partnering with PE firms to enhance their business offerings, improve efficiency and grow into new markets According to Boston Consulting Group (BCG), PE investment funds can find opportunities to provide capital and management expertise that will enable local modern retail chains to scale up in new cities

In Kenya, PE funds are playing an important role in backing local, modern chains, such as Naivas and Quickmart, that target middleincome areas in major cities In 2022, BCG noted in its Future of Traditional Retail in Africa report that investment funds were looking for opportunities to provide capital and management expertise so that local businesses in

Kenya could scale up

AFRICA

Across Africa, there is growing interest in Africa’ s retail sector, driven by an expanding middle class and a rise in consumer spending In addition, the African Continental Free Trade Area is expected to begin providing real benefits to retail companies in Africa in the next decade, as trade across the continent becomes easier

Many African countries are scaling up production facilities, investing in transport and utilities infrastructure and streamlining customs processes to be able to take advantage of continental free trade Retail companies trading across the continent will benefit from streamlined intra-African trade

PE CAPABILITIES

The retail sector’ s need for fresh capital, restructuring and strategic realignment is a good fit with the capabilities on offer from certain PE funds Some potential areas of focus for PE firms when assisting distressed African retail companies include leveraging their expertise in operational efficiency to streamline distressed retailers, reducing costs and improving profitability in the

process PE firms can also assist distressed companies to consolidate market share and drive growth through strategic acquisitions and mergers

Digital transformation strategies, which include investments in digital infrastructure and e-commerce capabilities, can help struggling retailers adapt to changing consumer behaviour and capture market opportunities PE firms can assist in the implementation of innovative payment solutions, enhanced digital security and blockchain for supply chain transparency, for example

With the rise of artificial intelligence, augmented and virtual realities and personalisation through data analytics, PE companies that are at the forefront of these technological advancements can assist retail companies to adapt to evolving market conditions

The growing demand for sustainable products could also be a way for PE companies that focus on ESG principles to add value to distressed companies by creating strategies that prioritise environmentally friendly alternatives Other ways PE companies could assist distressed retailers include advising on product ranges, enhancing the logistics and supply chains of the businesses, opening up new market segments and assisting to upgrade infrastructure

While exercising caution, PE firms are able to leverage distressed retail companies to grow their portfolio in the sector This will enable PE firms to capitalise on improving consumer buying trends and economic conditions in future

Despite current macroeconomic challenges, investors willing to take on the risk of purchasing distressed assets through business rescue could see significant returns and breathe new life into the distressed retail sector in the process

Good governance key to doing business in Africa

It s no secret that Africa is at the forefront of expansion and investment for large global multinationals and small businesses alike

Home to some of the globe s fastest-growing economies with a burgeoning population of more than 1-billion people, the continent s rapid urbanisation and digitisation makes for an attractive business destination Despite this, Sub-Saharan Africa demonstrated an economic growth rate of just 3 3% in 2023, with the perception of corruption in Africa continuing to diminish the potential that the continent has

According to Transparency International s 2023 Corruption Perceptions Index (CPI), an index that ranks 180 countries and territories by their perceived levels of public sector corruption, Africa still faces significant challenges in combating corruption Measured on a scale of 0 (highly corrupt) to 100 (very clean), 90% of countries in Sub-Saharan Africa scored below 50 SA garnered a total of 41/100 while Kenya scored 31/100; the Democratic Republic of the Congo and Nigeria reflected some of the lowest scores on the CPI, scoring 20/100 and 25/100 respectively The culprits of corruption are public sector underfunding and misman-

agement, extortion, political interference, bribery and abuse of power

As corruption is inextricably woven into the narrative of doing business in Africa, an uncompromising commitment to good governance and compliance is a business imperative

RULES OF ENGAGEMENT

Compliance is a demonstration of commitment to one s own values of honesty, integrity and fairness, including respect for the value chain and the broader environment in which one intends to operate Together with the global endorsement of formal anticorruption and anti-money laundering compliance pro-

grammes where businesses are expected to proactively demonstrate that they have procedures in place to prevent bribery and corruption, understanding the rules of engagement not only aids in managing risks specific to corruption, but is also vital for entering a new market

