It’s all fun and games until commercial, legal risks bite
• Sport simulation technologies offer exciting possibilities for entertainment and athletic
Isaivan Naidoo & Alexander Powell ENS
In recent years, sports simulation technologies have revolutionised how sporting fans and athletes engage with and experience traditional sports From realistic video games to advanced training simulators, these technologies are designed to provide immersive experiences that replicate real-world sporting activities and scenarios
However, as the industry grows, it brings with it a range of legal risks and commercial considerations for both the end users and the developers of these technologies In this article, we explore current trends in
sports simulation technologies and the potential risks involved in their use
Sport simulation technologies cover various applications and mediums designed to replicate realworld sporting activities and scenarios Some of the main sports simulation technologies include:
● Sports video games such as Fifa, NBA 2K and Madden NFL provide highly detailed
FITNESS AND EXERCISE APPLICATIONS USE GAMIFICATION AND SIMULATION TO MAKE WORKOUTS MORE ENGAGING
training
and realistic representations of real-world sports, allowing players to control and manage their favourite teams and athletes;
● Training simulators use a combination of virtual reality, augmented reality and other technologies to create realistic environments which can simulate sporting challenges at various difficulty levels Examples of training simulators include 3D play visualisations, virtual reality batting cages for baseball or augmented reality golf simulators; and
● Fitness and exercise applications use gamification and simulation to make workouts more engaging Cycling application Zwift, which simulates cycling routes and races, allows users to parti-
cipate in races remotely using Zwift bicycles
However, there are legal risks that must be well understood Let’ s look at some of them
● Licensing and sponsorship agreements Companies that develop sport simulation technologies must ensure that they have
VIDEO GAMES SUCH AS FIFA, NBA 2K AND MADDEN NFL PROVIDE REALISTIC REPRESENTATIONS OF REAL-WORLD SPORTS
proper licensing agreements in place which grant the company the right to use relevant branding in respect of clubs, teams, athletes and other logos or branding Unauthorised use of branding without proper licensing from the proprietary owner of the intellectual property (IP) in question may lead to claims being instituted against the company as well as potential reputational damage Furthermore, companies must ensure they have appropriate sponsorship agreements which address the right to commercialise and use “player likeness” or other branding in their sports simulation technologies
● Data privacy and security Sport-simulating technologies often collect extensive personal information, including biometric and/or healthcare information Companies should ensure they have all the necessary data subjects’ consent to collect, store and process personal information through their technologies In the absence of express data subject consent, companies should ensure one of the other grounds for the lawful processing of personal information is present, for example, the legitimate interests or the performance of obliga-
VIRTUAL REALITY
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BUSINESS LAW & TAX
Don’t neglect the ‘S’ in ESG
• Improving socioeconomic rights is a pressing concern amid clamour over the environment
Evan Pickworth Business Law & Tax Editor
Recent interviews I have conducted over the past few weeks with executives of large entities and from leaders within law firms have highlighted the sense of urgency being placed on sustainability, especially in the context of improving socioeconomic rights and access to justice
A look at recent headlines may, however, leave you thinking that the “E” in ESG (environment, social and governance) is the only one receiving attention
Yet Natasha Wagiet, pro bono manager overseeing ENS’ s CSI portfolio at Mitchells Plain and Khayelitsha in Cape Town and Alexandra in Johannesburg, paints a refreshing picture of how targeted work on the ground and within communities can drive societal change that matters
This includes working with vulnerable individuals and groups, impact litigation support and advocacy
There is no doubt an urgent need to protect and deliver access to justice in SA and globally as poverty, crime and corruption continue to rage Improving socio-
economic rights and the social aspects of ESG is a pressing concern that still needs to be addressed in many areas I recently spoke to Thuli Tabudi, head of ESG at SPAR, and her message was to move beyond one-dimensional grant funding to drive a broader ESG purpose This will require new ways of doing things and getting out of comfort zones Simply ticking a box, signing a cheque and walking away from a devel-
THERE IS NO DOUBT AN URGENT NEED TO PROTECT AND DELIVER ACCESS TO JUSTICE IN SA AND GLOBALLY
opment initiative is not the right approach
Among new initiatives I have noted was the opening of Cradock’ s first Thuthuzela Care Centre for victims of gender-based violence
More than 60 Thuthuzela centres, which are led by the National Prosecuting Authority with the support of SPAR, are attached to hospitals across the country Here, survivors of rape and other sex crimes are offered medical and psychological care as well as potential justice for the attacks against them
This comes as the rate of violence against women and girls in SA is among the highest in the world, with one in five women in relationships estimated to have experienced physical violence by a partner Many more have suffered other forms of violence by men they know and strangers
It is also good to see that the GBVF Response Fund, established in early 2021 as a bridging mechanism to support the National Strategic Plan (NSP), has made significant strides contributing to addressing prevention, social cohesion, justice, safety, protection, response, care, support and healing It reports increased accessibility and improved quality of
support services through partnerships and collaborations Awareness campaigns, knowledge enhancement and skills development equip stakeholders to respond to GBVF more effectively
These are all steps in the right direction, all giving the “S” in ESG the attention it deserves
With SA’ s youth unemployment rate not far off those in war zones, it is equally clear there is plenty more work to do in areas like socioeconomic rights
From a policy perspective, it would be positive if policymakers analysed the economic impact of their policies Anything that erodes socioeconomic rights, does not drive economic growth and limits access to justice
should not see the light of day, no matter how Utopian the policy may sound to those sitting in committee hearings
Those listening to these dreams in policies should stand up and ask the hard questions: will they actually create jobs, protect the vulnerable and build a sustainable society? If not, shelve the policy
MANDELA’S ADVICE
Nelson Mandela, on the 50th anniversary of the Universal Declaration of Human Rights (September 21 1998), offered this important advice on how to get this right
“The challenge posed by the next 50 years of the Universal Declaration of Human Rights, by the next century whose character it must help to fashion, consists in whether humanity, and especially those who will occupy positions of leadership, will have the courage to ensure that, at last, we build a human world consistent with the provisions of that historic declaration and other human rights instruments that have been adopted since 1948 ” He also said: “It is in your hands to make a better world for all who live in it ” It is time everyone individuals, civil society, the private sector and the public sector took this on board I loved the way Wagiet concluded our recent interview: instead of celebrating Nelson Mandela Day once a year, why not make a pledge to do it every day? I could not agree more
It’ s all fun and games until risks bite
tions under a contract with the data subject Companies must comply with data protection regulations such as the Protection of Personal Information Act 4 of 2013 and the General Data Protection Regulation (EU) 2016/679 to avoid hefty fines and reputational damage To the extent that personal information is transferred across borders, companies should ensure they have obtained the necessary consent to transfer such personal information
● Technical and organisational safeguards Companies must procure and deploy robust cyberdata security measures to safeguard end-user information This will entail implementing organisational and technical safeguards to guard against loss of, damage to or unauthorised destruction of per-
sonal information and against unlawful access to or processing of personal information
● Physical safety and liability
Users of training simulators based on virtual reality and augmented reality could suffer physical injuries due to falls or collisions with other objects It is essential companies design products with
physical safety in mind and provide appropriate warnings and instructions for use
Companies should consider including waiver provisions in their end user licence agreements disclaiming liability by providing that: (i) the technology is provided on an as-is basis; and (ii) the end user agrees to use the product at their own risk Companies should ensure that they
have limited their liability to an acceptance level
● Monetisation and revenue models
Subscription models: Due to the vast quantity of data generated through the sport simulation technologies, companies can develop a business model in which users can subscribe to premium services, which provide users with statistics and data insights based on their performance and provide insights on how to improve their performance
● Microtransactions and in-game advertising
For sporting video games, microtransactions and advertising are common revenue streams for sporting entities
An example is Fifa s Ultimate Team packs, where a user purchases a pack without knowledge of which player cards they will receive
However, companies that offer this sort of LootBox functionality to a global audience should be cognisant of the fact that some jurisdictions have banned this sort of offering because it amounts to unlawful or underaged gambling
● Monetising data
As professional athletes are the target base for augmented and virtual reality simulation technologies, companies should ensure they have established a data monetisation plan, which should address, inter alia, the company ownership over the usage data (for example, per-
formance and use statistics) and the company s right to commercialise and sell the data as part of other data products or offerings
Sport simulation technologies offer exciting possibilities for both entertainment and athletic training However, companies and end users must be aware of the legal and commercial risks associated with the use of these sporting technologies
By understanding and addressing the risks identified above, companies can better navigate the evolving landscape of sports simulation by ensuring their technologies comply with any licensing, IP and data privacy requirements while at the same time ensuring they have built a contractual framework that enables the company to monetise the data generated through simulation technologies
BUSINESS LAW & TAX
Kings and Queens rulings
• Two decisions on whether trademarks are confusingly similar
Tevin Jones
ENS
Confusing similarity lies at the heart of trademark law A trademark application can be refused on the basis of, inter alia, a confusingly similar earlier trademark application or registration A trademark registration can also be removed from the register on the basis of a confusingly similar earlier trademark application or registration
The use of a trademark can be stopped on the basis of a confusingly similar prior registered trademark
So, let’ s discuss confusing similarities by considering two recent decisions, one in Japan and the other in the EU
JAPAN ROGER KING
The application
Hirota Gold Incorporated applied to register the trademark ROGER KING (stylised) in Japan in class 28 for golf clubs, golf club head covers, golf bags, golf equipment and sports equipment The trademark consists of the name in a slightly stylised form The trademark is seemingly used for golf-related goods The application was granted (registered) on April 14 2023 and published for post-grant opposition
The opposition
The registration for ROGER KING (stylised) was opposed by Tenro, a Swiss company established by the most famous of Rogers yes, Roger Federer In the opposition proceedings, Federer’ s company relied on its international registrations for the trademarks THE ROGER and ROGER, both in class 25 covering clothing
TENRO ARGUED THAT THE WORLD’S GREATEST TENNIS PLAYER (SOME MAY DISAGREE) IS OFTEN REFERRED TO AS KING ROGER
The opposition document claimed that consumers would associate the trade-
mark ROGER KING (stylised) with Roger Federer
In support of this claim, Tenro argued that the world’ s greatest tennis player (some may disagree) is often referred to as King Roger if you are not convinced, Google the words “Roger Federer King” The argument was that there are similarities between the trademarks ROGER KING (stylised) and
King Roger in terms of appearance, sound and meaning
The Japan Patent Office (JPO)
The JPO dismissed the opposition It had quite a bit to say, but in short, it held that:
● Notwithstanding any claims made by Tenro, Roger Federer may indeed be very well known, but he is not known simply as Roger;
● There was no evidence or reason to believe that the cited trademarks THE ROGER and ROGER are widely recognised in Japan as a source indicator (in other words, a trademark);
● The trademarks ROGER and THE ROGER are clearly distinguishable, both visually and orally, from the trademark ROGER KING (stylised); and
● There is unlikely to be any consumer confusion
This must have hurt it is rare for Roger to be blown off court!
