Google has good reason to be API
• The tech giant recently won a legal battle brought by Oracle over use of its Java application program
André J Maré ENSafrica
The US Supreme Court has ruled that Google was entitled touse elements ofOracle’s Java application programming interface(API) code when buildingAndroid (the mobile operatingsystem). Thisbringsan endtoa decadeoflitigation.
Thedecision overruledan earlier federalcourt decision that heldthat Google’s use of theAPIhadinfringedOracle’s copyright.There was,asyou might imagine, a great deal of money at stake if Google had lost, it mighthave faced a damages award in the region of$9bn.
Inthiscase, theclaimwas that the “structure, sequence and organisation” of the Android APIsinfringes Oracle’s copyrightin theJava code.The litigationdealtwith
about 11,500lines in Android’s codebasesrepresenting 37 separate APIs. The courtmade twomajorfindings.
● APIs aredistinct from other forms of software APIs allowprogrammers to access othercodes. This makes themvery different fromotherkindsofcomputer programs.Thecourtsaidthis:
“As part ofan interface, the copied linesare inherently boundtogetherwithuncopyrightable ideas and the creation of new creative expression.”
Thecourt wenton tosay this: “Googlecopied only whatwas neededtoallow programmersto workina different computing environment withoutdiscarding a portion ofa familiarprogramminglanguage.Google’s purposewas tocreate adifferenttask-relatedsystemfor a differentcomputing environment (smartphones) and tocreatea platform the Android platform that wouldhelp achieveandpopularisethatobjective.”
● Fair use
The court heldthat what Google haddone constituted fair use: “Google’s copying of theAPItoreimplementauser interface, takingonly what was needed toallow users to put theiraccrued talentsto work ina newand transformative program, constituted afairuseofthatmaterial.
thelawful scopeof acomputerprogramcopyright.”
Thecourt was,however, keento makeitclear thatthis ruling wassubject-specific: “We do notoverturn or modify ourearlier cases involvingfairuse cases, for example,thatinvolve‘knockoff’ products, journalistic writingsandparodies.”
The court went on to makethepoint thatAPIcode enablesnewcreativeexpression, which is something the fair-use doctrineis supposed topromote:
“The upshot, in our view, isthat fairusecan playan importantroleindetermining thelawfulscopeofacomputerprogramcopyright.”
DIFFERENT PERCEPTIONS
thefactthatthiscaseinvolved bigissues.
A Google spokesperson said: “TheSupreme Court’s clear ruling isa victory for consumers, interoperability and computerscience. The decision giveslegal certainty to the next generation of developerswhosenewproducts andservices willbenefit consumers. ”
youletsomebodyhavecopyrightonthatnow,theywould controlall typewriters whichreally hasnothingto dowithcopyright.”
If youthought theheadline on this article was cheesy Now that you know what’s beenexercising thefinest legalmindsin theUS,we’ll end with a quick mention of what the judges of the EU’s highest courthave hadto contendwith.
Can you havecopyright in foodtaste,moreparticularlya DutchcheesydipcalledHeksenkaas (witches’ cheese)? This issue arosebecause an “infringing” product cameon themarket. Theanswer isa definitive:no.
A taste cannot enjoy copyright,but youprobably didn’tneedus totellyouthat. We’re not sure what these two very different cases say about two of the world’s majoreconomies! FAIR
“The upshot, in our view, isthat fairusecan playan importantroleindetermining
There, are, of course, two sides to everystory. There wasa certainamountof hyperbole inthe reactions, butthis doesn’t detract from
An Oraclecompany spokesperson said: “The Google platformjust gotbigger andmarket power greater thebarrierstoentry higherandtheabilitytocompetelower. TheystoleJava and spent a decade litigating asonlyamonopolistcan.This behaviour isexactly why regulatory authoritiesaround theworld andinthe USare examining Google’s business practices.”
Judge Breyer suggested thatOracle’sAPIclaimswere akin to claimingcopyright on the QWERTYkeyboard: “If
/123RF TIMUR ARBAEV
LATERAL THINKING
Covid effects still being felt
• Business Day Law & Tax editor Evan Pickworth interviews Audrey Johnson from ENSafrica’s employment department on the latest labour developments of importance to business
EP:It seemsto be strike andprotest season all over the country.What is theimpact on the economy and do you see some resolutionto these any time soon?
AJ: Protracted strikeshave an immediate detrimental impact onbusinesses, employees andtheir families and, eventually,also onthe growthoftheeconomy.
Economic growth is directly linkedto consumer spending. Protractedstrikes not onlyaffect consumer spending whilethey are ongoing but alsofor some time thereafter.This is because theprinciple ofno work, no payapplies while employeesareon strike.Asa consequence employees who are ona protracted strike losea substantial amountofincome.
More oftenthan not,these are low-earningemployees who have a number of relativeswho dependontheir salaries. Thestrike affects their cashflow drastically, resulting in more debt and povertyinthe longrunand affectingconsumerspending.
Strikesalso affectthe foreign investment required for economicgrowth since stable labourrelations area key factorpotential investors consider.
Ifthe economyisnot showing signsof growth, employment opportunities are shed,unemployment increases andpoverty also becomes the endresult. The rapid growthin theeconomy required toenable itto deal with highlevels of unemployment andpoverty isunlikelytobeachieved.
As towhether theprevalenceof strikeswillimprove any timesoon, unfortunately this doesnot appearto be likely.Inmyexperiencethere hasinfactbeenanincreasein strike activityin recent monthsas adirectconsequenceofthenegativeimpact Covid-19 hashad onmany employees’ earnings and conditionsofemployment.
EP: What’syour key message to those trying to negotiate settlements?
AJ:Both parties employers, on theone hand,and employees andtrade unions onthe otherhand have to be reasonableand understanding inthe demandsthey makeof eachother andmust tofinda willingnesstomeet each other half wayif it is at allpossible.
It isoften verychallenging for the disputes that have givenrise toastrike tobe resolved becausethe parties arejusttoofarapart.
Unions make demands thatdonottakecognisanceof economic realityand the financial position many employersfindthemselvesin in lightof thedevastating effect Covid-19 andthe relatedrestrictions havehadon theirbusinesses.
They fail to appreciate that if their demands were met, it would affectthe future viability andsustainability for the businessand would ultimately leadto joblosses, which would beworse for theirmembers.
Atthesametime,wehave seen employerswho are
IN MANY INSTANCES, EMPLOYERS GENUINELY ARE IN A DIFFICULT FINANCIAL POSITION
usingthe Covid-19pandemic as a convenientexcuse for not beingin a positionto pay bonuses or giveincreases or make any sort of comprise in response toemployee demands inregard tothese issues.In manyinstances, employersgenuinely areina difficultfinancial positionand there simply isn’troom for compromise.
But there are some instances where employers are also not being reasonable orshowing anyappreciation forthe desperatefinancial positionemployeesarein.
EP:What isareasonable salaryincrease incurrent circumstances whenjust having ajob is seenas a bonus?
AJ: That’s adifficult question becausewhat isreasonable
does varyfrom industryto industryand businessto business. Many businesses havenotbeen inapositionto grantincreases atallbecause of the pandemicand as you say have asked employees to be understanding and acceptingofthisinlightofthe facttheyat leaststillhavea job. In many instances employees are still on layoff, workingreduced hoursor receivingonlyapercentageof their normalremuneration. This results inany increase actually being academic becausethey aren’t receiving theirfullremuneration.
Butasa generalrule,an increase of 4% to 5% is probably reasonable given that itwill at leastcurb the effectsofinflation.
EP: Arethere anyalternatives to reduced salaries and worktime,or isthatsomethingemployees willhave to face for a while yet?
AJ:The alternativeisunfortunately usuallyretrenchments andjoblosses.Givenourhigh rateof unemploymentand lowrate ofeconomicgrowth thisis potentiallymuch worsefor employeeswho are unlikelyto easilysecure alternativeemployment.
Employers could also consider implementing an incentive schemein termsof whichemployees agreeto forego a percentage of their remunerationand forthat amounttobe investedina long-term incentivescheme
For example,in listed entities,the agreedpercentageof theirremuneration couldbe invested ina phantomshare schemeso thatemployees receivenotional sharesthat track the valueof the actual share price and can be cashed in ata future date, subjecttocertainconditions.
Employers can also review andanalyse theuse androstering ofemployees who areemployed onatypicalcontracts ofemployment suchas flexible,zero-hour contracts and fixed-term contracts. Employerscould seek tomake full useof the flexibility,and benefitsof automatic termination based onexpiry, thatthesecontractsprovide. However,the risksassociated withtaking these stepsmust becarefully considered.
EP: Have youseen an increasein disputesover retrenchments as a result of the weakeconomic conditions?
AJ:Yes, therecertainlyhas beenan increaseinlitigation
over retrenchmentexercises thatwere undertakenby manyemployers inthe courseofthelastyear.
EP:Is SA’s retrenchment law keeping pace with these developments?
AJ: Our retrenchment law is actuallyvery welldeveloped andseeks tocarefully balancethe employer’s prerogative to makedecisions it considersto beabsolutely necessary to meet its operationalneeds andobjectives againstthe employees’ rights to be consultedand to ensure they areafforded afair opportunityto makerepresentationsabout viablealternativesthe employershould consider.Our lawdoes requirean employerto demonstrate theretrenchments were thelast resort andall alternativesthatcould potentiallyachieve thebusinessobjective theemployer is seeking to achieve have beenproperlyconsidered.
Having said that, our law doesn’trequire anemployer tobein direfinancialstraits beforeit canretrench. Itis permissiblefor anemployer to retrench simplyto make a businessmoreprofitable.
EP:The employment& labour committee recently heardoral submissionson the EmploymentEquity Amendment Bill.How importantis thisbillfor businessgoing forwardand when canwe expect itto be implemented?
AJ:The billwill havean impacton businessesand particularlythose wantingto be able toaccess state contracts. Ifpassed, itwill be morenecessary thanbefore forbusinesses toensure compliance withthe EEA,or theymay benegatively impacted.
Ofmost significanceisthe fact the amendments to the EEAproposed interms ofthe billwill empowerthe employment &labour ministerto establishsectoral numericaltargets forthe purposeof ensuringthe equitable representationof
suitablyqualifiedpeoplefrom designatedgroups atall occupationallevels inthe workforce.
The billalso makesprovision forthe promulgationof section53 ofthe EEA.This section hasnever beenpromulgated inthe 21years of the EEA’s existenceandthe sectionhas neveractually comeintoeffect.
Section 53 (which is not yet inforce) requiresthat, in order to conclude an agreement with anyorgan of state for the furnishing of supplies orservicesorforthehiringor letting of anything (state contracts),employersmust:
● Complywiththeact(chapter2and bothchapters2and 3for designatedemployers);
and
● Attacheither acertificate obtainedfrom theminister confirming its compliance withthe actor adeclaration by the employerthat it complieswith theact,which constitutes conclusive compliance when verifiedby the DG[director-general]
Failure tocomply withthe requirements of section53 of theactissufficientgroundfor rejectionofany offertoconclude,or forcancellationof, anystatecontract.
This means thefailure to complywithsectoralnumericaltargets thatare nowproposedto beintroduced, absenta reasonableground tojustify suchnoncomplianceto thesatisfaction ofthe minister,may precludea business from concluding statecontracts.
