Business Day Law & Tax (February 2024)

BUSINESS LAW &TAX

FEBRUARY 2024 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Unions, CCMA applicants should heed court ruling

STING IN THE TAIL

Restructuring exercise cannot be challenged by •being classified as an unfair labour practice dispute Brian Patterson & Shivani Moodley ENSafrica

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n one of the first reportable judgments of 2024, SAA v Numsa & Sacca, the labour court has sent a strong message to unions which litigate in the Commission for Conciliation, Mediation and Arbitration (CCMA) and CCMA commissioners who consider preliminary issues in the CCMA. During December 2019, South African Airways (SAA) was placed in voluntary business rescue, as the airline found itself in a parlous financial position and as such required restructuring to achieve commercial viability.

SAA accordingly initiated a restructuring exercise in

2020. The restructuring involved large-scale retrenchments as well as changes to the terms and conditions of employment of those employees who were retained by SAA. To reduce the adverse impact of the retrenchments, employees were also given the opportunity to participate in a training and lay-off scheme for 12 months after their retrenchment. The changed terms and condi-

PARTIES WHO REFER DISPUTES TO THE CCMA BEAR THE ONUS TO ESTABLISH THE CCMA’S JURISDICTION IN THE MATTER

tions and placement in the scheme took place with the agreement of individual employees.

Some eight months after the restructuring exercise was implemented and completed, and outside of the statutory periods to challenge a retrenchment, Numsa and Sacca referred an unfair labour practice dispute to the CCMA. Their ostensible complaint was that the new terms and conditions of employment and placements on the training and lay-off scheme constituted an unfair labour practice dispute.

SAA challenged the jurisdiction of the CCMA, as the dispute arose from a largescale restructuring exercise and any challenge ought to have been referred to the labour court, by way of an

/MAREK SLUSARCZYK urgent application and within the time periods set by section 189A of the Labour Relations Act, 1995.

SAA argued that this was not an unfair labour practice dispute but a retrenchment dispute and that the CCMA had no jurisdiction.

Commissioner Phala ruled that the matter must be arbitrated, after which he would determine whether the CCMA had jurisdiction and whether the dispute was truly an unfair labour practice dispute.

Over about 19 months, the parties attended six CCMA hearings on the merits, with Numsa and Sacca being unprepared on each occasion. At its wit’s end, SAA

launched an application to dismiss the CCMA referral, owing to the unions’ failure to proceed with the dispute.

Commissioner Phala dismissed that application and stated that CCMA commissioners do not have the power to dismiss matters before they are arbitrated.

Accordingly, SAA took the unusual step of launching a review application in the labour court, seeking to have the jurisdictional ruling, the dismissal ruling and a condonation ruling reviewed and set aside before the arbitration was held.

Norton AJ granted SAA’s review application with costs in a carefully considered and detailed judgment.

The labour court held that the unions impermissibly morphed a dispute about a retrenchment process into an unfair labour practice dispute, which this was not.

In any event, there could be no challenge to the fairness of SAA’s actions when the employees accepted the new terms and conditions of employment and the terms of the training and layoff scheme.

Parties who refer disputes to the CCMA bear the onus to establish the CCMA’s jurisdiction in the matter. Despite being called on to do so, the unions were unable to lay any factual basis for the matter to CONTINUED ON PAGE 2

BusinessDay www.businessday.co.za February 2024

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BUSINESS LAW & TAX LATERAL THINKING

Frivilous litigation in spotlight •judScgmathenting highlights a dubious practice Evan Pickworth BD Law & Tax Editor

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n early January 2024 case in the North West high court in Mafikeng, Strydom and Another v Coomans and Others (M533/2021) [2024] ZANWHC 6 (January 8 2024), should make frivolous litigating attorneys sit up and take notice.

In a scathing judgment, FMM Reid J highlighted a dubious practice had been developing in the division

where attorneys request reasons on senseless bases.

For example: where a matter has been removed from the unopposed motion roll on request of both parties or by notice of removal, where matters are postponed by agreement between the parties, or where written judgments have been pro-

vided setting out the reasons for the judgment.

In my view this amounts to nothing other than mindless or frivolous litigation and hints at a fee-generating practice.

According to the judge, it is concerning that an attorneys’ firm requests reasons for a judgment where a written judgment, which includes the reasons for the judgment and order, has already been handed down.

To my mind, this indicates that the attorney did either one of the following: ● He/she did not bother to read the judgment; ● In the event that only the order was received without the judgment, the attorney did not enquire from the registrar of the court or the judges’ secretary whether a written judgment has been handed down to obtain same.

Unions, CCMA applicants should heed court ruling CONTINUED FROM PAGE 1 be considered as an unfair labour practice dispute.

The CCMA is a body established by statute and is constrained to apply the definition of an unfair labour practice dispute set out in the Labour Relations Act. Commissioner Phala should have been alive to the issues and should have found that the CCMA had no jurisdiction to arbitrate the dispute. Thus the jurisdictional ruling was reviewed and set aside.

The labour court was scathing of the unions’ conduct in failing to proceed with the matter on six separate occasions over a period of 19 months. It held that as dominus litis (the party initiating the litigation), the unions bore the obligation to proceed with the matter expeditiously.

However, the unions were fundamentally unprepared to proceed with the arbitration and were almost entirely to blame for the excessive delay.

The court held that Commissioner Phala committed a

material error of law in finding that he did not have the power to grant SAA’s application to dismiss the referral.

Sections 138(1) and 138(9)(b) of the Labour Relations Act require commissioners to deal with disputes “fairly and quickly” and in accordance

THIS JUDGMENT ALSO REINFORCES THE IMPORTANCE OF EXPEDITIOUS RESOLUTION OF LABOUR DISPUTES with the primary objectives of the act. This includes the obligation to ensure effective and expeditious resolution of labour disputes.

The dismissal ruling was reviewed and set aside.

Section 158(1B) of the Labour Relations Act provides that the labour court may not consider review applications of preliminary or interlocutory rulings until after the CCMA proceedings have been concluded. The exception to this rule is when

it would be just and equitable to do so. The court held that the circumstances of the matter justified the review of the preliminary rulings before the conclusion of the arbitration proceedings, given that SAA had merit to its complaints against the unions and the commissioner.

This is a welcome judgment which clarifies that unions and employees may not challenge a restructuring exercise by classifying it as an unfair labour practice dispute, even if the restructuring exercise does not result in dismissal.

Unions, applicants in the CCMA and CCMA commissioners alike should heed the warning from this judgment: unions and applicants can no longer get away with seeking continuous postponements in respect of the matter they themselves have referred to the CCMA and CCMA commissioners cannot condone this behaviour. Employers facing similar behaviour are now armed with this judgment to have the CCMA referral dismissed before the arbitration proceeding.

This judgment also reinforces the importance of expeditious resolution of labour disputes and is another tool employers may use to ensure certainty and finality. ● ENS represented SAA in the CCMA and the labour court.

The request for reasons where reasons have been provided in a written judgment was seen by the judge to indicate that the request was nothing but a “kneejerk” reaction by the attorney without applying his/her mind to the matter.

When an officer of court acts in legal processes without applying their mind, it not only fails to serve the interest of justice, but actually and factually prejudices his/her own client.

In addition to the injustice

AS SA FACES LEGAL BATTLES AT HOME AND ABROAD, IT IS IMPERATIVE JUDGES CAN FOCUS AND DELIVER POWERFUL RULINGS

alluded to above, the action of an attorney asking reasons where reasons have been provided, adds to the increasing workload of the judiciary.

So the applicant attorneys here faced the wrath of the court: no fees.

The court said an order that precludes a legal practitioner costs for frivolous, mindless and/or thoughtless litigation process, such as in this instance where reasons are requested for a judgment where the reasons are contained in the judgment itself, will motivate legal practitioners to apply their mind to their actions.

The judge summed up the message for the legal fraternity well: “In my view this, in turn, will prevent precious judicial time being wasted on responding to a request for reasons where reasons have

been provided in the judgment itself.”

As SA faces intense legal battles at home and abroad, it is imperative judges can focus and deliver powerful rulings. Yet with only about 250 judges across nine provinces, their workload is enormous.

Consider the Labour Court, where court rolls were so clogged that as from October 2022, the court has not been able to enrol any new trials until 2024. The number of cases beggars belief — 4,307 cases in 2021/22 alone — and there are only 14 labour court judges in SA. This is why Justice Reid’s frustration is so palpable and almost jumps off the page.

Yes, we desperately need more judges and courtrooms.

But ending frivolous litigation is an equally good place to start righting the ship.

Ethical rules: a step in which direction?

CONTINUED FROM PAGE 6 istered persons to invoice medical schemes for the clinical services they render in terms of such employment?

The answer is unclear and will perhaps precipitate much-needed change in the manner in which practice code numbers are issued.

The employment of registered practitioners by nonregistered persons also gives rise to questions regarding the interaction between rule 18 and section 54A of the Health Professions Act.

EXEMPTION Section 54A exempts certain juristic persons from the operation of specific provisions of the act and allows juristic persons “to practise a profession … in respect of which registration in terms of [the act] is a prerequisite for practising”. A juristic person applying for an exemption in terms of section 54A must, in turn, comply with certain prescribed requirements to qualify for the exemption, including the requirement that the juristic person must be personal liability company.

In so far as juristic persons (including limited liability companies) may employ registered practitioners to provide clinical services to patients, it is difficult to understand why such juristic entities may not also receive an exemption in terms of

section 54A of the act — which is perhaps a further issue that may need to be revisited and updated to keep pace with the times.

Finally, the amendment notice also provides for a change to rule 23A, which prescribes various requirements that must be met for a practitioner to have a direct or indirect financial interest or shares in a hospital or any other healthcare institution.

