Business Day Law & Tax (November 2023)

BUSINESS LAW &TAX

NOVEMBER 2023 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Leaders need to ensure good mental health in workplace

ALL IN THE MIND

Economists estimate that neglected mental health •conditions cost the SA economy R161bn a year Lauren Salt & Lara Keil ENsafrica

W

orld Mental Health Day’s theme this year was: “Mental health is a universal human right.”

According to the UN, this globally recognised event presents “an opportunity for all stakeholders working on mental health issues to talk about their work and what more needs to be done to make mental healthcare a reality for people worldwide”.

Sapien Labs’ Annual Mental State of the World Report 2022, published in March 2023, rates SA as one of the lowest-ranking countries in terms of mental health.

Health economists have estimated that neglected mental health conditions (including depression and anxiety) cost the SA economy R161bn a year due to lost work days.

EFFECT ON EMPLOYERS Aside from the potential moral obligation to ensure that they have a happy workforce, employers have a legal obligation to ensure they provide and maintain, as far as is

EMPLOYERS SHOULD FOSTER A CULTURE THAT IS SUPPORTIVE, INCLUSIVE AND EMPATHETIC OF THE CHALLENGES THAT EMPLOYEES FACE

reasonably practicable, a working environment that is safe and without risk to the health of its employees. This provision is encapsulated in section 8(1) of the Occupational Health and Safety Act, 1993 (OHSA) which, among other things, provides for the health and safety of persons at work.

In this regard, section 8(2) of OHSA further provides more specific responsibilities for employers, which include but are not limited to: ● Taking reasonable steps to ensure employee safety and health by eliminating or reducing hazards; ● Establishing what precautionary measures should be taken with respect to such work; ● Providing information, instructions, training and

/123RF — FAITHIE supervision as may be necessary to ensure, as far as is reasonably practicable, the health and safety at work of employees; and ● Enforcing such measures as may be necessary in the interest of health and safety.

Previously, OHSA’s failure to expressly recognise mental health created confusion regarding whether mental health was included in the application of its provisions.

However, the introduction of the SANS/ISO 45001 Standard for Occupational Health and Safety Management, which was introduced in August 2018, expressly confirms that an employer’s responsibility in relation to workplace safety includes the protection and promotion

of employees’ physical and mental health, thus putting aside any debate on the relevance of OHSA to mental health in the workplace.

Neither OHSA nor SANS/ISO 45001 give direction or guidance as to how employers best achieve the obligations under section 8 of OHSA in relation to mental health, which may mean that employers are unsure of how to tackle the difficulties associated with identifying and managing mental health issues in the workplace.

ROLE OF EMPLOYERS A Deloitte survey, published in September 2022, provides clear insight into some of the key aspects which, in their opinion, facilitate and

increase the effectiveness of the measures introduced to promote and maintain good mental health in the workplace. These include: ● High leadership involvement where employees acknowledged the importance of: — Approachable and supportive senior management; — Management openly sharing their personal experiences with mental health; and — Mandated employee wellbeing check-ins; ● A supportive work culture where employees acknowledged the importance of: — Supportive and friendly work environment; — Awareness sessions; CONTINUED ON PAGE 2

BusinessDay www.businessday.co.za November 2023

2

BUSINESS LAW & TAX Mental health in the workplace

Sexual crimes must end

CONTINUED FROM PAGE 1

Firms doing •nothing about

— Peer support initiatives; and — Employee engagement initiatives ● Working arrangement changes where employees acknowledged the importance of: — Flexible working arrangements; — Supportive leave policies; and — Work-life balance.

Employers, when being more mindful of managing the mental health barometer in the workplace, would be well advised to take heed of these aspects, some of which they may already be implementing for different reasons.

Important insights for employers: ● Leadership sets the tone: Employers should recognise that leadership engagement and involvement is central to promoting and maintaining a safe and healthy working environment. Mental health should be added to the agenda of management meetings, townhalls and employee engagement sessions and to the KPIs of management and team leaders, with a view to keeping managers involved and accountable for workforce wellbeing. ● Culture matters: Employers should foster a culture that is supportive, inclusive and empathetic of the challenges that employees face.

Removing the stigma associated with mental health issues is critical to creating such an environment. Regular awareness campaigns are key to achieving this goal, and “buddy systems” can assist in the day-to-day management of mental health, particularly in larger corporations. ● Flexibility is favoured: Employers should acknowledge the importance of a work-life balance for mental health. Remote, hybrid and flexible working arrangements should not only be viewed as a product of the pandemic, but employers should instead recognise workplace wellness can be boosted through a well-considered flexible working model.

Mental health is an issue that can directly impact the employer’s bottom line.

Employers, therefore, have a vested interest in proactively managing mental wellbeing in the workplace — from a moral, legal and financial perspective.

World Mental Health Day is a reminder to employers of their obligations and acts as a prompt to prioritise this issue on their agendas.

LATERAL THINKING

harassment face damage to reputation and big lawsuits Evan Pickworth BD Law & Tax Editor

S

exual harassment in the workplace is, sadly, a growing blight on society.

Back in 2019, for instance, McDonald’s Corp was accused in 25 new lawsuits and regulatory charges of condoning sexual harassment and retaliating against employees who spoke up.

The cases alleged misconduct in 20 US cities, including groping, indecent exposure, propositions for sex and lewd comments.

As such a well-known and visible big brand (it is by far not the only culprit) it was big news at the time. The company responded and said it had improved and more clearly defined its harassment policies, trained most franchise owners, and would be training front-line employees and setting up a complaint hotline.

It’s a pity the UK franchisees were not listening.

Fast forward to mid-2023 and more than 100 current McDonald’s and recent workers told the BBC about a toxic culture of sexual assault, harassment, racism and bullying at the fast-food restaurants’ UK outlets. One

employee, Shelby, worked at a branch in Berkshire for more than a year, starting in March 2022. She told the BBC she was just 17 when she was allegedly sexually assaulted by a much older colleague. She says the man, in his 50s, grabbed her bottom, hips and waist. On one

WE ARE DEALING WITH A CRIME. THE BEST PLACE TO START IS THEREFORE TO REPORT THESE INCIDENTS AS CRIMES occasion, he pulled her onto his groin.

She said older male colleagues would use the cramped layout in the kitchen as an excuse to touch junior female staff inappropriately, adding that it got so bad that she started crossing her arms to protect herself as she walked through the kitchen.

This type of toxic work environment has a terrible effect on the predominantly young, female staff.

With close to 90% of McDonalds stores being franchises it is, of course, hard to play Big Brother in every corner of every store. The solution has to be about changing the culture from within and making it harder for the abusers to get away with it.

Yet many of the UK complaints indicated how lip service was paid by management to the plight of the accusers.

The McDonald’s name, of course, raises the profile of these cases, but many companies are embroiled in similar nastiness. This episode is a salutary lesson in why it is critical to improve workplace culture. Proper steps should be taken early enough and then HR policies must be reviewed to ensure proper policing.

Stern action must be taken to send the right message. If you don’t? Be prepared for severe reputational damage, large lawsuits for damages and strikes.

And it is not just big companies in the spotlight. SA has one of the highest rates of gender-based violence in the world. Fortunately, more stringent laws are on the books and a concerted drive is in place to stem the tide of sexual violence. We are dealing with a crime. The best place to start is therefore to report these incidents as crimes.

In SA, the alleged commission of a sexual office may be reported by:

● The victim of the offence; ● A family member, friend or colleague of the victim; or ● A person who witnesses or received information about the commission of the offence.

Any person who has knowledge that a sexual offence has been committed against a child must report such knowledge to a police official. Failure to do so constitutes an offence.

Any person who has knowledge or a reasonable belief or suspicion that a sexual offence has been committed against a mentally disabled person must report such knowledge to a police

NO VICTIM MAY BE TURNED AWAY SIMPLY BECAUSE THE ALLEGED OFFENCE TOOK PLACE A LONG TIME AGO official. Failure to do so constitute an offence.

Sexual offences may be reported at a police station or be reported by phone. No victim may be turned away simply because the alleged offence took place a long time ago or was allegedly committed in the station area of another police station.

When reporting a sexual offence to the South African Police Service the victim is permitted to have a person of his or her choice present to support and reassure him or her during the interview.

The interview will be conducted in surroundings that are either familiar to the victim or reassuring to the victim.

Once sufficient information has been obtained from the victim, a docket must be opened, registered and an affidavit must be made in which the following must be clearly specified: ● The time and date on which the offence was allegedly committed; ● The place where the offence was allegedly committed; ● The nature of the alleged offence; ● The manner in which it was allegedly committed; ● The first person to whom the victim has reported the alleged sexual offence before he or she reported it to the police; ● Any details regarding the alleged offender(s) that may assist in identifying and finding them; and ● Any details regarding possible witnesses who may assist in identifying and locating them.

I am glad to see more legislated support for victims, but as a democratic, advanced society heading into 2024, far more must be done on this score.

Companies can do better when it comes to their policies and cultures, and the law can do better to protect victims and prosecute the perpetrators. working harder By together this is a battle we must win — or be left picking up the pieces for generations to come.

BusinessDay www.businessday.co.za November 2023

4

BUSINESS LAW & TAX

Public interest analysis should be holistic

FAIR SHARE

ADAPTING TO THE CHANGING LANDSCAPE

a spread of ownership is only one of •thePromoting many factors that have to be considered Aidan Scallan & Macalen Chetty ENSafrica

W

hile advancing transformation is undeniably pivotal in the SA context, it is essential to underscore that promoting a greater spread of ownership, in particular, to increase the levels of ownership by historically disadvantaged persons (HDPs) and workers in firms in the market, is not the sole determinant of the public interest analysis prescribed by the Competition Act. The prevailing notion, reaffirmed recently by the tribunal, is that a holistic approach must be employed, weighing various public interest grounds before arriving at a net conclusion on the public interest effect arising from a merger. In this approach, promoting a spread of ownership is only one of many factors that must be considered as a package.

