Business Day Law & Tax (August 2023)

BUSINESS LAW &TAX

AUGUST 2023 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

GBV: what employers need to know

HANDS OFF

Steps to be taken to address and eradicate •gender-based violence in and out of the workplace Audrey Johnson & Kerrie-Lee Olivier ENSafrica

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ender-based violence (GBV) is a pervasive issue within the South African context.

Defined as “violence associated with gender, which includes physical, sexual, verbal, emotional, economic, educational or psychological abuse or threats of such acts of abuse in public or private life”, the unfortunate reality is that as a society, not enough has been done to assist in eradicating GBV. With thousands of reported cases of GBV last year, the question that arises from a labour law or workplace perspective is: how can employers play a meaningful role in addressing or eradicating GBV? In this article, we consider two settings in which GBV can arise and

then tackle what an employer can do about GBV, from the viewpoint of assisting victims and taking appropriate action against perpetrators.

GBV IN THE WORKPLACE In respect of GBV that occurs in the workplace, many employers adopt a zerotolerance approach. While a clear policy statement on an employer’s stance against GBV is helpful in communicating the right message, and the issue ideally should be addressed in company disciplinary codes and procedures, an express written rule

EMPLOYERS, AS RESPONSIBLE CORPORATE CITIZENS, SHOULD PLAY AN ACTIVE ROLE IN ADDRESSING GBV

against conduct of this nature does not necessarily need to be in place in the form of rules or policies before an employer can elect to take disciplinary action against a perpetrator.

However, more is required than just having policies in place that are essentially mere rhetoric and that are ineffective. True progress towards eradicating violent conduct towards women, or assisting victims, is taking concrete action to prevent it from occurring and addressing specific incidents.

GBV committed on the employer’s premises goes to the very root of the trust relationship and inevitably results in a breakdown in the relationship between the perpetrator and employer.

In light of this, the summary dismissal of the perpetrator would in most instances be warranted.

In respect of the victim, the harm (be it physical, psy-

chological, emotional) that they suffered as a result of the GBV at the workplace can be classified as an “injury on duty”. As such, an employer will then have a greater obligation to assist and support the victim and to accommodate them to the extent that they may be temporarily incapable of properly performing their duties. The victim can also claim compensation in terms of the Compensation for Occupational Injuries and Diseases Act. In response to the GBV crisis in SA, two recent developments intended to assist employers addressing these issues in the workplace have emerged.

The Code of Good Practice on the Prevention and Elimination of Harassment in the Workplace (code) was pub-

lished under the Employment Equity Act, 1995 and has been in effect since March 18 2022.

The code specifically recognises GBV as a form of harassment, which is prohibited by the Employment Equity Act. Although the code is only a guideline on addressing and eliminating harassment in the workplace, and is not binding legislation, the extent to which employers have complied with it will inevitably be considered when determining whether an employer should be held vicariously liable for the conduct of perpetrators of harassment (including GBV) in terms of section 60 of the Employment Equity Act. The code implores employers to have clear policies and effective practices in place to manage

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and eliminate harassment within the workplace.

In addition, if GBV takes place at an employer’s workplace or while employees are at work, the Employment Equity Act requires an employer to consult with relevant parties and take all necessary steps to address and eliminate these acts of harassment.

Employers could be held liable for incidents of GBV that do occur if they have failed to take these necessary steps (both proactive and reactive) in terms of the Employment Equity Act. Employers can also be held vicariously liable for acts committed by their employees in the course and scope of their duties in terms of the CONTINUED ON PAGE 2

BusinessDay www.businessday.co.za August 2023

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BUSINESS LAW & TAX

Discriminatory work hours mother of newborn baby to work at night •forForcing no compelling reason found to be unfair dismissal Jessie Gertzen & Kirsti Leaf ENSafrica

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he celebration of National Women’s Day on August 9 2023 provided a fitting opportunity for employers to pause and consider whether they are doing enough to implement measures that facilitate women’s development in their workplaces.

Given that women are still typically playing a majority role in discharging family responsibilities, working hours or working practices imposed by many employers may disproportionately limit women’s ability to discharge their family responsibilities.

According to a 2018 report by the International Labour Organisation, women globally spend 76.2% of their time on unpaid care work, more than three times as much as men. This discrepancy has also been recognised by SA courts in various contexts.

In President of the Republic of SA and Another v Hugo, the Constitutional Court said: “[38] For all that it is a privilege and the source of enormous human satisfaction and pleasure, there can be no doubt that the task of rearing children is a burdensome one. It requires time, money and emotional energy.

“For women without skills or financial resources, its challenges are particularly

acute. For many SA women, the difficulties of being responsible for the social and economic burdens of child rearing, in circumstances where they have few skills and scant financial resources, are immense.

“The failure by fathers to shoulder their share of the financial and social burden of child rearing is a primary cause of this hardship. The result of being responsible for children makes it more diffi-

WOMEN GLOBALLY SPEND 76.2% OF THEIR TIME ON UNPAID CARE WORK, MORE THAN THREE TIMES AS MUCH AS MEN cult for women to compete in the labour market and is one of the causes of the deep inequalities experienced by women in employment.

“The generalisation upon which the president relied is therefore a fact which is one of the root causes of women’s inequality in our society. That parenting may have emotional and personal rewards for women should not blind us to the tremendous burden it imposes at the same time. It is unlikely that we will achieve a more egalitarian society until responsibilities for child rearing are more

equally shared.” [Footnotes excluded.]

In G v Minister of Home Affairs and Others, the high court cited with approval an article by E Bonthuys (Public Policy and the Enforcement of Antenuptial Contracts: W v H (2018) 135 SALJ) in which it was stated that: “[56]… ‘As a consequence of gender discrimination, women tend to be poorer than men and to earn less in the marketplace.

Stereotypical roles also entail that women tend to devote more time and effort to childcare and housework which further impacts on their earning capacity.’”

The importance of reconciling family responsibilities with an employer’s working hours is illustrated by section 7(d) of the Basic Conditions for Employment Act, 1997 requires every which employer to regulate the working time of each employee with due regard to the family responsibilities of employees. Failure to comply with section 7(d) may result in a department of employment & labour inspector issuing a compliance order to the employer, which may include the payment of a fine which can range from R300 to R1,500 for each employee who is affected by the noncompliance.

If the employer fails to comply with the compliance order, the CCMA may issue an award requiring the employer to adhere to the

ON THE CLOCK

/123RF — PATRICKDAXENBICHLER compliance order.

In addition, disregarding employees’ family responsibilities may amount to unfair discrimination subject to any defences being available to an employer (such as the inherent requirement of the job defence) and accommodating an employee imposing undue hardship or insurmountable operational difficulty.

In this regard, section 6 of the Employment Equity Act 1998 expressly prohibits unfair discrimination on the grounds of family responsibility. Family responsibility is defined as “the responsibility of employees in relation to their spouse or partner, their dependent children or other members of their immediate family who need their care or support”.

It is also possible that an employer’s working hours may discriminate indirectly against women on other grounds such as sex, gender and marital status. In the context of dismissals, section 187(1)(f) of the Labour Rela-

tions Act 1996 provides that a dismissal is automatically unfair if the employer unfairly discriminated against an employee on the grounds of family responsibility.

Not many family responsibility disputes in the workplace have made it to the courts. However, the old CCMA award in Masondo v Crossway Supersave offers food for thought for employers in this regard.

In this award, it was held that an employer who compelled an employee with a newly born child to work night shift when there was no compelling business reason to do so, was unfair and amounted to an automatically unfair dismissal.

Although the dispute in Hugo v eThekwini Municipality was settled, it is also of interest. In this matter, the plaintiff instituted proceedings in the Labour Court against her employer, alleging that she was unfairly discriminated against on the grounds of family responsi-

bility and gender.

She argued that she had been unreasonably and unilaterally transferred on a number of occasions over a period of one year, which had adverse effects on her autistic child who required a reasonably predictable routine.

She further argued that her employer was obliged to reasonably accommodate her responsibilities towards her child.

The settlement agreement was made an order of court: “In order reasonably to accommodate the family responsibility of the applicant, the respondents shall transfer the applicant to a post in the KwaMashu Station of the second respondent with effect from July 1 2012, in which post the Applicant shall work a fixed day shift of 07h00 to 16h00, Monday to Friday …”

As illustrated above, when regulating working hours, employers are required to consider the extent to which the working hours have the potential to affect employees’ family responsibilities, and in particular those of the women in its workplace.

If this is the case the employer should carefully consider whether this impact can be justified on the grounds of its operational requirements, an inherent requirement of the job in question, and to what extent it may be able to reasonably employees accommodate who are so impacted. ● Reviewed by Peter le Roux, an executive consultant in ENSafrica’s Employment practice.

Gender-based violence: what employers need to know CONTINUED FROM PAGE 1 common law.

More recently, the National Council on Gender Based Violence and Femicide draft bill was published on September 30 2022. The purpose of the draft bill is to establish a national council that will work in corroboration with relevant stakeholders towards eliminating GBV and femicide in SA. The draft bill recognises that employers ought to play a role in assisting with the eradication.

Employers, as responsible corporate citizens, should play an active role in addressing GBV. They should create awareness and conduct proper training in respect of GBV inside the workplace as well as explore the possibility of participating in education and awareness campaigns outside the workplace and in the communities

in which they operate.

