WP-August2012.pdf - Without Prejudice

The Law MagazineThe Law MagazineVol 12 No 7, August 2012R40.00 (Inc. VAT)

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Oversight and arrogance 6Used car salesmen are better 12

Oops 22Business rescue 30

Pinching your trademark 40Holes in the public purse 48

Oversight and arrogance 6Used car salesmen are better 12

Oops 22Business rescue 30

Pinching your trademark 40Holes in the public purse 48

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August 2012 1

Without prejudice is officially supported by a number ofcorporate law firms and corporate law advisers.

This support underlines the importance placed by many cor-porate attorneys on the magazine’s ability to reflect current issuesand to comment on these. This does not mean that the opinions carried in without

prejudice in any way reflect those of the supporting firms.Indeed, without prejudice’s editorial independence and integrityis jealously guarded. To give effect to this, an editorial advisory board provides

direction and counsel and meets three times a year. The corporate law firms supporting without prejudice are:EDITORIAL

Editor Myrle Vanderstraeten

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2

One swallow doesn’t make a summer. What a pity,

but at least it’s enormously satisfying to be able to

wallow gloriously in South Africa’s warm winter

sun while characters such as Shane Warne (famous as an

enemy) are forced to eat very humble pie through the course

of the first cricket test match between England and South

Africa for some years. Warne avoided saying too much by

resorting to the lazy man’s messenger: the tweet. In former

English wicketkeeper Alec Stewart’s opinion, England’s bats-

men enjoyed a slight edge; Warne

reckoned England would win two of

the three match series.

Instead, South Africa’s batsmen

delivered a feast of attacking, aggres-

sive but well controlled stroke play.

The vaunted English bowling

attack, especially spinner Graeme

Swann, was tamed by the fluency of

the South African batsmen.

Hashim Amla scored a litany of

records, the most important being

that he is the first South African

ever to post a triple century in a test

match (311 not out).

The Barmy Army, England’s

vociferous in-song supporters have coined a song about

Amla in which he is said to have his head on the wrong way

round. The good natured Amla giggles when he hears it.

And it’s been a good month for South African sportsmen

in other fields. The incomparable Ernie Els pulled off an

astonishing victory to walk away with the British Golf

Open’s Claret Jug, the second time he’s won this Major.

Kenyan born and St John’s College, Johannesburg educated

Chris Froome, who played a major role in securing Bradley

Wiggins’ victory in this year’s Tour de France, seems well set

to win the Tour himself in the future. Everyone is wonder-

ing when he’ll make his move, which will probably require

him to shift to another team.

___________

An article in this month’s issue concerns Basel III (p14)

and the global requlatory standards required of the banking

industry. It draws attention to the Libor scandal in which it

appeared that a variety of banks colluded in order to set the

daily interest rate for inter bank borrowings. Libor sets the

standard for interest rates around the world.

The damage done to banking, coming as it does on top of

the 2008 financial disaster sparked by America’s mortgage pay-

ments problems, is probably incalculable. The media and

politicians have been quick, as

usual, to blame the bankers but it is

now beginning to seem that the

core of the problems resides inside

the US Federal Reserve and the

Bank of England, organisations that

have been struggling (and failing) to

handle the problems associated with

widespread financial deregulation.

Currency stability and a deep

seated faith in the financial system

are elements critical to the growth

of the world’s economic and finan-

cial systems. Both have been badly

shocked and poorly served by

recent events – and, increasingly, it

is beginning to become clear that powerful politicians,

notably those in the United States - are those with most to

hide, or at the least to disguise.

There is an old law that requires that voters need to be resi-

dent in specific places for certain periods of time if they are to

be allowed to take part in voting exercises. It is clear this

needs now to be reinforced to the extent that all lawmakers

must be in possession of minimal economic information.

The problem is going to be making sure that voters

understand what they’re selecting. In this brave new world

it is no longer sufficient to assume that politicians possess

the information and the ability to interpret it that has

become so necessary. �

DAVID GLEASON

August 2012

FrommywindowFrommywindow

August 2012 3

ContentsContents

The LawAn objective view 6A departmental view 8Supreme law 10Perception 12

Banking LawMinimum standards 14

Financial LawCompliance 18You can take a horse to water 20

Competition LawNo leeway 22

Pro bono – by Norton Rose SAThe nuts and bolts 24

Company LawA new era 26Voting mechanisms 30Getting it right 31

Consumer LawNot immune 33

Intellectual Property LawGetting there first may count 36Is it or isn’t it? 38A stark reminder 40

TaxPotentially unlawful 42Constituting a contravention 44

Tax – InternationalHe’s everywhere, he’s everywhere 45Tick all four boxes 46

Public LawProtection 48

InternationalThe World in July 50Obamacare 52

AdvertisingTweety bird 53

Property LawSaving time, money and legal proceedings 54

Platteland perspectiveA sense of disbelief 56

Not the law reportsThere’s more to life 58

Human Rights LawProtecting information 59Registering as parents 60

Labour LawAvoiding unpleasant consequences 61It’s still your fault 63

LitigationSympathetic ears 65Checking the facts 66

Constitutional LawAccept responsibility 68

Classifieds 70 & 71

National news 71

LifestyleGadgets – overnight success 73The view from down under – a surfeit 75Motoring – intensive saving required 76Wine review – Cape Winemakers Guild 78

Deal ActivityA touch task 80

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4 August 2012

When South Africa became a democracy there were, for me,three essential elements that would now be available tocitizens regardless of creed, colour or gender. In no particu-

lar order – an independent legal system on which everyone couldcount to be fair; the possibility to be the very best in whatever fieldwas selected and education for all – without which there is nothingelse. I am a glass “pretty close to full” kind of person and no doubt I

wore rose-coloured spectacles but then, having been part of a societywhere many injustices took place, I was not alone in being full of con-fidence that a new and much better era had dawned.Equality and education form the basis of the purported desires of

the Legal Practice Bill.without prejudice and the magic circle Editorial Board have long

keen to secure an article dealing with theBill. There was discussion last year but it wasdifficult to get one’s hands on a copy of thedraft which was still being amended. Wehave this month an article by CarmelRickard, who always takes an objective viewof issues, and another which we receivedfrom the Department of Justice and arepleased to publish. The aim of the magazine – to encourage

debate – should be satisfied by these twoarticles. Regardless on which side of thefence one stands, the swingeing powersgiven to the Minister should be a major con-cern. Perhaps the current Minister does notwish to use a heavy hand but legislation isnot written with only today in mind – whatof a future Minister who is determined tomake a particular mark? I have to hope thatcognisance will be taken of the concernsand comments made and that possible futuredangers are recognised, and acknowledged.Certainly not as much change has taken place as might have been

hoped for but, realistically, those children born 18 years ago are onlyin matric, and those who were already at school and have had theopportunity of tertiary education are still gaining experience. It iswishful thinking that anything happens overnight and no positivechange will take place for as long as things are expected as a right.Maria Ramos, in an interview for a book on leadership, Courageous

Conversations, spoke passionately and eloquently on the value of edu-cation, the difficulties she encountered as an immigrant and her deter-mination to be educated. “.. there was no money to go to University so Iwent to work and the only job I could get was as a bank clerk. I knew thatwasn’t what I was going to do for the rest of my life but it was a job and Igrew up in a family where a job was something precious, as was education.”She found the bank had a scholarship programme – not open to

women – she soon set about changing that but it was a long hard roadwith many obstacles placed in her path. She said all she wanted was afair chance – no guarantees that she would be selected but an oppor-tunity to apply. And she attained her goal – she attended Wits “... I

was going to a place of learning which had been my dream and ambitionand there was a sense of being in an environment where you could learn,you could challenge and there was a freedom, a political freedom.”David Gleason in his Torque column in Business Day on

Wednesday, July 18, wrote that “Between 2003 and 2012, the sumsdevoted to education at the provincial level total R965bn. If you add inwhat’s been spent at a national level, the amount easily trumps R1 trillion.” Access to higher education has improved but the constraints

remain the academic capabilities and absenteeism of staff, the ineffi-ciencies of the system, destructive behaviour of students who demandto be passed regardless of ability, the below par standard of literacy,maths and science learning. But surely that sum of money should haveproduced much greater results than it has.It is without question that what is at stake goes beyond core teach-

ing. Both mature and emerging economiesshow that higher education is fundamental tocreating leaders; producing graduates who canthink critically and who can solve problemsthat face countries; increasing the earningpower of individuals and making a greatercontribution to the tax burden; improving theeconomy of the country and voting with themind. These will all assist in ensuring lessracial fragmentation and a better life for all.And it is also fundamental that the value ofdegrees and the esteem in which they are heldshould not be diminished.So, it was with profound disbelief, dismay

and disappointment that I listened to a newsbulletin stating that President Zuma had laidthe blame for non-delivery and destruction oftext books squarely at the door of HendrikVerwoerd. There can be no question that theabysmal standard of education for people ofcolour during the apartheid era did much to

keep people in a state of servitude. But, after 18 years of democracy,surely that is carrying things too far? The problem is that everyone isgiven to passing the buck – it wasn’t my fault ... What the Presidentshould have done was to have shown leadership, to have come downheavily on those who perpetrated this crime – not only were booksnot delivered, some were burnt, some dumped and who knows whathappened to the rest. Is that the excuse he gives those parents who are making enor-

mous sacrifices to keep their children in school rather than sendingthem out to work to assist with the finances of the family? And thosechildren whose educational road and future ability to get decent jobshas been marred by this injustice – is that also the fault of those longdead? Why does our President not expect people to accept responsibil-ity and take the blame? There is a well known character called “EvronElse.” Do those who lead our country really want a nation of peoplewith no backbone who are constantly blaming “Evron Else?” Time forleaving a legacy of hope is fast running out Mr President. �

MYRLE VANDERSTRAETEN

Editor’snoteEditor’snote

6 August 2012

The Legal Practice BillC A R M E L R I C K A R D

The Constitutional Court Clerks’ Alumni Association organised a mid-Julydebate on the subject of the controversial draft to help clarify the issues. Heldat Bowman Gilfillan’s offices in Sandton, the debate was addressed by twoprominent silks – David Unterhalter SC was briefed by the Association toargue that the Bill infringes the independence of the legal profession andOwen Rogers SC to argue the reverse, namely that the profession would besafe under the proposed legislation.At the start it was emphasised to the audience that the two had been

asked to take these positions regardless of their personal views and neitherwould be drawn in the subsequent questioning about where they stood per-sonally on the debate. A member of the Association explained to me after-wards that this approach was deliberate, chosen to 'model the independence ofthe profession and the duty of its members to represent a client's case regardless of theadvocate's own views.'

The legal independence issue was the right focus for the debate: trailershighlighting the impact of this draft legislation on fees and affordable legalrepresentation miss the main show. If the Bill undermines the independenceof the profession it would be irrelevant that legal advice could be obtained ata ‘more reasonable price;’ no matter how important accessibility may be, thatparticular end could not justify the means. If that ‘means’ threatens the inde-pendence of the profession, with the inevitable threat such a move wouldpose to the independence of the courts and of course to the rule of law itself,it could not be other than unconstitutional.

Unterhalter noted that the Minister of Justice would have three represen-tatives on the proposed council, the body that would effectively run the pro-fession. Why should the minister have any representatives on such a body,asked Unterhalter? Their task would be to influence the rest of the counciland be his ‘eyes and ears.’ Instead of professional autonomy we would see theminister ‘keeping his finger in’ and ensuring he is a player.

Rogers, on the other hand, said the state (and the public) had an ‘entirelylegitimate interest’ in the governance of the profession. In his view the profes-sional independence that was critical to the rule of law was the ‘freedom to actfor clients in their best interests without fear of state reprisals.’ As long as that free-dom was safeguarded, many models for regulating the legal profession, withdiffering degrees of state involvement, would be valid. This was a realityrecognised by no less a body than the International Bar Association, he said.

‘We are not entitled to insist on unfettered private governance,’ said Rogers, ‘buton independence in fearlessly representing all who seek our services.’

Chaired by one of the Association’s members, Judge Fayeeza Kathree-Setiloane, the debate continued for an hour or so, with questions from thejudge and from the audience.

Unterhalter argued that so far in South Africa’s post-apartheid period,interests that must be independent under the constitution have had a ‘patchyhistory,’ something that could be deeply subversive of the rule of law.Institutions needed to be ‘immunised’ against any kind of intrusion. ‘We are notdoing well at maintaining independence.’

Rogers on the other hand said that there were ‘substantial safeguards’ toprevent manipulation of the electionprocedure.

The organised profession re-mained in control of the professionand would ‘probably replicate’ what wasalready in existence and that therewere many matters where ‘we wouldbe better off with the views of both sidesof the profession.’

In the middle of the debate camean unexpected moment of agreement:I had not been aware that the legalprofession had already conceded theneed to have some form of public par-ticipation on its disciplinary bodies.When Rogers said there was an inter-national trend towards recognisingthat the public did not have confidence in a profession whose discipline was‘self-regulating.’ Unterhalter agreed. There would be ‘little disagreement’ on thisparticular issue, he said. The present system allowed the profession to ‘closeranks..

‘We do not think that public representation (on disciplinary bodies) wouldimperil … independence. If that were all, there would not have been a clamourabout the Bill.’

Government claims that the draft would result in better access to legalservices did not result in quite the same agreement between the two speakershowever. Rogers said under the proposed new system it ‘might be easier’ toensure that pro bono work was done than under the present system. ‘You maybe sceptical,’ he added, anticipating Unterhalter’s objections. ‘If you kickedagainst it, large numbers of lawyers could make the system fail but it would be betterto make it work.’

And indeed Unterhalter was sceptical, calling for ‘less self-flagellating’ onthe question of the Bar’s pro-bono work. He doubted that it could be done anybetter through the proposed ‘highly centralised scheme,’ certainly there was noevidence that this would be so. Members of the Bar were obliged to spend 20hours a year on pro bono work and many were willing to do even more. ‘It isnot fair to depict us as only self-interested.’

WHEN lawyers and ordinary members of thepublic try to get to grips with the proposedLegal Practice Bill, on what basis should they

decide whether to support it or not?

thelawthelaw

Rickard

August 2012 7

‘Some problems will never be resolved by schemes like this: the needs areso great.’

Rogers had to agree. It was true that large numbers of people would liketo do more pro bono work but a way had to be found to organise this. No Barcould say with any certainty how well its members were doing (on discharg-ing their pro bono obligations) because ‘they do not know.’ It needed enormousorganisation and commitment to administer a pro bono system and perhaps anappropriate council could help to follow-up on the recalcitrants.

Unterhalter’s final comments were that the Bill gave the minister toomuch power ‘across a wide range of issues’ that were properly the domain ofthe profession. This could lead to the ‘kind of damage seen in other parts ofpublic life.’

‘The Bill puts key elements at risk; far too much is put at risk.’ As she closed the debate, Judge Kathree-Setiloane reminded the audience

that the deadline for comments was July 27. The General Council of the Barwas still making submissions she said, urging people to read the Bill and formtheir own conclusions on the issues raised during the debate: ‘You have youropportunity now to have your say about what should be done.’

In a way those final remarks sum up the problem: one comment from thefloor during the debate expressed surprised concern over how little debatethere had been within the profession about not just the crucial issues touchedon that evening, but about the whole range of legal transformation problems.

Ten days between the debate and the deadline for submissions is hardlyan appropriate gap for thorough-going consultations and discussions abouthow the legal profession can respond to post-apartheid challenges.

As a concerned on-looker, I can’t help but feel that anxiety about legalindependence under the new Bill is very valid, despite the view expressed in arecent formal legal opinion on the issue. You only have to look at what hasbecome of the Judicial Service Commission to see how a body, supposed to beindependent, can be brought to heel by a powerful minister and his party. But at this stage it seems the profession is limited in its potential response:

it can make representations for or against the draft. How much strongerwould its position have been, however, if the advocates and attorneys, sepa-rately and even together, had organised discussions and consultations yearsago, to deal with the problems that the minister now claims to be addressingvia the Bill.

Ruth Deech (Baroness Deech of Cumnor for those who enjoy honorificsand titles), chairs the UK’s Bar standards board. In a recent wide-rangingspeech (May 2012) dealing with the roughly equivalent legislation in hercountry, the 2007 Legal Services Act, she complained that the new law’s‘heavy structure’ was not suited to as small a profession as the Bar. One possiblereason for the heavy-handed approach, she surmised, was ‘a hidden plot to crushthe Bar out of all recognition.’

Many people in South Africa, and not only lawyers, surmise that thesame thinking lies behind the draft legislation. There’s an attempt to camou-flage this behind the feel-good intentions listed in the Bill’s introductorypages, but it’s unmistakeable.

If the independence of the profession escapes unscathed from this latestattack it will be another of South Africa’s post 1994 miracles. But was it nec-essary to go down to the wire like this? Suppose that, early on in the period oftransformation, the Bar and the legal profession as a whole, had decided toconfront the many problems associated with law and justice that impact onthe public and on lawyers - access to justice, access to the profession, transpar-ent professional discipline and regulation and so on - in a way that illustratedthe new openness of those times. Suppose that all its members were invited todebate and discuss these issues and the way forward for the profession and thecountry. Suppose that the public was invited to participate in the discussion,and that the profession had worked out and adopted thorough-going changesthat impacted positively on its members and the public. What moral highground that would have provided from which to fight off what many now fearare attempts at ‘crushing’ the Bar and its independent spirit.

If, God help us, the Bill is passed, that consultation is still desperatelyneeded. For the proposed council ought to reflect the views of the profession’smembers on a wide range of issues. These have not yet been canvassed, letalone debated, formulated and implemented. Yes, there have been changesover the last 18 years, and they are significant, but they have been piecemeal,ad hoc, and not part of a thorough-going attempt to ensure that the professionapproaches the future in a way that is best for the public and for the legal sys-tem. That is a weakness, whether caused by oversight or arrogance, whichgovernment is now able to use for its own purposes. �

Rickard is a legal journalist and a columnist for without prejudice

thelawthelaw

8 August 2012

Measures to transform state legal servicesD E P A R T M E N T A L S U B M I S S I O N

It is believed that the transformation of the judicial system, and of the judi-ciary in particular, would be incomplete without the transformation of thelegal profession. The adoption of the Policy Framework is intended to ensure that legal

practitioners in both private and public sectors are adequately skilled, and thatthe advancement of women into leadership positions in society is accelerated.The legal profession plays a significant role in training andpreparing professional persons to advance to importantpositions within the legal profession including the judiciary. This proposed policy document will broaden the pool

from which competent legal practitioners will be drawnfor placement in national and international institutions,among other positions. Founded on the principles of pro-fessionalism, efficiency, collegiality, accountability andvalue for money, the proposed policy document will radi-cally transform the legal service and ensure effective co-ordination. The lack of effective co-ordination of legalservices has led to a number of operational challengesexperienced across government, which include: Prescription of claims involving government Default judgements granted against government Insufficient preparation by attorneys and advocates Instead of settling matters, attorneys and advocatesproceed against instructions and consequently burden the state withunnecessary cost orders Lack of monitoring systems over the work and outputs of attorneys andadvocates Inconsistency in the determination of counsel fees by the differentbranches of the Office of the State

Attorney briefing practices

The Department has been inundated with calls from members of the legalprofession for the transformation of state legal services. In their contention,they expressed their concern about the exclusion of the PreviouslyDisadvantages Individuals (PDIs) in the allocation of briefs. Those whoexpressed concerns also indicated that, in rare occasions where they are allo-cated responsibilities, the values of the briefs are not commensurate withtransformational objectives set out in the Constitution. The following aresome of the inadequacies relating to allocation of legal work to practitioners: Briefs are not awarded on an equitable basis: big law firms in the citiesand affluent areas and white counsel get preference over PDIs and one-man practices in under privileged areas Women are overlooked due to gender prejudices PDIs are not briefed to perform specialised and commercial legal work PDIs are not briefed in constitutional matters, resulting in a select fewadvocates appearing in the Constitutional Court more often to theexclusion of others. Many young advocates who join the Bar are not given work, whichresults in their struggling to sustain their practices. There are perceived allegations of corruption in the awarding of briefs.

The policy framework also seeks to address challenges emerging as a resultof state and certain other government entities briefing private counsel direct-ly, with some of them even engaging the services of private counsel on a

retainer basis. Much reliance is placed on the reputationfor success of certain counsel, and this, in turn, creates apattern of briefing to the exclusion of other competentcounsel of colour. The consequence is that White practi-tioners get preference over PDIs, particular with regard tospecialised legal fields such as constitutional, commercial,tax, and environmental law. These challenges come against the backdrop that the

state is the biggest consumer of legal services in thecountry and its litigation account runs into billionsannually. However, it is evident that the cake is notshared equitable among the diverse constituencies ofpractitioners, with Black and women practitionerstrapped at the bottom of the ladder. Therefore, the proposed policy framework, in part, seeks

to remove obstacles to access and unleash the potential ofall practitioners, by ensuring a fair and equitable distribu-

tion of legal work.

Functional structure

The primary objective of the Policy Framework, in the medium term, is toconsolidate and streamline all state legal services under a single functionarywho will be appointed as Head of State Legal Services. The Head of State

The recently released Policy Framework on theTransformation of State Legal Services is anothermilestone in the advancement of the transfor-

mation goals mandated by the country’s Constitution.The policy framework forms part of legislative and othermeasures undertaken by the Department to advance thetransformation of the entire judicial system. Thesemeasures include the Constitution SeventeenthAmendment Bill and the Superior Courts Bill currentlybeing considered by Parliament and a DiscussionDocument on the Transformation of the Judicial Systemand the Role of the Judiciary in the Developmental SouthAfrican State released by the Minister in February.

thelawthelaw

Justice Minister Jeff Radebe

August 2012 9

Legal Services, who will occupy a position of, or similar to that of Solicitor-General in comparable jurisdictions, will be the state’s chief legal adviserwho will represent the state in all civil litigation (in the same way that theNational Director of Public Prosecutions represents the state in criminalprosecutions). The Solicitor-General will oversee the following streams ofunits of the State Legal Services: Intergovernmental Co-ordination Specialist Litigation General Litigation Mediation Services and Alternative Dispute Resolution Mechanisms Legislation Certification State Legal Advisory Services Corporate Management and Research (Co-operative Governance)

The appointment of the Head of State Legal Services will be done as amatter of urgency for the desired consolidation, mainstreaming and co-ordina-tion of the State’s Legal Services to begin in earnest. This will set in motion allthe institutional arrangements aimed at transforming State Legal Services. Together with the Legal Practice Bill, which has been introduced into

parliament, this Policy Framework will go a long way towards the develop-ment of jurisprudence necessary to advance a democratic society as envis-aged by the Constitution. The objectives of the policy framework are, therefore, to develop legal

skills in the private sector through the equitable outsourcing of legal work

to PDIs in order to redress the imbalance of past discriminatory practicesin the legal profession and the state. This is intended to ensure the pro-gression of PDIs, in particular women, in the practise of law, the judiciaryand other positions of responsibility in the broader community and inter-nationally. �

One of the controversial issues continues to be the the allocation ofwork and new attorneys are nurtured to work in fields to which theyare best suited. The normal presumption is that cases on which con-siderable effort and money will be expended will be allocated to coun-sel who have demonstrated an acceptable proficiency. There are norehearsals and failure to do this may result in yet further expendituresof taxpayer moneys. without prejudice has seen much change to thegender and race make-up of the so-called “white” departments of thelaw firms. Like all things in life things take time and care if they areto achieve optimum levels - Editor

The debate about the transformation of legal services will be helpedby the views of the Department of Justice reflected in the article. Thisarticle is carried at the request of the Department and expresses theviews of that Department. Editing has been restricted to the minimumconsistent with the high standards applied by without prejudice to allarticles it publishes - Publisher

thelawthelaw

60910 PMR Award CT 155x230.indd 1 2012/03/16 1:35 PM

10 August 2012

Independence of the NPA – The devil in the detailM A M A R A M E M A T S E L A

According to the Court, the independence and autonomy of an agentacting on behalf of a principal must be read in, based on nothing otherthan a mysterious theme that is not supported by the letter of theConstitution and the Act. The drafters of the Constitutional text were deliberate in their use of

language and the difference in the wording leads one to conclude thatwhere the legislature meant for certain institutions to be independent,it provided clear language to that effect. As far as the independence ofthe NPA is concerned, our moral judgement says one thing and theConstitution, as the supreme law negotiated on our behalf by our electedpolitical representatives, says otherwise. A rather tough brick to swallow. If the argument of the court is taken even further and is deemed cor-

rect in its conclusion that the overbearing consideration should be atheme that dictates the reading in of independence, then the same con-clusion should also be applied to state institutions established underChapter 11 of the Constitution. This would lead to an absurdity. Chapter 11 regulates the establishment and powers of pivotal security

service institutions such as the defence force, the police service and theintelligence service without clothing them in an ounce of independence:

Defence Forces202(2) provides that the command of the defence force must be exer-cised in accordance with the directions of the cabinet memberresponsible for defence, under the authority of the President.Accordingly, the defence force is not designed to be independentalthough the theme combined with our fears of living under barrel ofthe President’s gun prompt some of us wish it were.

Police Services206(1) provides that a member of the cabinet must be responsible forpolicing and must determine national policing policy after consultingthe provincial governments and taking into account the needs andpriorities of the provinces as determined by the provincial executives.s207(1) provides that the President, as the head of the national execu-tive, must appoint a woman or a man as the National Commissionerof the police service, to control and manage the police service.Despite the theme and the moral notion that the nature and impor-tance of the mandate of the police service requires that it be guaran-teed independence, the Constitution clearly indicates that the policeservice is by no means independent.

Intelligence Services209(2) provides that the President, as head of the national executive,must appoint a woman or a man as head of each intelligence service,and must either assume “political responsibility” for the control anddirection of any of those services, or designate a member of cabinet toassume that responsibility. The alleged controversial activities in theintelligence services in recent times may prompt others to approachthe court based on its creative method of shoving square pegs in roundholes (that is, reading in independence based on the theme card), tocompel it to follow its own precedent by declaring the intelligenceservices “independent” despite the fact that the Constitution clearlydictates otherwise.

The Role of International Law

s232 provides that customary international law is law in the Republicunless it is inconsistent with the Constitution or an Act of parliament.s233 provides that when interpreting any legislation, every court mustprefer a reasonable interpretation of the legislation consistent withinternational law over any alternative interpretation that is inconsistentwith it.

Part 2

The Supreme Court of Appeal, in DemocraticAlliance v President of South Africa & Others[2011] ZASCA 241, deliberately ignored the differ-

ence in wording throughout the Chapters, which is veryspecific and designed to achieve a deliberate purpose. Indoing so, it committed a fallacy by using perfectly validpremises to arrive at a somewhat incoherent, incongruentand thus invalid conclusion. This is that the silence ofConstitution means the courts, the executive and the legis-lature must ignore the letter of the Constitution and ratherpaint all state institutions, established in terms of theConstitution, with the same “independence” brush becausethe general theme selectively supports the moral inclinationthat independence must be read in.

thelawthelaw

August 2012 11

Ultimately, the validity of all law, including court decisions, must betested against the Constitution. If, according to the Constitution theNPA is not independent and foreign or international law indicates other-wise, as relied on by the court in support of its conclusion regarding prose-cutorial independence, then the Constitution must prevail. Fortunately, the Constitution is not cast in stone and may be amended

if deemed necessary. Compelling arguments would have to be made topersuade the legislature to amend the Constitution to provide for theindependence of the NPA, in keeping with such international standardscited by the court. However, that cannot be achieved through creativeinterpretations leading to court decisions that go against the letter of theConstitution in an attempt to sidestep prescribed Constitutional proce-dures for achieving the desired result.

Impartiality in support of the bill of Rights

The NPA is authorised to institute criminal proceedings on behalf thestate, including those that have a direct impact on the rights entrenchedin Chapter 2 of the Constitution (Bill of Rights), such as the right to free-dom and security of the person, the right to dignity, the right to equality,the right to privacy and the rights of arrested, detained and accused per-sons, to name but a few. The Constitution only entitles the NPA to limitrights in accordance with the provisions of s36. In light of the manner in which the apartheid regime utilised the

criminal justice system and the letter of the law to silence its opponentsand settle political scores, one is compelled to hold the view that it is inthe absolute interest of the protection of fundamental human rights of allto have the NPA function impartially, to avoid abuse by those momentar-ily in power. Its impartiality would go a long way towards ensuring that itremains the watchdog of the people, capable of rooting out criminal ele-ments in the higher echelons of government and confirm that all areindeed equal before the law as envisaged in the Constitution. That said,the requirement to be impartial cannot be equated to independence.

Observations and Conclusion

Unacceptable as it may be to some that the State President has the powerto launch an investigation leading to the arrest, detention and convictionof an irritating political opponent or, of course, the withdrawal of theinvestigation, it is difficult to ignore compelling evidence that theConstitution itself provides ample support and confirmation that legally,the NPA and other topical state institutions that have come under fire inrecent times (such as the police and the intelligence services) are notindependent and were never designed to be independent and free ofpolitical oversight. Respect for the rule of law and separation of powers cannot be applied

in a piecemeal fashion. The role of the legislature is to promulgate lawswhile the courts must interpret and apply them. It is the duty of thecourts to resist the urge to resolve moral issues, by cherry picking princi-ples and applying them in a manner that undermines the rule of law, sep-aration of powers and the very Constitution that they are mandated touphold. Where the people are of the view that the NPA and other similar state

institutions must be independent in order to guarantee protection againstfrivolous convictions propelled by political meddling, the best means of

achieving that result is through Constitutional amendment and not themuddying of Constitutional jurisprudence to superimpose an intention onthe legislature that it did not have when the content of the Constitutionwas negotiated and finalised.Uultimately the NPA is an agent of the state, acting on a Consti-

tutional mandate which it must execute impartially in accordance withthe Constitution and the Act, but not independently. It is trite thatagents who fabricate their own mandate as they go along and act inde-pendently without the concur-rence of their principals aresaid to act outside the scope oftheir authority or ultra vires.To illustrate the point, an

honest agent dealing in pre-cious stones impetuously actson a time sensitive opportunityby making a premature elec-tronic payment that happensmiraculously to save the prin-cipal copious amounts ofmoney, but does so while dis-regarding his principal’s directinstructions to hold back onaction for a given period whilethe principal applies his mindto the offer (for instancechecks the authenticity of theprecious stones and theirpaperwork to ensure that they are legal) and is fired for misconduct. Thisis similar to the dismissal of the then NDPP, despite being on point aboutSelebi.Our moral inclination leads us to sympathise with agent for acting

swiftly and saving the day while his principal was being indecisive whentime was of the essence. Note how your opinion would change if pay-ment had been made and the precious stones turned out to be fake or ille-gal. It is important to examine the true basis for the dismissal, which isfailure to adhere to instructions, notwithstanding excellent resultsobtained while flouting them. The law entitles the principal to take dis-ciplinary action for failure to adhere to instructions, which is an essentialingredient in building and maintaining a relationship of trust.On that note, my crystal ball predicts that, despite any court decision

to the contrary, it would be unwise for an incumbent of the hot NDPPseat publicly to gamble with the moral notion of prosecutorial autonomyfrom ministerial oversight. The current Constitution does not support itnor, by the look of things, does the executive. Then again we live in interesting times. Who knows, the

Constitutional Court can always creatively surprise the public by whip-ping out the good old Carmichele “policy considerations card” to thwartor support the illogical REM based “theme card” adopted by the Court. �

Matsela is an attorney with SAAB

See Part 1 – July issue of without prejudice p8

thelawthelaw

Matsela

12 August 2012

Lessons from NoseweekH A N S M U H L B E R G

Noseweek – part corruption- buster, part bubble-buster, part consumer rag – isa fairly accurate barometer of consumer sentiment. The magazine reliesalmost entirely on tips-off and complaints for its stories and, with the possibleexception of banks, attorneys generate more complaints than anyone else.What do people complain about? Undoubtedly one of the biggest gripes

over recent years has been the conduct of the mega debt collecting firms.There are a few of these firms about and they seem to have a penchant foracronyms, though it’s not clear whether that’s because their partners areembarrassed about what they do, or because they know that it’snot very sensible to advertise the fact that you’re white. These firms have split personalities – commercial entity

the one minute (presumably when pitching for work),law firm the next (when making threats). They collectdebts for huge organisations – municipalities, theSABC, banks, gyms – and my understanding is that insome cases they actually buy the debt books. Eitherway, they seem to have no interest in scrutinisingthe debts reflected in these booksbefore sending off their missives. Here are just a few of the

questions they apparently failto ask – has the amountactually been paid, has thedebt prescribed, is the personwe’re about to start harassingactually the person whoincurred the debt? The harass-ment takes the form of endlessfaxes, calls and texts, and itcauses real misery and angst, somuch so that some people willpay money that they’re surethey don't owe simply to get

shot of the matter while others end up changing their cell phone numbers. The partners of these firms are completely shielded from the public ire.

That’s because all calls go to call centres, whose operators are seeminglyunable to, or are under strict instructions not to, refer any calls to part-ners. These operators are poorly-trained – mention prescription andthey’ll ask you why you’re talking about your medication. The operators never have the file in front of them and they’re never

able to find any documentation that the person who’s being harassed hassent. What they are trained in is gimmicks: pay 80% of the amount owingtoday and we’ll write off the balance; pay a small amount now and yourname will be entered into a draw, if your name’s pulled out of the hat yourdebt will be written off (this is presumably done as a way of interruptingprescription and to what extent these competitions comply with the CPAis anyone’s guess). The operators have absolutely no interest in getting tothe truth of the matter.These firms have, I think, harmed the image of the attorneys' profes-

sion enormously. One Noseweek reader had some sage advice on how todeal with them:

‘Firstly, you must state your position in writing, and send it, per registeredpost. You should offer to pay just as soon as they have provided satisfactory proof

that you do indeed owe the money. This puts you on the high moral ground.Now it’s up to them to respond, by providing whatever is necessary to

prove the debt. You should also state that no further correspondence ordiscussion will be entered into until this first letter has been adequatelyresponded to. From then on, every time they call you, all you say is:“Do you have the correspondence in front of you?”�They won’t have.They don’t work that way. So there is a long silence. You bring theconversation to an end by saying: “Please call me when you havethe correspondence in front of you. Goodbye”. I sometimes add a

“Fuck off” or two. This doesn’t materially alter the position,but it does relieve a certain amount of the frustration.’

