Business Day Law & Tax (September 2023)

BUSINESS LAW &TAX

SEPTEMBER 2023 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Yardstick for accountability in Namibia’s green economy

THE COLOUR OF THE FUTURE

Put citizens and civil society at the heart of just •renewable energy and green hydrogen finance Wayne Rukero ENSafrica

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xperts estimate that, globally, $100bn of climate finance is being lost every year through a lack of accountability, transparency and participation.

As such, there is growing public demand for access to information relating to the Namibian government and its role in just renewable energy and green hydrogen projects.

It is also vital for development finance institutions, institutional investors, governments and developers to pull together and upscale conversations around green accountability.

Global spending on climate change is nearing $2.4-

trillion annually and so high standards of accountability and transparency are essential to avoid corruption and mismanagement and to ramp up the just renewable energy and green hydrogen industry.

In addition, to optimise the benefit of investments into the green economy, transparency, equity and inclusion must be at the heart of renewable energy and green hydrogen finance decisionmaking.

THE BASIS FOR A MORE COHERENT GREEN ACCOUNTABILITY FRAMEWORK EXISTS IN THE PARIS AGREEMENT

CONCEPTUALISING GREEN ACCOUNTABILITY Green accountability is an approach that creates systemic ways for people to have a voice and role in decisions related to just renewable energy and green hydrogen that most affect their lives.

It places citizens and civil society at the heart of just renewable energy and green hydrogen finance to direct funding, implement solutions and hold decision-makers accountable for effective and equitable finance and action.

It is a process through which communities on the front lines of the climate crisis can co-create and oversee climate prevention, mitigation and adaptation efforts; reduce corruption in climaterelated programming; and ensure greater inclusion and

/123RF — DJVSTOCK equity within their societies.

The basis for a more coherent green accountability framework exists in the Paris Agreement. It enshrines the principles of country ownership, transparency and public participation and recognises the rights of indigenous peoples, local communities and vulnerable groups, as well as gender equality.

Article 13 of the agreement establishes an enhanced transparency framework to build trust among parties and promote effective implementation, providing the ability to track progress towards climate goals.

However, this does not go far enough in terms of putting in place broad, global standards for accountability, monitoring the transparency of climate finance or ensuring meaningful participation of communities in this process.

CREATING SYSTEMS FOR ACCOUNTABLE GREEN FINANCE Ideally, financing of just renewable energy and green hydrogen projects should not only succeed in reducing carbon emissions. It ought also to address inequality and exclusion.

By adopting a joint approach that considers both

the supply and demand side of governance, carbon emissions may be reduced, resilience ignited and a way paved for more inclusive and sustainable growth.

Civil society could play a crucial role in co-creating systems for accountable just renewable energy and green hydrogen finance.

A participatory and transparent architecture for just renewable energy and green hydrogen finance that truly puts people at the centre of the energy transition agenda is therefore essential. It has been known that in times CONTINUED ON PAGE 2

BusinessDay www.businessday.co.za September 2023

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BUSINESS LAW & TAX

Courts give thumbs up to the digital age

NO MORE SIGNING ON THE DOTTED LINE

SA courts not willing to invalidate electronic acts •purely on the basis that they are not paper based /123RF — MERANNA Preeta Bhagattjee & Armand Swart Werksmans

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Canadian court decided recently that a thumbs-up emoji ( ) constituted an electronic signature and resulted in a binding and enforceable sale agreement.

In SA a court held that a credit agreement entered into and signed electronically was enforceable despite the consumer’s arguments to the contrary.

Digital agreements have become the norm rather than the exception.

What does it mean for contracting parties where an increasing number of agreements are being negotiated and concluded electronically, replacing traditional paperbased contracting?

The benefit of such agreements is that parties are able to negotiate and conclude agreements remotely and with relative ease. However, electronic contracting poses risks relating to contractual certainty and security.

The recent decision in Canada concerned a summary judgment application brought by South Wester Terminal Ltd (SWT) against Achter Land & Cattle Ltd. SWT and Achter had an ongoing business relationship where Achter sold flax to SWT, which onsold it to third parties. SWT alleged that a sale agreement for flax had been entered into because a representative of SWT had signed a sale agreement with

a wet ink signature and sent a photo of it to a representative of Achter with a text message which read: “please confirm flax contract”. The Achter representative responded by text with a thumbs-up emoji.

Achter never delivered the flax. SWT alleged the agreement had been breached and sought damages.

The court held that the thumbs-up emoji constituted an electronic signature and thus met the legal requirement for the agreement to be signed. In making its determination the court considered the thumbs-up emoji originated from Achter’s rep-

ELECTRONIC CONTRACTING POSES RISKS RELATING TO CONTRACTUAL CERTAINTY AND SECURITY resentative and his unique cellphone number and there was no issue as regards the authenticity of the text message containing the emoji.

ECTA AND THE NCA In SA the use of electronic agreements and signatures are governed by the Electronic Communication and Transactions Act (ECTA), which applies to electronic transactions and data messages (information sent, received, generated or stored by electronic means). ECTA allows other acts, such as the National Credit Act (NCA), to

have their own provisions and requirements for data messages (including electronic agreements).

ECTA governs the use of “electronic signatures” and distinguishes between: ● An “electronic signature”, which comprises data intended by the user to be a signature — such as a digitally drawn signature, a scanned image of a signature or a digital signature produced by an application (ordinary electronic signature); and ● An “advanced electronic signature”, which is an electronic signature resulting from a process that has been accredited by the SA Accreditation Authority. A person has to go through a face-toface authentication process to make use of an advanced electronic signature.

ECTA provides that where a law specifically requires the signature of a person and that law does not specify the type of signature, an advanced electronic signature rather than an ordinary electronic signature must be used.

Where the parties have not agreed to a specific type of electronic signature (and the law does not require one) an ordinary electronic signature may be used and the method used must be reliable and identify the signatory.

Section 2(3) of the NCA provides that where the NCA requires a document to be signed by a party to a credit agreement, an ordinary electronic signature or advanced electronic signature may be used but where an ordinary electronic signature is used it must be applied by each party

in the physical presence of the other.

Nowhere in the NCA or its regulations is it said that a credit agreement has to be signed. On the one hand, the regulations contain a form which small credit agreements must comply with, requiring a signature; on the other hand, the regulations also permit other types of credit agreements which do not require a signature, namely telephonic and electronic agreements.

It is a grey area whether the NCA actually requires a credit agreement to be signed to be valid but in practice credit providers tend to err on the side of caution by requiring some form of signature for written credit agreements, whether it be wet ink or electronic.

GOVENDER CASE In Firstrand Bank Ltd t/a WesBank v Govender, a consumer defaulted on payments in terms of an instalment sale agreement for a car. The consumer’s defence to the credit provider’s claim for payment was that he never signed the “I-contract” in question and that the agreement (entered into and signed electronically) was

invalid and unenforceable as it failed to comply with ECTA’s electronic signature requirements.

How the contracting process works is that following a consumer selecting a vehicle at a dealership, they register their details and receive a one-time PIN, which the consumer enters to allow them to access and sign the I-contract electronically. The credit provider’s watermark stamp on each page evidenced that the consumer signed the contract electronically. The consumer is also required to produce their identity documents to verify their identity.

This signature process does not constitute an advanced electronic signature but rather an ordinary electronic signature.

The court in Govender held that the ECTA settled any uncertainty relating to electronic agreements and that data messages and electronic signatures were equivalent to any paper form signature, and the primary question was whether the requirements for a valid agreement had been met. It stated the Icontract was a valid and enforceable contract based on the evidence presented by the parties.

DOWNSIDES

IT CAN BE DIFFICULT TO VERIFY WHETHER AN ORDINARY ELECTRONIC SIGNATURE IS GENUINE OR FORGED

The Govender case highlights that although ordinary electronic signatures are convenient and efficient, there are security and authenticity risks associated with them.

It can be difficult to verify whether an ordinary electronic signature is genuine or

forged and they are also vulnerable to hacking, leading to the possibility of fraud and identity theft.

However, the risk with using ordinary electronic signatures depends on the type of electronic signature mechanism employed, with some forms of electronic signatures being more secure and more reliable than others.

IT IS A GREY AREA WHETHER THE NCA ACTUALLY REQUIRES A CREDIT AGREEMENT TO BE SIGNED TO BE VALID WHERE TO FROM HERE? Govender decision The reaffirms our courts’ approach to accepting electronic agreements and signatures, indicating our courts are not willing to invalidate electronic acts purely on the basis that they are electronic and not paper based.

The SWT decision indicates the risk of using informal electronic channels to negotiate contracts. Businesses and consumers alike should ensure they use electronic contracting and signature mechanisms that are sufficiently secure and robust to provide the requisite legal certainty and security.

Businesses could consider ensuring enhanced security and authentication by using smart contracts in appropriate applications.

Yardstick for accountability in Namibia’s green economy CONTINUED FROM PAGE 1 past, large sudden in-flows of financing, such as those following oil discoveries, have often failed to benefit vulnerable communities and led to increased capture and corruption (the so-called resource curse).

Thus, through effective monitoring and green accountability, the mistakes

of old can and should now be avoided.

FRAMEWORKS IN NAMIBIA In terms of the Harambee Prosperity Plan (2021-2025), the Namibian president has indicated that accountability and transparency are one of the five pillars of effective governance in Namibia.

Moreover, in the national

Vision 2030, a policy framework for the long-term socioeconomic development of the country, good governance, accountability and transparency are marked as the chief cornerstones for creating an enabling environment for sustainable development in Namibia.

From a constitutional standpoint, the Public Service Commission and the Office of

the Ombudsman are in place.

Both these offices are important administrative and democratic safeguards.

If implemented effectively, they could enhance accountability and openness in government as far as it relates to the financing of just renewable energy and green hydrogen projects. In particular, the Office of the Ombudsman was created to promote

administrative accountability in the public service.

