Business Law & Tax (August 2022)

BUSINESS LAW &TAX

AUGUST 2022 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Highs and lows of claiming copyright protection

HITTING THE RIGHT NOTE

Top Gun, Mariah Carey and remarkable Rodriguez •have all made news with this particular IP right Gaelyn Scott ENSafrica

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opyright is one of the main intellectual property (IP) rights, yet it tends to enjoy less attention than some of the others, particularly trademarks.

Fortunately, the media seem determined to put things right. Here are a few recent stories.

TOP GUN

The 1986 movie Top Gun was huge. Tom Cruise, of course, played the leading role as US navy pilot Pete Mitchell, a man who went by the nickname Maverick. In 2022, a sequel was released entitled Top Gun: Maverick.

Predictably, it’s been a

great success, earning $54m in the first 10 days. As a result, Cruise is very much in the news again, even being photographed at the Queen’s Platinum Jubilee celebrations.

But it’s not all good news.

The widow and son of one Ehud Yonay, a man who penned an article that was published in 1983 in the California magazine under the title “Top Guns”, have filed a lawsuit in a Los Angeles court, claiming copyright

RODRIGUEZ CREATED EXTRAORDINARY MUSIC IN THE 1970S, AND MANY OF HIS SONGS DEALT WITH SOCIAL ISSUES

infringement. The claim is the article “Top Guns” inspired the original Top Gun film, and the rights that were granted to Paramount at that time terminated in 2020.

The claimants allege that in 2018, they specifically advised Paramount of the upcoming 2020 termination date. According to the article, the production of the film was delayed by Covid-19, which may suggest that the studio’s thinking had been to release the film before the 2020 expiry date. Yonay’s widow and son argue that the entire Top Gun franchise is dependent on Ehud’s “literary efforts and evocative prose and narrative”.

There are distinct copyrights involved in this case.

Yonay’s widow and son are relying on copyright in a

/123RF — BUZZFUSS literary work, and they claim that this copyright has been infringed in a cinematograph film. We will no doubt report on the outcome.

ALL I WANT FOR CHRISTMAS

There is a claim that Mariah Carey infringed the copyright in the song All I Want for Christmas is You, a song that was released in 1994 and was hugely successful, with sales of more than 16-million.

Carey is being sued for $60m.

The infringement claim has been made by one Andy Stone, an artist who performs under the wonderfully oldschool name Vince Vance & The Valiants. Stone released

his All I Want for Christmas is You back in 1989. The song apparently did quite well, but not nearly as well as Carey’s.

Reasons include the fact that the two songs are completely different, with the similarity relating to nothing more than the song title (which the author says does not enjoy copyright in the US), as well as the huge delay in bringing proceedings.

(Carey’s song was released 28 years ago and it’s very well known.)

RODRIGUEZ: THE COLD FACTS

A newspaper recently published an article about Rodriguez, a musician who is undoubtedly better known in

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SA than he is anywhere else, and that includes his home country, the US. Rodriguez’s story is truly remarkable. He created extraordinary music in the 1970s, and many of his songs dealt with social issues. Yet his album, Cold Fact, made absolutely no impression in the US or anywhere else.

Except, of course, in SA. Somehow, a few copies of the album made their way to apartheid SA, where the album received a rapturous reception from sectors of the population, especially after it was banned by the government as being subversive.

In total, 500,000 copies of CONTINUED ON PAGE 2

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BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX Highs and lows of claiming copyright protection

LATERAL THINKING

Popia needs pepping up

Business Law and Tax editor Evan Pickworth interviews Era Gunning and Ridwaan •Boda, executives at ENSafrica, on why it is time for a data protection health check,

CONTINUED FROM PAGE 1

especially by those corporates that have been complacent on compliance

the album were sold in the country. Copies of the album apparently also made their way to Australia and New Zealand.

Yet Rodriguez knew nothing of this success. Not until many years later, when a South African by the name of Stephen Segerman made it his quest to find out what had happened to this artist he so admired. Segerman finally tracked Rodriguez down and told him the astonishing news: “you were an absolute legend in my country”.

This led to Rodriguez performing sell-out concerts in SA. This amazing story was captured in the Oscarwinning documentary Searching for Sugar Man, Sugar Man being the name of one of Rodriguez’s songs.

The article discusses the fact that Rodriguez, who is now nearly 80 years old and who spent much of his life working as a poorly paid construction worker, is able to live his final years in relative comfort. All thanks to the royalty income that a copyright owner is entitled to, and that Rodriguez is finally receiving.

Finally, an IP aspect to this story!

W

RODRIGUEZ IS ABLE TO LIVE HIS FINAL YEARS IN RELATIVE COMFORT, ALL THANKS TO THE ROYALTY INCOME HE IS RECEIVING

ith the Protection of Personal Information Act’s (Popia’s) first anniversary having come and gone on July 1, a question many organisations are beginning to ask is: “Have we done enough to comply?”

EP: It seems that many companies are only halfway there at best – so even those who think they have done enough to date – what is the best advice for them?

A: Many organisations are able to demonstrate a good level of “theoretical” Popia compliance set out in their policies. However, it is less clear whether what has been documented on paper has actually been implemented in practice and whether operative compliance has been achieved.

Many have invested large amounts of time and money into their Popia compliance.

However, numerous organisations are still unsure as to what the “must-haves” or mandatory obligations are when it comes to compliance, and where they should now be focusing their attention.

Some organisations are also not sure whether the time and effort invested in their compliance initiatives to date meet the minimum requirements for compliance.

Proactive organisations

are strongly advised to: ● assess whether the compliance measures they’ve taken to date meet the minimum requirements for compliance; and ● establish what (if any) improvements can be made.

EP: Can you give an example of one of the bigger stumbling blocks?

A: A business may have a well-drafted data subject access request policy, but staff may not be trained adequately to identify a data subject access request or to distinguish it from a request for a record in terms of the Promotion of Access to Information Act, 2002 (Paia), and employees fall victim to phishing attacks.

EP: Is training a problem?

A: Yes — many organisations have not yet appointed information officers (or registered these officers with the information regulator). In terms of Popia read with Paia, the CEO

or their equivalent would automatically be the information officer unless they authorise another person to act in this role.

Without leadership from a properly trained information officer and a suitable compliance framework in place, policies and procedures of a business are not sufficiently understood and implemented by the workforce.

Data breaches most often occur due to human error when people and teams are unaware of what they should be doing to ensure compliance. Training for the information officer and staff should be ongoing (we recommend yearly and upon induction) and should be practical, easy to understand and relevant to the roles of those being trained.

EP: To evidence accountability in terms of Popia, you need the right documents from the outset. I would imagine this remains a major challenge due to weak compliance?

A: Although many organisations have good policies in place, some organisations are still missing key documentation. For example, many organisations do not have a process for conducting personal information impact assessments or have policies or procedures in place to deal with data subject access requests.

Many organisations either do not have Paia manuals in

Era Gunning.

Ridwaan Boda.

place or their manuals are outdated and do not take the changes into consideration brought about by the latest regulations promulgated in terms of Paia.

In addition, existing incident response plans are often impractical and do not adequately address cyber insurance and the interaction between the notification requirements under Popia and the Cybercrimes Act, 2020.

EP: With the digital world

evolving so fast, data subject requests are on the rise.

What is the challenge you are seeing here?

A: Many organisations fail to understand how to balance the rights to access information in terms of Popia and Paia and the grounds for refusal of such requests. This may lead to complaints to the regulator.