Though I’m a practising attorney, I spent somefive years with Noseweek, both as an investiga-tive reporter and as a managing editor. For the

most part it was a rewarding experience. But it was pro-foundly depressing to see just how bad the public’s per-ception of attorneys really is. And how attorneys areeither totally oblivious to this fact, or simply don’t care.

thelawthelaw

August 2012 13

Another perennial complaint: I can’t find an attorney who’ll represent meagainst my bank. This, of course, relates to the fact that the banks havepanels of attorneys, and that the attorneys who are on these panels knowfull well that part of the deal is you don’t act against the bank in any mat-ter. There was a public revolt against this form of servitude last year (wella few attorneys carped in De Rebus), but sadly this rare outbreak of inde-pendence was motivated not by principle but by the perception thatbeing on a bank’s panel is no longer worth the candle – what with con-veyancing instructions being down due to the recession, yet there beingno let-up in the requirement to buy the bank’s software.Communication’s a bugbear. It’s quite extraordinary how many attorneys

keep their clients completely in the dark and who, despite claiming to ‘takeinstructions,’ do exactly as they please. And who, when they’re absolutelycompelled to communicate with their clients, do so by using incomprehensi-ble, jargon-filled language. A charge that’s often levelled against attorneyswho specialise in my field, intellectual property, is that they send outdemands that are not only outlandish and heavy-handed but in languagethat can only be described as code. Another bugbear: the Law Societies aretoothless old boys’ clubs that simply look after the interests of their members.I could go on and it would be a shame not to. At Noseweek I heard

horror stories of attorneys (and advocates) abandoning their clients onthe steps of court, in circumstances that suggested that some deal hadbeen done with the other side. Stories of interminable litigation – onememorable story related to a R100 000 Magistrates’ Court action thattook eight years to get to court, only for the trial to last a full eight daysand for the losing plaintiff’s legal costs to come to three times the value ofthe claim. Stories of horrendous legal bills. Stories of attorneys who flatlyrefused to provide their clients with any form of itemised billing. Storiesof attorneys who stole money; attorneys who put huge mark-ups on thefees of forensic accountants and other professionals; attorneys who paidkickbacks to estate agents for conveyancing instructions; attorneys whoreceived kickbacks from auctioneers for auction instructions. The lessons? Cleary those attorneys who’re letting the side down could

clean up their acts. And many attorneys could do more to communicate

with their clients in plain lan-guage. And steer their clientsaway from litigation – aprocess that’s unlikely to bringsatisfaction – to ADR, andeven less formal methods ofdispute resolution, like talking. But the profession as a

whole can surely act too. Evenif it doesn’t have the clout toensure that the administrationof justice is sorted out, it can atleast communicate better andeducate the public about theattorneys’ milieu. Few under-stand why a lawyer needs toinstruct another lawyer, onewho’s mysteriously called‘counsel.’ Why litigation takesso long and costs so much. Why, when you’ve won your case with costs,you only recover a portion of the costs. Why, when things turn sour, theLaw Society is unable to intervene or offer legal advice? Or the fact thatmany of the frustrations encountered along the way are down to peopleover whom attorneys have absolutely no control – advocates, prosecutors,magistrates, judges, sheriffs and masters. There’s another thing the profession can do: it can take steps to ensure

that good news stories are spread. Because, as we all know, there are manyattorneys out there doing very good things. �

Muhlberg, is an attorney, a UK solicitor and an EU trade mark attor-ney. For five years he was a major contributor to, and the ManagingEditor of, Noseweek magazine. He now has a consultancy calledMuhlberg IP, and provides IP consulting and specialist writing servicesto various law firms. www.muhlberg.co.za

thelawthelaw

Muhlberg

14 August 2012

Bringing Basel III to South AfricaA N T H O N Y C O L G R A V E

The third of the Basel Accords wasspecifically developed in responseto the 2008 financial crisis whichhighlighted the weaknesses of thebanking sector. According to theBCBS, the banking sectors of manycountries had built up excessivesheet leverage accompanied by anerosion of the level and quality ofthe capital base.2

Many banks were also holdinginsufficient liquidity to bufferagainst any trading or credit losses.4

The banking sector deficiencieswere transferred to the rest of thefinancial system and the economy,resulting in a contraction of liquidity and credit availability.4 Thus theaim of the Basel III reforms is to strengthen global capital and liquidityrules with the goal of improving the banking sector’s ability to absorbshocks arising from financial and economic stress.5

1.1 Countries are required to implement the rules of Basel III byJanuary 1 2013, which will introduce the slow phasing-in of theminimum standards of the rules from January 1 2015 untilJanuary 1 2019. In the interim, countries are implementing therules of Basel 2.5 (which reflects changes introduced to enhanceBasel II, particularly the risk-weighted asset (RWA) calculation,in 2009).6 South Africa’s amended regulations relating to banksto give effect to Basel 2.5 came into effect on January 1 this year.

1.2 On March 30 , the South African Reserve Bank (SARB) pub-lished for public comment by May 18 2012, Draft 1 of the pro-posed amended Regulations Relating to Banks (issued pursuantto the Banks Act, 1990) to implement Basel III (Regulations forBasel III). We have chosen to highlight key aspects of Basel IIIthat are intended to be introduced by the proposed Regulations.

2. Quantity and Quality of Capital Base2.1 Basel III seeks to ensure that the banks’ risk exposures are

backed by a high quality capital base. The 2008 financial crisis

revealed that the credit losses came out of retained earnings andthe countries’ different definitions of capital and lack of disclo-sure resulted in an inability of the market to compare the qualityof capital across institutions.7

2.2 In terms of the quality of the capital base, Basel III prescribesthat only Tier 18 and Tier 29 capital remain while Tier 310 capitalhas been abolished and can no longer be used to satisfy a per-centage of the necessary capital required.11 The Regulations forBasel III will implement the Basel III minimum requirements forquantity of capital in phases until January 1 2015: 2.2.1 common Equity of Tier 1 capital (unencumbered capital

of such a high quality that it can absorb losses on a goingconcern basis where the bank is financially sound or inperiods of stress) must be at least 4.5% of RWA.12 TheRegulations for Basel III provide for a minimum level ofcore primary capital adequacy ratio of 6.5% of RWA.13

2.2.2 tier 1 capital (primary capital adequacy ratio) must be atleast 6% of RWA.14 The Regulations for Basel III providefor a minimum level of primary capital adequacy ratio of8% of RWA.15

2.2.3 Total Capital Adequacy Ratio (Tier 1 plus Tier 2 capital)must be at least 8% of RWA.16 The Regulations for BaselIII provides for a minimum level of total capital adequacyratio of 10% of RWA.17

2.3 It is noted that the Regulations for Basel III provide for higherquantity of capital than the minimum standards of Basel III.Therefore, we assume that the SARB sees the improvement ofthe quality and quantity of the capital base as an essential com-ponent to strengthening the South African banking sector andis following the historical trend in South Arica of regulatoryconservatism.

3. Liquidity Standards3.1 There are currently no international liquidity standards. Basel

III introduces minimum liquidity requirements to address prob-lems which were faced by well capitalised banks during the 2008financial crisis when the asset markets slowed down.18 The twoliquidity tests are: Liquidity Coverage Ratio (LCR) and NetStable Funding Ratio (NSFR).

3.2 LCR3.2.1 The LCR is aimed at ensuring that banks have a stock of

high-quality liquid assets that can meet a 30-day cash out-flow in the event of a crisis and a run on the bank.19 It isassumed that management would be able to take correc-tive action within the 30-day period.

Basel III is a global regulatory standard for the bank-ing industry agreed upon by the members of theBasel Committee on Banking Supervision (BCBS).1

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Colgrave

August 2012 15

3.2.2 The Regulations for Basel III implement the LCR testover a 30 calendar day period to be implemented as aminimum standard by January 1 2015.20

3.3 NSFR3.3.1 The NSFR is aimed at ensuring banks have enough long-

term stable funding to protect against a protracted stressperiod of up to one year.21 The NSFR requires a minimumamount of stable sources of funding at a bank relative tothe liquidity profiles of the assets, as well as the potentialfor contingent liquidity needs arising from off-balancesheet commitments. The NSFR aims to decrease relianceon short-term wholesale funding when market liquidity ishigh and encourage better assessment of liquidity riskacross all on- and off-balance sheet items.22

3.3.2 The Regulations for Basel III provides for implementation ofthe NSFR test as a minimum standard by January 1 2018.23

3.4 Problems have already been identified with implementing theseliquidity standards in South Africa due to the nature and sourceof funding that is available to our banking industry. These issuesand the measures that the SARB is proposing to address theconcerns are discussed more fully below.

4. The Capital Conservation Buffer4.1 During the 2008 financial crisis, banks continued to make distri-

butions out of retained earnings, even as their capital and finan-cial condition deteriorated. Basel III provides for a capital con-servation buffer to restrict distribution policies that are inconsis-tent with capital conservation. The idea is that it is to be coun-tercyclical in that it builds buffers during time of growth anduses those buffers during times of contraction.24

4.2 Basel III established the capital conservation buffer of 2.5%,comprised of Common Equity Tier 1, above the regulatory mini-mum capital requirement.25 The ratio reflects the banks’ long-term liquidity and requires the banks to match longer-termdeposits against long-term loans. The ratio will require a bankto retain an increasing higher percentage of earnings at its capi-tal ratio declines through loss absorption.

4.3 The Regulations for Basel III introduces the capital conservationbuffer to be phased-in between January 1 2016 and January 12019 in 0.625% annual increments.26 As required by Basel III,the capital conservation buffer is in addition to the required coreprimary capital adequacy ratio, primary capital adequacy ratioand total capital adequacy ratio already specified. TheRegulations for Basel III provide for it to range between 0 and2.5% of the bank’s relevant amount of risk-weighted exposure.The Regulations for Basel III also provide for the countercyclicalcapital buffer as an extension of the capital conservation buffer.This shall ensure that a bank is subject to restrictions when itdoes not meet the relevant capital aggregate requirement.27

5. Leveraged ratio5.1 During the 2008 financial crisis, the banking sector was forced

by the market to reduce its leverage in a manner that amplified

downward pressure on asset prices, further exacerbating the posi-tive feedback loop between losses, declines in bank capital, andcontraction in credit availability.28 Therefore, the BCBS agreedto introduce a simple, transparent and non-risk based leverageratio. The leverage ratio is intended to restrict the build-up ofleverage and provide a non-risk based back-stop measure.29

5.2 The leveraged ratio is the ratio of T1 capital: total (non-riskweighted) assets plus off balance sheet exposure. In terms ofBasel III, T1 capital has to be at least 3% of assets (even wherethere is no risk weighting).30 This limits banks to lending nomore than 33 times their T1 capital, which is a significantreduction in lending capability for some banks.31

5.3 The Regulations for Basel III provide for a bank to calculate anon-risk based leverage ratio to supplement the bank’s risk basedleverage requirements.32 This is calculated as the qualifying cap-ital and reserve funds in terms of the non-risk sensitive expo-sure. The requirement for South African banks to limit theirlending has not, as yet, been identified as a potential problemfor our banks.

6. Governance and risk management6.1 One of the aims of Basel III is to strengthen the corporate gover-

nance of banks to resolve a number of issues including inade-quate board oversight of senior management, insufficient riskmanagement and a non-transparent organisational structure.33

An ineffective corporate governance structure severely hampersa bank’s ability to respond quickly and adequately in circum-stances of financial stress. Basel III therefore includes measuresto align senior management’s incentives with the long-term sta-bility of the bank and introduces new fit and proper tests fordirectors, increased public disclosure and a duty of care towardsthe banks.34

6.2 The Regulations for Basel III includes provisions to strengthenthe corporate governance of banks and states that the board ofdirectors is ultimately responsible for the effective risk manage-ment and capital management of a bank.35 The Regulations forBasel III includes reference to “sound compensation policies”36

linked to long-term capital preservation and the financialstrength of the bank. This may result in variable compensationperiods for directors and senior management over a longer timeperiod. The new fit and proper requirements for the board ofdirectors and senior management include requiring directors andsenior management to have detailed business knowledge of themajor business lines of the bank and sufficient experience tounderstand the various financial instruments.37

7. Problems with implementation of Amended Regulations7.1 As referred in terms of the Basel III liquidity minimum standards,

South African banks do not currently meet these new liquidity stan-dards. Tests on seven banking groups in South Africa show that as acollective they meet about 67% of the liquidity requirements, repre-senting a shortfall in recognised high-quality assets used to meet theliquidity funding gap.38 The banking sector is heavily reliant on fund-

BankinglawBankinglaw

16 August 2012

BankinglawBankinglaw

ing from wholesale deposits, predominantly by companies and otherfinancial institutions, and not by retail clients.39 The NSFR posesadditional complications as banks traditionally use short-termdeposits to fund long-term loans, creating a funding mismatch. TheRegulations or Basel III are aimed at ensuring banks have enoughhigh-quality long-term funding and sufficient funds available to meetthe needs of depositors.

7.2 Compliance with these standards will require structural change tothe financial system, which will allows banks to increase the maturityof their funding and investment managers to increase the horizon oftheir investments. The first step in this approach has been theamendment to Regulation 28 of the Regulations to the PensionFunds Act, 1956 (Regulation 28) to allow banks access to more long-term financing. Pension funds will now be allowed to buy long-datedbank debt. Changes to the definition of “cash” in Regulation 28 willreduce incentives for pension funds to hold large amounts of short-term operational funds outside the banking system.

8. The SARB has announced a committed liquidity facility that cancover the shortfall should there be a crisis.40 We note, however, thatin terms of the NSFR test, the Regulations of Basel III prescribe thatextended borrowing from central bank lending facilities, outside regu-lar open market operations, falls outside the calculation of the NSFRso as not to create an environment in which banks rely on the SARBas a source of funding.41 The Regulations for Basel III appear to pro-

hibit the use of a liquidity facility and it is therefore uncertain howthis liquidity facility can be utilised. The SARB has announced plansto meet with the BCBS to discuss South Africa’s liquidity concerns.42

9. Conclusion9.1 South Africa is on track to implement the majority of the rules of

Basel III by January 1 2013. This will provide for a more resilientbanking sector by, inter alia, increasing and improving the quality ofthe capital base, providing for more liquidity, providing a capital con-servation buffer and increasing the leverage ratio. In addition, BaselIII provides enhanced corporate governance rules including revisedcompensation policies to ensure that the goals of the board of direc-tors and senior management are aligned with the long-term financialstability interests of the bank.

9.2 However, the current pressing concern of the SARB and bankingindustry in South Africa in respect of the implementation of theBasel III is meeting the minimum liquidity standards. The SARBmay have to obtain some form of exemption from the BCBS fromthe minimum liquidity standards or provide a liquidity facility toSouth African banks to resolve this issue. We wait in anticipation ofthese further developments and expect future amendments to theRegulations for Basel III. �

Colgrave is a director of Bowman Gilfillan

1 The Basel Committee on Banking Supervision consists of senior representatives of bank supervisoryauthorities and central banks from Argentina, Australia, Belgium, Brazil, Canada, China, France,Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, theNetherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, theUnited Kingdom and the United States. It usually meets at the Bank for International Settlements(BIS) in Basel, Switzerland, where its permanent Secretariat is located.

2 BCBS, Basel III: A global regulatory framework for more resilient banks and banking systems,(December 2010, revised June 2011), Bank for International Settlements, ISBN 92-9197-859-0(online) (Basel III Framework), p1.

3 Ibid.4 Ibid.5 Ibid.6 BCBS, Instructions for Basel III Implementation Monitoring (February 2012), Bank for International

Settlements, ISBN 92-9131- 870-1 (online), p2.7 Basel III Framework, p2.8 Tier 1 capital is regarded as “core capital” predominantly consisting of common shares and retained

earnings but may consist of non-redeemable non-cumulative preferred stock.9 Tier 2 capital is regarded as “supplementary capital" consisting of undisclosed reserves, revaluation

reserves, general loan-loss reserves, hybrid (debt/equity) capital instruments, and subordinated debtcapital. The main criteria for inclusion in Tier 2 capital is the ability to provide loss absorption on agone-concern basis.

10 T3 capital is short-term subordinated debt which was previously capped and only available to covermarket risks.

11 Basel III Framework, p2.12 Basel III Framework, para 50, p12.13 Regulation 38(9) of the Regulations for Basel III.14 Basel III Framework, para 50, p12.15 Regulation 38(9) of the Regulations for Basel III. 16 Basel III Framework, para 50, p12.17 Regulation 38(9) of Basel III Regulations.18 Basel III Framework, p8.

19 Ibid.20 Regulation 26(12) of the Regulations for Basel III.21 Basel III Framework, p9.22 Ibid.23 Regulation 26(14) of the Regulations for Basel III.24 Basel III Framework, p6.25 Common Equity Tier 1 must first be used to meet the minimum capital requirements (including the

6% Tier 1 and 8% Total capital requirements if necessary), before the remainder can contribute tothe capital conservation buffer. See Basel III Framework, p55.

26 Regulation 38(8) of the Regulations for Basel III.27 Ibid.28 Basel III Framework, p4.29 Ibid.30 Basel III Framework, para 153, p61.31 Basel III Rules tougher than they seem. Wall Street Journal On-line. (14 September, 2010)

[http://blogs.wsj.com/source/2010/09/14/basel-iii-rules-tougher-than-they-seem].32 Regulation 38(17) of the Regulations for Basel III.33 BCBS, Basel III: Principles for enhancing corporate governance (October 2010), Bank of

International Settlements, ISBN 92-9197-844-2 (online), p2.34 Ibid. pp2-3.35 Regulation 39 of the Regulations for Basel III.36 Regulation 39(5)(k) of the Regulations for Basel III.37 Regulation 39(6) of the Regulations for Basel III.38 This amount is estimated at about 200 billion. See SA seeks clarity on Basel 3 liquidity concerns,

Ndzamela, Phakamisa, (5 June 2012), Business Day.39 SA needs to start saving seriously, Donnelly, Lynley, (14 June 2012), Mail & Guardian Online.40 Facility to Assist Big 5 with Basel III Liquidity, SCAD Software Blog (18 May 2012).41 Regulation 26(14)(D) of the Regulations for Basel III.42 SA seeks clarity on Basel 3 liquidity concerns, Ndzamela, Phakamisa, (5 June 2012), Business Day.

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Book now! Contact Colette Diamond083 788 0010 or email: [email protected] more information visit www.icsa.co.za

The calm after the storm. Two days’ investment – a lifetime of returns! Equip yourself with the facts, tools and skills necessary as a result of changes brought about by King III and the new Companies Act.

Conference costs (excludes VAT)

CSSA members and students R4 800,00 pp Early bird before 31 July R3 800,00 pp

Non-members R5 800,00 pp Early bird before 31 July R4 800,00 pp

Group discount of 10% will be offered for groups of five or more people from the same company

Day 1 MC – Chris Gibbons

09:00 Prof. Walter Geach (Department of Accounting, University of the Western Cape): The practical consequences of the adoption of the enlightened shareholder approach by the 2008 Companies ActDeon Botha (Senior Corporate Governance Specialist, Public Investment Corporation): Measuring and engaging investee companies – the PIC/GEPF approach

10:30 Tea

11:00 Cynthia Schoeman (MD, Ethics Monitoring & Management Services): Ethics = ethical capital. True? False? Don’t know?Stephen Sadie (CEO, Chartered Secretaries Southern Africa): CSSA – building the company secretary profession

12:35 Lunch

13:30 Rory Voller (Deputy Commissioner, Companies and Intellectual Property Commission): Disqualification and delinquency applications for directors

David Loxton (Director, Werksmans Attorneys): The legal aspects of public sector governance

14:15 Patrick Bracher (Director, Norton Rose): Directors’ duties Sibani Mngomezulu (Executive: Barloworld): Shareholder rights and minority protection

15:00 Tea

15:30 Joel Wolpert (Technical Adviser, Chartered Secretaries Southern Africa): The 21st century company secretary as a governance professional?

Prof. Steven Firer (Accredited IFRS Specialist and Technical Partner of the External Audit Division, Nkonki): Independent review and external audit

16:15 Johann Redelinghuys (Partner, Heidrick & Struggles): The challenge of the independent board performance review

Carina Wessels (President, Chartered Secretaries Southern Africa): The business judgement rule in practice: improving oversight by avoiding judgement traps and biases

17:00 Cocktail Networking hour

Day 2

09:00 Michael Katz (Chairman, Edward Nathan Sonnenbergs): The precise impact of the new Companies Act on directors’ duties, and prescribed officers’ dutiesZubair Wadee (Partner/Director, PricewaterhouseCoopers): Integrated reporting

10:30 Tea

11:00 Tshediso Matona (Director General of the Department of Public Enterprises): Corporate governance in the public sectorSandi Linford (Group Company Secretary, Vodacom Group Ltd): Integrated reporting – the Vodacom journey

12:35 Lunch

13:30 Nicole Katz and Michele Mackey (Envisage Investor & Corporate Relations): To tweet or not to tweet – social media in investor relations

BDO speaker

14.15 Plenary and closing

The premier corporate governance conference: 13 – 14 September 2012 at the Wanderers Club, JohannesburgConference programme

new landscapefor Corporate Governance: living with the Companies Act and King III

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out of the storm

18 August 2012

‘Delivered’ critical in debt collection D A V I D V L C E K A N D C L I N T O N S L O G R O V E

Our previous articles addressed how a credit provider was required not onlyto plead compliance with the Act, but also to satisfy the court that the nec-essary notices in terms of s129 and s130 had been complied with and thestipulated time periods had lapsed prior to the commencement of litigation.We explained what the Act required of the creditprovider in ensuring that the enforce-ment notices in terms of thesesections were received by orcame to the attention ofthe consumer. The Act shifts the onus

onto the credit provider attempt-ing to recover a debt in terms of acredit agreement to prove thatthe consumer’s default hadbeen brought to his/her ortheir attention.The judgement of

Rossouw and Another vFirstrand Bank Limited (2010)ZA SCA 130 was inform-ative at the time and inour article relating tothis judgement, we con-cluded that “once the notice hasbeen delivered, it is necessary for thecredit provider to ensure that it

actually came to the attention of the consumer.” The debate regarding the deliv-ery of the enforcement notices to a defaulting consumer in terms of s129 ands130 stems from the fact that the word “delivered” or “delivery” is not definedin the Act. The uncertainty pertaining to the enforcement notices and delivery in

terms of these sections, has now been put to rest by the Constitutional Courtin the Sebola judgement.

Sebola’s appeal to the Constitutional Court was against a judgement ofthe Full Court of the South Gauteng High Court, which dismissed an appealagainst the judgement refusing to rescind a default judgement that had beenentered against the consumers in September 2009. The bank institutedaction against the Sebolas to recover a home loan on which they haddefaulted. The Sebolas argued that they had never received the s129 and s130

enforcement notices nor had they received the summons commencingaction. They put the interpretation of the relevant provisions of the Act inissue and argued that the interpretation given to the provisions of s129 ands130 in the Rossouw judgement failed to give effect to s8(3) and s39(2) ofthe Constitution, (1996). The Court, when coming to its ultimate determination of the correct

interpretation of s129 and s130 explained that the Act aimed to secure acredit market that is competitive, sustainable, responsible and efficient.

Thus, any interpretation of the Actcalled for a careful balancing of thecompeting rights and responsibilities

of both the consumer and the creditprovider. The Court held the Act does not

demand that the credit provider prove theenforcement notices had actually come tothe attention of the consumer since thatwill ordinarily be impossible to do so. Nordoes the Act require proof of delivery to aspecific address. However, the Court wenton to state that, given the significance ofthe enforcement notices, the credit

provider must make the necessaryaverments in the summons to satisfythe Court, that the enforcementnotices, on a balance of probabilities,had reached the consumer. Before a credit provider resorts to legal

action, the Act insists that the consumershould have the benefit of notice and this isin line with the statutory objective of the

Act and this in turn significantly influences the

In 2010 we wrote a series of articles regarding theunforeseen impact that the introduction and inter-pretation of the National Credit Act, 2005 was hav-

ing on debt collection for credit providers. TheConstitutional Court, in Sebola v Standard Bank of SouthAfrica Limited and another CCT98/11 and provincial highcourts recently confirmed the requirements that the Actwas imposing and approved the courts when creditproviders were approaching them in order to enforce theagreements in terms of which they had extended creditto consumers. The notice must be sent by registeredpost to the domicillium address or actual proven addressof the consumer and delivered to the post office inwhose area the address is situated.

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August 2012 19

meaning and interpretation given tothe word “deliver” in s130 of the Act. It is not enough simply to dispatch

the enforcement notices. The Actrequires the notice to come to theattention of the consumer and creditproviders must now prove, on a bal-ance of probabilities, that the enforce-ment notices have been sent to thedefaulting consumer and received byhim or her. This means that the credit

provider must plead that the enforce-ment notices were delivered to theappropriate post office in whose dis-trict the address is situated and pro-

vide proof of that delivery. This can be achieved by using the track and trailservice on the South African Postal Services website in order to track regis-tered letters. If the consumer disputes this delivery, the Court is then obligedto establish the truth on the evidence presented. However, the Constitutional Court indicated that, while s129 of the Act

prohibits the commencement of legal proceedings prior to the enforcement

notices being provided to a defaultingconsumer, s130 provides that whereaction is instituted without priornotice to a consumer, the action isnot void. The Court hearing thematter is compelled, in terms ofs130(4), to adjourn the matter andmake the appropriate order requiringthe credit provider to comply withthe provisions of the Act relating tothe service and delivery of theenforcement notices. �

Vlcek is an associate and Slogrove acandidate attorney with Norton RoseSA.

Given without prejudice’s experience over the past four months duringwhich an inordinate amount of mail has not reached people and despitethe strike now being at an end – or at least so we are told – it would bevery unfair for any assumption to be made that mail, even registered,reaches its destination - Editor

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Slogrove Vlcek

21357 BG WP.indd 1 17/07/2012 11:39

20 August 2012

Stimulating a dysfunctional co-operatives sectorL U K E M C M I C H A E L

Despite government’s push to develop co-operatives, this is unlikely asthey are too bureaucratic and complicated to establish and manage.Other less complicated and more socially relevant institutions, such asstockvels, better serve the interests of the majority of South Africansociety. Co-operatives are voluntary associations that developed from the law

of partnership. In terms of the Co-operatives Act, 2005, it is anautonomous association of persons united voluntarily to meet their com-mon economic and social needs and aspirations through a jointly ownedand democratically controlled enterprise organised and operated on co-operative principles. Potentially co-operatives can

promote economic growth and sus-tainable development for disadvan-taged, vulnerable, and marginalisedgroups as well as those with limitedresources. The creation of an econ-omy of scale in a co-operativeimproves the odds of success andestablishes a separate legal personal-ity to represent the members’ inter-ests, minimising the financial riskinvolved in starting a small enter-prise.Co-operatives have been used as

a highly successful business modelabroad. In certain countries, likethe UK, co-operatives have improved the sustainability of communityenterprises and opened the economy to disadvantaged and vulnerablesocial groups. In 2011, UK co-operatives employed 12,8m people andgenerated £33 billion.1

The co-operative sector in the UK is diverse, working in all parts ofthe economy including the agricultural, tourism and banking sectors. Inthe 19th century co-operatives began as a grassroots movement inresponse to the industrial revolution and the increasing mechanisation of

the economy which transformed society and threatened the livelihoods ofmany workers. The sector in the UK has developed into a strong co-ordi-nated division of the economy. For example, the Co-operative Groupproduces and supplies food products to the retail co-operative, Co-opera-tive Food, which distributes the product to over 3 300 small food retailstores in the UK. 2

In the democratic South Africa, the role of the co-operative move-ment has resonated in numerous State of the Nation addresses and mid-term reports to parliament as part of a new empowerment discourse. In2005, the Act was passed with the intention of fostering the develop-ment of co-operatives in South Africa. The Act aims comprehensivelyto regulate the formation, registration and functioning of co-operativesto facilitate sustainable employment, self-reliance, democracy, equality,transformation and social responsibility. The preamble to the Act states that its aim is to ensure compliance

with international co-operative principles. These principles are centralto the Act and it must be interpreted to give effect to them. For thepurposes of the Act, a co-operative complies with the principles if:membership of that co-operative is open to persons who are able toaccept the responsibilities of membership. However, the constitutionof a co-operative may restrict the persons eligible for membership, ifthe restriction reasonably relates to the business of a co-operative anddoes not constitute unfair discrimination;each member of a co-operative has only one vote;to the extent feasible, members provide the capital required ;the return paid on member capital is limited to the maximum per-centage fixed in accordance with the constitution of that co-opera-tive; at least five percent of any surplus is set aside as a reserve in a reservefund and is not divisible among its members; andit must provide education and training to its members and employees.

Co-operatives in South Africa may be incorporated on a primary, sec-ondary or tertiary level. Primary co-operatives are made up of individu-als and provide employment or services directly to their members.Secondary co-operatives consist of primary co-operatives that incorpo-rate on a sectoral basis. And tertiary co-operatives combine several sec-ondary co-operatives performing similar activities in order to liaise withgovernment bodies responsible for their sector of enterprise. A variety of co-operatives can be formed. The Act recognises, among

others housing, worker, social and agricultural co-operatives, co-opera-tive burial societies and financial services co-operatives. Other kinds of

The Co-operatives Amendment Bill, 2012 seeksto drive the development of co-operatives inSouth Africa.

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McMichael

August 2012 21

co-operatives, not specifically described in the Act, may also be regis-tered. The functions and activities a co-operative can engage in aredetermined by its constitution. The most common forms of co-operatives in South Africa are agricul-

tural and worker co-operatives. The growth and concentration of co-operatives is mainly in the two provinces where there is a high concen-tration of poor rural populations; Kwazulu-Natal and the Eastern Cape.3

The growth of co-operatives in Kwazulu-Natal has been driven by theProvincial government and, though the state’s support of co-operatives iswell-intentioned, it is not developed in accordance with member needsand capacities but rather in terms of government’s development agenda.4

These co-operatives are not autonomous and as soon as the state with-draws its support they tend to collapse. An application for registration of a co-operative must be made to the

Registrar of Co-operatives (Registrar) whose office is in the Companiesand Intellectual Property Commission (CIPC). The application for reg-istration must be made in the prescribed form and be accompanied bythe constitution of the co-operative signed by the founder members, alist of the founder members, a list of directors, and the prescribed fee(which is currently R50). Registration usually takes between two andfour weeks. Once the process is complete a registration certificate willbe issued reflecting that the co-operative is incorporated with separatelegal status from its members and its name and registration number. The highest decision-making structure of a co-operative is the annual

general meeting of members where each member is entitled to a singlevote. At the meeting, the members must appoint an auditor, approve areport of the board on the affairs of the co-operative for the previousfinancial year, approve the financial statements and auditor’s report forthe previous financial year, elect directors and decide on the future busi-ness of the co-operative. The chairperson of the meeting is responsibleto ensure minutes of the meeting are made and kept at the registeredoffice (as stated in the constitution) of the co-operative. The affairs of a co-operative must be managed by a board of directors

consisting of the number of persons permitted by the co-operative’s con-stitution. The board is accountable to the members in annual generalmeetings. Co-operatives are formed to provide financial benefits to members.

They are not eligible for public benefit status under the provisions of s30of the Income Tax Act, 1962 and therefore are not tax exempt. For tax-ation purposes a co-operative is treated as if it is a company. Howeverthey may still access tax benefits as small business corporations. The rateof tax for companies in South Africa is currently 28%.Despite the good intentions of the Act, co-operatives have generally

lacked financial or active support; as a result many co-operatives have apaper membership and operate in a dysfunctional manner. In anattempt to remedy these defects, the Bill has been drafted and will beput before parliament. The Department of Trade Industry (DTI) is setto increase support for co-operatives by establishing a Co-operatives

Development Agency and the Co-operatives Tribunal. The objectivesof the Agency include providing financial and non-financial assistance,training and education to assist members with the establishment andregistration of co-operatives and to facilitate access to local and interna-tional markets. The Bill further seeks to establish the Co-operativeDevelopment Fund which will provide the funding for the Agency tofulfil its objectives. The Agency will be expected to set up satelliteoffices in each province. Even with the increased support to co-operatives in terms of the Bill,

it will be difficult to convince people to join or establish co-operatives.Other “informal organisations,” such as stockvels, that are not registeredprovide the same benefits to the rural poor and have the benefit of beingsimpler to establish and manage, are genuine grassroots movements, arenot regulated and can, therefore, avoid certain negative implicationssuch as tax.Due to their informal nature, stockvels are difficult to define but

broadly are informal and unregulated community-based saving schemes,aimed at improving the lives of their members, both economically andsocially, by providing them with financial support within a social or com-munity-based grouping from their own contributed funds. The stockvelhas its origins in African customary law. Behind the concept is the tradi-tion of group solidarity or Ubuntu. Stockvels, though falling outside theformal economy, are estimated to have contributed R5,6bn to SouthAfrica’s economy in 2003.5

And, unlike co-operatives, stockvels are uncomplicated, non-bureau-cratic and easy to establish, especially for disadvantaged and uneducatedpeople. They are established informally and members can impose theirown regulations. They are usually formed by people who work togetheror who belong to the same community,and come together to form astockvel. Becoming a member is generally based on the recommendationof an existing member. It also has legal personality through conduct, aswell as limited liability of the members in so far as a member will notgenerally be held liable for an amount exceeding his contribution duringthe existence of the stockvel. Forming part of the informal sector, stockvels fall outside the legisla-

tive and regulatory regime of banks and, specifically the South AfricanRevenue Services and the National Credit Act. They can avoid taxa-tion which the more “formal” co-operatives cannot. In order for the co-operative sector to develop, the state would need

to consider making co-operatives less bureaucratic and complicated. Thedevelopment of tax exemptions/incentives, which have been adopted inother jurisdictions such as the Philippines, would be a step in the rightdirection. Until such measures are undertaken it is unlikely that the Bill will

rejuvenate the co-operative sector in South Africa. �

McMichael is a candidate Attorney with Norton Rose SA. The super-vising director was Georg Kahle.