However, it must be noted that the progressive Access to Information Act, 2022 has not become fully operational yet.

That may be a cause of complacency on the part of the government and government officials for not proactively and promptly making information available relating to just renewable

energy and green hydrogen related projects.

As such, green accountability remains a rather novel concept in ordinary Namibian parlance, with no specific guiding policy framework in place at present. ● Reviewed by Jessica Blumenthal, an executive in ENS’s banking and finance practice.

BusinessDay www.businessday.co.za September 2023

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BUSINESS LAW & TAX

How claims for unnatural death work

MAKE SURE YOU’RE COVERED

Life insurance claims in SA continue to rise even •after the Covid-19 pandemic, floods and riots Mtho Maphumulo Adams & Adams

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here have been reports regarding the rise of nonindemnity claims stemming from unnatural deaths. This is certainly worrying for life insurers.

This is particularly concerning because life insurers have had to entertain several claims in the past couple of years due to Covid-related deaths and, subsequently, the July 2021 unrest and the 2022 Durban floods. While there have been no calamitous events of a similar nature and kind in 2023, life insurance claims seem to be rising nonetheless.

It is also worth noting that there is a pattern between the rise of unnatural death insurance claims and the recent crime statistics, which remain worryingly high.

Given this rise as well as

the frequency of life policy claims, it is apt to take a closer look at how such policies and claims ordinarily work. This is particularly important because, unlike indemnity insurance, with nonindemnity insurance, every policyholder and/or beneficiary is guaranteed to submit a claim

THE DOCUMENTS AND INFORMATION REQUIRED BY AN INSURER WOULD VARY FROM ONE MATTER TO ANOTHER at some stage unless, of course, the policy ceases to exist before the insured event (death) occurs.

While in the past the categories of people whose life one could insure were limited, the position has drastical-

ly changed and it continues to change, and the categories keep broadening. To insure another person’s life, one needs to demonstrate he or she has an insurable interest in the concerned person’s life.

Examples of such people include: your children, parents, partner(s), blood relatives including extended family, business partner(s), etc.

While there is no legal prohibition to taking out insurance cover on someone’s life for financial reasons, it is, nonetheless, morally frowned on to do so purely for financial gains.

Ultimately, the insurer decides whether to grant such a policy.

The documents and information required by an insurer would vary from one matter to another, depending on the facts and the circumstances surrounding the death of an insured life. There is no prescribed form or criteria as to what the insurer

/123RF — DESIGNER491 should require for validation of a claim. The relevance of certain information and documentation will be dictated by the facts and the circumstances.

Ordinarily, where unnatural death is concerned, documents such as an accident report, inquest report, police docket and postmortem report will be required. Also, a death certificate and beneficiaries’ documents (such as identity document or birth certificate) would be required.

The process normally also involves some paperwork — insurer’s forms that are to be completed by the claimant.

Further, it is common for an insurer to request medical documentation. This is by no means an exhaustive list of the documents and information that may be relevant.

People take out insurance policies with one main inten-

tion — for the policy to pay out as and when an insured event occurs. It is, therefore, critical to be wary of the reasons why some life insurance claims get rejected. These reasons include where the cause of death is specifically excluded in terms of the policy wording, where such cause of death is not covered at all. Sometimes, an insurance policy imposes some form of a limitation in respect of a particular cause of death.

Thus, in those cases, the policy responds, albeit partially.

It is also common to find

IT IS IMPORTANT THAT POLICYHOLDERS ARE AWARE OF THEIR LIFE POLICY TERMS AND CONDITIONS

life policy claims rejected on the basis of misrepresentation in its negative form, such as nondisclosure. Further, insurers ordinarily refuse paying out where the deceased lost his or her life while committing crime.

Once more, these reasons are nonexhaustive, as each matter gets determined congruent to its own circumstances.

It is safe to state, however, that these are some of the common reasons.

It is important that policyholders are aware of their life policy terms and conditions.

This knowledge allows them to comply with the relevant conditions imposed by the policy. In so doing, one minimises the chances of a nonpayout at the claiming stage. It is equally important to be wary of the usual grounds for rejection of claims to avoid actions that may hinder the success of a claim.

TAXING MATTERS

Taxpayers capitalise on apex court’s wider scope

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efore the Constitution Sixth Amendment Act of 2001, the Constitutional Court was the highest court in all constitutional matters.

Section 167(3) of the constitution now determines that the court is the highest court of the republic and that it may decide any nonconstitutional matters if the court grants leave to appeal on the grounds that the matter raises an arguable point of law of general public importance which ought to be considered by that court.

It has recently become apparent that many taxpayers are capitalising on the ability of the court to decide on matters of public importance, and rightfully so.

CAPITEC BANK On September 5 2023, the court heard arguments from Capitec Bank relating to a R71m dispute which has its origins in VAT. The central question of the dispute in the

PIETER JANSE VAN RENSBURG Supreme Court of Appeal (SCA) was whether the “tax fraction” of loan cover payouts qualified for deduction in terms of section 16(3)(c) of the VAT Act. The SCA found the determination of this issue was largely dependent on whether the loan cover was a taxable supply — in other words, whether it was supplied in the course or furtherance of an enterprise.

In its founding affidavit to the SCA, Capitec notes: “[T]he impact of the SCA judgment thus extends well beyond the interests of Sars and Capitec. It affects, in various aspects, a very wide range of

vendors within the VAT context (and those with whom they contract) including, but not limited to, supplies in the financial services sector or in sectors where supplies are made for no consideration.”

Capitec has noted in media reports that if the SCA decision is upheld, SA’s credit cost could significantly increase, affecting consumers.

In its answering affidavit, Sars’ counterargument to the public importance point is simply: [T]he issue arising from the intended appeal does not transcend the litigation interests of the litigating parties. It is a onceoff dispute that is unlikely to arise again because Capitec changed its business model from May 6 2016, when it started providing credit life insurance and charging premiums for it in accordance with the then new regulations under the NCA.”

CORONATION In a matter of significant substance — north of R700m — Coronation will appeal to the Constitutional Court over a decision in the SCA earlier in the year relating to its offshore operations.

In a matter that will likely come before the court in the next 18 months to two years, Coronation is very likely to argue that not only it but all fund managers with offshore operations are affected by the SCA decision and that the matter is, therefore, one of public importance.

In this case, it will be difficult for Sars to argue the contrary since the National Treasury has already proposed to amend the

WHAT, THEN, IS THE TEST FOR ‘PUBLIC IMPORTANCE’ IN TAX CASES? HOW WIDE MUST THE NET BE CAST?

relevant provisions when the draft taxation laws bills were published on July 31, illustrating the wider importance of the matter — to such an extent that it is proposing legislative amendments.

What, then, is the test for “public importance” in tax cases? How wide must the net be cast (or capable of being cast) before the Constitutional Court is likely to entertain tax matters on this basis? And should a different test be applied for tax and nontax cases?

The first important distinction should be between matters of public importance and what is considered in the public interest. On the latter, the Constitutional Court dealt with the test extensively in Financial Mail and amaBhungane’s application to access Jacob Zuma’s tax records. For the former, the question remains to be answered.

In the absence of the constitution providing guidance on public importance, the Constitutional Court is likely to adopt an approach that advances its constitutional mandate.

Its role will be to determine the standard against which cases must be tested to pass through the gates for consideration and whether tax cases, in particular, must have a different test than non-tax cases. To prevent the proverbial floodgates opening, the Constitutional Court will most likely adopt a restrictive approach to what constitutes public importance in tax cases.

Hopefully, this question will soon be answered. ● Pieter Janse van Rensburg is a director at AJM Tax. He also serves as a nonexecutive director on the board of the SA Institute of Taxation

BusinessDay www.businessday.co.za September 2023

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BUSINESS LAW & TAX

SA’s ESG activity picking up llaboration •hasCobeen slowed by lack of regulatory and policy convergence Jessica Blumenthal ENSafrica

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he era of global warming has ended; the era of global boiling has arrived.” These are the words of UN secretarygeneral António Guterres, announcing that July 2023 will likely be the warmest month on record.

If the thought of global boiling does not alarm you, what about the effects of climate change reported over the past few months alone: the destruction of 9.4-million hectares of Canada’s forests due to wild fires; the bleaching of coral reefs and other critical ecosystems; the permanent thawing of the earth’s cryosphere (consisting of all of the frozen components of the earth’s system); the loss of arable land and declining food production; environmental risks and extreme weather events causing millions of deaths per year and posing risks to human health; and significantly reduced labour productivity.

Then there are the extreme weather events of the past few months, both in

SA and abroad, in the form of deadly heatwaves, dramatic snowfall, damaging droughts and unprecedented flooding.

All of this bears witness to the fact that climate change has the potential to decimate not only the environment, but economies and communities as well. The news is all bad.

What makes climate change more alarming is its multiplying and destabilising effect on existing social, economic and governance issues. Something which we in Africa can ill afford.

Never before has the need for all stakeholders to collaborate been so patently urgent, but collaboration continues to be hindered by geopolitical forces, powerful lobbies, the poly-crises distracting leadership, low economic growth and a lack of regulatory and policy convergence.

On the last point, at least, some important indicators give reason for hope.

Convergence: Information available to market participants is improving, thanks to the work undertaken by the Task Force on Climate-related Financial Disclosures and the Task Force on Naturerelated Financial Disclosures (TNFD). Improved disclosure of climate-related and nature-related risks and opportunities also ensures that corporates adopting the recommendations are better able to understand the risks.

The TFND is poised to present its framework in September 2023. Against this increasing awareness, the

issue in June by the International Sustainability Standards Board of its inaugural standards, IFRS S1 and S2, represents a consolidation of the myriad voluntary reporting and disclosure requirements relating to environmental, social and governance (ESG) considerations, which have swept through most sectors globally.