The recent decision of the tribunal in the large merger between Epiroc and New Aard, which reaffirmed that the public interest analysis

should be a holistic one, had been cause for some optimism among competition lawyers. Unfortunately, much of that optimism was squashed by the recent publication of the commission’s revised guidelines, which are still in draft form and, therefore, subject to comment.

There will probably be many criticisms of the revised guidelines, but one that stands out regarding the commission’s proposed approach to the required analysis is that it will, in effect, render it the opposite of a holistic analysis — an atomistic analysis if you will.

The commission envisages a world where concern about one of the public interest factors can be cured only by remedies that address that specific concern. This is a short-sighted approach and will probably severely

MERGING PARTIES MUST ADAPT, INNOVATE AND EVOLVE TO SUCCESSFULLY NAVIGATE THESE CHALLENGES

restrict parties’ ability to identify creative and potentially helpful solutions to address perceived harm.

The revised guidelines highlight that despite finding that most of the public interest factors applicable to a merger are substantially positively affected by a merger, those effects may be countervailed by substantial negative effects arising from a single public interest factor.

IMPLICATIONS FOR MERGING PARTIES While theoretically this is the correct approach, the messaging from the commission in the revised guidelines conveys that promoting a greater spread of ownership holds paramount importance.

This will probably mean that, in the future, many transactions that would previously have been approved with or without conditions will now be incapable of remedy and unjustifiable under the commission’s public interest test.

Further concern is warranted when regard is had to the commission’s proposals on remedies to cure decreases in levels of HDP and worker ownership as well as what

this trend looks set to continue unless the commission steps back significantly from the revised guidelines.

As noted above, for the moment, the revised guidelines are only in draft form and, hopefully, the final version will look significantly different before being finalised and becoming effective. Interested parties have until November 17 2023 to submit their comments to the commission.

/123RF — JALIN will be considered to “promote” a greater spread of ownership. Two points in particular stand out in the revised guidelines: First, from the commission’s perspective, where a transaction results in a decrease in the level of HDP and/or worker ownership, any employee share ownership plan (ESOP) remedy imposed must fully offset the decrease — that is if a merger results in a 10% decrease in the level of HDP ownership, the commission will expect the acquiring firm to put in place an ESOP with a 10% interest. If the merger does not dilute ownership but does not promote ownership, the commission expects that any ESOP proposed should hold no less than 5% of the value/shares of the merged entity (but may be required to hold a higher shareholding based on the facts of the case).

Where an HDP/BEE transaction is proposed to promote the spread of ownership, the commission will only accept a shareholding of 25% plus one share, and such shareholding should ideally confer joint control to the HDP/BEE partner. A smaller

shareholding, or one that does not confer control, will not be considered to be “responsive” to the requirement to promote a greater spread of ownership.

The present regime and the hard-line approach being adopted by the commission and DTIC result in significant uncertainty for merging parties leading into the merger regulatory process in SA. These issues will be worsened if the revised guidelines are implemented in their existing form. This lack of legal certainty leads to concerns from the few potential investors and parties contemplating acquisitions in SA. The purchase price and shareholdings in post-merger firms are typically negotiated before the commission is notified of deals. Parties can no longer bank on the transaction that they agreed to among themselves being the one that they walk away with post the regulatory process.

As it stands, the merger regulation process in SA has become increasingly complex and much less predictable. This reduces investment and raises the cost of doing business, neither of which are good for SA. Sadly,

Even once finalised and in effect, it should be noted that these are only guidelines and, therefore, not legally binding (albeit that the act requires any party interpreting the act to take them into account).

Regardless though, the final revised guidelines will represent the commission’s starting point from which little deviation can be expected.

So merging parties must proactively address ownership diversity concerns when notifying transactions to the South African competition authorities. Promoting a greater spread of ownership, particularly among HDPs, has garnered increasing significance. Transactions that reduce ownership by such individuals are now subjected to more scrutiny, indicating the authorities’ commitment to fostering equitable ownership distribution.

While opinions on the impact of interventionist conditions on mergers may diverge, the commission is poised to sustain its interventionist approach to merger control. Consequently, merging parties must adapt, innovate and evolve to successfully navigate these additional challenges. The accentuated focus on public interest conditions necessitates thoroughly recalibrating transaction structures and timeline considerations.

RAF: more South Africans to be left vulnerable Walid Brown Werksmans The Road Accident Fund Amendment Bill (bill) makes significant changes to how the Road Accident Fund (RAF) functions and compensates claimants.

The bill proposes considerable changes to current legislation, including placing a limitation on drivers’, passengers’ and pedestrians’ rights to seek compensation for injuries sustained in motor vehicle accidents. The bill suggests reviewable structured payments.

This departs from the current system, which compensates the victims with a lump sum payment, according to the actual losses they have incurred. In addition, the

opportunity to pursue a common law claim for the remaining damages from the negligent motorist would also be denied to innocent accident victims.

This bills forms part of a wider strategy from the RAF which is aimed at limiting their liability, creating more sustainable cash flow and possible fraud being committed on a claimant’s proceeds.

However, these strategies, as well intentioned as they may be, have often proven to be not very well thought out.

A typical decision is the recent one by the constitutional court. The country’s top court rejected an appeal bid by the RAF against a decision awarded in favour of Discovery Health in August 2022.

The medical insurer success-

fully challenged the policy adopted by the RAF to stop paying past hospital and medical claims, which were covered by the medical insurance. The court found this a case of clear discrimination between claimants.

It seems this proposed bill may again be leading the RAF down a similar path, with the bill seeking to now legislate that the RAF is no longer liable for such payments.

While the bill aims to address the financial and administrative challenges faced by the RAF, it is important to analyse whether this outweighs the potential disadvantages which may arise.

The proposed bill could place an additional burden on an already strained healthcare system. Without ade-

quate compensation, accident victims may not have access to the necessary medical treatment or long-term care needed for their recovery. This could lead to increased pressure on public healthcare facilities already grappling with limited resources and capacity.

SA’s economy relies heavily on transportation and mobility. Without adequate compensation for future loss of income, individuals who are incapacitated and unable to work will rely on social grants to remain economically active. If such claimants are unable to meaningfully participate in economic activities, this will have an overall impact on the productivity of the country.

By eliminating the right to

pursue a common law claim against a negligent driver for the remainder of their loss, the bill may inadvertently create an incentive for negligent driving behaviour. Without the fear of financial consequences, negligent drivers may feel less obligated to abide by road safety rules, thereby increasing the risk of accidents and further burdening the healthcare system.

The removal of drivers’, passengers’ and pedestrians’ rights to seek compensation for injuries sustained in road accidents severely limits their access to justice. In a country with limited resources and a high incidence of road accidents, this restriction would unjustifiably affect vulnerable individuals who rely on compensation to recover from

their injuries, support their families and regain their livelihoods. The proposed bill unfairly discriminates against the working class who are generally depended on public transport or who are conveyed as passengers.

While legislative changes are essential for transformative purposes, claimants in particular and taxpayers generally should not bear the price of these reforms. All drivers using the roads either directly or indirectly contributes to the fuel levy which funds the RAF. The incapacity of the government to properly administer the RAF means most South Africans may now be left vulnerable in the case of any injuries which arise from a motor vehicle accident.

BusinessDay www.businessday.co.za November 2023

5

BUSINESS LAW & TAX

Trust still the basis of legal profession

FIGHT THE GOOD FIGHT

Regulator of 40,000 lawyers sees to professional •standards, disciplinary processes and transformation Kabelo Letebele Legal Practice Council

A

s the year draws to an end, the legal profession and the country in general continue to reflect on the impact of the Legal Practice Act (LPA) since it was introduced in 2014.

One of the areas of reflection is the Legal Practice Council (LPC), established five years ago, with a mandate as set out in section 5 of the LPA, which includes but is not limited to regulating the profession and protecting the public in 2018.

Critics are quick to point to a few matters, although important, where there might have been a challenge or problem in bringing a legal practitioner to book.

However, many overlook the clear facts around outcomes of complaints attended to by the LPC. A casual observer may get away with simply looking at high-profile matters relating

to prominent legal practitioners when forming a view on the impact of the LPC, but a more realistic picture emerges when realising that at any given point 6,000 to 8,000 matters are being investigated by the LPC, while executing its responsibility of exercising oversight on more than 40,000 legal practitioners in SA as the regulator.

QUESTIONS CAN BE RAISED ABOUT THE INDEPENDENCE OF THE REGULATOR AND ITS POLITICAL BIAS ON MATTERS Beyond the LPC, other key role players include the legal services ombud, which has oversight on the disciplinary processes followed by the LPC with regard to complaints lodged against legal practitioners — and Legal Practitioners’ Fidelity Fund, from which claims can be

submitted where there are financial losses emanating from misappropriation of trust funds by a legal practitioner.

An analyst’s conundrum, when assessing the performance of industry players such as the LPC, is the question whether to view the success and general outcome of the 8,000 matters handled or to focus, be it anecdotal, on specific matters. The risk of the latter being, of course, the question of whether one matter is a fair reflection of an entire process’ effectiveness.

Critics often criticise role players in the legal profession for not making pronouncements when such controversies occur, whether it is issues around public protector or comments on recognised members of the legal profession or even comments on members of the judiciary. However, one should bear in mind that commentary by the likes of the LPC on such matters prior to any formal investigations being conducted or

/123RF — ARMMYPICCA often even before a formal complaint is lodged results in the regulator being drawn into areas beyond the auspices of the act, the rules and regulations.