EUROPEAN UNION CHIQUITA QUEEN
The issue in this case was whether the trademarks RED QUEEN Label and CHIQUITA QUEEN, both for fresh fruit, are confusingly similar
The BOA held that the trademarks RED QUEEN Label and CHIQUITA QUEEN would be confused It considered the matter through the eyes of Spanish consumers and said that the dominant and most distinctive feature of the trademarks was the word Queen The word “Chiquita” means “little girl” or plain “little” in Spanish, whereas the word “Red” will be understood by most Spaniards General Court dissimilar The General Court overruled the decision of the BOA, holding that the trademarks RED QUEEN Label and CHIQUITA QUEEN were dissimilar It stressed that the trademark CHIQUITA QUEEN has a reputation in the EU (and in Spain) and is therefore distinctive
● Reviewed by Gaelyn Scott, Head of ENS’ s IP Practice
Wanton waste of unlawful appointments
Prof Darcy Du Toit BCHC Attorneys
SA continues to count the cost of state capture while the public sector persists in its ongoing struggle to overcome its malignant legacy
One of its most destructive manifestations was an exodus of competent civil servants and their subsequent replacement with corrupt individuals committed to enriching themselves at the expense of the institutions under their control
Unlawful appointments of senior officials have been a feature of the process This is not to say that lawfully appointed officials cannot be corrupted, nor that officials whose appointments are flawed are necessarily corrupt However, experience has shown that bypassing appointment processes is an important link in the chain of corruption
To put it simply: if the unspoken job requirement for a senior appointee is to aid and abet the looting of state coffers, the favoured candidate might not necessarily meet the formal requirements and, as a result, the appointment may well be unlawful However, it may take time and litigation as well as political will to remove the incumbent from their undeserved position
But even where looting is not the object and the pur-
pose is only to provide an unqualified individual with a well-paid sinecure, it presents an obstacle to rebuilding a functional state apparatus In 2011, the Municipal Systems Act was amended to address what the Constitutional Court has termed an alarming increase in the instances of maladministration within municipalities by introducing measures to ensure that professional qualifications, experience and competence were the over-
A CASE COULD BE MADE THAT, FOR SENIOR POSITIONS, MORE IS NEEDED TO FORESTALL UNLAWFUL APPOINTMENTS
arching criteria governing the appointment of municipal managers
Despite that, unlawful appointments to senior positions in the public sector were still continuing and were still being defended by those responsible
ILLUSTRATIONS OF UNLAWFUL APPOINTMENTS
In Western Cape Provincial Minister of Local Government, Environmental Affairs and Development Planning v Central Karoo District Municipality, the appointment of Truman Prince as acting municipal manager was at issue The basis for the challenge was not his notorious track record but the fact that he lacked the five years experience at senior management level which is an
essential requirement for the position
Despite this, the municipal council voted to appoint Prince with immediate effect
His defence, that he possessed the necessary “de facto experience” , was dismissed by the court To accept such “ an undefined category” , Judge Gamble pointed out, “would permit an unqualified person to insidiously creep into a position”
His appointment was therefore declared null and void and leave to appeal was refused
Two further cases recently decided by the Public Protector tell a similar story The first involved the appointment of MH Dastile to the position of Manager: Employee Wellness of Matjhabeng local municipality
Registration with a statutory body either the South African Council for Social Services Profession or the Health Professionals Council of South Africa (HPCSA) was a minimum requirement for the post, a qualification which Dastile lacked His only affiliation was with a private organisation, the Employee Assistance Professionals Association of SA
Nevertheless, Dastile submitted an HPCSA registration certificate which had not been issued by the HPCSA (for which the HPCSA subsequently opened charges of fraud against him) Following
verification, the municipality’ s litigation manager was informed that Dastile was not registered with the HPCSA Despite this, she signed his letter of appointment
Dastile did not respond to the Public Protector’ s request for submissions on relevant issues In a detailed 60-page report, the Public Protector found that his appointment was unlawful and, among extensive remedial measures, ordered that disciplinary action be taken against him
More recently, a report by the Public Protector (not yet published) exposed a string of irregularities in the appointment of Dr Ashley Mthunzi as head of Tembisa Hospital, Gauteng Media reports describe how, among other things, he was suspended in August 2022 after being implicated in a tender scandal involving R1bn and died in April 2024 while still on suspension, having been paid some R2 5m in salary for his services
Again, the Public Protector ordered remedial action by
DASTILE DID NOT RESPOND TO THE PUBLIC PROTECTOR’S REQUEST FOR SUBMISSIONS ON RELEVANT ISSUES
the Gauteng Provincial Government to avoid recurrences On the one hand, it is encouraging to find current Public Protector Kholeka Gcaleka performing her duties with a degree of conscientiousness in stark contrast to that of her predecessor Yet it is clear that, despite her role and that of the courts, the allure of public funds remains a powerful incentive for bypassing the requirements for jobs offering access to those funds
The problem is not so much that the applicable legal rules are unclear; it is that responsible officials repeatedly disregard those rules A case could be made that, for senior positions, more is needed to forestall unlawful appointments, thereby avoiding future litigation and financial loss
For instance, drawing on the precedent of labour dispute resolution, independent outside persons with suitable qualifications could be appointed to be part of the process and monitor each step, with appropriate powers of intervention to prevent or rectify irregularities
Had such a mechanism been part of existing law, it can safely be concluded, none of the three appointments described above would have taken place and huge amounts of public funds could have been saved
TENNIS ROYALTY
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BUSINESS LAW & TAX
Cybersecurity must keep pace with AI threats
• Cyber breaches and attacks in SA increased by 22% in 2023
Wendy Tembedza, Dario Milo & Dumisani Ndiweni Webber Wentzel
While tools such as ChatGPT have caught the public imagination, artificial intelligence (AI) and machine learning (ML), a branch of AI, are now important tools in industries ranging from travel and insurance to media and finance
However, as AI’ s capabilities improve, so does the danger it poses to cybersecurity, increasing incidents and attacks According to the South African Banking Risk Information Centre, cyber breaches and attacks in SA increased by 22% in 2023
More specifically, occurrences of phishing, ransomware and unlawful access to information have all increased markedly, with the number of victims making ransomware payments increasing by 20% in 2023
The exponential developments in AI technology have had a notable impact on these statistics
Furthermore, the National
The
ACyber Security Centre in the UK published a sobering assessment earlier this year
Generative AI and large language models (a subset of ML) will make it difficult for any person, regardless of their cybersecurity understanding level, to assess whether an email, password reset, identity request or social media engineering request is genuine or not
MATERIALS ASSOCIATED WITH CYBERSECURITY BEST PRACTICES SHOULD
BE MADE EASILY ACCESSIBLE TO EMPLOYEES
AI and ML tools are and have been trained to understand how a person reads and responds to an email, impersonating to such a degree that responders cannot tell the difference between the person and the tool designed to mimic them
As an employer, cybersecurity risk primarily lives with negligent and intentional
employees who either make judgment errors or intentionally subvert an organisation’ s cybersecurity policies and procedures
In cases where an employee is suspected of aiding or abetting a cybersecurity breach, they can be suspended ahead of the associated investigation The suspension ought to be precautionary in nature and not punitive There is no longer a legal requirement for an employer to afford an employee an opportunity to provide reasons as to why the employee should not be suspended, the employer may proceed with the suspension without obtaining reasons from the employee
Following suspension, and if an investigation yields a finding that prima facie evidence exists of fraud, a disciplinary inquiry can be initiated with dismissal as a possible outcome Given current international trends, SA will likely soon see class action lawsuits due to data breaches, making data policy and cybersecurity matters of existential importance to any organisation handling large volumes of consumer data
SECURITY PROTOCOLS
Organisations can take several steps to prevent data breaches or reduce their exposure to cybersecurity risks
As a first step, organisations should do their utmost to understand where key vulnerabilities exist Typically, these are:
● Employees using weak passwords on their personal and work devices Furthermore, employees who make password information publicly available to a passerby, such as an external service provider, by sticking a note on a monitor screen for ease of memory
● Employees sharing their passwords with each other due to interdependencies or availability challenges
● Improper handling of password-protected work devices, such as allowing family members or external associates to use them for non-work purposes
● Phishing, which arises as much from employee error as it does from an organisa-
CONSUMER BILLS
tion failing to update its security protocols and cybersecurity software
● Employees regularly neglecting to update their devices Updates are a vital defence of any IT infrastructure since they have the latest best practices built into them