EP: This fast pace of change is making things worse for laggards, so how can they play catch-up on compliance?

A: While Popia requires that information officers conduct a preliminary risk assessment, for instance, the reality is that businesses evolve with time and risk assessments concluded a year ago often don’t reflect the reality of the organisation’s processing activities. This is a major compliance gap.

MANY ORGANISATIONS FAIL TO UNDERSTAND HOW TO BALANCE THE RIGHTS TO ACCESS INFORMATION

Banks must determine if loan cover is deductible Riëtte Lombard AJM Section 16(3)(c) of the ValueAdded Tax Act, 89 of 1991 (VAT act) provides for a vendor to deduct an amount equal to the tax fraction of any amount paid to indemnify another person in terms of a contract of insurance if that contract of insurance was a taxable supply.

In the case of Commissioner for the SA Revenue Service (Sars) v Capitec Bank Limited (94/2021) [2022] ZASCA 97 (21 June 2022), the Supreme Court of Appeal (SCA) had to determine whether Capitec Bank Limited correctly claimed a

deduction under section 16(3)(c). Capitec claimed the deductions regarding loan cover payouts to credit customers in circumstances where it provided the loan cover to the credit customer for no consideration.

Sars disallowed the deductions because, so it

A CRUCIAL FINDING

BY THE SCA THAT APPLIES TO ALL TAXPAYERS IS THAT CAPITEC WAS REASONABLE IN MAKING THE DEDUCTION

argued, the insurance contract was not a “taxable supply”.

After initial success for Capitec in the tax court, the SCA overturned the judgment, allowing Sars’ appeal and denying Capitec the deduction.

In this case, Capitec advanced personal loans to customers under term loan contracts. The standard loan contract ensures that Capitec provides its customers with loan cover, the proceeds of which are applied to settle or reduce the outstanding loan amount due to Capitec in the event of the customer’s death or retrenchment.

Capitec claimed a deduc-

tion in terms of section 16(3)(c) equal to the tax fraction of the total insurance payouts (which it recovered from its insurers to settle the outstanding loans owed by customers).

COURT DECISION

The main issue the SCA faced was whether the supply of the loan cover by Capitec was a taxable supply made in the course and furtherance of its enterprise, which would entitle Capitec to the deduction.

The court concluded that Capitec supplied the loan cover in the course of making exempt supplies because the credit insurance policies

ensured the recovery of the credit advanced to customers. All other activities involved in making the exempt supply were merely incidental. Accordingly, the tax fraction of the loan cover payouts did not qualify for the deduction in terms of section 16(3)(c). This is in stark contrast to what was decided by the tax court.

Financial institutions that provide loans along with loan cover, for which no consideration is charged, should be aware of this judgment and carefully consider whether the loan cover provided is taxable or not and whether it will be entitled to a deduction.

A crucial finding by the SCA that applies to all taxpayers is that Capitec was reasonable in making the deduction in the circumstances since it obtained a favourable opinion from senior counsel and the only way it could test the issue was to claim the deduction in the tax return.

This determination regarding “reasonableness” is welcomed, as there are several instances in tax law where the “reasonableness” of the taxpayer’s position is used as a yardstick.

This will provide guidance when considering whether a taxpayer’s behaviour is reasonable in certain circumstances.

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BUSINESS LAW & TAX

Is IP law fit for purpose in SA and in Africa?

STAMP YOUR MARK

Act is outdated but the president •hasThesentCopyright the amendment bill back to parliament /123RF — CONVISUM Janine Hollesen Werksmans

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A intellectual property (IP) legislation includes the Trademarks Act, Patents Act, Designs Act, Copyright Act and Plant Breeders’ Rights Act. Each piece of legislation deals with the particular IP right concerned, but is it all fit for purpose?

As these acts follow the lead of international treaties to which SA is a signatory, the legislation is fit for purpose, save for the Copyright Act, which is outdated and in need of amendment, also taking technological advancements into account.

Further IP legislation is the Counterfeit Goods Act, which has effective enforcement mechanisms to prevent the importation and sale of counterfeit goods.

In addition, the Border Management Authority Act, which is still being implemented, has been promulgated with the object of establishing integrated and

co-ordinated border management at ports of entry.

Much has been written about the Copyright Amendment Bill, with numerous stakeholders providing comment in the various rounds and iterations thereof.

Though the bill was passed by parliament, it was returned to parliament by President Cyril Ramaphosa

OUR COPYRIGHT ACT MUST BE AN EFFECTIVE MEANS AND AN INCENTIVE FOR CREATORS AND AUTHORS TO CREATE WORKS for review with concerns with regards to its constitutionality and that the rights of creators and authors could be weakened.

The president’s reservations are inter alia that the proposed copyright exceptions could constitute arbitrary deprivation of property

in that owners will share less, and it may be in conflict with the international treaty to which SA is a signatory.

In December 2021, the department of trade & industry called for comment in relation to specific clauses of the bill, including existing and new sections. Comment closed on January 28 2022.

Seeing that the bill has been in consultation for nearly a decade and with new comments being called for and considering the president’s reservations, it might take some time for the bill to be passed.

There has been much criticism concerned with the actual drafting of the bill and commentary, especially in respect to the introduction of the exception to copyright infringement based on fair use as opposed to fair dealing (which is currently provided for). Fair dealing provides for clear instances as to what usage is permissible, whereas fair use will be determined by a court, which is to decide as to how much use is considered to be fair.

The criticism is that this should not be left up to the courts to decide but should be specifically included in the legislation to make for certainty. The amendment could therefore lead to more litigation and favour the party with the deeper pockets as opposed to the author or creator who is attempting to enforce works of copyright.

It is no secret that litigation of whatever nature is notoriously costly. It is crucially important for our Copyright Act to be aligned with the treaties we are party to and, what is more important, it must be an effective means and an incentive for creators and authors to create works.

The weakening of rights can never incentivise creators to produce new works, which is essential for any economy.

This is important today where innovative thinking and creativity is the future.

Is Africa making progress in recognising IP rights?

Although IP in Africa is receiving greater prominence and being recognised

as a key economic driver with developments in IP law in various countries, enforcement remains onerous.

Although trademark protection is territorial and requires protection in each country, there are two regional systems which are advantageous for trademark owners seeking cost effective protection in these regions: ● Oapi/Aipo (African Intellectual Property Organisation) includes all 17 West African countries: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Comoros, Equatorial Guinea, Gabon, Guinea, Guinea Bissau, Ivory Coast, Mali, Mauritania, Niger, Senegal and Togo.

Recent and welcome changes that were introduced include the ability to cover both goods and services in one registration (previously, it was necessary to file separate applications for goods and services), reducing the opposition term from six months to three months and counterfeit goods may now

be detained by customs officials on the basis of trademark registrations. ● Aripo (African Regional Intellectual Property Organisation) differs from Oapi, requiring the designation of countries covered, with up to 12 member countries: Botswana, Gambia, Lesotho, Liberia, Malawi, Mozambique, Namibia, Eswatini (previously Swaziland), São Tomé and Príncipe Tanzania, Uganda and Zimbabwe.

As the Aripo office has streamlined its processes and offers digital online platforms for filing, searching, receiving and sending notifications to its member states, time frames have improved.

As the majority of African countries adopt a first-to-file rule and only allow for enforcement once registered, it is important to seek protection as soon as possible as there are frequently long delays in registration.