Additionally questions can be raised about the independence of the regulator and its political bias on matters, hence it is paramount to relentlessly follow process as stipulated in the act.

ALLOW THE PROCESS TO TAKE PLACE The LPC’s strength and capacity lies in its ability to investigate matters and take legal practitioners through a disciplinary process, are clearly outlined by sections 38 to 45 of the act. All the committees, from the investi-

gations committee (IC) to the disciplinary committees (DC) are independent — any duly qualified legal practitioner with significant experience can be part of these committees, to help in executing the investigation and disciplinary mandate of the LPC. Each province has at least one IC and DC and decisions made by these committees are ratified by the Provincial Councils and then by National Council — both of which are made up of elected legal practitioners.

LEGAL PRACTITIONERS NEED TO PARTICIPATE The LPC holds elections every three years, for the National Council and Provincial Councils. Members of the

profession have an opportunity to elect 20 of the 23 members of the National Council and 10 to 12 members of the Provincial Councils. Often, the criticism disregards the fact that members of the legal profession do influence the process and make up of the LPC through the elections and through industry bodies, who interact with the LPC regularly, they are still able to raise any concerns — if they opt not to approach the LPC directly.

Criticism also disregards the fact that when there is an outcome and a complainant would like to object to the findings of the LPC, they can request a review, approach the Legal Services Ombud or take the matter to court.

Also, the members of the profession facing investigation or disciplinary action are within their rights to use the legal avenues available to them — it is only where there is a clear contravention of rules, regulations or code of conduct that we are obliged to act.

The LPC’s efforts of safeguarding and maintaining good standards continue, together with concerted efforts around education and standards, measures to continue the transformation of the profession as well as additional regulation that support the growth of the profession.

OUTCOMES OF COMPLAINTS ATTENDED TO

BY THE LEGAL PRACTICE COUNCIL Strike offs

Year

Suspensions

Complaints received

Complaints resolved/finalised

2020

50

60

9750

8522

2021

45

66

9668

9483

2022

52

114

13 505

7883

2023

28 (so far in 2023)

70 (so far in 2023)

9922

9590 Graphic: RUBY-GAY MARTIN

CONSUMER BILLS

Fighting unmeritorious cases is a costly business

M

any readers will be aware of the recent case, described by the court as bizarre, in which a cuckold sued his wife’s employer for pain and suffering allegedly caused by the employer because the wife had an extra-marital affair with someone she was working with.

The judge remarked that litigants can be imaginative in Johannesburg but this case deserves a special prize because there is clearly no such claim in law.

While the case is amusing and bemusing, someone had to pay the lawyers and that can be a considerable sum, especially in some cases in relation to what is at stake.

The Supreme Court of Appeal has recently heard a number of matters that should never reached that stage, and perhaps should never have gone to court at

PATRICK BRACHER all. And I am not only referring to the Stalingrad tactics of well-known litigants described by the highest courts as an abuse of the process of the court used for an ulterior purpose.

Those cases cost large amounts of money. In a recent case there were no fewer than four advocates involved for the losing claimant and eight advocates in court altogether.

Although the bill of rights entitles everyone to access to justice, the solution may be to be stricter about granting leave to appeal which results

only in a hopeless case being dismissed on appeal in a few pages.

In a recent case, the claimant sued for repairs to a house they bought which had a number of defects. The purchase price of the house was only about R1.3m and the repair costs were considerably less than that because the case started in the magistrate’s court.

After going through the magistrate’s court, the high court and then the supreme court of appeal, the claimant lost the case with costs because the claimant had sued too late and the claim was extinguished by prescription.

This was, according to the court, clear from the common cause facts.

A firm of attorneys sued a provincial department to enforce the addendum to a contract that, according to

the department, had been entered into contrary to the requirements for fair public procurement. The attorneys entered into a service level agreement for a period of 12 months to conduct an evaluation of the department’s supply chain management services. An addendum entered into three days later was also for the delivery of stationery and was for three years instead of 12 months. The fees were also increased. According to the appellant, the fee due to them was more than R46m.

The court found against the claimant based on a prior finding in a 2020 decision of the appeal court that there was no compliance with public procurement requirements and the addendum was unlawful and invalid. The claimant fell back on calling for a just and equitable remedy under the

constitution, which was also dismissed in a single paragraph.

Although the attorneys acted for themselves and may or may not have had to pay their own advocates, the department will have to bear most of the costs of going through two superior courts.

In a third example, a sectional title individual owner litigated in their own name for repayment to the body corporate of funds allegedly unlawfully paid from the body corporate’s bank account. There is no basis for such a claim. On appeal, the claimant, to avoid

IN A RECENT CASE THERE WERE NO FEWER THAN FOUR ADVOCATES INVOLVED FOR THE LOSING CLAIMANT

the inevitable loss, tried to steer the case into, guess what, a special right of action under the constitution, which the court found was incompatible with the provisions of the law relating to sectional titles.

These are just a few of the many examples in the judgments of SA high courts.

One wonders how lawyers manage to persuade their clients to take these unmeritorious cases all the way to the supreme court of appeal at considerable cost to the successful and the unsuccessful litigants, sometimes exceeding by far the amounts at stake.

A more decisive approach is needed regarding applications for leave to appeal. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BusinessDay www.businessday.co.za November 2023

6

BUSINESS LAW & TAX

Ransomware attacks are on the increase Companies should ensure they have taken •reasonable steps to protect their systems Wendy Tembedza & Karl Blom Webber Wentzel

R

ansomware attacks have been rising and it is companies that have a high level of preparedness which are weathering the storm.

The Sophos State of Ransomware in SA 2023 report found 78% of South African organisations surveyed had experienced an attack in the preceding year, up from 51% in the 2022 survey.

Ransomware attacks introduce malicious software into a company’s systems.

The usual pattern experienced is that late on a Friday evening or a Saturday morning, company management is notified by the IT department

that the company has lost access to essential files, and has received a demand for money, usually in the form of bitcoin, to release the files.

Typically, up to six months before the event, a hacker has accessed the company’s system and stored a virus that gathered confidential information. Once enough information has been accumulated, the hacker locks down the files.

Companies should put a three-step strategy in place.

The first step is to mitigate the risk before any event occurs, the second is to manage an event, and the third is to review controls and processes regularly, given that technology and threats are constantly evolving.

Companies should ensure they have taken reasonable

DATA DESTRUCTION

/123RF — ZEPHYR18

steps to protect their systems, taking into consideration the particular types of breaches to which they are susceptible.

The Protection of Personal Information Act (Popi) requires companies to have appropriate, reasonable and technical organisational measures in place. This involves assessing access controls, policies relating to the utilisation of IT infrastructure and procedures for regular maintenance and review of safety systems.

Organisations must have a plan to deal with a data breach (in this case, a ransomware attack) that sets out how employees should act, who they must notify and how the organisation will approach the Information Regulator and affected data subjects to notify them of the

incident.

A highly regulated entity operating in a sector such as banking, financial service, health care and even education may have to comply with requirements specific to that sector, in addition to Popi.

Two other laws apply along with Popi in the event of a ransomware incident The first is the Prevention and Combating of Corrupt Activities Act (Precca), which requires a company to notify the South African Police Services (SAPS) when certain crimes such as fraud or

IF A DATA BREACH HAS OCCURRED POPI REQUIRES CERTAIN STEPS BE TAKEN, PRIMARILY RELATING TO NOTIFICATION

extortion, with a value of more than R100,000, are committed. The second relevant law is the Cyber Crimes Act. A financial institution or telecommunications network operator that suffers any cybercrime (which could be a broad range of crimes from fraud to extortion) must report the crime to the SAPS (although this requirement is currently suspended).

If a data breach has occurred (arising out of the ransomware attack), Popi requires that certain steps be taken, primarily relating to notification. This includes notifying: ● Affected data subjects; and ● The Information Regulator as soon as reasonably possible following the event.

Employees must follow the company’s procedures when making notifications.

The company should notify its insurers, assuming it

has insurance in place to cover cyberattacks. Where insurance is in place, the company must ensure it adheres to the terms of its policy.

It is important to take legal advice on what actions are permissible to recover your information and systems following a ransomware attack.

While often unlikely, certain actions may create further liability for a victim (for example, making payment of a ransomware amount to an attacker in a sanctioned country or attempting to pursue a “vigilante-type” response).

One should also consider whether it is necessary to brief public relations firms (through your attorneys) to explain the incident to data subjects and to ensure what is said is both legally sufficient and expressed in a way that best protects the company’s reputation.

In all cases, companies that fare the best in these situations are those who: (i) Respond to the incident quickly; (ii) Have taken reasonable precautions (such as implementing robust backup systems); (iii) Hold appropriate insurance cover (and adhere to those terms); (iv) Brief attorneys prior to notifying their insurers, affected data subjects and the Information Regulator; and (v) Where necessary, brief forensic investigators and/or public relations experts through their attorneys.

VIEWPOINT AFRICA

Financing sustainable development in Africa Michael Foundethakis, Luka Lightfoot & Kathrin Marchant Baker McKenzie

T

o achieve a lowcarbon future, address climate change and embrace the energy transition, countries in Africa have been focused on securing and diversifying their supply chains, addressing their infrastructure gaps, boosting climate-resilient projects and facilitating sustainable trade.

This is driving an increased demand for working capital that traditional lenders are unable to provide. The inherent tension between the need to finance transactions and the cost of funds has opened the market to new and innovative financing options.