Improvement in consistency of disclosure and

WHAT MAKES CLIMATE CHANGE MORE ALARMING IS ITS MULTIPLYING AND DESTABILISING EFFECT ON EXISTING ISSUES reporting sets the scene for regulators to better manage systemic risk posed by climate change and biodiversity loss, and to guard against associated market conduct risk. The UK government has recently announced plans to develop its own IFRS-based sustainability reporting standard, importantly indicating that this will form the basis of future reporting legislation and regulation.

In SA, the JSE has issued sustainability and climate disclosure guidance, drawing from the various international standards available. This guidance is voluntary, but provides an indication of the direction of travel for future

regulation in SA. ESG metric integration: Financial institutions play a vital r ole in ensuring the correct projects are funded and appropriate risk-mitigation measures are implemented to buffer economies from the worst effects of climate change. Investor demand, together with a realisation of the materiality of these nonfinancial risks, has led to increased scrutiny of ESG metrics by investment teams.

The measuring of ESG metrics by funders and investors, as well as possible future legislative amendments requiring reporting and disclosure, will further drive the integration of these considerations into the strategy and policies of businesses, requiring a change to business as usual. As a result of voluntary adoption in the financial sector and the convergence of a common standard as discussed above, regulators are increasingly turning toward policy and legislative interventions.

The Financial Sector Conduct Authority recently, in its statement on sustainable finance, set out its programme of work to develop a regulatory framework addressing the emerging conduct risks associated with sustainable finance, including lack of standardised terminology, inaccurate or misleading information and inconsistent or unreliable reporting and disclosure among the key risks that it will be seeking to address.

Regulatory development: These developments in SA are in line with the updated technical paper Financing a Sustainable Economy published by the Treasury in 2021. The paper recommends measures to be introduced in the context of SA’s finance sector, with specific reference to the risks and opportunities posed by environmental and social factors.

The technical paper makes recommendations “to establish minimum practice and standards with regard to climate change and emerging environmental and social risks”, which will likely be implemented by way of, among other things, regulatory obligations imposed on banks, insurers, pension funds, collective investment schemes, private equity funds and capital markets participants. While some may argue that progress is too slow, all indicators point towards regulators gearing up to implement the paper’s recommendations.

SUSTAINABLE FINANCE “Sustainable finance” is an overarching concept, capturing the role that the financial sector should play in addressing ESG challenges. It requires financial institutions to integrate ESG factors into investment decision-making, and real-world borrowers and investees to monitor, disclose and report in respect of these factors.

Broadly speaking, according to the technical paper,

sustainable finance seeks to achieve two goals: ● The first is to improve the contribution of finance to sustainable and inclusive growth, in particular funding society’s long-term needs for innovation and infrastructure and accelerating the shift to a low-carbon and resourceefficient economy. ● The second is to strengthen financial stability and asset pricing, notably by improving the assessment and management of long-term material risks and intangible drivers of value creation — including those related to ESG factors.

The goal in SA is to ensure financial institutions (i) contribute to the realisation of the sustainable development goals); (ii) promote the just transition to a low-carbon and climate-resilient economy; and (iii) assist with financial stability in circumstances where, for example, the financial consequences of preparing for climate risks and addressing extreme weather events that put huge pressure on our economy.

The technical paper identifies, the need for a taxonomy for green, social and sustainable finance initiatives.

The Treasury has proposed the green finance taxonomy, based on the EU taxonomy, which sets out an SA-specific classification system, allowing corporates and financial institutions to test their activities against an agreed benchmark. ● See also page 10.

CONSUMER BILLS

Only a matter of time before AI decides disputes

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he question will soon arise whether the parties to a dispute can refer that dispute to an adjudication process which relies on an artificial intelligence (AI) program rather than a natural person to decide the dispute.

There is no doubt this question is soon coming our way because litigation before ordinary courts, and even arbitration, can be a rigid, costly and time-consuming process that is not always consistent with commercial needs and our constitutional values permitting parties to seek a quicker and cheaper mechanism to resolve or avoid disputes. It will depend on the generative AI program being capable of performing an adjudicative act.

It has been settled law for more than a decade that the access to justice provisions in section 34 of the constitution do not apply to

PATRICK BRACHER arbitrations. Private arbitration is a flexible process built on consent where the parties agree that their disputes will be settled by an arbitrator.

Parties to a dispute may agree that the requirements of section 34 regarding a fair hearing before a court or another independent and impartial tribunal or forum do not apply and make other arrangements. That does not mean that they have waived their rights under section 34.

It means they have chosen not to exercise their rights under section 34.

It has been recognised in

Roman-Dutch law since the 17th century that a submission to arbitration, and therefore to any adjudication process, is subject to an implied condition that the arbitration should proceed fairly. As long as the dispute resolution process is voluntarily chosen and is not contrary to public policy, it will be respected by the courts. Private parties are entitled to determine what matters are to be adjudicated, the identity of the adjudicator, and the process to be followed.

The Arbitration Act of 1965 is peppered with the phrases such as “unless the arbitration agreement provides otherwise” so that act does not present an obstacle. Even if the courts decide that an “arbitrator” for the purposes of the act does not include an AI program, that does not mean the parties cannot agree that the

Arbitration Act does not apply at all.

An arbitrator’s award can be set aside if the arbitrator is guilty of misconduct in relation to their duties as arbitrator, or if the arbitrator commits a gross irregularity or exceeds their powers, or if an award has been improperly obtained. On the broadest view of AI, misconduct is notionally possible, but generally misconduct is an unlikely ground of attack where the parties agree to using the AI program as their dispute resolution or avoidance method. Any machine-learnt biases are intrinsic to the chosen AI process but this is not a closed door to challenging an award based on substantial grounds for suspecting hidden biases overriding the presumption of impartiality.

It has long been held that gross irregularity does not

mean an arbitrator cannot be wrong. The possibility of properly programmed AI making a mistake will be no less than a natural arbitrator.

AI, like any other adjudicator of disputes, can exceed its powers and that will remain a ground to have the award set aside.

The challenge of an award for being improperly obtained remains because there will be scope for the parties to act wrongfully in the manner in which the process takes place (eg fraud) or by pre-loading biased information into the program, for instance.

These are all nuances and

IT HAS LONG BEEN HELD THAT GROSS IRREGULARITY DOES NOT MEAN AN ARBITRATOR CANNOT BE WRONG

interesting arguments but they do not preclude disputes being adjudicated or determined by an AI program to be capable of doing so. Going back to the basic principle that the process is built on consent of the parties, the courts are bound to give deference to the will of the parties if it is not contrary to public policy and if the procedure followed affords both parties the fair opportunity to present their case.

Like anything else you get out what you put in. Ensuring that the right questions are asked and the right facts are submitted will still require careful legal input.

But attorneys and clients need to be aware of the forthcoming new threats and opportunities. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za September 2023

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BUSINESS LAW & TAX

AI and data protection in mining sector

DUE DILIGENCE

One of the benefits artificial intelligence can •provide is increasing the safety of miners Ahmore Burger-Smidt Werksmans

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rtificial intelligence (AI) and big data have had a positive impact on many industries and have empowered organisations to modernise and streamline business operations.

Where organisations have previously hired experts to manually sift through large quantities of data, big data now provides an avenue that can analyse reams of data with software algorithms and provide more precise coding of documentation, while also eradicating the tendency for human error.

However, what is probably most significant for AI in the mining industry is the benefit it provides regarding

safety of its employees. Safety is a legal requirement in the mining industry imposed on employers by the Occupational Health and Safety Act 85 of 1993. Machine-learning and AI can serve the mine administration and mitigate the dangers recognised in the mining industry by providing

THE FUNDAMENTAL AIM OF USING AI IS TO COLLECT AND SHARE REAL-TIME DATA BY USING VARIOUS ALGORITHMS effective risk assessment, decrease labour exposure and reduce costs.

The question is, how

exactly does AI increase safety and efficiency in the mining industry?

The fundamental aim of using AI is to collect and share real-time data by using various algorithms to make efficient decisions such as alerting workers about critical situations and as an example assist mining companies to mine coal in hardto-reach places. It further can assist in creating operational efficiency, reduce manpower required and aid in safety compliance and regulatory requirements.

This all accumulates in better cost control when it comes to mineral exploitation, enhances competitiveness and production output.

Companies have developed “Life” wearable gear incorporating sensors that gather brain activities of

/123RF — ADAM88X equipment drivers and monitor the fatigue of miners. The wearable gear developed by Experts Mining Solutions is said to detect fatigue with nearly 95% accuracy.

This system measures brainwaves of the wearer and stores their data for medical analysis. It goes as far as detecting lack of signal to the brain and detects dietary or medical conditions. Once this device is deployed, it is geared toward reducing the chance of accidents and collects data which may help the diagnosis of illnesses, aiding timely treatment.

If these wearable technologies are successful, they may address many of the challenges of safety, occupa-

tional health and communication at mining sites, facilitating employers in compliance and transforming the notion of a “hazardous mine” into a modern and safe work environment with increased production and efficiency.

With all this data being collected, it is essential that it is handled and processed in compliance with the Protection of Personal Information Act (Popia). Due to the sensitive nature of personal information, organisations must ensure the data entrusted to them is safe from exposure or breaches by unauthorised third parties. Therefore, as the mining industry collects the personal data of its employees and aims to use AI in its

operations it must ensure that eight main principles of data privacy are complied with: ● The data must be lawfully collected, with the consent of the data subject when required; ● The data must only be used for the purpose for which it was intended; ● Further processing of the data must be limited and compatible with the purpose for which it was collected; ● The data must not be misleading, it must be complete and accurate; ● The way it is processed must be transparently communicated with the data subject; ● Measures must be taken to ensure no loss, destruction or damage occurs when processing the data. ● The data subject should be able to access the data stored on them and correct any information if need be. ● It is the responsibility of the party processing personal information to take measures to ensure their activities comply with the principles of Popia and demonstrate accountability.