Beyond the above preventative measures, organisations need to prioritise regular employee cybersecurity training and cybersecurity itself Cybersecurity training should be mandatory and held regularly Materials associated with cybersecurity best practices should be made easily accessible to employees
MANDATORY TRAINING
Proactive cybersecurity management must involve and be championed by an organisation’ s upper management Organisational leaders have outsized influence over employees’ ability to absorb training and best practices when directed In
addition, cybersecurity training has to be mandatory during the recruitment and employee onboarding process In our experience, some employers have gone as far as providing cybersecurity training to potential hires before contract finalisation and then making the new employee do it a second time as part of their induction Others run drills and simulations of cybersecurity threats so that their teams understand what decisions should be made in situations where speed is vital
Given the speed of AI development, employers are advised to codify data breaches or negligence relating to a data breach as misconduct within their disciplinary codes Policies that govern IT use within an organisation should also be constantly updated to match as best as possible developments within the cybersecurity landscape
waxing and waning of the ignorance defence
lthough in some circumstances, ignorance of the law or ignorance of the facts may be a defence against a criminal prosecution or a civil claim, there is not, and never has been, a presumption that everyone knows the law
Ignorance of the law may be an excuse in a criminal case because knowledge by an accused of unlawfulness of their conduct is a requirement
However, a person who takes part in a particular sphere of activity is expected to know the law relating to that activity For instance, a builder is expected to know building regulations
The 1977 case in which the principle was explained led to a partial conviction
PAT R I C K B R AC H E R
under the exchange control regulations of a woman who took money and jewellery out of the country
She knew she needed permission to take money out of the country and was convicted of doing so unlawfully She had previously taken jewellery out of the country and returned with it and was justifiably under the impression she did not need permission to take the
jewellery out She was acquitted on that count
In civil law there are growing instances where ignorance of the law or failure to apply the law will not be held against the person concerned A medical malpractice claim by an adult patient against a doctor is normally extinguished by prescription after three years
The courts have recently held that the claimant s ignorance there is a legal claim at all on the facts may mean the three years only commenced from when the claimant acquired that knowledge
Since Classical Roman times, ignorance has been accepted as a defence in some circumstances and this excuse has had a growing
influence ever since The 2024 question is whether artificial intelligence, particularly generative AI, will have the effect of curbing the scope of this defence
It is becoming increasingly possible for all the law applicable to our activities, and many of the required facts, being available by asking a few pointed questions to an easily accessible generative AI programme In the exchange control example, anyone leaving the country can find out instantly what the exchange control laws affecting them are
The Romans gave the example of a property owner who leased pasture land to a farmer whose cattle died because the pasture
contained poisonous herbs Liability was excused because of the lessor s ignorance of the facts
Nowadays it may be easily possible to ascertain the facts about the suitability of the pasture by a simple online search or asking a few questions to one of the leading generative AI platforms
There are millions of pages of legislation affecting us, depending on what activities we engage in
GENERATIVE AI PLATFORMS ARE ABLE TO DO MUCH BETTER IN EXAMS THAN THE AVERAGE STUDENT
Currently, existing generative AI platforms are able to do much better in exams than the average student Universities and other educational institutions complain that students are using AI to compensate for their laziness or ignorance The likelihood is that generative AI will not only do better in exams, it will do better in practice
Ignorance of the law may no longer be an excuse But there is a fine balance to be drawn between training people to use AI so that they can operate in the modern world, and making them criminally liable if they don t
BUSINESS LAW & TAX
Competition Act and the public interest
• After 25 years, context is critical in understanding SA’ s evolving competition law landscape
Shawn van der Meulen, Dudu Mogapi & Elisha
Bhugwandeen
Webber Wentzel
Over 25 years, the Competition Act has contributed to breaking cartels and monopolies and assisted in creating greater participation in our economy
However, views exist in certain legal and business circles that SA’ s competition law amounts to red tape that discourages economic activity, with the recent focus on public interest, an area of strident debate
This debate was part of a recent event celebrating the 25th anniversary of the Competition Act, which was hosted by Webber Wentzel’ s Competition, Trade and Investment Team in collaboration with Through Line Advisors
Judge David Unterhalter SC, recently appointed to the Supreme Court of Appeal, presented the keynote address at the event In his opening address, Judge Unterhalter noted that 25 years is a “significant period” , with much to reflect on, but that SA has developed a competition law jurisprudence
and an institutional culture that were widely praised internationally
“There’ s much to celebrate, but we should also take this milestone to think a little about the road ahead and what we can do,” he said
He remarked that the Competition Act and its associated institutions have faced several challenges over the past 25 years, each with varying levels of complexity
He also noted that the use of public interest in merger control was vital Public interest, depending on who was asked, either linked mergers to wider socioeconomic consequences or had come to exceed the bounds of what it was intended for, driving up costs to the point of deterring transactions and foreign investment
Judge Unterhalter felt it was important to understand if this tension was achieving
OVERALL, BETWEEN 2018 AND 2023, THE TURNAROUND TIME FOR LARGE MERGERS OVER SIX YEARS HAD BEEN 21 DAYS
its objectives or if it was “simply chasing away wouldbe suitors in an economy where investment has been too meagre”
The judge president of the Competition Appeal Court, Judge Norman Manoim, also spoke at the event as part of a panel session with the Competition Tribunal chair, Mondo Mazwai Mazwai highlighted that mergers are the lifeblood of an economy and explained how the Covid-19 pandemic led to a shift away from cartel investigations with a greater focus on excessive pricing cases
When asked about the current focus on public interest in competition law, Judge Manoim said that SA is actually a pioneer in how the public interest is treated in the act
He noted that “while there is a relative degree of legal certainty around the public interest and employment, the question of ownership and the public interest still lacks definitive certainty, which will develop over time with regard to a greater spread of ownership, the jurisprudence is still evolving”
A panel consisting of Advocate Michelle le Roux SC, Nomusa Dhlamini (MD at Prax SA), Tamara Mokoka
(head of mergers & acquisitions at the Competition Commission) and Shawn van der Meulen (partner at Webber Wentzel) debated the concern that competition law is viewed as part of the red tape preventing foreign direct investment into SA Mokoka provided a view on the commission’ s current performance processing merger applications She noted that phase one mergers (ie mergers that are classified as not complex) had declined significantly in recent years, only representing 4% of all mergers handled by the commission in 2023 Overall, between 2018 and 2023, the turnaround time for large mergers over six years had been 21 days Phase two was 43 days and phase three was 121 Mokoka said that before the Burger King merger in 2021, the commission was looking at 10% to 15% of cases being approved with conditions It’ s now more than 40% a three-and-a-half times increase in conditional approvals Dhlamini added that from the merger parties’ point of view, the outcome and the efficiency of the process is dependent on how well an organisation arranges itself as
a response team Dhlamini’ s view was that a dedicated response function should be formed versus selecting a person who also has to contend with their day-to-day responsibilities, with a split focus creating unnecessary risk that can lead to finalisation delays in an M&A transaction Some concerns Dhlamini shared about the current landscape of competition law included the necessary yet complicating presence of third-party opinions in merger transactions and the Competition Commission at times stepping outside its mandate
Le Roux remarked that the latest public interest (PI) guidelines, gazetted in March 2024, codified elements that existed in recent amendments to the Competition Act “Competition law is already massively interesting and complicated But when I read the PI guidelines that now say that when we ’ re looking at the impact on a sector or region, we ’ re now going to think about how much tax, rates and taxes that local municipality will get postmerger,” she said
In doing so, you begin straying into “polycentric questions around carbon
emissions and impact on the environment and the socioeconomic circumstances of communities” , areas that demand specific expertise Van der Meulen emphasised the importance of companies thinking about the public interest considerations demanded by the act at the outset of merger negotiations “I think it’ s actually now incumbent on business to factor that in at the outset when creating your deal, because often public interest commitments or concessions or structures that need to be put in place come at a commercial cost to the deal itself ” Van der Meulen noted it is no longer appropriate to only try to deal with public interest issues after a competition merger filing has been submitted to the commission He added that “there is a need for businesses to engage with these issues earlier in the process, to identify what the key issues and public interest outcomes of their deals will be, and to address these in their merger filings” While the debate goes on, the way forward will require collaboration between, and proactiveness from, the competition regulators, legal practitioners and business