The volatility in the capital markets in Africa is leading to the increased availability and competitiveness of Export Credit Agency (ECA)supported funding as a diversified source of liquidity for deals. ECAs have an essential role to play in supporting trade in Africa, and their government

VIEWPOINT AFRICA backing means they are able to act as guarantors for private investment funds, reducing risks in the process.

The role of ECAs in facilitating deals in Africa is also evolving. For example, there are an expanding number of ECA programmes and products covering projects related to the trade in renewables, raw materials and critical minerals in Africa.

Geopolitical challenges and a growing demand for clean energy have led the major players to look at how they can build and finance alternative supply chains for critical minerals. Driven by the energy transition, the demand for critical minerals is expected to rise sharply, more than doubling by 2030 and quadrupling by 2050, with annual revenues reaching $400bn, according

to the International Energy Agency’s World Energy Outlook 2022.

As one of the world’s top producers of many critical minerals, Africa has a big role in powering the global energy transition. The increasing interest of the major players in Africa’s supply of raw materials is evident in recent policy announcements from the European Union (the Critical Raw Materials Act) and the US (the Inflation Reduction Act). Both the EU and the US have emphasised the need to mitigate commodity supply chain risks and develop strategic agreements with countries that are able to supply responsibly sourced critical minerals.

At present, the majority of Africa’s critical minerals are exported in the form of ores or concentrates. Certain countries in Africa, including Namibia, Ghana and Zimbabwe, have imposed export restrictions on some of their unprocessed critical minerals, such as lithium, noting that they are losing income by exporting the minerals as raw materials

and that they are planning to develop the capacity to process these minerals locally.

The African ExportImport Bank (Afreximbank) is stepping in to facilitate critical mineral projects in Africa, acting as a financial and technical partner to ensure that African countries move up the critical mineral value chain. For example, Afreximbank and the United Nations Economic Commission for Africa recently signed a Framework Agreement with the Democratic Republic of Congo and the Republic of Zambia to establish Special Economic Zones that will facilitate the processing of their critical mineral resources to produce battery electric vehicle and related services.

The African Continental Free-Trade Area (AfCFTA), implemented in 2021, has also acted as a strong impetus for African governments to address their infrastructure gaps, enhance and streamline supply chains, improve climate policies that fulfil net zero

commitments, boost manufacturing capacity and overhaul regulation relating to trade, cross-border initiatives, investmentfriendly policies, and capital flows. It is expected that the trade in critical mineral commodities in Africa will benefit from these reforms, and that, among other factors, this will result in African countries undertaking a more active role in the sustainable processing of metals and minerals, better capitalising

DRIVEN BY THE ENERGY TRANSITION, THE DEMAND FOR CRITICAL MINERALS IS EXPECTED TO RISE SHARPLY on the continent’s vast mineral resource base.

On a continent-wide scale, Afreximbank is a key player in the finance and promotion of African trade and one of the architects of

the AfCFTA. Afreximbank and several other development banks have increasingly been bridging Africa’s trade finance gap through increased lending and alternative products to support market participants.

Trade remains a key driver of Africa’s social and economic development, and banks such as Afreximbank and the African Development Bank (AfDB) have sought to stay on top of market developments and provide sustainable solutions to boost intraAfrican trade.

Recently, it was announced that Afreximbank would increase intra-African trade funding to $40bn by 2026, up from $20bn in 2021. This would be in the form of an AfCFTA Adjustment Fund to facilitate and provide support through financing, technical assistance, grants and compensation to state parties and private enterprises to effectively participate in the AfCFTA. Since the establishment of AfCFTA, there have been CONTINUED ON PAGE 7

BusinessDay www.businessday.co.za November 2023

7

BUSINESS LAW & TAX

AI financial services the ethical way With rapid growth of its application in industry, more regulators are proposing rules for its use

•

Wilmari Strachan ENSafrica

W

hen asked about its stance on artificial intelligence (AI) in financial services, ChatGPT responded with: “Ethical use of AI in the financial services industry is not just best practice, it’s a moral imperative to safeguard the trust and financial wellbeing of individuals and society.” Straight from the horse’s mouth.

AI is used in financial services in a variety of ways, including algorithmic trading (algo trading). Algo trading is a widely used application of machine learning in finance, where automated computer algorithms analyse large datasets and identify patterns and signals to optimise for, predict, guide, forecast or direct investment-related behaviours or outcomes.

These algorithms are designed to analyse market data and identify trading opportunities.

Algo trading has become increasingly the practice in the financial industry due to its ability to execute trades at

CONTINUED FROM PAGE 6 other significant developments for intraAfrican trade, including the launch of the Transaction Guarantee Instrument, the Pan African Payment and Settlement System and the Base Fund of the AfCFTA Adjustment Fund.

A year ago, Afreximbank Trade Payment Services was launched to facilitate “the settlement of international trade on open account terms on behalf of identified African financial institutions and their clients”. This was developed specifically to address African banking challenges, exacerbated by the withdrawal of international banks, mainly due to stringent regulatory and compliance requirements but also due to rising costs.

Traditional lenders have also been scaling back in

high speed and efficiently manage large portfolios.

However, it does raise concern about market stability, fairness and the potential for unintended consequences, leading to regulatory oversight and discussions about its ethical use.

AI is also frequently used in financial services for: ● Portfolio management; ● Risk assessments; ● Fraud detection; ● Data analytics (such as market analysis, customer

insights and personalise services) and customer services.

While these applications may enhance efficiency, accuracy and customer experience, there is a growing concern about the potential risks. This includes biases and inherent conflicts of interest in using AI without implementing

proper systems and procedures to ensure responsible use.

With the rapid growth in the use of AI in financial services, more regulators are proposing rules for its use.

The US Securities and Exchange Commission (SEC) has proposed new rules mandating broker-dealers and investment advisers to address conflicts of interest tied to their use of predictive data analytics (PDA) and AI technologies when interacting with investors. This aims to ensure that companies prioritise investor interests over their own. proposed rules The explain that while these conflicts are not new, the scalability of these technologies and the potential for companies to reach a broader audience at a rapid speed could cause investor harm.

Some of the conflicts of interest mentioned in the proposed rules are: ● An investment adviser who is paid a percentage fee based on assets under management has an incentive to encourage a client to move assets into their advisory account, which could conflict with investors’ interest or;

terms of funding infrastructure gaps in Africa.

Baker McKenzie’s report, New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding (report), pointed to infrastructure gaps in energy provision, internet access and transportation that have resulted in an urgent imperative to identify and enable new sources of financing outside traditional lenders and international partners. Such gaps must be addressed to facilitate the construction of climateresilient, sustainable infrastructure and enable the free flow of trade, including in critical minerals, across the continent.

The report outlined how development finance institutions (DFIs) are increasingly anchoring the infrastructure ecosystem in Africa because they can shoulder political risk, access

government protections, enter markets that others cannot and are uniquely capable of facilitating longterm lending.

However, the amount of capital needed is significant and DFIs cannot bridge it alone. Private equity, debt finance and specialist infrastructure funds are primed to enter the market, and multifinance and blended solutions are expected to grow in popularity as a means to derisk deals and support a broader ecosystem of lenders.

Developing countries are among the most vulnerable in the world to the effects of climate change, especially with regard to adapting to weather extremes and finding solutions that address food insecurity, and energy and water scarcity. The availability of climate financing to assist developing

ACCORDING TO KING 4, THE BOARD IS RESPONSIBLE FOR THE ETHICAL MANAGEMENT OF INFORMATION TECHNOLOGY

LENDING A HAND

/123RF — PITINAN ●A broker-dealer that receives transaction-based commission has an incentive to maximise the frequency of transactions, which could increase costs to the investor or expose them to other risks associated with excess trading. Similarly, companies offering proprietary products have an incentive to favour those products over other nonproprietary alternatives.

The SEC report further states that the investment adviser’s increasing use of PDA-like technologies in their interactions may expose investors to unique risks. This may include a company using PDA-like technologies to automatically develop advice and recommendations that are then transmitted to investors through the company’s chatbot, push notifications on its mobile app or robo-advisory platform.

If the advice or recommendation transmitted is tainted by a conflict of interest because the algorithm drifted to recommending investments more profitable to the company or because the dataset underlying the algorithm was biased toward investments more profitable to the company, the transmission of this conflicted advice and recommendations could spread rapidly to many investors.

The SEC, therefore, proposed “conflicts rules” which

would generally require a company to: ● Evaluate any use of, or reasonably foreseeable potential use, by the company of technology in any investor interaction to identify any conflict of interest associated with that use or potential use; ● Determine whether any such conflict of interest places or results in placing the company’s interest ahead of the interest of investors and ● Eliminate or neutralise the effect of those conflicts of interest that place the company’s interest ahead of the interest of investors.

The proposed conflicts rules would require a company that has any investor interaction using covered technology to adopt, implement and maintain written policies and procedures reasonably designed to achieve compliance with the proposed conflicts rules. Included in these policies should be: ● A written description of the process for evaluating any use (or reasonably foreseeable potential use) of a covered technology in any investor interaction; ● A written description of any material features of any covered technology used in any investor interaction and of any conflicts of interest associated with that use; ● A written description of the process for determining

whether any conflict of interest identified pursuant to the proposed conflicts rules results in an investor interaction that places the interest of the company or person associated with the company ahead of the interests of the investor; ● A written description of the process for determining how to eliminate or neutralise the effect of any conflicts of interest determined pursuant to the proposed conflicts rules; and ● A review and written documentation of that review, no less frequently than annually, of the adequacy of the policies and procedures established pursuant to the proposed conflicts rules and the effectiveness of their implementation as well as a review of the written descriptions established pursuant to the proposed conflicts rules.

In SA, we have no specific rules on the use of AI in financial services.