It goes without saying the understanding, intelligibility and development of AI in SA is under way, serving countless benefits and aiding the mining industry. With this being said, while the industry is modernising, developing its algorithms and aiming to comply with the Occupational Health and Safety Act, it must too ensure adequate Popia compliance and all the nuances that go with it.

VIEWPOINT AFRICA

Reassuring resolution backs competition principles Phillip Karugaba & Martha Mutamba ENSafrica Uganda

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ganda’s recently passed Competition and Consumer Protection Act still awaits presidential assent and coming into force.

However, a recent positive resolution of an impasse relating to a presidential directive in the media industry is a good sign for the coming law.

After several stalled attempts spanning more than a decade, Uganda passed the Competition and Consumer Protection Act on May 25 2023. The primary goal of the act is to control anticompetitive behaviour by firms that is having a negative impact on Uganda’s market.

The act applies to all economic activities in Uganda and binds the government or an enterprise owned wholly or in part by the government, that engages in trade or business for the production, supply or distribution of goods or the provision of a service within

VIEWPOINT AFRICA a market that is open to participation by other enterprises.

The act establishes the Competition and Consumer Protection Commission as an independent regulator to administer the law. It proscribes anticompetitive behaviour and requires notifications of mergers and acquisitions.

UGANDA BROADCASTING CORPORATION: A TEST CASE? Uganda Broadcasting Corporation (UBC) is a stateowned broadcasting company. It is licensed by the telecommunications regulator and competes with a multitude of private broadcasters.

As fate would have it,

UBC has not fared well and sought the intervention of the president to help turn around its fortune.

In March, even as the Competition and Consumer Protection Bill was working its way through parliament, the president directed that all government advertising would be done solely through UBC and that any accounting officer disobeying the directive would face dismissal. This directive was promptly relayed by the ministry of finance to all accounting officers, with the addition that print media advertising would also have to be done through the majority state-owned New Vision Printing and Publishing Company.

This directive was contrary to the government’s long-standing policy of liberalisation of the economy, and it was not clear whether the directive received the approval of cabinet as would be required for a change of government policy. The constitution obligates the government to give the highest priority to enacting

legislation to enhance the right of the people to equal opportunities in development. In addition, the communications sector under which UBC is regulated is one of the few with sector-specific competition regulations.

As can be expected, the directive drew loud protests from private media houses, represented by the National Association of Broadcasters and the Editors Guild, who announced a ban on all coverage of government news pending a meeting with the president. Following this meeting, the directive was reversed with the president reaffirming the need for government to support the private media as well.

It would be inaccurate to refer to this UBC directive as a test case as the act is yet to take effect and the necessary administrative structures are far from being established.

However, the resolution of the matter in favour of fair competition principles sends a strong signal to the market on the government’s commitment to competition

and a private sector-led economy.

WOULD THE COMPETITION AND CONSUMER PROTECTION ACT HAVE HELPED? The answer to this would be yes. During the debate on the Competition and Consumer Protection Bill in parliament, the deputy speaker said: “Attorney-general, when we finish this law the playing field when you are doing business with government is where the biggest concern is. A very recent example is the president’s recent directive on advertisements for UBC. If we have this law, I hope we shall respect it and be serious.”

The scope of the act covers the activities of stateowned enterprises. It

AS CAN BE EXPECTED, THE DIRECTIVE DREW LOUD PROTESTS FROM PRIVATE MEDIA HOUSES

prohibits agreements or practices with respect to the provision of services that cause or are likely to cause an adverse effect on competition in the market.

The withholding of government business from private media would be void under the new law. The Competition and Consumer Protection Commission would be empowered to direct the discontinuation of such practice and payment of a fine by the enterprise and its officials. In addition compensation could be ordered for any aggrieved parties.

Even as we await the coming into force of the new law, the resolution of the UBC matter in favour of competition principles is reassuring. There will be a need for the law to be kickstarted with awareness campaigns for all players in the economy including the government. ● Phillip Karugaba is a Partner and Martha Mutamba an Associate at ENSafrica Uganda.

BusinessDay www.businessday.co.za September 2023

7

BUSINESS LAW & TAX

Africanisation of the yuan Key to Africa-China ties are its domestication and •internalisation, driven by offshore clearing centres Kenny Chiu ENSafrica

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he African Continental Free Trade Area (AfCFTA) is the largest free trade area in the world in terms of the number of participating countries.

Launched in January 2021, it aims to foster a prosperous Africa with inclusive growth and sustainable development, uniting 1.4-billion people in countries with a combined GDP valued at $3.14trillion.

China’s relations with African states remain a significant source of foreign investment on the continent.

Despite Covid-19 restrictions, trade between the two blocs reached $282bn in 2022.

Historically, China has seen its investment mechanisms as instruments of mutually beneficial co-operation among developing countries.

Its engagement with 35 African parliaments centres on trade opportunities, resource assessments and capacity and infrastructure development.

AFRICANISATION future relationship The between the two regions centres on the domestication and internalisation of the renminbi (RMB), driven by offshore clearing centres.

The Africanisation of the RMB involves the currency’s circulation outside mainland China for cross-border settlements in Africa. In recent years, this has become popular for pricing, account settlement, financing and as a form of reserve currency. According to Swift RMB, the RMB

ranks as the fifth most active currency for global payments.

RMB Africanisation presents a shared opportunity for Africa and China. The People’s Bank of China has signalled its intention to further the offshore internalisation of the currency, making it more convenient for crossborder trade. This has the potential to decrease exchange rate risks for African businesses with substantial trade links to China, enabling them to settle transactions directly in RMB and reduce their reliance on major international currencies such as the US dollar and the euro. Such a move could

THE RMB IS SET TO PLAY A SIGNIFICANT ROLE AS A REGIONAL CURRENCY, FACILITATING TRADE AND INVESTMENT provides greater stability to African economies and shields them from exchange rate fluctuations.

DEVELOPMENT Since the construction of the 1,860km-long TanzaniaZambia railway in the 1960s, China has valued its cooperation with African countries, driven by a genuine desire to bolster their economies. With China’s continued economic growth, RMB Africanisation stands to benefit African nations, ensuring Chinese-African collaboration expands.

With extensive ChineseAfrican co-operation in recent years, the Bank of China, as the RMB clearing bank for SA and Zambia (appointed by the Chinese central bank), will continue promoting RMB business.

Many transactions have been completed in Africa lately.

The phased implementation of the AfCFTA, alongside RMB Africanisation, will bolster the influence of developing countries in international finance. This shift challenges the financial dominance of developed countries, aiming for a more inclusive international financial order.

Historically, factors such as colonisation and subsequent conflicts have hindered many African nations on the global economic stage. Yet, in the past decade, several developing countries and emerging markets in Africa, such as Angola, Ethiopia, Kenya and Rwanda, have experienced growth rates surpassing the Brics nations of Brazil, Russia, India, China and SA. China has been a pivotal catalyst for this growth.

Historical barriers, including a fragmented financial system, have thwarted African integration. However, RMB Africanisation could galvanise the development of financial products, bolster African financial innovation, alleviate financial risk, and foster financial co-operation.

Investment in the financial services sector, accelerated by fintech, could transform the digital payment space across numerous African jurisdictions.

Furthermore, an internationalised RMB could reduce the trade and investment

MONEY’S WORTH

/123RF — SWEETTOMATO costs between China and African countries, optimising the investment environment and expanding economic cooperation. Utilising the RMB within the AfCFTA will not only stimulate the bilateral flow of funds but also significantly contribute to economic and trade ties between the regions. Over the years, African central banks have embraced the RMB as a foreign exchange reserve currency, promoting the settlement of Chinese-African import and export trade in RMB. This reduces exchange rate risks and boosts trade efficiency.

With RMB’s incorporation in the AfCFTA, economic cooperation will evolve, spanning from infrastructure investments and mineral extraction to economic collaboration, strengthening cross-border financial systems and facilitating information sharing and market codevelopment.

CHINESE BANKS Chinese banks are pivotal in the RMB Africanisation process within the African Continental Free Trade Area. Given China’s economic trajectory,

the Chinese financial sector, epitomised by its banks, stands poised for substantial growth. They possess significant assets, diverse services, substantial foreign exchange reserves, expansive markets and robust financial innovation capabilities.

Undoubtedly, Chinese banks will lead the charge in RMB internationalisation. For instance, the Bank of China has multiple branches and representative offices across Africa, including in SA, Angola, Zambia, Mauritius, Kenya, Morocco, Tanzania and Djibouti, to streamline RMB payments.

China’s financial system is robust, offering a solid risk mitigation capacity and a methodically structured financial framework with specific credit construction, diverse financial products and superior financial innovation and development. African countries and businesses should understand this landscape, intensifying business interactions with Chinese banks in Africa, identifying collaboration opportunities, and amplifying Sino-African economic exchanges.

However, the risks asso-

ciated with RMB exchange rate fluctuations cannot be overlooked. The RMB’s internationalisation occurs in a foreign exchange market dominated by currencies such as the US dollar and the euro. Currency fluctuations are inevitable.

Although the RMB might appreciate in the short term, due to China’s post-Covid-19 economic recovery, longterm predictions remain uncertain.

Resource-rich African businesses should prepare for this by transacting offshore via established RMB offshore financial centres in Africa.

By doing so, they can realise direct RMB payments, cut currency trading costs and strengthen collaborations with African financial institutions, thereby enhancing market confidence and supporting economic and trade development between Africa and China.

At the recent Brics ministerial summit held in Cape Town, the bloc contemplated a new shared currency for international trade as an alternative to the US dollar.