In our view, awareness and training start with addressing certain gender norms and stereotypes. In addition, these training and programmes awareness should educate employees on the legislative provisions and remedies available to assist victims of GBV such as the Protection from Harassment Act and the Domestic Violence Act. This should include practical guidance on steps that can be taken by victims in these situations such as obtaining a protection order against the perpetrator.

Employers should also consider appointing designated individuals who can assist employees who are victims of GBV and consider contracting with employee health and wellness service providers that can provide counselling and assistance.

Helplines and emergency contact details should also be

easily accessible to employees. In general, employers should endeavour to create a safe space for employees to raise concerns and issues around GBV.

GBV OUTSIDE OF THE WORKPLACE In the world of remote working, what constitutes “the workplace” is no longer clear-cut. The Occupational Health and Safety Act provides that employers must provide a working environment that is safe and without risk. Where an employee works from home, that employee’s home becomes his or her workplace under the Occupational Health and Safety Act and the code. In circumstances where an employee is a victim to GBV during working hours within his or her “workplace” and where an employee, as a victim, reaches out for help, an employer is required to take

all reasonably practicable steps available to it to assist.

Where GBV is suspected but the employee has not informed their employer, the employer cannot take action against the perpetrator unless the perpetrator is also an employee and the employer has sufficient evidence of misconduct.

In circumstances where the perpetrator is an employee and committed acts of GBV outside of the workplace, the employer can consider whether it can take disciplinary action against the employee for “off duty misconduct.” Even though the kneejerk response from employers may be to simply want to take disciplinary action against the perpetrator, especially in the case of serious incidents of GBV outside of the workplace, it is not always simple for an employer to establish a basis for doing so.

Item 7(a) of Schedule 8 of the Code of Good Practice: Dismissal, provides that disciplinary action may be taken against employees where there has been a contravention of a rule regulating conduct in the workplace, or of relevance to the workplace.

The test for determining “relevance” is: ● There must be a link or nexus between the conduct complained of and the the employee’s duties, employer’s business or the workplace; and ● The employer must have a sufficient and legitimate interest in the conduct or activities of the employee outside working hours or outside the workplace.

The difficulty for an employer is often establishing this “nexus”. An example of where this nexus may be established is when an employee commits acts of GBV while still in work uni-

form and can easily be identified as an employee or where the conduct is directed at a colleague even though this occurs outside of work.

Where an employer does have a clear code of conduct in place in terms of which it has clearly communicated that conduct of this nature is contrary to its values, morals and ethics and would have a serious detrimental impact on the employment relationship, an employer could rely on this breach of well established values and ethics as a basis for taking action against the perpetrator.

Employers have a vital role to play in taking all necessary steps available to assist in eradicating GBV in the workplace and also to consider more carefully what they can do to also prevent its occurrence outside of the workplace or, at the very least, to do what they can to assist victims.

BusinessDay www.businessday.co.za August 2023

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BUSINESS LAW & TAX

Agoa is good, but see other markets too

TERMS OF TRADE

should consider how to adapt pricing •in Companies case SA loses its duty-free access to US market Meluleki Nzimande & Chandni Gopal Webber Wentzel

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A benefits enormously from the US African Growth and Opportunity Act (Agoa). It is estimated that the value of SA goods exported to the US under the auspices of Agoa totalled almost R60bn in 2022. Agoa is significant in US-SA trade relations and, in the wider geopolitical context, has brought with it increased scrutiny of SA’s relationship with the US on the one hand, and Russia and China on the other.

Agoa is a law passed by US Congress providing various sub-Saharan African countries that meet certain eligibility criteria, including SA, with preferential access for more than 1,800 specified items to the US market. This access applies only to goods that pass an “origination test”, requiring that the goods are wholly produced or substantially transformed in an Agoa beneficiary country In 2023, 36 African countries are Agoa beneficiaries.

SA has been an Agoa beneficiary since the act was first passed. The first iteration of Agoa was passed in 2000 and had an initial 15-year life span which was extended for a further 10 years. The second iteration is due to expire in

2025.

The fate of Agoa after 2025 will depend on the outcome of the end-of-term review due to start shortly. In the second iteration of Agoa, the US Congress introduced two types of reviews: the annual review and the out-of-cycle review. The latter may be undertaken by the US president at any time, or pursuant to a request to the office of the US trade representative, in

GOODS EXPORTED UNDER AGOA ACCOUNT FOR LESS THAN A THIRD OF SA’S EXPORTS TO THE US which an interested party alleges that a beneficiary country has breached Agoa eligibility conditions. A beneficiary country found to have breached the eligibility conditions may be subjected to various forms of penalties, including the limitation, suspension or termination of benefits.

In May 2023, according to SA Revenue Service (Sars) figures, SA’s top-three trading partners were China, Germany and the US. The significance of the US market is that it buys many SA value-added goods and

processed minerals, and not merely raw materials, which obviously benefits the SA manufacturing sector as well as other sub-Saharan countries that sell inputs to SA. The main exports that benefit from Agoa include motor vehicles, agriculture (fruit and nuts), articles of jewellery, ferroalloys, beverages and spirits.

It is important to appreciate, however, that goods exported under Agoa account for less than a third of SA’s exports to the US. That means that if the country lost its Agoa beneficiary status it could continue to export to the US market, but all items would be subject to normal import duties. Agoa is one of four key international economic relationships to which SA is a party for South African companies seeking access to bigger markets.

The other three are the Partnership Economic Agreement (EPA) with the European Union (and postBrexit, a separate EPA with the UK), the Agreement Establishing the African Continental Free Trade Area (AfCFTA) and Brics. Trade with Brics countries is not on preferential terms. However, qualifying SA goods traded under the EPAs, AfCFTA and Agoa are eligible for duty-free benefits.

Agoa complements the AfCFTA, which is intended to

/123RF — LIGHTBOXX stimulate intra-African trade and exports. The rules of origin established under the AfCFTA will help to grow African industries, ensuring that the products being exported by the continent are likely to meet the origination requirements prescribed in preferential trade arrangements concluded with countries/territories outside Africa.

Given the strenuous efforts SA has made to foster renewed confidence in USSA relations, the risk of the country losing its Agoa benefits solely as a result of geopolitical tensions is generally considered to be low. In many respects, SA remains highly eligible for Agoa status.

First, one of the primary objectives of Agoa is to promote increased trade and investment between the US and sub-Saharan African countries. This would be undermined if SA were stripped of beneficiary status.

There would be only two African other mature economies on the list (Nigeria and Angola – both oil exporters) that remain able

and incentivised to use raw materials from other beneficiary countries to achieve Agoa’s primary objectives.

Second, SA meets most of the criteria, which include having market-based economies, following the rule of law and political pluralism, eliminating barriers to US

SA IS STILL IN NEED OF THE TRADE OPPORTUNITIES AGOA PROVIDES TO STIMULATE ECONOMIC GROWTH AND DEVELOPMENT trade and investment, protecting intellectual property and taking steps to tackle corruption, provide health care and education and protect human rights.

Third, with an unemployment rate above 30% (or more than 40%, depending on the definition), it is clear SA is still in need of the trade

opportunities that Agoa provides to stimulate economic growth and development.

Agoa was always intended to have a limited life span and SA could graduate out of Agoa status in the foreseeable future. This, together with the risk of global economic uncertainty, means that it is in companies’ best interests to consider the risks and opportunities in the international trade arena and have an appropriate strategy to respond.

Companies should certainly take advantage of dutyfree access to the US market for qualifying products, but they should also consider how to adapt their pricing, if the loss of preferential tariffs under Agoa materialises, and consider other avenues for trade under the EPA, AfCFTA and Brics.

In an economic climate characterised by uncertainty, it is prudent for South African exporters to create more resilient businesses by improving their competitiveness and diversifying their export portfolios.

Department fined for inadequate data protection Ahmore Burger-Smidt & Nyiko Mathebula Werksmans What is the price to pay for not having antivirus software? Five million rand, according to the Information Regulator of SA (regulator).

That is the fine that has been levied against the department of justice & constitutional development (DoJ) for not having appropriate security measures to protect the personal information it holds.

It is also the first fine issued by the regulator

against an organisation for failure to comply with the Protection of Personal Information Act 4 of 2013 (Popia).

The DoJ had previously suffered a data breach wherein its systems were encrypted by cyberhackers, preventing employees of the DoJ from accessing more than 1,204 files necessary for service delivery.

In light of risks to personal information, including the risk of a data breach, Popia requires organisations (public and private) to secure the integrity and confidentiality of personal information in their

possession or under their control. In other words, reasonable measures must be implemented both on an organisational (people) and technical (systems and processes) level to protect personal information. This was

ORGANISATIONS SHOULD NOTE THAT SUFFERING A DATA BREACH IS NOT IN AND OF ITSELF AN OFFENCE IN TERMS OF POPIA

not the case when the regulator investigated the DoJ following the data breach it suffered. Among others, it was found that the DoJ had failed to renew the licences to its security incident and event monitoring system, intrusion detection system, and antivirus software in 2020 (a year prior to the data breach).

Had those licences been renewed then the breach may have been prevented.

Following its investigation the regulator issued an enforcement notice in May 2023 requiring the DoJ to show proof within 31 days

that it had renewed its security software licences. This was an opportunity for the DoJ to remedy its lack of appropriate security measures and perhaps avoid a fine. However, it failed to abide by the enforcement notice which constitutes an offence under Popia, hence the R5m fine.

Consequently, it is important for organisations to note that suffering a data breach is not in and of itself an offence in terms of Popia. Rather, it is the failure to have appropriate security measures in place to protect personal information that will be cause

for concern.