However, according to King 4 (information governance and data governance), the board is responsible for the ethical management of information technology, including information management and data protection and the need to identify and manage risks and opportunities related to information technology. This would include ensuring the company employs technology, such as AI, responsibly.

countries with the transition to a low-carbon, climateresilient future has been a hot topic in Africa for some time.

In 2022, a number of countries pledged to increase their climate finance commitments, including France, Germany, the Netherlands and the US. The AfDB noted that about $1.6trillion in financing is required by 2030 to assist Africa in adapting to and mitigating the risks of climate change, as well as for African countries to effectively implement their “Nationally Determined Contributions” under the Paris Agreement.

Transition finance, in the form of green, social and sustainability-linked bonds, has become another well established method of financing climate-resilient projects and the energy transition. There has been a rise in demand for sustainability-linked loans that incentivise borrowers to achieve pre-determined environmental, social and governance targets. The essential foundation for transition finance is the development and agreement between the parties on a detailed, credible and testable long-view transition plan to engender confidence that the activities being financed are meaningfully contributing to the net zero target.

There will be continued growth in non-bank activity in Africa going forward as a result of new credit mitigation products coming to market and an increase in

appetite from established market participants, such as DFIs and ECAs, to create products that are not tied to existing arrangements that may have limited the type of finance available.

With the growing demand for critical minerals to support the energy transition and the need to support the development of sustainable infrastructure and trade across the continent, DFIs and ECAs will be instrumental in unlocking capital, bolstering private investment in sustainable projects and fostering local production in Africa.

DEVELOPING COUNTRIES ARE AMONG THE MOST VULNERABLE IN THE WORLD TO THE EFFECTS OF CLIMATE CHANGE

● Foundethakis is a Partner, Global Head of Projects and Trade & Export Finance; Lightfoot is a Partner, Banking & Finance (London); and Kathrin Marchant is a Partner, Banking & Finance (Frankfurt) at Baker McKenzie.

BusinessDay www.businessday.co.za November 2023

8

BUSINESS LAW & TAX

Love at work: balancing act for managers

AFFAIRS OF THE HEART

To issue a blanket ban on romantic relationships •among employees is unrealistic and insensitive Claire Nolan & Amy Pawson ENSafrica

O

rdinarily, employers should not interfere with romantic relationships in the workplace.

However, it is also clear that these relationships can have a negative effect on the workplace and on how employees conduct themselves at work.

While it is not disputed that employees have a right to privacy, a balance must be struck between the right to privacy and the possible impact that a romantic relationship between employees may have on the workplace.

Where a workplace relationship has a negative impact on the operations of an employer’s business, the employer may be entitled to intervene.

The following are some of the circumstances in which issues may arise: ● Where a romantic relationship exists between two colleagues; ● Where a romantic relationship exists between a superior and a subordinate; ● Where one of the parties in

a romantic relationship is in a position of influence over the other’s salary, bonuses, promotion and work division; ● Where there is inappropriate conduct at work; ● Where a breakdown in a romantic relationship hampers productivity or creates disharmony; or ● Where there is a duty to disclose a romantic relationship, but the employees in a relationship fail to do so.

To regulate such situations, employers are increasingly looking for ways to manage workplace relationships. The introduction of a policy governing relationships in the workplace, or the incorporation of appropriate clauses into contracts of employment, would where appropriate or necessary, enable employers to “set the boundaries” for such relationships and to ensure that the necessary steps are taken

MANY EMPLOYERS HAVE CODES OF CONDUCT OR POLICIES THAT DEAL WITH TOPICS SUCH AS SEXUAL HARASSMENT

to safeguard a harmonious working environment.

While some employers have introduced policies which specifically regulate romantic relationships in the workplace, the implementation of principles and guidelines to govern workplace relationships need not necessarily be included in a standalone policy but can be integrated into existing policies, where applicable. Many employers have codes of conduct or policies that deal with topics such as sexual harassment and conflicts of interest, and these may be amended to incorporate appropriate measures that adequately regulate romantic relationships in the workplace .

The labour court expressed the following view on workplace romances in the decision of Rustenburg Platinum Mines Ltd v UASA obo Pietersen and Others: “A workplace is exactly that and should not ordinarily be confused with a ‘find me love’ sanctuary or lonely hearts’ club for love-sick employees. I agree with the commissioner’s observations that there is nothing wrong with employees being attracted to each other at the

workplace. After all, we are all part of Homo sapiens with feelings and emotions, and it is possible for the office affair to turn into a ‘happily thereafter union’.

“There is a school of thought that holds the view that human beings can be slaves to their urges. That being so, it does not imply that employees are incapable of controlling those urges in the workplace. A workplace should be free from ‘amorous’ and testosteronefilled employees looking for love and gratification at every available opportunity. is everything “There wrong when employees express their affection in the workplace to each other, to the point where the conduct in question is frowned upon, as it crosses that fine line between innocent attraction and sexual harassment.”

This perspective suggests that employees should be discouraged from expressing any affection towards each other in the workplace, particularly where the relationship is between senior employees and subordinates.

From a practical point of view, an outright prohibition on romantic relationships in

the workplace incorporated into a policy or contract would generally not be the solution, nor would it typically hold muster in the realm of fair workplace practices.

An important question that arises then is what measures can be implemented in the event that workplace relationships negatively affect the work environment?

Clear guidelines should be set to regulate and govern romantic relationships. These could include: ● When a romantic relationship must be disclosed and to whom; ● What steps will be taken if there is a romantic relationship between a superior and a subordinate, or where one of the parties to the relationship could have influence over the other’s bonus, salary increase, disciplinary measures, etc; ● The type of conduct in the workplace that can be expected of employees that are parties to a romantic relationship: and ● When a breach of a policy may result in disciplinary action.

Employers will need to navigate each case on its own merit, paying particular

attention to the effect of the consensual relationship on the workplace. It may become necessary to transfer an employee to a different division or department, change their duties or change a reporting line to accommodate the consensual relationship while maintaining a professional and comfortable workplace for all employees.

If an employer decides to take any of these measures, it should be careful not to favour one of the parties over the other.

An employer may consider taking disciplinary action for breach of a policy.

Further, instances of incompatibility (such as an inability on the part of an employee to work in harmony either within the corporate culture of the business or with fellow employees) may also arise.

An employer may also have to take particular care where a relationship comes to an end. An act that was acceptable in a consensual relationship may become inappropriate or even create the possibility of a sexual harassment allegation. The failure of an employer to take appropriate action in these circumstances may lead to it being held liable in terms of section 60 of the Employment Equity Act. While this may be desirable for employers, it is often difficult to keep employees’ private and work lives wholly separated. Employers should consider setting appropriate guidelines for romantic workplace relationships. This will not only be important for clearly defining what is expected of employees but will assist in mitigating any risks and harm that can be caused by romantic workplace relationships. ● Reviewed by Peter le Roux, an Executive Consultant in ENS’ Employment Practice.

Banks become wary of lending to SMEs Gary Palmer Paragon Lending Solutions Banks have become increasingly cautious about extending business loans, particularly to SMEs. The main reason for this is that banks are seeing higher impairments given increased interest rates and slowing economic growth.

Consequently, stringent credit checks, collateral requirements and lengthy approval processes are required by banks, leaving many businesses in the lurch, struggling to secure the funds necessary for their stability.

Crucial towards the end of the year is sufficient working capital to sustain business activities. Alternative lending solutions are available,

offered by a range of financial institutions providing flexibility, speed and accessibility that traditional banks can lack, particularly in the current market.

But many businesses may be unaware that they can look beyond the banks for funding. Here are three trends to note if your business is looking for finance.

NOD TO NONSTANDARD DEALS Where banks are active is vanilla/straightforward transactions, competing heavily on price to secure those deals. But deals with perceived higher risk are not currently favoured by the alternative banks.

For lenders, however, nonstandard deals are possible, and

proving to be a viable and often necessary option.

Whether it’s an SME looking to bridge a cash flow gap, or a solar funding deal, or larger enterprise seeking agility in their financing, alternative lending channels offer hope and financial flexibility.

To illustrate, some businesses might be recovering from business rescue. Some will have liquidated their previous entity and started a new business. The entity has no operating experience, but the business owner has a track record.

Given the commercial banks have specific criteria to extend lending facilities, usually including a business track record, the deal can be a nonstarter. An alternative lender may, however, share a

rising business owner’s vision and be open to finding a solution for funding.

ACT ACCORDINGLY There is a noticeable delay in finalising funding options, partly due to the requirements of the National Credit Act and the Financial Intelligence Centre Act (Fica). It’s crucial for individuals and businesses to realise that these requirements may introduce a slowdown in the process of securing business funding.

With a heightened emphasis on due diligence and regulatory compliance, more boxes need to be ticked, more documents need to be submitted, and more hoops need to be jumped through.

It’s important to have your

paperwork up to date and ready to go when applying for funding, to avoid any further administrative delays.

Keep in mind that the significance of environmental, social, and governance (ESG) cannot be ignored — and can be a distinguishing feature in a funding application. For businesses that don't align with ESG principles, there's a possibility that funding requests may be declined.

FOR BUSINESSES THAT DON'T ALIGN WITH ESG PRINCIPLES, THERE'S A POSSIBILITY THAT FUNDING REQUESTS MAY BE DECLINED

DON’T WAIT

In this climate, it’s wise not to leave your funding applications to the last minute.

November can be the general timeframe when funding closes until the new year, so it’s important not to wait to apply.

Even more so if there are additional checks and balances to meet regulations.

No change to interest rates recently could also mean lower rates are on the horizon, as some economists believe. But suffice to say the costs of doing business make it essential to ensure sufficient cash flow.

For businesses in SA, alternative funding solutions provide a glimmer of hope in an otherwise challenging credit environment.