However, constructing a framework for compliance is easier said than done when the continent is governed by an increasingly complex ecosystem of regulations Africa consists of 54 countries, each bound by different social, political and economic dynamics with their own unique policies and legislation, meaning that potentially hundreds of rules and laws must

be considered just to fulfil basic business requirements

According to Thomson Reuters 2023 Cost of Compliance Survey, the extent and pace of regulatory developments translated into about 234 daily alerts on regulatory updates When considering that laws across the African continent are not standardised, not consistent and often documented in different languages and formats, the sheer volume and variability of information available makes the regulatory landscape incredibly difficult to navigate African businesses have relied on their own networks to fill in the gaps, but access to business intelligence on a grassroots level is not some-

thing that is easily afforded to organisations penetrating the African market from different continents

Businesses that enter Africa with the desire to comply and play by the rules set a precedent for sustainable business and commercial practices and set the tone for an ethical and compliant culture being tangibly experienced across Africa

The access to legal intelligence and compliance solutions seeks to build that culture of ethics and compliance one company at a time, while enabling ease of doing business in African markets and, ultimately, making Africa a more attractive destination for future investment

/123RF OLEGGANKO
Vishala Panday Afriwise

BUSINESS LAW & TAX

SA advances in AI innovation

• Framework marks step forward in journey to national AI policy

The communications and digital technologies department has made public the SA National Artificial Intelligence Policy Framework (AI policy framework) This nonbinding framework signifies a new milestone in the journey towards a national AI policy

The AI policy framework follows the AI Government Summit, a gathering hosted by the department on April 5

The summit provided a platform for dialogue between the government and the ICT sector, with the aim of initiating a policy and regulatory framework that harnesses the power of AI

The prospective appointment of an AI expert advisory council, composed of distinguished individuals to guide the development and implementation of AI policy and regulation, was also announced at the summit

Nine strategic pillars guiding a human-centric AI approach

The AI policy framework is broad, advocating for a human-centric approach with safeguards for professional responsibility and human values in the development and deployment of AI It is built around nine strategic pillars that will serve as the bedrock for the national AI policy:

● 1 Talent and capacity development this involves nurturing a robust AI talent pool in SA through the integration of AI into all levels of education, the creation of specialised training programmes and the fostering of partnerships between academia and industry for practical AI training

● 2 Digital infrastructure fostering AI innovation by developing a robust supercomputing infrastructure for AI research and development, and investing in digital infrastructure and advanced connectivity technologies such as 4G, 5G and high-

MILESTONE

capacity fibre networks

● 3 Research, development and innovation advancing technological capabilities and driving innovation by establishing dedicated AI research centres, promoting collaborations between academia, industry and government through public-private partnerships, and providing financial support and incentives for AI research and start-ups

● 4 Public sector implementation enhancing government efficiency by implementing AI to optimise state

management and service delivery This includes developing guidelines for the ethical and effective deployment of AI in government operations

● 5 Ethical AI guidelines development ensuring responsible and ethical AI use by developing AI systems that prioritise ethical considerations This includes addressing issues such as bias, fairness, transparency and accountability; developing responsible AI guidelines that align with human rights principles; and ensuring

VIEWPOINT AFRICA

compliance with AI regulation

● 6 Privacy and data protection protecting personal information by establishing standardised data generation and utilisation practices across the public and private sector, strengthening existing data protection regulations and ensuring transparency in AI data usage and storage practices

● 7 Safety and security protecting citizens and infrastructure by implementing robust cybersecurity standards to safeguard AI systems, and developing frameworks to identify and mitigate AI-related risks

● 8 Transparency and explainability building public trust in AI through promoting the development of explainable and transparent AI systems, and creating public awareness campaigns to educate the public on AI technologies and their implications

● 9 Fairness and mitigation of bias ensuring equitable and value-based AI through developing bias mitigation methods and fostering human control in AI systems

This includes promoting

responsible AI development by creating a code of conduct for AI professionals and integrating ethics training into AI education and professional development programmes