In addition, anticounterfeiting measures have been introduced with customs recordation of IP rights only being available in a minority of the 54 African countries (apart from SA) namely Algeria, Ivory Coast, Egypt, Kenya, Mauritius, Morocco and Tunisia.

Recently, Kenya introduced the Anti-Counterfeiting (Recordation) Regulations in a further attempt to deal with counterfeit goods. It requires all IP owners who import goods into Kenya to record their rights with the anticounterfeit authority, to be renewed annually.

This could assist with the importation and exportation of counterfeit goods. IP protection, however, remains crucially important for the protection of IP rights in the African territories.

CONSUMER BILLS

In managing risk, insurance reflects the world

I

nsurance is essentially about two things. It is about managing risks and pooling risks.

A risk is the chance that an uncertain event may occur, coupled, in the insurance context, with the possibility of harm. The insurance industry manages these risks by spreading the risk among a number of persons all exposed to the same risk.

With the world population fast approaching 8-billion people with a matching growth in risks, the insurance market has come to reflect the major concerns of society. And the greater the risks, the greater the losses, the greater the premiums, and the greater the number of uninsured risks. As risks grow so does insurance. Global premiums have reached an annual $7-trillion but that does not

PATRICK BRACHER mean every major risk can be covered.

Major pandemic losses that were thrust on general insurers contrary to the original intention of the cover have led to an almost universal rejection of any pandemic cover despite, or rather because of, the prediction that Covid-19 is not the last major pandemic we will see. The litigation explosion and enormous damages awards have seriously curbed the market.

A few years ago it was difficult to sell directors and officers insurance because

there were so few claims.

Worldwide, directors and executives are being sued for failing to foresee and cover the risks of pandemics, climate change and cyber risks, for instance. The cover is now more difficult to obtain and much more expensive than it ever was, while directors and officers insurance has become more essential than ever.

If you look at any list of the risks that most concern companies, you will find cyber risk at or near the top of the page. Cyber risk insurance is obtainable but insurers have seen the potentially huge consequences of malicious hacking resulting in lower limits of insurance, increasing premiums and the requirement that the insured do their best to avoid the risk if they want cover.

Regulators see it as one of the

biggest risks for insurers if proper limits are not in place.

The most interesting recent consequence of climate change is the fact that property insurers in Florida in the US have either shed policies (more than a million of them), ceased to write any property business or have been declared insolvent, with skyrocketing costs of reinsurance following enormous claims arising from the increasing incidence and destructive force of hurricanes in the state.

These events caused the state itself to pass legislation for a $2bn reinsurance fund.

The outcome is partly a result of the fact that Florida accounts for nearly 80% of all property insurance lawsuits filed in the US. This litigation explosion has discouraged insurers and distorted the market.

The latest corporate trend is the environmental, social and governance (ESG) responsibilities of companies. Companies and their directors and executives are being pursued by shareholders, investors and third-party climate activists on an increasing scale. The recent absurd $94bn Japanese award against directors of the Fukushima nuclear plant is one extreme example.

The effect is to put the risks into the pockets of individual companies and

GLOBAL PREMIUMS HAVE REACHED AN ANNUAL $7-TRILLION BUT THAT DOES NOT MEAN EVERY MAJOR RISK CAN BE COVERED

their managers, who will have a growing need for more expensive insurance cover.

The basic problem is that, despite $7-trillion in premiums, not everyone has insurance and not everyone can afford insurance. A stark example is that 70% of South African motorists have no insurance. Despite one insurer paying R26bn for the KwaZulu-Natal riots, most of those affected have no cover.

The ideal is a situation where insurance is not a grudge purchase and not the first thing we stop in hard times, because otherwise the transferring and spreading of risks will increasingly fall behind.

Time, perhaps, to teach risk management at school. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

E-platforms show gaps in fairness ethics

WIDENING DIGITAL NET

behaviour could spell trouble •withAnticompetitive watchdogs for leading online platforms in SA ENSafrica Competition/ Antitrust team

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n Wednesday July 13, the Competition Commission published its provisional report in the online intermediation platforms market inquiry. The report, which follows on 14 months of intensive evidence gathering, makes several hard-hitting and potentially industry-changing recommendations.

While the report is only provisional in nature, interested and affected parties have been invited to make submissions to the commission on the findings and recommendations by August 24.

The commission intends to publish its final report in November 2022.

The online intermediation platforms market inquiry is the first initiated under the upgraded market inquiry provisions of the Competition Act 1998 as amended. Its goal is to identify potential market features of online intermediation platforms that may impede, distort or restrict

competition, with a focus on the participation of small and medium enterprises (SMEs) and firms owned/controlled by historically disadvantaged persons.

Online platforms facilitate transactions between businesses and consumers for the sale of goods and services. They include: market● E-commerce places; ● Online classifieds and price comparator services; ● Software application stores; and ● Intermediated services such as accommodation, travel and food delivery.

The inquiry focused on five categories of online platforms: ● Software app stores; ● eCommerce; ● Online classifieds; ● Travel and accommoda-

CONSIDERABLY MORE CHALLENGES ARE DUE TO HISTORIC DISADVANTAGE, ESPECIALLY IN FUNDING AND SUPPORT

tion; and ● Food delivery.

In each of these categories, the report identified “leading platforms”, which include the likes of the Apple and Google Play Stores, Takealot.com, Property24 and Uber Eats.

The findings and recommendations of the report, which are extensive and have potentially far-reaching consequences, largely apply to the identified leading platforms. Key provisional findings and recommendations are as follows: ● Google Search, as an input to platform competition, is a de facto monopolist in search in SA. The prominence of paid search results and the insufficient distinction from organic search results materially restricts platform competition, as does Google’s self-preferencing in respect of shopping and travel. The inquiry’s proposals include improving advert identification and/or elevating organic search results. ● In respect of online classifieds, the inquiry flagged the lack of interoperability of the listing engines used by property classifieds as an impedi-

/123RF — DASHU83 ment to competition. It also raised concerns with the R500 fee on listings sourced from third-party engines, which the commission determined may be the result of collusive conduct, and with the shareholding of large estate agents in it. Recommendations include the removal of the fee, the requirement that leading property platforms such as Property24 and Private Property must interoperate with third-party platforms, and the large estate agents should divest from private property. ● For food delivery, the inquiry found that contracting restaurant chains by the leading platforms incentivises the chains to focus their support on these platforms, which results in a lack of support for competing national and local food delivery platforms. Price parity clauses and predatory conduct as a result of aggressive promotion and delivery subsidisation were also found

to be problematic.

Recommendations to deal with these concerns include the removal of incentives that limit multihoming by restaurants, the removal of price parity clauses and remedial action to end predatory conduct. ● For travel and accommodation platforms, the market inquiry flagged parity clauses and loyalty schemes as potential impediments to competition. Suggested remedies include the removal of price parity clauses and a prohibition on exclusionary loyalty scheme design. ● With regard to e-commerce, the inquiry again took issue with price parity clauses as causing an impediment to competition, as well as the widespread subsidisation of products below variable cost.

The removal of price parity clauses was recommended, as was remedial action in respect of the predatory pricing conduct.

● Finally, with respect to software app stores, the inquiry found that the complete exclusion of competing software app stores and sideloading by Apple impedes effective competition for commission fees. Similarly, the default arrangements of Google Play impedes competition from other Android software app stores. Given concerns about the likely effectiveness of more traditional remedies, the inquiry has taken the unusual step of recommending price regulation, or a complete end.