BusinessDay www.businessday.co.za November 2023

9

BUSINESS LAW & TAX

Women still battle at work The struggle for women to be recognised and gain •leadership positions in the workplace continues Bridgett Majola CMS here are few, if any, sectors or in industries which women have not struggled to convince colleagues and clients, bosses and managers that they are up not only to the job at hand, but that they are able to lead teams or indeed entire organisations.

In 2023 it’s seriously time to address these ongoing disparities in the selection of women for top positions, especially in the legal sector.

While women account for a healthy half of the entrants into the legal profession, this figure is significantly diluted by the time it comes to the upper echelons of law firms.

If we can identify the impediments to women, especially black women, in reaching management roles within these blue chip, corporate law firms, we can take steps to remediate the lack of their presence around the boardroom table.

Many young black girls are not even able to complete school. Period poverty and assuming primary caregiver roles very early on prevent many from attaining the level of education of which they are capable. Studies show, however, that they are able to achieve better results than boys and so women’s hard

T

skills cannot be called into question.

They do the same training and pass the same exams as their male counterparts, excel in the execution of their tasks and yet, when they seek promotion, they are often overlooked, even if they are the best “man” for the job.

Racial and gender biases still prevail in many parts of our society and for black women to overcome them takes serious fortitude, bravery and determination.

Despite parity in academic

WOMEN WHO ARE ASSERTIVE, IN PARTICULAR IN THE WORKPLACE, ARE DEEMED TO BE AGGRESSIVE OR CONFRONTATIONAL achievements with black or white men, black women continue to be looked down on, with their innate competency and ability called into question.

And when they gain employment in male-dominated institutions, women must then prove they are not about to abandon their professional duties in the pursuit of motherhood. Whether they are already mothers or plan a family at some point later in

their careers, taking time away from work for maternity leave or the responsibilities that being a mother brings, counts against women on the promotion scorecard.

Despite today’s more enlightened approach by many men to shared parenting, much of the responsibility still falls to women, and this apparently is a deterrent for some firms in promoting them up the career ladder.

When more men take advantage of their full, legislated permissible paternity companies may leave, become more tolerant and understanding of this need to take time out in a child’s early months and years.

FLEXIBLE MODELS Until recently, most companies adopted a “one size fits men” attitude to working models, but, possibly thanks to the Covid-19 pandemic, more flexible and hybrid patterns of home/office models and schedules are being adopted in many work environments for both men and women, and this can work in women’s favour.

ON BEING ASSERTIVE Historically and culturally, women who are assertive, in particular in the workplace, are deemed to be aggressive or confrontational, a judgment that does not apply to men.

STANDING FIRM

/123RF — CALYPSOART Conversely, women’s natural reticence and more cautious approach to making deals or adopting a strategy in the courtroom may equally go against them and so they must manage the conflict between being seen to be too tough, or a pushover. Both qualities are seen as negative attributes in a woman.

When society acknowledges that women do not only fit into support or “nurturing” roles and are able to take the lead in many matters, they will find themselves on more shortlists for leadership positions, their gender irrelevant in the selection process.

OTHER WOMEN Ironically, women are their own harshest critics — of themselves and each other — and many women will cite being hampered in their efforts to get ahead by other females in their profession.

Women need to champion each other more and lift as they rise.

Standing on the shoulders

of those who have gone before does not include trampling in the process.

Establishing more mentoring programmes by women for women, networking and experience sharing forums where ideas can be ventilated, can contribute to helping propel women to the fore in their chosen careers.

PAY GAPS The power of the old boys’ network remains a hurdle to be overcome for women in many institutions.

Combined with very real pay gaps and a lack of parity in “same pay for the same work” many women are therefore discouraged from seeking leadership roles.

If they are to be both judged and paid differently from men, why assume additional responsibility?

Companies need to adopt transparent salary schedules and demonstrate that they value everyone’s work equally, based on output and not gender.

ADDRESSING ISSUES In the process of women becoming more economically active, they are increasingly equal users, but not yet providers, of many legal, financial and other services.

Only when more women are part of research & development into products and services designed with women in mind, and are on the front line of delivery of these services, can we truly attain parity with men.

Legal firms, corporates and institutions can assist in the reduction of disparities between the number of women in top roles within their structures by addressing educational inequality, societal biases and stereotypes, by implementing mentoring programmes and work adopting flexible arrangements.

Diversity in all its forms engenders creativity, enriching the work environment. It brings new and different perspectives.

By promoting more women, including black women, law firms can foster an inclusive environment that empowers them to excel in their legal careers. Achieving gender and racial parity in partnership positions will not only benefit individual lawyers, but also can help in providing more equal opportunities in the legal sector as a whole. ● Majola is Director: Banking and Finance, Head of Project Finance: Energy and Infrastructure, CMS

TAXING MATTERS

Dispute procedures for responsible tax litigation have often referred to “responsible tax litigation”.

What is meant by this is that taxpayers who take a tax position on a matter, be it factually or based on an interpretation of the law, should approach our courts for relief and not merely concede at first sight of a dispute with the SA Revenue Service (Sars).

Responsible tax litigation assists with the continuous development of tax law and jurisprudence in SA. Recent judgments have made it clear that the tax litigation procedures prescribed in the Tax Administration Act should be followed and that the courts will no longer accept shortcut litigation strategies by bringing action without following due process.

Section 105 of the Tax Administration Act, with the heading Forum for dispute of

high court, thereby circumventing the tax dispute process.

I

RAPPA RESOURCES

PIETER JANSE VAN RENSBURG assessment or decision, states: “A taxpayer may only dispute an assessment or ‘decision’ as described in section 104 in proceedings under this chapter unless a high court otherwise directs.”

Therefore, the only forum in which assessments, including additional assessments, may be challenged is the tax court unless a high court directs otherwise. The purpose of section 105 is to ensure that, in the ordinary course, tax disputes are taken to the tax court and not directly to a

The Supreme Court of Appeal (SCA) in March this year found that section 105’s purpose is to make clear the default rule is that a taxpayer may only dispute an assessment by the objection and appeal procedure under the Tax Administration Act and may not resort to the high court unless permitted to do so by order of that court. The high court will only permit such a deviation in exceptional circumstances. This was clear from the section’s language, context, history and purpose.

Thus, a taxpayer may only dispute an assessment by the objection and appeal procedure under the Tax Administration Act unless a

high court directs otherwise.

UNITED MANGANESE OF KALAHARI In the same month, the SCA delivered a judgment where United Manganese of Kalahari sought to dispute the assessments and gave the requisite notice to institute proceedings against Sars in the high court (review) instead of exercising their right of appeal in the tax court. However, the high court and the SCA confirmed that the high court’s jurisdiction depends upon a directive in terms of section 105 to prevent tax-related issues from being raised in a court other than the tax court.

ERASMUS In August, in Erasmus v Commissioner for the SA Revenue Service, the Western Cape High Court dismissed an application for

a directive that a review, which the taxpayer lodged, be heard by the high court and that the taxpayer is not exempted from exhausting the remedies of objection and appeal which are available in terms of the Tax Administration Act.

CITIBANK EXCEPTION The Gauteng High Court, in September (after both SCA judgments above), found that the mere absence of a live dispute is not a bar to a court considering whether to grant declaratory relief.

In that case, the judge noted that Citibank raised an

IT IS CLEAR FROM THE RECENT JUDGMENTS THE COURTS RESPECT THE LEGISLATIVE PROVISIONS

important issue which, in the court’s view, merits the court considering the relief sought.

This appears to be at odds with the instruction of the judgments in the SCA, and one cannot help but wonder if section 105 was adequately considered.

Although the latter judgment appears to be departing from the principles laid down by a superior court, it is clear from the recent judgments that the courts respect the legislative provisions in dealing with tax disputes and are unlikely to entertain a shortcut process without having exhausted all internal remedies and dispute resolution processes. ● 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 November 2023

10

BUSINESS LAW & TAX

Competition law on BBBEE in spotlight

GETTING THE RIGHT FIT

It is unclear whether the watchdog’s approach to •promote inclusivity is having the desired effect Aidan Scallan & Macalen Chetty ENSafrica

S

A’s merger control landscape is everevolving, with a unique socioeconomic context adding a distinctive layer of complexity.

A recent report by the World Bank has highlighted the persistent and stark inequality within the country, revealing that a small segment of the population continues to hold the majority of the wealth.

Against this backdrop, the pressing need to rectify historical disparities and promote inclusivity is evident.

Over the past two years, the SA Competition Commission — often spurred on by the department of trade, industry & competition (DTIC) — has exhibited a robust approach in attempting to do so, imposing public interest conditions with a notable emphasis on promoting a greater spread of ownership among historically disadvantaged persons (HDPs ).

As social imperatives continue to shape competition policy, empowering small and medium-sized enterprises and elevating HDP and worker opportunities will remain focal points. Indeed, the commission’s recently published revised draft public

interest guidelines explicitly state as much. The question, though, is whether the commission and the DTIC’s approach over the last two years and as laid out in the revised guidelines will have the desired effect.

There is no denying the urgent need to address yawning inequality in SA. However, the issue for many is that the commission is being used to implement what should arguably be national policies on a very narrow segment of corporate SA, namely those engaged in M&A activity. The commission’s recent approach to seek very large concessions from merging parties not only creates competition issues and knock-on consumer harm (as only the merging parties are subject to these concessions, while their nonmerging competitors are not) but also substantially escalates transaction costs and adds complexity.

Despite frequent protestations from merging parties

THE COMMISSION IS BEING USED TO IMPLEMENT WHAT SHOULD ARGUABLY BE NATIONAL POLICIES ON A VERY NARROW SEGMENT OF CORPORATE SA

regarding these potentially harmful effects, the commission looks set to plough ahead with even greater demands in future transactions.