Worse yet, where the regulator points out to an organisation that it has fallen short from a data protection perspective and indicates where remedial action should be taken, and such remedial action is not taken by the organisation, a fine will most likely follow.

Accordingly, this should serve as a sounding warning to all organisations to get their proverbial data protection house in order and, if so required, abide by enforcement notices from the regulator.

BusinessDay www.businessday.co.za August 2023

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BUSINESS LAW & TAX

Court allows cannabis test in workplace

UP IN SMOKE

Employer declared an employee unfit for duty •after cannabis levels exceeded the permissible limit Silindokuhle Magagula & Tshepo Mofokeng ENSafrica

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ollowing the landmark decision in Minister of Justice and Constitutional Development and others v Prince and others (Prince III) which resulted in SA’s legalisation of the private use of cannabis, the interaction between the right to use cannabis for cultural purposes and workplace testing policies is still a burning issue.

This was one of the issues the labour court had to delve into in the recent decision in Marasi v Petroleum Oil and Gas Corporation of SA. In this case, the employer had implemented a policy aimed at dealing with the use of alcohol and other substances by employees and its impact on its operations. The policy provided for annual and ad hoc medical assessments of employees to ensure their fitness for duty.

This included testing for the use of substances such as cannabis.

The employee in this matter decided to undergo a traditional healer training programme that would last for 18 months. To do so, he requested a transfer from Cape Town to the employer’s operations near Mossel Bay. This was granted subject to the

THE EMPLOYEE ARGUED THAT HIS USE OF CANNABIS WAS REQUIRED AS PART OF HIS TRAINING PROGRAMME employee undergoing a medical assessment when he reported for duty there. This assessment was performed and it showed that the levels of cannabis in his system exceeded that provided for in the policy. As a result, the

employer prohibited the employee from accessing the workplace until further testing could be conducted.

Subsequent tests confirmed the presence of cannabis in the employee’s system, with levels exceeding the permissible limit. The employer declared the employee unfit for duty and continued to bar him from entering the workplace until he tested either negative or below the permissible limit.

In his interactions with management on the issue, he argued that his use of cannabis was required as part of his training programme. He lodged a grievance against his treatment. The matter was eventually resolved and the employee returned to work when medical assessment showed that he complied with the employer’s policy.

However, this was not the end of the matter. The employee argued that the way in which he had been treated constituted unfair dis-

/123RF — CENDECED crimination on the grounds of culture and thus contravened section 6 of the Employment Equity Act (EEA). He further argued that the policy was outdated in that it conflicted Constitutional with the Court’s decision in Prince III. The employer rejected these arguments and the dispute eventually came before the labour court. The court held that the policy did not, on the face of it, differentiate It between employees. applied to all employees within the organisation and there was no direct discrimination on a prohibited ground. However, the court was prepared to accept that there had been indirect discrimination.

The concept of indirect discrimination is recognised in section 6 of the EEA. It occurs where, for example, an employer adopts a policy

that is, on the face of it, neutral and nondiscriminatory but that, in reality, has a disproportionate impact on a certain class of employees and that this disproportionate impact is based on one of the prohibited grounds for discrimination.

The court accepted that the policy may indirectly discriminate against persons who use cannabis for religious or cultural purposes, both being prohibited grounds for discrimination in terms of section 6 of the EEA. However, it pointed out that the further question was whether the indirect discrimination was unfair. The court referred to section 6(2) of the EEA which provides that it is not unfair discrimination to distinguish, exclude or prefer any person on the basis of the inherent requirements of the job and came to the conclu-

sion that the requirement of testing negative for the use of cannabis was reasonable and constituted an inherent requirement of the job.

There had therefore been no unfair discrimination. The court acknowledged that the employee experienced a negative impact on his dignity, but emphasised that the existence of discrimination does not depend on the subjective feelings of affected individuals.

The employee also argued the decision in Prince III, and the legalisation of the use of cannabis in private, required the employer to review and adjust the policy. The court rejected this argument. The mere fact the use of cannabis in private was no longer unlawful does not mean an employer is not entitled to regulate its use where this may impact the employment environment. For example, the use of alcohol is not prohibited, but employers are entitled to regulate its use in a work-related policy.

COMMENT This decision is of interest in that it is one of the rare occasions where indirect discrimination has been alleged and it illustrates the potential scope of the concept.

Perhaps of more importance is the labour court’s rejection of the notion that, because the private use of cannabis is no longer illegal, this prevents an employer from implementing rules regarding the use of cannabis in so far as it impacts the workplace. ● Reviewed by Peter le Roux, an Executive Consultant in ENSafrica’s Employment practice.

CONSUMER BILLS

Applicants need to be careful what they ask for

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n applicant in the Western Cape High Court, subject to a R60m funds blocking order imposed on her by the SA Reserve Bank, was unsuccessful in her attempt to have monthly funds released to pay her living expenses and legal costs, because of the incorrect basis of her challenge.

The R60m had been received by the applicant from a company that ostensibly benefited from accounting irregularities of Steinhoff. The applicant received the R60m from the company and, according to the Bank, breached the exchange control regulations, thus leading to the blocking order.

The exchange control regulations give broad discretionary powers to the Bank to issue blocking orders as it deems fit and gives it the right to release

PATRICK BRACHER money or goods from the blocked assets before the money is released or forfeited within 36 months.

According to the judgment, the applicant made three errors in her approach. Her rejection of the terms of a release order agreed with the Bank led to the cancellation of her agreement with it. Her attempt to rely directly on the constitutional right to healthcare services, sufficient food and water, and social security in the Bill of Rights was rejected because a legislated remedy was available to deal with the

rights she sought to enforce.

Third, she did not follow the proper process to challenge the administrative decision by the Bank. There are lessons to be learnt.

There was correspondence between the applicant’s attorneys and the respondent regarding the amount of R150,000 per month requested by the applicant to pay her reasonable fixed monthly expenses. In addition, she wanted payment of her legal costs for another dispute with the Bank and for the dispute regarding the blocked funds. The Bank considered R150,000 to be sufficient for both and allowed the release of that amount monthly from an amount secured in a bank account used for that purpose.

Dissatisfied with the agreement reached with the Bank, the applicant

continued to request the release of additional funds whereas the Bank insisted that the amount released included her reasonable legal expenses.

The applicant, demanding the payment as of right, sued for the monthly amount plus legal expenses. The Bank took this is a refusal to perform what had been agreed upon and cancelled the agreement with her. If you have an agreement but unequivocally intimate by word or conduct and without lawful excuse that the agreement will not be performed as undertaken, the other party can cancel the agreement.

The Bank’s cancellation was upheld and the claim on the agreement failed. If your chickens have hatched, don’t look for another egg in the nest.

When the agreement was cancelled, the Bank offered

to consider her request if full details of her assets, income and expenses were fully disclosed, but the applicant elected not to do so. The Bank’s discretionary decision to block the funds and to release amounts pending the ultimate decision on the blocked funds of the blockage constitutes administrative action which is dealt with in the Promotion of Administrative Justice Act. A person who disagrees with such a decision of the government or of an organ of state must go to court for a

THE BANK CONSIDERED R150,000 TO BE SUFFICIENT … AND ALLOWED THE RELEASE OF THAT AMOUNT MONTHLY

review of the decision under that law. The law is specifically in place for this purpose and is derived from the constitution.

That being the case, the so-called principle of subsidiarity dictates that, where legislation has been enacted to give effect to a constitutional right, the initial recourse of anyone who disagrees with the decision must use that legislation and not seek direct invocation of constitutional rights.

This judgment embodies the principle of “be careful what you ask for”. The common cry of “it’s unconstitutional” may or may not be right, but the way of exercising constitutional rights requires justice to be accessed in a well-defined manner. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za August 2023

6

BUSINESS LAW & TAX

Seek clarity on regulations for crypto service

TWO SIDES OF THE COIN

whether it is necessary to register under •Fica,Assess and register as a financial services provider Lerato Lamola-Oguntoye & Analisa Ndebele Webber Wentzel

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round the world, governments are moving ahead to regulate

crypto assets.

The SA Reserve Bank (Bank) at first merely warned the public about the volatility of the crypto asset market, but South African regulators have now defined crypto as a financial asset under the Financial Advisory and Intermediary Services (Fais) Act. The Financial Intelligence Centre Act (Fica) also applies.

The Fais Act and, in some respects, other pieces of financial services legislation were not built for the digital environment, so they are not a clean fit. It is a learning process, which will result in more comprehensive regulation under the Conduct of Financial Institutions Act, currently in bill form.

The Fais Act requires individuals providing a financial service to hold a financial provider (FSP) services licence, and crypto asset service providers are also under this obligation.

The Fais Act defines a crypto asset as a digital representation of value that is not issued by a central bank, but can be traded, transferred or

stored for utility, applies cryptographic techniques and uses distributed ledger technology (blockchain). This definition is intentionally wide and technology-neutral.

The term is “crypto assets”, not “cryptocurrency”, because crypto assets are not legal tender in SA. Financial services include providing advice in relation to financial products, ie invest-

THE TERM IS ‘CRYPTO ASSETS’, NOT ‘CRYPTOCURRENCY’, BECAUSE CRYPTO ASSETS ARE NOT LEGAL TENDER IN SA ment advice, and an intermediary financial service, which is defined quite widely. A person who assists other individuals to buy, sell, manage, administer or service a crypto asset is providing a financial service and must hold an FSP licence. An individual trading crypto for their own account would not be an FSP. Guidance from the regulator of the Fais Act, the FinanConduct cial Services Authority (FSCA), is that certain activity is not covered by the declaration of crypto assets as a financial product.