On the participation of the historically disadvantaged, the report concludes that the digital economy is far less transformed than many traditional industries, and considerably more challenges are due to historic disadvantage, especially in funding and support.

The report proposes several measures to try to correct this concern.

End of vaccine mandates at work? Not so fast Bradley Workman-Davies Werksmans A lot of attention has been paid in the media recently to the position adopted by trade union federation Cosatu in relation to employers that have adopted a mandatory vaccination policy.

In particular, Cosatu has painted Standard Bank’s dismissal of about 40 employees who were dismissed in accordance with the bank’s mandatory vaccination policy as victimisation and has demanded that it reinstate the dismissed employees. Standard Bank has recently withdrawn its mandatory vaccination policy.

Cosatu’s position is premised on its stance that the national state of disaster is no longer in place. In addition,

the SA Society of Bank Officials (Sasbo) has adopted the position that it is better to encourage vaccinations as opposed to imposing them.

Cosatu and Sasbo also appear to have been encouraged by a recent Commission for Conciliation, Mediation and Arbitration (CCMA) ruling which found that the dismissal of an employee for failure to comply with the employer’s mandatory vaccination policy was unfair.

This CCMA award also determined that a mandatory vaccination policy was unconstitutional. The CCMA case in question is Baroque Medical v Tshatshu, a June 2022 award by the CCMA which deviated from all previous CCMA awards.

Arguably this award overstepped the boundaries of the

jurisdiction of the CCMA, which in the case of determining whether an employee’s dismissal is fair (among some of its other functions, but none of which is to interpret constitutional rights) must solely concern itself with whether the employer had a fair reason to dismiss the employee, and whether it followed a fair procedure in doing so.

In Tshatshu, the CCMA commissioner held that only the government has the right to formulate a vaccination policy, and not an employer.

The requirement of the employer to vaccinate being held to be unconstitutional, the dismissal of the employee was found to be unfair.

However, this award is problematic for a number of reasons, not least of which is

that it deviates from all previous CCMA awards on the topic. But it fundamentally errs by purporting to give the CCMA commissioner the power to make a constitutional ruling. This is a function reserved, properly, for the Constitutional Court itself. As such, any reliance by Cosatu and Sasbo on this ruling would be dangerous ground.

In addition, it must always be borne in mind by employers that on June 24 2022, the labour & employment minister published a new code which replaced the Code of Practice: Managing Exposure to SARS-CoV-2 in the Workplace, of March 15 2022.

Both codes entitle an employer to implement a mandatory vaccination policy after conducting a risk assessment in respect of its

particular workplace and workforce profile.

As such, the current legislative framework still entitles employers to conduct this assessment and, in fact, if there are sufficient health and safety factors pointing towards the prevalence of Covid-19 being a risk to health and safety in the workplace, for reasonable safety measures — which may include the mandatory vaccination of employees — to be put in place.

Employers should take comfort that if they have followed the code (whether the

EACH CASE, AS ALWAYS, MUST BE ASSESSED ON ITS OWN MERITS

old or new code, or any previous legislation under the national state of disaster) and conducted a risk assessment which lead to the conclusion that the implementation of a mandatory vaccination policy was or remains a reasonable safety measure, any dismissal of employees for failure to comply has generally been accepted by the CCMA as fair, and the recent case is an anomaly whose findings on unconstitutionality are not binding.

For so long as Covid-19 remains a hazardous biological agent, as recognised by the new code, mandatory vaccination policies may be viewed as a reasonable measure to ensure the health and safety of employees. Each case, as always, must be assessed on its own merits.

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BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Ruling clarifies and confuses

court judgment brings clarity to Tax Act •butAppeal confusion over interpretation of ‘voluntary’ term Francis Mayebe with Virusha Subban Baker McKenzie

T

he judgment by the Supreme Court of Appeal in Purveyors South Africa Mine Services (Pty) Ltd v CSARS brings both clarity in the interpretation and application of section 227 of the Tax Administration Act, 2011, as well as confusion as to how narrowly one can interpret the term “voluntary”.

It remains uncertain from this judgment, particularly after the appeal court’s view that the “voluntary disclosure programme (VDP) application was prompted by compliance action by the South African Revenue Service’s (Sars) officials and the advice from its auditors”, therefore the requirement that the application must be “voluntary” was not met.

However, the question remains as to whether taxpayers who are advised by their auditors, tax or legal advisers in relation to their tax defaults, and any potential penalties that may be

imposed by Sars before applying for VDP, would still meet the requirement of “voluntary”. Another question that remains unanswered is whether the requirement of “voluntary” would be met where VDP applications made by a taxpayer are prompted by compulsion from any other third party (other than Sars).

The appeal court’s ’s finding on this matter narrows

IT FURTHER NARROWS THE MEANING OF VOLUNTARY AS PREVIOUSLY SET OUT

BY THE GAUTENG HIGH COURT the scope in which the VDP could be applied and used.

It is important to note that the VDP was introduced with an intention to encourage taxpayers to voluntarily disclose tax defaults. However, tax defaults from a taxpayer’s perspective are not usually certain and, in particular

instances, taxpayers would require clarity before engaging in the process of VDP. Following this finding, it can be certain that an inquiry to Sars about a potential tax default excludes you from the benefits of the VDP, as this would be considered as “not voluntary”. An additional consideration following this judgment is that it further narrows the meaning of voluntary as previously set out by the Gauteng high court.

When dealing with what could constitute a voluntary disclosure, in Reed v Minister of Finance, the high court indicated that the crucial factor is whether the taxpayer had prior knowledge of a pending audit or investigation. The high court went on to define “voluntary” as bringing information to Sars when there is no impending Sars investigation, and if there is an investigation the taxpayer must not be aware of it.

In Purveyors, Sars had knowledge of the defaults by the taxpayer; but they had not instituted any investigation or audits on the matter and the taxpayer had no knowledge of any impending investiga-

FULL DISCLOSURE

/123RF — ENJOYS tions. To that effect, one could see how the outcome of Purveyors could have been different should this approach have been taken.

On the contrary, one could argue that the action of Sars in looking into the taxpayer’s defaults after the inquiry was made, could constitute an investigation. However, the circumstances in Reed are different from those in Purveyors, in that Reed did not first inquire with Sars, while in Purveyors an inquiry

was made by the taxpayer to prompt Sars to look into its affairs.

Further, Section 223 of the act provides for the understatement penalty percentage table. The fifth column in the table provides for a voluntary disclosure after notification of audit or criminal investigation. With the judgments discussed above, which excludes disclosure after notification or knowledge of an investigation by Sars from VDP, one is left to answer to

the relevance of the fifth column under Section 223 of the act.

With this uncertainty, a taxpayer who suspects they might have a tax default and would like to benefit from VDP must consult directly with a tax expert. Should it be ascertained that there is indeed a default, the taxpayer must timeously make a voluntary disclosure to Sars in the prescribed format, as required by Section 227(c) of the act.

LABOUR PAINS

Lots of boxes to tick to prove poor performance

A

t the end of the day, managers and supervisors are paid to manage and supervise two things: employee conduct and employee performance.

From an employment law point of view, the conduct aspect of management becomes important when the employee’s conduct becomes misconduct.

Misconduct is a blameworthy act or omission, which requires employers to trigger a disciplinary process.