Since 2015, Brics has already established a $100bn Contingent Reserve Arrangement, with China contributing $41bn (41%). The RMB is thus pivotal for Brics’ financial stability.

As the AfCFTA potentially becomes the world’s largest free trade area and the continent pursues further integration, the RMB is set to play a significant role as a regional currency, facilitating trade and investment.

In the context of Africa’s Agenda 2063, which envisions transformed and inclusive economies driving development, the RMB is well-positioned to help achieve a prosperous and functional continent.

Honesty is at heart of employment contract Bradley Workman-Davies Werksmans The employment relationship between an employer and its employees is heavily regulated in South African law and a number of statutory instruments have significant inroads into an employment relationship.

However, at the heart of it a contract of employment between an employer and an employee is a personal relationship which requires an implicit duty of good faith between the parties and requires, for the continuation of the employment relationship, that there be a great

degree of ongoing trust between the parties.

As such it has always been recognised that honesty between the parties is a material requirement for the continuation of the relationship. The corollary is that when the trust relationship breaks down, or when an employee displays dishonest conduct, this usually justifies the end of the relationship.

A new case has given credence to the above principles and confirms that the labour courts of SA will come to the aid of an employer which believes the employment relationship should be ended as a result of dishonest

conduct on the part of an employee.

In the recent case of SA Revenue Services (Sars) versus the Commission for Conciliation Mediation and Arbitration (CCMA) and Benneth Mathebula (Labour Court, 2023) the labour court considered the situation in which the employee was absent from the workplace, due to his supposed illness and resultant inability to work, but unfortunately for the

HONESTY IS AN IMPORTANT LYNCH-PIN OF THE RELATIONSHIP

employee, was later spotted by his manager in a YouTube video which showed footage from a public television broadcast of him participating in a political rally.

The labour court held that honesty is an important lynch-pin of the employment relationship and that Mathebula appreciated that had he requested time off work to attend a political rally, this may have been refused and thus when the employee sought to conceal the real reason for his absence from work, his dishonesty had a material impact on the trust which Sars required he display towards it.

When Mathebula tried to explain that he had indeed been ill, but had felt better by the time that the rally took place, this allegation was rejected. Especially when it became apparent that he had initially sought to take advantage of Sars’ policy that a medical aid certificate was not necessary for absences less than two days, but Mathebula provided a medical certificate only after the fact when Sars queried whether he had truly been ill, he had been less than honest towards his employer.

The labour court found that if the employee was well enough to clap and sing, he

should have been well enough to perform his duties.

His reactions were not those of an honest employee.

Mathebula’s dismissal was found to be substantively fair.

This case is important in stressing the principle that honesty is an important aspect of the employment relationship, and this does not need to be displayed only in relation to critical functions such as the handling of money for the employer.

Wherever the employee has shown themselves to be dishonest, it is problematic for the employer to be able to trust the employee and dismissal may be appropriate.

BusinessDay www.businessday.co.za September 2023

8

BUSINESS LAW & TAX

Franchise clarity welcomed Consumer legislation protects franchisees, but •disputes had not gone to court, until recently Ian Jacobsberg Fluxmans

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he High Court of SA, Gauteng Division, sitting in Pretoria, recently handed down judgment in the case of Christina Johanna Steynberg v Tammy Taylor Nails Franchising no 45 (Pty) Ltd (Case no 23655/2021).

The judgment had been widely anticipated among the franchising community and especially legal practitioners active in franchise law. This was because it was the first case to be decided by the high court in which it was argued that a franchise agreement was invalid on account of failing to comply with the formal requirements of the Consumer Protection Act (CPA) and especially the regulations promulgated under it.

The CPA and the regulations came into effect in April 2011. It was an innovative piece of legislation in that it was the first in SA to regulate franchising specifically. The regulations oblige franchisors to provide prospective franchisees with detailed information relating to the financial and other obligations they will be incurring, as well as information relating to the franchise law itself, its executives, financial status and trading record.

These requirements were imposed because, historically, many franchisees had seen their businesses fail, and lost vast amounts of money, as a result of entering into franchise agreements “on trust”, accepting the franchisor’s sales pitch at face value and finding out later that the required investment had been vastly understated,

or the earning potential of the business overstated, or both.

Since then, despite it being repeatedly alleged and argued by aggrieved franchisees that their agreements were invalid for noncompliance with the requirements of the CPA and regulations, neither the courts nor the National Consumer Tribunal (the body entrusted with adjudicating disputes arising under the CPA) has pronounced on whether a franchise agreement that does not technically comply with the CPA or regulations is automatically invalid.

One can only speculate as to the reasons for this; I would suggest that, generally,

IT BECAME APPARENT TO HER THE [FRANCHISOR] HAD NOT BEEN OPEN AND HONEST REGARDING THE ACTUAL COSTS because of the disparity in financial muscle between franchisees and franchisors, most franchisees are reluctant to engage in litigation against franchisors and are forced to accept a disadvantageous settlement to salvage something out of a franchise business that is failing.

The Steynberg case represented an opportunity to pronounce on this issue, which has been the subject of some debate, especially among lawyers serving the franchise community.

In her application to court, the franchisee relied on “extensive” grounds of alleged noncompliance, acc-

ording to judge Kuny, who, in June 2022, heard and ruled on a preliminary point, relating to the jurisdiction of the court to hear the matter.

From judge Kuny’s judgment, it appears that among the regulations the franchisee alleged had not been complied with, were: ● Regulation 2(1) (Regulation 2(1) provides: “This regulation must be read together with sections 7 and 120 (1)(e)(ii) of the act”. In purporting to quote regulation 2(1), judge Kuny in fact quotes regulation 2(2), which requires every franchise agreement to contain the exact text of section 7(2) of the CPA at the top of the first page. Section 7(2), in turn, provides that the franchisee may cancel a franchise agreement “without cost or penalty” within 10 business days of having signed it). ● Regulation 3 (1) which, in summary, provides that a franchisor must, within 14 days before a franchise agreement is signed, provide a prospective franchisee with a disclosure document, containing details of the franchisor’s business, including the number of outlets franchised by it, its turnover and net profit and financial projections in respect of the franchised business the franchisee proposes to run, or businesses similar to it. ● Regulation 3 (3), which requires the franchisor to provide written confirmation of its financial soundness from a person qualified to act as the accounting officer of a close corporation or auditor of a company. ● Regulation 3 (4), which requires the franchisor to provide contact details of its existing franchisees, to enable the prospective fran-

DRIVE THE FINAL NAIL IN

chisee to contact them, with a view to assessing the franchise opportunity, based on their experiences.

In the result, however, the judgment of the court handed down by judge Meintjies did not pronounce on whether the franchisor’s failure to comply with those regulations affected the validity of the agreement.

The judge found (correctly) that it was not necessary to do so but, for stakeholders in the industry, this was perhaps an opportunity missed to get some clarity on a longstanding debate.

Instead, the decision turned on another point, arising from section 7(1)(a) of the CPA. Section 7(1)(a) provides that a franchise agreement “must be in writing and signed by or on behalf of the franchisee”. The franchisor had inserted a clause in the franchise agreement reading: “[The franchisee’s] signature on behalf of your entity and signature on behalf of the franchisor of this agreement will constitute a binding agreement]”.

A few weeks after signing the agreement, the franchisee sought to cancel it on the

grounds that, in the words of judge Meintjies, “it became apparent to her that the [franchisor] had not been open and honest regarding the actual costs relating to the purchase and establishment of the franchise”.

When the franchisor produced a copy of the franchise agreement, it turned out the franchisor had not signed it.

The court held, on the strength of the clause quoted above, that the franchisor intended that a binding agreement would only come into effect when it had been signed by both parties.

The court held that, notwithstanding that section 7(1)(a) of the CPA provided that the signature of the franchisee alone would suffice for a franchise agreement to become effective, it was open to the parties to agree on

WHEN THE FRANCHISOR PRODUCED A COPY OF THE FRANCHISE AGREEMENT … THE FRANCHISOR HAD NOT SIGNED IT

additional formalities and, therefore, the clause requiring the franchisor’s signature had the effect that the agreement would not become effective unless and until the franchisor had signed it. The court held that, because the franchisor has not signed the agreement, it was invalid and the franchisee was entitled to receive back the franchise fee that she had paid.

This decision has an ironic twist: section 7(1)(a) was enacted for the protection of franchisees as it has often happened that franchisors, after obtaining the franchisee’s signature on an agreement, retain it but do not sign it.

At a later stage, even after the franchisee had been in business for a year or two as if the agreement was in effect, and the relationship had broken down, the franchisor, instead of relying on a breach by the franchisee to cancel the agreement (which the franchisee may dispute), relied on the fact that because it had never signed the agreement was in fact invalid.

By enacting section 7(1)(a), the legislature sought to prevent the franchisor, which inevitably was the drafter of the agreement and the party responsible for ensuring that all the formalities were carried out, from taking advantage of its own deliberate or negligent omission.

The judgment is technically correct in law. However, it would have been interesting to see what attitude would have been taken by the court had the situation in fact been as described above, and it was the franchisor relying on its nonsignature to invalidate the agreement.

Would the court have put the formal requirements of the agreement, imposed by the franchisor, above the intention of the legislature to protect the franchisee?

Yoghurt tub labelling misleading, regulator rules Bernadette Versfeld, Kenan Petersen & Bernadette Lötter Webber Wentzel In a complaint against Lactalis SA (Pty) Ltd, the producer and promoter of the popular yoghurt brand Parmalat, the Advertising Regulatory Board considered whether the labelling of the Parmalat Fruit Cocktail Low Fat Yoghurt made deceptive and misleading claims.

On the front label of a 175g tub of yoghurt, it was stated to be yoghurt “with fruit pieces”.

The label on the back read “mixed fruit (6%)”.