In termsof thecurrent EEA,employers mayalso
OUR LAW DOES REQUIRE AN EMPLOYER TO DEMONSTRATE THE RETRENCHMENTS WERE THE LAST RESORT
face fines for noncompliance with the act.This is not changed by the amendments, except that employers may alsoface afine fornoncompliance with the sectoral numericaltargets.
Itcould bearguedthe proposed amendmentsthat require adesignated employerto meetthetargets set bythe ministerand tobe assessed on this criteria, particularly before it may do work for the state, is not
really a “target” but actually moreakintoa“quota” Ourcourtshavepreviouslyfound quotasinemployment equity plans are not permitted bythe EEAand on this basis theamendments, if passed, may not ultimately passconstitutionalmuster.
The bill also does not providean employerwithan opportunity to apply for exemption fromcompliance withthesetargets.Employers whofail tomeet theminister’s targets may, however, provide a reasonable justification althoughit is not clearwhat wouldbeconsidered tobe reasonableand the extent to which deviations maybeexcused.
Thebillwasintroducedby the labour ministeron July 21 2020. Itis stillunder consideration by the National Assembly. After that, it must be approved bythe National Council of Provinces and then signedby thepresident. The amountof timetaken to implementa billvaries,but theParliamentaryMonitoring Group estimated that from introduction tocommencement, the process usually takesmorethanayear.
EP: What willthe effect be for noncompliant companies?
AJ:Asset outabove,noncompliantbusinesseswillnot beabletoattainacertificateof compliance and will therefore be precluded from accessingstatecontracts. In addition, they may be finedfortheir failuretocomply. The impositionof a fine mustbe precededbyspecific enforcement procedures, whichinclude areviewand recommendation to the employerbythe DGinrelationtocomplianceandwhere such recommendation is not followed, the DG may approach the labourcourt for relief(including afine).Companiescan befined between R1.5m and 2%of turnover, to R2.7m and 10% of turnover for contravening employmentequitylaws.
EP: And lastly, your advice for young students planning on a career in labour law.
AJ: I would strongly encourage any aspiring lawyer to considera careerinlabour law. It isa wonderfully dynamic area ofour law that is constantly changing and developing. Whether the economy is flourishing or floundering, there is always stimulating and challenging work emanating from the fieldofemploymentlaw.
comprehensive legal advice and assistance with cyber incidents, data privacy and data breaches
BUSINESS LAW & TAX
Welcome clarity on BBBEE
•
More to come after practice note on ownership vehicles
Lance Fleiser Bowmans
Apractice note recently released by the trade, industry & competition minister hasbrought muchneeded clarityon various matters relatingto theallocationofshareholdingsincompanies tobroad-based BEE (BBBEE)vehicles.
Oneofthe waysacompany (measuredentity) can score ownership points under theownership pillarof its BBBEEscorecard isfrom shareholdings heldin itby broad-based ownership vehicles operatingprimarily or whollyfor thebenefit of black people ora subclass of black people(for example, blackwomen).
Twoexamples ofsuch broad-based vehicles which are specificallyregulated by the BBBEE sector codes and generic codesare broadbased ownershipschemes and employeeshare ownership programmes (ESOPs). Often structuredas trusts administered by trustees, they operate forthe benefit of specifically designated groupings(forexample,communities orstudents), or employees ofthe measured entity,respectively.
Over thepast fewyears, differing viewshave been expressed bythe BBBEE Commission (onthe one hand) andcertain other stakeholders, includingmany measured entities, advisers and BBBEEverification
agencies(onthe other)onthe rights of measuredentities to attain BBBEEownership points throughbroad-based vehicles.
The BBBEE Commission has adopted theview that rights ofownership (particularlythe rightsto cashflows from shareholdingsin measured entitiesand tovote thoseshares)mustvestinthe beneficiaries ofthe broadbasedvehicle, notinthe trustees ofthe broad-based vehicle. Other stakeholders have interpretedthe relevant provisions asallowing rights of ownership to vest in the trustees, forpractical and other reasons, on the understanding thatthe vehicle operates forthe benefitof thosebeneficiaries.
Asother examples,the BBBEECommissionhas:
● Heldthe viewthatit isnot sufficient forthe vehicle’s trust deed/constitution to identifythe beneficiariesasa class ofbeneficiaries unless accompanied bya closedlist setting outthe namesof each individual withinthat class whoisabeneficiary;
● Objected toprovisions in constitutions pursuant to which namedbeneficiaries might cease in future to be
THE BBE COMMISSION REQUIRED THAT DISTRIBUTIONS BY BROAD-BASED VEHICLES BE IN THE FORM OF CASH
beneficiaries, evenwhere that occurredin fault-related circumstances;
● Adopted theposition that ownership pointscannot be claimed ifthe beneficiaries areminors;
● Been of the view that the constitution must setout the percentage ofeach distribution by thevehicle to which each beneficiaryis entitled, forexample, “30% of each distribution is to be made to person X, 30%of each distribution is to bemade to personY,andtheremaining40% of eachdistribution isto be madetopersonZ”;and
● Required that distributions by broad-basedvehicles be in the form ofcash, and the cash must beplaced in the handsofeachbeneficiary. What is containedin the practicenote?
Ownershipcan vestin the broad-basedvehicle itself. Thepractice note recognises thatownership points can be derived from the shareholdingsof broadbased vehiclesas typically
structuredinthismarket;that is,with ownershiprights vestingin thebroad-based vehicle rather than in the beneficiaries. Identification ofbeneficiaries.The practicenote clarifiesthattheinclusionofa defined class ofpersons in theconstitution issufficient (without the need to list each beneficiary),that theconstitution can providethat persons who aremembers of thatclass willcease tobe beneficiaries shouldthey cease to be members of that classand thatownership points canbe claimedif the beneficiariesare minors.An example of a defined class of beneficiaries is “black people livinginGauteng”
Perpetual structures are acceptable. Thepracticenote recognisesthat ESOPscan operate on aperpetual or evergreenbasis. Itfollows that it is not necessary for theretobe anoutsidedateon which anESOP sells,or can sell, its shareholding. It can continueto operateindefi-
nitelyforthe benefitofthe employeesfrom timetotime ofthemeasuredentity.
Vested entitlements. The practice note clarifiesthat the constitution need notset out the percentage of each distributionto whicheachbeneficiary isentitled. Itis sufficient foritto specifywhatthetotal percentageis ofdistributions tobemade toblackpeople falling into the defined class (which willbe 100%in circumstanceswhere theclass islimitedtoblackpeople).
The form that distributions take. Thepracticenote providesthat distributionsto beneficiaries do notneed to take the formof cash placed inthehands ofeachbeneficiary.It statesthat, forexample, money canbe usedby thebroad-based vehicleto payfor skillsdevelopment, educationor trainingon behalf of beneficiariesor to facilitate access to funding or fundsocial orcommunity interventions ordevelopments for thebenefit of the beneficiaries.
OTHER POINTS
The practice notestates that “challenges with existing schemes (coveringtheir funding mechanisms, frontingpractices,inadequate informationto intendedbeneficiaries and governance challenges) will need to be addressed”. Theminister anticipatesthat furtherlaws or communications will follow which will focus on the needfor greatercommunication and interaction betweenthe measuredentity andthebeneficiaries.
At thisstage, itis merely conjecture as towhat is specifically contemplated,
and whether this will entail theintroduction ofadditional qualificationrequirementsfor abroad-based vehicleto qualifyas abroad-based ownership schemeor ESOP. Thesemight requiregreater education to be provided to beneficiarieson theprinciples of ownership, or further information disclosureson the measured entity and its activities;orthatbroad-based vehicles orbeneficiaries should haverepresentation onthe boardof directorsof measuredentities.
There remain areas not addressedin thepractice notewherethe viewsofthe BBBEECommissionandcertainother stakeholdersdiffer. For example,there aredifferingviewsontheimpactofthe inclusionor exclusionof certainterms andconditions in shareholders agreements regulating therelationship between broad-basedvehiclesand theothershareholdersof ameasured entity.The commission hasregularly takenthe approachthatif certainrights andprotections are notafforded toa broadbased vehicle inthe shareholdersagreement, noreal ownershipis created,so BBBEE ownership points cannotbeawarded.
We welcome the minister’sstatement thatincreased stepsare contemplatedto counterfronting.
The minister should be respectfully commendedfor addressingcritical areasof confusionthat haveexisted up untilnow. Welook forwardto theclarifications creatingimpetus foran increasednumber oftransactions involvingBBBEE vehicles.
Africa ups its anticompetition game amid Covid
Lerisha Naidu & Angelo Tzarevski Baker McKenzie Johannesburg
Withthe growthof economies across Africa, competition lawhas remained one ofthe key driversfor effectivemarket participation, consumer protectionand fairbusiness practices. However, Covid-19 introducednew challengesfor competition authorities in Africaand abroad,with eachenforcer pursuingthe mostbeneficial method for its national orregional jurisdiction. Theseefforts wereaimed at curbing thepersistence of unjustifiedprice hikes,anticompetitive co-operation between competitors and otherharmful businessprac-
tices thatsought tounderminecompetition.
Inaddition totheurgent responses tothe unprecedented effectsof theglobal Covid-19 crisis, competition authorities incountries and regions acrossAfrica continued tointroduce newlaws and amendexisting legislation as a signof the rapidly increasing prioritisation of competitionlawenforcement onthecontinent. Competition authorities had already established strategies for maintaining competition and limiting instances ofcustomer exploitation intheir respective countries by early March 2020. Authoritiesin Kenya, Malawi, Mauritius, Namibia, Nigeria andSA reacted quickly topandemic impacts by introducingnew guide-
linesandregulations.
In addition,various jurisdictions haverecently strengthened theircompetitionlawregimes bywayof amendments tothe existing legislation orby introducing entirely newlaws tofacilitate theirenforcementefforts.
NEW LAWS
For example,Botswana’s Competition Actcame into forceattheendof2018.
Kenyarecentlyintroduced ahostofnewlaws,guidelines and rulesthat relateto buyer power,thevaluationofassets in mergertransactions, block exemptionofcertainmergers from notification, merger thresholds andfiling fees, market definitionand new guidelines forthe determination ofadministrative penalties.
Ghana’sDraftCompetition Bill iscurrently beforeparliament awaitingpassage into law, andEgypt andMauritius amended their competition legislation byintroducing or giving effect tonew provisionsandregulations.
InSA,pricediscrimination and buyerpower provisions that werepreviously introduced bythe Competition Amendment Acthave since come intoeffect. Guidelines were also issuedto facilitate the interpretationand application ofthese provisions. African competitionlaw continues todevelop ata rapid pace, boosted by the implementation ofprotective strategies necessary during thepeakofthepandemic.