On the other hand, the type of poor performance addressed in the Labour Relations Act is the nonblameworthy, incompetence specie of poor performance. When all is said and done, poor performance is either blameworthy or not blameworthy. Put differently, sometimes the employee is blameworthy for their poor performance and sometimes they aren’t.

If it can be proved that the employee is blameworthy for their performance, a disciplinary procedure is followed, because the employer is able to prove

TONY HEALY that the employee was capable of better performance than they delivered, importantly, in circumstances where there were no extraneous factors causing the poor performance over which the employee had no control.

In circumstances where it cannot be proved that the employee is blameworthy, or at fault for their poor performance, there is no misconduct; rather, there is incapacity, meaning that the employee’s performance is poor but for reasons beyond their control. The Labour Relations Act obligates employers to follow a counselling, not misconduct, procedure, in an incapacityrelated scenario of poor work performance.

In fact, there are even occasions where there are elements of both incapacity

and misconduct in an employee’s poor performance.

The Labour Court passed judgment on this issue in the case of Moneyline Financial Services (Pty) Ltd v Tsientsi Chakane & 1 other (Case no: JR2454 /17). This case dealt with a dispute relating to the management of poor work performance.

The background, as described in the judgment, was that “the respondent employees failed to achieve the performance targets between September 2016 and January 2017. On October 12 2016, the first letter warning the respondent employees of poor work performance was issued in respect of the month of September 2016.

On November 9 2016, a second letter then serving as a final ultimatum was issued in respect of the respondent employees’ poor work performance for the month of October 2016.

The respondent employees were afforded the opportunity to make written representations wherein they were to give reasons for failing to meet the

performance targets. The applicant (the employer) found their explanation unacceptable. On January 18 2017, the respondent employees were served with the notices to attend performance inquiries and were ultimately dismissed for poor work performance.

At the Commission for Conciliation, Mediation and Arbitration, the arbitration award held that the dismissals were substantively unfair as “the dismissal was not an appropriate sanction as training could have been a reasonable alternative. He accepted that the reasons proffered by the respondent employees for nonperformance as genuine and plausible given the context of the industry.”

The employer took this arbitration award on review to the Labour Court, which dismissed the review application and upheld the arbitration award’s finding that the dismissals for poor performance were substantively unfair.

In so doing, the judgment emphasised what was held in Gold Fields Mining South

Africa (Pty) Ltd (Kloof Gold Mine) v Commission for Conciliation Mediation and Arbitration and Others [2014] 1 BLLR 20 (LAC); (2014) 35 ILJ 943 (LAC), namely that “in order to find that an employee is guilty of poor performance and consider dismissal as an appropriate sanction for such conduct, the employer is required to prove that the employee did not meet existing and known performance standards; that the failure to meet the expected standard of performance is serious; and that the employee was given sufficient training, guidance, support, time or counselling to improve his or her performance but could not perform in terms of the expected standards.

Furthermore, the employer

THE COMMISSIONER CORRECTLY FOUND THAT THE APPLICANT FAILED TO EXPLORE ALTERNATIVE MEASURES SHORT OF DISMISSAL

should be able to demonstrate that the failure to meet the standard of performance required is due to the employee’s inability to do so and not due to factors that are outside the employee’s control.”

The judgment continued that “in the present case, the applicant failed to show that the respondent employees were given sufficient training, guidance, support, counselling and reasonable time to improve their performance. The respondent employees had genuine concerns that were outside their control and could have been managed with the assistance from the applicant. Clearly, the commissioner correctly found that the applicant failed to explore alternative measures short of dismissal, like training. It follows that the applicant failed to show that the dismissal of the respondent employees was an appropriate sanction.” ● Tony Healy is a labour law expert at labour law consultancy Tony Healy & Associates — www.tonyhealy.co.za

7

BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

D-day looms for Fica action

If SA misses the February 2023 deadline the •country could be placed on a damaging grey list Era Gunning ENSafrica

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A has until February 28 2023 to meet a tight deadline to amend its Financial Intelligence Centre Act, 2001 (Fica) or face the consequences of its financial institutions being added to a grey list alongside countries such as Yemen, South Sudan and Haiti.

The Financial Action Task Force (FATF) is an independent intergovernmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction. FATF recommendations are recognised as the global antimoney laundering (AML) and counter-terrorist financing (CTF) standards.

Through a peer-reviewed process facilitated by the FATF, SA was evaluated in 2019 on its AML and CTF legal framework, including Fica and the efficiency of its implementation. Out of 40 ratings on legislation adequacy, half of SA’s ratings scored as only partially compliant or noncompliant.

Following its mutual evaluation report in October 2021, the FATF is due to visit

SA at the end of October 2022 to ascertain whether sufficient progress has been made after a one-year observation period. If not, SA may be grey-listed by the FATF as early as February 2023.

Should SA not comply with the FATF’s rules by the deadline, it could mean the country will be added to the noncompliance list and disinvestment could occur in financial institutions. The

FICA PLACES NUMEROUS OBLIGATIONS ON ‘ACCOUNTABLE INSTITUTIONS’, AS DEFINED IN SCHEDULE 1 OF FICA FATF’s grey-listed countries include Cambodia, Cayman Islands, Burkina Faso, Albania, Yemen, Pakistan and Syria.

On June 15 2022, in the hope the National Treasury’s report and proposed amendments to the schedules to Fica would be rubberstamped to avoid a greylisting by the FATF, the Treasury and the Financial Intelligence Centre briefed the National Assembly’s standing committee on finance and the

National Council of Provinces select committee on finance on proposed amendments to schedules 1, 2 and 3 of Fica.

Speaking virtually from Berlin, where he attended a FATF meeting, the Treasury’s acting director-general, Ismail Momoniat, said: “Given the [grey-listing] we face, the sooner we do things, the better for us.”

However, in an unexpected turn of events, members of parliament criticised the Treasury for not having given parliament more time to follow “due process” rather than attempt to force parliament’s hand in making a “rushed” decision.

In response, the acting director-general reminded parliament that the process of aligning SA with global standards had started in 2015 and “has been a slow [process] with lots of consultation”.

Fica places numerous obligations on “accountable institutions”, as defined in schedule 1 of Fica, such as banks and certain financial services providers. These obligations include: ● Registration with the Financial Intelligence Centre; ● Conducting customer due diligence; ● Record-keeping of client information and transaction records; ● Developing, documenting,

THINGS TO DO

/123RF — TNIZOLI maintaining and implementing a risk management and compliance programme (RMCP); ● Ongoing training of employees on Fica and the institution’s RMCP; ● Appointment of a compliance officer; and ● Reporting obligations such as the submission of cash threshold reports, suspicious transactions reports and terrorist property reports.

Furthermore, Fica imposes cash threshold reporting obligations on institutions

that also includes motor vehicle dealers. If the proposed amendments were to be approved by parliament, the accountable institution’s net would be cast much

THE PROCESS OF ALIGNING SA WITH GLOBAL STANDARDS HAD STARTED IN 2015 AND ‘HAS BEEN A SLOW [PROCESS]’

wider to include credit providers as contemplated under the National Credit Act, 2005; any person carrying out a business of dealing in high-value goods, where in respect of such transaction or a series of transactions, payment in an amount of R100,000 or more; trust and company service providers (which will include accountants who prepare or carry out transactions for clients relating to specific types of activities); and crypto asset service providers.