One of the requirements is that the practitioner must

OPPORTUNITIES APPEAR TO NOW BE AVAILABLE TO PRACTITIONERS TO EXTEND THE MANNER IN WHICH THEY COLLABORATE submit an annual report to the HPCSA containing certain information. The amendment notice expands on the reporting requirements in rule 23A(h) and provides that the report to be submitted to the HPCSA must contain the following information and documents: ● The number of patients referred by him or her or his or her associates or partners to such hospital or healthcare institution and the number of patients referred to other hospitals in which he or she

or his or her associates or partners hold no shares; ● The agreements concluded in relation to the acquisition and/or ownership of the interests of shares in the hospital or healthcare institution; ● How the acquisition of the financial interest is funded and whether there are other ancillary contractual relationships between all the parties to the transaction or with related parties and entities and, if so, the nature of such contractual relationships; ● Policies or peer review protocols for admission of patients into such hospital or healthcare institution and quality monitoring mechanisms which serve to ensure that practitioners will comply with the ethical rules; and ● Any other information or document which the HPCSA may deem relevant.

FAR-REACHING The relevant practitioner must ensure compliance with rule 23A at all times.

The amendments to the ethical rules are therefore far-reaching and are arguably a step in a direction that aligns with an evolving healthcare service arena. The amendments, however, also highlight certain additional changes that need to be addressed to ensure consistency in legislation and policy as well as practical efficiency and proper application.

BusinessDay www.businessday.co.za February 2024

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BUSINESS LAW & TAX

Ins and outs of tax on repos Some differences between •repos and collateral arrangements Michael Reifarth ENSafrica

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lthough the overall economics of repurchase arrangements (repos) and collateral arrangements may be comparable in certain instances, the legal nature of these transactions and the SA tax implications arising in respect of these transactions are quite different.

The legal form of a repo entails a sale of the underlying shares or bonds by a party who agrees to repurchase identical shares or bonds from the counterparty at the end of a specified time period. In comparison, a collateral arrangement is a funding arrangement in terms of which funding is advanced by a lender to a borrower, with the borrower providing security in respect of the amount owed by transferring shares or bonds to the lender on an out-and-out basis. At the end of the term of the arrangement, the borrower

CONSIDERATIONS

will repay the funding and the lender will return identical shares or bonds.

From a SA tax perspective, a specific dispensation is granted for transactions entered into over SA-listed shares or certain bonds which meet the requirement of a “collateral arrangement” as defined in the Securities Transfer Tax Act (STT Act).

THE BORROWER WILL REPAY THE FUNDING AND THE LENDER WILL RETURN IDENTICAL SHARES OR BONDS Broadly speaking, in respect of qualifying collateral arrangements, the collateral provider will, from an income tax and capital gains tax perspective, disregard the disposal of the shares or bonds to the collateral receiver upon inception of the collateral arrangement and disregard the acquisition of the

/123RF — DROZDIRINA shares or bonds from the collateral receiver at the end of the term.

The collateral receiver will similarly disregard the initial acquisition of the shares or bonds from the collateral provider as well as the subsequent disposal of the shares or bonds to the collateral provider at the end of the term.

With regard to a repo, the tax treatment thereof will depend on, for example, whether the arrangement is treated as an interest-bearing instrument in terms of section 24J of the Income Tax Act for SA tax purposes. In such cases, the seller of the shares or bonds may be required to

account for interest income in respect of the arrangement, while the purchaser of the shares or bonds would need to meet various requirements to claim a deduction of “interest” in respect of the recharacterised loan.

IMPLICATIONS Repos are not afforded the income and capital gains tax dispensation that is provided to collateral arrangements as discussed above so, the parties will need to consider the income tax and capital gains tax implications arising upon the various disposal and acquisition legs of the repo.

From a securities transfer tax (STT) perspective, an

exemption from STT applies to the transfer of shares between the parties in the event that the transaction qualifies as a collateral arrangement. such exemption No applies to a repo over shares and the parties would need to consider if any other STT exemption may apply in the circumstances.

STT is not imposed in respect of the transfer of bonds and, as such, no STT implications should arise in respect of a repo or collateral arrangement entered into in respect of bonds.

The dividend withholding tax regime addresses collateral arrangements and repos

involving SA-listed shares.

Manufactured payments made by a recipient of collateral to the collateral provider over the term of the collateral arrangement may be subject to dividends tax at the rate of 20% in the event that collateral arrangement spans a dividend date in respect of the underlying shares and certain other requirements are met.

In respect of repos, the seller of shares may be deemed to be the beneficial owner of the dividend for dividends tax purposes in instances where the shares are acquired and held by the purchaser of shares over a dividend date, and where such purchaser receives the dividend.

Dividends received by both the recipient of collateral and the purchaser of shares under a repo are subject to provisions which may render such dividends or portions thereof as taxable in the hands of the recipient.

Understanding the SA tax treatment of repos and collateral arrangements which are commonly used in financial markets requires careful consideration despite such transactions having comparable economic outcomes in some instances.

VIEWPOINT AFRICA

Ghana launches regulatory sandbox for fintechs

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n August 2022 the Fintech and Innovation Office of the Bank of Ghana (BoG) launched a regulatory and innovation sandbox pilot (the regulatory sandbox) in response to requests for innovation in the banking and financial services sector.

WHAT IS A REGULATORY SANDBOX? The regulatory sandbox is a supportive policy environment enabling financial service providers to test innovative products, services and business models in a controlled regulatory environment. It acts as a safe space for startups and businesses since regulators usually relax specific legal and regulatory requirements to enable financial technology (fintech) players to experiment with innovative financial products or services.

The objective of the regulatory sandbox is, to among others, “enable small scale, live testing of innovative financial products, services and business models by eligible financial service providers and startups in a controlled environment under the

VIEWPOINT AFRICA supervision of BoG”. This means that innovators are permitted to test new ideas without being subjected to the full set of regulatory requirements applicable outside the regulatory sandbox. The regulatory sandbox will promote a progressive financial service industry without compromising financial stability.

WHAT THE REGULATORY SANDBOX IS NOT The regulatory sandbox is neither a permanent licence to operate nor a free pass to operate without BoG’s oversight or supervision.

WHO CAN PARTICIPATE IN THE SANDBOX? BoG-licensed banks and specialised deposit-taking institutions (SDIs) such as financial holding companies, savings and loans

companies, microfinance companies, payment service providers and dedicated electronic money issuers are eligible to apply to participate in the regulatory sandbox.

Banks and SDIs that wish to participate in the regulatory sandbox and which seek to introduce products that are derived from the permissible activities listed under the Banks and Specialised Deposit-Taking Institutions Act, 2016, require BoG’s prior written approval.

Also, unlicensed fintech start-ups (either solitary or in partnerships with other licensed entities) are eligible to apply to participate in the regulatory sandbox. Foreign fintechs are not permitted to participate in the regulatory sandbox; however, a foreign company which incorporates a subsidiary in Ghana and satisfies the 30% Ghanaian equity participation requirement as well as all other legal requirements, may apply to participate in the regulatory sandbox.

In considering the applications to participate in the regulatory sandbox, BoG has indicated that preference will be given to products and services leveraging on the

following: ● Blockchain technology; ● Remittance products; ● Crowdfunding products and services; ● Electronic know-yourcustomer platforms; ● Regulatory technology; ● Supervisory technology ● Digital banking, products and services targeting women’s financial inclusion; and ● Innovative merchant payment solutions for micro, small and medium-sized enterprises.

Note that the application window for the first cohort of the regulatory sandbox ended on March 14 2023. At the time of writing this article, there was no indication from BoG on when the application window for the second cohort would be opened.

Unofficial inquiries, however, suggest that applications for the second cohort will be opened some time in 2024.

An applicant is required to complete and submit an online application to BoG and must include: ● Information about the nature of the innovative product, service or business model;

● The applicant’s incorporation documents; ● Details of the applicant’s governance and ownership structure; ● Information on consumer benefits and safeguards; ● Information on the applicant’s readiness to test; and ● An exit plan.

The application will be reviewed for completeness and assessed to verify if it meets the requirements and eligibility criteria of the regulatory sandbox after which eligible applicants will be engaged in discussions regarding the testing of the innovative products.

Participants will be charged no application fees.

Following these discussions, an eligible applicant will be issued with a letter of approval from BoG

AN ELIGIBLE APPLICANT WILL BE ISSUED WITH A LETTER OF APPROVAL AND ADMITTED INTO THE REGULATORY SANDBOX

and admitted into the regulatory sandbox to commence testing the product. The testing will be monitored and evaluated periodically by the technical team. At the end of the testing period, applicants must submit the final testing report and exit the regulatory sandbox.

The letter of approval issued to successful applicants will among others, confirm the applicant’s entry into the regulatory sandbox; confirm the duration of time for participation in the regulatory sandbox; summarise the innovative product, service or business model permitted to be tested; reference any sandbox tools to be deployed; and set out the customer safeguards to be enforced.

Participants will typically be admitted into the regulatory sandbox for a duration of six months.

Participants may, subject to BoG’s satisfaction, request an extension of the testing period of up to three months. ● Moses Ayiku is an Associate at ENS Ghana. Reviewed by Nana Yaa Ahmed, an Executive at ENS Ghana.

BusinessDay www.businessday.co.za February 2024

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BUSINESS LAW & TAX

Fair of firms to fire back if jokes backfire

TALK THE TALK

CCMA has upheld the axing of an employee •whoThetried some dark humour over load-shedding Jacques van Wyk & Andre van Heerden Werksmans

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n Commission for Conciliation Mediation and Arbitration (CCMA) in the case of National Union of Metalworkers of South Africa obo Mahlangeni v Ford Motor Company SA (Pty) Ltd (2023) 32 CCMA, the applicant, a Mr Mahlangeni, was employed

by Ford Motor Company of South Africa (Pty) Ltd as an operator at one of its plants.