In additionto countryspecific regulations,a number ofregional competition
regulatorsin Africaarealso impactingdomesticmarkets. Such regulatorsinclude the WestAfrican Economic Monetary Union(Waemu), the EastAfrican Community (EAC), theCommon Market for Easternand Southern Africa (Comesa),the Economic Communityof West African States(Ecowas) and the Economicand Monetary Community ofCentral Africa (Cemac). While not aregional regulator, theAfrican Competition Forum, anassociation of Africancompetitionagencies, promotes competitionpolicy awareness in Africaand the adoption ofcompetition policiesandlaws.Theforumalso facilitates regular contact between authorities, creating aplatform forthe sharingof best practiceand domestic competitiontrends. An increasingnumber of jurisdictions haveadopted laws andregulations, established authorities, secured membership to regional antitrustregimesandramped up enforcementof suspected violations ofprevailing competitionlawsatbothdomestic andregionallevels. As such,organisations transacting acrossborders in Africa must ensure they are compliantwithamyriadlocal and intersectingregional competition lawsto avoid falling under the spotlight of the continent’s competition authorities. Access tostandardised, cross-border information on the latestcompetition law developments inAfrica has become essentialfor those transactingintheregion.
SHARE OF THE PIE
/123RF DMITRY VOLKOV
When to sign off on digital signatures
• Some agreements require written authentication, so make sure you know when to put pen to paper
Pierre Burger Werksmans
What is an electronicsignature, and when willitbevalid inplaceofa handwritten signature? These questionsappeared to have been answeredby the Supreme Courtof Appeal (SCA) in SpringForest, but recent case lawhas introduced anelement ofuncertainty.
To recap, the section 13 (Signature) ofthe Electronic Communications andTransactions Act(ECTA) provides asfollows:
1. Where thesignature of a personisrequiredbylawand such law doesnot specify the type ofsignature, that requirementin relationtoa datamessageismetonlyifan advanced electronicsignatureisused.
2.Subjecttosubsection(1), an electronicsignature isnot withoutlegal forceandeffect merely on thegrounds that it isinelectronicform.
3.Where anelectronic signature is required by the partiestoanelectronictransactionand thepartieshave notagreedon thetypeof electronic signatureto be used, that requirement is met in relation toa data messageif:
(a)the methodis usedto identify the person and to indicate theperson’s
approval ofthe information communicated;and b) havingregard toall the relevant circumstancesat the time the method was used, themethodwasasreliableas was appropriatefor thepurposesfor whichtheinformationwascommunicated.
SpringForest clarifiedthat “requiredby law” in section 13(1) meansrequired by statute,and doesnotextend to asignature requirement imposed by agreement betweenthe parties in which casean “ordinary” electronic signature would suffice.
Further, thetypewritten namesofthe partiesatthe footof theire-mails,which wereused toidentifythem,
PARTIES NEED TO BE ABLE TO LOOK AT THE SIGNATURE, SEE WHETHER IT COMPLIES … AND RELY ON IT IN GOOD FAITH IF IT DOES
complied with the definition of “electronic signature” and fulfilledthe functionof asignature,that is,toauthenticate identity.
Thus, wherea contract requiresa writtenandsigned document fora validagreement tovary, anexchange of e-mails (whichconstitutes writing interms ofECTA)
with the parties’ typewritten names atthe bottomwould comply with the requirementsofsection13(3)
In Globaland Local Investments Advisors (Pty) Ltd v Fouche, a mandate by Foucheto hisfinancialservices provider (FSP) required his signature fora valid instruction and made no mention of anelectronic signature. Fouche’s e-mail account was hacked, and fraudulent instructions with the typed words “Regards, Nick” and “Thanks, Nick” at the end were sent to the FSP, resulting inthe FSPpaying outsomeofFouche’sfundsto thefraudster.
In anaction torecover damagesfrom theFSP,the SCAheldonappealthatsince thepartieshad notagreedto accept an electronic signature ascontemplated insection 13(3), the position was that a signaturein the ordinarycourse, thatis,in manuscript form, was required, even if transmitted electronically. Hence, the FSP’sappealfailed.
Spring Forestwas distinguished onthe basisthat the authority of thepersons who had actually writtenand sent thee-mailshad notbeenin issuein SpringForest, asit was in the present case. In Spring Forest, there was no disputeregardingthereliabilityofthe e-mails,accuracyof the information communicated orthe identitiesof the persons who appended their
namestothee-mails,whereasinthe presentcasethe e-mailswerefraudulent.
In Borcherdsand another v Duxbury andothers, the high court confirmedthat a manuscriptsignatureinelectronic form wouldmeet the requirements of a signature for the purposes of the Alienation of LandAct (ALA), even
A MANUSCRIPT SIGNATURE IN ELECTRONIC FORM HAS COME TO ACQUIRE THE STATUS OF A HANDWRITTEN SIGNATURE
thoughECTA doesnotapply totheALA.Thisconfirmsthat a manuscript signature in electronicform hascometo acquire the status of an ordinaryhandwrittensignature.
Global and Localis, however, problematic for other reasons. First,where acontract requires asignature but doesnot specifythe typeof signature, the default position is that an electronic signature isindeed compliant.This,in my view, is the clear effect of
section 13(2).Furthermore, SpringForest confirmedthe positionby necessaryimplicationifnotexplicitly,infinding that section 13(3) applies in anyinstance wherethe partiesrequire asignature (notnecessarily anelectronic signature)but donotspecify thetype ofelectronicsignaturethatisrequired. This renders an electronic signature presumptively equivalent toan ordinarysignature,except ininstances subjecttosection13(1)
Second, the fact that the signaturesin Globaland Localwere fraudulentwhile the signatures in Spring Forestwerenotisnotacoherent basis fordistinguishing SpringForest.
FORMAL REQUIREMENTS
The question iswhat the formal requirements for a valid signatureare. Theparties need to be ableto look at the signature,see whetherit complieswith theformal requirements, andrely onit in goodfaith if it does.If those requirements can change dependingon whetherthe signature laterturns outto have been fraudulent,then a party receivinga signeddocumentcannot knowupfront
whetherit isformallycompliantandcannotrelyonit. Thecourt inGlobaland Local oughttherefore tohave followedSpring Forestand heldthattheFSPwasentitled torely onFouche’s typed name atthe end ofthe relevante-mail asconstituting hissignature unless (and this was notcovered in the judgment, so itis impossible tocomment) itwasclear from thecontract theparties intendedthesignaturetoprovide a higherthan usual degree ofauthentication, suchasfor exampleifitprovided fora samplesignature that could be checked against thesignatureonanymandate ostensibly receivedfrom Fouche,which wouldhave impliedthat amanuscript signaturewasrequired. Nevertheless, in light of Globaland Local,parties entering into acontract that requires a signaturefor any purposeshould bealertto specify whether or not an electronicsignature willbe compliant.If so,it wouldbe pragmaticto specifywhat formof electronicsignature will be acceptable whether amanuscript electronicsignature is required or a typed versionwillsuffice.
Injury bill now includes domestic workers
Audrey Johnson ENSafrica
RELIEF FOR DOMESTIC WORKERS
One of themost significant and interesting amendments
A recentlabour lawdevelopment businessneeds tobe awareofcomesintheformof mooted changes tothe Compensation of Injuryon Duty Amendment(Coida)Bill. There are substantial changesproposedtotheprovisionsrelatedtotheappointment ofinspectors and regarding enforcementand compliance. This enables inspectors tomonitor and enforce compliancewith the act, throughinspections and investigation ofcomplaints. Inspectors willhave the powerto enterhomesand workplaces subjectto consent fromthe occupier/ owner, toenforce compliance with theact. Inspectors will havethe powerto issue compliance orders, which will ultimatelybecome an orderofcourt.
(albeitnot relevanttobusiness) isthat domesticworkers, whowere previously excluded fromthe protection grantedby theact, arenow includedinitsambitandprotected from occupational injuriesanddiseases.
This followsthe decision of the Constitutional Court in Mahlangu andAnother v Minister of Labour and Others (CCT306/19) [2020] ZACC 24, which ruled that the provision inCoida, which excluded domestic workers frombeingabletoclaimfrom
the CompensationFund in the eventof injury,illness or death, is unlawful and violates the rightto social security,equalityanddignity.
The bill hasalso introducedtheconcept ofamultidisciplinary employee-based process inwhich employee rehabilitation, reintegration andreturntoworkprocesses must beundertaken by employers for employees who suffer occupational injuriesordisease.
Thesemeasureswillforce employers toensure that
theyhave exhaustedallprocesses beforeembarking on dismissalprocesses.
When thebill isenacted, employerswillmostlikelybe expected to revise their incapacity proceduresand policiestoalignitwiththebill.
THESE MEASURES WILL FORCE EMPLOYERS TO ENSURE THAT THEY HAVE EXHAUSTED ALL PROCESSES
IMPLEMENTATION DATE
The billwas introducedin September 2020. Itis in the secondstage oftheprocess, where it isbeing commented on by theemployment & labour portfolio committee, and is unlikely to be implementedanytimesoon.
Based onthe government’s summary of the public hearingheld onApril 21 2021, industry groups are not happy withthe proposed amendments.
BUSINESS LAW & TAX
Battle of green vs fast fashion in investment
• Several environmental laws add confidence for investors to move to more sustainable clothing
Carlyn Frittelli Davies & Njabulo Mchunu ENSafrica
South Africans’ recent celebration of FreedomDay signalled 27 years of democracy. Our constitution further brought us rightsand obligationsto guide ourrainbow nation, including freedomof expression andenvironmental rightsto protecttheenvironment, ourhealth andour wellbeing whilefocusing on the sustainability of the environment.
Althoughclothingservesa functionandaneed,formany luxury clothingis thegold standard ofself-expression and success.A growing “luxury ” trendis thatofsustainableclothing.
Moves tonet zeroemissions anda decarbonised economy havefocused investors fightingclimate
change onidentifying companies whichvoluntarily adopt environmental,social and governance(ESG) business models.With further celebrations andanniversaries suchas EarthDay, the Rana Plazacollapse and Fashion RevolutionWeek, a possible newtrend presents itself. Workers Day, which is an internationally celebrated event,adds tothe focusof sustainability.
SA’s clothing,apparel, textiles and footwear industry
The clothing,textile, apparel and footwearindustry has
TECHNOLOGICAL ADVANCES HAVE RESULTED IN PACKAGING WHICH USES NATURAL AND BIODEGRADABLE MATERIALS
long been identifiedbythe government as a source of employment and an investment opportunity. Before trade sanctions were lifted in 1994, the fashion industry supporteditself, butnomodernisation from a manufacturing perspectiveor thatof the protection of workers wasestablished.
When trading borders wereopened,themarketwas floodedand takenhold ofby imports from China and India.Inthepasttwodecades, the industry has experienced more than200,000 joblosses.Thegovernmenthassince established initiatives to revive the industry and workers areprotected farbetter than before.Unfortunately, with fast fashion to compete with, itseems thatthe local industryisstillstruggling.
Climate change and environmental effects
As consumers become more
MATERIAL VALUES
aware ofthe trueeffects of the fashion industryand start influencingthe valuechain,a shiftto sustainableandlocal products is evident. Pressure ismountingagainsttheglobal fashion industry, particularly fastfashion.
While largeglobal corporations respond to consumer demands by investing in and creating new technology, lobbying governmentsand putting pressure on its value chain (which is vast and complex), smaller and newer companies can implement ESG business models and committonetzeroemissions more easily. A return to slow fashionbysmallerandnewer companies mayrepresent the enticement required by investors.
Slow orsustainable fashionfocuses onlessproduc-
tion of hand-made clothing. Textiles are, therefore, sourced in smaller amounts withanemphasisonsustainable,natural fibresanddyes ordigitalprints.