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1 Co-operatives UK “Facts and figures” (2012) available at http://www.uk.coop/economy/figures. 2 Ibid.3 V Satgar “The State of the South African Co-operative Sector” (2007) available at www.copac.org.za

/files/State%20of%20Coop%20Sector.pdf.

4 Ibid.5 UCT Unilever Institute of Strategic Marketing “Making Social Cents” (2003).

22 August 2012

Both cases have practical implica-tions on how the CompetitionCommission initiates and referscomplaints to the CompetitionTribunal and will have an impact ona number of pending referrals inwhich similar objections have beenraised. The matters are also symptomatic

of the on-going debate regardingwhether or not statutory bodies likethe Commission should be allowedthe freedom to conduct their man-dated duties. On one hand, compe-tition authorities may argue that it isbeing hamstrung by respondents rais-ing "overly technical" points and by courts that do not necessarily possessthe necessary understanding of economic principles central to CompetitionLaw. On the other, legal practitioners may argue that Competition Law isstill developing and legal challenges are natural and necessary in order toestablish competition jurisprudence within South Africa.

The judgements

On June 26 2012 the Constitutional Court ended immense speculation andlegal debate when it handed down judgement in the Yara and Loungefoammatters. It dismissed both of the Commission's applications for leave toappeal earlier decisions of the Competition Appeal Court (CAC) with costs. The CAC previously ruled that the Commission could not amend its

complaint referrals to introduce new evidence and/or allegations or to joinnew respondents. Not only do both decisions highlight the importance of

due process in a regulatory environment but, as a result of these decisions,the Commission will now have to follow the normal appeal procedure inboth matters.In the ordinary course, the Commission (or any would-be appellant for

that matter) seeking to appeal a decision of the CAC would be requiredeither to seek leave from the CAC to appeal the matter to the SupremeCourt of Appeal (SCA), or, if the matter concerns a constitutional issue,seek leave from the CAC or the SCA to appeal to the ConstitutionalCourt. In specific instances, when it is in the interests of justice to do so,leave from the Constitutional Court may be sought directly. In both theYara and Loungefoammatters, the Commission (despite applying to theSCA for leave to appeal), elected to seek direct access to the ConstitutionalCourt, effectively bypassing both the CAC and SCA.

Though the Commission's actions resulted in many people accusing itof "forum shopping," the Commission explained that not only was it entitledto seek direct access in terms of legislation but that the urgency and impor-tance of settling the disputed legal principles raised constitutional mattersand justified appealing directly to the Constitutional Court. The Constitutional Court has only been requested to rule on Competi-

tion Law issues on exception, as it is highly specialised and has its own specialised court to hear appeals, the CAC.

background

The background to each matter is briefly: In the Yaramatter the Commission appealed a decision of the CAC whichfound that the Commission was not entitled to amend a complaint so as tointroduce a new complaint or new respondent unless a fresh complaintalleging this has been properly initiated. The Constitutional Court considered the Commission's condonation

argument, whether or not it was in the interests of justice to grant leave toappeal and focussed on s63(2) of the Competition Act read with s167(6) ofthe Constitution. In essence, the majority judgement of the ConstitutionalCourt held that the Commission's delay in lodging this application wasexcessive and that "the explanation that the Commission attempts to advance isso manifestly unsatisfactory that it can almost be rejected as no explanation at all"(para 34 of the judgement). The Constitutional Court held that the Commission had failed to apply

to the CAC in accordance with s63(2) of the Competition Act and that,for these reasons, the Commission's applications stood to be dismissed. TheCourt held further that even if the condonation application was allowed, itwas not in the interests of justice to grant the Commission leave to appealdirectly to the Constitutional Court.In the Loungefoammatter the Commission appealed the entire judgement

of the CAC. The CAC judgement found that, among other things, anyamendment including a new complaint should be initiated before it could bereferred. The majority decision of the Constitutional Court considered similar

CompetitionlawCompetitionlaw

Needs to do some homeworkC H R I S T O P H E R K O K

The legal fraternity, and particularly the competi-tion law sphere, has been eagerly awaiting theConstitutional Court's ruling in the cases of

Competition Commission and Yara South Africa (Pty) Ltd,Omnia Fertilizer Ltd and Sasol Chemical Industries Ltd -CCT81/11 [2012] ZACC 14 (Yara) and CompetitionCommission and Loungefoam (Pty) Ltd, Gommagomma(Pty) Ltd, Vitafoam (Pty) Ltd, Steinhoff Africa Holdings(Pty) Ltd, Steinhoff International Holdings (Pty) Ltd, FeltexHoldings (Pty) Ltd and KAP International Holdings (Pty) Ltd- CCT 90/11 [2012] ZACC 15(Loungefoam).

Kok

August 2012 23

CompetitionlawCompetitionlaw

factors to those in the Yara judgement and found that, irrespective of one'sinterpretation of s63(2) of the Competition Act, the Commission failed toseek leave from the CAC before approaching the Constitutional Court andshowed no compelling circumstances that could justify a direct appeal. Ultimately, the Commission failed to show that the SCA

would not deal with the matter expe-ditiously or bring finality to someor even all of the issuesbetween the parties. TheConstitutional Court held thatthe matter should to be dis-missed on this basis alone andthus found it unnecessary todecide condonation of theCommission's seemingly excessivedelay.Both of the Constitutional Court's

decisions accept that issues concerningthe powers of and function of anyorgan of state raise crucialConstitutional Law questions. TheConstitutional Court, however, heldthat due process must be adhered toand that these issues should first be con-sidered by the specialist competition court(the CAC), and then, if required, also theSCA.

Implications

This development is arguably a substantial setback for the Commission inwhat has been an extremely long and arduous journey following the matterof Woodlands Dairy (Pty) Ltd and Another v Competition Commission 2010(6) SA 109 (SCA) (Woodlands). The merits of neither matter were consid-ered by the Constitutional Court and the applications were dealt with on

procedural grounds. The judgements were firmly based on interpretations ofthe relevant statutes and rules of court with a strong emphasis on theimportance of due process. These matters are the last in a chain of casesregarding technical challenges questioning the Commissions' powers of

investigation, initiation and thereferral of matters to theCompetition Tribunal.

All is not lost for theCommission, however, as itstill has pending applicationsin both matters for leave toappeal before the CAC andpotentially the SCA. Theminority judgements inboth matters in fact hinted

that there may indeed bemerit to the Commission'scases. Whether or not thesecourts will entertain the appli-cations and/or whether or notthe Commission will proceed

with these applications is uncer-tain, as pursuing the cases will

undoubtedly result in further delays. Whatever the Commission chooses

to do, both majority judgements of theConstitutional Court stress the importance of

due process and procedure, and emphasise the factthat failure to adhere to the legislative framework will

not be tolerated. This is a crucial lesson not only for the Commission but must be noted

by all within the legal field. �

Kok is an associate with Webber Wentzel

24 August 2012

Doing pro bono right: the nuts and bolts of managing the attorney / pro bono client relationship

N I C K I V A N ’ T R I E T , L I E S L W I L L I A M S A N D J E S S M O O D L E Y

Pro bono policy

A clearly planned and drafted pro bono policy will help achieve your objec-tives in an efficient and effective manner. The policy should be tailored tosuit your firm and your attorneys.At the outset, you should define what the firm’s commitment to pro bono

work will be. Will each individual attorney be required to render a certainnumber of pro bono hours work each year or will the firm create a position /department to take care of the firm’s pro bono commitment? Bear in mindwhile the Law Society of the Northern Provinces’ pro bono scheme allows foraggregation of hours thus allowing one or more people to fulfil a whole firm’spro bono obligation, the Cape Law and the KwaZulu Natal Law Societies’ probono schemes do not. Each member of those law societies is required to ren-der 24 hours pro bono service each year in accordance with the respectiverules. Furthermore, the Legal Practice Bill does not provide for an aggrega-tion of hours at this stage.A definition of “pro bono work” is obviously crucial. The various law

societies’ have their own definitions. Will you copy their rather narrow defi-nitions or find a definition that is more in line with your vision for what probono should look like? This goes back to the firm’s commitment to thiswork. Why is it being undertaken? To comply with the requirements of thelaw societies and in anticipation of the Legal Practice Bill coming into force?Or because of a sense of moral obligation to play a transformative role insociety? Being honest about why you are undertaking pro bono work willhelp ensure your pro bono programme is structured in a way that works bestfor you and makes a meaningful contribution at the same time.Delineating the type and nature of pro bono work the firm wishes to

undertake will help focus the sourcing of the work. Will you take oninstructions in all areas of law in which you practice or will you adopt a more

refined approach, focusing on areas in which your attorneys have expressed akeen interest, such as marginalised women and children or socio-economicrights? It is a good idea to list those areas of law in which the firm has noexpertise and thus in which it willnot entertain pro bono requests. Ifyou would not take on the matter asfee paying, do not take it on as a probonomatter. It is unprofessional con-duct to use pro bono clients as “guineapigs” to break into areas in which youdo not have expertise. The next logical step would be to

define who would qualify for pro bonoassistance, be it individuals or organi-sations, and what the qualificationcriteria will be. The main (andsometimes only) criterion is a finan-cial means test. Will you developyour own means test or apply thatdeveloped by your law society? Doyou consider only the income of theindividual applying for pro bono assis-tance or do you take into accounttheir marital status (and thus spousalsupport) and whether or not theyown assets? Placing emphasis on the means

tests only can lead to deserving mat-ters being turned away. Due consid-eration should also be given to thestrength of the merits of the matter,your areas of expertise, your capacity,any conflicts of interests and lastly,whether or not there is a public inter-est element. Consider how you willdeal with situations where, for example, the means test is “failed” but thematter is of significant public interest. A rigid approach in applying qualifi-cation criteria will lead to some absurd results. It is suggested rather that amore flexible system be applied when weighing up the qualification criteria,bearing in mind the rationale for pro bono work – access to justice for thosewho would otherwise be denied it.Where will you find your pro bonomatters? Will you only take on mat-

ters that are recognised by the various law societies as “pro bono” in terms of

Client management is a complex and delicate taskand managing a pro bono client is no exception.In addition to the usual complexities of client

management, the relationship with a pro bono clientcomes with its own unique challenges. Because the stan-dard of service offered by attorneys should not differbetween fee-paying and pro bono clients, it is importantto manage the pro bono section of your practice effec-tively. This can be achieved by adopting a pro bono policyand implementing appropriate supporting procedures.

Probono

Van’t Riet

Williams

August 2012 25

Brought to you by

their rules or will you cast your net wider than that? Again, it comes back toyour vision of pro bono and the reason for undertaking this type of work. Ifyou only wish to undertake pro bono work that will be recognised by your lawsociety, you will need to follow its rule to the letter. The Cape Law Society, for example, has on its website a list of recognised

structures. If you do work for these organisations or individuals properly referredby them, your work will automatically qualify for recognition under Rule 21(the pro bono rule). The Law Society of the Northern Provinces has appointedProBono.Org as a recognised structure. Thus any instructions taken on fromthat organisation will automatically qualify as pro bono under Rule 79A. The law societies do have application forms to have work not received

via recognised structures recognised as pro bono for the purposes of the rules.If you are going to cast your net wider than the law society rules, will youpartner with NGOs, university law clinics, entities like Legal Aid SouthAfrica or the Human Rights Commission? Casting the net too wide cancause you to lose focus, which will hamper your efforts at having a stream-lined, effective pro bono programme. Positioning yourself strategically, how-ever, will expose you to the clients whose matters you want to take on andfor which you have a passionOn a more administrative note, who will be responsible for overseeing

and administering the firm’s pro bono programme? How will accepted probono instructions be allocated to attorneys within the firm? How will dis-

bursements be handled and what willthe budget be for writing off disburse-ments (bearing in mind that pro bonoclients often cannot afford even themost basic of disbursements)? Can your current computer sys-

tems accommodate a pro bono data-base and all the reporting require-ments (bearing in mind the law soci-eties also have reporting require-ments)? How will pro bono work betracked, reported on, accounted forand recognised? Does your currenttime recordal system lend itself totracking pro bonomatters or will youneed to create a separate system forpro bonomatters? Will work on pro

bonomatters be recognised on scorecards come performance appraisal time?These questions require careful consideration to ensure that the right peopleare appointed to manage your pro bono programme and that you achieveoptimal use of the resources allocated to your programme.The more specific the policy, the easier (and less time consuming) it is to

find the right pro bonomatters, assess them, allocate them, track them andreport on them.

Managing the client’s expectations

More often than not, pro bono clients tend to be less sophisticated than theaverage fee paying client. Managing their expectations thus becomes critical. Unfortunately there seems to be a perception among pro bono clients that

if you get an attorney on your side you simply cannot lose. Similarly, theyhave a tendency to window–dress their matters in hope that this will bolstertheir case. pro bono clients need to be made to understand that that no guar-

antees can be given and that even matters with strong merits are not sure-fire bets, and that attorneys require full disclosure of the truth and not simplythe best possible version of events. Serial pro bono clients are very adept atabdicating responsibility for their problems to anyone vaguely willing toentertain them. Beware of them! Because pro bono clients are not paying for your legal services, they often

do not appreciate the value of what they receive from you and have noqualms in demanding far more of you than would a fee paying client. At theoutset it is important to put in place clearly defined boundaries with a probono client as to what is acceptable behaviour from them and what is not. Ifyou wouldn’t accept the behaviour from a fee-paying client, do not acceptthe behaviour from a pro bono client. The only distinction between the two types of client is that the former

pays your legal fees while the latter does not. No other exceptions should bemade. As their attorney you do your client a disservice when you attempt totake on other roles such as psychologist, financial adviser, mentor, spiritualcounsellor, parent, sibling or friend. Maintaining a healthy professional dis-tance at all times is in both your and your client’s best interests. Where a probonomatter is of a particularly personal or traumatic nature, refer the clientto an appropriate organisation that can provide free psycho-social support,such as the Family and Marriage Association of South Africa (FAMSA), theCentre for the Study of Violence and Reconciliation, Lifeline and the SouthAfrican Depression and Anxiety Group (SADAG). Many religious organi-sations also offer free counselling services.

Engagement letter

One way to create certainty around this issue of managing client’s expecta-tions is to provide the client with a pro bono Terms of Engagement letter,clearly setting out in plain and easily understandable language, the groundson which the mandate may be terminated. Make sure clients understandwhat they are signing. The engagement letter should also deal with theaspect of costs. It is advisable to have the client cede their rights to any coststhat might be awarded to them in successful litigation. Other aspects that an engagement letter should cover are the matters of

FICA, confidentiality, client care, complaints procedures and disbursements.Acting pro bono does not mean that disbursements must automatically beabsorbed by the firm. At the outset the client should be informed of theexpectation that they cover the disbursements in whole or at least part.Obviously a client’s inability to cover disbursements should not be a bar tothem receiving your pro bono services, but failing to canvass this issue withthe client could lead to unpleasant surprises down the line.With a little thought and planning, your pro bono programme can easily

be integrated into your fee-paying practice.PS The computing systems generally utilised by SA law firms do not

accommodate pro bono work and a large part of the reporting ends up beingdone manually. This allows for human error to creep in. pro bonoNet, aNew York based legal NGO has developed pro bonoManagerTM, a very use-ful piece of software specifically designed to cater for pro bono programmes.Unfortunately, the solution being hosted in the USA presents various chal-lenges, in particular because of their Patriot Act. Perhaps it’s time for a localsoftware company to design a pro bono programme - pro bono.

Van’t Riet and Williams are associates and Moodley a candidate attorneyat Norton Rose SA.

Moodley

26 August 2012

Mouritzen and the new era of derivative actionsS I Y A B O N G A S H A N D U

It is generally used where a person who commits wrongdoings against acompany, controls decision-making within that company and uses his orher control (alone or with others) to prevent it from instituting legal pro-ceedings against the miscreant. Globally, the concept of derivative action is inextricably linked with

the case of Foss v Harbottle. That case introduced what became the ‘rulein Foss v Harbottle’1 or the ‘proper plaintiff rule.’ In terms of the rule, onlythe company may institute legal proceedings in relation to wrongdoingscommitted against it. The rule, however, acknowledged that if a companyfailed to institute legal action against a wrongdoer, a shareholder could, incertain circumstances,2 institute action on behalf of that company.However, a shareholder was precluded from instituting action if an allegedwrong could be ratified by the majority of the shareholders. The wisdom of Foss v Harbottle was later questioned. It was argued

that it stifled the effectiveness of derivative actions. In order to circum-vent the deficiencies of common law derivative actions, the legislaturepromulgated s266 of the Old Companies Act, (61 of 1973) (Old Act).International trends later changed and favoured the abolition of the com-mon law derivative action in order to avoid confusions in the concurrentapplication of both the common law and statutory derivative actions.These international trends heavily influenced South Africa’s adoption ofs165 in the Companies Act, (71 of 2008) (New Act). s165 specificallyabolishes the common law derivative action as set out in Foss v Harbottleand sets out a new statutory derivative action. In Mouritzen v Greystone Enterprises and Another3 (Mouritzen Case),

Ndlovu J handed down the first judgement in South Africa in relation tothe new statutory derivative action. This note analyses Mouritzen andhighlights key aspects, which are useful in understanding the process ofinitiating derivative actions under the New Act.The facts in Mouritzen that K Mouritzen and D Mouritzen are broth-

ers and the only directors of Greystone Enterprises (Pty) Ltd. TheMouritzen Family Trust (the beneficiaries of which are the families of

both K and D Mouritzen) holds 98shares in the capital of theCompany and D Mouritzen and hiswife hold 49 shares each. K and DMouritzen were paid equal monthlysalaries by the Company and wereissued with credit cards in theirnames, on the basis that transactionson those credit cards were debited toand paid by the Company. K Mouritzen alleged that D

Mouritzen was abusing his creditcard to the detriment of theCompany and the shareholders. OnMay 23 2011, K Mouritzen, throughhis attorneys, sent a letter (whichconstituted a s165(2) demand) to the Company’s postal address and toboth the Company’s attorneys and D Mouritzen by e-mail, in terms ofwhich he demanded that the Company institute legal action against (D Mouritzen) to compel him to produce records of his credit card trans-actions and necessary supporting documents. These would enable theCompany to determine whether or not the expenses were properlycharged against the Company. D Mouritzen sent an e-mail to K Mouritzen’s attorneys disputing the

allegations. K Mouritzen then approached the court for an order grantinghim leave to institute a derivative action, in the name of the Company,against D Mouritzen for delivery to him of the full account of his debitcard expenditure, the assessment of expenses in the account and paymentto him (as a representative of the Company) of any amount that appearsto be due to him, as a representative of the Company.

D Mouritzen argued that: the letter sent to the Company’s postal address (the s165(2) demand) wasimproperly served; Mouritzen’s derivative action was in bad faith; and H Mouritzen (wife of D Mouritzen) was driven by personal animosity,which existed between the Mouritzen brothers.

Section 165

It provides that:any right at common law of a person other than a company to bring aderivative action is abolished and substituted by s165 (165(1));a person may serve a demand upon a company to commence a deriva-tive action if that person is a shareholder or director of that companyor is a trade union representing employees of that company (s165(2));

Aderivative action is a court action initiated by aperson (for example a shareholder or director)on behalf of a company in order to protect the

company’s legal interests. It is referred to as a derivativeaction because the person who initiates it derives theright of action in law from the company whose legalinterests is sought to be protected.

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a company that has been served with a demand in terms of s165(2) mayapply, within 15 business days, to a court to set aside the demand onlyon the grounds that it is frivolous, vexatious or without merit (s165(3));if a company does not make an application contemplated in s165(3),that company must, within 60 business days after being served withthe demand, either initiate or continue legal proceedings, or take relatedlegal steps to protect the legal interests of the company, as contemplatedin the demand or serve a notice on the person who made the demand,refusing to comply (s165(4)); anda person who has made a demand in terms of s165(2) may apply to acourt for leave to bring or continue proceedings in the name, and onbehalf of the company, and the court may grant leave only if the court issatisfied that the applicant is acting in good faith, the proposed or con-tinuing proceedings involve the trial of a serious question of material con-sequence to the company; and it is in the best interests of the companythat the applicant be granted leave to commence the proposed proceed-ings or continue the proceedings, as the case may be (s165(5)(b)).

s165(2) Demand – directory or peremptory?

Ndlovu J observed that the use of the word “may” in relation to the serv-ice of a s165(2) demand may obscure the legislative intent that it is a pre-requisite for the institution of a s165(5) derivative action. He said:

“...I observe that the service of the demand on the company is an essentialprerequisite for the institution of an application under section 165(5) andwithout which such person is obviously barred from launching the applica-tion. Given this observation, it is imperative and compulsory that a prospec-tive applicant must comply with the service requirement before proceeding interms of section 165(5). On this basis, the section ought, in my view, to beunderstood in the context that an applicant ‘must’ serve the demand on thecompany. It is a peremptory provision.”4

It is submitted that s165(2) of the new Act must always be read withs165(6) which provides that a person contemplated in this section (thatis, a shareholder, director, prescribed officer etc.) may, in exceptional cir-cumstances, apply to court for leave to bring a derivative action withoutserving a s165(2) demand. The issue of whether or not a s165(2) demand is directory or peremp-

tory was also raised in academic cycles prior to the new Act becomingoperational.5 Ndlovu J was not specifically called upon to decide on thedirectory or peremptory nature of the serving of the s165(2) demand;however, his clarification of this important procedural aspect of s165should be welcomed.

Service of the s165(2) demand

As indicated, D Mouritzen argued that the s165(2) demand sent by his brotherwas not properly served because it was not delivered at the Company’s regis-tered address or principal place of business. Ndlovu J noted that there wasnothing in s165(2) of the New Act which suggests that it must be served bydelivering it to the registered office of a company6 and said:

“…I find that the purposive interpretation of section 165(2) does notrequire that a demand referred to in that section must necessarily beserved on a company by delivering it at its registered office or itsprincipal place of business. In my view, any legally recognizable mannerof service of any court process or document initiating application proceedingsshall be adequate, provided that the court considering the matter, in the exer-

cise of its discretion, is satisfied that the demand was duly served on the com-pany for which it was intended.”7

Though Mouritzen clarifies the issue of service, it is submitted that itwill be prudent for persons initiating derivative actions to ensure thatthere is adequate proof of delivery of a s165(2) demand to the companyin issue to ensure that service is beyond reproach.

Refusal to comply with the s165(2) demand

Ndlovu J noted the e-mail response by D Mouritzen to the s165(2)demand (where he disputed the allegations made by K Mouritzen in rela-tion to the abuse of his credit card), and said that the response was in DMouritzen’s capacity as a director of the Company and decided that itconstituted a refusal to comply with the s165(2) demand as contemplatedin s165(4)(b)(ii) of the New Act.

Was K Mouritzen acting in good faith?

In this aspect of his judgement, Ndlovu J compared s165 of the New Actwith similar legislation in New Zealand, Canada and Australia andreferred to decided cases on statutory derivative actions in Australia. Inthis regard, Ndlovu J borrowed from Australia8 the following factorswhich South African courts must consider when determining whether ornot the ‘good faith’ requirement set out in s165 has been fulfilled: whether or not the applicant honestly believes that a good cause ofaction exists and has a reasonable prospect of success; andwhether or not the applicant is seeking to bring the derivative suite forsuch collateral purpose as would amount to the abuse of court process.9

Ndlovu J decided that, though a court should take into account per-sonal animosity between parties when considering whether or not theapplicant has satisfied the ‘good faith’ test, personal animosity on its owndoes not constitute proof that a person who initiates a derivative action isacting in bad faith.10

One of the reasons for the overhaul of company law in South Africawas to harmonise the South African company legislation with best prac-tices internationally. Therefore, our courts will, where appropriate, useforeign law in order to develop the South African company law jurispru-dence under the New Act, as Ndlovu J did in Mouritzen.11

Is the derivative action in the best interests of the company?

Ndlovu J referred to the Australian case of Swansson v Pratt where, in thecontext of a provision similar to s165(5)(b)(iii) of the New Act, it wasdecided that s237(2)(c) of the Australian Corporations Act require thecourt “…to be satisfied, not that the proposed derivative action may be, appearsto be, or is likely to be, in the best interest of the company, but, that it is in thebest interests.” In concluding that the derivative action was in the bestinterests of the Company, Ndlovu J said:

“The applicant is a trustee of the Mouritzen Family Trust which has themajority shareholding in the company. Any financial maladministration andmismanagement of a company will naturally adversely affect the financialcondition of that company. Therefore, as a representative of the majorityshareholder, the applicant is entitled to call for a proper investigation of anysuspected irregularities and abuse of the company’s assets. The MouritzenFamily Trust has a direct and substantial interest in the success and prosperityof the company in that if the allegations against the second respondent are

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proven, that would have a direct negative impact on the value of theMouritzen Family Trust’s shareholding in the company.”12

Comment

The judgement in Mouritzen is an important initial judicial step towardsremoving the dark shadow of the common law derivative action fromSouth African jurisprudence. The ability of shareholders, directors, pre-scribed officers, and trade unions to bring successfully derivative action interms of s165 is likely to encourage good corporate governance practicesand serve as a deterrent against malfeasance by those who control com-panies.

One of the criticisms of derivative actions is that persons consideringinstituting derivative actions may be discouraged by prohibitive legalcosts. In Mouritzen, Ndlovu J left the issue of costs for determination bythe court hearing the actual derivative action. It is hoped that court willuse its discretion in terms of s165(10) to ensure that it does not give cre-dence to views that have been expressed in Australia13 that courts arereluctant to allow derivative action applicants access to company funds tocover litigation costs even when the company is in a financial position tocover them. �

Shandu is a director of Tony Tshivhase

CompanylawCompanylaw

1 [1843] EngR 478.2 These circumstances included instances where a wrongful act done against the company was

unratifiable (e.g. fraud on the minority) and the wrongdoers controlled the company. 3 [Case No. 10442/2011], (as yet unreported), handed down 8 June 2012 in the KwaZulu Natal

High Court, Durban.4 Mouritzen Case, at Para [24]. 5 L Coutzee “A comparative Analysis of the Derivative Litigation Proceedings under the Companies Act

61 of 1973 and Companies Act 71 of 2008” Acta Juridica 2010, 276 Juta at 300.6 Ndlovu J said that if the legislature intended delivery to the registered address to be a require-

ment of service, it would have expressly done so as it did in s 345(1)(a)(i) of the Old Act.7 Mouritzen Case, at Para [33], Emphasis added.8 Swansson v Pratt [2002] NSWSC 583.

9 Mouritzen Case, at Para [58].10 Mouritzen Case, at Para [59]. This conclusion is supported in Swansson v Pratt (note 10

above), at Para [41].11 Hopefully judges will always keep in mind the following warning by Schutz J: “…ransacking the

libraries of the world may, where not appropriate, lead to not more than more paper, more cost, moredelay and even more confusion, without any commensurate benefit.” Standard Bank Corporation vThe Competition Commission & Others 200(2) SA 798 (SCA), Para [30].

12 Mouritzen Case, at Para [64].13 N Frawley “The Cost of Bringing a Statutory Derivative Action in Australia – Is it time to reconsider

the terms of s 242 of the Corporations Act”. Paper presented in February 2007 at the CorporateLaw Teachers Conference (Deakin University, Melbourne) 4-6 February, available athttp://www.clta.edu.au/professional/papers/conference2007/2007NF_CBSDAA.pdf (accessed on7 July 2012).

30 August 2012

Once the business rescue practitioner has had an opportunity to consult withall affected persons, including creditors, employees, trade unions and share-holders, he is obligated to put together a restructuring plan. This must effec-tively suggest the manner and form of the restructuring of the company'saffairs, business, property, debt and other liabilities and equity in a mannerthat maximises the likelihood of the company continuing to exist on a sol-vent basis. If it is not possible for the company to continue on a solvent footing, the

practitioner must formulate a plan, which would result in a better return forcreditors or shareholders than would otherwise result from the immediateliquidation of the company. If neither of the options is possible, the practi-tioner is obligated to place the company into liquidation.Once the plan has been formulated it is put to creditors for voting at a

s151 meeting. It is here where creditors need to "up their game" in what is aminefield of new law and opportunity.At this meeting, the practitioner must provide details of the proposed

business rescue plan for consideration by the creditors and, if necessary,shareholders, and attempt to persuade the meeting that there is a reasonable

prospect of the company being res-cued. Alternatively, payment of alarger dividend than in a liquidationmust be on the table. After discus-sion and possible suggestions onamendments to the plan, the practi-tioner must call for a vote to approvethe plan.In such a vote, the proposed busi-

ness rescue plan will only be ap-proved if it is supported by the hold-ers of more than 75% of the credi-tors' voting interests that were voted(votes must include at least 50% ofindependent creditors' voting inter-ests – independent creditors are those

creditors who are not employees and who are not related to the companyeither by way of shareholding or directorship). Shareholders will only get a vote if their rights are affected in some way,

such as a dilution of their position within the company's shareholding andwhich is suggested by the plan. Shareholders would have to approve the planin this instance, by way of a majority vote.Once the business rescue plan has been voted in, it is binding on the com-

pany and on each of the creditors of the company, including shareholders. An interesting option available to all affected persons where a business res-

cue plan has not been accepted, is the ability of any affected person or combi-nation of affected persons to make a binding offer to purchase the voting inter-ests of those persons who opposed adoption of the business rescue plan. Interms of s153(1)(b)(ii) these voting interests can be bought out at the liquida-tion value independently and expertly determined by a third party at theinstance of the practitioner. This results in a "cram down" on dissenting credi-tors and would ensure that those creditors in favour of the plan would have theopportunity to vote in the plan at the relevant 75% threshold. Creditors who are bought out at an unfair or unreasonable liquidation

value are entitled to apply to court to review, re-appraise and re-value adetermination by the third party independent expert. At this stage, we havenot seen any challenges being made to these valuations but there is no doubtthat this could become a litigious issue. The nature of what is a "binding offer" is also up for debate. Generally, a

party would only be bound to sell once an offer has been made and there-after accepted. The "binding offer" concept envisages a process where the dis-senting creditor is forced to sell at liquidation value – a concept quite foreignto our law.If creditors feel that a vote has been made inappropriately, they are entitled

to apply to court to set aside the result of such a vote. Grounds to be consid-ered by a court would include a vote that is prejudicial to the interests of thesecreditors who are adversely affected by the implementation of the plan.Once a plan is voted in, any creditor that has had its claim compromised,

results in a discharge of the balance of the debt.If the effect of this mechanism is considered, it is very important to estab-

lish, very early on in the process, where the "value breaks" when it comes tovoting. If a creditor votes down a plan, it could result in the creditor's vot-ing interest being bought out by other creditors at a very negligible amount.(liquidation value). In principle, this could result in creditors or sharehold-ers taking control of a company where there is value but where the companyhas run out of an ability to meet its debts from a cash flow perspective.Venture capitalists, minority shareholders and creditors could place them-

selves in a very advantageous position once they understand the votingmechanisms in business rescue, which could ultimately result in them takingcontrol of companies with potential future value. �

Levenstein is a director of Werksmans

Getting clever with business rescueE R I C L E V E N S T E I N

Judging from the numerous court hearings on thetopic, business rescue is fast becoming part and par-cel of restructuring companies in financial distress.

It is an option for financially distressed companies to filefor the supervision of the company's business and affairsby a business rescue practitioner pending the voting in ofa business restructuring plan in terms of Chapter 6 of theCompanies Act, (2008).

CompanylawCompanylaw

Levenstein

August 2012 31

Individual director due diligenceN A T A S H A B O U W M A N

best practice: Annual assessment of the board and Directors

The King Report on Governance in Southern Africa, 2009, the Instituteof Directors in Southern Africa (King III) recommends the board, its

committees and the individual directors should be evaluated every year(Principle 2.22). According to King III, the evaluation of individualdirectors should be led by the chairman through the nominations com-mittee, or by an independent service provider. However, it is recommendedthat independent performance appraisals should be considered in theinterest of eliciting candid responses. The yearly evaluations of individualdirectors provide the basis for identifying future training needs and alsoassist with nominations for re-appointment of directors at the AGM – asit provides a basis to explain why a re-appointment may or may not beappropriate.

Considerations when assessing individual directors

The King Committee released a practice note of questions that should beasked when conducting an assessment of an individual performance

Company law dictates that individual directorshave fiduciary duties to act in the best interest ofthe company and a duty of care skill and dili-

gence in the performance of their duties as directors. Towhat other criteria are individual directors required toadhere to demonstrate that they have performed againsttheir duties as director?

CompanylawCompanylaw

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32 August 2012

against his/her duties as direc-tor.1 These questions could beutilised by the Chairman andnominations committee, or byan independent serviceprovider, when conductingthe assessment. In addition,individual directors couldassess themselves in advanceof a formal assessment toensure they understand theirduties and will be able todemonstrate performanceagainst their duties during theformal assessment.The Practice Note’s sug-

gested questions to be usedwhen the performance evalua-tion of individual directors relates to the required knowledge and skills aswell as the execution of their duties as director: 1.1. Knowledge and skills

To determine if a director demonstrated the knowledge and skillsrequired, the director in question should:have the necessary skills to contribute to the board;have the skills appropriate to the company’s complexity, size andnature, as well as its industry;have an adequate understanding of the organisation’s business andthe long term strategic interests of the company;have an understanding of, and be committed to his/her duties andresponsibilities;be willing and able to devote the time needed for effective execu-tion of board responsibilities; have a clear understanding of the distinct roles of directors andmanagers and demonstrate this understanding;display characteristics such as:integrity,judgement,independence of mind,credibility,trustworthiness,intuition,willingness to handle conflict constructively,an ability and desire to learn,an openness to new ideas,good communication skills,decision-making skills, andinter-personal skills;

demonstrate commitment to good corporate governance;have the courage to take and stand by ‘tough’ decisions;have kept up to date with key developments affecting his/herrequired skills set and the business environment;have attended an induction programme (if a new board member).