On May 3 2023, Mahlangeni posted a message on Ford’s group (without any authorisation) stating that “due to the Stage 6 Load Shedding, the Ford Struandale Engine Plant would on May 3 2023, be closed for the afternoon and night shift from 8pm until 6am on the following morning”. In addition, the message stated that “the affected shifts would be placed on a lay-off on Wednesday May 3 2023 and that in the absence of any changes the affected employees

would be required to come to work on the following day, May 4 2023.”

About 47 employees were part of the group.

As a result of posting the above message to the group, Mahlangeni was charged and found guilty of misconduct for “falsifying information

HE SAID FORD HAD NOT SUFFERED ANY LOSSES AND FORD’S PRODUCTION WAS NOT AFFECTED AS A RESULT OF HIS MESSAGE with regard to the lay-off communication and attempting to sabotage the production on May 3 2023…” and was thereafter, dismissed.

Dissatisfied, Mahlangeni challenged the substantive fairness of his dismissal at the CCMA (he did not contest the procedural fairness of his dismissal).

/123RF — LUCADP

FORD’S VERSION Ford argued, among other things, that Mahlangeni’s misconduct was “very serious and tantamount to fraud” and could have “resulted in approximately 47 employees not reporting for duty”. This, in turn, would have affected Ford’s production, it would have failed to meet its daily targets and not have been able to meet customers’ demands/needs.

For the reasons mentioned above, Ford argued that the dismissal was substantively fair.

APPLICANT’S VERSION

Although Mahlangeni did not dispute sending the message to the group, he claimed that it was deleted “within seconds” and that he sent another message to the group stating that the earlier message was “just a joke” (emphasis added).

The latter was, however, disputed by Ford who argued that the message was only deleted after management intervened. Mahlangeni fur-

ther argued that by deleting the message, he acknowledged that what he had done was wrong.

Mahlangeni also said that Ford had not suffered any losses and Ford’s production was not affected as a result of his message. Based on the latter, Mahlangeni argued that the sanction of dismissal was too harsh.

CCMA’S ANALYSIS In analysing the evidence presented, the commissioner referred to the Code of Good Practice: Dismissal of the Labour Relations Act 66 of 1995. In particular, the commissioner emphasised that the code provides that “employers and employees should treat each other with mutual respect” and that “employers are entitled to satisfactory conduct and work performance from their employees”.

Given that Mahlangeni only challenged the substantive fairness of his dismissal

and, in particular, the appropriateness of the sanction of his dismissal, the commissioner referred to item 7 of the code which requires any person who is considering whether a dismissal for misconduct is unfair to consider, “whether or not the employee contravened rule or standard regulating conduct in, or of relevance to the workplace; and (a) if the rule or standard was contravened, whether or not … (iv) dismissal was the appropriate sanction for the contravention of the rule or standard” (our emphasis).

Turning to the question whether dismissal was the appropriate sanction for the misconduct, the commissioner considered the “gravity of the misconduct” (our emphasis) as well as the importance of deterring fellow employees from engaging in such misconduct. In considering the gravity of the misconduct, the commissioner stated that one must

have regard to the context of the message.

The commissioner noted that SA is facing many challenges as a result of loadshedding and that “the disruption of electricity supply has placed many if not all employers in a very precarious position in their ability to meet their daily targets in relation to production is under immense strain”. The effect of the latter is that customers’ demands are not met, which leaves them frustrated. The commissioner stated importantly that “the issue of load-shedding and its adverse implications is a very serious matter and not a matter of a joke”.

Referring to Mahlangeni’s misconduct, the commissioner said employees who are part of the group would have believed that false message given the context above, and this would have deterred them from coming to work.

This would have affected Ford’s production, resulting in it not meeting its daily targets and causing irreparable harm. According to the commissioner, Mahlangeni was also dishonest in that the posting of the message was deliberate and a calculated effort. The fact that the message was deleted did not rescue Mahlangeni since it should never have been posted in the first place.

The commissioner, therefore, held that dismissal was an appropriate sanction and substantively fair given the severity of the misconduct.

IMPORTANCE Employees who post messages on their employer’s social media groups must consider the impact of their deeds on the employer and other employees.

CONSUMER BILLS

Law does not cope with issue of AI as legal person

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he biggest question facing the law worldwide in the next few years is how to recognise self-generative AI thinking systems as legal persons.

I use “artificial intelligence” in contrast to natural person intelligence, not because there will be anything artificial about what AI does autonomously in the near future.

Private law governs the rights and duties between persons who may be natural persons, or juristic persons such as corporations. Public law determines the rights and duties between the state as the sovereign power and all persons.

According to legal science, human beings, and the corporations through which they act, govern their independent actions as legal subjects and they have rights,

PATRICK BRACHER duties and capacities. As the law developed, it was accepted that the law also protects the products of a legal subject’s mind, for example a painting or a book.

What happens when a computer system with selfgenerating intelligence is able to think for itself and create AI-generated content without acting on behalf of or under the instructions of human intelligence? These are not tools creating content. They are active participants making their own decisions based on data and acting on them autono-

mously — for example, buying and selling shares.

The question has already arisen in relation to self-drive vehicles and crewless autonomous cargo ships but those are the agents of, and programmed by, human beings. What happens when self-drive modes of transport can make autonomous decisions? Who gets the driver’s licence?

One of the basic principles of the law of persons is the requirement that one should not cause harm to another. If a selfgenerating computer system causes damage negligently or even willfully who do you sue for damages, and who do you put in jail for a crime?

Or do you just close them down (if you can) and sell their intellectual property to pay the damages, if it is worth anything?

The other side of the coin

is that a legal subject usually has rights and obligations in relation to a legal object. Can a computer system buy and sell property, either in the ordinary universe or in the metaverse? The whole principle governing the rights and obligations of persons is to hold people accountable for their actions and transactions.

How happy will we be to have a computer system as the lessor of our office premises?

The law does not cope with the issue. Since 1957 the Interpretation Act has defined a “person” for the purposes of any statute as including certain government bodies, incorporated companies and other incorporated and unincorporated “bodies of persons”. The word “person” is clearly used in the sense of a natural person.

The constitution refers to the rights of persons throughout, but relates to a natural or juristic person.

Does a right to life include electronic life? If computer systems can make a cup of coffee, or anything, merely by watching other people do so, who bears any adverse consequences?

Consumer legislation such as the Consumer Protection Act does no better.

What will protect the computer-wronged consumer, natural or artificial? The UK supreme

CAN A COMPUTER SYSTEM BUY AND SELL PROPERTY, EITHER IN THE ORDINARY UNIVERSE OR IN THE METAVERSE?

court recently held that AI cannot be an inventor under their patent laws and cannot be granted patents for inventions. Will we benefit by having the inventions of computer systems unrecognised as protectable rights?

These are not just musings of idle minds. The self-generating intelligence of computer systems is developing faster than most natural intelligence can cope with. We have to revise basic concepts of law which go back to Roman times to protect persons and their interactions, including autonomous persons which do not act through human agents.

The consequences of not doing so will be far-reaching. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za February 2024

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BUSINESS LAW & TAX

Ethical rules: a step in which direction?

ON THE PULSE

Amendments align with an evolving healthcare •sector and highlight changes that need addressing Neil Kirby & Helen Michael Werksmans

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n November 17 2023, the registrar of the Health Professions Council of SA (HPCSA) published certain amendments to the Ethical Rules for the Conduct of Practitioners Registered under the Health Professions Act, 1974 (GNR 717, dated August 4 2006).

The amendments are entitled “Proposed Amendments to the Ethical Rules of Conduct for Practitioners Registered under the Health Professions Act, 1974” and were published in Board Notice 510 in Government Gazette 49720. Although the title of the amendment notice refers to “proposed amendments”, the registrar of the HPCSA has since confirmed that the amendments are indeed final.

The amendment notice has the effect of fundamentally changing the landscape in which healthcare “practitioners”, as that term is defined in the ethical rules, may collaborate with others.

We deal below with certain of the key changes.

Prior to the publication of the amendment notice, practitioners were only entitled to receive fees for services personally rendered or for the services rendered by someone in their employment, which prevented certain

alternative models of reimbursement, including global fee agreements. The amendment notice has now introduced rule 7(6) of the ethical rules, which provides that: “Notwithstanding anything contained in sub-rules (4) and (5) above, a practitioner may share, charge or receive fees from another practitioner: Provided that in such an instance, there is an express agreement, arrangement or model of rendering multidisciplinary based healthcare services to patients which is structured, which provides high-quality healthcare services or prod-

WHILE THE AMENDMENT TO RULE 18 MAY BE A WELCOME CHANGE, CERTAIN PRACTICAL DIFFICULTIES EXIST ucts, contain costs of rendering healthcare services and enhance access to appropriate healthcare.”

A definition for the term “multidisciplinary healthcare” has also been included in the ethical rules and means healthcare delivery that involves multiple health practitioners from different professions of healthcare; while “appropriate healthcare” is now defined as healthcare delivery where

the expected clinical benefits of care to patients outweigh the expected negative effects to such an extent that the treatment is justified.

Based on the amendments to rule 7, therefore, further opportunities appear to now be available to practitioners to extend the manner in which they collaborate and consequently bill for healthcare services.

Rule 8 then deals with partnerships and juristic persons in the context of practitioners. In particular, it restricts practitioners to practising only in partnerships with each other or in associations where the practitioners concerned are not prohibited, in terms of the ethical rules, from entering into such partnerships or associations.