This alsoallows for greater transparency in the value chain relatingto agriculture and manufacturing of textiles.
Transportis likelytorequirecarbonoffsets,although an increase inonline shopping may streamline logistics and the needfor storage in numerousfacilities.
Technological advances have resulted in packaging which uses natural and biodegradablematerials.
The risein second-hand and vintage enterprises is also encouragingwhich, arguably, isthe mostsustainable clothing of all. Holes in
sustainable clothing labels areevidentbutmanycompanies in SA have started the scrutinisedjourney.
Environmental lawsthat regulate the industry Depending on the particular linkofthe valuechain,environmental laws are numerous and will provide investors with added confidence.Forexample:
● From an agricultural perspective, water and soil impacts are regulated by, among others, the National WaterAct1998;
● The textile and leather industryis identifiedforpurposes ofthe nationalgreenhouse gas emission reporting regulations (Government Gazette40762,NoticeNo.275 of April3 2017,as amended) andthereforecarbontax;and ● The extendedproducer responsibility scheme for paper, packaging and some single use products (Government Gazette 43882, Notice No1187of November52020, as amended) requires the managementandrecyclingof packaging bythe industryas opposedto leavingit toconsumers.
Acceptance of climate change and thedrive to slow emissions present new business opportunities. This may be the white flag the SA fashion industry needsto slowly but surely increase investment. Behaviour is changing and campaigns to support local, conscious and sustainable clothing inorder to tread moregently onthe earthare growingin popularityasthe pressure on fast fashion grows.
Practice note clarifies Broad-based BEE Codes
Sanjay Kassen & Witness Makhubele ENSafrica
Long-awaitedclarity onthe Broad-Based Black Economic Empowerment(BBBEE) Codes has beenprovided by apracticenoteonMay18.
Amongother matters,it hasbeenclarifiedthateconomic interest inthe BBBEE Codesattach tothe “right” to receivedividends andnotthe dividend itself.Measured entitiesand collectiveenterprisescannotbepenalisedfor nothavingmadedistributions inanyparticular yearasany retainedearnings wouldin anyeventvest intheindividualordefined classofnatural personswho hadvested rightsinsuchearnings.
Thepractice noteclarifies that benefits couldbe in cash or in kindas, in most instances, collective enterprises providebenefits inthe formof skillsdevelopment, educationor trainingon behalfof beneficiaries,or provide access to funding or fundsocial orcommunity interventions or develop-
ments. These benefitsin kind do not, according to the minister,detract fromthe economic interest recognition throughtheseschemes.
This clarification recognises collectiveenterprises which serve a “single purpose ” suchas educational, developmental andcommunityupliftmenttypesofBBOS or trusts and, assuch, are to berecognised.
It is furtherclarified that evergreen EmployeeShare Ownership Programme (ESOP) structuresthat provide perpetualbenefit to employees wouldalso meet the requirementsof ownership under the BBBEE Codes, which specificallypermit an ESOP to identify the participants as employees of the measuredentityforaslongas theyremaininitsemploy.
The BBBEECodes state that allaccumulated economicinterestinsuchascheme is payable tothe participants at theearlier ofa specified dateor event,or theterminationofthe scheme,butthere isno requirementto havean earlierdateor eventtobe
specified. The purposeis to ensure theaccumulated economic interestof thescheme goes to its participants only. Thus,anESOPispermittedto simplyprovide thatallaccumulated economic interest mustbedistributedtoitsparticipants ontermination or winding-upofthescheme.
VOTING BY COLLECTIVE ENTERPRISES
Thepractice notestatesthat beneficiaries ofdiscretionary collective enterprisesseldom havethe righttovote atgeneral meetingsof underlying entities.Their rightsarerepresented by thefiduciaries of theschemeswhomakedecisions for and onbehalf of the beneficiaries. Voting rights, though exercisedby such fiduciaries, willbe attributed to the race andgender of the beneficiaries formeasurement purposes interms of the measurement principles discussedbelow.
BBBEE MEASUREMENT OF COLLECTIVE ENTERPRISES
In respectof theBBBEE
measurement of discretionary collective enterprises, the raceand gendercompositionof therights ofownership that willflow through to measured entitiesmust be determined withreference to the constitution ofthe enterprise.Inthisregard:
● Where theconstitution is clearonthe racialorgender composition ofbeneficiaries, that will serve as a written record of those facts, thereby satisfyingtherequirementfor identification;
● Where thedetermination ofrace andgender ofbeneficiaries arenot practically determinable fromthe constitution, reliancemay be placed onan independent competent person’s report estimating the rightsof ownershipthat flowsthroughthe enterprise. Suchreport may haveregardtovariousfactors whichcould includeadhoc distributions to beneficiaries of income andcapital; official estimating recordssuch as publicly availablemunicipal records, universityor school enrolment recordsand the SAcensusreports;
● Where thedetermination of race andgender of beneficiaries is indeterminable, the beneficiariesmust be regardedasnonblack.
REPORTING
REQUIREMENTS BY
JSE-LISTED COMPANIES
JSE listedcompanies are required toannually report on theirBBBEE compliance to the BBBEECommission in terms of section13(G) of the BBBEEAct,as readwiththe BBBEERegulations. If suchentities recognise any blackownership from discretionary collective enterprises witha classof beneficiaries,it maynotbe possible toreport onall the information requiredby the BBBEE Commission,such as the numberof beneficiaries, their provinciallocation, age, racialclassificationetc.
This may be the case as the defined class of natural persons maynot makethis distinction orthe competent personmaybe unabletodo so.In anyevent, theminister acknowledged thatthe BBBEE Codesdo notrequire
this levelof informationfor a BBBEEverification.
Thepracticenoteprovides that a measuredentity in these circumstanceswill be requiredtoreportonlyonthe participation ofblack people but not the other categories, and must do soin line with theinformation thatthecollective enterprises areable to produce. Measuredentities, however, cannotbe compelled toprovide suchinformationifitisnotavailable. This clarity will finally put to rest theuncertainty over the legitimacyof broadbased empowerment schemes suchas thecollective enterprisesand the future ofmany legitimate and collectiveenterprises in themarket.
It is expectedthat all adverse assessmentsand investigations bythe BBBEE Commission on those schemes thatare compliant withthe applicablerulesset outinthe BBBEECodesas clarified inthe PracticeNote will need tobe withdrawn and assesseddifferently goingforward.
/123RF HXDBZXY
BUSINESS LAW & TAX
Kenya set to rein in fintech
•
Proposed regulations could stifle the burgeoning sector
Theregulatorynetis closing on Kenya’s fintech industry. Fintech isone of the least regulated segments ofthe country’s financial servicessector, but the industry’s unregulated daysarenumbered.
Recent signalsfrom various regulatory authorities indicate that changeis coming and itmight be more constraining thansome industryactorsmightlike.
Several eventsin 2020 arelikelytohavehadasignificanteffectonthegrowthand development offintech in Kenya.These rangefromthe introductionof newtaxesto the draftingof legislative amendments tobring digital service providersinto the regulatory net aswell as the ongoing pandemicthat is pushing businessesto provide innovativesolutions and servicestotheircustomers.
Nonetheless, webelieve themainstreamuseoffintech will continuegaining traction inKenyain2021.
The fintechspace inthe country is vibrant,withsignificant developmentin digital lending,digital banking, insurtech andpayment services solutions.Kenya was ranked 63 inthe global top 100ofFindexable’s2020The Global FintechRankings. But, as in the caseof most tech-
nologies, lawsare always playing catch-upwith technological advances.In Kenya, the law may be starting to catchupwiththesector.
Fintech productsand services areregulated under Kenya’sexistingfinancialservices regulatoryframework, which wasdesigned for more traditionalproducts andservices.
As a result,there are instances wherecertain fintech players,products and servicesarenotregulated.
This has tiedthe hands of
THERE IS NEED TO ENSURE THERE IS CONCERTED EFFORT TO HARMONISE THE PROPOSED BILLS INTO ONE PIECE OF LEGISLATION
regulators to some extent. When picking up dubious practices as hashappened in the digitallending domain they have been limited to issuing warnings or cautionarynoticestothepublic.
The proposedCentral Bank of Kenya (Amendment) Bill,2020(NationalAssembly Bill No21) isaimed atintroducingdirectregulationofthe digital financial sector in
Kenya, bringingit underthe jurisdiction of the Central Bank of Kenya (CBK). This bill underwentitsfirstreadingon July 282020 andwas referred to the relevant committee.
However, itis notonly digital financial services and credit providers that stand to be affected. Financial products and servicesare broadly defined underthe bill.When read in thecontext of the CBK’s enhancedjurisdiction, the implication is that expanded supervisoryjurisdiction willaffect anyfinancial service and product, including many fintech products andservices. Thisbroad scope could be counterproductive.
In addition, the proposed Central Bank of Kenya
(Amendment) Bill, 2020 (National Assembly Bill No 47) seeks tointroduce the licensing of mobile money lender platforms. This bill underwentitsfirstreadingon February 252021 andwas referred to the relevant committee.
A third Bill, the Central Bank of Kenya (Amendment) Bill, 2021 was gazetted on April162021.
Itis importantthat regulationevolvestomeetchanging consumer protectionand public interestconcerns, while maintaining an environment conducive to innovation. Unfortunately, the proposed bills introduce provisions thatgive theregulator wide discretionarypower which,ifnotjudiciouslyexercised, could stifle innovation.
CONSUMER BILLS
Similarly, thereis needto ensurethere isconcerted effort toharmonise theproposedbills intoone pieceof legislation.
Meanwhile, thefintech industry also stands to be affectedby Kenya’s new digital service tax (DST) and valueadded taxondigital marketplace supply (VATDMPS).
Thesetaxes areaimedat entitiesthat offerin-scope digitalservices toKenyan consumers,such asartificial intelligence, cloud computing,digitalstreaminganddigitalmarketplaces.
The taxes are likely to have an effecton fintech developmentin Kenyaand mayactasadeterrent.
In addition,there isthe Data Protection Act2019 to takeintoaccount.
Itis clearthat fintechservice providers willbe affectedbythisact as they do rely onprocessing personaldata toofferservices.
More clarity ontheir positioncan beexpectedthrough the work of the Taskforce for the Development ofthe Data Protection (General) Regulations,appointedonJanuary15 2021.The draftregulations wererecentlypublished.
POSITIVE DEVELOPMENTS
Meanwhile, fintechplayers alsohave somepositive developmentsto lookforwardto. Greatercollaborationamong multipleplayers canonlydothefintechindus-
trygood.In themobilepaymentsector, theCBKhas beenworking withfintech playersand otherregulators suchas theCommunications AuthorityofKenya. Anotherpositive trendis the progress of the Capital Markets Authority’s regulatorysandbox foremerging technologiesin thecapital marketsspace. Theregulatorysandbox hasalso paved the way for a potential multisector regulatory sandboxfor cryptocurrencyand evolving paymenttechnologiestobe operatedasacollaboration between the Capital MarketsAuthority andtheCBK.
Todate, sevenfintech firmshave beenadmittedto thesandbox totestvarious fintechsolutions.
One participant, Pezesha Africa Limited,successfully exited the sandboxin October2020, enablingit tooperatea debt-basedcrowdfundingplatform.
The CapitalMarkets Authority is alsojoining 23 otherregulators underthe Global FinancialInnovation Networkintestinginnovative financial products, services, businessmodels andregulatorytechnology.