Although certain activity would qualify under this definition, the FSCA does not at this stage require players to apply for a licence. They are: ● Miners and node operators, who support what happens on the blockchain, but are not facing the consumer; ● Those providing services in relation to nonfungible tokens (NFTs). NFTs are unique, based on the code that creates them. Although NFTs can be traded, the regulator considers they present a lesser risk than fungible tokens. Some people have argued that NFTs are the same as crypto assets, so in the next iteration of the Fais Act, they may be required to have a licence; and ● Those providing financial services in relation to crypto asset derivatives, which are defined as securities under the Financial Markets Act (FMA). These players should already be licensed under Fais or be complying with the FMA. There is a prescribed application process for an FSP licence. The applicant has to show they meet the fit and proper requirements, which relate to, among other things, competence, good standing, operational ability and financial soundness.

They should nominate a key individual and where applicable representatives. The

/123RF — AVIGATORPHOTOGRAPHER quantum of the application fee payable at the time the application is submitted depends on how many key individuals and representatives are nominated and the category of FSP licence.

We are now in an exemption period under the Fais Act. Crypto asset service providers which are currently providing financial services in relation to crypto assets are exempt from the Fais Act, as long as they apply during the application period of June 1 to November 30 2023. This exemption continues until there is a formal response to their application (granted or not).

Schedule 1 of Fica defines crypto asset service providers as accountable institutions, which means they have to register with the FIC and fulfil compliance obligations. The Fica definitions of entities that qualify as accountable institutions are similar, but not identical, to those in Fais. Crypto asset service providers should consider carefully whether they are performing any of the services listed under item

22 of Schedule 1.

Fica does not have transitional provisions — from December 19 2022 the requirement on crypto asset service providers to register as accountable institutions commenced, qualifying entities must register as accountable institutions. The FSCA is not the regulator for Fica, but when an application for an FSP licence is submitted, the FSCA is empowered to ask if the applicant is registered as an accountable institution.

We would advise individuals and entities to assess firstly whether it is necessary to register under Fica, and then whether it is necessary to register as an FSP under Fais. Now is the time to do this analysis and ask these questions.

If an entity should register, but does not, they are liable to incur penalties. Under Fais, it is an offence not to register, which may attract a penalty of a fine of up to R10m and possible imprisonment up to 10 years. Under Fica, not registering is an act of noncompliance, not an offence, which could incur administrative

sanctions, eg a caution or reprimand and a fine of up to R10m. For the first 18 months from December 19 2022, the FIC will not issue monetary fines for a failure to register, but other administrative sanctions could apply.

Individuals may use their single discretionary allow-

ALTHOUGH NFTS CAN BE TRADED, THE REGULATOR CONSIDERS THEY PRESENT A LESSER RISK THAN FUNGIBLE TOKENS ance and their foreign capital allowance to purchase crypto assets from abroad. A local authorised dealer will be able to assist individuals with these allowances. However, there are some blanks in exchange control regulation when it comes to repatriating the proceeds from a sale of crypto assets to SA. We expect this will be addressed in the near future.

Department fined for Popia security lapse Ahmore Burger-Smidt & Bradley Workman-Davies Werksmans The department of justice & constitutional development was fined R5m for not having appropriate security measures to protect the personal information it holds.

It is interesting that after investigating and finding the department failed to comply with the Protection of Personal Information Act 4 of 2013 (Popia), the regulator issued an enforcement notice.

An enforcement notice empowers the information

regulator to compel noncompliant organisations to take specific remedial steps to rectify their noncompliance.

This can be viewed as a statutory olive branch.

But the other side of the olive branch is a thorny end which the regulator turns to once an organisation, through inaction by its employees, fails to comply with an enforcement notice.

This is what happened in the department’s case, and that is what led to the fine.

In issuing the infringement notice the regulator fined the DoJ and went further to not only recommend,

but in fact require the department to institute disciplinary action against employees who failed to renew the antivirus software and other security software.

The department will have to ensure that any such action is compliant with the requirements of SA labour law and its own internal codes and policies.

But it would not be surprising if a number of employees, from any specific staff member responsible for ensuring security software is up to date and lawfully licensed, to any manager ultimately responsible for the

departments IT environment, could face serious disciplinary allegations of gross negligence or other failure to provide sufficient oversight.

Given the materiality of the possible fine, and the risks of consequential damages, such disciplinary action could even extend to dis-

A NUMBER OF EMPLOYEES … COULD FACE SERIOUS DISCIPLINARY ALLEGATIONS OF GROSS NEGLIGENCE

missal. The risk to employees does not end with disciplinary action.

The regulator stated clearly in its media release relating to the fine that failure to abide by an enforcement notice may also result in liability upon conviction to a fine or to imprisonment of the responsible officials.

This is in line with section 103 read with section 107 of Popia. In particular, these provisions provide that any person convicted of an offence, such as failing to comply with enforcement and information notices, is liable to a fine or to imprison-

ment for a period not exceeding 10 years, or to both a fine and such imprisonment. As such, it is important for employees to note that the buck does not stop with the organisation when it comes to compliance with Popia.

It can be passed back to them, meaning they may be held personally responsible for Popia offences that can result in dire consequences.

It is not only important for organisations to have a reasonable privacy framework in place but also to train their employees on data protection (and for employees to behave accordingly).

BusinessDay www.businessday.co.za August 2023

7

BUSINESS LAW & TAX

Law takes a tough stance on abuse of sick leave

NOT WHAT THE DOCTOR ORDERED

often mistakenly think their employer •hasEmployees to accept their absence due to stated illness Johan Botes Baker McKenzie

H

onestly, I was sick as a dog, but felt so much better after talking some meds, to the point of going to town with a friend and, can you believe it, we ended up joining a march!

And that is the honest reason why you saw me on television when I told you I could not come to work because I was sick!”

Abuse of sick leave is neither novel nor rare. When revellers are having a blast in the wee hours of the morning and one of them bemoans the fact that they must report for work in a couple of hours, chances are someone will suggest that they just book off sick the next day.

Reports show more than 145 countries in the world provide paid sick leave as an employee entitlement.

According to an article on Hello Flamingo, abuse of sick leave is calculated to cost companies in the US about $1,685 per employee annually, for a total cost of $225bn per year. In SA, Occupational Care SA revealed recently that this kind of absenteeism cost the economy between R12bn and R16bn per year.

The Human Capital Review noted that it could be higher than this, reaching almost R20bn annually. It seems clear that employers have reason to take a dim view of sick leave exploitation.

Sick leave itself is not a new phenomenon.

The tombs of ancient Egypt were not only built by slaves but also by skilled artisans who slaved away to construct and decorate the burial places for kings. Texts (papyrus, not WhatsApp) from the New Period, 1550Kingdom 1070BCE, show that these craftsmen were still given rations and other benefits during periods of illness where they were unable to work.

According to an article by

a postdoctoral fellow at Stanford University, Anne Austin, it seems that even centuries ago there was an appreciation of the benefit of taking care of sick workers.

Various studies have shown that: ● Workers without paid sick leave are less likely to obtain preventative medical care, including cancer screenings and influenza vaccinations; ● Employees who can take paid sick leave are less likely to experience workplace injuries; and ● Taking sick leave reduces the risk of spreading illness, whether it is through employees staying at home and not infecting their colleagues or parents staying at home to take care of sick children and then not sending

EMPLOYEES WHO CAN TAKE PAID SICK LEAVE ARE LESS LIKELY TO EXPERIENCE WORKPLACE INJURIES the kids to school where they infect other children. Almost a third of surveyed employees have indicated they have contracted the flu from a fellow employee.

Taking care of the sick is a central tenet of many cultures and religions. Research confirms that the state, employers and employees alike benefit from the provision of paid sick leave. But should this extent to our rowdy partygoing colleague who heroically resists the urge to take the next Uber home so that they can be at work on time the next day? Should we be more magnanimous when someone uses a sicky to attend a political party rally or a rugby match?

Will the courts require us to be less uptight about how we view dodgy sick leave claims, and expect us to cut employees some slack if they

call in sick rather than ask for a day’s leave when they don’t want to come in to work but are not truly sick?

In two recent decisions, our courts have come down decisively on the side of showing no tolerance for sick leave abuse. In both the 2021 Labour Appeal Court judgment (Woolworths v CCMA and others [2021] ZALAC 49) and the 2023 Labour Court decision (Sars v CCMA & Others 2243/21), the courts reviewed and set aside arbitration awards handed down by the employment tribunal where the tribunal wrongly concluded that the employees ought not to have been dismissed. The message from the courts is clear: dishonest conduct destroys the relationship of trust between employer and employee.

Where employees advise employers that they are not fit enough to come to work, but then partake in other activities that belie their inability to report for duty, such conduct is dishonest and warrants dismissal from service. As stated by the Labour Appeal Court: “The employee acted dishonestly in absenting himself from work on the basis that he was too ill to perform his duties but then travelled for at least an hour to support his local rugby team, knowing full well that he would be paid for the day.”