OTHER PRACTITIONERS The amendment notice now introduces new rule 8(5), which provides that: “Notwithstanding anything contained in [rule 8], a practitioner may provide healthcare services with other registered practitioners, persons registered in terms of the [Health Professions Act], or in terms of any other legislation regulating health professions: Provided that the primary aim will be to enhance the quality of healthcare services to patients, and further that there is an express agreement, arrangement or model of rendering multidisciplinary-based

/123RF — LENETSNIKOLAI healthcare services to patients which provides high-quality healthcare services or products to patients, structured to contain costs and enhance access to appropriate healthcare.”

Rule 8, therefore, now authorises collaboration between practitioners in different registration categories provided that an express agreement, arrangement or model is in place which ensures high-quality healthcare services or products to patients, structures to contain costs, and enhanced access to appropriate healthcare.

A further change relates to rule 8A. Prior to the enactment of the amendment notice, rule 8A provided that “[a] practitioner shall not share his or her rooms with a person or entity not registered in terms of the act” — which was interpreted as precluding registered persons from having medical rooms in the same establishment as that of a nonregistered entity or person. Rule 8A has now been substituted and reads as follows: “A practitioner may share his or her rooms with a person registered in terms of the act, or in terms of any other legislation regulating health professions.”

Once again, the newly inserted rule 8A appears to support the establishment of multidisciplinary practices that may now operate together in the same establishment.

One of the most significant changes is the amendment to rule 18, which deals with professional appointments (including the employment) of healthcare practitioners.

The pre-amended wording reads as follows: “18(1) A practitioner shall accept a professional appointment or employment from employers approved by the council only in accordance with a written contract of appointment or employment which is drawn up on a basis which is in the interest of the public and the profession.

(2) A written contract of appointment or employment referred to in subrule (1) shall be made available to the council at its request.”

Accordingly, prior to its amendment, rule 18, read with the policy, prescribed that a nonregistered person or entity may only employ registered practitioners if the nonregistered entity obtained permission from the HPCSA to do so — and pursuant to a contract that aligns with the interest of the public and the profession.

Rule 18(1) has now been revised to read as follows (deletions to the previous rule are reflected in square brackets): “A practitioner shall accept a professional appointment or employment from employers [approved

RULE 8 AUTHORISES COLLABORATION BETWEEN PRACTITIONERS IN DIFFERENT REGISTRATION CATEGORIES by the council only] in accordance with a written contract of appointment or employment which is drawn up on a basis which is in the interest of the public and the profession: Provided that, the health practitioner ensures that the employment contract has as its primary aim the enhancement of the quality of healthcare services to patients, is structured to contain costs, enhance access to appropriate, high-quality healthcare services or products to patients, and is not designed to extract profit for the benefit of the practitioner or their employer to the detriment of patients.” while the Curiously, amendment notice itself provides that deletions to the ethical rules are to be reflected in brackets, the term

“approved by the council only” has not been reflected in brackets — but has simply been deleted. The draft amendments to the ethical rules, which preceded the amendment, notice also do not propose this deletion.

Be that as it may, we understand that the position of the HPCSA is that nonregistered persons are no longer required to apply for approval from the HPCSA to employ registered practitioners to perform clinical services.

APPROVALS This question that then arises is: but what now of the previous approvals already granted by the HPCSA (many of which were subject to conditions) as well as pending employment applications, which were submitted to the HPCSA before the amendment notice was published?

The position, as we understand it, is that previous approvals and conditions remain effective; whereas pending applications are now considered redundant and will not be advanced.

The amendment to rule 18, therefore, goes a long way towards increasing the potential for collaboration between registered and nonregistered persons — where the aim is to enhance access to and the quality of healthcare services to patients, and is structured to contain costs as opposed to extracting profit for the benefit of the practitioner or their employer to the detriment of patients.

While the amendment to rule 18 may be a welcome change, certain practical difficulties exist. In particular, and in relation to the Regulations to the Medical Schemes Act No 131 of 1998, no provision is made for the issuing of practice code numbers to nonregistered persons who lawfully employ registered practitioners to render services to medical schemes members. How then are regCONTINUED ON PAGE 2

BusinessDay www.businessday.co.za February 2024

7

BUSINESS LAW & TAX

Shift in environmental law NEMLAA4 •ushers in a new era of stringent compliance and reinforced enforcement Paula-Ann Novotny Webber Wentzel

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n the ever-evolving arena of environmental legislation, the National EnviroWebber Wentzelnmental Management Amendment Act 2 of 2022 (NEMLAA4) emerges as a transformative force, poised to introduce a wholesale shift in SA’s environmental legislative landscape.

Since the inception of the One Environmental System (OES) in 2014, NEMLAA4 stands as the most significant legislative overhaul, addressing prevailing issues, deterring noncompliance and augmenting enforcement mechanisms within the mining and industrial sectors.

NEMLAA4, promulgated into law on June 30 2023 (barring certain sections addressed below), imparts sweeping changes that ripple across various statutes, predominantly the National Environmental Management Act, 107 of 1998 (NEMA) and four Specific Environmental Management Acts (SEMAs): Air Quality Act 39 of 2004, Waste Act 59 of 2008, Protected Areas Act 57 of 2003, and Biodiversity Act 10 of 2004.

Financial provisioning revamp: A pivotal amendment under NEMLAA4 is the

restructuring of financial provisioning (FP) for rehabilitation and closure (R&C). While initially targeted at the mining sector, this reform extends to empower the minister to impose FP on other industries. The distinction between general R&C principles (section 24P) and mining-specific principles section 24PA) marks a shift in specificity, outlining stringent regulations governing funding, vehicles for financial provisioning, fund utilisation and drawdown approval processes.

Expanded municipal enforcement: NEMLAA4 broadens the authority to issue section 28 directives — addressing breaches of the environmental duty of care — to municipal managers. This amplification of enforcement powers casts a wider net, intensifying regulatory over-

A PIVOTAL AMENDMENT IS THE RESTRUCTURING OF FINANCIAL PROVISIONING FOR REHABILITATION AND CLOSURE sight beyond national and provincial departments.

Rectification processes reinforced: Historically, section 24G of NEMA allowed post-commencement rectification for unlawful activities, often exploited by entities initiating activities without the requisite licences. NEMLAA4 bolsters these rectification processes, imposing public participation requirements,

mandatory cessation of unlawful operations and escalated administrative penalties, raising fines up to R10m. The scope of such applications has also been extended to include successors-in-title and persons in control of land where unlawful activity has occurred as applicants.

Altered dynamics in appeals: NEMLAA4 brings changes to the suspension of approvals during appeals, permitting applications to the appeal authority to lift suspensions pending the outcome of the appeal. On the other end, appeals against administrative enforcement action will not automatically suspend the directive or precompliance, but applications to suspend such directions are now similarly permissible on good cause shown.

Empowered inspectors and designation: Ministers now hold the authority to designate staff members as well as regulatory state organs as environmental inspectors, fortifying regulatory control and ensuring specialised oversight within the enforcement framework.

Air Quality Act amendments: NEMLAA4 modifies rectification processes for commencing listed activities under the Air Quality Act without the requisite licence, analogous to NEMA’s section 24G. However, the scope does not extend to include “successors in title” or new landowners/controllers.

Confusion regarding ministerial versus municipal licensing competencies has also been clarified.

Waste Act amendments: Enhanced Contamina-

KEEPING IT SUSTAINABLE

/123RF — GULZARKARIMN tion Provisions: Notable changes under NEMLAA4 emphasise early notification of likely land contamination (as opposed to the previous position only on existing significant contamination).

Where an investigation area has been identified/notified, a site assessment report will need to be conducted by an independent person and will need to include a remediation plan that will be submitted to the minister or MEC. The reduction in the national land register’s scope to register contaminated land areas only (and no longer also investigation areas) enhances public accessibility and awareness.

Streamlined licensing processes: NEMLAA4 introduces clarity in the complexity of licensing authorities, defining the competencies across municipal, provincial and national levels. Moreover, the addition of public participation requirements during licence transfers or exemption applications elevates community involve-

ment and communication.

Protected Areas Act amendments: Restricting mining-related activities in protected environments now only necessitates written permission from the environment minister, requiring a range of procedural submissions to accompany the request for permission.

Biodiversity Act amendments: Clearly defined steps to control or eradicate invasive species, prescribed by the environment minister, reinforce the duty of care regarding invasive species management on owned lands.

FUTURE REFORMS: THE

NEMLAA4’S AMENDMENTS ECHO A COMMITMENT TO RESPONSIBLE ENVIRONMENTAL STEWARDSHIP

UNFULFILLED POTENTIAL While NEMLAA4 marks a substantial leap forward, certain proposed amendments are yet to come into effect, presenting potential future shifts in SA’s environmental legal framework.

Pending Air Quality Act amendments: The proposed inclusion of provisions for revocation or suspension of atmospheric emission licences, which have not existed to date, aims to strengthen regulatory control over noncompliance.

Pending Waste Act amendments: Proposed changes to the definition of “waste” and the regulation of residue stockpiles and deposits have faced legal challenges in their implementation but forewarn forthcoming changes in waste management practices once properly addressed.

EMBRACING ENVIRONMENTAL TRANSFORMATION NEMLAA4 embodies a pivotal juncture in SA’s environmental journey, ushering in a new era of stringent compliance and reinforced enforcement. Its far-reaching amendments, effective from June 30 2023, echo a commitment to responsible environmental stewardship while delineating a path toward sustainable industrial practices.