1.2. Execution of duties

To determine if a director effectively executed his/her duties, thedirector in question should have: contributed actively and positively to discussions at meetings;exercised appropriate diligence by being properly prepared forboard meetings;demonstrated a thorough understanding of the matters to be dis-cussed at the board meetings;attended all the scheduled board meetings;dedicated sufficient time to the performance of board duties;acted in the best interest of the company at all times;acted with due care, skill and diligence;responded to issues in a timely and effective manner; andconsulted with management, staff and external advisors wherenecessary.

2. Additional considerations for independent non-executive directors andchairmenAdditional considerations should be taken into account when evalu-ating directors who are independent non-executive directors, mem-bers of board committees or the chairman or the chief executive offi-cer (CEO).2.1. Additional considerations for independent non-executive directors

During the evaluation of an independent non-executive director(‘independent director’), it should be confirmed that the inde-pendent director:is independent in accordance with the criteria in King III(see King III, Principle 2.18);has a sufficiently independent voice and is consistently readyto take constructive stands at meetings when necessary; andhas not served a term beyond nine years (for example, threethree-year terms), without being subject to a rigorous assess-ment by the board.

King III recommends that non-executive directors classifiedas ‘independent’ should undergo an annual evaluation of theirindependence by the chairman and the board and that the clas-sification of directors in the integrated report, as independent orotherwise, should be done on the basis of this assessment(Principle 2.18).

2.2. Additional considerations for board committee membersWhen assessing directors who are members of board committees,it is important to remember that these directors are required tofulfil their role as a committee member in addition to their roleas a director on the board; that is the duties and responsibilitiesof the members of the committee are in addition to their dutiesand responsibilities as members of the board. Therefore commit-tee members will still undergo an assessment of their perform-ance as individual directors; however the board committeeshould also be assessed separately to establish its performanceagainst its delegated mandate (as usually set out in its terms ofreference as approved by the board).

2.3. Additional considerations for chairmen of board and Chief ExecutiveOfficers

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Bouwman

August 2012 33

Should a director also fulfil the role as the chairman or theCEO, there will be additional considerations when evaluating iftheir role is effectively fulfilled. Next month’s article will focuson the different roles of the chairman and the CEO as well asthe importance of ensuring that the roles of both does not vestin one person.

Conclusion

The questions could be adjusted for all types of organisations and whereadditional legislative and other binding provisions exist, these considerationscould be included in the evaluation process. They could also be supplemented

by additional requirements important to a specific company’s unique businessenvironment and culture, such as a company’s unique values. �

Bouwman is Head: Secretariat, National Empowerment Fund

Disclaimer: The views expressed in this article are those of the author and do notnecessarily reflect the views of the National Empowerment Fund.

If it is really necessary to put questions along these lines to directorsevery year, then they shouldn’t have been appointed in the firstplace - Publisher

CompanylawCompanylaw

1 ‘King III Chapter 2: Individual Director Evaluation questionnaire, March 2011’ can be accessed at www.iodsa.co.za.

ConsumerlawConsumerlaw

Please don’t be alarmed if a scorpion wanders across the menuN I C K A L T I N I

Compliance with regulatory obligations begins with education and infor-mation. Those restaurants that have not yet fully acquainted themselveswith the vast provisions of the CPA should do so without further delay.What follows is a short précis of only some of the highlights of the CPAthat may apply to restaurants.

All suppliers transacting with consumers are subject to the provisionsof the CPA, irrespective of whether their typical clientele are well heeled,commercially sophisticated and experienced consumers or whether therestaurant is an establishment that seeks to provide affordable fare to any-one who may wish to patronise it.

What is less clear is whether restaurants are purveyors of goods or serv-ices for purposes of the CPA, or both. The definition of a "service" underthe CPA includes the provision of sustenance. On the other hand, thedefinition of the term "good" in the CPA includes anything intended forhuman consumption.Ultimately though, not muchmay turn on this distinction asthe CPA contains a wide vari-ety of provisions, which applyto restaurants irrespective ofwhether they are deemed sup-pliers of goods or services orboth.

Liability Issues

The CPA specifically providesthat consumers of services whodo not receive service of astandard and quality they feelthey are generally entitled toexpect, may either demandthat the service defect is reme-

Ever since the CPA took effect, the ConsumerCommissioner, the regulator tasked with ensuringcompliance with CPA, has been active and vocif-

erous. While the Commissioner may not yet haveplaced much emphasis on restaurants in general, restau-rants should not assume that they are immune from theprovisions of the CPA. They are as obliged to complywith it as any other supplier of goods and services.

Altini

34 August 2012

ConsumerlawConsumerlaw

died or seek rectification by paying less than the agreed service amount. Most reputable restaurants would already employ the practice of not

charging consumers for meals they find dissatisfactory, alternatively offer-ing a discount or free meal or some other form of compensation.Restaurants must realise now, however, that what the CPA does is legis-late the rights of consumers either to demand a new meal, alternatively arefund or a reduction of the price and these are no longer to beconsidered discretionary mollifications. More daunting, however, are the provisions of s61 of the

CPA, which essentially impose strict liability on suppliers ofgoods in the instance that the good supplied is defective,unsafe or hazardous and causes any form of damage to a con-sumer (even if the consumer did not enter into the transac-tion in terms of which the good was supplied). What is signif-icant about this provision is that it gives consumers the rightto seek to recover all forms of damages (whether they relate tophysical pain, suffering and disfigurement, claims for loss ofsupport as a result of death, damage to property, medicalexpenses, loss of income or damage to property) without theconsumer having to prove at any point that the supplier wasnegligent in supplying a defective good. This innovation in our law considerably lowers the bar in

consumer product liability type litigation. What is particularlypertinent for restaurants in this regard is the fact that the provisionsof s61 not only apply to suppliers of goods, but also suppliers of servicesand goods. This may mean that restaurants that supply defective mealsto consumers, however innocently and with whatever lack of negligence,could find themselves the subject of strict liability claims at the stomachsof consumers who suffer damages. Given that the provisions of s 61 do not limit the type of damages that

consumers can claim as a result of suffering harm from the receipt ofdefective goods, all suppliers who are subject to this provision are welladvised to ensure that their insurance policies could cater for possibleclaims.

Terms and Conditions

The CPA regulates consumer contracts in a variety of ways and while it isnot usually the case that patrons of a restaurant are required to sign anyform of agreement, it is the case that many restaurants have contractualterms and conditions in place either printed on menus or placed on signsat the entrance. Typical examples include the payment of mandatoryservice charges over and above the price of meals, no tolerance of menudeviations, rights of admission and disclaimers of liability relating to inci-dents that may occur through patronising the establishment. The most important provision of the CPA in these respects is that all

such warnings and notices must be written in plain language. The term"plain language" is in itself not well elucidated in the CPA but suppliersshould, at the very least, ensure that the notice appears in a language thatit likely to be understood by the majority of patrons and is written usingwords and a style that is relatively simple and easy to understand, free ofany legalise or jargon and other unnecessary complication. A failure toobserve the plain language requirements of the CPA may simply result inthe term or condition not being enforceable.

Also very important is that certain types of terms and conditions mustbe brought to the attention of the consumer in a manner that ensures thereasonably alert consumer could not fail to notice them. In particular,terms which limit the risk or liability of the supplier, place risk or liabilityon the consumer, cause the consumer to have to indemnify the supplieror a third party or which constitute some form of acknowledgement of afact by a consumer, must be very prominent and, naturally, written inplain language if they are to be enforceable. The CPA also specifically provides that when the consumer is granted

access to a venue or facility that may place the consumer at risk ofencountering a circumstance of an unusual character or nature, the pres-ence of which the consumer could not reasonably be expected to beaware of or notice, or which could result in serious injury or death, thismust be specifically drawn to the attention of the consumer at the earliestopportunity. Examples of such facilities in the restaurant world mayinclude restaurants in a bushveld setting where wild animals may haveaccess to the premises.The CPA also regulates the use of unfair, unreasonable and unjust

terms and conditions. Restaurants should review their customer policiesto try and ensure that however popular an establishment may be, it doesnot seek to take advantage of its popularity by imposing unreasonable andunfair terms and conditions on consumers.

Non-Discrimination

The CPA effectively extends the anti-discrimination provisions enshrinedin the Constitution and incorporates them into its body. While norestaurant of any worth would knowingly and unfairly discriminateagainst patrons based on arbitrary characteristics such as race, religion,

August 2012

ConsumerlawConsumerlaw

political affiliation or educational standard, the CPA goes somewhat fur-ther and gives an indication of specific instances in which discriminationbased on age, in particular, is permissible. It is not impermissible to discriminate based on compliance with pub-

lic regulations or where it is reasonable to protect the health, welfare orsafety of a minor. Suppliers can reasonably refuse to enter into transac-tions with minors and may, if they wish, designate facilities, permanentlyor from time to time, for the exclusive use of minors generally, minors ofa specified age or adults who have attained a specified age of at least 60years. Similarly, suppliers are specifically permitted to offer to supply orprovide access to facilities exclusively to persons of one gender. Last, the CPA also specifically states that it is permissible for suppliers

to market their services in a manner that implies or expresses a prefer-ence for a particular group of consumers distinguishable on one of thearbitrary grounds of discrimination set out in the Constitution (for exam-ple, gender, age, language, race, culture, religion and the like) providedthe goods or services being marketed are reasonably intended or designedto satisfy the specific needs or interests common to or uniquely character-istic of that particular group of consumers. In other words, a kosherrestaurant could justifiably market its services in a manner discriminatoryto people who are not of the Jewish faith if its main target market isJewish customers.

What is important about these provisions is that irrespective of thebasis of discrimination, be it gender or age, there should be a rational andjustifiable ground for the discrimination.

Marketing under the CPA

Possibly of greatest consequence for restaurants is the myriad provisionsdealing with marketing activities. Once again, the CPA goes from thegeneral to the specific. At a level of generality, the CPA prohibits marketing initiatives

which are in any manner intended to be misleading to consumers orwhich are otherwise untruthful or dishonest. More specifically, however,the CPA regulates trade coupons and similar special deals where it ismost important to note that suppliers engaging in trade coupon and simi-lar promotional type activities must ensure that they are able to meet allreasonable demand created by the special offer. From a bait marketing point of view, the CPA specifically states that

consumers must not be misled about the availability of a good or serviceat a particular price. If a restaurant is offering a discount on meals andthe supply is only for a limited number of customers, then this should bespecifically stated in the advertisement. Promotional competitions, inparticular, are subject to extremely rigorous and, in fact, onerous regula-tion in terms of how a competition has to be run, and also the recordsthat are required to be retained.

Overselling and Overbooking

It is also well worth noting that the CPA specifically regulates theinstance in which a service provider has undertaken to provide a particu-lar service on a particular date and time and then cannot due to capacityconstraints that arise as a result overselling or overbooking. If the incapacity to render the agreed service on the agreed date and

time was within the reasonable control of the supplier and immediate

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36 August 2012

ConsumerlawConsumerlaw

and reasonable steps were not taken to notify the consumer, then he willbe liable to pay the consumer all costs incurred directly incidental to thebreach. In addition, there are further provisions which regulate the supplierhaving to refund the consumer any money paid in advance together withinterest at the statutory rate.

The Consumer's Right to Cancel Advanced Reservations,

bookings and Orders

While most restaurants accept the fact that consumers may make bookingsand then not arrive to honour those bookings, it should be noted that con-sumers have a right under the CPA to cancel any advance reservation,booking or order (this does not apply to special order goods ordered inadvance by the consumer) and if a consumer exercises this right, the sup-plier may only charge a reasonable cancellation fee in the circumstances. As restaurants generally do not take deposits in advance this would, in

most cases, mean that the restaurant simply has to accept the consumer'scancellation of an advanced reservation. But to the extent that a con-sumer may have made a booking for a large group in advance and paid adeposit, the supplier will have to allow the consumer to cancel the book-

ing subject to a reasonable cancellation penalty. What is reasonable willbe dependent upon the circumstances such how far in advance the con-sumer gave notice and the expenses already incurred by the supplier incatering for the booking as well as his ability reasonably to find a replace-ment consumer once the booking has been cancelled.

Conclusion

This is just a short summary, the actual provisions of the CPA and its reg-ulations are far more extensive and any consumer-orientated business thatintends to continue and be successful has no choice, but to ensure its con-stant compliance with the legislation. A failure to comply will not onlyresult in expensive and costly legal proceedings but could ultimately resultin a financial penalty of up to 10% of the turnover of the business con-cerned in the preceding financial year. This alone is sufficient incentive to ensure an effort is made towards

compliance. �

Altini is a director and National Practice Head, Competition andRegulatory Practice, Cliffe Dekker Hofmeyr

First come, best servedC H R I S T O P H E V A N Z Y L

One often cited by South African businesses for expanding into sub-Saharan Africa is that the returns on investment can be significantlyhigher than in South Africa. The growth figures indicated for sub-Saharan Africa include South Africa, which is experiencing modestgrowth. South Africa’s growth is expected to slow this year to approxi-mately 2.7%, down from 3.1% in 2011. If it is excluded from the growthcalculation for Sub-Saharan Africa, the region is reported to have grownat a steady rate of 5.7% in 2011.2

brand protection strategy

One important aspect of business expansion into any country is properbrand protection strategy. From what we have seen in practice as trademark practitioners, some large international businesses, even in less cer-tain times, aggressively protected their brands in sub-Saharan Africancountries by diligently filing trade mark applications in each country. Areason for prudence is that the laws relating to trade mark rights are notconsistent. Trade mark rights are generally territorial. Therefore, identicalor confusingly similar trade marks are owned by different proprietors indifferent countries. For a business that carries on no trade in a particularcountry but intends to expand later, the most effective strategy is toobtain registration of the business’ essential brands in those countries.

Prevalent registration systems in Sub-Sahara

In terms of trade mark legislation in most former British colonies, therights in a trade mark date back to the earliest of either: the date of filing a trade mark application in that country; ora date prior to filing a trade mark application on which the trade markwas first used in that African country by the applicant for registration

Much is being said in the media about the growthprospects of sub-Saharan Africa. Recent reportsindicate that the World Bank predicts 5%

growth for the region in 2012 and 5.3% in 2013.1

Increasingly, many medium and small South African busi-nesses are focusing on opportunities in the region to gen-erate growth.

IntellectualpropertyIntellectualproperty

August 2012 37

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in good faith or a person permitted by the applicant, provided that theuse was continuous from the earlier date.

On the other hand, in former colonies of European countries such asPortugal, France, Germany and Belgium the “first to file” principle usuallyapplies, so that the person who is first to file a trade mark application ingood faith acquires the strongest right. This also applies to the Frenchspeaking African Union Countries where a single OAPI registrationextends to 16 countries. However, even these general principles are not applied consistently.

The courts in Zambia, a common law country, have interpreted its trademark law to mean that the first to file has the right to register, eventhough almost identical legislation in the United Kingdom and SouthAfrica was to the opposite effect.3

Well-known marks

Some Sub-Saharan African countries, including South Africa, have legis-lation that gives effect to an international treaty, which protects foreigntrade marks that have an extremely high degree of recognition in thosecountries, as “well-known” marks.4 There are extremely well-known trademarks that may qualify for protection in some African countries, despitenot being used or registered in those countries. Even so, those trade marks, such as MACDONALDS, COCA

COLA and the like, are the exceptions. The trade marks of typical SouthAfrican businesses that are well-known in South Africa would often notqualify as well-known marks in other countries in sub-Saharan Africa. It is,furthermore, extremely costly to try to prove that a mark is well-known interms of the laws of a particular country.

unnecessary re-branding

What the trade mark registration system means for many businesses thatmay expand trade under an established South African mark into Africa atsome time in the future is that disappointment could arise when the timearrives to commence business. A business could find that its own goodsinfringe the rights of another business that registered the same or a similartrade mark first. A consequence is that re-branding of goods may have tobe considered if those goods are lawfully to be sold in those countrieswhere other traders have earlier rights.

Guarding and growing market share

Besides limiting the risk of having to re-brand in the event of expansion,there are significant strategic benefits in obtaining registration in the mostimportant African economies. The consumer goods market is one of thefastest growing markets in Africa. For example, the World Bank has reportedthat the GDP per capita in Nigeria increased to an average of $1118 in2009, compared with approximately $203 in the mid-1990s. This placesNigeria at a similar income level to India ($1134)5. The notable increase inGDP per capita is driving demand for consumer goods from around theglobe, including from South Africa. With such growth potential, brandprotection is essential to guard and expand market share by preventingcompetitors from selling goods under the same or confusingly similar marks.

Counterfeit goods

The trade in counterfeit goods is a challenge threatening investment inAfrica and one that can be combated, even if not eliminated, by a busi-

ness that has an effective regionalbrand strategy. The reports are stag-gering. According to some reports,there are businesses losing up to70% of their potential revenue as aresult of Africa becoming a dump-ing ground for cheap counterfeitgoods.6

In many countries, owning atrade mark registration entitles theproprietor to notify customs author-ities of the owner’s rights in thehope that customs will identify andstop suspected counterfeit goodsfrom entering the country. Also,action to stop trade in counterfeitgoods through criminal sanction is available in various African countries.However, registered rights are usually required before any action will betaken.

business relationships with distributors

Another factor to consider when protecting trade marks in Africa is theeffect that obtaining registration may have on business partnerships withlocal distributors. When consumer goods are exported from South Africato other African countries, businesses looking to expand their marketshare often appoint a local distributor to oversee a company’s expansioninto that market. There are advantages to entering a foreign market witha local business partner; it reduces the cost of expanding and allows a for-eign company to gain from the expertise of the local distributor. Even so,a challenge that often occurs where a local distributor is appointed is thatthe local distributor may not always be trustworthy. It is not uncommon for a local distributor to register the trade marks of

South African businesses. The South African business then struggles torecover its rights. The law in some African countries makes it possible togo to court to cancel a registered trade mark registered in bad faith orbecause the registrant is not the true proprietor of the trade mark. However,in “first to file” countries, the distributor may validly own the rights. Another risk of doing business in Africa is that the court systems are not

necessarily efficient. In Nigeria, for example, it may be several years beforean application to cancel a trade mark is heard, In other countries such asCameroon and Zimbabwe, we have experienced shorter waiting periods. There are significant challenges to resolving disputes on this conti-

nent, especially those of a commercial nature. The inconvenience beingforced to litigate to recover a trade mark can often be avoided by filing atrade mark application before conducting trade and certainly beforeentering into an agreement with a local distributor.

Conclusion

Filing trade mark applications throughout Africa is not a magic pillthat will guarantee success to expanding businesses on the continentbut registering trade mark applications in countries where there is areal prospect of doing business is probably essential to limit the risksof conflict with others and to protect market share. Even if a business’ plans are interrupted by a war or coup de etat, trade

Van Zyl

38 August 2012

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mark rights, unlike physical property, cannot be destroyed and, when con-ditions return to normal, owning a trade mark registration will often allowa business to say: “I was here first, get out of my way.” �

Van Zyl is a senior associate, Trade Mark Litigation with Adams &Adams. The article was verified by Alan Smith, Senior Partner, TradeMark Litigation

1 http://www.engineeringnews.co.za/article/sub-saharan-africa-economic-growth-remains-robust-world-bank-2012-06-13

2 http://www.engineeringnews.co.za/article/sub-saharan-africa-economic-growth-remains-robust-world-bank-2012-06-13

3 We refer to the article entitled “The demise of unregistered trade marks in Zambia” by NicoleHaworth and Alan Smith of Adams & Adams. The article may be read on the website

http://www.adamsadams.com/index.php/media_centre/news/the_demise_of_unregistered_trade_marks_in_zambia/

4 Article 6bis of the Paris Convention on the Protection of Industrial Property refers. 5 http://uk.reuters.com/article/2011/01/12/nigeria-consumer-idUKLDE70B0UY201101126 http://news.bbc.co.uk/2/hi/africa/8424403.stm

Traditional KnowledgeC H R I S B U L L

But though the TK Act has been approved by parliament, it has yet to besigned by the President and is, therefore, not yet in force. This has leftsome people hoping that it may still be scrapped altogether, or at leastaltered radically – one professor of IP law has gone so far as to draft apiece of legislation that he hopes to persuade the government to adopt inplace of the TK Act, one that takes traditional knowledge out of therealm of IP altogether.The TK Act is controversial for a number of reasons, though the fact

that it clearly seeks to give expression to an overriding redistributionpolitical agenda is not one of them. The objections, which have mainly come from the IP profession, are

primarily of the ‘square peg/round hole’ variety. It’s felt by many that tradi-tional knowledge is so far removed from intellectual property that itshould be treated as a sui generis right and handled by way of specific legis-lation, as WIPO is itself proposing to do. In fact, some critics believe thattraditional knowledge is so different from IP that the TK Act will seriouslyundermine South African IP, inter alia, because the rights granted are lim-ited to South African communities, making a nonsense of the reciprocitythat’s at the heart of all IP legislation. Another criticism is of the ‘fiddling whilst Rome burns’ variety - tradi-

tional knowledge is not what South Africa should be concentrating onright now, the country would be much better off updating sadly out-of-

date copyright laws to deal with the digital revolution. In fact, it’s quitepossible that the only reason why the criticism of the TK Act hasn’t beeneven more intense is because many doubt whether it will have muchpractical application. Yet the TK Act certainly does make fundamentalchanges to South African IP law .

Copyright

The TK Act adds a new type of work to the existing categories of protectedworks - literary works, musical works, artistic works, cinematograph films,sound recordings, broadcasts,programme-carrying signals andpublished editions. This newwork is called a ‘traditionalwork’, and it’s defined as ‘a liter-ary work, an artistic work, or amusical work, which is recognisedby an indigenous community ashaving an indigenous origin and atraditional character.’ The expression ‘indigenous

community’ is itself defined tomean any community living inSouth Africa. Unlike most cat-egories of works, a traditionalwork will not need to bereduced to a material formbefore it enjoys copyright, butit will have to be ‘communicatedto the public’. Copyright protec-tion is conferred on any such work that is created after the commence-ment of the TK Act, or within 50 years preceding it, and the term of pro-tection will be 50 years from the date of the commencement of the Act,

The hottest topic in South African IP at themoment is traditional knowledge. It’s dealt with ina piece of legislation innocuously entitled the

Intellectual Property Laws Amendment Act (2007) (forconvenience I’ll refer to this as the TK Act), which amendsvarious pieces of IP legislation.

Bull

August 2012 39

IntellectualpropertyIntellectualproperty

or from the date on which the work was first communicated to the public,whichever term expires last.The ‘author’ of a traditional work will be ‘the indigenous community from

which the work originated and acquired its traditional character’, though own-ership will vest in a new body known as the National Trust Fund forTraditional Intellectual Property. Transfer of ownership will not be possi-ble, but licensing of rights will. The owner will have the exclusive right toreproduce (including 3-D versions of 2-D works, and vice versa), publish,perform in public, broadcast, include in a cinematograph film, transmit ina diffusion service, and make an adaptation of the work. These rights willnot be enforceable against anyone who acquires rights to the work priorto the commencement of the TK Act or against any member of the par-ticular indigenous community, but if either derives a commercial benefitfrom the work they must pay a royalty to the Fund.

It’s envisaged that there will be a database of these works, as well as allthe other types of ‘traditional intellectual property’, a term that’s defined as‘any intellectual property that has an indigenous origin and is owned or could beowned by an indigenous community as determined by the Registrar’, and that’sintended to cover traditional innovations, traditional copyright works,traditional terms and expressions, traditional designs, and traditional per-formances. In keeping with the somewhat statist nature of the TK Act,there’s also provision for the creation of an advisory body, the NationalCouncil for Traditional Intellectual Property.

Performers’ Protection

The Performers’ Protection Act (PPA) makes it unlawful to broadcast orrecord performances of literary, musical or artistic works without authority.The TK Act brings traditional works within the ambit of the PPA, by

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making various changes to it: it defines ‘literary and musical works’ toinclude dramatico-muscial works and expressions of folklore; it defines‘performance’ to include the performance of any traditional work; and itdefines a ‘traditional performance’ as ‘a performance which is recognised by anindigenous community as a performance having an indigenous origin and a tra-ditional character.’ It also provides for the payment of royalties for thebroadcast and recordal of performances of traditional works, and it createsyet another body– the National Council for Traditional Performances – asthe collecting society for negotiating such royalties.

Trade Marks

The TK Act makes two major changes to the Trade Marks Act. The firstis that it creates something called a ‘traditional term or expression’, which isdefined as ‘a term or expression which is recognised by an indigenous commu-nity as a term or expression having an indigenous origin and a traditional char-acter and which is used to designate, describe or refer to goods or services.’ Itprovides that a traditional term or expression can be registered as a trademark if it is capable of distinguishing the goods of an indigenous commu-nity from those of another community. Any application for registrationwill be sent to the National Council for advice. Registration cannot inter-fere with prior use, or with use by a member of the relevant community,but if there is commercial benefit from such use a licence fee will bepayable.Second, it introduces the ‘geographical indication’, which is defined as

‘an indication which identifies goods as originating in the territory of theRepublic or in a region or locality in that territory, and where a particular quality,reputation or other characteristic of the goods is essentially attributable to thegeographic origin of the goods, including natural and human factors’. It pro-vides that geographical indications can be registered as certification marksor collective marks. Where a geographical indication is registered theDepartment of Agriculture must be advised.

Registered Designs

In South Africa, it’s currently possible to get registration for aesthetic designsand functional designs. The TK Act adds a third category, namely the ‘tradi-tional design,’ which is defined as ‘any design applied to any article, by whatevermeans it is applied whether for the pattern, shape, configuration or ornamentationthereof.... whether or not it has features which are necessitated by the functionwhich the article to which the design is applied is to perform, which design is recog-nised by an indigenous community as having an indigenous origin and a traditionalcharacter.’ The proprietor will be the community from which it originated.A traditional design will be registrable if it is ‘new and has features which are

based on or derived from the designs of an indigenous community and which have atraditional character’.Novelty is dealt with as: the design will be deemed to benew if it is different from, or does not form part of, the state of the art imme-diately before the date of application, or the release date, whichever the earlier.In cases where the release date is the earlier, the application must be filedwithin two years of the release date, although in cases where the design wasreleased within ten years of the commencement date of the TK Act, theapplication must be filed within two years of the commencement date. Traditional design applications will be referred to the National Council.

The duration of the right is 15 years from the date of registration or therelease date, whichever is the earlier. Once again there can be no interfer-ence with prior rights or with use by members of that community, subject tothe proviso that royalties will be payable if there is a commercial benefit.

Summary

The TK Act makes major changes to South African IP law and for thatreason it cannot be ignored. To what extent it will have any real signifi-cance, however, remains to be seen. �

Bull is a director, IP Department, Edward Nathan Sonnenbergs([email protected])

Can you nick someone else's trade mark?B R I A N W I M P E Y

In the 1994 Appeal Court decision in Victoria's Secret Inc v EdgarsStores Limited 1994 3 SA (A), the court held that "one can claim to bethe proprietor of a trade mark if one has appropriated a mark for use in rela-

tion to goods or services for the purpose stated," and went on to say "thefact that a trade mark is registered and has been used, even extensively used,by one person in a foreign country does not in itself constitute a bar to itsadoption and registration by some other person in South Africa.” And, “inthe case of a foreign trade mark, there is no legal bar to its adoption in SouthAfrica unless it is attended by something more."The ‘something more’ could be any number of things, one of them

being fraud or a breach of confidential arrangements by the adoptee;another being the fact that the appropriated trade mark is well knownand therefore protected under the South African Trade Marks Actdespite not having been registered here.The general principle and the exception was brought into focus

again recently in New Balance Athletic Shoes Inc vs. Abdullah Mohamed

Despite living in a modern global village, theowner of a trade mark in the USA may not beable to enforce its rights in South Africa. A

2012 case serves as a stark reminder to foreigners toensure that their brands are protected in South Africa viaa local trade mark registration.

August 2012

IntellectualpropertyIntellectualproperty

Dajee (and three others),which was heard in theSupreme Court of Appeal(SCA) in February 2012.On the one side was a

Mr.Dajee, the owner of a1996 South African trademark registration for POS-TURE FOUNDATION - PFin class 25 for footwear. Onthe other side was NewBalance Athletic Shoes Inc,owner of South African trademark registrations P-F FLY-ERS and P-F in class 25 forfootwear, dating back to 1968and 1972Dajee, who had been oper-

ating a family clothing business since 1968 and using POSTUREFOUNDATION–PF as a brand for shoes, had learnt that New BalanceSA was planning to promote footwear at a trade exhibition bearingthe trade marks P-F and P-F FLYERS. This in itself may not havespurred Mr Dajee to action, but New Balance’s intent to use its trademarks in association with the phrase POSTURE FOUNDATION did.Dajee demanded that New Balance refrain from infringing his trade

mark POSTURE FOUNDATION-PF. New Balance refused to complywith the demand and, in response, threatened to expunge Dajee'strade mark on the grounds that it constituted a mark in respect ofwhich Dajee had no bona fide claim to proprietorship. Undaunted, Dajee applied for the removal of New Balance's two

trade marks on the grounds of non-use and the latter brought a count-er-application for the revocation of Dajee's trade mark as forewarnedin its replying letter.Focusing on Dajee’s bona fides, the basis for the allegation was that

POSTURE FOUNDATION, P-F and P-F FLYERS were trade marks inthe USA, and consequently, the adoption (and subsequent registra-tion) of POSTURE FOUNDATION-PF in South Africa by Dajee wasinvalid. A US corporation, BF Goodridge Company, had owned these three

marks in the USA (and perhaps elsewhere in the world) but sold themat some unspecified time to a succession of third parties. New BalanceAthletic Shoes Inc acquired the South African trade marks, P-F andP-F Flyers, by way of assignment in 2001.There was some, not very compelling, evidence that BF Goodridge

Company had used the marks in the USA and elsewhere since the1930's. Dajee, who had been casting about for a new brand forfootwear in 1996 adopted the trade mark POSTURE FOUNDATIONP-F believing that the mark had been abandoned and had fallen intodisuse. Satisfied that the mark was unknown to consumers in SouthAfrica, he registered it in class 25 in 1996.New Balance Inc's counter-application for revocation of Dajee’s

trade mark POSTURE FOUNDATION-PF was dismissed.The Appeal Court confirmed the territorial nature of registered

trade marks. While dismissing New Balance Inc's appeal, the court

Wimpey

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approved Nicholas' interpretation of the verb 'appropriate' to mean 'totake for one's own' in Victoria's Secret Inc v Edgars Stores Limited 1994 3SA (A), and added that “a trade mark is a territorial concept, with theconsequence that a person might be considered to have adopted a mark, andthus become its proprietor, notwithstanding that it has been used in a foreigncountry.”The court went on to say of New Balance’s approach “Much of the

argument was directed ... to inviting us to depart from the territorialapproach to trade marks and to embrace in its place a trans-territorial con-cept, having the effect that foreign proprietorship of a mark should cling to themark when it is used in this country. The concept of territoriality, it was sub-mitted in short, has become outmoded in the global village.” The Court con-cluded “a trade mark is a territorial concept, with the consequence that a per-

son might be considered to have adopted a mark, and thus become its propri-etor, notwithstanding that it has been used in a foreign country”Since there was no evidence that Dajee had had any dealings with

BF Goodridge Company or any of the subsequent owners of the mark,nor that any of BF Goodridge Company’s marks were well known inSouth Africa, the adoption of POSTURE FOUNDATION and adapta-tion to POSTURE FOUNDATION -PF by Dajee was held to be unex-ceptionable. �

Wimpey is a director at Norton Rose SA.

See too without prejudiceMay 2012 p12 Following the paper trail –Gerard du Toit

TaxTax

But are these extensions of ExchangeControl regulations lawful?B E N J A M I N C R O N I N

This amendment to the Exchange Control Regulations is clearly anattempt to close the gap created by the Supreme Court of Appeal (SCA)judgement in Oilwell (Pty) Ltd v Protech International Ltd (295/10) [2011]ZASCA 29 (Oilwell Judgement), which held that exchange controlapproval is not required when a South African resident transfers owner-ship of intellectual property to a non-resident. To close this gap the meaning of the otherwise undefined term "capital"

in the Exchange Control Regulations was extended to include "any intel-lectual property right." The effect of this purported lawful extension ofexchange control restrictions is a freeze on the direct or indirect export ofall intellectual property from South Africa, without prior express permis-sion from the South African Reserve Bank.

While on the face of it, thisamendment is a positive step in thatit attempts to create certainty byestablishing a partial definition ofthe term "capital" and of the phrase"exported from the Republic," thereare continuing problems with itspractical implementation:neither the term "capital" nor thephrase "exported from theRepublic" is in fact fully defined,andthe new phrase "any intellectualproperty right" is itself not defined.

Consequently, this amendmentnot only perpetuates the on-going uncertainty with regard to the applica-tion of the term "capital" but inclusion of further broad, undefined termsand phrases adds to it. In addition to these practical challenges, there arefurther uncertainties as to the lawfulness of this extension in light of theinherent limits of the empowering provision to make the Regulationsthemselves contained in s9(1)(a) of the Currency and Exchanges Act (9of 1933 (CE Act)).

On June 8 the President gazetted a brief amend-ment to the Exchange Control Regulations toextend their application to "any intellectual

property right", whether "registered and unregistered".Unfortunately, this far-reaching amendment is potentiallyboth unlawful and unconstitutional.