Businesses take issue with sectoral targets
Jonathan Goldberg & John Botha Global Business Solutions
South African businesses remain committed to advancing transformation in the workplace and supporting the objectives of the Employment Equity Act
However, concerns have been raised regarding the draft regulations on proposed sectoral numerical targets published earlier this year by the employment & labour department
In the current economic climate, businesses are grappling with significant challenges, including technological disruption, sluggish economic growth, low produc-
tivity levels, political uncertainty and various social issues Against this backdrop, the proposed targets for designated groups per occupational level, which are based on race, gender and persons with disabilities, appear to be irrational and unjustifiable
The draft regulations fail to consider the unique realities faced by each sector and subsector adequately Moreover, they do not sufficiently account for the dynamics of the labour market and introduce even more onerous provisions that could hinder rather than promote meaningful transformation
In a final attempt to engage the employment & labour department in joint consen-
sus-seeking consultation, business organisations have put forth the following key submissions:
● Adequate consultation: Sufficient time should be allocated for comprehensive consultation with relevant sectors to ensure evidencebased submissions and the best possible outcomes;
● Consideration of sectorspecific factors: The targets should take into account the unique economic, social, skills-related, technological and legislative factors affecting each sector and subsector
● Alignment with the Solidarity Agreement: The regulations should be aligned with the parameters of the Soli-
darity Agreement to avoid potential conflicts and unnecessary litigation;
● Flexibility in target-setting: Designated employers should be allowed to set justifiable targets based on the merits of each context, considering factors such as career and succession-planning, recruitment and pro-
THE DRAFT REGULATIONS FAIL TO CONSIDER THE UNIQUE REALITIES FACED BY EACH
SECTOR AND SUBSECTOR ADEQUATELY
motion opportunities, core and critical skills, mergers, acquisitions and other factors impacting business;
● Use of accurate wording: The terminology used in the regulations should align with the definitions in the Employment Equity Act to eliminate uncertainty and ensure clarity;
● Compliance process: The process for dealing with noncompliance should be fair and provide designated employers with an opportunity to justify their position before any decision is made to withhold a compliance certificate; and Movement towards EAP: The requirement to move towards the Economically
Active Population (EAP) after achieving the ministerial targets should be removed because setting targets beyond the ministerial targets should be the domain of the designated employer in consultation with its employment equity committee
Business organisations emphasise the success of sectoral targets in accelerating transformation depends on how they are implemented and enforced by the employment & labour department They call for a more collaborative approach that takes into account the challenges faced by businesses while striving for meaningful and sustainable transformation in the workplace
BUSINESS LAW & TAX
Employers’ duty to check sick notes
Amy Smith & Lulu Mokaba ENS
It is not uncommon for employers to be confronted with suspicious or fraudulent employee sick notes Consequently, the submission of such sick notes often leads to the institution of disciplinary proceedings
The Labour Appeal Court, in the case of Woolworths v Maseko, considered the issue of the veracity of medical sick notes and has provided insight into the extent of the obligations placed on employers in this regard
certificates
Consequentially, the employer investigated the veracity of the employee’ s sick note which revealed that there were discrepancies between the 2018 sick note and an earlier sick note issued by the doctor and submitted by the employee
The investigators visited the doctor’ s consulting rooms and, based on what they observed, concluded that the doctor may not have been qualified They also suspected that he was selling fake medical certificates
medical certificate to justify her absence from work, and was subsequently found guilty and dismissed
JUST WHAT THE DOCTOR ORDERED?
irregular medical certificate issued by the doctor and that this justified disciplinary action being taken, regardless of whether the employee was aware of the irregularities related to the selling of sick notes
The Labour Appeal Court rejected this argument and dismissed the appeal The arbitrator’ s award stating that the dismissal had been unfair was therefore upheld
another doctor, usually referred to as a locum, being there and not a person ’ s usual doctor
The case involves an employee who submitted a medical certificate issued by a doctor on June 26 2018
The employer questioned the authenticity of the sick note due to an internal note that had been circulated within the company alleging that the doctor had previously issued suspicious medical
The employee was therefore charged with misconduct, due to a breach of company policies and procedures in submitting an irregular
At the CCMA, the commissioner identified the key issue as being whether the medical certificate submitted by the employee was irregular He found that the medical certificates were valid and regular; were issued by a qualified and registered medical practitioner; and complied with the employer ’ s policies and procedures Accordingly, the CCMA found that the employee’ s dismissal was substantively unfair
The employer’ s application to review the award was dismissed by the Labour Court, but leave to appeal was granted by the Labour Appeal Court
THE INVESTIGATORS ALSO SUSPECTED THAT THE DOCTOR WAS SELLING
FAKE MEDICAL CERTIFICATES
The Labour Appeal Court summarised the employer’ s case to be that, due to “untoward” happenings at the doctor’ s medical practice, it had been established that the employee had submitted an
The Labour Appeal Court made the following comment: “Ordinary people including workers surely cannot be expected to conduct an investigation into which doctor is qualified, which one is on suspension, and which one is for some or other reason not entitled to practise as a doctor That is the function of the regulatory bodies It is not unusual for a person to go to their usual doctor’ s room and find
“Many people including workers in SA do not have the wherewithal to determine between a qualified doctor, an unqualified doctor and one who is operating illegally That is why there are regulatory and law enforcement bodies to whom suspicious practices by doctors should be reported ”
This decision makes the point that an employer cannot simply subject an employee, who submits an untrustworthy or dubious sick note, to a disciplinary hearing, merely due to the employer’ s suspicion about that certificate, the doctor or the person issuing the medical certificate
The employer will have to show that the medical certificate was, in fact, fraudulent
TAXING MATTERS
and that the employee knew (or possibly ought to have known) that this was the case The Labour Appeal Court has highlighted that the onus of proving the fraudulent nature of a medical certificate does not rest on the employee
While this may seem onerous to some employers, it again shows the importance, as with any other misconduct, of having wellfounded evidence to support misconduct allegations
● Reviewed by Peter le Roux, executive consultant in ENS’ employment practice • Onus of
THE EMPLOYER WILL HAVE TO SHOW THE MEDICAL CERTIFICATE WAS, IN FACT, FRAUDULENT
VAT claims depend on roles of agent and principal
Estian Haupt & Leonard Willemse AJM Tax
When a person acts as a true agent on behalf of someone else (ie the principal) and incurs expenditure or makes a supply on behalf of that principal, the said expenditure/supply is actually that of the principal and not the agent
In this scenario, input VAT (if applicable) with respect to the expenditure is only claimable by the principal, and output VAT is leviable by the principal From a VAT perspective, it is therefore important to understand the agent/principal concept
The term agent often carries a different meaning for VAT purposes than it would generally within the context of industries where the term is often used, such as the real estate, travel or
agricultural industries For VAT purposes, one should consider the implications of the agent/ principal concept, as the Value-Added Tax Act No 89 of 1991 has specific principles and provisions that regulate such a relationship Although there is no specific requirement in the VAT Act that agency agreements should be in writing, the onus of proof of the existence of such a relationship would be on the parties claiming its application Accordingly, it is recommended that a written agreement be reached between the principal and the agent
Various parties may be involved in supplying goods or services It is important for any person involved in the supply of, or in arranging the supply of, goods or services to determine in what capacity they are acting
Determining the capacity
in which the person acts will determine how any VAT charged by other parties involved in providing goods and/or services will be treated
The contractual relationship between the person supplying goods or services and his client must be examined to determine the capacity in which a person acts
The person supplying goods or services must often involve other parties to render or supply his goods or services He may contract with these parties as a principal or as an agent on behalf of his client The contractual relationship between his client and himself is the determining factor