And: “This lenient approach to dishonesty cannot be countenanced. The third respondent held a relatively senior position within the organisation of the applicant at Humansdorp. He was palpably dishonest, even on his own version. He expected to get away with the enjoyment of attendance at a rugby match on the basis of claiming sick leave and then enjoying the benefits thereof. This is dishonest conduct of a kind which clearly negatively impairs upon a relationship of trust between an employer and employee. It is clear that the relationship of trust as a result of his initial unreliability and now dishonest con-

/123RF — LENETSNIKOLAI duct had broken down …”

Employees often seem to labour under the misapprehension that the employer merely has to accept their absence due to their stated illness and that it is almost impossible for the employer to show that they were not ill, in fact. This perception is clearly wrong and is likely to cost mistaken employees their jobs.

REPORTS SHOW MORE THAN 145 COUNTRIES IN THE WORLD PROVIDE PAID SICK LEAVE AS AN EMPLOYEE ENTITLEMENT When evaluating the reason that the employee provided for not attending work against the employer’s reason for concluding that the employee malingered, a hearing chair, tribunal arbitrator or judge will consider the two conflicting versions in the light of the probabilities.

While it will typically be difficult for an employer to show conclusively that an employee was not genuinely sick, that is not the test; the employer merely needs to show that the employee’s

stated reason for taking sick leave is less probable than the employer’s conclusion (that the sick leave request was bogus).

Employees who think they can get away with abusing sick leave because, even if they’re ill, surely they can go to the shops to get food, or to the pharmacy to pick up medicine, and how is that different from joining a march or attending a rugby match, not only miss the point but are also likely to miss their job when a court concludes that their dismissal was fair.

As the appeal court stated in Sars vs CCMA: “Mametja submitted that the policy of Sars does not suggest that a person who is indisposed cannot run errands like going to the nearby grocery store to buy bread. It is unnecessary for the policy to regulate such minutiae.

Because an employment relationship is predicated on trust, Sars expects its employees to be truthful and honest. In this particular case, Mathebula created the false impression that he was too ill to come to work. The fact that he was seen at the protest march is sufficient evidence to expose his false impression.”

Employees who are dishonest should not expect sympathy from our legal system. Whether this abuse

manifests in stealing from the employer or falsely stating that they are sick and cannot come to work, is largely immaterial: the effect is the same in that it breaks down the trust inherent in that relationship. It does not only come at a cost to employers who pay employees for wrongfully taking time off; it also effects other colleagues who dutifully come to work and must pick up the slack of truant colleagues.

Employers can take heed of the clear message from our courts: they need not tolerate such abusive practices and may take swift and stern action against malingering employees.

When seeking time off, honesty is the best policy.

When calling your manager, do not fib about your health; it may be better to just admit that your stated eye problem is that you just cannot see yourself coming to work today.

THE MESSAGE FROM THE COURTS IS CLEAR: DISHONEST CONDUCT DESTROYS THE RELATIONSHIP OF TRUST BETWEEN EMPLOYER AND EMPLOYEE

BusinessDay www.businessday.co.za August 2023

8

BUSINESS LAW & TAX

Powers of power umpires wave of litigation is part of the electricity crisis •andA leads to confusion over jurisdictional boundaries Daryl Dingley & Thomas Greig Webber Wentzel

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A’s crippling electricity crisis was recently described

by President Cyril Ramaphosa as an existential threat to the economy and social fabric.

The country has experienced about 200 days of load-shedding so far this year, and is approaching the 206 days recorded for the whole of last year. As the energy availability factor remains low, there has been a rush to different judicial forums in search of varying forms of relief.

One of the unfortunate spin-offs of significantly reduced capacity and everincreasing municipal debt is that tariffs have risen sharply.

The Competition Tribunal’s recent Cape Gate judgment dealt with some of these issues.

Cape Gate (a major producer of wire and steel products) referred a complaint to the tribunal alleging that the Emfuleni Municipality had been charging it excessive prices for electricity. The tribunal had to determine whether it had jurisdiction to adjudicate the matter, since the law provides for the National Energy Regulator of SA (Nersa) to investigate complaints of price discrimination regarding electricity tariffs.

The tribunal began by drawing an important distinction between price discrimination and excessive pricing. Whereas the former seeks to equalise the prices charged by the supplier, the latter is a complaint of over-

charging by a dominant firm.

The tribunal said once a complainant alleges conduct that contravenes the Competition Act, it is required to hear the matter, particularly because the tribunal is a specialist forum which is best equipped to engage with these types of excessive pricing complaints. More importantly, the tribunal is empowered to make an order prescribed by the Competition Act which is best suited to remedy the market failure.

For these reasons, the tribunal found that it had the requisite jurisdiction over the complaint of excessive pricing.

THE EFFECTIVENESS OF LEGAL RELIEF IS ONLY AS GOOD AS THE EXISTENCE OF EFFECTIVE REMEDIES However, this is merely a preliminary finding on the part of the tribunal. A fullblown inquiry into the merits as to whether the municipality has actually contravened the Competition Act by charging excessive tariffs still needs to unfold.

The recent Sasol judgment also considered the issue of concurrent jurisdiction between the tribunal and Nersa. In this case, the Gas Users Association lodged a complaint with the competition authorities alleging that Sasol was charging an excessive price for gas. Again, the tribunal found that it has jurisdiction to determine whether Sasol is abusing its dominant position by charg-

ing an excessive price, simply on the basis that the complaint was framed in terms of the Competition Act. Interestingly, the Gas Users Association was able to obtain interim relief in the form of a six-month interdict Sasol from preventing increasing its gas prices beyond a certain cap. The Competition Commission also recently referred a complaint against Sasol for the excessive pricing of gas.

Again, as these are preliminary findings; an inquiry into the merits of whether the Competition Act has actually been contravened still needs to take place.

The department of trade, industry & competition has introduced two block exemptions: one for energy users and another for energy suppliers. The exemptions, which were first published during the now withdrawn national state of disaster, permit some collaboration between industry players to respond to issues of electricity supply.

Ordinarily, this type of conduct would come squarely in the crosshairs of the competition authorities, but circumstances warrant a departure from the Competition Act. Telecommunications operators will now be able to collaborate to ensure that their cellular towers and related infrastructure remain operational during intermittent electricity supply.

Finally, the Pretoria high court recently ordered that the public enterprises minister take all reasonable steps to ensure there is sufficient supply of electricity to prevent any interruption to hospitals, schools and police stations. In

A SHOT IN THE DARK

/123RF — ZHUNSKY making this finding, the court found that load-shedding unjustifiably infringes on the constitutional rights to education, healthcare, freedom and security.

This judgment has been criticised for a host of reasons. The relevant government departments have since responded, saying that in many respects it is simply not possible to implement an order of this nature which, in turn, undermines the rule of law and the separation of powers.

These recent electricityrelated developments are in their infant stages but are an

indication of interesting and creative modes of relief being sought by litigants. What remains to be seen is whether these matters will prompt others to approach forums for relief of their own,

LOAD-SHEDDING UNJUSTIFIABLY INFRINGES ON THE CONSTITUTIONAL RIGHTS TO EDUCATION, HEALTHCARE, FREEDOM AND SECURITY

thereby opening the floodgates to litigation.

If so, potential litigants should be aware that the effectiveness of legal relief is only as good as the existence of effective remedies.

These matters raise another common problem: concurrent jurisdiction and regulatory overlap. The jurisdictional boundaries between regulators and competition authorities are becoming increasingly blurred. This blurring has the unfortunate effect of creating legal uncertainty and confusing the rights, duties and obligations of stakeholders.

Settlement deal should help firms draft EE plans Lisa-Anne Schäfer-King Fluxmans Attorneys The Settlement Agreement signed on June 28 2023 between Solidarity and the government in the International Labour Organisation conciliation process, facilitated by the CCMA (settlement agreement) will no doubt be welcomed by many SA businesses which have been grappling with the fact that employment equity (EE) legislation has to a large extent put significant emphasis on “race” in recruitment, promotion and restructuring processes.

In terms of the settlement agreement, the parties have agreed that affirmative action will be applied in a “nuanced way” and that economically active population statistics will be only one of the many factors that will be taken into account in determining whether a business is compliant with employment equity legislation.

While it will be interesting to see how labour, businesses and the courts will interpret “nuanced way”, the settlement agreement is clear that no absolute barrier may be placed on any employment practices affecting any person

and no termination of employment may be affected as a consequence of compliance with affirmative action targets.

In drafting and implementing employment equity

THE AGREEMENT IS CLEAR THAT NO ABSOLUTE BARRIER MAY BE PLACED ON ANY EMPLOYMENT PRACTICES AFFECTING ANY PERSON

plans and reporting thereon, businesses will be required to take the following criteria into account in order to ensure compliance with affirmative action measures in the workplace: ● Inherent requirements of the job; ● The pool of suitably qualified persons; ● The qualifications, skills, experience and capacity to acquire, within a reasonable timeframe, the ability to do the job; ● The rate of turnover and natural attrition within the workplace; and ● The recruitment and pro-

motional trends within the workplace.

Insofar as businesses are unable to comply with affirmative action targets set in their employment equity plans or by any other party, they will need to justify such noncompliance on justifiable/reasonable grounds to avoid any penalties for noncompliance.

According to the settlement agreement “justifiable/ reasonable grounds” may include the following: ● Insufficient recruitment opportunities; ● Insufficient promotion opportunities;

● Insufficient target individuals from the designated groups with the relevant qualifications, skills and experience; ● CCMA awards/court orders; ● Transfer of businesses; ● Merger/acquisitions; and ● Effect on business economic circumstances.