Cronin

August 2012 43

TaxTax

Potentially unlawful use of empowering provision

s9(1) of the CE Act refers to the ability of the President to "makeregulations in regard to any matter directly or indirectly relating to or affectingor having any bearing upon currency, banking or exchanges“. While theterms "currency" and "banking" on an ordinary interpretation wouldnot include a reference to intellectual property, the use of theterm "exchanges" could arguably be broad enough to encom-pass an intangible asset such as intellectual property. Thisvery issue was, however, considered in the Oilwell judge-ment and the court, in considering its meaning, looked tothe Afrikaans version of the CE Act which used the term"wisselkoerse", a reference to "exchange rates". The SCA inOilwell, held in light of this that exchange controls can onlyapply to cash and currency transfers. The empowering provision in the CE Act arguably, there-

fore, does not cover intellectual property, making any regulationdealing with intellectual property, in the absence of a legislativeamendment, potentially unlawful.

The empowering provision in the CE Act is potentially

unconstitutional

Even if the proposition that intellectual property could be the subject ofRegulations under the CE Act were to be accepted, then the s9 power tocreate this restriction may itself be unconstitutional. This is because thepower to legislate is given by the Constitution exclusively to parliament,which in turn may prescribe circumstances in which secondary or delegatedlegislation (such as Regulations) may be issued. Effectively the CE Act, in s-s 9(3) and 9(2)(e), gives the President the

power to amend a piece of legislation (including the CE Act) and allowsfor the retrospective criminalisation of certain actions by means of issuingRegulations. Neither of these powers is consistent with the Constitutionand their potential use is questionable.Further, the authority to issue Regulations does not, in any event, mean

that the President can usurp from parliament the power to legislate. Regula-tions that attempt to broaden the scope of a piece of legislation are poten-tially ultra vires, as the delegated power to legislate is circumscribed by the

ambit of the empowering statute. This Constitutional protection is particu-larly relevant in respect of amendments that criminalise everyday activities,as alluded to in the Oilwell judgement. Indeed the Constitutional Courtheld in Executive Council, Western Cape Legislature v President of the Republicof South Africa 1995 (4) SA 877 (CC) that the extension of the power toamend an act to the President would be unconstitutional. The result is arguably that the current Exchange Control Regulations

unlawfully and unconstitutionally restrict the export of intellectual property. Government may, through an appropriate statute, legitimately regulate trans-

actions involving intellectual property across international borders. However, thelawful power to issue such regulations must first be put in place by parliament. Ifgovernment wishes to avoid further court action like the Oilwell judgement, par-liament needs to intervene to rectify this legislative shortcoming. �

Cronin is an associate with Webber Wentzel

44 August 2012

TaxTax

Exchange control and Intellectual PropertyL A V I N A D A Y A

Though the term “capital” wasnot defined in the Regulations,prior to the judgement of theSupreme Court of Appeal inOilwell (Pty) Limited v ProtecInternational Ltd & others 2001(4) SA 394 (SCA) during2011, the prevailing view wasthat the prior approval of theFinancial SurveillanceDepartment of the SouthAfrican Reserve Bank (SARB)was required for the transfer ofintellectual property from aSouth African resident / entityabroad. The impression wasthat failure to obtain approval would result in the transaction beingnull and void since it contravenes Regulation 10(1)(c). In the Oilwell case, the Supreme Court of Appeal, found that the

terms "capital" and "right to capital" must be interpreted restrictively tomean cash and money and should not be interpreted to include a

trade mark or any other form of intellectual property. Consequentlyan assignment of a trade mark offshore does not require prior SARBapproval in terms of Regulation 10(1)(c).As a result of the Oilwell case it appeared that, in principle, South

African residents now had the ability to assign intellectual property torelated parties offshore without exchange control approval. WhileNational Treasury has, since the 1990s, embarked on a process ofgradually relaxing South Africa’s exchange controls, on June 8 thePresident amended Regulation 10(1)(c) by inserting a newRegulation 10(4) to deal with the transfer of intellectual property.

Regulation 10(4) reads as follows:"(4) For the purpose of sub-regulation (1)(c) –

(a) 'capital' shall include, without derogating from the generality ofthat term, any intellectual property right, whether registered orunregistered; and

(b) 'exported from the Republic' shall include, without derogatingfrom the generality of that term, the cession of, the creation of ahypothetic or other form of security over, the assignment ortransfer of any intellectual property right, to or in favour of aperson who is not resident in the Republic."

The application of Regulation 10(1)(c) is now expanded toinclude as “capital” "any intellectual property right", whether "regis-tered or unregistered".The purpose of this amendment is to restrict the direct or indirect

export of all intellectual property from South Africa, unless priorexpress permission is obtained from the SARB.It would appear that the amendment is an attempt to close the gap

created by the Oilwell case, which as stated, supported the contentionthat the prior approval from SARB was not required when a SouthAfrican resident transfers ownership of intellectual property to a non-resident. Therefore, as a result of the amendment or Regulation 10(1)(c),

the transfer of intellectual property by a South African resident off-shore would, absent prior SARB approval, constitute a contraventionof Regulation 10(1)(c). �

Daya is a Tax manager with Edward Nathan Sonnenbergs

South Africa’s exchange controls are governedby the regulations issued under the Currencyand Exchanges Act ( 9 of 1933). Regulation

10(1)(c) deals with restrictions placed on SouthAfrican residents with regard to the export of capi-tal and stated (prior to the recent amendmentsthereto discussed later in this article) that: "No per-son shall, except with permission granted by theTreasury and in accordance with such conditions asthe Treasury may impose, …. enter into any trans-action whereby capital or any right to capital isdirectly or indirectly exported from the Republic".

Daya

August 2012 45

TaxinternationalTaxinternational

US taxation of its citizensA N T H O N Y M A R K H A M A N D D A L I L A V E R E L S T

Citizenship renunciation, though not a new phenomenon, has increased.Ordinary US citizens who live and work outside the US and find the filingand reporting obligations imposed by the IRS too onerous and costly, are nowconsidering the benefits of renouncing their US citizenship if the citizenship ofanother state is available to them. US citizens are generally subject to tax based on their worldwide income,

even on income which they earn while living abroad, and they are subject toestate tax on their worldwide estate. While this may not be unduly problematicfor US citizens whose income and residence is in the US, an estimated 6.3million US citizens living outside the country have to comply with increasinglycomplex reporting and filing obligations to the Internal Revenue Service, orface fines of $100 000 or 50% of the undeclared accounts, whichever is larger.US citizens can exclude foreign income (up to an amount of $95 100 in2012), but there is no exclusion for investment earnings.For several decades US citizens, wherever they may live, with $10 000 or

more in foreign bank accounts have had to file a form disclosing all their for-eign accounts, including joint accounts held with other persons, accounts forcorporations in which the US person owns more than 50% of the value ofshares, or any interest in a foreign trust. These are known as the FBAR regula-tions (Foreign Bank Account Reporting). The Foreign Account Tax Compliance Act (FATCA) introduces the new

IRS Form 8938 (Report of Specified Foreign Financial Assets) on which speci-fied investment assets with an aggregate value of $5 000 or more must also bedisclosed with US tax returns filed for the 2011 tax year. For a married couplethat files jointly, the threshold is raised to assets with a value of $100 000 onthe last day of the tax year or more than $15 000 at any time during the tax year. The thresholds are raised higher

still for US citizens living abroad, to $400 000 on the last day of the tax year or$600 000 at any time during the tax year. In addition, under FATCA, foreign financial institutions will have to pro-

vide information to the IRS on any US clients or investors; failure to do soresults in a 30% withholding tax on US sourced income and gains, regardlessof any tax due on the underlying investment. Perhaps in response to increasing reporting and filing obligations, an esti-

mated 1 800 US citizens living abroad gave up US citizenship in 2011 – an

increase of eight times that of 2008.As a percentage of US citizens livingabroad, the number who renouncedin 2011 is only 0.059%.While the Ex-Patriot Act may not

achieve greater patriotism, it maydeter potential renunciants of US citi-zenship (ex-patriots- a hurtful term tomany Americans who give up citizen-ship after many years of devotion,even military devotion, to the UnitedStates) by prohibiting them fromreturning to the US unless tax penal-ties are paid and an additional 30%tax is paid on any capital gains oninvestments they made after theenactment. The 30% tax would applyeven if the investment was made afterhe or she renounced U.S citizenshipand at a time when he or she nolonger lived in the US.The provisions of the Ex-Patriot

Act target expatriates who have leftthe US for the purpose of avoidingtaxes and there is a proposed con-comitant amendment to theImmigration and Nationality Actwhereby persons who fall within thedescription of the target expatriatewill be denied admission into the US. Continuing the theme of patriotism, nationalism and taxes, a proposal was

passed in the Senate in February 2012, which would allow the non-issuance ofpassports to be used as a tool to increase collection of unpaid taxes from tax-payers who owed at least $50 000 to the IRS. US citizenship can only be renounced outside of the US. It involves a visit

by the renunciant to the US consular office of his new country of abode. Afteran interview with the consular officer, the renunciant is usually given a period,the length of which is at the discretion of the consular office and may rangefrom a few hours to several months, to reflect upon his decision. If he remainsresolute in his wish to renounce US citizenship, he makes the oath of renunci-ation before the US flag. It is an unequivocal and irrevocable relinquishmentof US citizenship. �

Markham is a partner of and Ver Elst senior associate with, Maitland

I shall be fascinated to learn what the US Supreme Court makes of theselaws and regulations in the light of that country’s constitution which in anyevent already provides for a form of second class citizenship - Publisher

On May 16 United States Senate FinanceCommittee member Charles E. Schumer andSen. Robert P Casey Jr., introduced the

Expatriation Prevention by Abolishing Tax-RelatedIncentives for Offshore Tenancy Act (Ex-PATRIOT Act).This was in response to the high profile renunciation ofUS citizenship by billionaire US citizen Eduardo Saverinof Facebook Inc.

Markham

Ver Elst

46 August 2012

TaxinternationalTaxinternational

Good governance for NGOsL O U I S E B I C K

From April 1, all charities intending to apply for tax relief from the UKHM Revenue & Customs (HMRC) must comply with the four conditionsset out in schedule 6 to the UK Finance Act of 2010. It is the final condi-tion, being the ‘management condition,’ which has raised some debate and isof particular interest to non-profit regulation in South Africa. The ‘management condition’ is met by a charity “if its managers are fit and

proper persons to be managers of the body or trust.”1 The rationale behindthis requirement is, according to HMRC, “to ensure that charities…entitledto charity tax reliefs are not managed or controlled by individuals who mightmisuse the valuable tax reliefs the organisation receives. Unfortunately fraud-sters have been known to exploit charity tax reliefs so the fit and proper personstest exists to help prevent that.”2

There is no legislated definition of the term ‘fit and proper person.’ TheHMRC has been tasked with determining this test, with the startingpoint that “an individual is ‘fit and proper’ if they ensure that charity funds andtax reliefs are used only for charitable persons”3. HMRC will rely on, inter-alia, the following factors to determine whether a manager is a ‘fit andproper person’:

“individuals with a history of tax fraud or other fraudulent behaviour includ-ing misrepresentation and/or identity theft; individuals for whom HMRC has knowledge of involvement in attacksagainst, or abuse of, tax repayment systems; individuals who are barred from acting as a charity trustee by a charity regulator orcourt, or have been disqualified from acting as a company director”4.

The practical effect is that HMRC now requires the managers of acharity –the board members, trustees or directors – to complete a declara-tion that:

“I am not disqualified from acting as a charity trustee; I have not been convicted of an offence involving deception or dishonesty (orany such conviction is legally regarded as spent);I have not been involved in tax fraud;I am not an undischarged bankrupt;I have not made compositions or arrangements with my creditors from whichI have not been discharged; I have not been removed from serving as a charity trustee, or been stoppedfrom acting in a management position within a charity;

I have not been disqualified fromserving as a company director; andI will at all times seek to ensure thecharity’s funds, and charity tax reliefsreceived by this organisation, areused only for charitable purposes”5.

Similar provisions relating toineligibility6 of individuals to bemembers of a board of a charitywere implemented in Canada fromJanuary 1 and in New Zealand fromFebruary. In Canada, the ineligibilityprovisions also exclude persons whohave been convicted of a criminaloffence or a non-criminal but rele-vant offence such as financial dishonesty or offences under fundraisingand consumer protection legislation. They also exclude individuals whohave controlled a charity during a period in which that charity was foundto be in breach of the requirements for registration and the registrationwas revoked within the last five years.7 The provisions in New Zealandare similar.8

In South Africa, there is no comparative requirement relating to ineli-gibility of management or members of a non-profit to register as a NPO(Non Profit Organisation) with the Department of Social Developmentor as a PBO (Public Benefit Organisation) for certain tax relief andexemption from SARS. The Non Profit Organisations Act (71 of 1997) (NPO Act) is aimed

at improving accountability, transparency and governance in the non-profit sector, thus increasing its credibility9. However, in relation to thepeople running the charities, the NPO Act merely requires their personalparticulars, without any details on their background or ethical standing. It does require the constitution of the organisation to set out that the

member or managers have “no rights in the property or other assets of theorganisation solely by virtue of their being members or office-bearers”10 andthat all financial transactions be conducted through a bank account11. Acondition of registration as a NPO is that the organisation must keepproper accounting records and provide the NPO Directorate with a copyof its annual financial statements, together with a report thereon, withinnine months of its financial year-end.12

However, registration as a NPO is voluntary. According to recent sta-tistics13, there are believed to be around 150 000 non-profit organisationsin South Africa, of which an estimated 85 000 are registered as NPOs. Registration with SARS as a PBO is also voluntary. However, charities

must obtain PBO status in order to, inter-alia, issue s18A tax exemption

Development in the requirements for charities to beregarded as tax exempt in Canada, New Zealandand, most recently, the United Kingdom, may

have much needed application in the South African context.

Bick

August 2012 47

TaxinternationalTaxinternational

certificates to donors. Organisations have to comply with a range ofrequirements set out in the Income Tax Act (58 of 1962) (ITA)14. Therequirements that specifically relate to the members/founders/directors/trustees of the organisation include that: there must be at least three people who accept the fiduciary duty ofthe organisation and they may not be connected persons in relation toeach other15; no single person may directly or indirectly control the organisation16;they may not directly or indirectly distribute the organisation’s fundsto any person other than in carrying out the public benefit activities ofthe organisation17; he/she is required to utilise the funds of the organisation only for theobjectives that it was established to carry out18; andthey may not pay excessive remuneration to office bearers or economi-cally benefit any person by carrying out its objectives19.

While the requirement for at least three people to accept fiduciaryresponsibility for the organisation does, to some extent, recognise thatthere must be at least three people who hold “a position of trust or responsi-bility including decision making powers with respect to the affairs of an organisa-tion”20, there are no specific requirements in the ITA that the peopleinvolved with the management of the charity comply with a ‘fit and properperson’ standard, as has been introduced in the UK or ineligibility stan-dards as in Canada and New Zealand. It is noted that if the non-profit organisation is a registered charitable

trust or a non- profit company, there are certain fiduciary and ineligibilityrequirements on the trustees or directors in terms of legislation. However,if the non-profit organisation is a voluntary association (which is the sim-plest and cheapest form of registration) or informal community basedorganisation (CBO), there is no mandatory regulatory framework for cor-porate governance or disqualification of managing members. The issue of proper corporate governance of charities in South Africa

is not new. It is raised continuously by the media, such as the recent CarteBlanche expose on NPO Out of Africa, where questions were raised aboutthis organisation’s accounting and management practices and whether ornot its founder was managing the funds and donations received in anaccountable manner21. The non-profit sector is facing the need for better practice in charity

management head on. A group of NPOs have this year proposed a DraftVoluntary Independent Code of Governance and Values for Non ProfitOrganisations in South Africa (Draft Independent Code)22. One of itsobjectives is in recognition of the position of trust held by NPOS – atrust that is both towards the beneficiaries of the public benefit activities,but also “a duty of accountability to a number of interested parties, includingdonors, members, employees and the general public.”23

The values set out in the Draft Independent Code focus on a commit-ment to “fidelity, or loyalty to purpose” which creates the need to devote all“resources, energies and activities” to “promoting its public benefit purpose andnot to any personal or private objective”24 and on the public interest asopposed to self- interest25. The values call on board members to exhibit“the highest standards of integrity” and set out provisions relating to conflictsof interest. Practically, it is not anticipated that SARS or the NPO Directorate will

move to include a formal “fit and proper person” test as part of the require-ments to register as a PBO or NPO. The criticism levelled against thisapproach in the UK is that it creates increased bureaucratic and administra-tive requirements and gives HMRC too much discretion over the sector26. As is illustrated by the figures previously mentioned, the majority of

community-based and voluntary associations in South Africa do not evenapply to SARS for PBO status in the first place, which means that theinclusion of such a provision would not improve levels of accountabilityin those institutions in any event. It is, therefore, suggested that the approach of Canada, New Zealand

and the UK be taken into consideration by these organisations as a guide-line and that they consciously choose to ask for a similar ‘fit and properperson’ declaration of those requesting to become involved in their organ-isations at management level. The purpose would include being informedof any concerning historical behaviour but even more to raise an aware-ness of the kind of behaviour required of a person trusted with the man-agement of a non-profit organisation. This would also harmonise wellwith the commitment and undertaking to be taken by non-profit organi-sations, as proposed by the Draft Independent Code27. �

Bick is a senior associate, Public Interest Law Department withWerksmans

1 Schedule 6, Article 4(1)2 HMRC “Fit and Proper Persons Helpsheet” at 1 online http://www.hmrc.gov.uk/charities/guidance-

notes/chapter2/model-dec-ff-persons.pdf3 Ibid at 14 Ibid at 25 Ibid at 36 As set out and discussed in K J Cooper “New Ineligibility Requirements for Directors, Officers and

Staff of Registered Charities” 2012 National Charity Law Symposium (May 2012) 7 Ibid at 4-58 Ibid 9-119 http://www.dsd.gov.za/npo/index.php10 Section 12(2)(f) NPO Act11 Section 12(2)(k) NPO Act12 Sections 17 and 18 NPO Act13 Set out in the Independent Code at 3-414 Set out in Section 30 of the ITA

15 Section 30(3)(b)(i)16 Ibid17 Section 30(3)(b)(ii)18 Ibid19 Section 30(3)(d)20 SARS “Tax Exemption Guide for Public Benefit Organisations in South Africa” (2007) at 1 21 Transcript of the episode available at http://beta.mnet.co.za/carteblanche/Article.aspx?Id=4549&ShowId=1 22 Full text available at http://www.inyathelo.org.za/docs/draftcode_3.pdf23 Draft Independent Code, Objective 9 at 224 Draft Independent Code, Value 1 at 625 Draft Independent Code, Value 2 at 726 David Ainsworth “Lawyers issue warning about HM Revenue & Customs ‘fit and proper’ test” Third

Sector (20 April 2010) online http://www.thirdsector.co.uk/Finance/article/997606/Lawyers-issue-warning-HM-Revenue---Customs-fit-proper-test/

27 Draft Independent Code at 17

48 August 2012

Protecting the Public Purse K E R R Y W I L L I A M S A N D P R E L I S H A S I N G H

To make this regulation possible, the Public Finance Management Act (1of 1999) and the Local Government: Municipal Finance Management Act(56 of 2003) delineate the framework within which permissible publicspending at national, provincial and local government level is to occur.These laws prohibit unauthorised, irregular and fruitless and wastefulexpenditure, create offences relating to acts of financial misconduct andprescribe the criminal sanctions which attach to the offences (a fine orimprisonment for a period of up to five years). While this regime may appear comprehensive, our concern is that there

is no simple mechanism to recover monies paid as a result of an unlawfulcontract. This is not to say there are no recovery remedies available to agovernment department or public entity as they may be able to bring anunjustified enrichment claim. This relatively uncommon claim is availablewhen someone has been unjustifiably enriched, for example, where therewas a mistake as to what was being sold, where the contract was illegal orbecame impossible to perform, at the expense of the person bringing theclaim. The problem is that the requirements for a claim do not square neatly

with the realities of public spending. This renders an unsatisfactory solutionto a problem, which may be best resolved by an amendment to the statutoryregime. Alternatively, the judiciary could play a role to support govern-ment in its endeavour to recover these misappropriated funds through theenrichment action by relaxing some of the requirements for such a claim.

There are three central requirements to any enrichment action: 1. the enrichment of the defendant;2. which is unjustified, that is without legal cause; and 3. the correlative impoverishment of the plaintiff.

For each specific enrichment action, or condictio (as the Romans calledthem), the plaintiff will have to prove additional elements to succeed withthe claim. To rely on the condictio indebiti, for example, it must be provedthat the transfer of money was made on the mistaken belief that the moneywas due. In addition, it must be established that the mistake, be it of fact orof law, which gave rise to the payment is excusable (Willis Faber Enthoven(Pty) Ltd v Receiver of Revenue and Another 1992 (4) SA 202 (A)). Another claim is the condictio ob turpem vel iniustam causam. For this

claim it must be shown that theamount claimed was transferred interms of an agreement that is voidand unenforceable because it is pro-hibited by law (First National Bank ofSouthern Africa Ltd v Perry NO andOthers 2001 (3) SA 960 (SCA))and the conduct of the party makingthe claim must be free from turpi-tude, that is it must not have acteddishonourably (Afrisure and Anotherv Watson and Another [2009] 1 AllSA 1 (SCA)). It is the specific requirements of

each condictio which present difficul-ties in the operational reality of pub-lic institutions.The case of Affirmative Portfolios

CC v Transnet Ltd t/a Metrorail[2009] 1 All SA 303 (SCA) high-lights the difficulty in respect of theexcusability requirement of the con-dictio indebiti. Affirmative PortfoliosCC (AP) was a labour brokerwhich provided services to TransnetLtd, trading as Metrorail (Metrorail),in terms of a contract awarded to itfollowing a tender process. Post the award of the contract,

AP increased its hourly rate, allegingthat it had been informed by aMetrorail manager that the regionalmanager had agreed to the increase. Metrorail denied this. At a subse-quent meeting, Metrorail informed AP that the increase was not in accor-dance with the terms of the contract and that it was to return to chargingthe agreed rate. When Metrorail summarily terminated the contract a few months later,

AP sued for damages on the basis that Metrorail had underpaid AP for cer-tain services. Metrorail counterclaimed on the basis of the condictio indebitifor the amount that was overpaid to AP before it returned to charging theagreed rate, that is, the money was paid under the mistaken belief it was due.While the court was reticent to prescribe hard rules on the circum-

stances that would constitute an excusable error, it did discern certain gen-eral principles from the case law on this point. Accordingly, the courtmaintained that grossly negligent conduct or inexcusable slackness would

The comprehensive regulation of public spend-ing is fundamental to a well-functioningdemocracy, particularly one founded on the

constitutional imperatives of accountability, transparencyand efficient and effective financial management.

PubliclawPubliclaw

Williams

Singh

August 2012 49

generally (but not necessarily) be inexcusable conduct. The court set out the following factors which might inform a determina-

tion of excusability: the relationship between the parties; the conduct of the defendant and whether it contributed to the plain-tiff's decision to pay; and the plaintiff's state of mind and culpability of his or her ignorance inmaking the payment.

The determination as to whether a mistake is excusable thus involves avalue judgement and will turn on the specific facts of the case. As a result, the court held that the Metrorail’s failure to explain why the

mistake had occurred repeatedly over several months, even though a writ-ten agreement was available to Metrorail officials to ascertain the trueamount, the failure of the Metrorail's officials to detect the unauthorisedincrease and to verify the increased rate charged by AP in its invoicesagainst the amount to be charged as per the written agreement, constitutedextreme slackness or negligence on the part of the officials. The court,accordingly, found the respondent's conduct "culpable to a degree renderingsame inexcusable."It is not difficult to see how a mistake of the kind perpetrated in the

Transnet case could occur in the day-to-day operations of a governmentdepartment or public entity. These entities enter into a plethora of agree-ments which require payments to be made and it is often the case that theperson entering into the agreement is not the one administering the pay-ment. While the court in Transnet did maintain that the requirement ofexcusability is not immutable, intimating that there may be scope for arelaxation of or deviation from this requirement which, it could be argued,might find application in the context of public finance management, courtscontinue to apply the excusability requirement to the mistakes of govern-ment departments and public entities. As a result, in the recent case of Nelson Mandela Metropolitan

Municipality v Hewitt-Coleman and Others [2012] JOL 28602 (SCA), theSupreme Court of Appeal found the overpayments made by theMunicipality to the consultant respondents excusable on the basis of theMunicipality's limited capacity and expertise to ascertain the extent of itsliability and the extent of the consultants' entitlement. It follows thatexcusability bears a direct relationship to institutional ability. Thus thecourts will deem a mistake inexcusable where it can be shown that the entitycould have avoided the mistake. The slackness or indifference of the par-ticular officials responsible will be attributed to the entity depriving it of anaction under the condictio indebiti.While it is possible to rely on the condictio indebiti to recover payments

made in terms of an unlawful or ultra vires agreement even where it hasbeen entered into by a person acting in a representative capacity (Bowman,De Wet and Du Plessis NNO and Others v Fidelity Bank Ltd 1997 (2) SA 35(A)), where the agreement is prohibited, reliance must be had on condictioop turpem vel iniustam causam. The seminal requirement of this particularenrichment action, commonly known as the par delictum rule, provides thatit would be contrary to public policy to assist those who defy the law. As aresult, because the law should discourage illegality, where the plaintiff acteddishonourably the condictio is excluded. However, in light of the judgement in Jajbhay v Cassim 1939 AD 537,

the application of this rule may be relaxed where "public policy should properly

take into account the doing of simple justice between man and man". While thiscondictio will avail a public institution where the party to whom the moneywas paid acted with turpitude, unless a court can be convinced to allow thecondictio to operate in the interests of justice, the conduct of a public officialwho solicits a bribe in contemplation of awarding a contract could, forexample, bar a government department from successfully claiming back themoney paid under the contract.It is evident that recovery under the enrichment action in the opera-

tional reality of government departments and public entities is difficult.Inexcusable mistakes happen and the money paid over is spent, with theresult that this particular enrichment action runs the risk of becoming ahollow remedy. Additionally, in contexts where both the private party andthe public entity display turpitude (for example, where a bribe is paid tosecure the award of a contract) it is not clear why government should bearthe burden of the expenditure (where it is responsible for public funds). This undesirable situation motivates for intervention. The courts could,

therefore, continue to consider relaxing the inexcusability requirement in amanner which acknowledges the challenges of governing. The courts couldalso consider the conduct of both the plaintiff and the defendant (andwhere the financial burden should rightly fall in light of the challenges ofgoverning and government responsibility for public funds) when consider-ing if certain dishonourable conduct means an unjustified enrichment claimis excluded.Alternatively, the legislature could intervene to provide a statutory rem-

edy which makes an unjustified enrichment claim more likely to succeedwhere there has been unjustified payment or over-payment of public moneyto parties contracting with government departments or public entities. A statutory remedy could be preferable as it could address an additional

general difficulty with enrichment actions which relates to the actualamount that may be recouped. The amount which may be recovered is cal-culated by reference to what, if anything, is remaining of the money paid asat the date the action is commenced. Given that the majority of the con-tracts entered into by government departments and public entities will bewith parties which, in turn, have to pay their employees and/or incur dis-bursements to perform under the contract, the extent of a party's enrich-ment may be minimal by the time the claim is brought. A statutory right of recovery by government departments or public enti-

ties (which could include the circumstances in terms of which such a recov-ery is permissible, the amount which may be recovered and the limits appli-cable to such recovery) would better enable government to recoup most ofthe otherwise lost funds. This would bolster the public finance manage-ment regime and go a long way to protecting the public purse. �

Williams is a partner of and Singh an associate with Webber Wentzel

While protection of the public purse is clearly important, it is equallyimportant that private companies and individuals are protected fromthe maladministration of individuals within government and publicentities. I find it difficult to believe that a company should sufferbecause of errors that may occur when, as quoted, the person enteringthe agreement is not the one administering it. That would not be con-sidered an excuse in a private operation so nor should it be acceptablefrom public entities. – Editor

PubliclawPubliclaw

50 August 2012

InternationalInternational

The World in July

Public relations executives say that despiteAndy Murray’s loss to Roger Federer in thefinals of the annual Wimbledon tennis tour-

nament, the humility and emotion he showed afterthe match have won him the hearts and minds ofthousands. In his post-match interview, the Scottishathlete choked back tears and struggled to speak as hecame to terms with the result. And tears were fallingamong the millions of men and women sitting onCentre Court and watching at home. PR expert MaxClifford said this tide of emotion has "changed the waypeople perceive Murray" and will open up all kinds ofdoors for him. The 25-year-old alreadyhas advertising campaigns with sportscompanies and Clifford said Murray’sperformance will give him widerappeal, beyond the world of sport."His tears are potentially worth mil-lions to him," he told Sky NewsOnline. "His career and popularitywill now be more successful andlucrative and last a lot longer."

Abet placed on Wimbledonchampion Roger Federer near-ly a decade ago has netted more

than £100 000 for Oxfam. In 2003 NickNewlife, from Oxfordshire, made a wager of £1520, at odds of 66/1, that the Swiss tennis starwould win seven Wimbledon titles by 2019.Newlife died in 2009 but left the betting slip toOxfam in his will. Federer's defeat of Britain'sAndy Murray in the Wimbledon final meansthe charity will now collect a payout frombookmaker William Hill of £101 840.Oxfam executive Andrew Barton toldBBC Radio 5 live that it had been a dif-ficult match to watch because his loyaltieswere split. It's just so unfortunate that henailed it against Andy Murray," he said. “I was just sitting there watching thetennis and I kept finding myself calling for Murray, particularly in that longgame in the third set.” Newlife, who was 59 when he died, had written toWilliam Hill requesting the bet in 2003. William Hill said it had alreadypaid out £16 750 to Oxfam from another bet placed by Newlife, of £250 at66/1, that Federer would win 14 Grand Slam events. The Swiss reachedthat mark at the 2009 French Open.

Nine climbers were killed by an avalanchein the French Alps, the worst accident ofits kind in France in 12 years. The disaster

struck in the early hours as 28 climbers ascendedMont Maudit (“the cursed mountain”), a satellitepeak of Mont Blanc. Survivors described being swept800 ft down the mountain by a block of snow 60fthigh and 500 ft wide.

The Red Cross says it now regards the conflict inSyria as a full-blown civil war. In a leader arti-cle headlined “Towards the endgame,” the

London Economist says the bombing of the national securityheadquarters in Damascus was a pivotal event likely to weakenthe regime in a number of ways. “A blast from a huge bombsomehow smuggled into the inner sanctum will sow mis-trust and suspicion at all levels.” The event is reminis-cent of the attempt to kill Adolf Hitler in 1944 by abomb smuggled into this campaign headquarters.

AUS Senate investigation has established thatHSBC, Europe’s largest bank, allowed itselfto be used as a money-launderer for “drug

kingpins and rogue nations” between 2006 and 2010. Inone case cited during the investigation, two of thebank’s US affiliates processed $19 4bn of transactionswith non-US subsidiaries over seven years without dis-closing links to Iran. And the bank moved billions ofdollars from its Mexican subsidiary into its US Banksdespite warnings from the US and Mexican authoritiesthat such large sums must have had ties to the drugstrade. David Bagley, head of compliance at HSBC,resigned this week, ahead of rumours that the bank

could face a fine of $1bn.

The US is currently facing its widest drought since 1956. After aparticularly mild winter, farmers expected a bumper harvest butdry weather in the Midwest has devastated crops in Illinois and

Iowa pushing corn prices to near highs. Scorching temperatures haven’thelped and it’s estimated that more than half the country is now affectedby the drought.

Nudists in Vienna were left stranded when police towed awaytheir cars with their clothes locked inside. Nearly 60 cars near anaturist bathing area on the Danube were parked illegally.

August 2012 51

When they saw their cars being removed, the nudists “rushed to be fortheir clothes, but they were too late.” It must have been quite a sight.Police said it was “a matter of safety.”

The estate of a father of two who died from a fatal heart attack dur-ing a three-in-a-bed romp with another man and a woman (nothis wife) is richer by $3m. A court found that his cardiologist

should have warned the man, who suffered from high blood pressure, notto take part in vigorous exercise.

Astudy of rings on semi-fossilised trees has found that Britain wassignificantly warmer 2 000 years ago than today. This explainshow Romans were able to cultivate vines in northern England.

Men need to be careful about wearing skinny jeans. Research hasfound that they can increase urinary tract infections and lead tothe agony of a twisted testicle. Dr Hilary Jones, a specialist in the

area, says wearing tight fitting clothes over a prolonged period can cause uri-nary tract infections leading to a low sperm count and fungal infections.

Boris Johnson, the uncharacteristic Mayor of London, is mad as hellwith the Port of London Authority. “We have drunk it, skated on it,painted it, drawn its inexhaustible waters to boil hides, brew beer, and

float the boats that made the empire. And in all the thousand years that themighty Thames has nourished us, under all those kings and queens and parlia-ments – even during the Great Stink of 18587 – we have never been told wecan’t immerse ourselves in it.” But the Authority has decided that there canbe no swimming in the Thames in future without a permit.“In all the dismal annals of elf and safety, if people wantto take their lives into their own hands, then theyshould be able to do so with all the freedom of ourwoad-painted ancestors. This sort of gratuitous legis-lation saps our moral fibre. No wonder we lose atfootball to the Italians.”

Was Yasser Arafat deliberately poi-soned with Polonium, the samedeadly radioactive substance that

Russian agents used to kill the dissident AlexanderLitvinenko in London? Swiss forensic experts say anexamination of Arafat’s clothing contain strongtraces of the substance and Arafat’s widow has nowagreed that his body can be exhumed so thetruth can be known. Ariel Sharon,Israel’s prime minister when Arafatdied, made no secret of his determina-tion to kill the Palestinian. Get readyfor deadly fallout.