All in all,fintech in Kenya is well placedfor the future andhopefully legalandregulatorychanges willbemeasured, clear andtargeted to achievethe balanceneeded toensure industrygrowth, innovation andconsumer protection.
Insurers increasingly taking on societal burdens
Forafewyearsnow insurancehasbeen affectedbytherising costsofwhatisknownas socialinflation.
Therisingcosts incurredbyinsurersin meetingclaims,including increasinglitigation,broader conceptsofliability, consumer-friendlydecisions, pressurefromregulatorsand largejuryawardsintheUS, haveputpressureon casualtyinsurers.
Addedtosocialinflation aretheexpectationsbeing placedoninsurerstodeal withbroadsocietalissues. Workerscompensation, medicalschemesand pensionshavelongsince beenregulatedinasocially usefulway.
Insuranceiseasily described.Theinsurerpools therisksofmanyconsumers whopayaperiodicpremium sothatwhenafuture uncertaineventinsuredby thepolicyoccursthe
policyholdercanrecover theirloss.Aninsurance policywasoriginallya simplecontractbetween privatepersonswithprivate rightsandobligations.
Asinsurancehasgrown, riskshaveexpandedandthe poolofmoneyavailableto payclaimsandmake investmentshasincreased significantly butsohave therisks.
Theweightofconsumer pressurewasfeltrecentlyin theworldwideCovid-19 claimsforinterruptionof hospitalityandtourism businesses.Thesupreme courtintheUKforinstance, byasleightofhand,
overturnedcenturiesoflaw relatingtocausationand obligedinsurerstopay claimswellbeyondanyone’s pre-pandemicexpectations.
Insurersarenowbeing urgedtogetinvolvedin society’sbiggestproblems. Thereisarisingtideof naturalcatastrophelosses attributedtoglobalwarming. Annualcatastrophelosses areheadingfor$100bn, includinglossesfromperils suchasthunderstorms,hail, tornadoesandwildfires.
Creditinsurersaretaking abigknockandrateswill increasebecauseofdebts resultingfromtheeffectof thecoronavirusonthe worldeconomy.
InSwitzerlandinsurers wererequestedtoconsidera proposalforaninsurance schemetocoverfuture pandemics.Theattemptto shiftpublicresponsibilityinto privatehandswasrejected, butwhoknowswherethis willgoto.
Aninternationalreinsurer hasbackedapublic-private disasterinsuranceschemein oneoftheIndianstates.Ata recentinternational conferenceinsurerswere urgedtoengagewiththerisk ofbiodiversitylossesto protectnaturalcapitaland ecosystems.TheAustralian stateofVictoriaisprojecting thatrevenuefrominsurance stampdutywillincreaseby 29%in2024/2025tohelp balancethebooksfortheir increasedspendingon bushfireriskreduction projects.
Inthemeantimethescale ofinternationaltradeandthe growingworldeconomy haveseenotherpressures. Worldleadershavecalledfor apost-pandemicglobal treatyandinsurersarelikely tobecalledin.Locally,we seemedicalschemesbeing ropedintothevaccination requirementsofthecountry.
Amisstepaffectingoneof theworld’slargestcontainer
shipsintheSuezCanalledto insurersforkingoutclaims likelytobeinthe$100m bracketforonesingleevent, besidesthe$900mthatwas claimedbytheEgyptian government. TheUSwinterfreezein Texashasledtolossesof $15bn.Notallwereinsured, butthegrowingsizeofthe risksisapparent. Becauseofthemany claimsandhigherransom demandsandseverelosses insurersareretreatingfrom oneoftheworld’sbiggest risks,cyberrisk.Therecent closingdownofanoil pipelineintheUS,whichled toaR70mransomdemand
RATES WILL INCREASE BECAUSE OF DEBTS
RESULTING FROM THE EFFECT OF THE CORONAVIRUS
andstill-to-be-calculated businesslosses,hasmade themarketnervous.Cyber riskisagreaterriskthan pandemicriskbecausenooneseemstobeableto preventhackingintothe mosthighlysecuredand societallyimportantsystems. Insurersareurgedtotreat customersfairlyandthose theytakeonmustbetreated fairly.Theirpolicyholdersare nottheentirepopulation, however,andtheentire populationdoesnotpaythe premiums.Iftheinsurance industrytakesonsocietal burdensmorepeoplewill havetopaymorepremiums. Whethertheserisksare insuredornot,consumers willpayfortheminhigher premiumsorhigherprices. Wearegoingtohavetofinda balance,butwearealong wayfromdoingso.
● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.
PATRICK BRACHER
TAXING TIMES
/123RF RAWPIXEL
BUSINESS LAW & TAX
Patel clarifies nature of BEE collectives
Minister says beneficiaries do not have to hold direct ownership or be identified at start of scheme
Sanjay Kassen & Witness Makhubele ENSafrica
After years of uncertainty, trade, industry & competition minister
Ebrahim Patel issued a longawaited practicenote on May 18 2021,clarifying the treatment ofdiscretionary collective enterprises for ownership purposes under the broad-basedBEE (BBBEE)codes.
These collective enterprises includebroad-based ownership schemes(BBOS); employee shareownership programmes (Esops);trade union investment holding companies; not-for-profit companies (NPCs);co-operativesandtrusts.
Patel says government policy has always been to promote broad-based empowerment, which embraces facilitatingownership bygroupings ofdesignated personsthrough vehicles suchas co-operatives, women’s investmentvehicles, youth empowerment structures and community welfareprojects.
However, thesearrangements differ from the traditional model of share ownershipbeing helddirectlyor indirectlyinthe nameandfor the accountof individuals fromthedesignatedgroups.It was acknowledgedthat such structures have benefited many blackbeneficiaries in terms ofeconomic empowerment and/or accessto the economy.
It was further stated that the BBBEElegislation should ensure broadparticipation as well asmeaningful participation by black people in the economy and,in doingso, will leadto BBBEEaddressing the triplechallenges of poverty, inequalityand unemployment
Patelsays BBBEEshould empower andbe inclusiveof entrepreneurs andinvestors; small, mediumand micro enterprises and suppliers; employees; communities; as well asother marginalised groups.
Thepractice noteclarifies that broad-based empowerment through collective
enterprises wasalways, and remains, partof thetransformationagendaofthegovernment and, as such, should be recognised.
However, significantdifferences ininterpretation of the BBBEE legislation by the BBBEE Commission, the department andthe private sector haveresulted inthe BBBEE Commission finding thatthe vastmajorityof broad-based schemes such as trustsand not-for-profit companies arenot compliant with theBBBEE legislation anddo notresult ingenuine and effectiveownership for, and participationby, black peopleintheeconomy.
Thishas hadasevere effect on business,theeconomy and the black beneficiaries ofcollective enterprises and led to desperate pleas to thegovernment for policy andregulatory certaintyontheissue
The practicenote seeksto clarify theinterpretation and application of theBBBEE legislationinrespectofthemea-
BBBEE LEGISLATION SHOULD ENSURE BROAD PARTICIPATION AND MEANINGFUL PARTICIPATION BY BLACK PEOPLE IN THE ECONOMY
surement, evidentiaryand reportingtreatmentofcollectiveenterprises andrelated matters.
Rights of ownership of beneficiaries ofcollective enterprises
One ofthe majorconcerns aboutcollectiveenterprisesis thatthe beneficiarieswho holdtheir ownershiprights through these enterprises must hold ownershiprights inthe underlyingmeasured entitiesthemselves.
The practice note clarifies thatthisisnotrequired,asthe BBBEE codesexpressly recognisethat blackpeople are entitled toparticipate in measured entitieson anindirectbasis.
Thebeneficiariesofatrust, for example, donot acquire anyrights ofownership
directlyin themeasured entity.They mayacquire rightsagainstthetrusttoparticipate in the distribution of benefits butthey donot acquire anyrights directlyin the underlying entity. It is the essenceofa trustthatthe beneficiaries ofthe trustmay acquire personal rights againstthetrust butdonot holdrealrightsinitsunderlyingassetsheldbythetrust. Discretionto identifybeneficiaries and their benefits
Thepractice noteclarifies thatthe beneficiariesofcollectiveenterprises neednot beidentified atthecommencementof thescheme, norisa writtenrecordof namesrequiredintheconstitutionof thescheme.The BBBEEcodes expresslypermitthe beneficiariestobe definedby aclass ofnatural persons, creatingbroadbasedand meaningfulownershipby blackpeople,communitiesandworkers.
Patel saysthis isbest servedthrough themechanism of identifying a natural class of persons to benefit from thescheme asopposed to a listof individuals with vestedrights againstthe income and capitalof the scheme. The useof a defined class of naturalpersons is alsonotnecessarilylimitedto BBOS,Esops andtrustsas otherjuristic persons,as NPCs also utiliseit from time totime.
In this regard,the defined classof naturalpersons would havea vestedright againstthe incomeandcapitaloftheschemebuttheindividuals who might form part ofthatdefinedclassofnatural personsdonot haveasimilar vestedright. Theseindividuals would have a “ spes ” or hope to participatein income and capitalbut nota vested righttoit.
Furthermore, such schemeswould providefor discretiontothefiduciariesof the schemeto, fromtime to time,select individualsfrom thedefinedclassofbeneficiaries thatwould benefitfrom distributionsofthescheme.
Such discretionalso extendsto thedetermination of portions ofthe scheme’s income and capitalas to be distributed to adefined class ofnatural persons(tothe
TRANSFORMATION AGENDA
exclusionof others)once he/sheisselectedoutofsuch definedclass.
Patel says discretions like these donot contradictthe BBBEEcodes, whichprovide that fiduciaries may have no discretioninrelationtodefiningbeneficiaries andtheir proportion oftheir claimto receivedistributions.
He goeson tosay thatit logically followsthat ifthe constitutionof ascheme expressly providesfor afixed percentageof distributionsto vestin thedefined classof naturalpersons, thatwould satisfythe ruleofidentifying theproportion ofentitlement ofbeneficiariesbymeansofa written record of fixed per-
THE CODES PLACE NO RESTRICTIONS ON THE NATURE OF BLACK PEOPLE WHO MAY BE BENEFICIARIES OF COLLECTIVE ENTERPRISES
centagesofbenefits.
Provided that the scheme doesnotprovideforadiscretion tothe fiduciariesto distribute less thanthat fixed percentagetobeneficiariesto, ordeviate fromthe prescribedformula todetermine theclaims of,persons selectedfrom membersof the defined classof natural
persons,therequirementthat the fiduciaries may have no discretionin relationtothese termsisalsomet.
Once this discretion is exercised, eachbeneficiary selectedto partakein aparticulardistribution acquiresa vestedrightto theportionof the particulardistribution allocatedtothematthatpoint intime.
Importantly,ifabeneficiary was selected to receive oneparticular distributionof the scheme, it does not necessarilyentitle thatindividual to partake infuture distributions(that is,beneficiaries couldbe recycledonan ongoingbasis).