The unveiling of the AI policy framework marks a step forward in SA’ s journey towards harnessing the power of AI and developing national policy to enable this It is commendable that a human-centric approach is taken as this sets the stage for a future where AI is leveraged to enhance efficiency, safeguard privacy and foster innovation

From a legal perspective, the evolution of this policy and its potential implications for regulatory development and digital innovation are of significant interest and important to follow

The AI policy framework is currently open for public comment The department has not set a deadline for stakeholders to submit their comments, but formal consultations will take place until the end of September Once finalised and published, the AI policy will enhance the groundwork for furthering AI regulations in SA

Licensing change for Rwandan service providers

Jean Claude Nshimiyimana

Rwanda’ s financial services sector is experiencing a major shift with the introduction of regulation no 74/2023 of 18/09/2023 governing payment services providers (PSPs)

This comprehensive regulation, issued by the National Bank of Rwanda (BNR), brings significant changes that will affect all PSPs operating in the country Central to this new regulatory framework is the mandatory recategorisation of all existing PSPs While the new PSP regulation introduces various changes, one aspect demands immediate attention from all existing PSPs: the critical deadline for licence recategorisation With a deadline set for September 18 2024, PSPs must quickly grasp, evaluate and respond to these new requirements

The BNR has issued a stark reminder to all PSPs alerting that those applications for licence recategorisation must be submitted by September 18 2024 This deadline, stemming from Article 60 of the new PSP regulation, carries severe consequences

Failure to comply will result in licence revocation, potentially ending operations for noncompliant PSPs

While the recategorisation deadline is overriding, it is critical to understand the regulation’ s wider implications The new PSP regulation introduces a tiered licensing system with specific capital thresholds for each category, catering to several types of payment service providers This structure aims to ensure the financial stability and sustainability of providers across different scales of operation

Furthermore, the new PSP regulation outlines robust operational requirements, including stringent risk management protocols and anti-money laundering measures It also sets high standards for corporate governance, emphasising the qualifications of board

members and senior management, thus promoting sound corporate governance

Consumer protection is another key focus of the regulation It mandates clear communication and fair practices, safeguarding consumer interests

Additionally, the regulation promotes interoperability among payment systems, fostering a more integrated financial ecosystem

To ensure ongoing compliance and maintain the integrity of the payment services sector, the regulation institutes comprehensive reporting requirements and supervisory mechanisms

At the core of the urgent recategorisation process lies Article 60 of the new PSP regulation In this article, we outline the key requirements and timeline for all PSPs in Rwanda It mandates that all currently licensed PSPs must apply for licence categorisation by September 18 2024, one year from the regulation s publication in the Official Gazette This limited window for compliance highlights the urgency of the matter for all PSPs operating in Rwanda

To comply with the

recategorisation requirement, providers must submit a comprehensive package to the BNR This package should include:

● Their existing granted licences;

● A detailed description of their current payment services; and

● A description of the category under which their services fall according to the new regulation

This thorough documentation process ensures that the BNR can accurately assess each PSP s position within the new regulatory framework

The recategorisation process has far-reaching implications for the payment services sector in Rwanda, demanding immediate and strategic action from all PSPs

They are required to promptly begin evaluating their current licences and services against the new categories, conducting a comprehensive and prioritised assessment to ensure timely compliance

This process may lead to significant shifts in the market structure, potentially requiring some providers to adjust their business models or seek strategic partnerships to align with

new requirements

While challenging, this transition period offers PSPs a valuable opportunity to reassess their strategies, potentially innovating their service offerings and improving their compliance frameworks However, the BNR s warning about licence revocation for noncompliance point out the critical nature of this process

PSPs should view proactive engagement with the recategorisation as an essential risk mitigation activity

The deadline of September 18 2024 represents a watershed moment for Rwanda s payment services industry It is not merely a regulatory hurdle but a catalyst for transformation in the sector PSPs that approach this challenge strategically can emerge stronger, better

THE RECATEGORISATION PROCESS HAS FAR-REACHING IMPLICATIONS FOR THE PAYMENT

SERVICES SECTOR IN RWANDA

aligned with regulatory expectations, and well positioned in the evolving financial services sector In the months ahead, PSPs must prioritise their recategorisation efforts, involving a comprehensive review of current operations, understanding the nuances of the new categories and preparing robust applications for submission to the BNR well before the deadline