New French presidentFrançois Hollande’s lovelife is getting more com-

plicated. His children have told

him they never want to see his new partnerValérie Trierweiler again because of the wayshe has treated their mother Ségolène Royal.Last month Trierweiler tweeted her supportfor Royal’s rival in a parliamentary elec-tion. Royal then lost, dashing her hopesfor political office. Trust the French.

Richard Zanuck, film pro-ducer of epics such asJaws, The Sound of

Music and The Exorcist diedJuly 13 aged 77.

The much lovedPresident NelsonMandela turned 94.

Perfidious Albion pulled offthe impossible – for the first timeever the Tour de France, professional cycling’s peerless race, was won

by an Englishman – Bradley Wiggins, an Olympic gold medallist, won the99th edition. Wiggins’ teammate, Mark Cavendish, won the ChampsElysee stage for the fourth successive year. Next year though, South Africaneyes will be on Chris Froome, Kenyan born and South African educated(St John’s College, Johannesburg) who came second this year. And former

champions Alberto Contador and Andy Schleck are likelyto be back in contention too.

And Hashim Amla became thehighest scoring South Africanever in cricket test when he

struck an unbeaten 311 in the first testbetween the Proteas and England at the Ovalground where South Africa has never won amatch. Jacques Kallis was at his majestic bestwith 182 not out when the Proteas declared. Atclose of play on the fourth day England were 102for four in their second innings, railing theProteas by 150 runs.

Most people had written him off butErnie Els was having none of it: tothe general astonishment of everyone

except himself, Els won the British Open, golf’sultimate accolade. It is the second time hisname is inscribed on the Claret Jug. To befair, though, most golfers will agree that itwas more a case of Australian Adam Scottsquandering a four stroke lead than Els playingmagical golf. This is Els’s fourth Major title. �

Compiled by David Gleason

InternationalInternational

52 August 2012

Obamacare JudgementP A T R I C K B R A C H E R

In the National Federation of Independent Business and Others v Secretary ofHealth and Human Services and Others, various bodies and states chal-lenged the constitutionality of the Patient, Protection and AffordableCare Act, 2010. The Act was partially upheld by a majority judgementled, to the surprise of some, by Chief Justice John Roberts in a carefullyreasoned opinion. The judgement highlights the role of federal govern-ment vs state government and the commerce and tax clauses in theConstitution. It also has some lessons for the constitutional approach inSouth Africa.Majority led by Roberts, CJ: “We do not consider whether the Act

embodies sound policies. That judgment is entrusted to the Nation’selected leaders. We ask only whether Congress has the power under theConstitution to enact the challenged provisions.”Roberts, CJ: “The Framers created a Federal Government of limited

powers, and assigned to this Court the duty of enforcing those limits.The Court does so today. But the Court does not express any opinion onthe wisdom of the Affordable Care Act. Under the Constitution, thatjudgment is reserved to the people.”Majority: The Federal Government “is acknowledged by all to be one

of enumerated powers.” That is, rather than granting general authority toperform all conceivable functions of government, the Constitution lists,or enumerates, the federal government’s powers. Congress may, for exam-ple, “coin Money”, “establish Post Officers,” and “raise and supportArmies.” The enumeration of powers is also a limitation of powers,because “the enumeration presupposes something not enumerated”.”Majority discussing the Commerce Clause: “The power of activities

that substantially affect interstate commerce can be expansive. Thatpower has been held to authorise federal regulation of such seeminglylocal matters as a farmer’s decision to grow wheat for himself and his live-stock, and a loan shark’s extortionate collections from a neighbourhoodbutcher shop.”Majority: “Congress may also “lay and collection Taxes” … The

Federal Government may enact a tax on an activity that it cannot autho-rise, forbid, or otherwise control.”Majority on the powers of the Supreme Court: “And there can be

no question that it is theresponsibility of this Court toenforce the limits on federalpower by striking down acts ofCongress that transgress thoselimits.”Majority on the fact that

the individual mandate in thelaw sought to oblige people totake out health insurance:“Every day individuals do notdo an infinite number ofthings. In some cases theydecide not to do something; inother cases they simply fail todo it. [If we allow] Congress tojustify federal regulation bypointing to the effect of inac-tion on commerce [it] wouldbring countless decisions an individual could potentially make within thescope of federal regulation.”Majority on the same point: “To consider a different example in the

health care market, many Americans do not eat a balanced diet. Thatgroup makes up a larger percentage of the total population than thosewithout health insurance. The failure of that group to have a healthydiet increases health care costs, to a greater extent than the failure of theuninsured to purchase insurance.” The court then quoted research to theeffect that the annual medical burden of obesity has risen in the USA toalmost 10% of medical spending amounting to about $147 billion in2008.Majority: “Under the Government’s theory, Congress could address

the diet problem by ordering everyone to buy vegetables”The majority regarding inactivity and the Commerce Clause: “To an

economist, perhaps, there is no difference between activity and inactivity;both have measurable economic effects on commerce. But the distinc-tion between doing something and doing nothing would not have beenlost on the Framers, who were “practical statesmen,” not metaphysicalphilosophers.”Majority: “The Commerce Clause is not a general license to regulate

an individual from cradle to grave, simply because he will predictablyengage in particular transactions.”Majority: “As the Government puts it, “health insurance is not pur-

chased for its own sake like a car or broccoli; …”. “But cars and broccoliare not more purchased for their “own sake” than health insurance. Theyare purchased to cover the need for transportation and food.”

The ABA Journal Law News Now has not comethrough for a few weeks. As a stopgap I havetaken extracts from the Obamacare judgement

of the US Supreme Court because it gives some fascinat-ing insights into the workings of the US Constitution andthe US Supreme Court.

InternationallawInternationallaw

Bracher

August 2012 53

Majority on constitutional oversight: “The rule is settled that, asbetween two possible interpretations of a statute, by one of which itwould be unconstitutional and by the other valid, our plain duty is toadopt that which will save the Act.”Majority: “But taxes that seek to influence conduct are nothing new.

… Today, federal and state taxes can compose more than half the retailprice of cigarettes, not just to raise more money, but to encourage peopleto quit smoking. And we have upheld such obviously regulatory measuresas taxes on selling marijuana and sawed-off shotguns.”Roberts, CJ: “When we invalidate an application of a statute because

that application is unconstitutional, we are not “rewriting” the statute; weare merely enforcing the Constitution.”Minority led by Scalia, J: “What is absolutely clear, affirmed by the

text of the 1789 Constitution, by the Tenth Amendment ratified in 1791,and by innumerable cases of ours in the 220 years since, is that there arestructural limits upon federal power – upon what it can prescribe withrespect to private conduct, and upon what it can impose upon the sover-eign States.”Minority led by Scalia, J: “If Congress can reach out and command

even those furthest removed from an interstate market to participate inthe market, then the Commerce Clause becomes a font of unlimitedpower, or in Hamilton’s words, “the hideous monster whose devouring jaws

… spare neither sex nor age, nor high nor low, nor sacred nor profane.”Minority on the Commerce Clause: “All of us consume food, and when

we do so the Federal Government can prescribe what its quality must beand even how much we must pay. But the mere fact that we all consumefood and are thus, sooner or later, participants in the “market” for food, doesnot empower the Government to say when and what we will buy.”The minority on the fact that the majority upheld part of the Act and

struck down a part: “The Court regards its strained statutory interpreta-tion as judicial modesty. It is not. It amounts instead to a vast judicialoverreaching. It creates a debilitated, inoperable version of health-careregulation that Congress did not enact and the public does not expect.”Minority: “The fragmentation of power produced by the structure of

our Government is central to liberty, and when we destroy it, we placeliberty at peril. Today’s decision should have vindicated, should havetaught, this truth; instead, our judgment today has disregarded it.”The court upheld most of the Affordable Care Act, not on the basis

not that is was permissible under the commerce clause, but because it wasa proper exercise of Congress’s taxing powers. The majority struck downthe Medicaid part of the act suggesting that the law could stand alonewithout it. �

Bracher is a partner with Norton Rose

InternationallawInternationallaw

Tweet, tweet, a whole new worldG A I L S C H I M M E L

The complaints related to two tweets for Nike on Twitter from the officialaccounts of Jack Wilshere and Wayne Rooney. The tweet from WayneRooney said, "My resolution - to start the year as a champion, and finish itas a champion...#makeitcount gonike.me/makeitcount." Jack Wilshere’stweet stated "In 2012, I will come back for my club - and be ready for mycountry. #makeitcount.gonike.me/Makeitcount."The complainant was disturbed that the tweets were not obviously iden-

tifiable as marketing communications.

Nike believed the tweets should be viewed in the context in which theyappeared and said that Wayne Rooney and Jack Wilshere were communi-cating to Twitter members who had chosen to "follow" them and that bothfootballers were well known for being sponsored by Nike, as were the teamsfor which they played; Manchester United and Arsenal. It believed, therefore, that Wayne Rooney and Jack Wilshere's Twitter

followers would not be misled about the relationship between the foot-ballers and Nike. Nike believed the tweets could be objectively viewed asmarketing communications because of the presence of the Nike URL with-in the body of the tweets, which indicated that the tweets' purpose was todirect followers to the Nike website. It provided examples of personal tweets by both footballers which did

not contain the Nike URL and did not refer to their professional capacityas footballers. Nike said when viewed alongside each other, which was simi-lar to the way followers would view a Twitter feed, they believed it wasclear which were personal tweets and which were ads.

Arecent decision from the UK Advertising StandardsAuthority highlights where the concerns of adver-tising regulation are headed as we enter the digital

and social networking age.

AdvertisingAdvertising

54 August 2012

The UK ASA upheld the com-plaint, and found that “the averageTwitter user would follow a number ofpeople on the site and they wouldreceive a number of tweets throughoutthe day, which they may scroll throughquickly. We noted the Code did not justrequire ads to be identifiable as market-ing communications but that they mustbe obviously identifiable as such.”The principle that came out of

this was that tweets, which amountto advertising, must be clearly iden-tifiable as such.Turning to our own ASA, it

would seem that the issue of tweetshas never been considered. The South African ASA can be justifiablyproud of the definition of advertising that appears in its Code, which iswide enough to encompass the concept of Twitter:

4.1 "advertisement" means any visual or aural communication, representa-tion, reference or notification of any kind –

4.1.1 which is intended to promote the sale, leasing or use of any goods orservices; or

4.1.2 which appeals for or promotes the support of any cause. Promotional content of display material, menus, labels, and packag-

ing also fall within the definition. Editorial material is not an advertise-ment, unless it is editorial for which consideration has been given orreceived.

The word "advertisement" applies to published advertising wherever itmay appear. It does not apply to editorial or programming publicity.

In addition, the ASA rules are explicit that advertising must be clearlyidentifiable as such. In addition, the enforcement processes allow that theASA can – after due process – issue a blanket ban against a particularadvertiser on the grounds that it has failed to abide by an ASA ruling. Thefact that Twitter is not a medium that falls directly within the ASA controlis, therefore, irrelevant.It will be interesting to watch this space and see what happens, as it is

indeed only a matter of time. And when it happens, I’ll be amongst the firstto be tweeting about it! �

Schimmel is an attorney specialising in advertising lawFollow Schimmel at @GailSchimmel – for advertising law updates.

AdvertisingAdvertising

Schimmel

The right to adequate housingP A U L I N E S A N N A S I - P I L L A Y

The question whether termination of a lease by the lessor constitutes aninfringement of the right to adequate housing has recently been decided inthe Constitutional Court and has been described as a ground-breakingjudgement1. The Socio-Economic Rights Institute represented 15 tenants of

Lowliebenhof, a ten-storey block of flats in Braamfontein, who contendedthat the termination of their leases was unreasonable and unfair and wasthus against public policy and amounted to an infringement of theirConstitutional right to adequate housing. The tenants entered into leases with various entities, each for specified

periods (the longest since 1994), dur-ing which the landlord could termi-nate for breach (including non-pay-ment of rent, damage to the premises,and contravention of laws or by-laws). After being entered into, thelease would continue on the sameterms and conditions, subject to ter-mination by either party to the leaseon specified written notice.In September 2008 the landlord,

in terms of the lease to vacate theproperty, gave written notice to thelessees, but noted that, should ten-ants wished to remain on the property,they were offered new leases, with ahigher rental, on the same terms and conditions. The tenants resisted andlodged a complaint with the Gauteng Rental Housing Tribunal for the

S26(1) of the Constitution provides that everyone hasthe right to access to adequate housing. This right inpractice is of the utmost importance for both lessors

and lessees.

PropertylawPropertylaw

Sannasi-Pillay

August 2012 55

excessive rental charges and threatened evictions by the respondent, whichconduct could have been regarded as “unfair practice” in terms of the RentalHousing Act2 (RHA).Mediation was held without success and the dispute was referred to arbi-

tration. But before the hearing the landlord approached the court for evic-tion of the tenants, who then withdrew their complaint from the Tribunal. Both the high court and the Supreme Court of Appeal dismissed submis-

sions by the tenants that the termination of the leases amounted to unfairpractice in terms of the RHA.The tenants then approached the Constitutional Court and submitted

that the circumstances in which the landlord exercised the power to termi-nate the lease and not the termination clauses themselves, rendered the ter-mination unfair, unreasonable and contrary to public policy. They contendedthat the termination of their leases unfairly and unreasonably infringed ontheir Constitutional right to access to adequate housing as provided ins26(1) of the Constitution.The applicants referred to the Constitutional case of Jaftha v Schoeman

and others3, where the question of whether a law that permits the sale in exe-cution of peoples’ homes because they have not paid their debts, therebyremoving their security of tenure, violates the right to have access to ade-quate housing, as enshrined in s26.Counsel for the applicants submitted that "any measure which permits a

person to be deprived of existing access to adequate housing, limits the rights protectedin section 26(1). Such a measure may, however, be justified under section 36 ofthe Constitution."They also submitted that the termination clause was invoked to avoid

the clause which required the respondent first to seek authority of theTribunal before it could increase rent as high as it sought. s4(5)(c) of the RHA provides that a landlord's rights against the tenant

include his or her right to terminate the lease in respect of rental housingproperty on grounds that do not constitute an unfair practice and are speci-fied in the lease.s7 of the Act provides for the creation of Rental Housing Tribunals by the

MEC by way of notice in the Gazette to establish a tribunal in the Province.s13(1) entrenches a right in which any tenant or landlord or group of

tenants or landlords or interest group may, in the prescribed manner, lodge acomplaint with a provincial Rental Housing Tribunal concerning an unfairpractice.The Constitutional Court found that a matter involving the termination

of a lease concerning unfair conduct by the landlord falls within the ambit ofthe RHA and must, therefore, be heard by a Tribunal. Accordingly theConstitutional Court held that the Tribunal is the appropriate board todecide unfair practice disputes under the Act and that tenants must be givenan opportunity to have their complaint heard. The tenants’ appeal againsttheir eviction was, therefore, successful.The order granted by the Court affords the tenants an opportunity to

have their complaint heard by the Tribunal within a stipulated period andallows the parties to apply to the Constitutional Court for further directionsonce the Tribunal has given a ruling or once the complaint has been dis-posed of in any other way.

The decision emphasises the remedy available to an aggrieved party to alease agreement whose interests and/or rights have been infringed. Theparty must lodge a complaint of unfair practice with the Tribunal, unlessproceedings have been instituted in another court when urgent relief issought. Tenants and landlords are protected against unfair practices,by the provi-

sions of the RHA and are encouraged to lodge complaints for acts or omis-sions which inter alia include changing of locks, deposits, damage to property,demolitions, forced entry and obstruction of entry, intimidation, issuing ofreceipts, municipal services, nuisances, overcrowding, maintenance andhealth matters, as provided for in s15(1)(f).In terms of s13(14) of the Act, the Tribunal does not have jurisdiction to

hear applications for evictions and, therefore, a landlord who wishes to evicta tenant must institute his application in a magistrates’ court or high courtwith jurisdiction to hear applications. Such a court is competent to hearapplications for evictions in the absence of a dispute regarding unfair prac-tices. In terms of s13(9) the Tribunal has jurisdiction to hear matters arising

from a dispute in respect of unfair practice, unless proceedings have alreadybeen instituted in another court. This would, therefore, preclude a tenantfrom lodging a complaint with the Tribunal to avoid eviction proceedings,which have already been instituted in a court. A magistrate may at any time,however, refer the matter to be heard by a Tribunal should it relate to unfairpractice. The RHA protects the interests and rights of a landlord against unfair

practices by a tenant who will likewise be afforded an opportunity to have acomplaint referred to the Tribunal. Landlords will, therefore, be able to lodgecomplaints with the Tribunal for the recovery of arrear rental.The advantages of a complaint being heard by a Tribunal are that it is

both cost-effective and may be resolved quickly. A Tribunal’s ruling has thesame effect as a magistrate’s court order.Landlords are cautioned to familiarise themselves with the provisions of

the RHA and with the existence of the Tribunal and to ensure that theirconduct, act or omission does not amount to unfair practices and also toensure that lease agreements comply with the provisions and requirements ofthe RHA. Likewise, prospective purchasers of immovable property subject to leases

should familiarise themselves with the provisions and requirements of theAct as well as the functions and powers of the Rental Housing Tribunals.Landlords especially should take care when deciding to renovate and

upgrade property to improve standards of living but will result in increasedrentals. It would be prudent for landlords to familiarise themselves with what

they are able to do and what they are prohibited from doing in terms of theirlease agreements and the RHA prior to approaching investors and financialinstitutions to put the wheel in motion.This will save landlord and investorstime, money and, possibly, unnecessary legal proceedings. �

Sannasi-Pillay is a candidate attorney at Eversheds. The supervising part-ners were Johan Jacobs & Dave Pennington.

PropertylawPropertylaw

1 Maphango and Others v Aengus Lifestyle Properties (Pty) Ltd (Inner City Resources Centre as Amicus

Curiae) 2012 (5) BCLR 449 (CC)

2 Act 50 of 1999, as amended by the Rental Housing Amendment Act 43 of 20073 2005 (2) SA 140 (CC)

56 August 2012

Understandable confusion

PlattelandperspectivePlattelandperspective

C A R M E L R I C K A R D

In May, two judges of the high court in Pretoria had to consider the lifesentence imposed by a magistrate on Bafana Matwa, 30. He had raped aseven-year old child and would, therefore, automatically face life impris-onment (a mandatory punishment where someone under 16 is raped) inthe absence of serious grounds for the court to impose another sentence.

In Matwa’s case the two judges acknowledged that the child had suf-fered ‘serious mental anxiety,’ but they nevertheless found grounds toreduce the punishment to 22 years. They had two reasons: Matwa was ‘afirst offender’ and second, the child, despite the noted ‘serious mental anxi-ety,’ was ‘not physically injured’ other than the signs of ‘forced vaginal pene-tration’ observed by a doctor.

How likely is it, a reader may ask, that a seven year old child could beraped and not show signs of ‘forced vaginal penetration’; isn’t that theessence of the physical result of rape? And what exactly was the nature ofthe ‘serious mental anxiety’ she experienced as a result of the attack? Howwell did the court consider the long-term psychological impact?The case caused something of an outcry and I understand that the

public prosecutor has asked for the file to consider an appeal. Whateverhappens from here on though, it was clear that the two judges decidedthey were obliged to intervene and alter the sentence passed.

The second case is another in which the judges, again two membersof the high court bench, considered the sentence imposed by a magistrate,

but this time in the Western Cape. The convicted rapist in this case,Ebrahim Tofie, had appealed against conviction and sentence after themagistrate imposed two consecutive 10-year terms. The high court judgesconfirmed the conviction, and then turned to look at the question of sen-tence.

Like the Pretoria judges in the Matwa matter, the Tofie magistratefound just two substantial and compelling reasons not to impose lifeimprisonment. First, Tofie had spent 14 month in custody awaiting trial.Second, the girl was ‘almost’ 16.

Dealing with these two grounds the judges said that against a back-ground where the minimum prescribed sentence was life, the 14 months‘falls into insignificance.’ They also dealt with the fact that the rapist hadnot used a condom: this does not appear to have been considered by thetrial magistrate, and it is significant that the two judges picked up on thisand made clear their agreement with previous high court decisions hold-ing that this constituted an aggravating feature.

What about the second grounds for not imposing the prescribed sen-tence? The magistrate had said that because the girl was eight monthsshort of 16 years, she ‘had a little more life experience than a very young childand therefore a bit more ability to deal with the trauma.’ This argument wasflawed, said the judges, ‘as the offence of rape is traumatic for … any age.’They added that it was particularly difficult to understand the magistrate’sreasoning on this question given the victim impact report, referred to bythe magistrate, that clearly showed the impact on the girl’s life.

In addition to the finding on the significance of the girl’s age on sen-tence, the court also found it was not a mitigating feature that she hadnot sustained 'permanent serious physical injuries.' and they considered thepsychological trauma resulting from the rape to be an aggravating feature.They went through the report on the psychological damage sustained as aresult of the rape and concluded that there were ‘no substantial and com-pelling circumstances present to justify a deviation.’ In the result, the convic-tion was upheld, the two 10-year sentences were set aside, and two lifesentences were imposed instead.This second case seems to show a different approach from that in the

Matwa matter: the fact that someone who has been raped did not sustain

Rickard

THREE recent rape cases illustrate why the publicis understandably confused. Every reader willknow that minimum sentences have been pre-

scribed that should apply except where ‘substantial andcompelling’ circumstances exist to make an alternativesentence more appropriate. And it’s what may legiti-mately be considered ‘substantial and compelling’ cir-cumstances that causes the confusion.

August 2012 57

PlattelandperspectivePlattelandperspective

‘permanent serious physical injuries’ is not automatically a substantial andcompelling ground to impose a lesser sentence on the rapist.Finally there’s the June high court decision in S v M that makes things

even more confusing. The accused, found guilty of rape by the regionalcourt in Bethlehem and sentenced to life imprisonment, appealed to thehigh court in Bloemfontein against sentence as well as conviction.He was convicted of raping his 14-year old daughter: he came home,

after he had been drinking, and woke up the three children with whomhe shared the bedroom so that they would open the door. After they hadgone back to sleep he climbed into bed with his daughter, tied a clothround her mouth to prevent her screaming, took off her clothes and rapedher.

The next day she told a teacher at school who helped set in motionthe process of medical examination and police investigation. The highcourt judges upheld M’s conviction, but raised problems with the life sen-tence imposed by the magistrate.

Rape was a serious problem, said the judges. But life imprisonmentcould only be imposed in appropriate cases after all the circumstanceswere considered. They pointed out that the accused was a first offender,father of seven children, that he was the bread winner and was employed.

The trial court had not properly taken his age - 54 - into consideration orproperly considered whether it was appropriate to impose another sen-tence.

Under these circumstances life sentence was too severe (‘te ingrypenden swaar’) and 15 years would be more appropriate for the facts of thecase.

It’s not an easy judgement: on the one hand the judges complain thatthe trial court did not properly weigh up the appropriate sentence, on theother the appeal court does not explain why its sentence was any lessinappropriate. The only ‘new’ factor put into the scale, it seems, is thatthe father was 54 years old, and the appeal court simply states, withoutexplaining why, that the original sentence was too severe.

The judges did, however, point out an even more troubling aspect ofthe matter: no report or evidence had been presented during the trial onthe psychological or physical impact of the rape on the girl. How is it pos-sible that the prosecution can fail in such an important respect, or that acourt can allow such a situation to develop without challenge? Why didthe magistrate not ask for a report? Why did the appeal court not chidethe magistrate for failing to ask for it? Speaking as yet another confusedmember of the public I can only say that I’m mystified. �

WARNINGA gang of carpetbaggers has been running around the country pretending to be

DealMakers magazine. They have even gone to the extent of copying DealMakers’ logo and type face.

They promise “awards” in exchange for advertising – and the ads will cost you lots of money – sterling, by the way.

Don’t be taken in. It’ll cost you money and you’ll get nothing but a worthless award in return.

NEVER deal with conmen such as these. Send them to us instead. We’d love to meet them. They have avoided every effort on our part to contact them.

DealMakers ®

58 August 2012

Preventing unnecessary interference with education

Not many human rights exist in the classroom. And, the applicant says,that unfair situation must not escape the grounds of the school.Education is dealt with under s29 of the Bill of Rights. Not only is educa-tion a right and not an obligation, it is a right to receive education “inpublic educational institutions.” That does not, says the applicant, entitlethe educational institutions to intrude into the private home.The applicant found his opportunity with the passing of the Basic

Conditions of Employment Amendment Act which prohibits anyonefrom “requiring or permitting a child under the age of 15 years to work” partic-ularly where that places the child’s well-being at risk.

The law has its origins in the Minimum AgeConvention, 1973 of the InternationalLabour Organisation. That Conventionprohibits child labour. Though theConvention does not apply to workdone by children

“in schools,” the ILO includes among the worst forms of child labour “workunder particularly difficult conditions such as work for long hours or during thenight or work where the child is unreasonably confined to the premises.” Thatsounds like a fair description of homework. One media article commentedthat what homework does is “rob children of childhood, play havoc with familylife and asphyxiate their natural curiosity,”Over 100 years ago Mark Twain commented that he never let his

schooling interfere with his education. Fran Libowitz remarked that “Inreal life there is no such thing as algebra.” Those who want to pursue algebrafor pleasure or profit can do it at school or at home. Those who areunlikely to see an equation for the rest of their lives should be allowed todo something more useful after school.Needless to say the applicant’s parents opposed the application. But

they could not explain in their answering affidavit why, if unfair discrimi-nation on the grounds of age is prohibited by s9 of the Bill of Rights, theyshould be allowed to watch television and pursue other pleasures whilethe applicant had to do his homework using the internet to search forsolutions to his teacher’s problems and not to life’s problems. The systemof education has not done particularly well. As George Carlin pointedout: “Think how stupid the average person is and then realise half of them areeven stupider.” When it comes to finding out what is really important inlife, homework is like marking up the important part of life’s script with ablack magic marker.Anyone who has helped their child with homework will know the futility

of it. Most of the time the parent does not have a clue what is going onwhich shows the system did not work for them. In fact it occurs to me thatif, instead of pretending to help their children with homework, the parentswere to spend time being taught by their children to master electronic skillsand social networks, the world might be a better educated place.But I do not have to decide who is right or wrong in the debate from a

moral point of view. This court does not make the law, it applies the law.If international conventions, the Bill of Rights and parliamentary leg-

islation prohibit work under particularly difficult conditionsfor long hours during the night in unreasonably con-fined premises, it is not my fault that the prohibi-tion exactly describes homework.The order is granted. There will be no more

homework for under-15-year olds. No order ofcosts is necessary. The applicant did all the researchhimself for his argument on his tablet computer andsuccessfully represented himself which shows whatyou can achieve when you don’t do homework. �

Reported by Nemo Judex

NotthelawreportsNotthelawreports

KOHN V THE MINISTER OF EDUCATION AND OTHERS

Foss-Harbottle J: The applicant is a 14-year oldschoolboy who seeks a declaration of rights onbehalf of all schoolchildren under the age of 15

prohibiting any school from giving them homework. Theclass action is brought under s38 of the Constitutionwhich allows anyone acting as a member of, or in theinterest of, a group or class of person seeking to enforcetheir human rights.

August 2012 59

Who knows what about youS I M O N E M O N T Y

In a move to give effect to the right to privacy, which is entrenchedin South Africa's constitution, and to align South Africa withmany other international jurisdictions that have privacy or dataprotection legislation in place, the government introduced theProtection of Personal Information Bill in 2009 (POPI).POPI has been in the pipelines for almost two years and it is

anticipated it will be passed this year. The objective of POPI will be comprehensive protection of

information relating to personal detail of an individual. In the bill, "personal information" is defined as covering a very

wide range of data pertaining to individuals and juristic persons. The new laws are intended to cover any person or entity that

collects, uses or stores, (in any manner whatsoever) personal infor-mation and will, therefore, involve the majority of organisationsconducting various types of businesses having to assess how theyhandle personal information.

The Bill provides rights for individuals to:know the reasons why their information is collected.know the purposes for which it will be used.have the right to object, on reasonable grounds, to use of theirinformation.enquire whether an organisation holds information about theindividual, view and correct that information, and ask that it bedeleted.

These laws will impact almost every business in South Africaand hefty penalties are envisaged for non-compliance. From a prac-tical point of view almost all businesses will need to:ensure that standard terms and conditions cover the authority touse any information submitted to the organisation for purposes

which the organisationrequires to use that infor-mation.be careful how the infor-mation is used and towhom the information isdisclosed. devise proper secure stor-age of data.

Comprehensive data han-dling strategies, processes andprocedures as well as systemswill need to be devised andimplemented in order tocomply with the legislation.

The Bill requires organisations to: collect and use only the minimum information necessary toaccomplish their objectives, to maintain the information accurately, to safeguard personal information, and to delete or destroy information when it is no longer needed.

Notably, organisations will be required to notify theindividual(s) and the new Information Regulator of any compro-mises to their personal information, including loss, theft, unautho-rised access or disclosure, hacking incidents, and so on.When the POPI becomes law, it will place a notable onus on

businesses that process any personal data in respect of any person.Failure to comply will in all probability result in an administrativefine of no less than R10 million for non-compliance, while viola-tions may also result in criminal charges or lengthy prison sentences. Fortunately, it does seem there will be a grace period of a year to

comply fully with the regulations once the bill is promulgated intolaw. �

Monty is a partner of Eversheds

Why on earth do organisations need a year to ensure theinformation they hold on individuals is correct and valid? -Publisher

South Africa does not have comprehensiveprivacy or data protection legislation. Someaspects are covered in various other statutes

that are consumer protective, such as the ConsumerProtection Act, the National Credit Act and theElectronic Communications and Transactions Act.

Monty

HumanrightslawHumanrightslaw

60 August 2012

Registration as parents by lesbian couplesS U S H I L A D H E V E R

There should, therefore, be no need to adopt the child. Since the twowomen are regarded in law as the child’s parents, they should be able tofollow the ordinary procedures for the registration of a birth as set out inChapter II of the Births and Deaths Registration Act (1992).If the couple was not married at the time the child was born, they can

apply to amend the registration ofthe birth to record their marriage.This would be an application interms of s11 of the Births andDeaths Registration Act, read inthe light of s13 of the Civil UnionAct (2006) (which provides thatreferences to ‘marriages’ etc. inother statutes now include civilunions).s5 of the Children’s Status Act

(1987) applied to married coupleswho used artificial insemination toconceive a child. Any child so con-ceived would be deemed “for allpurposes” to be “the legitimate child ofthat woman and her husband.”In J & B v Director-General of Home Affairs (2003 (5) BCLR 463

(CC)) a lesbian couple used artificial insemination to conceive twins.The eggs were taken from one of the women and implanted in her part-ner’s womb. Her partner subsequently gave birth to a boy and a girl. Thecouple applied to be registered as parents of the children. There was noproblem registering the woman who gave birth to the children as theirmother but her partner could not also be registered as a parent under thelaw, as it stood.The Constitutional Court found that s5 of the 1987 Act unlawfully dis-

criminated against homosexual couples by counting married spouses butnot same-sex life partners, as the parents of children conceived by artificialinsemination. The Court struck out references to ‘married’ couples in s5and read in references to ‘same-sex life partners’ where appropriate.

The Children’s Act (2005) largely restated s5 of the 1987 Act, with afew key changes. It replaced the phrase ‘artificial insemination’ with ‘artifi-cial fertilisation.’ It removed references to husbands, wives or same-sexpartners and simply used the term ‘spouse’ instead.

So in 1987, the relevant section stated:Whenever the gamete or gametes of any person other than a married womanor her husband have been used…for the artificial insemination of thatwoman, any child born of that woman as a result of such artificial insemina-tion shall for all purposes be deemed to be the legitimate child of that womanand her husband…

After the J&B decision, the section read:Whenever the gamete or gametes of any person other than a married womanor her husband or permanent same-sex life partner have been used…forthe artificial insemination of that woman, any child born of that woman as aresult of such artificial insemination shall for all purposes be deemed to be thelegitimate child of that woman and her husband or permanent same-sexlife partner…

The 2005 Act replaced this with:Whenever the gamete or gametes of any person other than a married personor his or her spouse have been used…for the artificial fertilisation of onespouse, any child born of that spouse as a result of such artificial fertilisationmust for all purposes be regarded to be the child of those spouses…

This provision came into effect on July 1 2007.

The 2005 Act does not define the term ‘spouse.’ However, s13(2)(b)of the Civil Union Act (2006) clarifies that references to ‘spouses’ inother acts now include partners in civil unions. Though the language is slightly tidier, the 2005 Act is effectively a

restatement of the 1987 Act, as read in the light of the J&B judgement.In other words, the civil union partner of a woman who gives birth to achild following artificial insemination is regarded in law as the parent ofthat child.The Births and Deaths Registration Act (1992) provide procedures for the

registration of a birth by a child’s parents. Certain sections refer to the ‘father’and ‘mother’ of the child, for example s11(4) (which applies to ‘a person whowishes to acknowledge himself to be the father of a child born out of wedlock’).Admittedly, this might cause problems with a same-sex couple; though theyare both legally the ‘parents’ of a child conceived through artificial insemina-tion, it may be difficult to characterise a lesbian partner as a ‘father.’However, it is difficult to escape the conclusion that a failure to

acknowledge the equivalent rights of married and same-sex couples interms of registration of births would constitute unlawful discrimination, asit did in J&B. �

Dhever is an associate in the Pro Bono Department of Bell Dewar

In terms of s40 of the Children’s Act (2005), a lesbiancouple married under the Civil Union Act (2006) canboth register as the parents of a child born to either

woman as a result of artificial fertilisation. According to theAct, the child must “for all purposes be regarded to be thechild of those spouses.”