Thepracticenoteprovides auseful exampleof howcollectiveenterprises canoperate:“Asanexample,abursary scheme thatis 100%for ‘blackfemale studentswho matriculate in Gauteng province’ would besuch a CollectiveEnterprise. Inthis example the defined class of naturalperson wouldbe ‘blackfemale studentswho matriculate in Gauteng province’ and thefixed percentageof proportionof claim ofthis definedclass wouldbe‘100%’
“Typically, not all black femalestudents whomatriculate in Gautenghave a vested right toreceive bursariesout ofthescheme’s limited funds,but onlythose who are selected by the fiduciariesfrom yearto year.The definedclass ofnaturalper-
sons ’ rights are,however, vested and thefiduciaries are not allowed to award a bursary to anyindividual who falls outsideof thedefined class ofnatural personsby, for example,awarding abursary toa black maleor white femaleor blackfemale matriculating outside of Gautengprovince.
“Also, the value of a distribution toa blackfemale student selected may, if such discretion is providedto the fiduciaries,differ fromthe value ofdistributions toother blackfemale studentswho were selected as long as the ‘defined class of natural person ’ do notreceive anything less than providedfor by means of the fixed percentage(100%inthisexample).”
These discretions,Patel says, arecritical toensure meaningful beneficiationof somemembersoftheclassof natural persons and will not disqualify collectiveenterprisesfrom qualifyingfor recognitionunder theownershipscorecard.
Blackminors arerecognised
The practice note states the BBBEEcodes placeno restrictionson thenatureof blackpeople whomaybe beneficiaries of collective enterprises.
In particular, minors are notrestricted frombeing beneficiariesin anyway whether aspart ofa defined class of natural persons or individually.
/FREDDY MAVUNDA
LATERAL THINKING
Growing Africa’s engines
• Baker McKenzie’s latest report, New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding, explores the state of the African infrastructure market, and how the major global players’ approach to infrastructure lending on the continent is changing. Business Law & Tax editor Evan Pickworth interviews Baker McKenzie partner Lodewyk Meyer on the key trends and forecasts
While global data shows a decline in the valueof infrastructure lending, itis expectedthat as economies recover, new types of financing will be unlocked.
EP: Can you tellme a bit more about whatthe key data in the report showed?
LM: Thereport’s datashows that multilateraland bilateral lending intoAfrica has declined with investment levels fallingsuccessively in 2019 and2020 comparedto peaklevels seenafterthe financial crisis. In 2019, bilateral andmultilateral lending into Africaamounted to $55bn, which drops to $31bn in 2020.Over thepast six years, thedecline issignificant deal values dropped from$100bnin2014to$31bn in2020.
EP:What causedthisslowdown?
LM: Thisslowdown was attributableto anumberof factors, includingthe pandemic. Economic contraction hasaffected NigeriaandSA, meaning thatthe region’s largest economieshave not been feeding in growth as in previous years. However, marketfundamentalssignala region with underlying resilience and, as the global economy recovers,finance willbeunlocked.
Thereare alreadypositive indicators offorthcoming
investment. Commodity pricesare risingandlandmark deals are returning. For example, mining multinational Sibanye-Stillwater recentlycommittedR6.3bnto SAinfrastructureprojects.
EP: Whatabout thenumber ofdeals, didtheyalso decline?
LM: The data also shows that dealtenor iscontracting froma highof17 yearsin 2019 to 13 years in 2020. However, the long-term nature ofinfrastructure projects means international partners havemade lasting commitments tothe region, which are unlikelyto be abandoned despite immediate pressureon national finances.
EP: China’s rolein infrastructure fundingin Africa showed aninteresting trend, especiallysince it was expected to be negatively affected by the pandemic. Can youtell me more?
LM: Surprisingly,given the
pandemic, the data shows that lending by Chinese banksintoenergyandinfrastructure projects in subSaharan Africa sawa small upliftin 2020,though deal values are wellbelow their 2017 peak. In 2017, Chinese bankslent $11bntoAfrican infrastructureprojects,which decreased to $4.5bn in 2018, $2.8bn in 2019and $3.3bn in2020.
Overall, there hasbeen a slowdown inthe numberof infrastructure deals from China. In the short term, we expectto seemoretargeted lending fewerprojects of a higher quality using sophisticated structures and new financeoptions, suchasfactoring, usedto deployChinesecapitalintotheregion.
EP: What about the other international playerslike the US and the UK?
LM:Itisclearthatotherinternational players have the regionin theirsights,with key politicalchanges inthe US andUK likelyto seecapitalflowintoAfrica.
Up until now,the US hasn’tkeptpacewithChinese lending into Africa. The recent change in administrationis likelyto renewfocus on impact-building and financing strategic long-term projects in the region, but bankability andrisk-sharing remaina priorityforUS lenders.
The infrastructure funding gap isso large,and ofsuch strategic importance,it
remains necessaryto encourage international investment to fillit. African development finance institutions arevery goodat collaborating and Iam encouraged by the actions of the new US administration, the UK government and theNew Development Bank, in particular in their willingness to work with regional institutions in thisregard.TheUKismaking astrong playforinfluence, investment and trade with Africa post-Brexit. Further to key summits heldin 2020 and 2021, thereare signs thatfinancewillberedirected intoAfrica.
EP:Where isfundingmost neededandwhereisitcoming from?
LM: The report points to infrastructure gaps in energy provision,internetaccessand transportation that have resulted inan urgentimperative toidentify andenable new sources of finance outside traditional lenders and international partners. Fur-
therto theexpectedreturn of multilateral and bilateral lending, there is room for evolution to bridge the funding-opportunitygap.
EP: What aboutthe commercialbanks, aretheystill lending?
LM: Thisvacuum isunlikely tobe filledbycommercial banks,noting thatin2020, just 84 projects were supported by commercial bank finance and their involvementinDFIandexportcredit agency deals continues on a downwardtrend.
Banks arelikely tobe focusing on managing liquidity, with lenders deploying capitalselectively.
EP:Tell usmore aboutthe DFIs and new financing solutions.
LM:Localandregionalbanks, specialist infrastructure funds andprivate equityand debtaresteppingintocollaboratewith DFIsandaccess returns.
This outlinesthe deepening DFIinvolvement inthe infrastructure ecosystemat large, with DFIs increasingly anchoring theinfrastructure ecosystem in Africa serving a critical function for project finance as investment facilitator and a check on capital. Thisis becausethey can shoulder political risk and access government protectionsin away thatothers can’t, enter markets others can’t and are uniquely capable of facilitating long-term lending.
Private equity, debt financeand specialistinfrastructurefunds arealso primed to enterthe market, andmultifinanceandblended solutionsare expectedto grow inpopularity asa way tode-riskdealsandsupporta broader ecosystem of lenders.
Weexpect toseean increasein nonbankactivity in Africain future asa result ofnew creditmitigation productscometomarket.We have seen an increase in appetite from established marketparticipants, suchas developmentbanks,tocreate productsthat arenot tiedto existing arrangementsthat mayhavelimited thetypeof financeavailable.
EP: What does this mean for Africa in the long term? LM:Lastyearwasarelatively difficultyear acrossjurisdictionsandforinvestors with considerable uncertaintyand changeinthe waysinwhich wedobusiness. Shutdowns had a depressant effect onthe infrastructuremarket, asdeals inthe pipelinewere delayedand projectshaltedas aresultof Covid-19.
Full vaccination in Africa is a long way off comparatively, sowe can’texpect a fulland fastreturn tonormal activity.But we’ve reached the bottom, and the only way is up.With newpatterns of infrastructurefunding emerging,the future looks brighterforthecontinent.
Local regulator seeks legal advice on WhatsApp policy
On May13, theInformation Regulator releaseda statement indicating that it would seek legaladvice onpossible next stepsregarding WhatsApp’s updatedprivacy policy, whichcame intoeffect inSA onMay15
The regulator’s primary concernisthatWhatsApphas adopted twodistinct privacy policies,one tobeimplemented in the EU and the otherto beimplementedin jurisdictions outsidethe EU (non-EU policy).The regulator notesthat WhatsApp’s adoption ofthe non-EU
policy in SA is regardless of thefact thatthe Protection of PersonalInformation Act4of 2013 (Popia)contains minimum standardsthat govern the processingof personal information. These standards are substantivelysimilar to those in the General Data Protection Regulation 2016/679 (GDPR), which regulates theprotection of personal informationin EU membercountries. Broadly, theEU policy gives WhatsAppusers substantially moreinformation about howand whenWhatsApp will usetheir personal information. Forexample, andunlikethenon-EUpolicy,
the EUpolicy informsusers thatWhatsApp mayusetheir personal informationfor its own legitimateinterests, a conceptwhich isthe topicof ongoingdiscussion astothe scopeofitsapplication.
There arealso discrepancies inthe extentto which users under the EU policy and those underthe non-EU policy are notifiedhow they can exercisetheir rights underdataprotectionlaw.
While thedistinction is understandable froma legal compliance perspective, as theGDPRcontainsmoreprescriptiveprovisionsaboutthe information thatWhatsApp shouldprovideto users,itis
potentially the principle adopted byWhatsApp which raisesconcern.Itisimportant to note that thespirit of data protectionlaw isthatdata subjects shouldbe given enough informationto make an informeddecision on whether theyconsent to sharing their personal information withthe relevant controller(WhatsApp).
Itisnot clearwhyWhatsApphasadoptedanapproach that, whilepresumably resulting insimilar ifnot identical usesof personal informationacrosstheworld, provides datasubjects that arenotintheEUwithconsiderably lessinformation about
what WhatsApp(and the Facebook groupof companies)intends todo withtheir personalinformation.
The backdropof the updated WhatsApppolicy is the acquisitionof WhatsApp by Facebook in2014, which resulted inFacebook becoming WhatsApp’sparent company. Facebookstated its intentionwasto,amongother things, gain access to additional consumerdata thatit could monetise(mainly through advertising-related revenuechannels). The changesto the WhatsApp policymust be viewedinthiscontext.
Notably, other jurisdic-
tionsare alsolookingclosely at theimpact ofthe privacy policy updateson users. Specifically, the German Information Regulator has banned Facebook from accessing andusing WhatsAppuserdata,despitethefact thatthemorecomprehensive EU policy applies to WhatsApp usersin Germany.The German regulatorstated the ban wasintended to “safeguard the rights and freedomsofthe manymillionsof users”whogivetheirconsent to the WhatsAppprivacy policy.It remainsto beseen whether, having considered legal advice, the SA regulator willadoptasimilarapproach.
Wendy Tembedza Webber Wentzel
BUSINESS LAW & TAX
Ready for destination Popia?
• From July, hospitality businesses will have new requirements to protect guests’ personal information
Lisa Swaine & Wendy Tembedza Webber Wentzel
Weallhope for more traveland tourism soon. Hospitality playerswaiting forthebigtravelsurgeshould use this timeto ensure they understand therequirements ofthe ProtectionofPersonal Information Act(Popia) withintheirindustry.
SAoffers luxuryhotels and resorts,game reserves, wine estates, affordable B&Bs, golfcourses, mountains, forestsand golden beaches. It’sno wonderwe are adestination ofchoice for keen travellerslocally and abroad.Beitforworkorplay, from themoment that travellers arriveat your reception desk,their comfort and happinessare largely yourresponsibility.
That’s not, however, where yourresponsibility ends.Withtheintroductionof the Protectionof Personal Information Act(Popia), which comes intofull force on July 1,businesses in the hospitality industry take on a new set ofresponsibilities to protect theirguests’ personal information.