As Rwanda continues to position itself as a fintech hub in Africa, the successful implementation of this regulation will play a significant role The proactive engagement of PSPs with this recategorisation process is not just about compliance it is about contributing to and benefiting from Rwanda s vision for a modern, robust and inclusive financial ecosystem

The clock is ticking and the stakes are high PSPs that act swiftly and strategically in response to this regulatory change will be best placed to thrive in Rwanda s new financial services sector ● Nshimiyimana is an associate at ENS in Rwanda

/123RF SIARHEY

BUSINESS LAW & TAX

When debarment is unjust

• Financial Services Tribunal can put matters right when employers treat representatives wrongly

On July 30 2024, the Financial Services Tribunal handed down its decision in a reconsideration application in terms of section 230 of the Financial Sector Regulation Act, 2017 (FSR Act)

The application was instituted by Bongani Progress Masela against Momentum Insure Company Limited

Momentum, a financial services provider, debarred Masela as a financial services representative in terms of section 14(1) of the Financial Advisory and Intermediary Services Act, 2002 (FAIS)

The reason for the debarment, as set out in Momentum’ s notice of intention to debar, was because Masela no longer met the requirements of honesty and integrity as envisaged by the FAIS Act

Before to his dismissal, Masela was employed by Momentum as a financial services representative The reasons for the debarment stem from a claim brought by a Momentum client for a motor vehicle accident

Masela failed to include a car hire option in the client’ s policy which resulted in the client being provided with a courtesy car for a period of only 30 days Given that the claim was not finalised within that period, the client requested Masela to extend the courtesy car ’ s use Momentum alleged that it was at this point that Masela informed the client that he

knew of someone who could assist her with the courtesy car extension but that person required payment of R1,200

According to the client, Masela insisted that they meet privately and in person for her to pay him the money in cash

After the meeting, Masela provided the client with the name and cellphone number of Lerato, who was to do the extension for the client When the client attempted to call Lerato, the number was invalid and the client did not receive the service paid for Momentum argued that Masela should have referred the client to its claims depart-

MASELA SAID HE DID NOT TAKE A BRIBE FROM THE CLIENT FOR PURPOSE OF EXTENDING THE USE OF THE COURTESY CAR

ment, as he had no authority to grant the extension for the use of a courtesy car For these reasons, Momentum was of the view that his conduct clearly indicated his intention to solicit payment from the client to bypass standard procedures

Masela denied accepting a bribe from the client for purpose of extending the use of the courtesy vehicle by the client He claimed the money paid to him was related to repairs to the courtesy car ’ s tyre In addition, Masela stated that the WhatsApp messages exchanged with the client were related to him

assisting her with hospital visits, doctor appointments and running errands for groceries

In debarring Masela, the decision maker relied on the findings of the chair from Masela’ s disciplinary hearing

It was recorded that Masela was negligent in not providing the car hire service to the client resulting in Momentum having to pay for the car hire and delaying processing of the client’ s claim

The chair also relied on the WhatsApp messages between the client and Masela in finding that Masela was guilty of the charges Consequently, Masela was dismissed on August 17 2023 and was later invited to attend a debarment hearing on December 4 2023 In its notice of intention to debar, Momentum stated that its reasons for debarring Masela were that he failed to comply with the proper processes to extend the client’ s courtesy car and had received money from the client to bypass the standard procedure This exposed the client to financial harm and Momentum to serious reputational damage

In the reconsideration application, Masela said he did not take a bribe from the client for purpose of extending the use of the courtesy car and so did not breach Momentum’ s policy He maintained that he ran errands for the client and the money he received from the client was paid to the person who was supposed to repair damage to the tyre of the courtesy car Masela complained that the client was not called as a witness nor was there an affidavit from the