The complainant diluted his yoghurt with water and found less than half a teaspoon of fruit pieces.

The Code of Advertising Practice requires that adverts “should not contain any statement or visual presentation, which directly or by omission, ambiguity or exaggerated claim, is likely to mislead the consumer about the advertised product”.

Parmalat insisted that the product did contain 6% fruit “content”. It said the softer fruit pieces were typically broken down during the production process, so the fruit

content was comprised partially of fruit puree rather than “fruit pieces”.

The complainant said that the packaging, considered holistically, gave the “impression that if you are a consumer wanting pieces of fruit in your yoghurt, this is the product you should choose”.

The Advertising Regula-

TECHNICALITIES IN THE ‘FINE PRINT’ CANNOT SAVE ADVERTISERS FROM LIABILITY

tory Board found that the insignificant number of fruit pieces in the product was inconsistent with this impression and the packaging was misleading.

Parmalat was given three months to amend its packaging and to stop disseminating the offending packaging within three months. A subsequent period to sell the product already on shelves was allowed.

Technicalities in the “fine print” cannot save advertisers from liability. What is important in this case is how the consumer perceived the

product. Packaging can be misleading, even if it is technically accurate. Although the yoghurt might have contained 6% “mixed fruit”, it was not “pieces” of fruit, as the front of the tub suggested, and the packaging contravened the code as a result.

The Advertising Regulatory Board’s ruling is consistent with international trends.

In January 2022 the UK Advertising Standards Authority banned adverts by Oatly, the Swedish oat milk company, after it was found to have overstated claims about its environmental impact.

This pro-consumer approach is also found in the draft Regulations Relating to the Labelling and Advertising of Foodstuffs (R3337) (regulations) published for public comment by the health department in April 2023.

Section 5(a)(iii) of the draft regulation requires that consumers are not misled or confused through labelling.

In future, advertisements, which include packaging, must be assessed through the lens of the consumer and what the consumer’s perception of the advertisement may be.

BusinessDay www.businessday.co.za September 2023

9

BUSINESS LAW & TAX

Lying worker must pay up for false claim

NOT WHAT IT SEEMS

Court sets precedent for the right of employer to •damages arising from fraudulent misrepresentation Jonathan Goldberg & Grant Wilkinson Global Business Solutions

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n Umgeni Water V Naidoo And Another (11489/2017P) [2022] ZAKZPHC 80 (December 15 2022) the employer was involved in the bulk distribution of water in KwaZulu-Natal.

The state-owned entity (SOE) designed a graduate development programme.

The employer accepted selected graduates from universities on to the programme in the hope that they would remain with the employer once they had successfully completed it.

The employee applied successfully for a place on the programme. The requirement for the post was, at least, a bachelor’s degree in engineering. The employee said he had a BSc degree in engineering he had obtained from the University of KwaZulu-Natal (UKZN). He produced a copy of his

degree and academic results which resulted in his appointment.

The employer alleged that the employee’s qualification was false and fraudulent and that he did not have a BSc degree from UKZN or from any other university. The SOE

THE HIGH COURT FOUND THERE WERE NO GROUNDS TO JUSTIFY THE EMPLOYEE NOT PAYING THE EMPLOYER BACK gave evidence that it would not have appointed the employee had it known the employee did not have the relevant qualifications.

The employee worked for the SOE from September 1 2008 until the employee’s resignation in 2016. On discovering the fraud, the employer sought the repay-

ment of all amounts it paid the employee. The SOE applied to have the monies recovered from the employee’s pension benefit.

The essential issue to be determined, therefore, was if the employee had graduated from UKZN with a BSc degree in chemical engineering or if there was fraud present.

EMPLOYEE’S DEGREE COULD NOT BE VERIFIED The employee presented nothing to the employer to substantiate he had a degree.

He then tendered his resignation and said that he would serve out his month-long contractual notice.

This was not accepted by the employer, as disciplinary proceedings had by then already began against the employee. However, a few days later, on November 29 2016, the employee submitted another resignation letter, indicating he now would be resigning with immediate effect.

/123RF — PIOTRKT

DISCIPLINARY PROCESS The employer called a witness from the university to testify that the employee begun his studies in the faculty of chemical engineering in 2002 but was thereafter excluded from that faculty in 2004 because he had failed to make significant academic progress with his studies. By way of contrast, the academic record relied on by the employee showed six years of successful study and made no reference to him being excluded from the faculty.

COURT PROCESS The high court found the employee had committed fraud and further that the employer intended to contract with the employee on the basis it believed he had the required degree from UKZN. It turned out that he did not have that degree.

Had the employer known this, it would never have contracted with the employee or appointed him to any position. In other words, no rela-

tionship with the employee would have been developed and no money would consequently have been paid to him by the employer.

The employer claimed the return of all that it paid the employee. Where restitution is claimed, the party claiming it is ordinarily required to tender that which it had received during the disputed relationship.

The high court found that once the employer proved the fraud committed against it, and that the contract had been terminated, it had become entitled to repayment of the amounts it paid the employee in the absence of any evidence proving that restitution would be unjust.

On the evidence led before the high court, it found there were no grounds to justify the employee not paying the employer back what had been paid to him during his employment. was employee The ordered to return what he received from the employer

arising out of the fraud he committed against it.

Accordingly, the high court granted the following order: ● Judgment in favour of the against the employer employee for payment of the amount of R2,203,565.04; ● Interest on the judgment amount at the prescribed legal rate of interest from the date of demand to the date of final payment; ● Declaring that the employer is entitled to execute this judgment against the employee’s provident fund administered by the second defendant; ● The employee would pay the employer’s costs on the scale as between attorney and client.

This case sets a great precedent for the employer’s right to recover damages arising from fraud. It is important to ensure proper verification processes as well as have your offer of employment letters address the conditions of employment.

LEGAL SCOOP

Antitrust bodies must also consider BEE interests Bobedi Seleke Fluxmans

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ill the competition authorities prohibit a merger because there is no BBE ownership?

When evaluating a merger, the Competition Commission and/or the Competition Tribunal — collectively referred to as the competition authorities — examine several aspects to determine whether a merger will significantly diminish or hinder competition within a relevant market. In addition to this, the competition authorities are obligated to take into account wider public interest elements, including the proposed merger’s effects on employment, small businesses and the ability of historically disadvantaged persons (HDPs) or firms to engage in the market.

LEGAL SCOOP In 2018 the Competition Amendment Act, which amended the Competition Act 89 of 1998, assigned the competition authorities with a transformation mandate in addition to its role as a competition/antitrust regulator.

The act introduced new public interest grounds such as section 12A(3)(e) “the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. As a result of the amendments

and the tribunal’s decisions in other cases, the burning question among many business people and investors has been whether public interest considerations outweigh the competition considerations.

Section 12(1A) of the act says that even where a merger does not raise competition concerns, competition authorities are still obliged to determine whether or not the merger can be justified on substantial public interest grounds.

The tribunal has provided much-needed guidance. In the Epiroc Holdings case, the tribunal noted that when conducting a public interest analysis under section 12A(3) of the act, a holistic approach is required. This means that the various public interest factors mentioned in section 12A(3) must be individually evaluated and, subsequently, if needed, balanced against

each other to determine the overall effect on the public interest resulting from the merger.

The tribunal noted that while this previously expressed approach predates the amendments to section 12A, it does not believe that the amendments affect the holistic approach to be followed in an assessment. Therefore, even if, on a consideration of all the evidence, a merger would have a substantial negative effect insofar as section 12A(3)(e) is concerned, such effect might be mitigated or outweighed by positive effects in relation to one or more of the other factors listed in section 12A(3).

In the Epiroc Holdings case, the tribunal found that the significant reduction in HDP ownership that resulted from the proposed merger was balanced against the establishment of an

employee stock ownership plan to promote worker ownership and the positive public interest effects brought about by the merger in relation to the other factors listed in section 12A(3).

As highlighted in the Epiroc Holdings case, it is important to bear in mind that the increase of HDP ownership is not the only public interest consideration.

The assessment of public interest considerations is case-specific and will depend on the nature of the merger and its potential effects on the economy and

PUBLIC INTEREST CONSIDERATIONS PLAY AN ESSENTIAL ROLE IN THE APPROVAL OR REJECTION OF A MERGER IN SA

society at large.

If the competition authorities find that a merger might harm any of the public interest factors significantly, they may impose conditions on the merger or even prohibit it. While competition considerations are central to analysing a merger, public interest considerations play an essential role in the approval or rejection of a merger in SA. The competition authorities strive to strike a balance between promoting competition and safeguarding broader public interest objectives.

As such, in response to the burning question: no.

Competition authorities are unlikely to prohibit a merger solely because there will be a decrease in HDP ownership but it is important to note the competition authorities will consider the overall effect of public interest considerations resulting from a merger.

BusinessDay www.businessday.co.za September 2023

10

BUSINESS LAW & TAX

Battle of the biscuits: the Provita case

FOOD FOR THOUGHT

APPLYING THE LAW TO THE FACTS The judge reached the inescapable conclusion that “the difference between the words PROVITA and SNACTIVE is so vast that it renders it impossible that confusion could arise as a result of the respondent’s use of the brand name SNACTIVE on its getup packaging.”

The judge went on to say this: “While the applicant has a clear trademark right that is protected … the finding that the right does not extend to or include the product means that there is no right of the applicant that has been infringed by the respondent.”

National Brands discovers that a trademark •does not grant it rights to the product itself Liézal Mostert ENSafrica

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n this article, we’ll discuss a recent SA trademark infringement and passing off judgment — the unusual case of National Brands Limited v Continental Biscuit Manufacturers (Pty) Ltd. National Brands is the manufacturer of a snack biscuit that is well known in SA, a biscuit that is sold under the trademark PROVITA. National Brands has an SA trademark registration for the name PROVITA that goes all the way back to 1966. The trademark PROVITA has apparently been in use in SA for some 80 years.