Two laws apply when axing a director Mpumelelo Nxumalo, Ziningi Hlophe, Kalene Watson & Masibulele Mabanga Webber Wentzel Removing a director from office in an unfair or unlawful manner exposes companies to liability under the Labour Relations Act as well as the Companies Act. This article raises some key considerations for companies looking to achieve the smooth departure of a director.

Parting ways with a director is rarely uncomplicated, particularly from a legal perspective, as two distinct areas of law apply. The Labour Relations Act 66 of 1995 (LRA) will guide how the employment is terminated.

On the other hand, the Companies Act 71 of 2008 (Companies Act) guides how the director is removed from the board of directors.

The apparent overlap in the law leaves many with uncertainty on which laws would apply.

Directorship and employment therefore fall under separate legislative provisions, which have distinct requirements and consequences. In terms of the LRA, the termination of an employee’s employment (with or without notice) by an employer constitutes a dismissal.

A dismissal of an employee, in terms of the LRA, should be substantively and procedurally fair. On the other hand, their removal as a director should be in accordance with the requirements of and for the reasons set out in the Companies Act. Section 71 of the Companies Act provides that a director may be removed by a shareholder or board resolution if, for example, the director is incapacitated, convicted of theft or fraud, has neglected their duties or been derelict in their duties.

The relevant director must be given appropriate notice of the meeting to pass this reso-

lution as well as an opportunity to make representations before the resolution is adopted.

An aggrieved director may apply to court to review the decision. The court would be required to decide whether the removal was lawful and whether it complied with the requirements and procedures of the Companies Act. The removal of a director from the board does not, however, mean that they have automatically been dismissed as an employee. As mentioned above, in terms of the LRA, the termination of an

THE LAW PRESCRIBES THAT EMPLOYERS MUST SATISFY THE FAIRNESS REQUIREMENTS CONTEMPLATED IN THE LRA TO DISMISS AN EMPLOYEE

employee’s employment (with or without notice) by an employer constitutes a dismissal. The law prescribes that employers must satisfy the fairness (substance and procedure) requirements contemplated in the LRA to dismiss an employee.

In SA Post Office v Mampeule, the court considered a provision in the Post Office’s contract of employment that stated that the removal of a director also equates to their dismissal as an employee.

The court maintained that this was not possible, as a removal from the board of directors and a dismissal as an employee were different processes, with different legislative requirements and consequences.

The court distinguished between the requirements for the removal of a director in terms of the Companies Act and the requirements for a fair dismissal of an employee in terms of the LRA — and the different remedies

available to a director and employee in the event of their removal and/or dismissal.

The Post Office, in this case, attempted to contract out of the remedies afforded to a director and employee in the event of their removal and/or dismissal, which the court ruled against.

The remedies available to a director if she or he is unlawfully removed from the board of directors differ from those available if the same person, in the capacity as an employee, were unfairly dismissed.

In the event of an unfair dismissal dispute, the LRA provides that a successful applicant may be reinstated (which may include the payment of back-pay) or be granted an order for compensation for up to 12 months’ remuneration.

In the event of an unlawful removal of a director from the board, various remedies are at their disposal, such as a claim for damages equivalent

to the value of the remainder of their term as a director.

Therefore, an unlawful removal from the board of directors or unfair dismissal of an employee may have costly consequences for the employer, and employers need to ensure both the LRA and Companies Act boxes are ticked before a dismissal and removal of an employee who is a director can be validly affected.

The appointment of a director almost always entails an employment contract, but the difference between the two should always be appreciated. When dismissing employees who are also board members, employers need to appreciate the difference between their removal from the board of directors (which must be done within the confines of the Companies Act) and their dismissal as employees (which must be done in accordance with the fairness standards in the LRA).

8

BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Foreign concept of work

Employers must consider tax •issues of remote working abroad Aneria Bouwer Bowmans

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emote working from foreign jurisdictions has become increasingly popular during the Covid-19 pandemic.

Despite the lockdown rules being relaxed in most jurisdictions, it appears that employers should not expect the workplace to return to the way it was before the pandemic.

For example, Microsoft 365 corporate vice-president Jared Spataro said: “As organisations around the world make the definitive shift from remote to hybrid work, one thing is clear: the people who went home to work in 2020 are not the same people returning to the office in 2022.”

For personal reasons, growing numbers of employees are choosing to relocate to other jurisdictions while remaining with their employers.

In many

instances, the employers will go along with these arrangements, sometimes as a continuation of remote working during lockdown and in other instances to attract valuable employees.

But there are risks involved — risks of which many SA employers may not be aware.

This is a different world from two years ago. In the past, employers would establish a presence in other jurisdictions; now it is employees who want to work from foreign jurisdictions. Often, these employees will argue that they can be as productive working remotely as from the office, and that this should

SA EMPLOYERS ALSO … FAIL TO REALISE THEY COULD STILL HAVE AN EMPLOYEES’ TAX WITHHOLDING OBLIGATION IN SA

GLOBAL WORKFORCE

/123RF — LIAKOLTYRINA make no difference to the employer. However, the situation may not be as straightforward as it seems.

The risks for SA employers include the possibility that an employee’s presence in another country may amount to creating a permanent establishment for the employer, thus creating a tax presence for the employer in the foreign jurisdiction.

The interest of a foreign tax authority may be triggered by something as apparently harmless as the employee having business cards bearing the SA company’s name and the address of

his or her home office in the host country.

Though unusual, where the executives of a business work remotely, this could even create a risk of changing a company’s place of effective management (POEM) and thus the company’s corporate tax residence.

Other tax considerations include the risk that the SA employer may be obliged to register as an employer in the foreign jurisdiction and pay employees’ tax and social security in the foreign jurisdiction.

SA employers also sometimes fail to realise they could

still have an employees’ tax withholding obligation in SA. However, it is difficult to say definitively if and when such risks will actually materialise without taking the specific facts into account.

It all depends — there is no one-size-fits-all answer.

Thus, the best course of action for an employer considering an employee’s request to work for the company from a foreign jurisdiction is to seek expert local advice.

QUESTIONS TO ASK

When doing so, some of the questions employers should be asking are: is there a risk that the employee could create a taxable presence for the employer in the foreign jurisdiction?

Which country has the right to tax the employee’s remuneration?

Would the employer still be obliged to withhold employees’ tax in the country where the employer is tax resident and/or is there a risk that it would also have to register as an employer in the foreign jurisdiction?

During April 2020, the secretariat of the Organisa-

tion for Economic Co-operation and Development (OECD) issued guidance regarding the interpretation of tax treaty concepts such as POEM and permanent establishments during the Covid-19 pandemic, when people were stranded overseas.

However, employers should keep in mind that the relatively relaxed stance many foreign jurisdictions and regulators adopted to remote working during the Covid-19 pandemic will not last.

A return to “normality” also means a return to normal tax rules. While there does seem to be a realisation that the world of work is different to the pre-pandemic world, the tax rules are still the ones that were created for such an “old” world.

While a remote working arrangement could offer exciting opportunities for employers and employees alike, it is crucial for employers to carefully consider the risks that a more permanent cross-border remote working arrangement could have for the employer, before agreeing thereto.

LEGAL SCOOP

Verbal cessions are not the most sensible option

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cession is a bilateral act whereby a right is transferred by agreement between two consenting parties.

Though this act effectively involves three parties (that is, including the debtor), the cession can take place without the agreement of the debtor.