Dhever

HumanrightslawHumanrightslaw

August 2012 61

Reasonable expectation of renewal of fixed term contracts

The major benefit of fixed term contracts is that, where legitimately used,when the contractually agreed fixed term expiry date or event which hasbeen agreed up-front by the parties arrives, the contract expires. With some exceptions, the Labour Relations Act (66 of 1995), recog-

nises this as a mutually agreed termination of employment, or the termi-nation of the employee’s employment with the employer. For the purposesof the LRA, and in respect of determining the jurisdiction of the CCMAand the labour courts, this is not a dismissal; since the LRA only allowsthe Labour Courts and the CCMA jurisdiction in respect of dismissals, itis immediately apparent that a fixed term contract is an attractive mecha-nism by which to provide for the termination of employment whichwould prevent disputes in regard to unfair dismissals.

The use of fixed term contracts of employmentappeals to employers for a number of reasons,some of which are legitimate and others of which

are frowned upon by the Labour Courts and Commission forConciliation, Mediation and Arbitration (the CCMA). In par-ticular, where fixed term contracts are used by employers toavoid the consequences of full-time employment, their usemay be found to be impermissible and can attract punitiveconsequences for employers.

LabourlawLabourlaw

B R A D L E Y W O R K M A N - D A V I E S A N D V A L M O O N S A M Y

22 Fredman Drive, Sandton, JohannesburgPO Box 78333, Sandton City 2146T +27 11 286 6900F +27 11 286 6901 [email protected]

Contact us at:

www.eversheds.com www.aon.co.za

Eversheds Sports, Recreation and Entertainment Services Converged expertise for converged requirementsAt Eversheds, we specialise in providing solutions tailored to meet each client’s requirements in this complex fi eld. We are at the forefront when dealing withthe newly promulgated Safety at Sports and Recreational Events Act (SASREA),be it in respect of regulatory, administrative, commercial or litigation assistance.

We have been working hand in hand with leading insurance brokers,Aon South Africa, in providing advice to our respective clients with regards to all issues pertaining to the SASREA, including but not limited to, appropriate indemnity cover and advice in respect of civil and criminal liability which mayarise from the provisions of the SASREA.

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62 August 2012

However, being aware of the possible misuse of fixed term contracts byemployers to evade the responsibilities and consequences of permanentemployment, the LRA recognises that, in certain circumstances, the ter-mination of a fixed term contract may amount to a dismissal. As such, the LRA deems that where an employer fails to renew or

extend a fixed term contract (in other words, where the employer allowsthe fixed term contract to terminate by effluxion of time and for theemployment relationship to terminate thereby) in circumstances in whichthe employee has a legitimate expectation of renewal or extension, the ter-mination of employment is a dismissal. Flowing from this deeming provi-sion, the Labour Courts and the CCMA are entitled to exercise jurisdic-tion over disputes arising between the parties in regard to such a dismissal. The immediate question then is, in what circumstances can the employee

be said to have a legitimate expectation of renewal or extension, and howfar does this expectation extend? Can it even extend to an expectation ofpermanence? Recent case law gives some guidance in this regard.

Can an employee claim unfair dismissal on the basis of an

expectation of permanent appointment?

A dismissal is deemed to have taken place, in terms of s186(1)(b) of theLRA when –

“an employee reasonably expected the employer to renew a fixed term con-tract of employment on same or similar terms but the employer offered torenew it on less favourable terms, or did not renew it.”

In the case Owen and Others v Department of Health, KwaZulu-Natal(2009) 30 ILJ 2461 (LC), the court found that if an employer permits anemployee to continue working beyond the expiry of a fixed term contract,the contract is deemed to have been tacitly renewed on the same terms

and conditions, but for an indefi-nite period. This case indicatedthat an employee engaged on afixed term contract may even beable to claim an expectation of per-manent employment with hisemployer, despite there being noagreement between the parties inthis regard. In a later case, also decided by

the Labour Court, in 2011 (GubevuSecurity Group (Pty) Ltd v RuggieroNO & others (2011) 20 LC), theemployee was employed on a fixedterm contract for three months. Inan e-mail sent to the employee, theemployer’s financial director wished

the employee “all the best and welcome aboard. We look forward to manyyears of business together.” The employee’s fixed term contract was due toexpire on November 30 2009. However, the employee continued work-ing until December 3 2009, after which she was told that she could workuntil the end of December as a notice period but that her fixed term con-tract would not be renewed. She referred the dispute to the CCMA in terms of s186(1)(b) of the

LRA claiming that she had been unfairly dismissed. The CCMA found

in the employee’s favour on thebasis that, in the circumstances, shehad a reasonable expectation ofrenewal. However, the court inter-preted the renewal to be on thesame or similar terms as the previ-ous contract (being three months)and found that the terms of thefixed term contract could not giverise to an expectation of permanentemployment. This case clearly highlights the

difficulty that may be experiencedby employers if they do not specifythe exact date of termination of thefixed term contract as well as theconsequences of suggesting or tacitly implying renewal of a fixed termcontract. In the most recent case on this topic, the Labour Appeal Court con-

sidered whether an employee engaged on a fixed term contract can havean expectation of permanent employment. In the case of University ofPretoria v Commission for Conciliation, Mediation & Arbitration and Others[2012] 2 BLLR 164 (LAC), after serving a series of fixed term contractsfor three years, the respondent employee applied for one of several perma-nent positions which the applicant was seeking to fill. She was unsuccess-ful but was offered a further fixed term contract which she declined toaccept. The employee referred a dispute to the CCMA claiming that she had

been dismissed because she had acquired a reasonable expectation of per-manent employment and the employer had failed to offer her this posi-tion. The court stated that an expectation of permanent employment didnot fall within the ambit of s186(1)(b). The court made this finding by applying a technical and strict interpreta-

tion of the relevant provisions; it held that the critical phrase in s186(1)(b)was that the employee had to reasonably expect renewal of a “fixed termcontract” “on the same or similar terms,” and found that this therefore couldnot extend to any expectation of permanent employment.The cases of Gubevu Security Group and University of Pretoria are,

therefore, instructive in overturning the approach adopted in Owen andOthers v Department of Health. It is clear from these cases that an employeewho is employed on a fixed term contract cannot claim to have beenunfairly dismissed in terms of s186(1)(b) by claiming an expectation of apermanent employment relationship.

When is the employee’s expectation of renewal or extension

reasonable?

According to the case Price / National Health Laboratory Services [2011] 8BALR 860 (CCMA), the commissioner held that the notion of a reason-able expectation calls for an objective inquiry to determine whether thefacts proved would lead a reasonable employee to expect renewal. Factsrelevant to that inquiry include –terms of the contract; the past practice of renewals; the nature of the work;

LabourlawLabourlaw

Moonsamy

Workman-Davies

August 2012 63

the reason for fixed term; any assurances that the contract would be renewed; and failure to give reasonable notice of non-renewal of the contract.

In this case the expectation of renewal was determined to be reasonable, asthe employers Recruitment and Selection Policy provided for the annualrenewal of the fixed term contract. The actual fixed term contract was silent asto the expectation of renewal and did not specifically make provision that noexpectation is created for the contract to be extended. This case clearly impliesthat if an express provision restricting the renewal of a fixed term contract is notincluded in the fixed term contract, an employee may have a reasonable expec-tation to renewal and that non-renewal will be an unfair dismissal. The commissioner further stated that an employer must communicate

its intention not to renew the contract in advance in order to ensure that

an expectation is not created and employees should not be taken by sur-prise in learning that their services are no longer required. What wouldconstitute “in advance” has not been determined and will probably be asubjective determination according to the matter at hand. The cases reviewed in this article serve as a warning to employers to

ensure that employees are informed expressly that they do not have anexpectation of renewal of their fixed term contract. They also provideemployers with some comfort that if an employee is employed on a fixedterm contract, any reinstatement or re-employment claims for unfair dis-missal will be limited to the period of the fixed term contract, and that fixedterm employees cannot claim expectations of permanent employment. �

Workman-Davies is a director of and Moonsamy a candidate attorneywith Werksmans

LabourlawLabourlaw

Warning bells for all employers

Neethling (et al)1 provide three requirements to be met for an employer tobe vicariously liable for the delict of his employee. 1. the existence of a contract of employment; 2. a delict committed by the employee; and 3. the act of an employee must be within the course and scope of

employment.

The full bench of the Western Cape High Court confirmed inNovember 2011, in the case of Kasper v Andre Kemp Boerdery CC 2011JDR 183 (WCC),2 that a farmer can be held liable for the negligent act ofhis farm-hand despite the fact that the farm-hand acted contrary to hisdirect instructions.This case stemmed from a fire that destroyed extensive areas of moun-

tain fynbos and agricultural land and caused damage to various farm fencesand irrigation pipes in the process. The farm-hand was specifically instructedby the farmer to clear a piece of land, overgrown with weeds and unwantedplants and to transport it to a place where it would be dumped. The employeehad decided to lighten his burden by setting the gathered heaps alight. Thefire had rapidly spread across the employers land, onto adjacent land andburned for several days.One of the key issues in dispute was whether the employee acted within

the course and scope of his employment when he started the fire.

The court a quo made referenceto the case of Bezuidenhout &Another v Eskom3 which held thatwhen dealing with the test for vicar-ious liability:

"the determination of whether an actfalls within or without the scope ofemployment is a question of fact andoften one of degree. The courtwhich is seeking to achieve the bal-ance to which the remedy is directed,must have regard to all matters rele-vant to the question."

The classic formulation of theprinciple underlying vicarious liabilityarose from the case of Mkize v Martens4 where Innes CJ stated:

“a master is liable for the torts of his servant committed in the course of hisemployment, bearing in mind that an act done by a servant solely for his owninterests and purposes, and outside his authority, is not done in the course ofhis employment, even though it may have been done during his employment”.

The court in Minister of Police v Rabie5 found that the examination of thestandard test to determine whether an act of an employee falls within thecourse and scope of employment is twofold and entails both a subjective andobjective enquiry. The former has regard to the employee’s intention, and thelatter involves the liability of the employer where a sufficiently close linkbetween the employee acts for his own interest and purposes and the businessof his employer is in existence. There are many instances in our law reports where employers are held

liable for the actions of employees despite the fact that the employee acts

An employer’s liability for the wrongful act or omis-sion of an employee can be a fairly controversialone. This concept of vicarious liability is recognised

as a form of strict liability as fault on the part of the employ-er is not required.

D I L S H A A D S A M S O D I E N

Samsodien

64 August 2012

LabourlawLabourlaw

contrary to the employers express instructions. The bases for the employers’liability in such instances are summarised by Watermeyer CJ:

“(if) the servant is doing his master’s work or pursuing his masters ends, he isacting within the scope of his employment even if he disobeys his mastersinstructions as to the manner of doing the work or as to the ‘means’ – by whichthe end is to be attained…consequently, a servant can act in disobedience of hismaster’s instructions and yet render his master liable for his actions”.6

When dealing with prohibited acts by employees, a distinction must bedrawn between a prohibition which “limits the sphere of employment” and aprohibition which only deals with “conduct within the sphere of employ-ment”. Only the latter is regarded as falling within the course and scope ofthe employee’s employment.7

From this test Saldanha J, in the court a quo, found even though subjec-tively viewed, the farm-hand’s intention was to lighten his burden; from anobjective point of view the burning of plant material on a farm cannot beregarded as a deviation of the farm-hand’s employment and accordingly thefarmer was accountable for the farm-hand’s actions.

Constitutionality

The full bench of the Western Cape High Court confirmed in the Kasper casethe decision of the court a quo and found it to be in line with the Consti-tutional Court case of K v Minister of Safety and Security,8 in which O’Reaganconfirmed the constitutionality of the twofold test already discussed.9

Fairness and justice

Even if the principle that leads to the liability of an employer in such cir-cumstances appears to be settled in law, the issue remains controversial.The question that comes to mind is whether it is just in this particular

instance for an employer to have been required to foresee the possibility ofan employee acting contrary to specific instructions? While on the face ofit, it may not seem so, it should be noted that in Feldman (Pty) Ltd v MallWatermeyer CJ found that a master creates a risk of harm to others in pur-suing his own interests 1945 AD 733 – at 741.10

Consequently, according to Neethling (et al),11 the employer should beheld liable against third parties on the grounds of fairness and justice forthe creation of the risk. The authors are of the view that the creation ofrisk principle is directly related to the enquiry as to whether an employee’sact falls within the course and scope of employment and is a factor to betaken into account in determining the liability of the employer.

Mitigation of employers’ risk

The Kasper case certainly rings the warning bells for all employers to miti-gate (as far as possible) their risk of, and exposure to, liability for thewrongful acts or omissions of their employees. This can be achieved in var-ious ways, including - 1. ensuring that a written employment contract is concluded between

the employer and the employee, which a. sufficiently details and restricts the scope of employment of the

employee; and b. excludes specific conduct and activities from the scope of employ-

ment of the employee; and2. adequate monitoring systems should be put in place by employers if

possible to ensure that the conduct of employees are monitored consis-tently, so as to afford the employer an (early) opportunity to a. intervene where instructions have not been adhered to by the

employee; and/or b. mitigate the risk of liability in any other manner possible.

However, these suggestions may, in practice, be difficult toimplement at all levels of employment spanning across vari-ous sectors or industries. There is unfortunately no way anemployer can fully guard against or foresee all potentially negli-gent acts or omissions of employees in order to limit the scopeof employment specifically.

Samsodien is a candidate attorney with Werksmans. Thearticle was reviewed by Gerhard Cloete, director.

It is easy to understand why a neighbour in a case likethis would be delighted with the outcome. For theemployer, who gave specific instructions, whichwere ignored, the logic must appear a farce -

Editor

1 Neethling, Potgieter and Visser Delict (6ed) at 366.2 2011 JDR 1863 (WCC).3 2003 (3) SA 83 at 94.4 1914 AD 382 at 390.5 1986 1 SA 117 (A).6 1945 AD 733 at 774.7 Mogamat v Centre Guards CC 2004 (1) All SA 221 (C).

8 2005 (6) SA 419 (CC).9 O’ Reagan found at paragraph 32 that “the Subjective consideration of the employees state of mind

is a purely factual question”. The objective consideration is a question of law and its application doesnot offend the “spirit, purport and objects of the Bills of Rights.”

10 1945 AD 733- at 741.11 Op cit note 1 at 371.

August 2012 65

Justice

Saziso pleaded guilty to murdering her two young children and enteredinto a plea agreement. It is not known whether she was represented at thetrial. Acting Judge Guido Penzhorn was asked to ratify the terms of theagreement. The sentence was for 15 years imprisonment. However, Judge

Penzhorn requested a probation officer's report and invited a Durban sen-ior advocate experienced in criminal matters to become involved proamico. He engaged the services of an expert psychologist experienced inthe field of suicide and "extended suicide" which is a situation where a per-son kills himself or herself after having killed someone else "out of love."Twenty-six year old Saziso was a single mother living on a farm in a

rural area. She was not formally employed but occasionally did some workfor which she earned very little. Her father left the family when she wasvery young and her mother died several years before from HIV-Aids com-plications. This left her solely responsible for the wellbeing of herself, herchildren and her grandmother.Towards the end of June 2009, during school holidays, she arranged to

go with her children, aged 8 and 3 to visit the children’s father at hishouse in Umlazi. However, when they arrived he assaulted her in front of the children

and said he did not want her there. The court accepted that this was acommon pattern of their relationship. He was persuaded by an uncle tolet them stay the night. The next day he threw them out with R120 fortravel expenses, saying he never wanted to see them at his house again.The money was insufficient to get them back to the farm and after somedistance they spent the day sheltering under a bush. A journalist writingon the matter commented, "it’s a powerful image: two terrified children andtheir beaten up mother huddled together in a strange place with nowhere to go."The children asked their mother why their father had beaten her and

the older child said it would be better if they all died. They prayed andtried to comfort one another and eventually when it grew dark the chil-dren fell asleep and Saziso swallowed a cocktail of tablets she had withher. It is unknown what they were nor why she had them. In her state ofdepression and helplessness she then strangled the children while theywere asleep and lay down next to them to die.However, when she awoke up the next morning she went straight to a

police station to report what she had done.Expert evidence showed she suffered from battered woman syndrome

and post-traumatic stress and withher low intellectual functioning shecould think of no solution otherthan ending her own life and thoseof her children. She was deeplydepressed and, according to theexperts, would be likely to try andtake her life again. Their recom-mendation was that, as they foundno violent tendencies in her char-acter, she needed treatment for herdespair rather than imprisonment.Acting Judge Penzhorn accepted

that it was unlikely she would, in theovercrowded prison system, get thetreatment she needed; the case didnot call out for retribution. She had acted out of love for her children forwhom she could not provide adequate care and for whom she saw no future. While emphasising that her crime was serious, the judge said that it

had to be seen in the context of the facts. The killing was not plannedand there were substantial and compelling reasons justifying lesser sen-tence: the particular circumstances leading up to the killing of the deceasedas described in evidence; the accused's diminished responsibility in that she was in a depressedand emotional state; the fact that she did what she did out of love for her children; and she was a first offender and not prone to violence.

The judge said: "On the facts before me and in particular once it is acceptedthat the Accused, in the emotional state that she was, did what she did in thegenuinely held belief that this was the best for her children, there would be nopurpose in my view in sending her to prison. This is not a case "which is cla-mant for retribution". The Accused is not a danger to society and it is also notnecessary for that reason to remove her from the community. This is also a veryunusual situation which is highly unlikely to recur. For this reason the element ofdeterrence hardly plays a role."The judge refused to confirm the sentence agreed by her with the pros-

ecution and imposed the following:Counts 1 and 2 are taken together for purposes of sentence and the Accusedis sentenced to ten (10) years imprisonment wholly suspended for five (5)years on condition that the Accused is not convicted of a crime involving anassault and in respect of which she is sentenced to an unsuspended term ofimprisonment without the option of a fine.In terms of Section 276(l)(h) of Act 51 of 1977 the Accused is sentenced to cor-rectional supervision for a period of three (3) years on the following conditions:

This is a sad story of a very poor woman whocommitted a serious crime but was fortunateenough to appear before a remarkably sympa-

thetic judge.

LitigationLitigation

Cohen

S E L W Y N C O H E N

66 August 2012

The Accused is placed under house arrest for the full duration of the cor-rectional supervision of three (3) years as from 14 December 2010. TheCommissioner of Correctional Services ("the Commissioner") is autho-rised to reduce this period by not more than twenty five (25) percent andto reintroduce such period.The Accused is ordered to perform free community service for a period ofsixteen (16) hours for each month of the sentence. The Commissioner is authorised to reduce this period by not more thantwenty five (25) percent and to reintroduce such period.The Accused is ordered to submit herself for an assessment and attendthe specific programmes aimed at improving her identified problem areaswhich may seem necessary during the serving of the sentence, and whichshall be determined by the Commissioner.The Accused is ordered to consult with any State psychiatrist as directedby the Commissioner who would be able to provide psycho-pharmacologi-cal intervention for the Accused's depression, and any other identifiedcondition that requires to be treated.The Accused is ordered to consult with a clinical psychologist as directed by theCommissioner with a view to receiving individual psycho-therapeutic interven-tion of an intensive nature for any period recommended by that psychologist.

The Accused shall refrain from the use/abuse of alcohol and/or drugs(other than for medical purposes) for the duration of this sentence.The Accused shall notify the Commissioner forthwith in writing of anychange of residential or work address.The Accused shall report to the Correctional Office at Durban HighCourt on 14 December 2010 at 2pm.The Accused shall comply with any reasonable instructions given by theCommissioner for the compliance with this sentence.The Accused may not leave the magisterial district in which she resideswithout the permission of the Commissioner.The Commissioner is authorised to determine aspects of the place, thetimes and the duration of the conditions set out above.

This was a case of a court administering justice compassionately. Thisjudgement should not be regarded as a licence for “battered women” (oranyone else) to commit murder and get away free or with only a minorsentence. �

Cohen is a consultant to Eversheds

The judgement is unreported; copies available from [email protected]

LitigationLitigation

Look before you leap

On the May 17 2008 the plaintiff completed her first static line skydivingjump at the Witbank Skydiving Club. On landing, she was injured. Shesued the first defendant under whose auspices she underwent the skydivingtraining and her instructor, who was responsible for her de facto instructionand who also accompanied her on her first jump, as second defendant. The plaintiff’s claim was couched in delictual terms. She alleged that

at the time of the incident she was a minor. The plaintiff alleged that atall times there rested an onus on the defendants to take steps to ensurethat a minor, such as herself, would not participate in skydiving jumpswithout having obtained the necessary permission and training.

She alleged that the second defendant acquiesced to her completingan application form pertaining to skydiving instruction while knowingthat at the time she was a minor. It was also alleged that inasmuch as shedid not have the necessary permission or authority from her parent orguardian, her training and subsequent jump should not have been permit-ted by the club and its instructor. She did not allege that her training orthe jump itself was conducted in a negligent manner. In a special plea filed on behalf of the first and second defendants,

they relied on an “indemnification and consent” form with which the plain-tiff had familiarised herself. The form incorporates terminology to theeffect that the plaintiff acknowledged that parachuting is potentially haz-ardous and that by participating she put herself at risk of injury andindeed death. The form also incorporated an indemnity in favour of thetwo defendants. In their plea to the merits, the first and second defendants pleaded

that the plaintiff had represented to them that she had the consent of herguardian to participate in the first jump giving rise to the injury. Theyalso relied on the signed indemnification and consent form. In the alter-native, the defendants pleaded that the plaintiff was fully aware of therisks and dangers of participating in sky jumping activities and that shevoluntarily consented to the associated risks (volenti non fit injuria).The consent / indemnity form received the court’s scrutiny. The evi-

dence revealed that it was a printed form consisting of two parts; the first

Persons and organisations involved in holding po-tentially dangerous events and activities such asskydiving, and which may involve minors, should

take heed of a recent decision of the [.] Court in E deKock (plaintiff) v Witbank Skydiving Club (first defendant)and K Elliot (second defendant.) The court was obliged toexamine the consequences of a skydiving jump that wentwrong and where the injured person was a minor. Brieflythe facts were:

P I E R R E N A U D É

August 2012 67

LitigationLitigation

provided for the furnishing of personal details as well as the signing of theindemnity, the second provided a space for the furnishing of the consentof a minor’s parent or guardian. It also incorporated a declaration con-firming an acknowledgement that parachuting and skydiving is a poten-tially hazardous activity and, by participating, persons put themselves atrisk. It further indemnified the first defendant against claims. In respect of the first part of the form, the plaintiff inserted her details

(that is first name, surname, etc.) and signed the indemnity. The secondpart was completed by a personunrelated to the plaintiff (oneJackie Rossouw) who, however, didnot complete the portion indicatingher relationship to the plaintiff, nordid she complete the portion inwhich she should have given herpermission for the plaintiff to par-ticipate in a first jump. The evi-dence led at the trial made it clearbeyond doubt that Rossouw was notthe guardian of the plaintiff andwas merely another student at theWitbank Skydiving Club. The court was clearly impressed

with the evidence of the seconddefendant, the instructor. He had

vast experience spanning 30 years as a parachutist / instructor startingwith his career in 1977 in the British Parachute Regiment. Over manyyears he trained thousands of students and received among others, the“chief instructor of the year” award from the Parachute Association ofSouth Africa in 2004. He had nothing to do with the completion of theform. He was merely briefed for the day as instructor as he had beenmany times before. More importantly, the plaintiff did not allege or pleada claim against him based on the manner in which he completed theinstruction nor the jump itself. Based on the evidence before it, the courtthus dismissed the claim against the second defendant and focused on thecase against the first defendant. The court examined the position in regard to voluntary assumption of

risk with emphasis on minor children. It found that, both factually andobjectively, the plaintiff had not obtained assistance or consent from herparent or guardian. It was common cause that the person who signed theindemnity after the plaintiff was not the plaintiff’s legal guardian andcould not furnish the necessary assistance or authority. The court con-cluded that it was necessary for assistance to have been given in the firstinstance to enable the defendant to rely on the defence based on volun-tary assumption of risk. It held that the defendant had a legal duty to ensure that the plaintiff

received the appropriate consent and assistance from her parent orguardian. It found that this requirement assumed the character of a legalduty in the first defendant’s sphere of operations and then asked:

“Has the first defendant breached this legal duty? It is clear from the evi-dence which I have extensively referred to above, that the first defendant,although it requires consent to be given and an indemnification to be com-pleted, did so for formality’s sake only and not substantively. The fact that

the first defendant’s manifest officer even deems it appropriate to complete aform ex post facto for the sole purpose of complying with the first defendant’srequirements that forms must be completed, confirms this.”

The court continued: “He made no effort to ascertain any verification of the identity of JackieRossouw or even of her own age. He made no enquiries from JackieRossouw as to her version of her relationship to the plaintiff. His explana-tion as to what a “guardian” could be, falls far short, not only of any propercourt awarded or other form of guardianship, but even short of whetherJackie Rossouw was in any manner “in control” of the plaintiff or acting inthe stead of her parents. He blandly relied on the explanation given by theplaintiff (by then a known minor) as to whether Rossouw was her guardianor could in fact qualify as such.”

The court concluded that the first defendant was negligent of the duty aspleaded. An interesting question posed during the judgement was whether the

defendants could rely on the plaintiff’s misrepresentation applying theprinciples of estoppel (that is, whether the plaintiff could be legally pre-vented from relying on the lack of consent of her parent or guardian.The court correctly pointed out:

“This issue has attracted some debate in analogist circumstances where anunassisted minor has fraudulently misrepresented his majority and contractu-al capacity.”

Having considered case law on the matter, the court expresses the follow-ing view:

“In my view the answer lies in the following: whilst a doli capax minor (aminor with full legal appreciation of his or her conduct) (my underlining)may be held liable for committing a delict, i.e. wrongful act where he is prej-udicing another party, those acts should be distinguished from acts where theage of majority should operate to protect those minors who may unilaterallythink that they are doli capax enough to consent to the risk of injury to them-selves. I am further fortified in this view in that my reading of the wholecontent and tenor of the Children’s Act and the subsequent case law regard-ing the best interests of children, all emphasize the need for the protection of“young persons”. This protection should also be in respect of their obliga-tions and liabilities against themselves or their own conduct, if not in general,then certainly in respect of the present case and the risk of injury inherent inthe activities presented by the first defendant. I therefore find that thedefence of estoppel cannot be relied on by the defendants.”

In a further attempt to avoid liability, it was argued on behalf of thefirst defendant that there was no factual / causal connection between theinjuries sustained by the plaintiff and the conduct of the first defendant.It is convenient to quote from the judgement in this regard:

“In the present instance one need not speculate whether the injury wouldhave ensued had there been proper consent for the mere participation in thepotentially risky sport of skydiving and the potentiality of a novice minorinjuring herself is exactly what could have been prevented by insistence onlegally competent consent. There was no evidence of any attempt to get holdof the plaintiff’s mother or any other indication as to whether she would havegranted or refused her consent. As facts stood “on the day” the plaintiffwould not have gone up in the aircraft and performed a student “first jump”

Naudé

68 August 2012

LitigationLitigation

had it not been for the first defendant’s negligent breach of its duty. … Itherefore find that the injury, manifesting exactly the risk foreseen by the firstdefendant, is causally sufficiently closely related to the defendant’s breach.”

The plaintiff succeeded with her action against the first defendant,having failed to establish a liability on the part of the second defendant.The judgement is an interesting example of the need to make

enquiries regarding the legal status of a contracting party. Based on thefacts in question, the court held that there was a need on the part of a

party contracting with a minor to ascertain whether she was duly assistedin concluding a contract. Had the first defendant made the enquiry itwould have realised that it was dealing with a contracting party whosecapacity to do so was legally imperfect. Had the enquiry been conducted,the plaintiff would not have participated in the skydiving exercise andwould not have been injured. �

Naudé is a director of Norton Rose SA

ConstitutionallawConstitutionallaw

Unions must carry the can

The Constitutional Court had to consider the constitutional validity of s11(2)of the Regulation of Gatherings Act (205 of 1993) (as amended), which limitsthe defences available to an organiser or convener of a gathering in circum-stances where they are liable under the Act and innocent bystanders seek torecover damages, caused as a result of such a gathering, from them. The South African Transport and Allied Trade Workers’ Union

(SATAWU) argued that if a trade union is held responsible for damagescaused by riot activity during a protest march it would unjustifiablyinfringe upon a citizen’s right to picket, present petitions, demonstrateand assemble, peacefully and unarmed as provided for by s17 of theConstitution. It would have a ‘chilling effect’ on protest activity.This particular matter has a long history. It stems from litigation aris-

ing from a protest organised by SATAWU in the Cape Town City Bowlin May 2006. This protest action was the ‘culmination of a protracted strikeaction,’ which had turned violent. There was significant tension betweenthe various constituencies of employees, representatives, business ownerswithin the Security Industry, property owners and the City and SATAWUgave the necessary notice of the protest action and enlisted the assistanceof the local authority.

In addition, it hired 500 marshals in an attempt to curb any violence,intimidation or damage to property. Despite this, the protest resulted insignificant damage to the property of a number of stakeholders within theCity Bowl, the result of which was an application in the high court forreparations. The applicants succeeded in their claim. SATAWU appealedto the Supreme Court of Appeal (SCA) and subsequently to the Consti-tutional Court.In essence, the Constitutional Court had to consider the defence to

the liability created within s11(1), which provides that in the event ofany ‘riot damage’ being caused as a result of a gathering, any organisationunder whose auspices the gathering occurred, or any convener of suchgathering, will be jointly and severally liable as joint wrong doer with theindividuals who caused the damage. As such, an innocent party will havea right of recourse against the organiser for the damage caused withouthaving to institute a claim against the individual(s) directly responsiblefor the damage. s11(2) then provides a defence to a claim for damages asfollows:

“It shall be a defence to a claim against a person or organisation contemplat-ed in subsection (1) if such a person or organization proves -(a) that he or it did not permit or connive at the act or omission which

caused the damage in question; and(b) that the act or omission in question did not fall within the scope of the

objectives of the gathering or demonstration in question and was notreasonably foreseeable; and

(c) that he or it took all reasonable steps within his or its power to prevent theact or omission in question: Provided that proof that he or it forbade anact of the kind in question shall not by itself be regarded as sufficient proofthat he or it took all reasonable steps to prevent the act in question.”

The Constitutional Court, per Mogoeng CJ for the majority, had todetermine:

The recent Constitutional Court judgement in thematter of South African Transport and AlliedWorkers Union and another v Garvis and Others1

answers a question many South Africans have been asking:can a trade union be held liable for the damages and lossescaused by its unruly members during a march or gatheringon public land? The answer is a resounding "yes.

J A C Q U E S V A N W Y K , M I C H I E L H E Y N S A N D A N D R É V A N H E E R D E N

August 2012 69

ConstitutionallawConstitutionallaw

whether the words “and was notreasonably foreseeable” causes11(2)(b) to be internally incon-sistent and irrational, thus ren-dering the section constitution-ally invalid; and if not,whether s11(2) limits the rightto freedom of assembly and, if sowhether the limitation is justifi-able in terms of s36 of theConstitution2.

In holding that there was nointernal inconsistency within theprovisions of the Act theConstitutional Court held, inter alia:

“there is an inter-relationshipbetween the steps that are taken by anorganiser on the one hand and what isreasonably foreseeable on the other… ifthe steps taken at the time of planningof the gathering are indeed reasonableto prevent what was foreseeable, thetaking of these preventive steps wouldrender that act or omission that subse-quently caused riot damage reasonablyunforeseeable, both section 11(2)(b)and 11(2)(c) would then have beenfulfilled” .A key requirement to this is that

“the steps that the organisers arerequired to take must be within theirpower. Where steps need to be taken that are not within their power they mustensure that those who have the duty to take steps are notified of the need to doso”4.The majority then went on to find that, given the fact “compliance with

the requirements of section 11(2) significantly increases the costs of organisingprotest action”5 and that the costs may impugn the ability of smaller organ-isations to hold marches, the provision accordingly limits s17 of theConstitution. Nevertheless the court found further, having regard to s36 of the

Constitution, that such a limitation was reasonable. It found that the pur-pose of the limitation contained within s11(2) of the Act is to protect theother members of society, including “those who do not have the resources orcapability to identify and pursue the perpetrators of the riot damage for whichthey seek compensation”6.Arising out of this matter, it is imperative that all stakeholders

involved in and affected by a protest action subject to this provision are

aware of the obligations, rights and duties incumbent upon them namely:s11(1) only creates liability on the part of organisations under whoseauspices a gathering or demonstration was held; the gathering or demonstration must be found to have degeneratedinto a riot. A “riot” is a defined term under section 1; ands11(2) provides for a defence subject to the three conditions listedtherein, the most notable being that the damage was not reasonablyforeseeable and that all reasonable steps were taken to prevent dam-ages7.

This decision has application to ‘strike action’ as defined in terms of theLabour Relations Act (66 of 1995) (as amended) (the LRA). The LRA

governs damages caused by ‘gather-ings’ or ‘demonstrations.’ In terms ofs1 of the LRA the definitions ofboth ‘gatherings’ and ‘demonstra-tions’ are broad enough to encom-pass most forms of strike action. In addition, the Constitutional

Court acknowledged that the defi-nition of ‘riot damage’ containedwithin the Act is extremely wide8.However, one significant restrictionis that, in order to attract liabilityunder the Act, the action musttake place upon a public road, orany other public place or premiseswholly or partly open to the air.The organiser will still have

recourse in the event of any damages being awarded against them. TheConstitutional Court makes express reference to the applicability of theApportionment of Damages Act (34 of 1956) (as amended) in such a sce-nario. To this extent the organiser will have a claim against any otherindividual(s) who participated in the offending behaviour and caused theresultant damage. Nevertheless, this claim will only be useful in situationswhere the other parties are ‘men of substance;’ not poor, underprivilegedpersons. In addition, in circumstances where the organiser is a union it isunlikely that it will pursue its own members for the recovery of damages. In conclusion, it seems the time of impunity for lawless conduct during

protest and strike action is over. The message sent by the ConstitutionalCourt should be heeded by employees and trade unions before any strikeaction is conducted in a public space as any party (such as an innocentstreet vendor or employer of the striking or protesting employees) whosuffers damages due to the riot activity of a union’s members may be ableto hold the union liable for such damages. �

Van Wyk is a director of, Heyns an associate and Van Heerden a candidate attorney with Werksmans

1 CCT 112/11 [2012] ZACC 132 South African Transport and Allied Workers Union and another versus Garvis and Others CCT 112/11

[2012] ZACC 13 at paragraph 26.3 Ibid at paragraph 43.4 Ibid at paragraph 45.