Hopefully the signing of this settlement agreement will go a long way in helping businesses to draft and implement plans now that the significant emphasis on “race” in recruitment, promotion and restructuring processes has been addressed.

BusinessDay www.businessday.co.za August 2023

9

BUSINESS LAW & TAX

When fixing prices is not price-fixing

COOKING WITH GAS

Competition Tribunal’s decision on cylinder pricing •clarifies rules for competitors that work together Heather Irvine & Lerato Nthathakane Bowmans recent decision of the Competition Tribunal provides welcome clarification that not every instance in which competing firms fix a price should be regarded as price-fixing, which is prohibited by the Competition Act. In August 2015, the Competition Commission referred a complaint to the tribunal which alleged that five companies supplying liquid petroleum gas (LPG), which were members of an industry association, the SA Petroleum Industry Association (Saipa), colluded when they agreed to increase the deposit fees payable by first-time buyers for gas cylinders.

The commission alleged that this was the fixing of a portion of the selling price for

A

gas cylinders and these companies had contravened the outright prohibition on price-fixing by competitors in section 4(1)(b)(i) of the Competition Act. The respondents argued that in the context of deciding what the deposit payable for a cylinder should be, they were

THE PROGRAMME SUPPORTED NEW ENTRANTS, SINCE THEY DID NOT HAVE TO INVEST IN A VAST LOGISTICS NETWORK not competitors but rather were in a vertical (supply) relationship by virtue of their participation in the cylinder exchange programme (CEP).

Alternatively, they argued that even if they were in a

horizontal (competitor) relationship, setting a uniform deposit fee had provided significant benefits to consumers and/or new, smaller entrants into the market and, accordingly, should not be prosecuted as hardcore collusion.

Rather than focusing on whether the respondents were actually in a vertical relationship in the CEP, or whether the deposit fee was a component of a selling price, the tribunal opted for the “worst-case scenario” and assumed the deposit fee was a component of the sales price and the respondents were in a horizontal relationship when they had agreed on a uniform deposit fee.

The tribunal then applied the test formulated by the Supreme Court of Appeal in American Natural Soda Ash Corporation v Competition Commission, and developed by the competition appeal

/123RF — NORGAL court (CAC) in subsequent cases such as Karan Beef and Tourvest Holdings.

The tribunal asked whether, properly characterised, the setting of a uniform cylinder fee by gas suppliers “falls foul of section 4(1)(b)”. The facts and circumstances surrounding this decision proved crucial to the tribunal’s analysis.

EFFICIENCY BENEFITS First, the tribunal recognised that the department of energy had failed to promulgate regulations on the deposit fee for cylinders and that this regulatory uncertainty had resulted in a situation where the deposit fee did not cover the cost of a 9kg cylinder.

Second, the tribunal recognised that the CEP gave rise to a number of pro-com-

petitive and efficiency benefits. For example, it enabled customers to exchange an empty cylinder for a full one at any retailer convenient to them, whether the retailer stocked the same brand of LPG or not. It reduced barriers to switching brands for consumers, increased competition for the sale of LPG due to reduced barriers to switching, and made it quicker for cylinders to be returned to wholesalers.

The CEP also supported new entrants, since they did not have to invest in a vast distribution/logistics network. Accordingly, the tribunal concluded that the setting of the standard deposit fee was not an instance of a “hardcore cartel” and hence did not fall within the scope of the section 4(1)(b) prohibition.

The tribunal dismissed the complaint.

One hopes the tribunal’s decision will open the way to a more nuanced assessment of commercial agreements between firms which are competitors (at least in some contexts), which looks much more closely at the character, surrounding the circumstances and real nature of these kinds of agreements when deciding whether or not they constitute collusion.

Section 4(1)(b) should only be applied to prosecute hardcore cartel violations.

However, it should be noted that as recently as last year, during the commission’s annual conference, one of its senior decision makers expressed the view that characterisation should not form part of SA law, suggesting the commission may continue to be reluctant to accept the application of this principle when the commission investigates complaints and decides which ones to refer to the tribunal for adjudication (despite what the CAC, and now the tribunal, clearly say about what our law requires).

Accordingly, companies that need to reach any form of agreement with competitors on pricing or markets should consider the risk of protracted and costly complaints, and weigh this against the utility of the agreements they are considering entering into.

Sometimes, it may be wiser to engage proactively with the commission and in some instances it may be worth the time and effort to apply for a formal exemption from the commission.

TAXING MATTERS

Sars won’t be done out of its taxes on transfers he Income Tax Act contains many provisions aimed at preventing the unjustifiable transfer of value or profits without tax being properly accounted for. These provisions make up several sections in the act and encompass different characteristics and tests.

Examples of such provisions include section 24BA dealing with the value at which companies issue shares, section 31 that attaches arm’s-length value to cross-border transactions between connected persons, and the donations tax regime in Part V of the Act. Most often, one assumes that these value considerations are to be tested against market value of a transaction or asset transferred, particularly since this concept is used extensively in the Eighth Schedule that deals with tax on capital gains. There, what constitutes the “market value” of various assets is set

T

PIETER JANSE VAN RENSBURG out in paragraph 31.

However, a careful reading of the act suggested that “market value” is not always the yardstick that must be applied, and several other concepts that aim to prevent value shifting are relevant.

Concepts that the legislature uses to ensure a fair value transfer include “adequate consideration” and acting as “independent persons dealing at arm’s length”. The latter then assumes its own variations and, in many cases, includes a further requirement that one must consider how those independent persons would have acted willingly and in an open market. In

such cases, even though parties may act at arm’s length, the legislature arguably aims to ignore forced buying or selling.

Some guidance is found in case law on the arm’s length principle. The phrase was considered by the court in Hicklin v SIR 1980 (1) SA 481 (A), 41 SATC 179 in which Trollip JA held that: “It connotes that each party is independent of the other and, in so dealing, will strive to get the utmost possible advantage out of the transaction for himself.”

Confirmation that market value is not always the applicable test is found in the donations tax regime in section 58. There, disposal of property for inadequate consideration is a deemed donation for donation tax purposes, even without benevolent intent. Scholars have expressed views that, in practice, the South African Revenue Service (Sars) considers the term “adequate consideration” used in

section 58(1) not necessarily to mean “fair market value”.

Instead, he is entitled to have regard to all the circumstances surrounding a particular transaction.

As long as the consideration is “adequate” in the circumstances and in light of the requirements of the transaction, he is not compelled to act under the section. Only after the commissioner has found that there is inadequate consideration does he proceed to consider the market value of the proposed property to account for the relevant tax considerations.

Sars applies this in practice, as well.

On at least four occasions, Sars has ruled that section 58 does not apply to transactions where other nonmonetary factors were considered for the adequacy requirement (such as BEE credentials). Adequate consideration is seemingly substituted as the proxy to discourage value shifting.

The challenge then becomes how these concepts relating to, but not being, “market value” should be interpreted.

Even our courts appear to struggle with the concepts.

The Supreme Court of Appeal (in Sarembock v Medical Leasing Services (Pty) Ltd 1991 SA 344 (A)) has noted that: “[as] a general rule, the value of an article is to be determined with reference to the price it would fetch in the open market ... However ... [t]here may be cases where, owing to the nature of the property, or to the absence of transactions suitable for comparison, the valuator’s difficulties are much increased.” Ultimately, it is

A READING OF THE ACT SUGGESTED ‘MARKET VALUE’ IS NOT ALWAYS THE YARDSTICK THAT MUST BE APPLIED

clear that, although the provisions have a common purpose, the applicable tests and measurement criteria differ significantly, and “market value” is not in all circumstances appropriate.

Importantly, transacting parties should consider the relevant yardstick for transacting in each case.

Only with convincing evidence can Sars and a court apply the surrounding facts and measure the transaction in line with the appropriate standard.

Though often a nuanced approach to interpretation is required, it should be done by considering the mischief at which the provisions are aimed, being the unjustifiable transfer of value or profits without accounting for the relevant tax. ● Pieter Janse van Rensburg is a director at AJM Tax. He also serves as a nonexecutive director on the board of the SA Institute of Taxation

BusinessDay www.businessday.co.za August 2023

10

BUSINESS LAW & TAX

Policy speeds up moves to a greener future

HEAD FOR THE (SUN)LIGHT

Enhanced tax incentives are aimed at encouraging •greater private investment in renewable energy Mohammed Mayet PKF Octagon

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unaway climate change remains a perennial risk, and it is therefore critical that more is done to shift the dial and make the world healthier, cleaner and greener.

Fortunately, tax policy in SA is helping accelerate this change.

Section 12B of the Income Tax Act No 58 of 1962 traditionally allows for a tax deduction in respect of certain qualifying assets (owned and brought into use after January 1 2016) to reduce the taxable income of the taxpayer. These qualifying assets must have been used for purposes of trade in the generation of electricity from sources.

In renewable essence, this refers to an accelerated write-off of qualifying assets used in the production of renewable energy and has been a part of our tax system for a while, though not used enough and certainly not enough to move heavy energy users off the tax grid.

It was previously set at 100% for the qualifying amount invested, but it has now been enhanced to 125% and there is also no maximum cap on the output of the solar installation.

The enhanced incentive kicked in from March under a new s12BA. Prior to 2016,

section 12B was a three-year (50% – 30% – 20%) accelerated depreciation allowance on renewable energy and then from 2016 it moved to an quicker depreciation allowance of one year (100%).