In the recent unreported matter of Imbuko Wines (Pty) Ltd v Reference Audio CC (405/2021) [2022] ZASCA 110 (July 15 2022), the Supreme Court of Appeal considered a verbal cession entered into between two consenting parties and ruled decisively on its enforceability.

Pursuant to a verbal cession, the high court in Johannesburg ordered Reference Audio CC (Reference Audio) to pay R602,866.22 to Imbuko Wines (Pty) Ltd (Imbuko).

Reference Audio appealed this order to the full court in Johannesburg and the appeal was upheld. Imbuko then appealed the full court order to the Supreme Court of Appeal.

During 2012, Dipole CC (Dipole) and Reference Audio concluded a verbal agreement in terms of which Dipole supplied audio

LEGAL SCOOP equipment to Reference Audio.

Imbuko alleged that during December 2012, Dipole verbally ceded to Imbuko its right to claim payment from Reference Audio for the audio equipment. Apparently, this verbal cession arose from Dipole’s difficulties in rendering regular invoices to Reference Audio.

Consequently, during December 2012, Dipole decided to cede Dipole’s claims against Reference Audio to Imbuko so Imbuko could invoice Reference Audio on time.

After each collected payment, Imbuko agreed to pay Dipole the amount owing to it.

Reference Audio denied it had any knowledge of the cession but nonetheless admitted it had made two payments to Imbuko.

Thereafter, Reference Audio denied these payments were

made pursuant to a verbal cession.

To justify this assertion, Reference Audio referred to the ongoing business relationship between Dipole and Reference Audio, in terms of which Reference Audio continued to make purchases from Dipole (paying Dipole directly).

Notably, this ongoing relationship was post the payments that formed the subject of this matter.

Generally, parties conclude an out-and-out cession or a cession in securitatem debiti. An outand-out cession is the cession in question in this particular matter, whereby Dipole ceded its rights as against Reference Audio to Imbuko.

In contrast, a cession in securitatem debiti is a form of pledge where the debtor pledges its rights as against its own debtors (its book debt) to another party as security for an obligation owed to that party.

A cession may be entered into either verbally or in writing. As is generally the case with any type of verbal contract, the terms of a verbal cession must be expressly agreed.

As set out at paragraph 12

of Lynn & Main Incorporated v Brits Community Sandworks CC 2009 (1) SA 308 (SCA), a cession of rights is ineffective as against a debtor until such time as he or she has knowledge of it.

To consider whether Reference Audio knew about the cession, it is necessary to refer to the terms of the cession to determine whether the parties conducted themselves consistently and in accordance with such terms.

Nine invoices were sent to Reference Audio between January and April 2013 reflecting Reference Audio as a debtor of Imbuko in respect of goods purchased from Dipole. Reference Audio did not dispute the invoices, as would have been expected from an entity that bore no knowledge of what it was being billed for in the invoices. In fact, it paid two of these invoices.

During the relevant period, the only entity that claimed any amount from Reference Audio was Imbuko (as per the agreement between itself and Dipole). This points to some form of cession having been concluded.

The relationship between Reference Audio and Imbuko

was strained. Reference Audio was not receiving invoices for goods purchased on time, and Dipole was not receiving regular payments as a result.

In these circumstances, it is clear that a cession (verbal or otherwise) benefited both parties. The external involvement of Imbuko as the party to issue the invoices and receive payment on Dipole’s behalf improved the relationship between the parties. So much so that their relationship continued for some time without difficulty.

Nevertheless, the fact there was an ongoing relationship between Dipole and Reference Audio after the relevant period does not detract from the validity of the cession for the period in respect of which invoices were raised by Imbuko against Reference Audio.

Given the conduct of the parties, the Supreme Court of

AS WITH ANY TYPE OF VERBAL CONTRACT, THE TERMS OF A VERBAL CESSION MUST BE EXPRESSLY AGREED

Appeal concluded that it can safely be accepted that Reference Audio was not only aware of the cession, it conducted itself consistently in terms thereof.

The court accordingly found that the high court was correct to order that Imbuko had established a verbal cession on a balance of probabilities.

KEY TAKEAWAYS

Verbal cessions, while legally binding, may lead to a great degree of uncertainty and corresponding disputes.

When entering into any form of agreement, it is advisable to reduce the agreement to writing. This reduces the doubt that often arises from a verbal agreement.

Had Reference Audio entered into a written agreement at the inception of the relationship with Dipole, it could have included a pactum de non cedendo in this agreement (effectively, an agreement not to cede without the permission of the debtor). This would have avoided the litigation that arose entirely, together with the corresponding costs that accompanied it. ● The Legal Scoop is brought to you by Fluxmans

9

BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Consumers can nail firms in high court

READ THE SMALL PRINT

While Consumer Protection Act offers remedies, •some cases qualify for judicial intervention Wandile Ndabambi & Atlegang Raganya ENSAfrica

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t is now possible for consumers to take their complaint directly to the high court in instances where the adjudicative and dispute resolution mechanisms provided for in the Consumer Protection Act, 2008 (CPA) are not adequate to deal with the infringements alleged.

In the case of Steynberg v Tammy Taylor Nails Franchising 2022, the court concluded it has jurisdiction to deal with a complaint in terms of the CPA. It stated there would be no purpose to require the applicant to approach the consumer goods and services ombud or the National Consumer Tribunal or file a complaint with the National Consumer Commission.

In this case, Christina Johanna Steynberg had signed a franchise agreement with Tammy Taylor; however, within a week, she alleged that Tammy Taylor had not been open and honest with her regarding the actual costs of purchasing

and establishing a franchise.

Steynberg cancelled the deal and demanded a refund of the R346,000 franchise fee.

Tammy Taylor refused.

Steynberg argued that Tammy Taylor failed to comply with the CPA and the regulations thereto by failing to include, on the first page of the agreement, that the franchise may be cancelled within 10 business days without

THE COURT HELD THAT AN OMBUD WOULD NOT BE SUFFICIENT OR APPROPRIATE TO DEAL WITH THE MATTER any costs or penalties. Steynberg further argued that the failure to comply with the CPA rendered the franchise agreement void and unenforceable, and the respondent should be directed to refund the franchise fee.

Steynberg instituted motion proceedings against Tammy Taylor to set aside a franchise agreement entered

into between the parties. It was common cause that Steynberg was a consumer and Tammy Taylor a supplier, resulting in the CPA having application in the matter.

The main issue was the jurisdiction of the high court to hear the matter. Tammy Taylor argued that in terms of the CPA, Steynberg was only entitled to relief from the high court “if all other remedies available to that person in terms of national legislation have been exhausted”.

The CPA provides several avenues to follow before approaching the courts.

These include: ● the National Consumer Tribunal; ● the (consumer goods and services) ombud; ● applying to the consumer court (which has not been established), referring a matter to an alternative dispute resolution agent; or ● filing a complaint with the National Consumer Commission.

Only after these remedies have been exhausted is a party entitled to approach a court with jurisdiction over the matter.

However, in this case, the

/123RF — MOOVSTOCK court held that the complaint fell within the ambit of: ● Section 40 (unconscionable conduct); ● Section 41 (false, misleading, or deceptive representations); and ● Section 48 (unfair, unreasonable or unjust contract terms) of the CPA, which grants the court the power to make a suitable order in the circumstances.

The court held that an ombud would not be sufficient or appropriate to deal with the matter as it is doubtful whether the ombud has the power to grant the relief sought by Steynberg.