HAVE CAR, WILL RUN ERRANDS

client confirming her version of the events

Masela said he had referred the matter to the CCMA and was paid R40,000 by Momentum Momentum has refused to disclose what the payment related to The tribunal considered WhatsApp exchanges between Masela and the client in which Masela and the client discussed the R1,200 The tribunal noted that no investigation was conducted by Momentum and the testimony of a Momentum employee was limited testimony The employee alleged Masela was negligent in not providing the client with the car hire service, that Lerato could not be traced and the contact number provided by the client for this person did not exist

The tribunal noted that a reading of the WhatsApp messages does not make mention of the client requesting assistance with the extension of the use of the courtesy car or that the R1,200 was

intended for that purpose Momentum conceded to this point The tribunal noted discrepancies between the testimony of the Momentum employee and what appeared in the WhatsApp messages

The tribunal further noted that the client never disputed the fact that Masela ran errands for her and, in fact, made reference to putting petrol in Masela’ s car and buying him food According to the tribunal, what was apparent was that Masela and the client had met, whereby he assisted the client by running errands for her The client in turn bought petrol for Masela and bought food for him The relationship

THE EMPLOYEE ALLEGED MASELA WAS NEGLIGENT IN NOT PROVIDING THE CLIENT WITH THE CAR HIRE SERVICE

between the pair broke down when certain monies were not paid to the client, leading her to report Masela In closing, the tribunal stated that the WhatsApp messages, which appear to be the best evidence obtained by Momentum for debarring Masela, did not support the allegations that Masela took money from the client in exchange for assisting her with the extension There was insufficient evidence to support the allegation that Momentum’ s policies had been breached

The tribunal accordingly set aside the decision to debar Masela

The above case illustrates the vital role the Financial Services Tribunal plays in safeguarding financial services representatives from unjust debarment by their employers

This is of particular importance, considering that debarment proceedings are largely conducted internally which may taint the impartiality of these proceedings

Right to health care vs NHI implementation in SA

The right to access quality, affordable health care is a fundamental human right and a core principle enshrined in SA s constitution

Recognising this, the SA government has proposed the ambitious National Health Insurance (NHI) system as a means of providing universal basic health care coverage to all citizens While the intentions behind NHI are commendable, the reality is the plan faces significant challenges that may undermine its ability to

deliver on the promise of universal health care effectively

FINANCIAL AND STRUCTURAL CHALLENGES

The primary obstacle is the sheer cost of providing comprehensive primary health care services under NHI, which is estimated to be about R1 2-trillion annually To raise this level of funding, the government would likely need to increase the VAT rate by at least 6%, bringing it to 21% a politically unpopular move that could further strain household budgets already stretched thin by the cost-ofliving crisis

Beyond the financial hurdles, implementing NHI will also require a huge restructuring of the national and provincial health systems to align strategies and infrastructure This would involve designing and deploying a complex CRM system to register all citizens, health care providers and suppliers a monumental technological and logistical undertaking Additionally, the plan calls

for a network of regional offices to manage patient referrals, prescriptions and other administrative functions, adding further complexity and bureaucracy to the system

LEGAL MINEFIELD SURROUNDING THE NHI

Perhaps the greatest challenge, however, is the legal minefield surrounding NHI Constitutional law experts have identified at least seven grounds on which the NHI Act could be legally challenged, including concerns over the right of medical practitioners to choose where they practice Already,

Solidarity has won a case affirming this right, and other major stakeholders such as Discovery are poised to intensify their legal battles against various aspects of the NHI proposal

Given these formidable obstacles, a more sustainable approach may be to pursue a collaborative, co-design model that leverages publicprivate partnerships This would give government the opportunity to harness the expertise and resources of the private sector, while also mitigating the risks of corruption, poor service delivery, and constitutional misalignment that have plagued

many past public healthcare initiatives

Ultimately, the goal of universal health care is an admirable one that aligns with SA s constitutional obligations However, the current NHI proposal appears to be an overly ambitious, centralised solution that may simply be too complex and costly to implement effectively

A more pragmatic, collaborative approach that draws on the strengths of both the public and private sectors may be a more viable path to ensuring all South Africans can access the quality health care they deserve