In circumstances where the proportion of corporate SA that is involved in M&A activity represents a tiny fraction of all corporate entities, the efficacy of the strategy is questionable.

AMENDMENT ACT But how did we get to this point? In line with the constitutional objectives of largescale transformation, the Competition Amendment Act 18 of 2018 (enacted in 2019) introduced various changes aimed at addressing the structural challenges of high levels of concentration and the racially skewed spread of ownership of firms in the SA economy. Within the merger space, the most significant change was the introduction of a new public interest criterion, namely the requirement to assess the effect that a proposed merger will have on “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”.

Despite the amendment taking effect in July 2019, up until June 2021, the commission’s approach to the public interest assessment in merg-

/123RF — YUROLAITSALBERT ers hardly changed, with the new public interest factor — the promotion of a greater spread of ownership — barely featuring in large merger decisions. In fact, it took until October 2020 — more than a year after the enactment of the amended legislation — for the commission and Competition Tribunal to impose a “spread of ownership” type condition.

A retrospective review conducted by ENS of all large merger decisions between July 2019 and June 2021 reveals that of the 154 mergers considered, only four (or 2.6% of transactions) included a spread of ownership type condition. What is notable about these four decisions, though, particularly when compared to recent merger decisions involving the spread of ownership concerns, is that the conditions imposed to address the perceived harm to the promotion of a greater spread of ownership tended to be far softer in their effect.

For instance, one condition involved an undertaking “to consider” establishing a shareholding structure to the benefit of employees rather than mandating that the firm do so with a specific percentage shareholding allocated to HDPs and/or workers.

However, June 2021 represents a watershed moment for the public interest assess-

ment in SA. For the first time ever, the commission prohibited a merger based solely on public interest grounds, namely the proposed acquisition of the SA Burger King franchise by ECP Africa (Burger King transaction). In reaching its decision, the commission cited that the foreign acquirer, ECP Africa, lacked broad-based BEE credentials and that the approval of the proposed merger would have “a substantial negative effect on the promotion of a greater spread of ownership of HDPs and workers” (due to a decrease in the percentage of HDP ownership in the target firm from 68% to 0%).

The prohibition came despite the fact that the parties had offered the commission a package of public interest remedies. The tribunal subsequently approved the Burger King transaction after the parties took the commission’s prohibition on consideration before the tribunal and agreed to substantially bolster the public interest remedies package to, among other things, , address the dilution in HDP and worker ownership.

Post the Burger King transaction, in the period from July 2021 to July 2023, ENS’ research reveals that there has been a significant increase in the number of being mergers large

approved with the spread of ownership conditions.

Specifically, of the 191 large mergers considered by the tribunal over this period, 31 (or 16%) included conditions which were directly related to the spread of ownership.

This represents a huge 13.4 percentage point increase compared to the July 2019 to June 2021 period.

It might be tempting to try to argue that this is simply a function of there being a greater number of the transactions under consideration during the latter period which are having a negative impact on the spread of ownership.

Unfortunately, the nature of the public reporting on the transactions means it is not possible to refute this with hard data, but based on the information that is available as well as our own experiences over the period, we think it is unlikely.

This is particularly so because it was also during this period, in January 2022, that the commission informally communicated to competition lawyers there had been a policy shift within the commission in terms of which the commission would require a positive contribution to the spread of ownership from merging parties. ● See a second related article on this topic on page 4.

How to avoid having your claim rejected Mtho Maphumulo Adams & Adams Insurance claims can be repudiated for many varying reasons — from the most obvious to the least expected reasons.

One of the best ways of trying to avoid an insurance repudiation is to understand your contractual duties stemming from your policy.

Though this does not guarantee a payout, it does, nonetheless, enhance one’s chances of succeeding in a claim.

In liability insurance policies (mainly), there is almost

always a “notification clause” which requires that an insured notifies the insurer of any event/occurrence that may potentially lead to or attract liability. The significance of these clauses is explained below.

Additionally, most insurance policies require the insured to report/submit an insurance claim within a certain number of days.

Failure to adhere to these requirements may result in a rejection of an otherwise valid claim. It is thus worth delving into the legalities of these clauses.

DUTY TO NOTIFY THE INSURER Clauses that require insured people to notify insurers of any occurrence that may result in liability form part of the terms and conditions of an insurance contract and are therefore binding.

The courts have long recognised the significance of such clauses for insurers in that prompt notification places an insurer in a position where it can try to mitigate further losses, make assessments, commence with investigations and so on.

Failure by an insured to

adhere to such a contractual term may cause serious prejudice to the insurer, and a breach may allow an insurer to repudiate an otherwise valid claim.

While this requirement may seem simple on face value, in practice, it does come with certain challenges.

For example, an insured may be uncertain as to whether the incident is significant enough to warrant notifying an insurer; or there may be circumstances that prevent immediate reporting and so on.

The courts have held that

the test to be applied when dealing with such clauses is an objective test enquiring what was reasonable and requiring an investigation of the prevailing circumstances at the relevant time.

REPORTING/SUBMITTING CLAIMS TIMEOUSLY It is also normal to find a requirement in short-term insurance policies, and particularly liability policies, that a claim should be reported or submitted “as soon as practicably possible” or within a certain number of days.

Where there are sound

grounds for nonadherence, however, an insurer (or a presiding officer, if applicable) may condone nonadherence.

This would, among other things, be in line with the “treating customers fairly” principle.

It is crucial to understand and adhere to policy requirements. When in doubt, insureds should seek clarification from their insurer or broker.

Importantly, if a claim has been rejected, insureds should also seek legal advice regarding the lawfulness of the rejection.

BusinessDay www.businessday.co.za November 2023

11

BUSINESS LAW & TAX

Sars clarifies VAT treatment of cash round-offs Landise Banzana & Jana Krause Baker McKenzie The South African Revenue Service (Sars) recently issued Binding General Ruling 65 (BGR 65), which clarifies the VAT implications of rounding differences in cash transactions.

It outlines the conditions under which suppliers are not required to issue credit notes and explains input tax deductions for recipient vendors.

In certain instances, customers still prefer to use cash as a form of payment rather than the myriad electronic payment methods available.

However, with the discontinuation of certain coin denominations by the South African Reserve Bank, suppliers face challenges in providing exact

change for cash transactions.

As a result, they have adopted the practice of rounding off the total amount due to the closest circulating coin, a practice that has become common among suppliers to avoid inconvenience and disputes with customers over incorrect change.

In this way, when a supplier issues a tax invoice for a supply, the amount of tax on the invoice may differ from the amount levied. For instance, a customer’s due amount for a purchase is R99.95, and they pay R100 in cash. The supplier is unable to provide five cents in change.

As a result, the supplier will round the price payable to the nearest 10c, and the new total amount due from the customer is R99.90.

This means the agreed-

/123RF — WALLY82 upon consideration (being the amount due inclusive of VAT) has been altered. This results in the tax charged on the tax invoice being incorrect, and the supplier can claim an adjustment. The recipient vendor must also make an adjustment to reduce the input tax claimed in relation to the supply. Under the provisions of the Value Added Tax Act, 1991 (VAT Act), such adjustments must be proper-

ly supported by documentary evidence. In this case, the supplier should issue a credit note to reduce the previously agreed-upon consideration and corresponding VAT that must be accounted for. Considering the value of the amounts involved, the volumes of transactions and the potential cost of issuing credit notes, it would be impractical for suppliers to issue credit notes in these instances.

The commissioner may direct that a credit note is not if sufficient necessary records are available to establish the supply details and if it would be impractical to issue a full credit note.

BGR 65 directs that a supplier is not obligated to issue a credit note in rounded-off cash transactions provided: ● The invoice clearly indicates that due to the rounding difference, the recipient may only claim input tax to the extent of the adjusted amount; ● The supplier may only make an adjustment to the extent that the supply is subject to VAT at the standard rate of 15%; and ● The supplier must retain relevant records to support the adjustment.

On the other hand, the recipient vendor may use the

tax invoice issued by the supplier in support of its input tax deduction, but the deduction is limited to the adjustment amount for the cash transaction. The recipient vendor is required to do a reasonable split for purposes of deducting input tax on goods or services to which different tax rates apply.

In summary, suppliers are not required to issue a credit note to adjust the output tax to be accounted for, where amounts are rounded off to the nearest coin denomination. Recipients must limit their input tax deduction to the amount paid and not claim VAT on the full amount of consideration charged.

Both suppliers and recipients must comply with the documentary requirements set out in the VAT Act.

LEGAL SCOOP

Change credit terms, but fairly and with reason Jonathan Shafir Fluxmans

R

ecent hearings in the Pietermaritzburg high court relating to when a supplier unilaterally changes its customer’s credit terms offer food for thought.

An appeal to the KwaZulu-Natal full bench in the Twelve Gods Supermarket matter was against the orders made in a termination application and the drop-shipment application.

Judge AJ Barnard recognised that clause 5 expressly permits Spar Group to amend the credit terms but found that Spar Group’s conduct in doing so was unreasonable.

Barnard applied the following established legal principle: “Where a party has a unilateral discretion under a contract, unless that contractual discretionary power is clearly intended to be completely unfettered, that discretion should be exercised ‘arbitrio boni viri’, meaning that the unilateral discretion should be exercised fairly, reasonably and in good faith.”

In the application Spar argued that clause 5 of the credit agreement provides that the credit and drop shipment terms are stipulated “at the seller’s discretion, and the seller may, without notice, at any time vary or terminate such facilities”. Therefore, in amending the credit terms afforded to the respondent companies, Spar Group argued that it had validly exercised its contractual discretion.