Continental Biscuit Manufacturers also manufactures and sells snack biscuits in SA, most notably a product that was launched in 2012 under the trademark SNACTIVE. This product competes directly with the PROVITA brand.

launch of SNACTIVE, National Brands sued Continental Biscuit by way of motion (application) proceedings for trademark infringement, as well as passing off.

National Brands claimed that the trademark PROVITA is extremely well known in SA, as are the biscuits sold

A SURVEY PRESENTED …

SHOWED 53% OF PARTICIPANTS MISTOOK SNACTIVE BISCUITS FOR PROVITA BISCUITS

argue that “members of the public will immediately identify the PROVITA trademark as well as the PROVITA biscuit shape, appearance and packaging with National Brands”.

National Brands also said that the SNACTIVE biscuits are “virtually identical in shape and appearance to the PROVITA biscuit”.

A survey presented to the court showed that some 53% of participants mistook SNACTIVE biscuits for PROVITA biscuits, and that much of this confusion was based on the shape and the look of the product.

HIGH COURT JUDGMENT under the trademark. National Brands said that the distinctive features of its PROVITA snack biscuit are the following: ● The rectangular shape of the biscuit; ● The rounded edges of the biscuit; and ● The unique patterns of docking holes on the biscuit.

WHEN SNACK BRANDS GO TO WAR

BASIS OF THE CLAIM

In 2020, eight years after the

National Brands went on to

The case was heard by Judge Mbongwe of the North Gauteng High Court.

The judge started off by looking at the law:

THE LAW The judge discussed certain legal principles: ● The definition of a mark in the Trade Marks Act, 1993 covers, inter alia, a device, a container and a shape. ● A mark is distinct from the thing marked and therefore

pertinent remarks, such as: “By seeking to claim a right to the product type, its shape and appearance, the applicant in effect seeks a continuation of its monopoly of the market in the so-called savoury crispbread space.”

As well as: “Registered trademarks do not create monopolies in relation to concepts or ideas.”

STIFLING COMPETITION

the goods themselves could not constitute a ‘mark’ for purposes of the act. ● A mark is a badge of origin, it does not grant copyrightlike protection. ● Confusion between trademarks involves considering issues such as the notional customer and the dominant features of the marks. ● For there to be passing off, there must be a misrepresentation that is calculated to injure goodwill and causes damage.

APPLYING THE LAW TO THE FACTS The judge came to a conclusion that essentially goes as follows: National Brands does have a registered trademark (PROVITA), but that trademark does not grant it rights to the “product itself” (the biscuit), and there has been no infringement of that trademark.

SOME QUOTES FROM THE JUDGMENT The judge made a number of

These words strongly suggest that the judge was somewhat sceptical of National Brands’ motive for bringing these proceedings: “I cannot find fault in the submission by counsel for the respondent that the real basis for the institution of these proceedings was to stifle competition; a move that has been criticised as antithetical.”

CONCLUSION The judge said that this matter should have gone to trial and not be dealt with by way of motion proceedings. Noting that it had taken National Brands some eight years to institute legal proceedings, the judge ordered that punitive costs be awarded against the company.

Sustainable finance regime will come at a cost Jessica Blumenthal ENSafrica The implementation of the sustainable envisioned finance regime, with increased reporting and disclosure requirements, will likely come at a significant cost to financial institutions.

The Technical Paper indicates that financial institutions will need to adapt their strategies, methodologies and modelling to incorporate uniform metrics and address new regulatory requirements introduced under the umbrella of sustainable finance.

As can be seen from the Financial Sector Conduct Authority’s (FSCA) Sustainable Finance Statement, regulators will exercise stricter oversight and require more transparency in respect of the

investments made by financial institutions and the financial products which they offer consumers. Regulators will require disclosure as to how investments contribute to sustainability (including, for example, carbon emission reporting) and how financial institutions measure and manage their environmental, social and governance (ESG) risks.

Indeed, the FSCA’s statement indicates that the regulator is now considering whether the green finance taxonomy should be mandatory, and is actively encouraging supervised entities to consider adoption.

Financial institutions will need to build capacity and prioritise continuous professional development to understand and meet the new requirements.

Additional

monitoring and reporting requirements are likely to require a technology solution or will be labour-intensive, given that these requirements will need to be implemented both internally (for example, by way of increased oversight and reporting of the activities of the board) and externally in relation to each investment (per portfolio and transaction).

AHEAD OF THE CURVE Some financial institutions are already ahead of the curve, having subscribed to various voluntary initiatives requiring similar data acquisition and monitoring processes, but for most it will require redirection.

Implementing a sustainable finance regime globally will also require companies and institutions to bear the

full cost of their enterprise, rather than externalising some of these costs. In addition, the goal of enabling a just transition away from a highcarbon, resource-intensive economy towards sustainable energy production and resource use requires financial institutions to pay closer attention to the ESG components of their investment decisions.

For example, financial institutions will be required to consider whether particular investments benefit local communities or workers.

This may make the investment itself costlier and will certainly require closer monitoring by the financial institution to meet its reporting requirements to the relevant regulator.

However, there remains the potential for huge finan-

cial rewards. There is a growing body of research demonstrating increased long-term financial performance of investments when ESG is implemented.

The increase of climatefriendly technologies, as well as more investor demand for ESG investments, also present huge investment opportunities. In this regard, the Business Commission on Sustainable Development estimates there is more than $12-trillion in market opportunities to address the Sustainable Development Goals.

A PwC report predicts that up to 21.5% of assets under management (representing about $33.9-trillion) will be held in ESG-focused investments by 2026. It is also likely that tax incentives may be introduced to promote a reduction in carbon output.

The work to be undertaken by the FSCA and Prudential Authority in collaboration with other SA regulators will promote certainty and level the playing field between financial institutions. As sustainable finance evolves and becomes embedded within the regulatory sphere, financial institutions will need to have the capacity to adapt quickly to meeting these requirements.

Some of this work is likely already under way by those financial institutions who have adopted voluntary ESG initiatives. As UN secretarygeneral António Guterres has cautioned: to turn the tide on the worst of climate change, “we must turn a year of burning heat into a year of burning ambition”. ● See also page 5.

BusinessDay www.businessday.co.za September 2023

11

BUSINESS LAW & TAX

Numbers play vital role in layoff notices

HEADCOUNT

If employees to be retrenched total more than 50, •different aspects of the Labour Relations Act apply Siphile Hlwatika & Lulu Mokaba ENSafrica

S

ection 189(1) of the Labour Relations Act, 1995 (LRA) stipulates that, if an employer contemplates dismissing employees on the grounds of its operational requirements, it must give notice to this effect to the trade union or employees concerned and enter into a consultation process referred to in section 189.

As per section 189(3)(c), the required notice must also indicate the number of employees “likely to be affected” by the process.

Also, in the case of “largescale” operational requirement dismissals, section 189A becomes applicable.

This means that the parties to the consultation process envisaged in section 189 can request the appointment of a facilitator to assist in the consultation process. This also means that, under certain circumstances, a protected strike can take place opposing the proposed dismissals, and an employer cannot dismiss employees for 60 days from the date on which the notice of contemplated dismissals was provided.

A large-scale retrench-

ment occurs when an employer who employs more than 50 employees contemplates dismissing more than a prescribed number of employees. The prescribed number varies depending on the number of employees employed by the employer.

In the case of an employer who employs up to 700 employees, the prescribed

THE PRESCRIBED NUMBER VARIES DEPENDING ON THE NUMBER OF EMPLOYEES EMPLOYED BY THE EMPLOYER number is 50 employees.

This is qualified by section 189A(1)(b) which states that, when determining if section 189A applies, the number of operational requirement dismissals that took place in the 12 months preceding the date of the notice should also be considered.

In the recent judgment in Solidarity obo Members v Die Humansdorpse Landbou Koöperasie Ltd, the labour court had to determine whether section 189A applied

to a retrenchment exercise carried out by the employer.

In this case, the facts were largely common cause. The employer employed a workforce of about 712 employees.

This implied that section 189A would apply if it contemplated the termination of more than 50 employees’ employment. On March 30 2023, the employer issued a section 189(3) notice to 63 of its employees, indicating that it was contemplating their dismissal based on its operational requirements.

In the notice, the employer mentioned it had dismissed eight employees in the preceding 12 months for operational reasons and that it contemplated retrenching between 35 and 45 employees on this occasion.

At the start of the consultation process, the employer clarified that a maximum of 40 employees would be retrenched and that the previous number, referring to 45 employees, had been issued in error.

After what seems to have been a brief consultation process, the employer began issuing termination of employment notices to employees. Solidarity, representing its members, then launched an urgent application under section 189A(13).

They sought an order compelling the employer to comply with a fair procedure.

Solidarity argued the employer should have followed a section 189A largescale retrenchment process instead of the section 189 small-scale retrenchment process. They believed the employer had indicated the process would “affect” 63 employees. In contrast, the employer contended that section 189A was not applicable because the number of employees it contemplated dismissing (ie a maximum of 40 employees) and the number dismissed in the preceding 12 months (ie eight employees) did not reach the threshold of 50 employees set in section 189A(1). Hence, the employer argued that the labour court lacked jurisdiction to adjudicate the matter.

Essentially, the employer argued that it had given 63 employees notice under section 189(3) because their jobs were potentially “at risk”, but this did not mean they would necessarily be dismissed.

Whether they would be among the 40 employees it planned to dismiss would depend on the applied selection criteria.

Central to the labour court’s analysis was whether the number of employees an

employer contemplates dismissing per section 189(1) differs from the number of employees likely to be affected as per section 189(3)(c).