As future amendments linger, industries and stakeholders must brace for evolving compliance standards and remain adaptable to the dynamic legislative landscape, fostering a harmonious coexistence between industrial progress and environmental preservation.

Vital factors will be needed to succeed in 2024 Jonathan Goldberg and Grant Wilkinson Global Business Solutions As we step into 2024 organisations are facing a pivotal moment where the ability to navigate a rapidly changing landscape will determine their success in the months ahead.

This is against an economically uncertain backdrop for SA. According to a report published by Deloitte entitled — “South Africa economic outlook, November 2023” — the National Treasury revised down the country’s growth outlook from 0.9% for 2023 to 0.8%. In addition, the growth outlook for the coming years has been revised downwards — from 1.5% in 2024 to 1%, and 1.8% in 2025 to 1.6%. It is expected to aver-

age only 1.4% over the 2024 to 2026 period.

This being said, numerous factors — many of which are within the organisation’s control — will play a critical role in shaping the business environment. Here are the key aspects that organisations must carefully navigate in the coming year.

ADAPTABILITY TO CHANGE Organisations must realise it is not what happens to them that matters most but rather how they interpret and respond to these situations.

Success will depend largely on their ability to adapt to change and efficiently redirect their resources.

Flexibility and agility will be essential traits as businesses navigate evolving dynamics and market

unforeseen challenges.

EMPATHETIC LEADERSHIP Smart leaders who genuinely empathise with their staff — and evoke a deep sense of trust and purpose — will be crucial in underpinning resilience, fostering innovation as well as reducing resistance to change. Building a culture of empathy and trust within the organisation will be vital for driving employee engagement and motivation.

An example is the Administrative Adjudication of Road Traffic Offences (Aarto) regulations.

Ensuring adherence to these laws will be essential to avoid legal complications and maintain a harmonious work environment.

HR AND LABOUR RELATIONS POLICIES Businesses will need to undertake a comprehensive review and refresh of their human resources and labour relations policies to align with

COMPLIANCE WITH LABOUR LAWS Compliance will be a key feature of organisations in 2024 as they navigate not only existing SA labour laws but also the approximately 10 new or amended laws that are in the advanced stages of the parliamentary process.

ORGANISATIONS WILL NEED TO DO A THOROUGH SKILLS SET ANALYSIS AND IDENTIFY TRAINING NEEDS

both organisational and statutory changes.

This proactive approach will help ensure the businesses remains compliant and supportive of its workforce.

SKILLS DEVELOPMENT With the increasing impact of artificial intelligence (AI), organisations will need to do a thorough skills set analysis and identify training needs, particularly in the areas of AI and emotional intelligence.

Generative AI is set to affect 100% of jobs, making digital and emotional intelligence key focal points for capacity-building initiatives. organisations also need to properly train staff about how to use AI in their work.

There is a lot of misuse of AI tools, such as ChatGPT, because people use only one aspect of it.

DIVERSITY, EQUALITY, AND INCLUSION Organisations must prioritise the acquisition and enforcement of behavioural skill sets related to diversity, equality, inclusion, and belonging. Failing to do so could result in devastating legal and business consequences.

Creating a culture that values diversity and fosters inclusivity will be crucial for firms’ success in 2024.

This year presents organisations with a host of challenges that require strategic responses. By focusing on adaptability, empathetic leadership, compliance, policy review, skills development, and diversity and inclusion, businesses can position themselves for success. Partnering with thought leaders in these areas and collaboration are essential.

BusinessDay www.businessday.co.za February 2024

8

BUSINESS LAW & TAX

Retirement fund tax clarity directive simulation is critical when there is •SarsTaxdebt to settle when withdrawing from a fund Emile van der Spuy Gravitas Tax

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hen you a exit retirement fund — which can occur when you retire, resign, are retrenched, emigrate or get divorced — a tax amount will be payable to the SA Revenue Service (Sars).

In the case of retirement and retrenchment, clients may have to settle debt, and an emergency fund may be critical. In addition, if clients are retrenched, there could be uncertainty as to when they will once again be gainfully employed.

It is therefore critical to have an idea upfront of how much tax is going to be deducted from the lump sum in the fund. This calculation will leave a client with a net amount, from which it is possible to decide how much to withdraw for their immediate needs, for example to pay off debt, or sustain a living for a couple of months.

WHAT IS A TAX DIRECTIVE SIMULATION? Tax directive simulations only came into effect in 2019, meaning this is a relatively new concept many advisers

and their clients are unaware of. The simulations provide an estimate of what a client’s tax would be if a withdrawal was made from their fund.

They are not calculations that can be carried out by advisers alone, as these individuals generally do not have all the information related to a client’s tax situation at their fingertips.

The tax a client is going to pay when exiting a fund depends on many factors, including: ● Whether a client previously withdrew funds on resignation or retrenchment; ● The length of time applicable — at retirement, a client may not remember all the instances of withdrawal, when these took place, and why; ● What tax tables are applicable in each case; and ● If the client’s individual taxes are up to date, and if not an IT88 will be indicated.

These factors make it

THIS TOOL HELPS TO GIVE YOU AN IDEA OF THE TAX YOU’RE GOING TO PAY IN ADVANCE, WHERE THERE IS DEBT TO SETTLE

NOT JUST FOR A RAINY DAY

extremely difficult for an adviser to make an accurate calculation on behalf of a client.

Enter the tax directive simulation, which can accurately simulate the tax payable by a client, based on all their previous withdrawals recorded by and available from Sars.

WHY IS A TAX DIRECTIVE SIMULATION IMPORTANT? This tool helps to give you an idea of the tax you’re going to pay in advance, where there is debt to settle. Also, there’s unfortunately no going back once a client proceeds with a withdrawal from a fund.

Say, for example, a client wishes to take out R500,000 on retirement and their adviser estimates — without performing a simulation — that there’s going to be nil tax payable. The actual withdrawal takes place and Sars deducts the tax that they deem necessary. If there is, for example, an additional R100,000 to be deducted, for which the adviser didn’t account, there’s no way back.

That R100,000 will be deducted by Sars and the client will receive only R400,000, instead of the expected R500,000.

/123RF — PWSR01 The simulation is critical when there is debt to settle on retirement, as the adviser can show the client how much tax will be payable. This will allow the client to alter the amount they were hoping to withdraw from the fund — say to R600,000 — in advance of the withdrawal taking place, to accommodate the R100,000 in tax payable to Sars. The client will therefore be able to receive the R500,000 they were counting on as a net amount.

The adviser’s role is to let their clients know about the availability of tax directive simulation, and to advise them about the information

the simulation elicits to avoid any difficult or unexpected situations on withdrawal.

While there are financial services providers that offer tax directive simulations within the industry, they usually limit their advisers to one simulation per fund on behalf of a client. This is a fairly manual paper-based process, and it can take up to a week for the results.

A client may have funds invested in different vehicles, at numerous firms, but a particular financial services provider can only do a simulation on behalf of the monies lodged with them, say R500,000. They cannot allow for the funds amount-

ing to R3m in total, for argument’s sake, which are lodged elsewhere in the retirement funds of other firms.

SPEED AND EFFICIENCY REDUCE THE STRESS The question to ask, then, is whether your adviser is making use of this vital simulation process on your behalf.

If a client chooses to retire without this information, their adviser has carried out financial planning on their behalf in a blindfolded state, so to speak, without providing the client with the industry specific know-how they need to make an effective and astute decision.

Cautious year for private equity, ventures Ashlin Perumall, Janine Howard & Tanya Seitz Baker McKenzie

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lobal geopolitical challenges, currency volatility and soaring inflation led private equity (PE) and venture capital (VC) investors to be cautious in 2023, prompting safer investment choices.

Mega deals saw a decline across all asset classes.

According to the African Private Equity and Venture Capital Association (Avca), private equity investment in subSaharan Africa (SSA) saw local and international private equity firms invest $1.2bn in SSA companies by the third quarter of 2023. This was 16% lower than the same timeframe in 2022.

The number of PE transactions reached 91, also a decrease compared to the same period in 2022, with 34% less volume in PE deals overall. Avca’s third quarter 2023 Venture Capital Activity

in Africa report also revealed that Africa’s venture capital ecosystem recorded a 28% increase in capital raised by venture capitalists during Q3 2023 compared to the same period last year.

While the quarter fared well, the total raised for the first nine months of the year was $2.95bn, down from $4.3bn raised in the first nine months of 2022, with the VC industry attracting just 69% of the capital raised in the region in 2022. The pending fourth quarter results might even out comparative amounts over the two years.

Despite a decrease in the volume of transactions, certain sectors exhibited resilience, with collaboration in the sector leading to investor synergy in project that focus on innovation and sustainability, notably in the technology, media and telecommunications (TMT); consumer goods and retail (CG&R); and financial sectors. According to Avca, the TMT, CG&R and financial sectors accounted for about two-thirds of all

venture capital raised in the first nine months of 2023, with financial, IT and ecommerce start-ups proving the most successful.

In the TMT sector, the impending rollout of 5G will accelerate Africa’s transformation through innovation such as the enhanced capabilities of asset tracking and logistics, connected shopping, energy monitoring and the promise of smart cities.

For this to happen, it will be essential that policy and legal frameworks facilitate the development of the necessary infrastructure to support access to the required broadband spectrum.

Financial sector innovation has led to the development of mobile payment systems and digital trading platforms. For example, enhanced digital payment systems are helping to facilitate trade across the continent and opening up opportunities to invest in products and services that are traded across the African Continental Free Trade Area (AfCFTA).

Investors have taken note, and more global PE funds are expected to collaborate on initiatives that benefit from AfCFTA in the future.

Consumers are also enjoying the benefits of digital developments, especially those that support financial inclusion and online retail platforms. More than half of the world’s mobile money customers are now based in Africa and innovative financial service offerings are opening up to mobile money users.