Keep a paper trail even if it’s your family

• Verbal loan agreement and property sale ends up costing elderly couple dearly

Arecent Supreme Court of Appeal judgment, De Kock v Du Plessis and Others (284/2023) [2024] ZASCA 117 (24 July 2024), highlights the unpleasant long-term consequences which can arise when families do business together without carefully thinking through what they are doing and without properly documenting their transaction

In this case, an elderly couple decided to sell their home to their son-in-law who, at the time of the transaction, was considered to be very much part of the family and who was indeed treated as their own son

The son-in-law persuaded his parents-in-law to enter into an Agreement of Sale in terms of which, on the face of it, the purchase price for their property was R4 5m although, on the version for the son-in-law (this was denied by his parents-inlaw), the amount had been inflated by R1m so as to enable the son-in-law to raise a bond of effectively

100% of the “value” of the property He duly secured a loan from Absa Bank for the sum of R3 375m, thereby committing (on his version) an act of fraud on Absa

Upon transfer of the property, the Absa loan amount was paid to the parents-inlaw, who kept R1m and then loaned the son-in-law the sum of R2 5m The loan was, according to the parents-inlaw, made on the basis that

UPON TRANSFER OF THE PROPERTY, THE ABSA LOAN AMOUNT WAS PAID TO THE PARENTS-IN-LAW, WHO KEPT R1M

they would be entitled to remain in occupation of the home, rent free, until, first, the full loan (R2 5m) had been repaid in agreed monthly instalments and, second, until the full repayment to them of the further outstanding R1m had been made (making up the R4 5m stated purchase price in the Agreement of Sale) Sadly, one imagines influenced by the closeness of the relationships between

the parties, the details of the loan and the repayments thereof were never documented

Suffice to say, long before final payment of the loan amounts, the relationship between the son-in-law and the parents-in-law broke down and the son-in-law, allegedly on advice from his attorneys that the oral loan agreement was unlawful in terms of the National Credit Act, 2005, ceased to make payments

He also sought to sell the property and accordingly notified his parents-in-law that they should vacate the property by a stated date, which they refused to do

Three court cases later (the high court, an appeal to the full bench of the high court, then a further appeal to the supreme court of appeal), the supreme court of appeal held that the parents-in-law had, prior to the hearing of the full bench of the high court, cancelled the oral loan agreement, thus entitling the parents-in-law to a claim for damage suffered by them, but losing them the right to remain in occupation of the property

The SCA then considered, in light of the cancellation of the oral agreement by the

parents-in-law, whether, as required by the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act, 1998 (PIE Act), the eviction of the parents-in-law would be “just and equitable” Circumstances which it considered included, inter alia, that the parents-in-law were elderly, the husband was unwell and that they had been rendered (mainly, no doubt, in consequence of this disastrous transaction), relatively speaking, impecunious

An offer was then made by the son-in-law that, in the event of an order of eviction being granted by the SCA, the son-in-law would accept an order of court which included, inter alia, the provision by him of appropriate rented accommodation for his parents-in-law for a period of one year The SCA concluded that the offer by the son-inlaw dealt adequately with the issue of just and equitable ,

and on that basis ordered the eviction of the couple

All in all, a most unsatisfactory result for the parentsin-law who were then not only obliged within a threemonth period to vacate the premises in which they lived, but were also placed in a position where they would still have to recover the damage suffered by them, no doubt by way of a further court action against the sonin-law This damage suffered would effectively have been the amount still outstanding to them in respect of the pur-

HE NOTIFIED HIS PARENTS-IN-LAW THAT THEY SHOULD VACATE THE PROPERTY BY A STATED DATE, WHICH THEY REFUSED TO DO

chase price for the sale of their property, which sale the full bench of the high court had already declared void ab initio by reason of it being tainted by the son-in-law’ s fraud

Notwithstanding the legal complexities of such an action for a claim of damage, one wonders whether the parents-in-law would have had the financial capacity, let alone the energy, to take on such an action bearing in mind the no doubt considerable legal costs already incurred by them to date

Much of the above, if not all of the above, could have been avoided if a detailed loan agreement had been entered into between the parties and signed by all concerned The cost of that exercise would have been of little consequence when compared to the stress, time and money which flowed from the missing loan document

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