Section 54(1) and (2) of the VAT Act essentially allows for an agent to issue an invoice in its name for a supply made by its principal, provided the output VAT in respect thereof
should be declared by the principal Conversely, it also allows a supplier to issue an invoice to an agent in the agent s name for a supply actually made to the principal the input VAT (if applicable) is only claimable by the principal and not the agent
Where the person enters into contracts with other parties in his own name or upon his own liability and responsibility, he acts as a principal Any goods or services supplied to him to enable him to render his services or supply his goods will give rise to an input tax deduction in his hands
When, in addition to the charge for his own service,
IT IS RECOMMENDED THAT A WRITTEN AGREEMENT BE REACHED BETWEEN THE PRINCIPAL AND THE AGENT
the costs of these goods or services are passed on to his client, whether a profit margin is added to these costs or not, the rate of VAT applicable to his total service is determined by the nature of his own services or goods supplied The itemising of the goods or services acquired to render his service does not affect this principle
Where the person acts as an agent on behalf of his client, any goods or services acquired on behalf of his client will not give rise to an input tax deduction in his own hands
The costs of the goods or services, including any VAT charged by the supplier, will be passed on to his client/principal
Depending on the client s circumstances, the VAT charged on the goods or services may give rise to an input tax deduction in the client s hands Where the person enters into a contract
for the supply of goods or services to his client on his client s behalf and upon his client s liability and responsibility, he is acting as an agent In conclusion, to ensure that the correct VAT treatment is afforded to a transaction, the contracting parties must establish in which capacity they are acting it is not always clear and thus professional advice should be sought
The result of getting it wrong could be additional VAT liabilities, penalties and interest when, for example, input VAT was claimed when it shouldn t have been, or when output VAT was not declared where it should have been
● Estian Haupt is associate director: SA direct tax and Leonard Willemse is associate director: SA indirect tax at SA tax specialists AJM Tax
BUSINESS LAW & TAX
Beware of trademarks to go
• McDonalds loses some EU ‘Big Mac’ exclusivity after dispute
Janine Hollesen Werksmans
Aregistered trademark is vulnerable to revocation or cancellation for non-use if it has not been used for the goods and/or services for which it is registered for a certain amount of time In most instances this period is five years and is calculated from the date of registration, as in SA and the EU
On June 5 2024 in proceedings brought by Supermac against the EU Intellectual Property Office (Euipo) and McDonald’ s, the general court held that McDonald’ s had failed to establish genuine use of its EU trademark
(EUTM) BIG MAC in respect of “chicken sandwiches” , “foods prepared from poultry products” and in the service class for “services rendered or associated with operating restaurants and other establishments or facilities engaged in providing food and drink prepared for consumption and for drivethrough facilities; preparation of carry-out foods” The General Court therefore partially annulled and altered the decision of the Euipo, and consequently those goods and services have been revoked from the EUTM for BIG MAC aside from “meat sandwiches” While McDonald’ s can still use the mark BIG MAC in the EU, this ruling means it no
longer has exclusivity to BIG MAC for chicken sandwiches, foods prepared from poultry products and those restaurant services for which protection has been revoked In respect of EUTMs, once non-use is raised the burden shifts to the owner of the mark to prove genuine use of the mark for at least five consecutive years in the territory for the relevant goods and services Evidence of genuine use in at least one member country of the EU is required Proceedings between Supermac and McDonald’ s go back to 2015 when McDonald’ s opposed Supermac ’ s EUTM for Mc In 2017 Supermac retaliated with an action to revoke its EUTM for BIG MAC on the basis of nonuse Those proceedings were upheld in January 2019, whereafter McDonald’ s successfully appealed in March
2019, with that successful appeal brought before the General Court by Supermac When assessing whether use of a trademark is genuine, regard must be had to all the facts and circumstances relevant to establishing whether the commercial use of the mark in the course of the trade is real
EVIDENCE
The General Court considered the EU regulations that provide that evidence of use must establish:
● The place, time, extent and nature of use of the trademark; and
● That the type of evidence be confined to packages, labels, price lists, catalogues, invoices, photographs, newspaper advertisements and statements in writing clearly showing the trademark
The evidence that McDon-
VIEWPOINT AFRICA
ald’ s had submitted to the Euipo cancellation division were printouts of advertising posters in France, screenshots of television advertisements broadcast in France in 2016 and screenshots from McDonald’ s France Facebook account from 2016
The General Court held that this evidence did not show any regularity and recurrence that the BIG MAC goods were distributed and was therefore insufficient to establish that commercial use of BIG MAC for “chicken sandwiches” was real Further, the evidence did not include prices at which those goods where marketed
At paragraph 24 of the General Court judgment “genuine use of a trademark cannot be proved by means of probabilities or presumptions but must be demonstrated by solid and objective
evidence of actual and sufficient use of the trademark on the market concerned” This judgment is a reminder that even wellknown brands may face cancellation or partial cancellation proceedings In defending proceedings for revocation or cancellation, the evidence adduced should clearly show the mark and that the mark is used in commerce in respect of the relevant goods and or services and during the relevant time Token or one-off use may be insufficient
Brand owners should retain evidence of use and maintain comprehensive records Brand portfolios should be regularly reviewed and protection obtained for all forms of the mark, for all relevant goods and/or services and in all relevant territories
Thunderclap verdict on Ugandan evasion scheme
Phillip Karugaba, Rehema Nakirya & Celia Becker
To call it a thunderclap
may still not do justice to the Uganda Revenue Authority’ s (URA) stunning victory against a massive tax evasion scheme
In a decision delivered by the Honourable Justice
Stephen Mubiru, head of the commercial court, on July 16 in URA v Crane Autos, it was determined that a reasonably suspected tax evasion scheme provides adequate grounds for deferring the dissolution of an insolvent company under the Insolvency Act
Both the URA and the Commercial Court deserve the highest praise: to the URA for their unwavering pursuit of the case, and to the court for an expedient hearing of a complex matter within a few months The learned judge delivered his decision in his inimical treatise-like style, addressing all the legal aspects and breaking new ground in Uganda
Crane Autos and four other Ugandan-incorporated companies, including East African Motor Supplies Limited (EAMS) (collectively the respondents), carried out the business of selling motor vehicles to a customer base mainly comprising government entities Crane Autos established a branch in Dubai in 1995 through which it continued to sell motor vehicles in Uganda
In 2018, following a whistleblower report of a possible tax evasion scheme
orchestrated by Crane Autos, the URA commenced investigations into the tax affairs of the five respondents It was established that the five companies operated as one and the same, engaging in similar or related businesses, and sharing common shareholders, directors, employees and addresses In 2012, EAMS ordered heavy-duty trucks and spare parts from a Russian supplier The Dubai branch of Crane Autos acquired the trucks at factory price and on-sold to EAMS at a markup, with EAMS selling the trucks to government entities in various East African countries The Dubai branch also paid management fees to one of the shareholders without declaring withholding tax
The URA concluded that Crane Autos, through the transactions of its branch, earned income and had an obligation to file tax returns and pay tax in Uganda However, Crane Autos has not done so since 2002 The company eventually filed tax returns in June 2022, declaring a tax liability of 603-million Ugandan shillings but failed to pay the total amount of tax due A
review of the returns disclosed inconsistencies in the declarations
The URA issued an additional assessment in September 2022, bringing the total tax liability to 20billion Ugandan shillings In May 2022, the directors and shareholders of EAMS divested themselves of their interests in the company in an attempt to disassociate EAMS from Crane Autos
In March 2023, the shareholders of Crane Autos passed a special resolution to voluntarily wind up the company and appointed a liquidator The URA lodged a complaint with the Official Receiver and requested the winding-up process be halted It notified the liquidator about Crane Autos affiliation with the other four entities, which had assets that could be applied to satisfy its outstanding tax liability
The liquidator engaged the police in investigating the companies Subsequently, the liquidator issued its final liquidation report, concluding there was no reason to use the other four companies assets to settle Crane Auto s tax liabilities
The URA applied to the high court in February 2024, seeking to (a) lift the corporate veils of the five respondents on grounds that, inter alia, they are affiliated/ associated companies, and (b) defer the effective date of the dissolution of Crane Autos which, by law, would be deemed to take place on March 2 2024 Before the
applications could be heard, Crane Autos obtained a certificate of dissolution, declaring that it had been dissolved on March 1 2024