Mostof thebig playersin hospitality inSA havealready had to deal with the EU’s General Data Protection Regulation (GDPR),which was introduced in 2016 and requires businessesto take measuresto protecttheper-
sonaldataofEUcitizens.
GDPRand Popiaaresimilar, sosome businesseswill beprepared forPopia,while someof thesmallerestablishments may not be. But there aresome surprises lyingin waitforeven thebig players, despitetheir international experienceas Popia has someunique elements notcoveredbytheGDPR.
● Responsibility for booking agents
Travellers probably made their reservationsusing an online booking sitesuch as Booking.com, Lekkeslaap.co.za orTravelstart. Travelstart,based inCapeTown, describes itselfas Africa’s leadingonlinetravelagency.
MINIMALITY IS KEY BUSINESSES SHOULD NOT COLLECT MORE PERSONAL INFORMATION THAN IS REQUIRED
Behind theinitial booking site, there maybe other parties handling your guests’ information. UnderPopia, eachhospitalityplayerwillbe responsible forsafeguarding the information thatall its agents, actingon itsbehalf, are collecting, and you need toidentifyall thepartiesin thischain.
If one ofyour booking agents sells or shares your guests’ information toa third
party without permission or starts sending them spam, yourbusinessis inbreachof Popia,aswellastheirs.
Your business should have a Popia addendum to existingcontracts withallits agents and new contracts shouldcontainaPopiaclause. All those parties need to agreetoabidebycertainconditions. Theycannot bepassively“optedin”
A hospitalitybusiness is well within its rights to requireitsagentstosubmitto an investigationof theirsystemsandprocessestoensure theyarePopiacompliant.
● What kind of information is this?
When the travellers made their reservations, they would have supplied details personal tothem suchas passport or ID numbers, credit card details, telephone numbers,addressesandpossibly even car registration numbers. What level of protection does this informationrequire?
Popia definesdifferent categories of information: personalinformation(suchas IDandpassportnumbersand credit card details), special personal information (highly sensitive,such asrace,health and biometric information) and informationthat isnot personal, sodoes notfall undertheact.Therearemore safeguards for special personal information than there are for personal information, but safeguarded the informationshallbe.
● Are we accumulating too
UNDER LOCK AND KEY
much information?
Thekeentravellershavenow waved you afond farewell (andhopefully leftagenerous tip).Forhow longareyou going tokeep theirdetails on file?Minimalityiskey businessesshould notcollect more personal information thanis required. “Personal information” is definedvery broadly to mean any informationthatcan beusedto identifyan individualperson oranotherbusinessentity.
So how much do you reallyrequire?
You alsoneed toquestion why you arekeeping personalinformation(isitnecessaryforlegalpurposes?).
Ifthere isno goodreason, itmustbe disposedofina securemanner. Thisis important because under Popiaeven thekeenest traveller has a right to be forgotten.
● 4.How secureisthis information?
Taking all reasonable steps to safeguard thepersonal informationin yourpossession isa criticalelement in both the GDPRand Popia, as theMarriott HotelGroup foundouttoitscostin2018.
Marriott discoveredthat cybercriminals had hacked its global reservation databaseand accessedcustomer creditcard andother personal detailsinvolving 339-millionpeople. Thishad beenhappeningsince2014.
Marriott was fined £18.4m inOctober 2020and aclass action-stylesuit hasbeen
YOU ALSO NEED TO QUESTION WHY YOU ARE KEEPING PERSONAL INFORMATION
launchedintheUK.Whilethe cost in money must certainly hurt,a reputationalhitoften hurtsmore.
Popia requires a business to put in place “appropriate, reasonable technical and organisational measures” to preventloss, theftordamage topersonalinformation.
● Is this information travelling overseas, too?
If your hospitalityextends to international partners and loyaltyprogrammes, itis quite likely you are sharing your guests’ personal information outside SA. Popia has specific requirements for sharing informationoutside SAborders.
● On the subject of loyalty Much asyou hope tosee the travellersagain andremind themof thegreat timethey had withyou, or ifyou want to enticenew travellersto enjoyyour generoushospitality,some ofthe waysyou treatreturning ornewguests need to be handled very carefullyfromnowon.
Under Popia, unless a person isan existingguest whowillingly receivesyour marketing,a businesscannot send electronic marketing informationwithout firstgettingconsent.
Any request for marketing consentmust includelanguagethatis setoutinthe regulationstoPopia.
Weallhopetotravelmore andventure abroadagain, oncethe worstof theCovid19pandemicis past.Fora hospitalityplayer, theCovidinducedlull mayprovide some breathing spaceto get Popiacompliance incheck and,if necessary,takelegal adviceon measuresto putin placeurgently.
Interest on Sars refunds: know your rights
Riette Lombard AJM Tax
DoestheSARevenueService (Sars) pay your VAT refunds to youwithin 21business daysfromsubmissionofyour VAT201returns?
Ifnot, doesSarsautomaticallypayinterestonsuch delayedVAT refunds?Inour experience, Sars failsto pay interest ondelayed VAT refunds,despite itslegalobligationtodoso.
Section45 ofthe VATAct, 89of 1991placesa legalobligation on Sarsto pay interest toa vendorif itfailsto paya VAT refund to the vendor within 21 business days after thedateon whichthevendor submittedareturn.
The 21-businessday period may be suspended in thefollowingcircumstances:
● When the returnmade by thevendor isincompleteor defective inany material respect;
● When the vendor is in default inrespect ofan obligationto furnishareturn, eitherin termsofthe VATAct or anotheract administered bythecommissioner;
● When thecommissioner is prevented from satisfying himself as tothe amount refundable to the vendor by reasonofnot beingableto gain access to the books and records of avendor after requestingaccess;or
● When the vendor has not furnished thecommissioner withthe particularsofthe enterprise’sbankingdetails.
In practice,Sars often pays delayedVAT refundsto vendors withoutany interest on suchdelayed payments,
despitesection 45placinga legalobligationonSarstopay interest inthe circumstances automatically. Thisnoncomplianceforcesvendorsto submita manualrequestto Sarsto paytheinterest thatis legallyduetothem.
Since noformal procedureor timelineexistsfor such anapplication, along delay (if anyresponse is received at all)is usually experienced whena request forinterestissubmitted.
Furthermore, dueto the limited guidanceavailable on
SARS’S
DECISION NOT TO PAY INTEREST … IS NOT SUBJECT TO OBJECTION OR APPEAL
the correctinterpretation of the provisions,which allows Sars to suspend the payment of interest,uncertainty often existsas towhen interestis legallydue.
NO APPEAL
ItappearsthatSars,however, applies abroad interpretation to these provisions and the circumstances under which itmay suspendits liability to payintereston adelayedVAT refund.
Unfortunately,Sars’sdecisionnot topay interestfollowing aformal requestby a vendor, based on this broad interpretation, isnot subject to objectionor appeal,therefore limitingthe remedies available to a vendor to have suchdecisionreviewed. Due tothese remedies beingso costlyandtime-
consuming, vendorsoften do not pursue their claim for interest, despitetheir being entitledthereto.
Section 164(7) of the Tax AdministrationAct,28of2011 similarlyplaces alegalobligation on Sarsto pay interest onanamount thatwaspaid bya taxpayerpendingthe outcomeof adispute,where such assessmenthas successfullybeendisputed.
Section 164(1)places a legalobligation onthetaxpayerto payaliability dueto Sars wheresuch liabilityis subjecttoadispute.
ENFORCING RIGHTS
It is disappointingthat Sars’s system willimmediately levy interest wherea taxpayer failsto maketimeouspaymentofa taxliability.Still, when the sameobligation is on Sars to payinterest to a taxpayer when Sars failed to make timeouspayment, Sars often fails to comply with its legalobligation. Taxpayers needto be awareoftheirrighttointerest on refundsand enforcethis rightwhereSars isnotautomatically payingthe interest whichisduetothem.
If thetaxpayer successfullydisputestheassessment,andsuchassessmentis subsequently reversed, Sars isobligedtorefundsuchpayment tothe taxpayer,with interest calculatedfrom the date of payment to Sars until the amountis refundedto the taxpayer. Similarly, inpractice, Sars refunds the amountthat was paid by the taxpayer but without the interestthat Sars isobligedtopay.
/123RF PRATYAKSA
BUSINESS LAW & TAX
Competition policy gives Esops a boost
• Worker ownership schemes are likely to become common, especially in the case of mergers
Daryl Dingley & Elisha Bhugwandeen Webber Wentzel
In granting merger approvals, theCompetition Commissionhas begun toapprove mergerssubject tothe condition thatmerging parties putemployee share ownership programmes (Esops), alsoknown as worker ownership schemes, inplace.
It isalso becomingcommon formergers tobe approved subjectto thecondition thatworker trusteesof Esops begranted aseat on theboardofdirectors.
Asrecently reportedin Business Day, Esopshave to date benefitedmore than 150,000 workersin SA,with R100bn ofwealth transferred. Recentdeals include Coca-Cola BeveragesSA (which hasincreased worker ownership from 5%to 15%) and PepsiCo,which, asa result ofits mergerwith Pioneer Foods,granted 12,000
workers a 13%stake in the mergedentity.
It isevident thatthe competition mergercontrol process isbeing usedto facilitate theexpansion and useof Esopstomake areal difference inwealth creation forworkers.
The inclusion ofEsops as part of themerger control framework inSA follows relatively recentamendmentstotheCompetitionAct. Publicinterestconsiderations wereexpanded toincludean assessment ofwhether a merger will havean effect on promoting a greatspread of ownership byworkers and historically disadvantaged
TO ENCOURAGE INVESTMENT IN SA COMPANIES, IT IS IMPORTANT THAT COMPETING INTERESTS BE ACCOMMODATED WITH FAIRNESS
persons(HDPs)infirms.
Trade, industry& competition minister Ebrahim Patel has indicated he considers thispublic interestfactorto beparticularlyimportant.
Up until arecent media briefing held byPatel (also attended by leadership of companies and trade unions which have been involved in the implementation of these structures), there hasn’t been muchclarityonthecomplexities relatingto Esops.For instance, there has been a need to understand how Esopsin amergercontrol context correlate with existing broad-basedBEE (BBBEE) legislation, in particular whether they contribute toBBBEEownershippoints.
Merger partiesare not always able toanticipate how much information should be submitted in merger filings relating to Esops (or future plansinthisregard)andifthis issuewillbeaconcernforthe competitionauthorities.
There havebeen some positive developmentsthat
will provide merger parties with someclarity. Duringthe briefing, Patel undertook to issue a practicenote that will address several issues relating to Esops. It is hoped this practice note which was recently gazetted will, among otherthings, notbe too prescriptive and, for example,willallowforalevel offlexibility intheproportion ofa company’s shares that must beowned byworkers (this may differ depending on thesector,size ofthecompany and otherfactors), and clarify how Esop ownership aligns with BBBEE legislation.
Patel alsoindicated that discussions are being held at Nedlac level to facilitate potential amendments to the Companies Act to regulate workers being able to hold directorships. It would be valuablefor Pateltoinclude certain criteria for the appointment ofworker trustees as directors, given the extent of directors’ responsibilities. There should be minimum qualifications
such as education and competence, which can be supplemented with training in theroles andduties of directors
A few weeks ago, Patel published proposedamendmentsto themergerfiling forms. Once finalised, the forms will expressly require merger parties to provide detailed information on the promotionofagreaterspread of ownership, in particular whether the merger increaseslevels ofownershipby HDPsandworkersinfirmsin themarket(and ifnot,reasons forthis), informationon whether employee share schemes are in place and the extentofemployeeparticipationatboardlevel.