5 Ibid at paragraph 57.6 Ibid at paragraph 67.7 As discussed above.8 Ibid at paragraph 56.

Van Wyk

Heyns

Van Heerden

AppointmentsservicescoursesAppointmentsservicescourses

70 August 2012

Adams & Adams

Promotions: Pieter Visagie has recently been promoted to senior associate inthe Patent Department. He specialises in drafting and prosecution of patent

applications, particularly in the field of chemical engineering. Hugo Prinsloo,based in the Cape Town office Trade Mark Department, has been promoted toassociate. He specialises in prosecution of trade marks. Mxolisi Nene has beenpromoted to professional assistant. His specialities lie in copyright, entertain-ment law and litigation relating to trade marks and copyright.

Cliffe Dekker Hofmeyr Appointments: Director: Izak Lessing – Finance and Banking.

Associate: Carmen Moss-Holdstock – Tax. Natasha Foster –Dispute Resolution.

Pieter Visagie Mxolisi Nene Hugo Prinsloo

August 2012 71

NationalnewsNationalnews

AppointmentsservicescoursesAppointmentsservicescourses

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Izak Lessing Natasha Foster Carmen Moss-Holdstock

Eversheds Charles Marais has

been appointedHead of RenewableEnergy. His main areasof activity are thefinance, mining, con-struction and powersectors. Ashleigh Graham, a candidate attorney at Eversheds, received theJohannesburg Society of Advocates prize at the annual Wits School of LawPrize Giving Ceremony on May 24 2012. This prize is awarded annually tothe most distinguished graduand in the degree of Bachelor of Laws.

Charles Marais Ashleigh Graham

Carmel Rickard –My column on page 6 of the July edition ofwithout prejudice suggested that former Judge President Vuka

Tshabalala, now retired, had died. This is not in fact so and I regretthe error. Contacted at home to explain the mistake, Judge Tshabalalalaughed and said not only was he not dead, he was still very busy withjudicial work. He has a contract with the Department of CorrectionalServices to oversee a team involved in prison inspections to ensurethat conditions comply with the Constitution: he co-ordinates officialprison inspections and reports on the outcome of these visits to parlia-ment’s portfolio committee and other official bodies.The error is sincerely regretted.

72 August 2012

NationalnewsNationalnews

Edward Nathan Sonnenbergs New appointments: Tax Department: Johannesburg: Susan Ho has been

appointed tax manager. She specialises in corporate tax and VAT. Banking & Finance Department: Associates – Johannesburg: Owen

Mokoena specialises in financial markets and cross border financing.Mzimkhulu Ceko specialises in debt capital markets and securitisations.

Competition Department: Johannesburg: Candice Morgan has been appointedan associate. She specialises in statutory merger notifications, preparation ofmerger filings and acting in complaint proceedings, including cartel and abuseof dominance cases.

Corporate & Commercial Department: Associates – Johannesburg: StimelaMokoena specialises in mergers and acquisitions, corporate governance andcommercial contracts, as well as regulatory matters. Luyanda Mbonambi spe-cialises in companies act law; shareholders agreements; sale of shares; loanfacilities and lease agreements. Cape Town: Nadia Noor was appointed asenior associate. She specialises in M&A, BEE transactions, corporate re-organisations / restructures and advising on regulatory compliance issues per-taining to M&A transactions and general corporate commercial law.Associates: Dave Luckett specialises in M&A law, including the drafting ofsale of business, sale of shares, shareholders’ and other related general com-mercial agreements. George Langendorf specialises in company law and cor-porate governance. ENS partnered with the Constitutional Court Clerks Alumni Association

(CCCAA) to champion a Programme to raise awareness about the SouthAfrican Constitution –The CCCAA targeted Alexandra as one of the manycommunities that could benefit from a project of this nature. The Programmeran over a period of five months and covered a broad range of topics ‘It includedboth practical and theoreticaltraining to empower leaders inthe community to inspirechange. It brings the constitu-tion to the people by allowingkey role players to learn andunderstand their rights andduties. “ ...democracy is notabout entitlement, it is about gov-ernment providing the context inwhich citizens can do for them-selves.,” said Kim RobinsonCCCAA representative andone of the facilitators of theConstitutional Law andHuman Rights Programme. Atthe end of the five months, 14of the original 21 communityleaders who were hand selectedto participate, completed therigorous course and wereacknowledged at a GraduationCeremony in Alexandra. ENSand CCCAA hope tocontinue with this pro-

Susan Ho Mzimkhulu Ceko Owen Mokoena

Candice Morgan Luyanda Mbonambi Stimela Mokoena

Nadia Noor George Langendorf Dave Luckett

Graduation ceremony in Alexandra

August 2012 73

LifestylegadgetsLifestylegadgets

The day Google took a bite out of the Apple

The Samsung Galaxy

Nexus

Google teamed up withSamsung to produce theGalaxy Nexus, operated byAndroid 4 and Android4.1. The phone has a bril-liantly crisp SuperAMOLED capacitivetouchscreen, a 1 Ghz dualcore processor and32GB/64GB of storage(depending on model)with 1GB of RAM. But, ifyou like to spend a littlemore and you are lookingfor more power, look no further than the Galaxy SIII. It is everything theNexus is, everything the Galaxy SII would like to be and more.http://www.google.com/nexus/#/galaxy/specs

The Samsung Galaxy SIII

Aesthetically, the Samsung Galaxy SIII is not dissimilar to the GalaxyNexus, occupying nearly the same dimensions and weighing only 2g

more. This phone isthe embodiment ofsmartphone excellence.Packing a 1Ghz quadcore processor and arobust and classydesign, it puts the cur-rent Galaxy SII toshame and does notlook bad at all whenjuxtaposed against an iPhone 4S – looking rather classy in its glossy peb-ble design with metallic finish. The phone allows for up to 64GB of addi-tional external storage via an expandable microSD slot and another50GB of cloud storage (online) -- making sure you don't run out of stor-age space any time soon.http://www.samsung.com/global/galaxys3/

Asus Google Nexus 7 Pad

The Nexus 7 is probably the closest Google has come to unsettlingthe iPad's reign. It certainly isn't an iPad killer, but it is very nicelypriced at (around $200 to $250) – providing excellent value formoney. Although not nearly as exciting as Apple's retina display,the 7-inch has a beautiful1280×800 IPS touch-screen. The Nexus 7 padfeatures the latestAndroid 4.1 Jelly Beanand is exceptionallyresponsive. Thedevice is also highlycustomisable, allow-ing you to changethe look and feel ofyour home screen.

Voice search allows you to talk toyour pad to perform queriesrather than typing them. Thedevice comes in 8GB and 16GBversions and is probably the bestAndroid tablet to date.http://www.google.com/nexus/#/7

D E W A L D T V A N W Y K

Almost overnight, Google became a successful pro-ducer of high-end consumer electronics. Sure,they have been producing one of the most suc-

cessful smartphone operating systems – Android, butAndroid-based phones lacked that cleverly integrated feel-ing that one experiences when working on Apple products;after all it does make perfect sense for the software vendorto have a say in the hardware development process – anholistic approach ensures for an overall good product. MikeIsaac, writing for Wired Magazine, claims that "finally,Android has a soul." I'd rather not summon the incorporeal,but I would go as far as to say that the Nexus range has acertain je ne sais quoi.

74 August 2012

Google Nexus Q

The Nexus Q is advertised byGoogle as "the World's first socialstreaming media player" and con-nects to your TV and sound sys-tem. What exactly is a socialstreaming media player?According to Google: "Whyshouldn’t everyone at the party beable to add their own music, moviesand videos to the mix and choose what’s playing? All your guests need is an Androidphone or tablet and a connection to your Wi-Fi network. Prefer your own taste inmusic? Just turn off guest mode in your Nexus Q settings and it’s all you."As longas you are happy to play all your movies and music off the Google's Play storeor Google cloud service and happen to have an Android tablet or phone tocontrol the device, this device might work you – but don't expect it to workwith your Windows phone or play MP3's off your home network, and don'teven think of using it for Netflix or iTunes. A brilliant design stifled by a ter-rible business model. At $300 you are better off buying a generic media playerfor R500 provided you can live without the Q’s superb audio quality.http://www.google.com/nexus/#/q

Apple TV

The Apple TV is a much better proposition at $99, allowing you toplay live TV shows, movies, content from Netflix, all your iTunescontent, YouTube, and a couple of Americansports channels. But then again, whowatches baseball or American football inSouth Africa? Nevertheless, a great gadgetwith a few minor irks that you can,unofficially, get to work in SouthAfrica.http://www.apple.com/appletv/

Set-top boxes will die

In the future, devices like the Nexus Q and Apple TV are likely tobecome obsolete as TVs become more intelligent, taking overthe function of set-top boxes. The latest Samsung TVs alreadyplay music and videos off a network and can also surf theInternet.

Macbook Pro with Retina Display

(15.4-inch version)

Have you ever noticed how your WindowsPC, for no apparent reason, after some timejust becomes slow and trying to shut it downcan take up to three minutes or longer? This isnot the case with Macbooks. My very ownMacbook Pro has been running trouble-free forover two years and it still shuts down in threeseconds. If you like your current Macbook, youmight be left in awe by the latest Macbook Prowith Retina Display. The retina display houses

2880×1800 pixels -- four times asmany pixels as the previousMacbook Pro and it has 75% lessglare. However, you'll only benefitfrom a 2560×1600 resolution due toa graphics card limitation – but thatis still a beautiful configuration. It ispowered by a 2.3GHz quad-coreIntel i7 processor and 8GB of RAM,which you can upgrade to 16GB.

Sadly, Applehave decided todo away with anoptical drive,which means

you cannot playDVDs or Blu-Ray discs on the newMacbook Pro. Cloud computing is thefuture, according to Apple, but when lastdid it try to access full HD movies from

South Africa? Furthermore, the device is not upgradeable or

easily repairable as lots of the components are glued tothe inside of the case. Oh, and this battery-hun-

gry monster will give you only seven hours ofbattery life – three hours less than the 2010version. Unless you are a graphics connois-seur, keep your current Mac for now.http://www.apple.com/macbook-pro/features/ �

Van Wyk is an analyst programmerat Pathcare (Dietrich, Voigt, Mia &Partners)

LifestylegadgetsLifestylegadgets

Van Wyk

Did you know?IPS (In-Plane Switching

technology) panels display

consistent and accurate colour

from all viewing angles while

other panels may only display

partial true colour. Nor do IPS

panels lighten or show tailing

when touched, making them

ideal for touchscreens.

Did you know?A set-top box (STB) or set-top

unit (STU) is a device that

connects to a television and an

external source of signal,

turning the signal into content,

which is then displayed on the

television screen or other

display device.

August 2012 75

LifestyleLifestyle

the view from down underTwo answers for every problem

All this adds weight to John Key’s views on political leadership. Like Australia’s Labor Party, the National Party holds office courtesy of

a coalition of minority parties. There the similarity ends.Lacking the benefit of a substantial mining industry, New Zealand did

it tough through the global financial crisis but the economic growth ratehas been edging higher since early 2010 (assisted in late 2012 by a boostfrom the Rugby World Cup) and the unemployment rate, currently 6.7%,has been trending slowly down.Mr Keys’ purpose in visiting Australia was to interest Australian busi-

nesses in a move to New Zealand. So he held discussions with leadingpublic company CEOs and business organisations. In New Zealand, company and personal tax rates are lower than in

Australia. Unlike Australia, in New Zealand successful business people donot live under permanent threat of a hostile media spray from Her Majesty’sMinisters of the Crown in search of a hit on the evening news, and subse-quent scorn and ridicule from the publicly funded broadcasting authority. While in Australia Mr Key took time out to deliver an address to the

Menzies Centre, a Liberal Party think-tank, in Melbourne.An impressive performance, the speech is worth quoting in some

detail.According to Mr Key:You don’t start with a blank sheet of paper; you start with the

country as it is.And by making a series of sensible decisions, which build

on each other and which are signalled well in advance, andby taking most people with you as you go, you caneffect real and durable change, which won’t simplybe reversed by the next lot who come intogovernment.

Over time, a series of moderate changes can add up to a considerable programme.In fact – as I am at pains to point out most days in Parliament – jobs are

only created when business owners have the confidence to invest their ownmoney to expand what they are doing or to start something new.

Giving businesses that confidence is the most important thing theGovernment can do to ensure people have jobs, and that those jobs are sustain-able and well-paid.

Sometimes voters have been thoroughly surprised by the government theyelected.

Those governments have never worked out very well.So one of the things my Government has tried very hard to do over the past

three-and-a-half years is to be predictable, consistent and upfront with voters.Political leaders in South Africa and Australia, take note. It sounds

simple enough – probably more difficult to execute in practice, though.The full address is available on the Internet. I’ll tell you something else: I think Mr Key actually wrote the speech

himself. That sets him in a class apart from most modern politicians whocontract out their thinking to young staffers. Do you remember a scene in the BBC television series “Yes Minister”

when the Permanent Secretary, Sir Humphrey Appleby, consults his men-tor and predecessor, Arnold, about his new Minister’s worrisomely ambi-tious plans for the future? Arnold responds:‘A Minister with two ideas – I can’t recall we ever had one of those.”Mr Key evidently has several ideas. It seems he has thought about

leadership and how to implement change – not for the duration of thecurrent parliament but as a permanent shift of policy. In the Menzies Centre audience to hear John Key’s address was

Opposition leader, Mr Tony Abbott. Rhodes Scholar, pre-dawn cyclist,surfer, ex-journalist and author, Mr Abbott has much to learn from Mr

Key. For a man who aspires to lead aFederation, Abbott’s views onFederalism are curiously unstruc-tured; his lack of interest in eco-nomics a matter of publicrecord. None of this would mat-

ter if Mr Abbott had a strong team aroundhim. Ungraciously, Mr Keys reminded his Australian

audience that under his watch as New Zealand’sPrime Minister the relevant score-line is 9-2 in favour of

D A V I D R E E S

New Zealand’s Prime Minister, Mr John Key, hasbeen visiting Australia. Mr Key leads the NationalParty, which commands 59 seats in the 121-

member House of Representatives. New Zealand’s parlia-ment is unicameral, and the process for electing membersof parliament is complex, part constituency and part pro-portional representation, almost guaranteed, it seems, toproduce minority governments.

76 August 2012

LifestyleLifestyle

the All Blacks. To continue the rugby analogy, the Liberal Party inCanberra has a three-quarter line with penetration, but their ageing for-wards leave these mobile players starved of the ball. Another British flash-back. In the early 1990s Mrs Thatcher visited

Australia at a time when the Liberal Party seemed to be condemned topermanent irrelevance. She advised the Liberal Party leader, JohnHoward, and his colleagues:

First, decide what you believe in.Mr. Howard wrestled with, but never quite answered, that question.

Mr Key, it seems, has more than two answers. �

Rees is without prejudice’s regular Australian columnist. Am émigré SouthAfrican, he has lived in Australia sinc e1986. An economist of note, Reesis fond of looking at his adopted country through unsentimental binoculars.

LifestylemotoringLifestylemotoring

So what’s the bottom line?The economy was recently bolstered by a Reserve Bank announcement ofan interest rate drop of 0,5%. This should encourage sales and stimulatethe beleaguered Motor Industry, shouldn’t it? Well, it would if all theother factors went away. Let’s have a look at what it costs to keep a fewpopular cars on the road.

Entry Level

Imagine, if you would, that you are a bright eyed youngster who hasrecently graduated from university and are about to start your first job.Your R12 000 salary sounds like a fortune and you can’t wait to indulgeyour every fantasy. After deductions like PAYE, Medical Aid, Pension etc,your actual cheque is only around R8 800 but it is way more than any ofyour mates because you are a top earner and in the top 10% of your agebracket.You grab a newspaper and start looking for a car. A real car, not the

old hand-me-down that your Dad has passed down to all and sundry overthe years. Something sporty and snazzy, which will show that you are suc-cessful and earning the big bucks. A quick chat with Dad and a few uncles will tell you that fuel for a

30km round trip per day (national average) for five days, a few nightlyexcursions and at least one weekend trip somewhere fun, will set youback about one tank of fuel a week. That’s not bad, you say? But do themath. At over R10.61 per litre this will set you back approximatelyR600 per week which is roughly R2 600.00 per month. Ouch!Being under 25 is a huge asset on the squash court but in insurance

terms, not so good. An entry level car in the region of R200 000 will setyou back over R1 400 Add that to your fuel bill, it’s nearly R4 000, andyou haven’t even bought a car yet.Have no fear, your Dad has a good name at the bank and will get you

a great deal. What would you like? Well, a Golf GTI will cost R7 000 permonth. Hmmm, might be too sporty. A Golf 1,6 TDI is only R5 600

V A U G H N W I L L I A M S

The motor industry is desperately trying to recoverfrom a massive global slump which has seen thedemise of big names, the shift in power base of

others and the emergence of less expensive but qualitychallenged newbies.

(did I say only?). Ok, let’s go down a notch the cheapest new Golf (a 1,6Trendline) is a hefty R4 760. Added to the fuel and insurance costs, wellyou had better not use any toll roads, have a girlfriend or need to eat ordrink because, simply put, you can’t afford to.This isn’t just Volkswagen’s fault either, A Toyota Corolla 1,3 has HP

pricing of R 4 000, a Yaris 1,3 is R 4 000 (and ugly) even the HyundaiGetz 1,4 is just under R4 000, so much for sporty and snazzy.What chance do our kids have?

Luxury Cars

Taking a scroll through the prices and HP amounts of luxury cars is reallyan eye opener. We all know that by the time you are driving a luxury caryou are fairly well established and can afford a massive deposit. Can you?

Well, if you can’t, have a look at these monthly instalments;BMW 535i R15 941BMW 740i R20 032AUDI A6 3,0 FSI R13 745

AUDI A8 4,2 TDI R23 535MERCEDES E 350 R14 087MERCEDES S 500 R29 150

Remember that the car instalment may not exceed 20% of yourincome after deductions, so who is buying these cars (other than govern-ment officials)?

Finally, just for fun, let’s browse some exotics and their monthly HP payments;BENTLEY MULSANNE R120 662 (yep, per month)MERCEDES S 600L GUARD R135 839AUDI R8 V10 SPYDER R45 519LAMBORGHINI AVENTADOR R119 613

In a nutshell, for the average instalment of an Audi R8 plus insuranceand fuel you could purchase an awful looking Geely LC 1,3 every quarter.The industry has gone completely mad! �

Williams is without prejudice’s motoring correspondent

78 August 2012

LifestylewineLifestylewine

aftertasteThree glasses and he’s sold

The Cape Winemakers Guild Protégé Programme, a first for the SouthAfrican wine industry, was launched in 2006 with the goal of bringingabout transformation in the wine industry by giving viticulture andoenology graduates the opportunity to work alongside Guild members.To date eight protégés, including Howard Booysen – producer of one of the best local Rieslings I've ever tasted, have participated in the programme. Five of the founding members, Kevin Arnold (Waterford), Jan Boland

Coetzee (Vriesenhof), Etienne le Riche (le Riche), Peter Finlayson(Bouchard Finlayson) and Braam van Velden (Overgaauw) remain activemembers of the Guild. The wines made by these great winemakers are someof the best the country has to offer.

Jan boland Coetzee –

Vriesenhof Chardonnay

2011

This wine has a fresh, tropi-cal fruit aroma that developsinto a butterscotch nose as itwarms in the glass (not thatthere is any reason to wastetime by letting this winewarm up in the glass, itshould be drunk). The greenapple with hints of honeytaste of the wine is compli-mented by a prominentminerality that makes thiswine a pleasure to drink.

Jan boland Coetzee – Vriesenhof Pinot

Noir 2010

This Pinot Noir is rather full bodied with strongnotes of sour cherry and a palate with earthycharacteristics such as mushrooms and spice.This is a complex wine that needs a great mealto do it justice.

Kevin Arnold – Waterford Kevin Arnold

Shiraz 2007

This is a fine example of a fruity (although notfruit bomb like) Shiraz made by one of SouthAfrica's best wine makers. This Shiraz (with10% Mourvèdre) has an initial inky aroma, com-plimented by spice and earthy characteristics anda smooth mouth-feel. One of my fellow, lesssophisticated, wine tasters (drinkers) picked uphints of bacon but this could have been the bil-tong he was eating while tasting.

Peter Finlayson - bouchard Finlayson

Missionvale Chardonnay 2010

This is an amazing Chardonnay, probably one of South Africa's best. It is aperfect blend of vanilla and lime; is soft and creamy and complex and deli-cate. I tasted three glasses of this wine as an appreciation of its greatness.

Peter Finlayson - bouchard

Finlayson Galpin Peak Pinot

Noir 2010

The Galpin Peak Pinot Noir isunequivocal proof that theHemel & Aarde valley nearHermanus is South Africa's topwinemaking area for Pinot Noir.This is a big wine, everythingand more than one wouldexpect in a bottle of top classPinot Noir. The berry aroma ofthe wine is complemented by asilky smooth velvet palate equalonly to the best things in life.

E B E N V A N W Y K

The Cape Winemakers Guild, an association ofsome of South Africa's finest winemakers, repre-senting the pinnacle of South African wine

achievement, celebrates its 30th anniversary this year.Guild members have played a significant role in thedevelopment of the South African wine industry – fromwine making techniques and innovation to its protégéprogramme.

August 2012 79

LifestylewineLifestylewine

braam van Velden – Overgaauw Tria Corda 2009

The Tria Corda is a Bordeaux style blend of Cabernet Sauvignon, Merlotand Cabernet Franc with aromas of graphite, leather and capsicum followed

by a soft, well balancedpalate. This wine is consum-able with the utmost of ease.

Etienne le Riche -

Le Riche Cabernet

Sauvignon Reserve

2009

Etienne le Riche is one ofSouth Africa's best CabernetSauvignon producers. This isa fresh, fruity, well balancedCabernet with hints of cassisand black berry and a slightminty character. It is remark-ably soft and one of the fewCabernets that can beenjoyed without the need tofind any food to complimentit. �

Van Wyk is a director of Cliffe Dekker Hofmeyr. He finds wine more inter-esting than law.

Yes, he does – and I now know why he writes these columns – hewants to be an honorary member of the Winemakers’ Guild. Thinkwhat that will do for his consumption! – Publisher

Experience exceptional wines with a creative edge and

great diversity of styles at the Nedbank Cape

Winemakers Guild Auction showcase in Cape Town on

Thursday 23 August

(at the CTICC) and Johannesburg on Thursday 30

August (at the Atrium, Nedbank) when members of the

Guild present the wines that will go under the hammer

at this year's Nedbank Cape Winemakers Guild Auction.

Bookings via www.webtickets.co.za

80 August 2012

IN ASSOCIATION WITHDealactivityDealactivity

DebtconM I C H A E L A V E R Y

With the sale of both its debtors’ books to Absa for R10bn in June,Edcon has played one of its last remaining cards (if you’ll excusethe pun) in the hope to finally conquer its debt bogey.

It’s a company that has attracted significant attention since its delisting andsale to US-based private equity company Bain Capital for R25bn, a record for-eign direct investment into Southern Africa at the time. It is still the largestever private equity buyout of a South African company. However, some harsh critics have implied that this is where the bouquets end

for the landmark deal. For, timed as it was, just moments before the great finan-cial crisis of 2008, it was always going to be difficult to show a positive return.And in hindsight, raising debt on foreign boards did prove a costly decision. Speaking to Nedcor Securities retail analyst Syd Vianello, what emerges is a

picture of a company that is confronted by some staggeringly complex challenges. The private equity buyout in 2007 was largely financed via bonds listed in

Europe (on the Irish exchange to be precise) because such capital raising wasmouth-wateringly attractive at the time. It formed part of what Bain termed a“patient” capital structure from a private equity perspective. Patient, meaningthat Edcon could service the interest on the borrowings over time and repay theprincipal at a later stage in bullet form. As the market crashed, however, Edcon’s balance sheet started to groan

under the increasing weight of the unhedged portion of its debt pile, due in nosmall measure to the rand’s slide against the Euro.Over the last five years, Edcon has undergone a complex string of refinanc-

ing, hedging, derivatives and securitisation of its accounts receivable (calledOntheCards Investments or OtC) programmes in order to meet its obligationsto its short-term noteholders, and to gain access to working capital to furthergrow the business. The net result of this is that at the end of March 2012 its total net debt,

including cash and derivatives (excluding OtC Receivables-Backed Notes), wassitting at a staggering R22,5bn. This consists of the carrying value of FloatingRate Notes of R16,3bn; the carrying value of Fixed Rate Notes of R5bn; bor-rowings under the revolving credit facility of R751m; finance lease liability ofR329m; net derivatives of R388m; less cash and cash equivalents of R265m. Inaddition, OtC’s net debt of R3,5bn consisted of Receivables-Backed Notesissued of R4,3bn, less cash and cash equivalents of R818m.Much of the funds raised in the deal with Absa will assist Edcon in repaying

a portion of the debt it incurred from the Bain buyout. Vianello reckons of the R10bn that was raised, R3,5bn will go towards set-

tling the obligations to its noteholders under the OtC programme, which leavesEdcon with roughly R6,5bn. R1bn of this will be used to refurbish stores, whichhave been neglected for a few years. The remaining capital will be held as secu-rity for the upcoming bond repayment in 2014, R11,2bn of Senior SecuredFloating Rate Notes (net of derivatives).

This leaves Edcon about R4,5bn short and either more money will have tobe found from somewhere or new terms will have to be negotiated with somebondholders to restructure the remaining portion. And what about the other two bonds, coming due in 2015 and 2018 respec-

tively? Money will have to be found. If the clever lads at Bain can’t find any, just to compound matters even fur-

ther, there’s a question over who is first in line if it gets to the renegotiationstage. It’s reasonable to conclude that the 2018 bondholders, being the mostrecent bondholders, would have negotiated terms commensurate with the riskof being the “bailout” funders so to speak. If they do manage to refinance, it willbe on extremely onerous terms for Edcon. Maybe a listing would be a viable solution, as the market has rumoured? Vianello points out that if Edcon were to list now it would be on an

extremely unfavourable price earnings multiple. The company hasn’t outper-formed its peers as a private entity (something PE managers are proud to trum-pet as the most important elements of taking a company private) and willreturn R100 for every R100 invested by Bain, a net loss factoring in inflation. And then there’s the management curiosity. The CEO, a Canadian with

experience in drug retailing, Jürgen Schreiber, has been in the job for a year.And two key members of the executive have been replaced in mysterious cir-cumstances in the past six months. First to go was Hugues Witvoet, the chiefexecutive of Edgars Department Stores, followed closely by Stephen Binnie whoresigned as the Group’s Chief Financial Officer. Mark Bower, an Edcon employee for 21 years, has taken over as ‘Deputy

Chief Executive and Chief Financial Officer’, while Schreiber will manageEdgars and Edcon. Meanwhile, Norton Rose director and adviser to Absa, Loris Rech, said the

deal required the full extent of the firm’s expertise to structure due to the com-plexity of the contrasting business models.

“The negotiation and drafting of the transaction agreements required a high levelof corporate and commercial legal expertise across various areas of law,” explainsRech, “including the National Credit Act, labour, intellectual property, tax, securiti-zation, bond structures, Financial Intelligence Centre Act, insurance and serviceagreements. The transaction required the structuring of a complex legal frameworkin order to ensure that the respective parties' at times divergent business modelsremained intact whilst being mindful of the practical and commercial exigencies nec-essary for the success of the long term strategic relationship on which the parties haveembarked.”A small flicker of light for Edcon arrived in July with the announcement

that retail sales data is suggesting an increasingly confident mood among con-sumers. Retailers registered good growth at 6,4% year-on-year in May, beatingeconomists’ expectations of a 5,2% rise. But, on balance, Edcon’s hand is loadedwith more jokers than bondholders would care to stomach. �

Absa Bank

Edcon

Richtrau (Mvelaphanda)

Avusa minorities

FNB Namibia (FirstRand)

Metropolitan Life Namibia(MMI)

Investec Property Fund

Basil Read

Sishen Iron Ore CompanyCommunity Development TrustInvestments

Absa announced that Absa Bank, a wholly-owned subsidiary of Absa Group, has entered intoan agreement with Edcon to acquire the accounts and receivables relating to the private labelstore cards of Edcon in South Africa (the "Card Portfolio"). Absa Bank and Edcon have furtheragreed to enter into a long-term, strategic relationship under which Absa Bank will provideretail credit to Edcon customers and Edcon will be responsible for all customer facing activities.Absa Bank will acquire the Card Portfolio for a cash consideration equal to the net book valueof the Card Portfolio receivables at the effective date of the acquisition. Absa Bank and Edconexpect the purchase price of the Card Portfolio to be approximately R10bn. The transaction isexpected to close during the second half of 2012. In terms of the Program, Absa Bank willhave responsibility for credit, management of fraud, risk, finance, legal and compliance opera-tions of the store card business, while Edcon will retain all customer-facing activities, includingsales and marketing, customer services and collections. This should ensure a simple and seam-less customer experience. Edcon and Absa will balance continued growth of the credit bookwith appropriate credit quality.

The independent board of directors of Avusa has received communication of a firm intention tomake an offer from Mvela Group, through its wholly-owned subsidiary Richtrau, to acquire theentire issued and to be issued ordinary share capital of Avusa that it doesn’t already own. Ifimplemented, the offer will result in. Richtrau is acting as principal in relation to the offer and isnot acting in concert with any other party. Avusa, Richtrau and Mvela Group entered into animplementation agreement on 11 June 2012 in relation to the offer, which contains the provi-sions relating to the implementation of the offer and certain undertakings from Avusa. Richtrauproposes that the Avusa Board implement the Offer with its shareholders other than Richtrau byway of a scheme of arrangement in terms of section 114 of the Companies Act, of 2008 asamended and by way of a comparable offer by Richtrau to holders of options to acquire Avusashares in terms of the Avusa Share Appreciation Scheme, the Avusa Long Term IncentiveScheme, the Avusa Deferred Bonus Plan and to the holders of the options rolled-over from theElementOne share scheme. Mvela Group intends, upon implementation of the Scheme, to listRichtrau on the JSE and to thereafter unbundle all its shares in Richtrau to its shareholders.

FNB Namibia and Metropolitan Life Namibia Limited, a subsidiary of MMI Holdings, have enteredinto a binding sale of shares agreement in terms of which FNB Namibia will dispose of its 51%shareholding in Momentum Life Assurance Namibia Limited, to Metropolitan Life Namibia. The pur-chase price payable by Metropolitan Life Namibia to FNB Namibia in terms of the Agreement isN$371 003 319 of which N$28 600 000 will remain outstanding as a vendor loan, which willbe settled out of certain specifically determined proceeds of the banc- assurance business conductedby Momentum Life Namibia. The purchase price will be funded through Metropolitan International,a wholly-owned subsidiary of MMI Holdings, subscribing for 8 073 818 shares in Metropolitan LifeNamibia for a total subscription consideration of N$350 000 000.

Investec Property Fund has entered into an agreement to acquire the Nonquebela Mall Linkproperty in Khayelitsha, Western Cape, from Bakoro Capital Partners for R100,5m. ThePurchase Consideration will be debt funded. The Proposed Transaction is consistent with theFund’s objective to build a quality portfolio of properties with strong contractual cash flows toenhance its retail component in order to achieve value enhancement and sustainable distribu-tions to unitholders.

Basil Read announced that it has concluded a subscription agreement dated 27 June 2012 withSIOC CDT Investments Holdings (SIOC). SIOC is the investment vehicle for the Sishen Iron OreCompany Community Development Trust. In terms of the Subscription Agreement, SIOC will sub-scribe for 7 883 243 ordinary shares and 33 607 507 "A" Ordinary Shares in Basil Read. TheTransaction will result in SIOC holding an effective 25,1% in Basil Read on the effective date. Thetotal value of the BBBEE Transaction is R521,1m, of which R99,3m will be paid by SIOC in cashand R421,8m will be in the form of vendor funding by way of a notional loan. Post the implemen-tation of the BBBEE Transaction, it is expected that Basil Read will have approximately 36% BBBEEequity ownership (11% of which is not subject to any lock-in provisions), as determined in accor-dance with the Department of Trade and Industry's BBBEE Codes of Good Practice.

Norton Rose

Werksmans

Webber Wentzel

Werksmans

Webber Wentzel

Fluxmans

Werksmans

Ramsay Webber

Schindlers

Kevin CronLoris RechRiccardo PetersenZano NduliJoe MothibiPatrick Bracher Dale CridlinMarelise van der Westhuizen Pierre SwartMike Hart Ismail Laher Brian WimpeyMilton OsbornStephen Kennedy-Good George KahleAlan BainbridgeAkshay Dosaj

Keviin TrudgeonPaul CoetzerAhmore Burger-SmidtStephan LochnerJannie de VilliersJabulile Ndweni

Peter BradshawChristo Els

Gerhard Johannes

Johannes GouwsJohan HenningNkonzo HlatswayoAnne BennetBrian DennehyHendre Human

Michael Bloom

Elliott Wood

Andre PienaarKeane Robertson

R10bn

R2,35bn

R350m

R100,5m

R521,1m

June 06, 2012

June 12, 2012

June 21, 2012

June 21, 2012

June 28, 2012

Mergers & Acquisitions and General Corporate Finance* Legal Advisers Estimated AnnouncementParties Deal Description Firm(s) Lawyer(s) Deal Value Date

* This is a random selection and is not intended to be comprehensive

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