The URA applied under the provisions of the Insolvency Act and Civil Procedures Act that inter alia, the date of dissolution of Crane Autos be deferred until the final determination of the URA’ s applications to the high court on the basis that (a) Crane Autos deliberately neglected to pay tax and opted to commence liquidation proceedings to frustrate the collection of its outstanding taxes and reinforce its tax evasion scheme, and (b) the liquidation proceedings were not properly executed by the liquidator
The Honourable Justice Mubiru ruled that there is an obvious public interest in the pursuit of undoing a reasonably suspected tax evasion scheme While the principles of preserving the finality of dissolutions and preventing the prevailing of fraud both remain essential and in effect, exercise of the discretion in favour of finality would result in extreme and irreparable prejudice to the sole creditor of the company seeking to recover unpaid taxes He held that:
The Insolvency Act empowers courts to defer the effective date of the dissolution of the company to facilitate a more effective, economic or expeditious liquidation of the company in the interests of its contributors and creditors It
may also be justified where there are proceedings, claims or investigations in progress which require the company to remain on the register
The deferral of the dissolution of a company may be invoked where an insolvent company is reasonably suspected of having engaged in tax fraud or unlawful tax avoidance
At the heart of the URA s tax dispute with Crane Autos is a transfer pricing practice under which Crane Autos profit margin was significantly reduced in favour of the Dubai branch, which received a larger share of the profits through an artificially manipulated price The creation of the Dubai branch as a middleman between supplier and customer did not appear to be a sensible business decision with tangible economic benefit It was apparent the scheme lacked economic substance and had no other business purpose than tax evasion
In a case like this where there is an arguable possibility of the liquidator having recourse to recovery and bringing into the pool of assets available for settling Crane Autos tax liabilities by
WE CAN ALSO EXPECT INCREASED INFORMATION
SHARING BETWEEN COUNTRIES TO COMBAT TAX EVASION
voiding an unlawful tax avoidance scheme, the creation of an opportunity to explore fully the possibility of further and hitherto unrecognised avenues of recovery for the benefit of the liquidation of Crane Autos must, of its nature, represent a beneficial purpose justifying the deferral of Crane Autos dissolution
The URA has come a long way from its early attempts to stop companies with outstanding taxes from declaring insolvency such as in the Matter of Venture Communications (2013) URA will now not only be emboldened by this victory but also well guided by the judgment to go after transfer pricing cases
We can also expect increased information sharing between countries to combat tax evasion It remains to be seen if Rwanda, a fellow member of the East African Community also implicated in trades by the Crane Auto companies, will take similar action Additionally, we anticipate action from the Financial Intelligence Authority Group companies involved in trade with Uganda should consider an audit of their transfer pricing policies and practices
● Phillip Karugaba and Rehema Nakirya are executives at ENS in Uganda, and Celia Becker is an executive for ENS Africa Regulatory and Business Intelligence
BUSINESS LAW & TAX
Firms urged to get reporting house in order
• Most SA companies behind the curve in complying with legislated emissions reporting requirements
Zack Fineberg Head of ESG and Sustainability at PKF Octagon
The recent signing into law of the Climate Change Bill is an essential step in SA’ s fight to protect the environment
However, a greater effort is still needed to get companies to track and report their emissions and improve their broader sustainability reporting practices
Mitigation through a formalised law has, until now, been lax, as most SA companies are behind the curve in complying with legislated emissions reporting requirements, let alone proactive sustainable reporting measures and practices Decarbonisation strategies have become increasingly urgent as other jurisdictions, such as the EU, look to impose carbon border mechanisms that account for the embedded
carbon content of imports and prevent the relocation of local companies to regions with lax emission regulations
Late last year, reports warned that SA was on track to miss its binding 2030
THOSE HIGH EMITTERS WHO DO NOT MEET THE NEW CARBON BUDGET REQUIREMENTS WILL BE IN FOR HIGHER TAXES
emissions target under the Paris Climate Agreement, a legally binding agreement on climate change Greenpeace has cautioned that mean annual temperatures in SA have increased by twice the global average (0 7°C) Since 1980, there have been 86 weather-related disasters,
which have affected more than 22-million people and have cost more than R113bn in losses,the reports said
The SA Reserve Bank, meanwhile, forecasts that the EU’ s recently introduced Carbon Border Adjustment Mechanism (CBAM) on SA’ s export market could reduce total exports of aluminium, chemicals, cement, iron and steel to the EU by between 4% to 35% by 2030, with other sectors likely to face similar regulations
Those exporting to Europe will only remain competitive if they not only start reporting emissions but develop shortterm strategies to rapidly decarbonise It is also clear that based on the new legislation including the National Green House Gas Reporting Regulations, Carbon Tax Act and Pollution Prevention Plan Regulations, it’ s advisable for all companies even smaller companies to start their sustainability reporting jour-
ney starting with understanding their carbon footprint now
Carbon taxes were increased by 16% in the February 2024 budget, and the higher tax rate on emissions exceeding carbon budgets will come into effect after the forestry, fisheries & the environment department gazettes the relevant regulations
This is another reason companies need to ensure they get their house in order those high emitters who do not meet the new carbon budget requirements will be in for much higher taxes
While sustainability reporting is not mandatory in SA, the new Climate Change Bill does establish a national greenhouse gas (GHG) emission trajectory, requiring several ministers to develop and implement measures to address climate change
through sectoral emission targets, and mandating major emitting companies to comply with mandatory carbon budgets
Carbon is only a small piece of the larger sustainability reporting picture But closer monitoring so that excess emissions can be mitigated is an important start to what essentially needs to be a much broader effort from the public and private sector
Based on PKF’ s approach to assisting businesses in getting their sustainability house in order, the first step is to get a carbon baseline and determine your footprint so you can begin proactively reporting to stakeholders Then, you need to develop a decarbonisation or net-zero strategy
As not every company can be at net-zero by 2050, they will need to focus on their reduction strategy over time
and how they offset their current emissions via alternative energy routes or through carbon credits
When this begins to happen, the business’ s optics immediately look better to the public and to trade partners Another significant benefit is that these companies can qualify for certain tax breaks At the same time, those who comply could also benefit from the extensive capital available from overseas for emerging businesses that take sustainability seriously This funding is generally cheaper than commercial funding, so smaller and medium-sized businesses need to seriously consider improving their reporting Companies will need to rely on expert consultants to guide and support their journeys, as this space becomes increasingly complex
Legal exemptions aim to aid ports and rail
Angelo Tzarevski, Sphesihle
Nxumalo & Clara Hansen
Baker McKenzie Johannesburg
On June 18 2024, former trade, industry & competition
minister Ebrahim Patel published the draft block exemption for ports and rail for public comment
The regulations effectively relax the competition law rules that typically regulate companies market conduct
This occurs in limited circumstances and when it is absolutely necessary The aim is that by permitting companies in the rail and port industries to engage in certain conduct that would otherwise fall foul of the Competition Act, the regulations will serve as a lifeline for SA s failing port and rail network
SA has the most extensive rail infrastructure in Africa
However, rail (freight and passenger) and port capacity declines remain a severe constraint on domestic and regional trade Following the collapse of Transnet, which is
estimated to have cost the country R1bn a day in economic output, the national logistics crisis committee was established to address the country s transport and logistics crisis, emphasising the need for private sector involvement to drive and control the rehabilitation of SA s ports and rail infrastructure
The regulations are aimed at lessening the hindrances that the private sector encounters when operating within the ports and rail industry by allowing companies in these industries to col-
laborate and coordinate activities, without fear of falling foul of the Competition Act
This is to reduce costs, improve services and minimise losses caused by operational inefficiencies and infrastructure capacity shortages in an effort to mitigate the challenges faced by the rail and port industries
In particular, the regulations exempt categories of agreements and/or practices among firms in the ports and rail industry from the application of sections 4(1) and 5(1) of the Competition Act, which
deal with conduct between competitors and parties in a vertical relationship that has a substantial net anti-competitive effect in a market
Crucially, the regulations do not allow for companies to engage in cartel conduct (ie price fixing, collusive tendering and market allocation) or the practice of minimum resale price maintenance (which are respectively automatically prohibited)
In the context of the port industry, the regulations exempt conduct relating to:
● Ports and the capacity of a port to accept new cargo and divert cargo between ports;
● The flow of traffic into the ports, including weather forecasts, stack levels, equipment breakdowns and productivity shifts;