However, the SA Revenue Service (Sars) and government have decided to encourage greater private investment in renewable energy due to the strain on the grid at the moment. That is why we are seeing this allowance amplified even more, albeit only for a twoyear window.

The aim is to rapidly accelerate and incentivise the development of smaller pho-

INCOME TAX LIABILITY WILL BE DECREASED BY THE SAME VALUE AS THE VALUE OF THE INSTALLED SOLAR SYSTEM tovoltaic solar energy projects, which have a low impact on water and environmental consumption. It also aims to address the energy shortages facing SA in a more environmentally friendly way.

It means that income tax liability will be decreased by the same value as the value of the installed solar system –

so for a company it is like getting more than a 27% (company tax rate) discount on the price of a solar system. It really is a valuable incentive and based on the recent success of the 12J allowance to enhance small business (which ended in 2021 but saw R11bn invested in 360 business ventures) there is serious scope for 12B to offer additional incentives for investors to do the right thing.

In fact, many of those exiting s12J investment (which face a CGT exit charge) are looking to reinvest funds in a 12B solar investment and benefit from the tax deductions. We are also seeing specific 12B green energy funds being offered for investors looking for the stability of a solar investment, backed by tax incentives to go green.

So while we can expect interest in 12B to increase rapidly — especially as higher stages of load-shedding lie in wait in winter — it is equally important to understand the requirements to avoid disappointment and maximise outcomes.

In essence, South African individuals, trusts, companies and pension funds can write off their investment against their taxable income in the year the assets produce electricity.

Applying for a period of two years, 12BA relates to new and unused qualifying

/123RF — ARCADY31 assets brought into use for the first time on or after March 1 2023 and before March 1 2025.

It will apply to wind power, photovoltaic solar energy, concentrated solar energy, hydropower to produce electricity, biomass compromising organic wastes, landfill gas or plant material.

The enhanced renewable energy tax incentive will also apply to supporting structures under section 12B of the act to which the above-mentioned assets are mounted on or are affixed to: ● The foundation or supporting structure is designed for the abovementioned asset and constructed in such a manner that it is or should be regarded as being integrated with that asset; ● The useful life of the foundation or supporting structure is or will be limited to the useful life of the asset mounted thereon or affixed thereto; ● The foundation or supporting structure was brought into use on or after March 1 2023 and before March 1 2025; and

● The foundation or the support structure shall be deemed to be part of that asset mounted thereon or affixed thereto.

It is important to note that the enhanced renewable

THE AIM IS TO ACCELERATE AND INCENTIVISE THE DEVELOPMENT OF SMALLER PHOTOVOLTAIC SOLAR ENERGY PROJECTS energy tax incentive in respect of any qualifying asset is only allowable in terms of the new section 12BA and not in terms of section 12B of the act.

Keep in mind that if you sell an asset or in any other manner recover or recoup the purchase price of the asset on or before March 1 2026 in respect of which an enhanced renewable energy tax incentive was granted,

then 25% of the amounts recovered or recouped shall be included in your taxable income. So, in practice, let’s assume you invest through a fund and pay R160,000.00 in respect of s12BA qualifying asset, then you are allowed to claim R200,000 (R160,000 x 125%) in the year when the s12BA qualifying asset was brought into use.

Let’s assume you invest R60,000 in year one and the rest of the R100,000 in year two, then you are allowed to claim R75,000 (R65,000 x 125%) in the first year of assessment and R125,000 (R100,000 x 125%) in the second year of assessment since the qualifying assets were already brought into use in the first year of assessment.

Finally, say you invest R160,000 up front but the s12BA qualifying asset only produces electricity in year two, then you are only allowed to claim R200,000 in the second year of assessment since the qualifying asset was brought into use in the second year of assessment.

Kenya’s cabinet weighs new climate change bill Nkatha Murungi Omondi ENSAfrica On July 18, Kenya’s cabinet considered the proposed Climate Change Amendment Bill 2023, which seeks to provide a framework for Kenya’s participation in domestic and international carbon markets.

This is in pursuance of Kenya’s obligations under the Paris Agreement.

Kenya has explicitly expressed its intention to use voluntary co-operation under Article 6 of the Paris

Agreement, when applicable.

Accordingly, Kenya has committed to developing domestic legislation and institutional frameworks to govern its engagement in the carbon market and nonmarket mechanisms.

The purpose of the proposed Climate Change Amendment Bill 2023 is to foster: ● Development, management, implementation and regulation of mechanisms to enhance climate change resilience and low carbon development for the sus-

tainable development of Kenya. ● Guidance in the development and implementation of carbon markets and nonmarket approaches in compliance with international obligations. ● Guidance and policy direction on carbon markets to the national and county governments, the public and other stakeholders. ● Development of benefitsharing mechanisms in carbon markets.

Notable changes under the proposed Climate Change

Amendment Bill 2023 include: ● The establishment of a national carbon registry; ● Regulation of the creation and trade in carbon credits; ● Mandatory environmental and social impact assessment under the Environmental

KENYA HAS EXPRESSED ITS INTENTION TO USE VOLUNTARY CO-OPERATION UNDER ARTICLE 6

Management and Co-ordination Act 1999 for each carbon trading project; ● Introduction of community development agreements which shall outline the relationship and obligations of the proponents of the project with impacted communities in carbon trading projects.

Such community development agreements are required to provide, inter alia: ● For the provision of an annual social contribution of at least 25% of the aggregate earnings of the previous year to the community, to be

managed and disbursed for the benefit of the community. ● For sharing of the benefits from the carbon markets and carbon credits between the project proponents and the impacted communities. ● Proposed development of communities around the project.

The Climate Change Amendment Bill 2023 has already undergone public participation and we will be keen to see the developments or amendments made to this bill when it is enacted into law.

BusinessDay www.businessday.co.za August 2023

11

BUSINESS LAW & TAX

Exciting time for trade in carbon credits Changes are looming as African economies put in •place laws around Paris Agreement commitments Kieran Whyte & Clara Hansen Baker McKenzie

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n the past few years, the number of voluntary carbon markets has increased as a result of the operationalisation of the Paris Agreement and a general influx of investors into the sector.

Article 6 of the Paris Agreement was introduced to allow countries to voluntarily co-operate with each other to achieve emission reduction targets set out in their nationally determined contributions (NDCs). Under article 6, a country (or countries) will be able to transfer carbon credits earned from the reduction of their greenhouse gas emissions to help other countries meet their climate targets. Such credits are known as internationally transferred mitigation outcomes (ITMOs).

The Paris Agreement requires all member countries to self-determine their NDCs, with a framework that aims to meet the top-down goal of a “below 2°C” temperature increase, with a temperature rise limit of 1.5°C above pre-industrial levels.

All NDCs are public knowledge, ensuring that countries can be held accountable for

not meeting their pledges.

During the UN Climate Change conference, COP 26, in Glasgow in 2021, a compliance committee was established to facilitate progress towards the top-down goal.

The principle of global stock taking was introduced, requiring countries to report on their progress towards the top-down goals every five years. This is intended to be a facilitative and nonpunitive transparency framework to track progress. An article 6 rulebook was also introduced to act as an accounting mechanism.

DEVELOPMENTS IN AFRICA In general, the AU Agenda for 2063 prioritises, among other things, the development of a low-carbon African economy. At COP 27, a group of African countries launched the African Carbon Markets Initiative with the aim of eventually producing 300million carbon credits a year.

The initiative seeks to unlock $6bn in revenue and create 30-million jobs by 2030.

Several African countries intend to participate in the various article 6 mechanisms under development.

The West African Alliance on Carbon Markets and Climate Finance is a regional

collaboration aimed at making carbon markets accessible to West African countries and ensuring that the least developed countries also benefit from the implementation of article 6 mechanisms.

Ghana has taken the first step in benefiting from the article 6 mechanisms by entering into an ITMO agree-

AFRICAN COUNTRIES ARE BUILDING ON EXISTING PROJECTS AND ACTIVITIES ESTABLISHED UNDER THE CLEAN DEVELOPMENT ACTIVITIES ACT ment with Switzerland. The governments of both countries signed a bilateral agreement that sets out the conditions for co-operative approaches to carbon emission reductions under the Paris Agreement. This has enabled the implementation of green and low-carbon solutions in Ghana, with the first project focusing on clean cooking and solar lighting.

ITMO agreements such as this are expected to lead to

CREDIT WHERE IT’S DUE

further innovative climate financing solutions in future.

SA has yet to enter into any ITMO agreement, but there is a likelihood that the Climate Change Act will come into operation within the next couple of years.

There is a possibility that the department of environment, forestry & fisheries will conduct further consultations with the public on the content of the bill within the next six months. While this is not directly related to carbon markets, this bill is an important step in domestic climate regulation and will have implications for the NDC and the use of ITMOs, with likely feedback loops into the carbon market.

African countries are building on existing projects and activities established under the Clean Development Activities Act, but they need support from developed nations. An example of such support is Germany’s Climate Change Initiative, which assisted the East Africa Alliance to publish a guideline for article 6 negotiations for member parties, including Burundi, Ethiopia, Kenya, Rwanda, Sudan, Tanzania and Uganda.

EMERGING MARKET LAWS The main focus of emerging market laws around NDCs has been on the key emitting sectors, namely thermal energy generation, waste, industrial processes, forestry

and agriculture, with the majority of these laws implementing the cap-and-trade approach. This approach imposes a cap or quota on emissions that an entity in a relevant sector is allowed to emit over a certain period.