The court determined that, since the employer had issued notices to 63 employees, each of these employees was, legally speaking, likely to be affected by the proposed dismissals. The court came to this conclusion despite the employer having indicated in the notice that only 40 employees were likely to be affected. This was due to the employer not clarifying the basis of the identification of 63 employees or, at a minimum, the reason any one of the 63 employees could be seen as not under the dismissal contemplation.

The conclusion that 63 employees were likely to be affected triggered the application of section 189A. The court ordered the reinstatement, with retrospective effect, of Solidarity’s members who had been dismissed. It also directed the employer to embark on, and continue with, a meaningful joint-consensus seeking process as set out by section 189 and section 189A. The court also prohibited the employer from dismissing any of Solidarity’s employees prior to comply-

ing with a fair procedure.

It is vital to emphasise that, contrary to the labour court’s finding, there is a discernible difference between the number of employees likely to be affected and the number contemplated for dismissal. This distinction stems from the fact that an employer, when contemplating retrenchments, first identifies the departments most likely to face retrenchments, thus setting a category of employees.

The employer then pinpoints within that category the number of employees that are contemplated for dismissal to meet its operational requirements and consider appropriate selection criteria.

However, this process does not prevent the employer from notifying and inviting all employees within the established category who occupy the same job roles to consult. This is because any one of these employees could potentially be part of those who will eventually be retrenched This perspective was confirmed in Delport v Parts Incorporated Africa of Genuine Parts (Pty) Ltd, where the labour court held that “once the employer believes that he has to terminate the employment of any employee for operational requirements, it needs to collectively meet with its employees within the category of employees from which category it seeks to minimise the staff complement”.

If one accepts that the 63 employees who were given notices were those contemplated for dismissal, this would imply that the number of dismissals was predetermined to be 63 employees at the start of the process, making the retrenchment a fait accompli. Adopting this stance would be contrary to the objectives of the LRA. ● Reviewed by Peter le Roux, an Executive Consultant in ENSafrica’s Employment practice.

Climate change crisis worse for women Natasha Wagiet ENSafrica “If you take away land from women in the rural areas, you take away their livelihoods; you take away the very thing that they identify with. We fight. Because we have nothing else to lose.” — Zimbabwean activist Melania Chiponda Amid warmer temperatures, more droughts, greater loss of species, more severe storms, food scarcity, growing health risks and poverty forced displacement of vulnerable people are increasing and often directly linked to climate change.

It is also becoming

increasingly apparent that the impacts of climate change are not the same for men and women.

Women, particularly in the developing world and in rural areas, are more vulnerable than their male counterparts.

They are more likely to live in conditions of poverty and although they dominate the world’s food production, they own less than 10% of the world’s land.

They are also more reliant on the land and natural resources for their livelihood and they have less access to resources such as land, education and skills training compared to men. This makes them less equipped to

deal effectively with the impacts of climate change and to implement essential changes to mitigate its negative effects.

Women occupy far fewer leadership roles compared to men, excluding them from decision-making or having input on strategies to minimise the devastating effects of climate change. It is ironic that those most affected by it are not afforded a voice nor do they occupy roles where key strategic decisions are taken.

The effects of climate change are also often felt more acutely by women due to their traditional role in society. Largely home-based

— particularly in developing and rural areas — women are tasked with a larger share of the mammoth task of securing living conditions and looking after children and the elderly.

During extreme weather patterns such as droughts and floods, women tend to work more to secure the

THE SECTOR FACING THE MOST DEVASTATING EFFECTS OF CLIMATE CHANGE NEEDS TO BE PART OF ANY SOLUTION

household. They may have to travel further (often by foot) to access water and viable food supplies, exposing them to danger. These burdens leave little time for women to access education and develop skills that will enable them to earn and thrive in the 21st century.

Climate change is arguably the most pressing struggle we face in the 21st century. Women need to be at the forefront of decision making and be key players in all aspects related to tackling the challenges posed by climate change. The sector of society facing the most devastating effects of climate change needs to be part of any solu-

tion devised.

While climate change affects each one of us, it is evident that climate change is nevertheless not gender neutral.

Vulnerable women are disproportionately affected in negative ways by climate change. All interventions thus need women at their core.

Desmond Archbishop Tutu said: “Never before in history have human beings been called on to act collectively in defence of the earth.”

The time is now, we are close to the clock striking midnight and thus we need to work collectively and inclusively to overcome this most pressing challenge.

BusinessDay www.businessday.co.za September 2023

12

BUSINESS LAW & TAX

Parts of Fica amendment now in force

AMENDMENTS: TAKE NOTE

sanctions controls against money laundering •andNewfinancing terrorism and related activities Lerato Lamola & Christopher Williamson Webber Wentzel

O

n August 18 2023, the finance minister published Notice 3803 in the Government Gazette on the commencement of sections 6 and 43 of the Financial Intelligence Centre Amendment Act 1 of 2017.

These sections took effect on the date of publication.

Section 6 amends the heading of chapter 3 to the Financial Intelligence Centre Act 38 of 2001 (Fica). The heading of chapter 3 now reads: “MONEY LAUNDERING, FINANCING OF TERRORISM AND RELATED ACTIVITIES AND FINANCIAL SANCTIONS CONTROL MEASURES.” Section 43 of the act amends section 56 of Fica to include subsection (2), which provides that: “(2) An accountable institution that fails to report to the centre the prescribed information in respect of an electronic transfer of money in accordance with section 31, is noncompliant and is subject to an administrative sanction.”

Section 31 of Fica, read with regulations 23D and

24(5) of the Money Laundering and Terrorist Financing Control Regulations, 2002 (regulations), places an obligation on accountable institutions to file an international funds transfer report (IFTR) with the Financial Intelligence Centre (FIC) when sending or receiving electronic transfers of money from outside or into SA involving amounts above R19,999 on behalf of, or on the instruction of, another person. The IFTR must be filed with the FIC within three days of the transaction or transfer date. The IFTR must also contain the prescribed particulars stipulated in Regulation 23E. A failure to file an IFTR in accordance with these provisions constitutes an offence, for which any person or institution, on conviction, could face imprisonment for up to three years or a fine of up to R1m. Any person or institu-

PEOPLE WHO ARE APPOINTED TO PROVIDE TCSP FUNCTIONS IN A PERSONAL CAPACITY ARE NOT REQUIRED TO REGISTER AS A TCSP

tion who fails to file an IFTR within the prescribed period is regarded as noncompliant and will be subjected to an administrative sanction. This sanction may include financial penalties of up to R10m for natural persons and R50m for legal/ juristic persons.

These amendments are aimed at further strengthening SA’s antimoney laundering, counterterrorism financing, and counterproliferation financing legislative regime.

Public Compliance Communication No. 6A — Guidance on trust and company service providers as Item 2 in Schedule 1 of the Financial Intelligence Centre Act, 2001 On August 18 2023 the FIC published Public Compliance Communication No. 6A — Guidance on trust and company service providers as Item 2 in Schedule 1 of the Financial Intelligence Centre Act, 2001 (PCC 6A).

PCC 6A replaces Public Compliance Communication No. 6 in line with the updated definition of Item 2 of Schedule 1 to Fica which relates to trust and company service providers (TCSPs). PCC 6A is intended to provide guidance on the scope and meaning of TCSPs. A TCSP is defined in Schedule 1 of Fica as:

/123RF — NIALOWWA ● “(a) A person who carries on the business of preparing for or carrying out, transactions for a client, where — the client is assisted in the planning or execution of — ● (aa) The organisation of contributions necessary for the creation, operation or management of a company, or of an external company or of a foreign company, as defined in the Companies Act, 2008 (Act 71 of 2008); ● (bb) The creation, operation or management of a company, or of an external company or of a foreign company, as defined in the Companies Act, 2008; or ● (cc) The operation or management of a close corporation, as defined in the Close Corporations Act, 1984 (Act 69 of 1984.) ● (b) A person who carries on the business of — acting for a client as a nominee as defined in the Companies Act, 2008 (Act 71 of 2008); or arranging for another person to act for a client such as a nominee. ● (c) A person who carries on the business of creating a trust arrangement for a client. ● (d) A person who carries

on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safekeeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1998 (Act 57 of 1988).” (own emphasis) Any person who carries on any one or more of the

THE WORD ‘TRUST’ IN ITEM 2 OF SCHEDULE 1 INCLUDES TRUSTS CREATED BETWEEN PARTIES AND BOTH LOCAL AND FOREIGN TRUSTS activities listed under the amended definition of a TCSP in Schedule 1 of Fica is an accountable institution and must comply with the accompanying obligations.

The definition is based on the activity that is performed by a person. Different professions are included in this category of accountable institutions. PCC 6A provides that

the word “business” in the phrase “carries on the business” means a commercial activity or institution, as opposed to a charitable undertaking or government institution.

People who are appointed to provide TCSP functions in a personal capacity, as opposed to doing so on a commercial basis as a feature of their business offering to clients, are not required to register as a TCSP. PCC 6A states that a commercial basis includes where a person offers a TCSP service as part of their service offering to clients, regardless of the number of clients that use it.

The word “trust” in Item 2 of Schedule 1 includes trusts created between parties (inter vivos) and both local and foreign trusts. However, trusts created by: ● A testamentary disposition (mortis causa); ● A court order; ● A person under curatorship; or ● The trustees of a retirement fund in respect of benefits payable to the beneficiaries of that retirement fund are excluded from this item.

It should also be noted that a person could perform either one or a combination of the four TCSP business activities in Item 2.

If that person meets the definition of multiple business operations, they must register on the FIC’s registration and reporting platform as either a “company service provider” or a “trust service provider” or both. If a person is registered with the FIC as an accountable institution, under a different Schedule 1 item, and in addition performs the functions of a TCSP, they would be required to register additionally with the FIC as an Item 2 TCSP. This is referred to as dual registration.

PCC 6A gives guidance on the inherent risks and potential risk indicators relating to TCSPs.