● Night runs to ease congestion during peak hours; and
● Management, maintenance and upgrades of port facilities and equipment
With respect to the rail industry, the following conduct (including agreements)
is exempt:
● Co-ordination on the repair and maintenance of rail lines identified by the rail industry;
● Co-ordination on volumes to support a dedicated rail service; and
● Co-ordination on sharing capacity on locomotives
Given that the regulations do not exempt cartel conduct, engagements that necessitate discussions between actual or potential competitors in relation to prices (including price components), customers, products, markets/ territories as well as tenders/ joint bidding should be approached with extreme caution to avoid falling foul of the cartel provisions in the Competition Act Legal advice should be sought before starting such engagements
Companies in the rail and port industries wishing to enter into agreements or engage in practices covered by the exemption must first seek written confirmation from the Competition Com-
mission to ascertain whether the agreement or practice falls within the scope of the regulations The commission must revert within 30 business days of receiving the request for confirmation
It is also prudent for companies engaging in the exempted conduct to keep minutes of meetings held, keep written records of any agreements or practices entered into, maintain all correspondence pertaining to the conduct or agreement and keep records of all exchanges of competitively sensitive information that align with the exempted conduct or agreements
The public was invited to submit comments in writing on the proposed regulations
Once public comments have been considered by the trade, industry & competition department in consultation with the Competition Commission, it is expected that the regulations will come into force within a reasonable period thereafter
/123RF MAXIMUZ14
BUSINESS LAW & TAX
Tender for advocates panel set aside
• Transversal contract with Treasury would mean referral advocates are guilty of misconduct
Aslam Moosajee, Shenaaz Munga & Olonathando Nxumalo ENS
ENS represented the General Council of the Bar SA (GCB) and Advocates for Transformation (AFT) in review proceedings against the finance minister, the justice minister and solicitorgeneral These proceedings challenged the state’ s tender to establish a panel of legal practitioners for a period of 36 months, specifically concerning referral advocates
The high court delivered judgment on June 28, agreeing with the review grounds presented by the GCB and AFT and set aside the tender, in so far as it related to referral advocates
In setting aside the tender, the high court found:
● The policy that the tender is subject to is in breach of sections 3(4) and (5) read with section 3A(3) of the State Attorney Act, 1957 Although the solicitor-general may have consulted with the justice minister and the state attorneys in formulating this policy, the policy was not placed before the cabinet for approval nor was it tabled in parliament as required
● The award of a tender will
THE TENDER IS NOT CONSISTENT WITH THE PROVISIONS OF THE BROAD-BASED BLACK ECONOMIC EMPOWERMENT ACT
result in a transversal contract being concluded between the referral advocates and National Treasury Referral advocates would then be guilty of misconduct in terms of section 36(2) of the Legal Practice Act The code of conduct provides that referral advocates may only be briefed through an attorney, an agreement in regard to fees must be made with an attorney and the payment of fees must only be made by an attorney
● The tender has the effect of setting out fees which are specified in the tender as the maximum fees which will be payable to the practitioners briefed This is at odds with section 35(6) of the Legal Practice Act, which sets out that maximum tariffs in respect of state work must be determined by the justice
minister by way of a notice in the Government Gazette No such notice was gazetted
● The distinction between senior and junior practitioners in the tender is drawn between those who have more than three years of experience and those who have less The tender defines “ years experience” as meaning “practical experience in the specialised law services/ fields applying for” This is inconsistent with the conferral of senior status, which is not determined solely based on years of practice and thus some legal practitioners may have many more years ’ practical experience than others when silk status is conferred
● The tender is not consistent with the provisions of the Broad-Based Black Economic Empowerment Act, 2003
(BBBEE Act) The way in which the work is to be awarded to those on the panel is based on a scoring in terms of which 90 points of a total of 100 are allocated in respect of price (this would be awarded to everyone who applies for the tender since there is no independent bidding in respect of price), and 10 points in respect of any category of historically disadvantaged individual (HDI)
The definition of an HDI in the tender is narrow in its scope and, on a plain interpretation, serves to exclude from the definition any person born the day the interim constitution came into operation on April 27 1994 This definition is irreconcilable with the BBBEE Act
● The tender was also found to be antitransformative as it has the effect of excluding
newly qualified referral advocates for a period of three years The state as the largest user of legal services in the republic cannot on the one hand be bound to take the steps envisaged in section 217(2)(b) of the constitution but at the same time exclude those for whom the provision was enacted from its protection In doing so, the tender breaches the right of freedom to trade, occupation and profession provided for in section 22 of the constitution Consequently, the tender insofar as it relates to referral advocates, was reviewed and set aside and the respondents were ordered to pay the costs of the applicants
● ENS acted for the General Council of the Bar SA and Advocates for Transformation in this matter
Navigating the complexities of data and IP
Muhammad Patel & Amaarah Kapdi Dentons South Africa
Swift advances in technology have reshaped the intellectual property (IP) landscape, especially when it comes to data management and the increasing influence of artificial intelligence (AI) in the workplace
Now, more than ever, there is a need for an IP strategy with strong governance principles for every business, regardless of size and industry
There is no doubt both data and IP have become extremely valuable If you are a company, it is easy to collect information from others, allowing the company that collected the data to use it to its own benefit
For example, online retailers, which will include the likes of recently launched Amazon co za or Takealot, use shopping habits from online users to inform how they target consumers and this, in turn, helps them develop their strategies
Bringing AI into the equation complicates matters fur-
ther, especially given the rapid advance and use of this technology It does have distinct advantages, such as its ability to track assets and identify when IP has been breached which could come from AI solutions such as Bard, Google s offering, or ChatGPT
BLURRING THE LINES
Reports suggest that AI models are trained on a body of created work that is already online, and it s not clear yet what the legal precedent may be for reusing this content if it
was taken from others IP
Take for example The New York Times lawsuit against AI offerings such as Bard and ChatGPT for using content without permission
The matter took a strange turn when publishers decided to sign deals with AI companies, paying millions of dollars to protect their own content through referrals back to their websites
The risk, however, is in protecting IP when it is breached in another jurisdiction because there are often no clear rules around domin-
ion given that data knows no borders, while IP traditionally used to be resident within clear geographical lines
Because there is a broad consensus regarding the possible impact of unregulated AI, governments across the world are busy developing policies to mitigate this risk
THE SITUATION IN AFRICA AND SA
Several African jurisdictions have taken steps to address this unique policy challenge, with various African countries implementing AI strate-
gies, others still in the process of consultation with stakeholders on AI policies, and some African countries yet to make any pronouncements on their approach towards AI regulation
However, this covers the broad aspects of AI, and is not specific to IP
At present, SA does not have regulations in place and uses data protection law, such as the Protection of Personal Information Act, to protect data
MANAGING DATA WITH AN IP STRATEGY
Such reliable tools protect assets against potential loss, or legal complications
Digitised IP management tools improve the efficiency and streamlining of the IP practice in SA, but they are just one aspect that needs to be brought into an IP strategy
Every company needs such a plan, no matter how big or small they may be
Digitised IP management tools help protect against IPrelated data that could well otherwise be infringed, especially if it is easily available on the World Wide Web, because a trademark hasn t been updated, or the patent has expired
ONLINE RETAILERS USE SHOPPING HABITS FROM ONLINE USERS TO INFORM HOW THEY TARGET CONSUMERS
An IP strategy, which ensures that governance is in place, must include aspects such as data management to ensure that copyright is thoroughly protected As part of this, companies need to ensure that they update their trademarks far more often than what was typically the case in terms of 10 yearly reviews, which is an aspect with which a governance strategy can assist Used correctly, AI to assist with IP can be a huge help
However, the associated risks to company s missioncritical data need to be carefully managed through a comprehensive strategy that includes all the potential legal implications
123RF NIALOWWA
BUSINESS LAW & TAX
Trade unions must stay in their lane
• If a union circumscribes its scope of operation, employees outside those limits cannot join
Curtis Nhliziyo ENS
When can a union represent employees who are not entitled, in terms of the union’ s constitution, to be members of that union?