Fintech accounted for 25% of all venture capital rounds in SSA in the past few years.

Bringing the unbanked into the financial mainstream has created further openings for innovative financial solutions and the user markets are huge, with plenty of room for more growth and synergy in segments such as alternative lending, digital investment and neo-banking.

The online consumer goods and retail sector has been experiencing exponential growth, with a corre-

sponding shift in consumer attitudes regarding the sustainability of products and services they consume, as well as a demand for more transparency throughout the supply chain. One of the ways digitalisation is addressing challenges in the CG&R sector is through the use of artificial intelligence (AI) in every aspect of a product life cycle, from research and development solutions, manufacturing robotics, supply chain analysis, demand forecasting and inventory management through to customer engagement, targeted marketing and sale and post-sale interactions, and in the data collation of ESG initiatives.

While online retailers in Africa have struggled due to current economic headwinds and impact of inflation, they are adapting by sourcing different supply chains and securing better prices. The online retail market has grown substantially and multinational retailers are entering the market through key gateway countries such

as SA. An increased focus on sustainability is also directing the strategy of private equity and venture capital investors, with ESG considerations creating synergy in the way investors view and select targets.

Sustainability-driven investments have seen significant returns, with lower higher employee costs, engagements and stronger sales leading to superior valuations.

Private equity and VC investors are also looking to collaborate on projects that incorporate energy transition principles, with small-scale renewable energy projects being especially attractive.

For example, cleantech (technology companies that aim to improve environmental sustainability), renewable energy and energy storage initiatives have been attracting investor interest.

There is also increasing synergy in inclusion and diversity projects, most notably in youth and womenled projects.

BusinessDay www.businessday.co.za February 2024

9

BUSINESS LAW & TAX

Grow SMMEs to avoid losing another decade Experts must understand the unique demands of the segment and deliver more bespoke solutions

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Nicole Rousseau PKF Octagon

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mproved outcomes for the local economy will only be achieved if advisers do far more than just tick boxes.

They must identify opportunities for efficiencies and growth, all to meet strategic goals and add value.

They must also ensure businesses are given a roadmap to success that includes navigating bumps in the road such as regulations and load-shedding.

A more strategic approach will ensure that the immense economic dividend of SMMEs is harnessed so that

SA secures its future. The consequences of not improving the SMME sector today will, sadly, lead to another decade of lost opportunities.

The SMME sector remains the engine room of growth and jobs for SA, yet not enough is being done to grow and support this “sweet spot” for the economy.

A spate of delisting from the JSE recently reflects how tough it is to survive, yet this — together with high unemployment and fewer job opportunities — is opening the door for more flexible, innovative businesses to thrive, whether out of necessity or choice.

According to the World

Bank, SMEs represent about 90% of businesses and more than 50% of employment worldwide, and formal SMEs contribute up to 40% of emerging economies’ national income (GDP). These numbers are significantly higher when informal SMEs are included. They are by far the biggest creator of jobs, and so

ACCORDING TO THE WORLD BANK, SMES REPRESENT ABOUT 90% OF BUSINESSES AND MORE THAN 50% OF EMPLOYMENT WORLDWIDE

SIZE MATTERS

/123RF — ANDREIASKIRKA this is clearly where the solution lies to SA’s ongoing unemployment crisis.

However, the International Finance Corporation (IFC) has noted that while SMMEs employ about half of SA’s workforce and contribute to about 34% of GDP, their voice is often excluded from the national conversation.

A joint report by the IFC and the World Bank, in partnership with SA’s National Treasury, aptly titled the “Unseen Sector”, found that micro, small and medium enterprise (MSME) sector growth stagnated over the past decade and that only 14% of small businesses in SA are formalised. That means many micro and small enterprises are creating opportunities for self-employment.

The recent Mastercard

SME Confidence Index finds that three out of four SMEs surveyed in SA are concerned about the rising cost of doing business. While more than half of SA SMEs are optimistic about the future, 80% of SMEs in the country project similar or increased revenue.

So where is it all going wrong? The answer is nuanced, based on numerous factors ranging from sociopolitical to lack of skills, support and access. These are all the areas in which more work is needed to ensure this sector grows significantly faster than it is now.

The report highlighted that informal businesses struggle more to access finance than their formal counterparts and that female ownership lags behind male small business

ownership in the country and is declining.

The Mastercard survey highlights the top three areas for support required by SMEs in Africa: training and upskilling staff (91%), digitalising businesses (88%) and access to a broader range of financial services (88%).

Experts in financial services must step up the support levels they provide SMMEs. The problem is many major players focus on large businesses, corporate deals and high net worth clients.

Still, the key is to truly believe in these businesses’ potential and why they must not be allowed to fail. This means that, as experts, we must harness data, understand the unique demands of the sector and deliver more bespoke solutions.

LEGAL SCOOP

Imitation can spark claims for misrepresentation Ian Jacobsberg Fluxmans Attorneys

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he quote from Oscar Wilde — “Imitation is the sincerest form of flattery” — is well known.

Less known is the full quote: “Imitation is the sincerest form of flattery that mediocrity can pay to greatness.”

In the commercial world, imitation of the great by the mediocre (or at least the less creative) expresses itself in the delict of passing off.

Passing off occurs when a person in business tries to capitalise on the goodwill of another business by representing, either expressly or by implication, that his goods or services are those of the other business, or that there is an association between his goods and services and those of the other.

Almost invariably, that representation takes the form of imitation; by using a format of packaging, labelling and presentation similar to the original, which is calculated to deceive consumers into purchasing the product of the offender, believing it to be, or the be connected with, the original.

Two decisions of the high court, delivered within days

LEGAL SCOOP of one another in November 2023, dealt with passing off in relation to well-known consumer products and illustrate well what a party that complains of passing off needs to prove to succeed with a claim.

Akzonobel Coatings International BV and another v Dumax Paints (Pty) Ltd and Others was heard by the Free State division of the court. It concerned the wellknown “Dulux” paint brand, manufactured by Akzonobel, the applicant. The respondent, as its name indicated, manufactures a competing product under the “Dumax” brand.

The applicant claimed that the respondent’s use of the “Dumax” name and a similar product “get up” (the overall commercial image of a product that indicates or identifies the source of the product) to the applicant’s, created a likelihood of deception. Akzonobel asked the court to issue an interdict

against the respondent. In making its decision the court made the point that “‘the law against passing-off is not designed to grant monopolies in successful get-ups’ and a certain measure of copying is permissible”.

In making this observation, the court recognised that businesses will naturally want to use ideas and methods that have proved to have worked and have become state of the art.

The bounds of lawfulness would be crossed only where a likelihood of deception arose.

In its judgment, the court noted that, in order to reach a conclusion that confusion is likely, the entire get-up of the respective products must be compared including the shapes, the markings and the decorations of the products as well as how the respective trademarks are applied to the products” but, the court held that taking the get-ups of the two rival parties into account, “the dissimilarities are obvious” and refused to grant an interdict on the claim of passing off (an interdict was in fact granted on the basis of a trademark infringement, in terms of section 34 of the Trade Marks Act, but this was based purely to the

similarities between the names “Dulux” and “Dumax”, in particular how the two names sounded when spoken).

The second matter, Shoprite Checkers (Pty) Ltd v Pick n Pay Retailers (Pty) Ltd, was heard in the Western Cape Division. The case concerned the respondent, Pick n Pay’s “Crafted Collection” range of food products. The applicant, Shoprite Checkers (Checkers), claimed that the packaging and labelling of the products and get-up and presentation of the products was deceptively similar to Checkers’ own “Forage and Feast” range.

The court noted that in order to succeed in a claim for passing off, Checkers had to show, first, “that its get-up or mark has become distinctive of its goods or services, in the sense that the general public associate the get-up or mark with the goods or services exclusively with the applicant [sic].

Second, Checkers had to prove that the get-up used by [Pick n Pay] in the Crafted Collection is such, or used as to intentionally mislead, or cause the public to be confused or deceived into believing that there is an association between their

respective products or that Pick n Pay’s product emanates from Checkers”.

The court found that Checkers had proved that its products had acquired a reputation and goodwill in the market. In this regard, the court said, “get-up had developed into a distinguishable and reputable brand in the market evidence clearly shows that the applicant had established a significant goodwill and overvalued reputation over many years following the launch of the Forage and Feast range.”

The court went on to note that Checkers’ name did not appear on the packaging of its “Forage and Feast” range, and Pick n Pay’s name, while it did appear, was inconspicuous and not prominently displayed.

Therefore, to an average consumer, it would not be clear that the products emanated from different

THE COURT WENT ON TO NOTE THAT CHECKERS’ NAME DID NOT APPEAR ON THE PACKAGING OF ITS ‘FORAGE AND FEAST’ RANGE

companies. Furthermore, the overall similarities in the packaging get-up of both products were so significant that “confusion or deception is likely to arise among customers should the same or similar goods be sold in the marketplace, whether adjacent to one another or displayed on different shelves. It is highly probable that consumers will perceive both products as coming from the identical manufacturer.”

These two judgments, close together in time, are a useful reiteration for the branding and marketing industry of where the lines are to be drawn between “inspiration” and “imitation”.

In every endeavour, including business, what works becomes state of the art and it makes sense to follow its lead, but where imitation crosses the line to the point where it is no longer clear which product emanates from which business, the innovator has valid grounds to object.

And indeed, as Oscar Wilde pointed out, imitation, while flattering, may indeed be a mark, not of ingenuity but of mediocrity. ● Jacobsberg is a director at Fluxmans Attorneys.