These proposedamendments wouldrequire amove away from the reactive approach of merger parties responding to information requests after amerger filing is submitted, to one where parties aremore proactivein providing detailed public interest related information upfronttotheauthorities.
For businesses,while a well-established Esopcan enhance performance by incentivising employees and improving labour relations, establishing oneis not “for free”. Allocatingfree-carry shares to employees comes at theexpense ofshareholders, who takeon greater financial responsibilities for a lowershareoftheprofits.
To encourage investment in SA companies,it is important that competing interests be accommodated with fairness, decisivenessand transparency. In future,merger parties should anticipate providing the competition authorities with information on existing Esopsandbeopentocreating future ones in instances where theseare notalready inplace.
These arrangementsare likelytobecomecommon. Firms, particularlythose contemplating M&A plans, should start assessing the possibility ofincorporating thesearrangementsintotheir businesses.
No more soft approach from antitrust body
Burton Phillips Webber Wentzel
Webber Wentzelrecently interviewed theacting director and CEO of the Comesa Competition Commission, Dr WillardMwemba.
The regulatorhead indicatedthe timeforsoft enforcement wasover and businesses operatingin the regionoughttotakeheed.
According to Mwemba, the commission hasto date followed asomewhat soft enforcement approach, focusing onadvocacy and raising awarenesswithin the businesscommunity.
The commissionhas, for some time now, invited businesses operating in the common market to bring agreements tothe commissionfor review toensure theydo not contravene the applicable competition rulesand encouraged partiesto engage with thecommission on potentially restrictive prac-
tices andpossible remedies aimedataddressingtheeffect ofsuchpractices.
However,initscautionary notice onrestrictive agreements, publishedin February this year,the commission notedits concernthatsome businesses operatingin the common markethave been engaging in,and continueto engage in,restrictive practices.
This hasled thecommission to adopt a harder stance against suchpractices, with Mwemba warningthere will nolonger beleniencyfor firmsfoundto beengagingin anticompetitive practices and that thecommission will seek to impose hefty fines on offenders.
Mwemba saidthe commissionwillfocusonconduct of significantconcern including cartels,abuses ofdominance, andrestrictive agreements. The commission’s cautionary notealso highlighted thesubsistence of
agreements withrestrictive territorial clausesand market allocation provisions that raise barriers totrade in the commonmarket.Italsonotes that thecommission intends to work closely with national competition authoritiesin member statesto ensure offendersaredetected,investigated andpunished. This couldincludefines ofupto 10%of annualturnover inthe commonmarket.
The commissionwill, however, continueto widen its advocacyand awareness efforts to ensurenot only businesses, butalso consumers, areaware ofthe rules on anticompetitive practices.
Mwemba said it is important forconsumers tounderstand when theirrights have been violated and how to complain tothe commission. The commission recently established theComesa consumer protectioncommittee, whichwill help in bringing
exploitative conductto the commission’sattention.
Inline withthis,Mwemba also saidthe commission intendsto rampup itsreview and assessmentof mergers. In particular,the commission will take astricter line towards partiessupplying incomplete or materially incorrect information when filing mergerapplications, especially when it was clear that incompletenesswas occasionedbynegligence.
Mergers involving private equityfunds willalso besubject to closer scrutiny. To date, most ofthe private equity transactionsthe com-
THE COMMISSION IS INCREASING STAFFING LEVELS IN THE MERGERS DIVISION, WHICH IS NOW UP TO FIVE OFFICERS
mission hasreviewed have not raisedcompetition concerns and were regarded as positive formarkets. However, the commission is concerned aboutsome private equity firmsacquiring extensive investmentsin multiple companiesintheregion.
As part of its increased enforcement effortsand to improve servicedelivery and turnaround times,the commission isincreasing staffing levelsinthemergersdivision, whichinitiallycomprisedone officer and is nowup to five. Thecommission isalsoplanning tointroduce aseparate research division thatwill be able tocontribute critical information forthe mergers andrelevantmarkets.
Finally, as ameans to give parties greaterinsight into the commission’s decisionmaking processes,the commission intendsto publish more comprehensive records of decisions on its website aswell asadditional
guidance andpractice notes providing clarityon important issues. Thiswill also assist inthe commission’s enforcement goalsas parties become morefamiliar with the commission’s reasoning andprocesses.
The commission has already issueda practice note clarifyingaspects ofits merger controlthresholds. In the 2014merger guidelines, the term “operate” referred to companies inmember states that had anannual turnover or assetsof morethan $5m. Inaddition tootherclarificatoryissues, inthepractice note thecommission confirms this definition of “ operate”isnolongerapplicable. It’s clearthe commission issharpeningitsenforcement activities. Businessesoperating inthe commonmarket must takeheed ofthe warning sounded byMwemba or risk facingharsh enforcement action. The timeforsoft enforcementisover.
/123RF LIGHTWISE
BUSINESS LAW & TAX
Expropriation bill is fairer than it looks
• The bill does not make it easy to expropriate property, nor does it appear to avoid compensation
Virusha Subban & Cameron Jeffrey Baker McKenzie Johannesburg
For decades,progress towardsthe integration of world economies and the establishmentof aglobaleconomic market hasbeen afeature of the times. Many nations have embraced liberaltrade and investment regimesin order to expandtheir economies andexploitglobalmarkets.
Openingup nationalmarkets toforeign competition has resulted in the increased integration ofmarkets for goods, servicesand foreign direct investment (FDI). Overall, globalisation has contributed toeconomic growth inAfrica, andas the continent gearsup forits postpandemic recovery, many Africancountries will belookingat waystoalign themselves more closely withtheirmajortradingpartners,sothat theycansuccessfully attractforeign investment.
Accordingto recentcommentsby public works & infrastructure minister PatriciadeLille,thenewexpropriationbillof2020bringsSAin line withinternational legislativestandardsontheissue of justice and equity in land
ownership. Thisis intended toprovide legalcertaintyfor SA’s major tradeand investment partners, as the bill aligns it withsimilar global policiesonlandreform.
The new bill, according to De Lille, wasnever intended to scare off investors, but rather toassure themthe country istackling crucial landreformin asimilarway toitskeytradingpartners.
However, thesestatementsbyDeLilledonotalign withthe generalreactionto
ITS FOCUS IS LAND REFORM, BUT UNDER THE AUSPICES OF DUE PROCESS, REASONABLENESS AND AGREEMENT
thebillwhen itwasfirst announced. There was much adoabout theprospectof “expropriation without compensation” when itwasfirst proposed that the constitution beamended tomake it easiertodosoinlate2018.To date, property owners still shudder at theuse of the phrase,asthefearofanswering the doorto an eviction notice lingers in the minds of
many.However,whilethebill does allow for expropriation ofproperty againstnilcompensation, it isfar more amicable towards SA property rights than is commonly believed.
Importantly, the billis not an amendmentof thepropertyclause insection 25of the constitution. Rather, it giveseffectto theclauseby servingasthelegislationcontemplated therein.Its focusis land reform,but underthe auspicesof dueprocess,reasonablenessandagreement.
Interms ofsection 2(3)of the bill,in theabsence of urgencyapowertoexpropriate may notbe exercised unless the expropriator has tried unsuccessfully to reach anagreement withtheproperty owner toacquire the property on reasonable terms.In otherwords,there should alwaysbe anagreement between an owner and the expropriator before any property changes hands, and only in exceptional circumstances shouldit beotherwise.
HOW IT WORKS
There are anumber of hurdles to expropriationin the bill. First, the public works & infrastructure minister must be satisfiedthat itis inthe publicinteresttodoso,orthat
LONG ROAD AHEAD
it isfor apublic purpose. When an organ of state intends to expropriate property,itbears theburdenof satisfying theminister tothis effect(step1).Next,theexpropriator must determine the suitabilityof thepropertyfor its intendedpurpose (step2). This involvesinvestigating and valuing the property, making use of appropriately qualifiedpersonnel.
Thereafter, thebill envisages a processof notice and negotiation, whereby the authoritymust serveanotice ofintention toexpropriateon the propertyowner andany other registered rightholders in theproperty. In effect,thenoticemustexplain theimplicationsofexpropriationand theowner’s rightsin the process; itmust call on thepropertyownertomakea claim for compensation he/ shebelievesto bejustand equitable,and itmustinform the owner ofher right to object(step3).
The authoritymust considerthecompensationclaim andany objection,andmust either accept the amount claimed or make a counteroffer (step 4).Should the property owner reject the counteroffer, itthen fallsinto the hands ofthe authority whether to expropriate, extend negotiations, or aban-
donthematter(step5).
If expropriation isto go ahead, a notice of expropriation mustbe servedon the owner and all related rightholders (step 6), outlining, interalia, thereasonfor expropriation, the amount of compensation anda reminderthatiftheamountis disputed, the owner may institute orrequest the authority toinstitute proceedings in a competent courttohearthedispute.
Theamountofcompensation (step 7) to be paid to the owner “mustbe justand equitable reflecting an equitable balance between the public interest and[the owner’s interests]”. The factors to be considered include the property’s market value, current use and the purpose of theexpropriation.
Yes,thebillprovidesthatit may be justand equitable for compensation to be nil, but the factors for consideration in this light are fair. Nil compensationmaybepossible,all things considered, (i) when thelandisnotbeingused,and the owner’s purposefor the land is not to develop it in view of generating an income, but ratherto benefit from its appreciation; (ii) whenthelandisstate-owned andnotbeingusedforitscore purposes;(iii)whentheown-
er hasabandoned theland; (iv)when themarket valueof the land is less than the value of the state subsidy or investment init; and(v) whenthe property posesa healthor safetyrisktootherpersonsor property.
Itis clearfromthis lista functional property is unlikely to be taken from its owner withoutduecompensation.
Inanyevent, section21of the bill makesprovision for alldisputes tobe referredto mediation,andabsentaresolution, it providesfor the determination of disputes by acourt. Ownerscandraw peace of mindfrom this provision,asitnotonlymeansan owner has protection against what mightbe unfairto him/ her, but an expropriator wouldbeloath toneglectdue applicationofsteps1-7forthe sake ofits owntime and resources.
Thebilldoes notmakeit easy to expropriate property, nordoesit appeartobe aimed at expropriation without compensation. It is theoretically possible for expropriationtooccuratanilcompensation, butprocedural fairness andthe rightfor all disputesto beheard beforea courtareprotectionsafforded topropertyowners.
The bill makesit clear howexpropriation islikelyto playout.Itisbalanced,recognising theneed forland reform but also the importance of procedural fairness, fair resolution of disputes, consensus between parties andtherighttoownproperty. Importantly, the property owner alwayshas asay, as each step inthe process needs tobe dulyheeded by the expropriator,and thereis always a rightfor the matter tobedisputed.
Although ithas generally notbeen wellreceived,once it becomes lawit is hoped thatitsintentiontobringSAin line with globalland reform standards will provide more certainty for foreign traders thinking of entering new markets.
/123RF SURUT WATTANAMAETEE