Although the implementation of emerging laws differs, with some markets moving more quickly than others, most are focused on building NDCs and establishing pilot projects, with broad implementation expected by 2035.

Broadly, all the emerging laws are aimed at enabling domestic emission reduction projects and setting out authorisation procedures.

Several laws have already been implemented, stipulating the minimum process for domestic offset credits to support the domestic offset industry and levies around emission reduction transfers.

In many cases, a share is taken by the relevant government to trade in its own right.

A share of the levy or profit share, an approximate 10%20% cut on the achieved reduction, is then held to create a buffer for wider NDC use in that specific country.

In 2022, Gabon imple-

COUNTRY-BYCOUNTRY POLICY DUE DILIGENCE WILL BE CRITICAL FOR LONG-TERM DEALS

mented laws whereby a share of the levy is taken by the government to trade in its own right.

IMPACT OF VOLUNTARY MARKETS AND FUTURE PROJECTS There is broad consensus that for a domestic emission reduction system to work, governments should ensure that the achievement of is available reductions domestically first, before enabling the export of such reductions.

It is still unclear at what point domestic emission reductions will be considered to have been achieved to implement the export of such reductions.

Due to the current uncertainty, country-by-country policy due diligence will be critical for long-term deals.

Legal due diligence should be conducted around the applicable laws and policies on climate change and what the establishment of various climate change bodies will mean.

Getting through the period of uncertainty to a point where an authorised project is capable of claiming the credits and the adjustments that are available is a valuable outcome for any project, as well as for its investors and end-users.

From a transition perspective, the move to implement article 6 is an exciting time for carbon markets.

VIEWPOINT AFRICA

African tax forum gains provisions in OECD deal

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he African Tax Administration Forum (ATAF) has succeeded in gaining the inclusion of several of its proposed provisions in the Pillar One and Pillar Two rules, although certain other aspects were not adopted in the OECD’s global tax deal.

Following the July 11 2023 OECD/G20 Inclusive Framework (IF) outcome statement summarising the commitment of 138 countries on the “two-pillar solution” to address tax challenges arising from the digitalisation of the economy, the ATAF announced that: ● It succeeded in gaining

CELIA BECKER inclusion of several provisions in the Amount A rules, which is estimated to roughly double the allocation of profits to the 27 IF members, such as the allocation rules for the tailend sales to lower-income countries; ● The ATAF and African countries succeeded in

negotiating for the binding dispute resolution mechanism being elective rather than mandatory for issues relating to Amount A, with an African country only undergoing this process if it elects to do so; ● The African countries that are IF members are committed to not imposing newly enacted digital service taxes and relevant similar measures between January 1 and December 31 2024 if a critical mass of jurisdictions sign the Amount A Multilateral Convention (MLC) by the end of 2023.

This is a concern as African countries have expressed the

need to start taxing digital firms generating profits in their countries and not wait until the MLC comes into effect, which is highly unlikely to be before 2026 or 2027; ● The ATAF and African IF members successfully negotiated to have country risk adjustments included to increase the global profit margins in the Amount B pricing matrix for those jurisdictions that have no financial data; ● The IF committed to incorporating the Amount B rules in the OECD transfer pricing guidelines in January 2024 and many African

countries — including many that are not IF members — will use the transfer pricing guidelines; ● In respect of the Pillar Two rules, the ATAF and African countries successfully negotiated for all payments relating to the provision of services within the scope of the Subject to Tax Rule

138 COUNTRIES COMMIT TO ‘TWO-PILLAR SOLUTION’ TO ADDRESS DIGITALISATION TAX CHALLENGES

(STTR); and ● It also succeeded in getting the STTR to apply in priority with the Global Anti-Base Erosion (GloBE) rules, meaning that the application of the STTR does not consider tax under an Income Inclusion rule (IIR), Under-taxed Profit Rule (UTPR) or a Domestic Minimum Top-Up Tax, which helps to protect source taxation rights and offers some defence against profit shifting. ● Celia Becker is an Africa regulatory and business intelligence executive at ENSafrica.

BusinessDay www.businessday.co.za August 2023

12

BUSINESS LAW & TAX

Caught with hands in butter In marketing a product, firms •must avoid unlawful competition

SPREADING A LIE TOO THICKLY

term would “grab and hold” the consumer’s attention in the first three to five seconds.

INTENTION Jeremy de Beer ENSafrica

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n this article, we discuss a recent judgment of the of Court Supreme Appeal (SCA) dealing with unlawful competition, Siqalo Foods (Pty) Ltd v Clover SA (Pty) Ltd. In particular, we’ll look at the issue of how a company that trades in contravention of a statute is not just committing an offence, but may also be unlawfully competing with its competitors.

This article is technical, but it does illustrate an important principle, and we have tried to keep the issues as simple as possible.

The Appellant in this case, Siqalo Foods (Pty) Ltd, has as one of its products the Stork range of margarine spreads.

The respondent, Clover SA (Pty) Ltd, manufactures and sells a range of goods including a “modified butter product” under the trademark Butro.

Clover alleged that Siqalo was offering its Stork margarine spread as a butter product when it is, in fact, a “modified butter product” and not true butter. Clover claimed that Siqalo’s product label, which read Stork BUTTER SPREAD, misrepresented the nature, substance, attributes, character and composition of the product.

Clover referred to the Agricultural Product Standards Act, 1990, and the regulations that have been published under it. There is an offence that relates to the size of the trademarks that may be imprinted on a product label or container. A further

offence relates to the use of any trademark that conveys or creates, or is likely to convey or create, a false or misleading impression as to the nature, class or identity of a product.

Clover applied to the Gauteng High Court for an interdict restraining Siqalo from unlawfully competing with it by trading in contravention of the act. The application succeeded, with the Gauteng High Court granting Clover an interdict (injunction) preventing Siqalo from selling or marketing modified butter products with packaging featuring the terms “modified butter product” or “butter” as a dominant feature.

The court required the removal of the “offending label” within seven days; alternatively, destruction of the material.

THE WORD ‘BUTTER’ IS, WHEN COMPARED TO ALL OTHER WORDS ON THE LABEL, DIMENSIONALLY OVERSIZED The judgment was appealed against at the SCA. Appeal judge Visvanthan M Ponnan handed down the judgment, dismissing the appeal. He dealt with a number of issues, but we’ll deal with those we regard as the most important.

MODIFIED BUTTER The judge kicked off by talking butter. It is, he said, “com-

mon ground that the product is not butter, but something entirely different – namely, a modified butter. Butter is … a product derived solely from or manufactured solely from milk … by contrast, modified butter merely has the general appearance of butter, but it is not pure butter.”

Ponnan went on to make the point that on the label for Stork BUTTER SPREAD, “the word ‘butter’ is, when compared to all other words on the label, dimensionally oversized and, therefore, visually accentuated”.

In contrast, the trademark Stork, which appears above the word “butter”, is “dimensionally of a much smaller size”. These aspects, together with certain others, “serve to underaccentuate the words ‘MODIFIED BUTTER’.”

Does Siqalo’s product label misrepresent the product? There was a test to be applied.

Clover argued that Siqalo’s Stork BUTTER SPREAD

product label, viewed as a whole, not only contravenes the Agricultural Product Standards Act’s statutory labelling prohibitions, but also misrepresents or is likely to create the misleading impression that Siqalo’s modified butter product is, in fact, a pure butter product.

Although Siqalo had not applied to register or registered Stork BUTTER SPREAD as a trademark, both parties agreed that the test to determine whether trademarks convey or create a false or misleading impression as to the nature, class or identity of a product is the same as the test applied by courts to determine the likelihood of deception or confusion for the purposes of trademark infringement and passing-off.

In other words, the court needs to transport itself into the marketplace, consider issues such as first impression, dominant features and the fact that confusion may be fleeting.

FROM BUTTERY TO SPREAD Ponnan discussed the fact that Siqalo had initially considered using the subbrand BUTTERY, but had dropped that name because people surveyed found it confusing, with some thinking it was margarine with a butter flavour or texture.

It was then that the name BUTTER SPREAD was conceived. A survey suggested consumers saw this as meaning the product was a “butter” or “pure butter”, but not a “modified butter”. A marketing report found this

THE COURT REQUIRED THE REMOVAL OF THE ‘OFFENDING LABEL’ WITHIN SEVEN DAYS; ALTERNATIVELY, DESTRUCTION OF THE MATERIAL

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The judge had some interesting things to say. With regard to the BUTTER SPREAD label — “it is difficult to resist the suggestion that the product label was fashioned to focus consumer attention on the word ‘butter’.”

As for the survey, although this was of limited value, it did support the impression that Siqalo had, “in adopting the product label, acted out a ‘common charade’… sailing as close to the wind … without brewing up a storm of deception”.

If Siqalo had contravened the Agricultural Product Standards Act, does that constitute unlawful competition?

Ponnan had no hesitation here: “It does not appear to be in dispute that if the appellant trades in contravention of a statutory prohibition, such trade would also constitute an actionable wrong under the common law, namely unlawful competition (which is actionable even if the misrepresentation is innocent).”

The upshot — the appeal was dismissed and Siqalo remained bound by the order of the Gauteng High Court.

As we said, very technical but important nevertheless.

Proprietors should therefore always seek professional advice to make sure that not only are they not infringing another party’s intellectual property rights, but that they are also complying with any applicable labelling requirements, or they may find themselves facing an unlawful competition claim. ● Reviewed by Gaelyn Scott, Head of Intellectual Property at ENSafrica.