BusinessDay www.businessday.co.za February 2024

10

BUSINESS LAW & TAX

Key insurance checks as the year speeds up A checklist to help make sure you are not caught •off-guard if you need to make a claim in 2024 Mtho Maphumulo Adams & Adams

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t is that time where there are many pressing things which occupy people’s minds, such as school/university fees.

Against this backdrop, it is perhaps understandable why this is a period where most insureds are likely to lose sight of critical aspects of their insurance policies.

This is aggravated by the financial constraints most people grapple with at this time of year. The high cost of living also does not help the situation in any way.

It is, therefore, critical to

remind the insureds of key considerations when it comes to insurance policies at this time of the year to ensure they are not caught off-guard should the need to make a claim arise.

POLICY CHECKLIST ● Ensuring the bank account to be debited has sufficient funds on/by the date on which payment is due. ● Should there be insufficient funds, consider your policy wording to see what it says regarding the grace period. Alternatively, contact your broker or insurer to seek clarity. ● Ensure to pay before the

expiry of the grace period, failing which your policy terminates automatically. ● Once payment is made, confirm in writing with your broker or insurer that payment has been made and request written confirmation that payment has indeed been received.

IF UNCERTAIN ABOUT ANYTHING PERTAINING TO YOUR POLICY, SEEK CLARITY FROM YOUR BROKER OR INSURER DIRECTLY

KEY CONSIDERATIONS

/123RF — ARTURSZ ● When you pay after the grace period has lapsed, confirm with your broker or insurer whether that payment reinstates your policy. If so, as of when. If it does not, confirm whether it resurrects the policy anew — for example as though a new policy has been entered. ● Should you not be satisfied with the number of days stipulated in the policy as a grace period, consider seeking legal advice. The grace periods for both indemnity and nonindemnity policies are regulated by legislation. ● Check whether the December 2023 instalment was effectively debited. This may seem futile; however, most insurance companies change debit dates for the

month of December. This is even more critical in the context of this past December, seeing that the 25th was preceded by a weekend. In view thereof, it is possible that the debit order was scheduled for three to four days earlier or later. ● Look out for any provisions pertaining to renewals and reassessments. Ensure to comply, if applicable. ● Look out for provisions or notifications which may introduce changes to the policy terms. ● Consider the duration of the policy and whether you are obliged to specifically renew or whether it renews automatically.

Check whether the terms and conditions remain constant after

it renews automatically. ● If uncertain about anything pertaining to your policy, immediately seek clarity from your broker or insurer directly.

Given the fact there are many things that people are busy with and trying to sort out at this time of the year, it is quite possible to overlook or lose sight of critical insurance aspects and this can have grave and undesirable repercussions. As such, it is imperative that you, the insured, proactively consider your policy/policies.

Although the above list is not exhaustive in terms of the aspects to look out for, they are among the most important and must be carefully considered.

TAXING MATTERS

Understatement penalties and bona fide errors

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n terms of section 222 of the Tax Administration Act No. 28 of 2011, a penalty (known as an understatement penalty) must be levied in the event of an “understatement” unless that understatement results from a “bona fide inadvertent error”.

The penalty amount is calculated by applying a certain percentage (determined by a relevant behaviour in the understatement penalty percentage table in section 223 of the Tax Administration Act) to the “shortfall”.

Most of us are familiar with the fundamental requirement for the imposition of an understatement penalty, namely that an understatement penalty will be levied when underdeclaring taxable income or overstating an assessed loss. In other words, there must be an understatement to begin with.

As was illustrated in several recent court judgments discussed in this article, there are two more requirements that must be adhered to before an understatement penalty must (or can) be imposed.

First, no understatement

penalty may be imposed if the understatement results from a bona fide inadvertent error (the burden of proof in this regard rests on the taxpayer). Second, for an understatement to exist, The SA Revenue Service (Sars) must prove that it results in prejudice to Sars or the fiscus.

The judgments discussed below clearly illustrate the importance of (i) not simply accepting penalties imposed

by Sars and (ii) obtaining tax advice when faced with significant transactions.

CSARS v The Thistle Trust (November 7 2022) The Supreme Court of Appeal considered the meaning of a “bona fide inadvertent error”, with its finding being aptly summarised in paragraph 29 of the case as follows: “Sars initially adopted the position that, in the light of the legal opinion, it should be concluded that the Thistle Trust had consciously and deliberately adopted the position it took when it elected to distribute the amounts of the capital gains as it did. However, during the argument before us, counsel for Sars conceded, correctly, that the understatement by the Thistle Trust was a bona

fide and inadvertent error as it had believed that s 25B was applicable to its case.

Though the Thistle Trust erred, it did so in good faith and acted unintentionally. In the circumstances, it was conceded that Sars was not entitled to levy the understatement penalty.”

In other words, an incorrect tax position consciously and deliberately adopted by a taxpayer based on expert advice can be considered a bona fide inadvertent error. Much has been written about this judgment, but it is important to understand the taxpayer must demonstrate its bona fides in adopting a certain tax position that it (in good faith) believed to be true.

Although the above argument was made for the remittance of an understatement penalty imposed under Chapter 16 of the Tax Administration Act, said argument and consideration of the remittance was extended to apply to “Administrative Non-Compliance Penalties” imposed under Chapter 15 of the act by the appeal court in CSARS v Coronation Investment Management SA (Pty) Ltd (February 7 2023), where reference was made to Thistle.

Enviroserv Waste Management (Pty) Ltd v CSARS (December 18 2023) The appeal court adjudicated a dispute relating to the so-called accelerated manufacturing allowance the taxpayer claimed regarding its waste management process. Of relevance here is that Sars imposed a 25% understatement penalty. The taxpayer appealed to the merits of the case and the imposition of the understatement penalty because (in its view) it resulted from a bona fide inadvertent error.

The court, however, took a different approach and considered first whether there was an “understatement” at all, which would only be the case if there was prejudice to Sars or the fiscus.

Regarding its judgment in Purlish Holdings (Pty) Ltd v CSARS, the appeal court confirmed that it is insufficient for Sars to merely show that its conduct falls within sections 221 and 223 of the Tax Administration Act. It must also show prejudice to Sars or the fiscus.

Although prejudice is not limited to financial prejudice and includes the risk that the misstatement will hamper

Sars’s ability to effectively administer tax legislation, a mere risk is insufficient. The appeal court concluded that Sars made no effort to prove the risk, and no understatement penalty could be levied.

Unitrans Holdings v CSARS (January 9 2024) The high court in Gauteng found that the taxpayer in question incurred impermissible expenditure. On this basis, Sars imposed an understatement penalty due to a substantial underdeclaration of taxable income. The taxpayer argued that there was no understatement as the claim for deductions resulted from a bona fide inadvertent error.

The taxpayer further argued that Sars had to satisfy itself that there was no such an error. As the argument goes, the taxpayer contended that Sars did not even plead that the understatement was due to an

TAXPAYERS WHO HAVE BEEN SUBJECT TO AN UNDERSTATEMENT PENALTY SHOULD SEEK PROFESSIONAL ADVICE

inadvertent bona fide error.

The court disagreed and found that the taxpayer did not demonstrate a basis to justify the court’s interference with the tax court’s decision to uphold the penalty.

In this case, the taxpayer did not commit a mistake in claiming the deductions.

Instead, it maintained its tax position that it is entitled to the deduction. This case should be distinguished from the Thistle Trust case discussed above, in which the taxpayer relied on a tax opinion.

It is clear that taxpayers who have been subject to an understatement penalty should seek professional advice from a suitably qualified tax adviser to identify any potential remedies available that may result in the remittance of these penalties.

There is more to arguing against an understatement penalty than merely stating that it resulted from a bona fide inadvertent error. ● Estian Haupt is associate director: SA direct tax; and Leonard Willemse is associate director: SA indirect tax at SA tax specialist AJM Tax.

BusinessDay www.businessday.co.za February 2024

11

BUSINESS LAW & TAX

Timeframe for Sars response can be longer

SAVE THE DATE

There are circumstances in which prescription may not apply and taxpayers’ actions can affect this Taryn Solomon ENSafrica

M

ost taxpayers will be familiar with section 99 of the Tax Administration Act (TAA), namely the provisions which deal with the period of limitations for the issuance of assessments.

This article takes a closer look at one of the circumstances where prescription may not apply — that is, how a taxpayer’s actions may have an impact on this and what has been seen in practice.

As a quick refresher on the structure of the provisions of section 99, section 99(1) provides for the time periods in which the commissioner for the SA Revenue Service (Sars) may assess a taxpayer while section 99(2) sets out the circumstances where the time periods provided for in section 99(1) will not apply. Sections 99(3) and (4) provide for circumstances where the commissioner may, by prior notice, extend

the time periods in section 99(1).

Finally, this article will also focus on instances where the commissioner may extend a time period on the basis that the circumstances contemplated in section 99(3)(a) arise.

Section 99(3)(a) (with our emphasis) provides as follows:

SECTION 46 PROVIDES THAT SARS MAY REQUEST A TAXPAYER TO PROVIDE RELEVANT MATERIAL WITHIN A REASONABLE TIME “(3) The commissioner may, by prior notice of at least 30 days to the taxpayer, extend a period under subsection (1) or an extended period under this section, before the expiry thereof, by a period approximate to a delay arising from: “failure by a taxpayer to

provide all the relevant material requested within the period under section 46 (1) or the extended period under section 46 (5)”.

As can be seen from the above, section 99(3) makes reference to a taxpayer’s behaviour relating to the provision of relevant material in accordance with section 46 of the TAA. Section 46 in turn provides that Sars may request a taxpayer to provide relevant material within a reasonable time period (section 46(1)), but that Sars may extend the period based on reasonable grounds submitted by a taxpayer (section 46(5)).