In addition, Spar Group

LEGAL SCOOP argued that the objective and uncontested facts did not support the finding that Spar Group acted outside the principle of arbitrio boni viri.

Spar contended that it came to a legitimate and reasonable decision, taken in a private contractual setting, and after a substantial period of engagement with the respondent companies, it could not continue to do business with the respondent companies on the existing terms as the relationship of trust between the two entities had broken down irretrievably.

It was argued that Spar’s decision to change the credit terms was based on the financial statements provided by the respondent companies at court coupled with the fact that Spar Guild had issued notices of termination, which meant that the credit terms had to be restricted to the period of the termination.

This affected the creditworthiness of the respondent companies and aggravated the risk to Spar if it continued to do business with them. Spar’s decision to reduce the credit terms was, it was argued, also consistent with Spar Guild’s obligation to act in the best interests of all its members, and the Spar Group’s accountability to its shareholders.

In the appeal before the

KwaZulu-Natal full bench, Spar Group expanded on its argument as follows: ● A clause which permitted the Spar Group to determine the “prestation” (performance) of the counterparty to a contract, was not against the general principles of contract and was not invalid; ● The arbitrio standard was only capable of a very restricted application as it did not apply to all exercises of contractual discretion; ● For termination in matters of contract, there was no need to go beyond the giving of notice nor was any good reason required for the exercise of contractual discretion; ● If the court were to find that the arbitrio standard was required for the amendments of credit terms imposed by Spar Group, then the hostile standoff between the parties, the risk of having no or inadequate security for the credit advanced to the respondents because of the intended termination, and the liquidity shortages evident in the financial statements furnished by the respondent companies provided justification for Spar Group’s reduction of the credit terms; and ● Although Spar Group was entitled to cancel the credit facilities, it acted reasonably in only limiting the facilities.

The full bench agreed with the following counterarguments offered by the respondent companies: ● Clause 5 should not be construed literally or narrowly, but considered within the context of the reciprocal nature of the contractual relationship

between the parties. As retailer members of a trading group, the respondent companies are bound to purchase their stock from Spar Group and are therefore obliged to accept Spar Group’s credit terms in order to operate their businesses; ● The advancing of goods on credit is not a future contract that is subject to a decision

by Spar Group, on each occasion, whether to enter into such agreement or not. It is an ongoing relationship and part of a larger whole, which was acknowledged in Spar Group’s statement that the credit agreement is part of an “ongoing commercial relationship” between the parties; and ● Spar Group’s discretion must therefore be exercised reasonably and honestly because of the reciprocal nature of the trading model, and it is not a discretion to be exercised unfettered.

In agreeing with the counterarguments, the court analysed and confirmed previous court decisions relating to the principle of arbitrio boni viri.

The full bench found the Spar Group’s discretion was not unfettered. It referred to previous decisions and found that there was no reason for drawing a distinction between a stipulation relating to credit terms for goods sold

by Spar Group to Spar retailers on credit and other similar stipulations conferring on a party to a contract a discretion to determine a performance, such as the power to determine the price or rental.

There was no reason to limit the arbitrio boni viri rule to instances where the

power vests in a party which was entitled to receive credit.

In fact, if one considers that all contracts are subject to the principle of good faith, and that parties should as far as possible be held to their contracts, there is good reason to apply the rule also to cases where the power is given to the party that gives credit.

The full bench therefore agreed with Barnard’s finding that the arbitrio standard was applicable to Spar Group’s amendment to the terms of credit enjoyed by the respondent companies.

The full bench also agreed with Barnard’s finding that the decision to amend the respondent companies’ credit terms was not taken

by Spar Group reasonably, honestly and in good faith in the context of the ex parte perfection applications.

The full bench agreed with Barnard’s finding that the timing of the reduction in the credit terms available to the respondent companies indicated that, Spar Group having failed in the perfection applications and being unable to take control of the respondent companies’ business operations, was attempting to achieve the same end as the termination notices

SPAR GROUP’S DISCRETION MUST BE EXERCISED REASONABLY AND HONESTLY BECAUSE OF THE RECIPROCAL NATURE OF THE TRADING MODEL

through alternative means.

CONCLUSION The full bench confirmed and applied the principle of arbitrio boni viri in relation to a party’s application of a unilateral discretion under a contract. The court confirmed it is permissible for a party to have a such a discretion, but applied the qualification that such a discretion should be exercised arbitrio boni viri, fairly, reasonably and in good faith.

The full bench found that the arbitrio principle applies where a wholesaler, such as Spar Group, has a discretion in regard to the credit terms on which it sells goods to Spar retailers/franchisees on credit, both directly and via drop shipments. There was no reason to distinguish this contractual discretion from other similar contractual discretions.

The question whether the amendment of credit terms was arbitrio boni viri depended on the facts and the context of each case. In this instance, in the context of the invalid termination of the respondent companies’ Spar Guild memberships, the amendments of their credit terms were not reasonable or fair, as the amendment of their credit terms was another means of attempting to achieve the invalid terminations of their retailer memberships.

However, in other contexts, the application of this discretion may be valid, if the context dictates that a supplier’s limitation or termination of a customer’s credit terms is justified and reasonable.

BusinessDay www.businessday.co.za November 2023

12

BUSINESS LAW & TAX

How to avoid conflict when a trust founder dies Solution is to plan early and to think of every •eventuality to avoid unintended surprises PKF South Africa

T

rusts remain integral to protecting and preserving assets and securing income for future generations of South Africans.

Their popularity as an effective estate management tool has increased over the years and they are certainly not just for the wealthy but also serve to support vital needs in society, like providing for the living expenses of someone badly injured in an accident or ensuring the care of a loved one who can no longer manage their affairs.

Their use in business as an effective way to separate assets and interests and avoid conflict is also on the rise.

The complex regulatory and economic landscape is heightening the need for more careful and stringent management of trusts. For instance, from April 1 2023 trusts in SA must disclose beneficial ownership of assets. While this is an attempt to improve transparency and lift the veil on effective ownership, this rule change in essence makes

trustees third-party providers of data for the South African Revenue Service. It also raises the administrative burden for smaller, family-focused trusts.

As these new requirements play out, one issue that is coming up quite often is disputes over money held in a trust. This can occur when a founder dies and the children as beneficiaries fight over access to the trust’s bank account. It also happens when a beneficiary is simply unhappy with the way trustees are administering (and paying out) trust funds.

Other problems in practice tend to occur where a beneficiary has not made adequate provision for how to deal with trust benefits in their will (the risk is then that this is distributed via intestate laws, and hence the proceeds

AS A GENERAL PRINCIPLE, A COURT HAS NO POWER AT COMMON LAW TO VARY TRUSTS ESTABLISHED BY WILL OR CONTRACT

could land up with a family member the beneficiary does not have a relationship with and even who the founder did not want to access those funds); or where a founder dies and faces the hefty tax consequences of having had an interest-free loan sitting in the trust.

Simply approaching a court to have a trust shut down or the deed amended to ensure a desired change is not easy either.

As a general principle, a court has no power at common law to vary trusts that are established by will or by contract. There are, however, exceptions to this. A court may intervene at common law, for example, where it is necessary to avoid frustrating the stated object of the trust or prejudicing the beneficiaries.

In addition, a court has a statutory power to intervene under the provisions of section 13 of the Trust Property Control Act, 57 of 1998, which provides as follows: “If a trust instrument contains any provisions which bring about consequences which in the opinion of the court, the founder of a trust did not con-

DODGE THE DISPUTES

template or foresee and which: ● (a) Hampers the achievement of the objects of the founder; ● (b) Prejudices the interests of the beneficiary; or ● (c) Is in conflict with the public interest, the court may, on application of the trustee or any person who, in the opinion of the court, has a sufficient interest in the trust property, delete or vary any such provision or make in respect thereof any order which such court deems just, including an order … terminating the trust”.

The restrictions on varying or terminating a trust do not, of course, apply where the variation or termination is contemplated by the trust or its founder when it was established.

Yet despite the above, many problems are rearing their heads in practice. One is the more severe tax consequences of an interest-free loan — the difference between the official interest rate and the low- or no-interest rate on the loan account is now deemed a donation made by the lender — and so the founder should ensure these consequences are dealt

with in his or her will to avoid any unexpected and costly tax surprises.

Other issues are a little simpler to understand and plan for but equally unpleasant when they happen. They often relate to accessing the keys to the money vault of a trust — the bank account.

When a founder dies, remaining trustees may be at

TRUST DEEDS SHOULD BE AMENDED DURING THE FOUNDER’S LIFETIME TO ENSURE APPROPRIATE SIGNING POWERS loggerheads, for instance, and those with authority to act could take advantage.

Remember, trustees must legally administer trust assets separately from personal assets. Section 11 of the Trust Property Control Act explicitly requires the separate identification of trust assets. Any bank account or investment at any financial institution should be identifiable as a trust bank account or investment. This bank account

should, therefore, never serve as a personal piggy bank.

More thought must therefore go into providing proper authorisation to which trustees can authorise bank transactions.

As explained above, courts will be reluctant to change the trust deed or allow a trust to be shut if this contradicts the founder's intention. The solution is to plan early and to think of every eventuality.

Trust deeds should be the amended during founder’s lifetime to ensure appropriate signing powers to access bank assets. Beneficiaries could also either be vested with assets on the death of the founder (in a bewind trust), or they may vest in the trust itself (ownership trust), so each person must make sure their own will deals with the assets appropriately in each scenario to avoid nasty headaches — and even nastier family squabbles — afterwards.

While trusts are potent tools when constructed correctly, every eventuality must be carefully thought through to avoid unintended surprises.