Our courts have considered this question in various contexts The latest of which is that of the Constitutional Court in Afgri Animal Feeds (a division of PhilAfrica Foods (Pty) Ltd v National Union of Metalworkers of SA and Others (Numsa)
In this matter, Numsa sought to represent employees in the labour court who had been dismissed by Afrgi for participating in an unprotected strike
When the matter came before the labour court, Afgri raised the preliminary point that Numsa did not have legal standing and was not entitled to represent the dismissed employees in proceedings before the court
This, it was argued, was because Numsa’ s constitution precluded them from being members of the union
The dismissed employees had not been employed in the “metal and related industries” as defined in Numsa’ s constitution but had been employed in the “animal feeds sector”
The labour court concluded that Numsa did not have legal standing and was not permitted to represent the dismissed employees
Numsa was granted leave to appeal to the labour appeal court (LAC) It overturned the labour court decision and found that where a union has accepted the employee
as a member outside its constitutionally prescribed scope of operation” in other words, it has allowed employees to become members beyond the powers conferred on the union by its constitution it does so on the basis that its representation of the employee “is limited” Where this happens, the union “will not be entitled to bargain collectively with the employer” Therefore, Numsa was entitled to represent the dismissed employees Afgri then sought and was granted leave to appeal to the Constitutional Court
THE IMPORTANCE OF THIS CASE IS THAT UNIONS ARE STRICTLY BOUND BY THE CONFINES OF THEIR CONSTITUTIONS
At the heart of the dispute was the interpretation of sections 161 and 200 of the Labour Relations Act (LRA) and the relevance of the Constitutional Court’ s earlier decision in National Union of Metal Workers of SA v Lufil Packaging (Isithebe)
Section 161(1)(a) provides that a party to proceedings before the labour court can be represented by a legal practitioner Section 161(1)(c) provides that a party to proceedings in the labour court may appear in person or be represented only by a member, office-bearer or official of that registered trade union
In terms of section 200(1)(b) and (c), a union may act on behalf of, or in the
interests of, any of its members in any dispute to which such member is a party
In Numsa v Lufil Packaging (Isithebe) and Others (Lufil), the Constitutional Court found that Numsa could not obtain organisational rights in terms of the LRA from Lufil because Lufil’ s employees fell outside the scope of Numsa’ s constitution and could not become members of Numsa
The Constitutional Court upheld the decision of the labour court, and stated the following:
● The question of whether Numsa was entitled to represent the dismissed employees by virtue of the provisions of section 161(1)(c) “did not arise” This was because both Numsa and the dismissed employees were represented by a firm of attorneys in the labour court proceedings, as envisaged in section 161(1)(a)
● Section 200 determines a trade union’ s legal standing in the labour court In terms of section 200(1)(a), it may act in its own right or interest In terms of section 200(1)(b), it is entitled to act on behalf of any of its members In terms of section 200(1)(c) it may act in the interests of any of its members
Numsa could not rely on section 200(1)(a) to obtain legal standing because it was not acting in its own interest More importantly, it could not act on behalf of the dismissed employees in terms of the other two subsections because they were precluded, by virtue of Numsa s constitution, from being a member of Numsa
● Where a trade union performs any act that deviates
RIGHT TO REPRESENTATION
from or is contrary to its constitution, that act is ultra vires (beyond its powers) and null and void In such a case, an individual may approach a court to interdict the ultra vires act Referring to its decision in Lufil the court said the following: “Numsa’ s constitution restricts its registered scope to workers in the metal and related industries
“The dismissed employees were working in the animal feeds industry when they applied for membership in the union They were not eligible for membership for the simple reason that they were employed outside Numsa’ s registered scope
“Their admission was, and remains, an act that is beyond Numsa’ s powers as defined in its constitution ”
● The centrality of a union’ s constitution is underscored by section 4(1)(b) of the LRA, which provides that every employee has the right to join a union “subject to its constitution”
● The LAC had distinguished between a situation where a union is seeking organisational rights (and is relying on employees who cannot be its members to show its representivity) and a situation where the union is seeking to represent employees in litigation
A union could not rely on nonmembers to bolster its representation when seeking organisational rights but it could represent nonmembers in litigation
The Constitutional Court rejected this distinction on the following terms: Nothing could be clearer There is no ground for drawing a distinction between a trade union s
representation of employees when enforcing organisational rights and representation in an unfair dismissal dispute, as submitted by Numsa That distinction is both illogical and at odds with the principle that a trade union has no powers beyond those conferred by its constitution It would mean that Numsa is entitled to represent the employees in an unfair dismissal dispute because they are members of the union; but it cannot exercise organisational rights on their behalf, because they are not members
It is untenable to say that a person is a member of a trade union for one purpose, but not for another, as counsel for Numsa fairly conceded The union either has the power under its constitution to admit the dismissed employees as members, or it does
IT IS UNTENABLE TO SAY THAT A PERSON IS A MEMBER OF A TRADE UNION FOR ONE PURPOSE, BUT NOT FOR ANOTHER
not There can only be one answer to the question: can the dismissed employees become members of Numsa?
The answer is no As this court held in Lufil: Numsa is precluded from concluding membership agreements with workers who fall outside its scope
● The issue in this case was not about the right of the dis-
missed employees to be represented by a union of their choice, nor their right of access to court; these rights were not implicated at all The issue was whether Numsa could act beyond the bounds of its constitution
The dismissed employees had the right to join and be represented by any union whose registered scope permits them to be members and the issue had nothing to do with interference in the internal affairs of the union
● Numsa’ s submission that preventing it from representing the dismissed employees in the labour court limited their right to freedom of association lacked merit
As in Lufil, there can be no suggestion of an infringement of the rights contained in sections 18 and 23 of the constitution where the union has chosen to circumscribe its scope of operation in its constitution
The importance of this case is that unions are strictly bound by the confines of their constitutions and employees may only become members of a union if its constitution permits it The representation rights conferred on unions by the LRA do not grant a union standing to represent nonmembers in disputes before the labour court if the employees are prohibited by the union s constitution from becoming members
Arguably, the same would apply to representation at the Commission for Conciliation, Mediation and Arbitration
● Reviewed by Peter le Roux, executive consultant in ENS s Employment Practice
Act a step towards enhancing procurement transparency
Verushca Pillay, Thato Mkhize & Frederick Pedro Baker McKenzie Johannesburg
South African President Cyril Ramaphosa signed into law
the Public Procurement Act
28 of 2024 on July 23 2024, marking a significant step towards fulfilling the consti-
tutional obligations of state organs and other institutions identified in national legislation to conduct fair, transparent and cost-effective procurement
Aside from upholding this constitutional objective, the act mandates the soon-tobe-established Public Pro-
curement Office to implement a technology-based procurement system to enhance efficiency and combat corruption
MONITOR PROCESSES
Furthermore, the act requires the relevant minister to introduce measures that enable
the public and the media to access, scrutinise and monitor procurement processes in order to promote transparency Inspired by the UK s public procurement laws, the act includes provisions for procurement integrity and exclusionary provisions
implemented through a debarment process, which was previously only addressed in bid documents
The act also necessitates the establishment of a Public Procurement Tribunal, which will be responsible for reviewing any decisions made by the procuring insti-
tution to debar or reconsider a decision to award a bid
With the act now signed into law, we anticipate the publishing of the date on which the act will come into effect, as well as the rollout of the accompanying regulations to fully implement this transformative legislation
BUSINESS LAW & TAX
Airlines need to rebuild trust
• Transparency and good governance are essential as African aviation sector picks up after pandemic
Noushaad Omarjee & Bwanika Langa Dentons South Africa
Ethiopian Airlines and how it communicated with its stakeholders during the Covid-19 pandemic is a good case study on how airlines can build trust as the industry is set to take off again, offering lessons to our own country
As African airlines are set to convincingly surge in 2024, with IBA suggesting that the sector will grow at a compound annual growth rate of 4 7% from 2024 until the end of the decade, it is vital that all airline operators act in a manner that is transparent and in accordance with good governance principles if they are to live up to this promise
This is particularly important as SA ramps up efforts to promote the country as a premier tourist destination with the resumed operation of the national carrier, South African Airways (SAA), and strengthened partnerships with Emirates Airlines in the form of codeshare agreements
When it comes to implementing best practice in the areas of good governance and transparency, Ethiopian Airlines Africa’ s largest
operator is a good example of sustainable success, especially when it comes to reimagining itself when needed
King IV requires organisations to be transparent in how they apply their corporate governance practices and make these accessible and relevant to the public As such, how performance, resource allocation challenges and sector forecasts are communicated should be democratised and made consumable in a manner that stretches beyond traditional performance measures
There is a need to do away with financial retorts and jargon, as these create a perception of intentionally being opaque and lend themselves to mistrust from the public It is also important to engage
the public in a way that strips out noise created by those who wish to detract from the facts and try to insert messages that are not in the best interests of a national carrier
As the aviation industry becomes more competitive, complex and recovers from the implications of the Covid19 pandemic, the principle of transparency is increasingly important and central in how a national carrier is perceived, while also indirectly
THE PRINCIPLE OF TRANSPARENCY IS INCREASINGLY IMPORTANT AND CENTRAL IN HOW A NATIONAL CARRIER IS PERCEIVED
affecting any efforts towards sustained profitability
In terms of communicating with stakeholders, from shareholders to staff and passengers, being transparent means providing reliable and relevant information on how a national carrier performs in a way that allows it to be efficiently evaluated and held accountable in terms of its public responsibility
A case in point is how Ethiopian Airlines imparted information during the unprecedented times of the pandemic The aviation sector was one of the worstaffected industries of restrictions as aircraft were grounded for months due to global lockdowns Ethiopian Airlines was, however, in the position to be the only carrier on the continent that could
continue flying during this time as it took the strategic decision to start moving cargo instead of passengers
In accounts to the Ethiopian public in various forms, the airline pointed to several key challenges in this period, including a loss of $550m because of international flight restrictions due to the pandemic and having to reduce operational capacity by 90%
Also, it clearly communicated the steps it took in meeting the challenges, which meant there was minimal public pressure for greater transparency from the airline and increased public buy-in to the measures the airline was taking to mitigate the crisis and the effect on its operations
Strategic decisions taken included converting a signifi-
cant number of passenger jets to bolster the Ethiopian cargo fleet, a partnership with the World Food Programme and the establishment of a humanitarian transport hub at Bole International Airport in Addis Ababa
Why these steps were important was clearly communicated, as was their implication that the airline would avoid seeking a bailout, would not have to retrench and didn’t fall foul of debt obligations Providing such updates in a timeous and clear way allowed the public to understand and gauge what each decision meant in real terms
While the continued success of Ethiopian Airlines is not a one-size-fits-all solution, the governance principle of transparency is universal An initial step of all recovery, and turnaround, efforts should be a transparent relationship with the public This lends itself to public trust, which is the underlying currency to profitability
Transparency also allows for meaningful analysis and accountability of a company ’ s decision-making process, both of which are key requirements for any sustained commercial endeavour Stakeholders in SA’ s national carrier would benefit from implementing similar measures to guide the airline towards profitability and enhance public trust
DECISIONS INCLUDED CONVERTING A NUMBER OF PASSENGER JETS TO BOLSTER THE ETHIOPIAN CARGO FLEET