From the wording of section 99(3) it therefore appears that if a taxpayer does not comply with either the time period granted by Sars to provide relevant material in accordance with section 46(1), or with an extended time period granted by Sars to provide relevant material in accordance with section 46(5), the commissioner may extend the prescription time periods.

/123RF — EVKAZ

UNILATERAL POWERS This is an important consideration for taxpayers during the information-gathering phase of an audit as the commissioner’s powers to extend prescription in these circumstances are unilateral despite the commissioner having to provide advance notice.

We have, however, recently observed that in practice Sars appears to be relying on section 99(3)(a), not only where a taxpayer merely did not comply with the deadlines imposed in sections 46(1) or 46(5) as the case may be, but also in circumstances where a taxpayer motivated, obtained and adhered to an extension from Sars based on reasonable grounds in accordance with section 46(5).

What we observed is that Sars unilaterally added the number of days to the prescription time periods which passed between the date of the original due date by which the relevant material had to be provided (in accordance with section 46(1)) and the new due date by which the relevant material had to be provided as agreed to by Sars (in accordance with section 46(5)).

WHAT WE OBSERVED IS THAT SARS UNILATERALLY ADDED THE NUMBER OF DAYS TO THE PRESCRIPTION TIME PERIODS

In other words, we have seen Sars place reliance on the provisions of section 99(3)(a) to extend the prescription time periods when there was no failure to provide relevant material by the agreed extended date in accordance with section 46(5). This appears to be the Sars interpretation of these provisions.

As referred to above, this is an important consideration for taxpayers to take into account in the informationgathering stage of an audit and taxpayers should weigh up how a request for more time to provide relevant material (even if such request is acceptable to Sars) can factor into prescription, which can become an important defence in tax disputes.

Reining in animal trafficking and fighting poses a severe threat to these species. The act provides the necessary tools for authorities to prosecute those involved in this illicit trade, ensuring that wildlife is better protected against corrupt activities.

Rui Lopes & Mfihlakalo Kubeka Lopes Attorneys In SA, the battle against corruption extends beyond human affairs and, encompasses a realm where the vulnerable and voiceless often suffer in silence — the animal kingdom.

The Prevention and Combating of Corrupt Activities Act, 12 of 2004 may not seem directly related to animal welfare, but it plays a crucial role in addressing crimes such as animal trafficking and animal fighting.

This article explores how the act can be a potent tool in safeguarding the rights of our furry, feathered and scaly companions.

Combating animal trafficking: a silent menace Animal trafficking is a lucrative but sinister business. It

The dark world of dog fighting and horseracing

involves the illegal capture, trade and transportation of wildlife, endangered species and even domestic pets. The profits are huge, which can attract the attention of corrupt individuals and organisations.

But how does the act come into play?

The act is a powerful instrument in the fight against corruption. It criminalises corrupt activities, including bribery, fraud and money laundering. When applied to

animal trafficking, it can target individuals and organisations that engage in illegal activities related to animals.

For instance, bribing officials to ignore illegal wildlife shipments or money laundering connected to the trade of exotic pets can fall under the purview of the act.

SA is home to diverse wildlife, some of which are endangered or protected by international agreements.

The illegal wildlife trade

Dog fighting and horseracing may seem worlds apart, but both involve animals suffering for profit. The cruel practices often extend to corruption, with many individuals involved in these activities attempting to skirt the law.

The act steps in to address

DOG FIGHTING AND HORSERACING BOTH INVOLVE ANIMALS SUFFERING FOR PROFIT

this issue.

Under the law, corrupt activities encompass various forms of fraud and bribery. In the context of dog fighting and horseracing, this could involve bribing officials to turn a blind eye to animal abuse or fixing races to ensure large bets pay off. The financial gains in these industries can be substantial, attracting those willing to break the law for gain. A balancing exercise therefore remains insufficient, in overriding compliance with legislative prescripts.

By utilising the act, law enforcement agencies and animal welfare organisations can target and prosecute those involved in corrupt practices related to dog fighting and horseracing. This not only protects the animals subjected to these cruel practices but also maintains the integrity of these sports.

A stronger, safer future for animals In the fight against corruption, it is crucial to recognise the intersection with animal welfare. The Prevention and Combating of Corrupt Activities Act, designed to combat corrupt activities in various sectors, can be a formidable weapon against crimes such as animal trafficking and abuse in dog fighting and horseracing.

With the support of legal professionals who understand the intricacies of the act, the animals that cannot speak for themselves have a better chance at a life free from suffering.

If you or someone you know has information about corrupt activities related to animal welfare, it’s essential to consult with a legal expert who can navigate the complexities of the law and ensure that justice prevails.

BusinessDay www.businessday.co.za February 2024

12

BUSINESS LAW & TAX

Insurer must honour its obligations

SOLID FOUNDATIONS

finds that variable construction guarantee •hadCourt not expired when builder’s client defaulted Aslam Moosajee & Laurence Mort ENSafrica

I

n the recent case of SMBT v Hollard Insurance and Others, the Gauteng division of the high court dealt with the proper interpretation of a guarantee, namely whether a guarantee issued by the guarantor to make payment in the event of default by the principal debtor had expired, by the time a demand under the guarantee was delivered.

On March 20 2015, SMBT concluded a written building agreement with Cape Island Construction (CIC) to build a new dwelling on its registered immovable property in Kloof Road, Clifton, Cape Town for the contract price of R42,795,598.

In conjunction with this agreement, SMBT was issued a “variable construction guarantee” (guarantee) in its favour by Hollard Insurance Company to pay if CIC defaulted.

In terms of the agreement, the principal agent of SMBT (that being SBDS Quantity Surveyors) should issue a “final completion certificate” once the works reach completion.

Within 90 working days

of the date of practical completion, the principal agent should issue the final account to CIC. Provided no objections are made to this account within 45 working days of its receipt, the principal agent shall issue a “final payment certificate” within seven calendar days thereof.

If the final payment certificate reflects an amount in

IN CASES OF AMBIGUITY A DOCUMENT’S TERMS OUGHT TO BE CONSTRUED AGAINST THE PARTY

BY WHOM IT WAS FORMULATED favour of SMBT, CIC must make payment of the certified amount within 21 calendar days. On May 6 2022, the principal agent issued the final payment certificate (a day after issuing the final completion certificate) which certified that CIC owed R2,130,687.49 to SMBT. CIC failed to make payment despite a written demand made on June 1 2022. Consequently, SMBT looked to Hollard on June 9 2022 for pay-

ment under the guarantee for the amount of R855,911,74 (being the “guaranteed sum”).

On June 14 2022 Hollard repudiated SMBT’s claim because the guarantee had expired.

The court held that, in accordance with the principles outlined in Natal Joint Municipal Pension Fund v Endumeni Municipality and Capitec Bank Holdings v Coral Lagoon Investments, the proper interpretation of the guarantee must be based on the “triad of text, context and purpose”.

In this regard, although clause 3 of the guarantee imposed a primary obligation (rather than accessory) on Hollard which is autonomous from the underlying agreement, the proper interpretation of the guarantee must be determined with reference to its wording and purpose within the broader context of the agreement itself.

The court examined clause 1.1.4 of the guarantee, which provided that Hollard’s liability for the guaranteed sum serves for the period “from and including the day after the date of the applicable final completion certificate and up to and including the date of the final payment certificate”.

/123RF — SASKEKUN The guarantee also recorded that “where the final payment certificate reflects payment due to the employer, this construction guarantee shall expire upon payment of the full amount certified”.

Clause 1.2 further provided that Hollard’s liability should apply “in respect of any claim received by the guarantor during the period in question”, which in this case was from May 6 2022 up until payment of the certified amount (yet to occur).

Based on these provisions, the court noted that since the final payment certificate reflected that CIC owed SMBT the certified amount, as well as the fact that SMBT demanded payment from Hollard on June 9 2022, it clearly followed that the guarantee was to expire only on payment of the full amount certified.

The court thereafter examined Hollard’s defence which relied on its interpretation of the “guarantee expiry date” definition — being “on the issue of final completion certificate — as well as clause 11 which pro-

vided that the guarantee shall expire in terms of either 1.1.4 or 2.1, or payment in full of the guaranteed sum or on the guarantee expiry date, whichever is the earlier”.

Accordingly, Hollard contended that the guarantee expired on May 5 2022 (the date of issue of the final completion certificate).

The court rejected Hollard’s interpretation, adding that it amounts to untenable “narrow literalism” since it creates a direct contradiction between clause 11 (read with the definition of “guarantee expiry date”) and clause 1.1.4 — the effect of which renders the latter clause entirely meaningless.

The court found this literalist interpretation resulted in an absurd and unbusinesslike outcome because Hollard

THE COURT FOUND THIS LITERALIST INTERPRETATION RESULTED IN AN ABSURD AND UNBUSINESSLIKE OUTCOME

could never be held liable to make payment since “payment of the full amount certified” necessarily only occurs after the issuance of the final completion certificate.

Given the inherent contradiction of these provisions, the court held that since the “guarantee expiry date” definition amounted to a “general provision”, while clause 1.1.4 amounted to a “special provision”, greater weight ought to be attributed to the special provision. Further, in accordance with the contra proferentem rule, in cases of ambiguity a document’s terms ought to be construed against the party by whom it was formulated.

Moreover, a provision in an insurance agreement which purports to limit an express obligation ought to be restrictively interpreted.

Finally, the court said that Hollard’s interpretation defeated the primary purpose of the guarantee itself, which was to protect SMBT if CIC defaults. Consequently, the court held that the guarantee issued by Hollard had not expired and granted judgment in favour of SMBT.