As far as recourse to the National Consumer Tribunal was concerned, its powers are restricted by its rules and do not include the power to grant declaratory relief or to deal with claims for the payment of money, which, on the other hand, has been specifically entrusted to the court in terms of the CPA. Furthermore, the court cited the obiter remarks of

the Supreme Court of Appeal in Motus Corporation (Pty) Ltd t/a Zambezi Multi Franchise and another v Wentzel, that the CPA should not be read to exclude the rights of consumers to approach the court to obtain redress.

SA courts have always had jurisdiction to resolve such claims before, and there is no apparent reason why a consumer should be precluded from approaching the courts before having exercised the remedies afforded to the consumer.

It is also referred to in the unreported judgment of Takealot Online (RF) (Pty) Limited and Drive consor-

ONLY AFTER THESE REMEDIES HAVE BEEN EXHAUSTED IS A PARTY ENTITLED TO APPROACH A COURT WITH JURISDICTION OVER THE MATTER

tium Hatfield (Pty) Limited, a Western Cape high court decision, which found the argument that the CPA requires a party to exhaust all other remedies is misplaced because, in terms of section 52 of the CPA, only a court of law can deal with issues relating to section 48 (unfair, unreasonable, or unjust contract terms) of the CPA. Tammy Taylor relied on two unreported cases decided in the Free State high court, namely AFCA Trading and Supply (Pty) Ltd v City Square Trading and Supply 604 (Pty) Ltd and Joroy 4440 CC t/a Ubuntu Procurement v Potgieter NO and Another.

In both these cases, it was held that the court did not have jurisdiction to deal with the matters because the plaintiffs had not exhausted all remedies available to them in terms of the CPA. However, the court found otherwise, citing the obiter remarks of the Supreme Court of Appeal as the authority.

If you tell your boss ‘I quit’ you had better mean it Lizle Louw & Amy King Webber Wentzel A recent Labour Court judgment has reinforced the unilateral nature of an employee’s resignation and clarified the legal authority of an administrator to hire employees. Reading like Shakespeare’s The Comedy of Errors, the recent Labour Court judgment wades through muddied water to reiterate the crystal-clear effect of an employee’s resignation in Mohlwaadibona v Dr JS Moroka Municipality (J718/21) [2022] ZALCJHB 91.

While the events of this matter unfolded, the employer, Dr JS Moroka Municipality, was under administration and the appointed administrator, Mr

Mhlanga, dealt with the matter. The employee was suffering from a mysterious illness which resulted in his resignation with immediate effect on April 1 2021.

Fifteen days later, by a stroke of miraculous good fortune, his health condition improved, and he wrote a letter to his employer seeking to withdraw his resignation. On the same day he received a letter from Mhlanga, who informed him the withdrawal of his resignation was not accepted.

Claiming that he had not seen Mhlanga’s response, the employee returned to work and received his April salary.

He turned to the acting municipal manager to affirm his continued employment, who accepted the withdrawal on May 10 2021.

Was the employee’s resignation even capable of being retracted? The court recognised that resignations are unilateral acts that take effect once communicated by the employee to an employer.

They do not require any further action from the employer. This act serves to terminate the employment relationship and the employee’s notice does not constitute a cooling-off period dur-

THE EMPLOYEE’S NOTICE DOES NOT CONSTITUTE A COOLING-OFF PERIOD DURING WHICH TIME AN EMPLOYEE MAY BACKTRACK

ing which time an employee may backtrack.

While employees are obliged to serve their notice period, failure to do so does not negate the effect of a resignation. The court explained that an employee retracting a resignation is effectively seeking to be rehired or reemployed. If both employee and employer consent to continue the employment relationship, the subsequent employment relationship will be based on a new offer and acceptance of employment.

On this reasoning, the employee’s argument that his employment relationship continued unaffected because he reported for duty and received a salary had to fail. The unilateral retraction could not hold.

The court then turned to

Mhlanga’s refusal and the acting municipal manager’s acceptance of the retracted resignation. Which decision would prevail? Since a mutually agreed retraction of a resignation amounts to reemployment, the representative acting for the employer must have the authority to offer employment. If this authority to hire is lacking, any attempt to rehire the employee is invalid and has no force or effect.

In the local government sphere, the Local Government: Municipal Systems Act 32 of 2000 and Municipal Financial Management Act 56 of 2003 provide for the manner in which municipal powers and functions are exercised. With reference to these acts, the court determined the acting municipal

manager did not have unfettered powers to incur expenses on behalf of the municipality, including those associated with new hires.

Therefore, the acting municipal manager’s actions could not be enforced since he did not comply with the statutory mandates required to lawfully bind the municipality.

The steadfast finding of the court reinforces the notion that a voluntary and deliberate resignation has the legal effect of ending the employment relationship. Reviving that relationship can only take effect in the form of a new offer and acceptance.

This offer must be made by a representative of an employer with the required authority and legal capacity to make it enforceable.

10

BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Cautions for companies, influencers

IMPACT OF INFLUENCE

There is much to be learnt from some prominent •international cases that have arisen of late Darren Willans & Sarah Passmoor Werksmans

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n 2022, even the most pessimistic advertiser is unlikely to bet on the fact that the rise in popularity of the influencer industry is going to dissipate anytime soon.

Companies are increasingly turning to social media influencers of different backgrounds and followings to market their products, campaigns and companies. One of the reasons is that this form of advertising is generally comparatively less costly.

Through influencer advertising, companies no longer need to allocate significant budgets towards TV and radio advertising, which often includes location and equipment costs, the hiring of photographers and so on.

It is often the influencer who bears the responsibility for these expenses, including photographers, videographers and anything else that may be required to bring the hiring company’s vision to fruition.

There are several legal aspects in this ever-evolving

market that companies and influencers should bear in mind when undertaking to advertise in this manner.

Although SA courts have not yet dealt with a significant number of influencer/social media-related cases, there is much to be learnt from some prominent international cases that have arisen of late.

Aspects for the company to consider

As an organisation looking to work with an influencer, it is

THE LEGAL RISK TO INFLUENCERS IS REAL AND CAN BE MATERIAL, RESULTING IN SIGNIFICANT FINANCIAL LOSSES advisable to, among other things, ensure that certain clauses are particularly well drafted in any influencer contract. For instance, invariably a company would want to ensure it retains its right to review and thereafter approve or deny content

before it is uploaded to social media. This serves to avoid problematic and/or damaging content from being published, thereby tarnishing the company’s reputation and even potentially exposing the company to claims.

Moreover, well-drafted breach, termination and dispute clauses are necessary to ensure the company is able to enforce its rights in the event of social media-related damages being suffered.

The importance of some of these clauses is illustrated in the international cases of Snap Inc (PR Consulting Inc) v Luka Sabbat (about a $90,000 claim) and Konus (Catwalk to Sidewalk Inc) v Luka Sabbat (about a $40,000 claim).

In both instances the celebrity contracted to advertise certain products simply failed to satisfactorily fulfil their contractual obligations.

Both companies were constrained to enforce their rights in terms of the provisions of the contract to recover the amounts already paid.

Aspects for the influencer to consider

Many influencers do not have

123RF — RAWPIXEL a legal background and, as a result, are unaware of some of the consequences associated with certain clauses contained in commercial contracts. It is for this reason influencers are strongly encouraged to seek legal advice prior to signing any influencer contract.

Legal issues that are particularly relevant to the influencer industry include unreasonable restraint of trade practices, the use of the influencer’s content outside of the bounds of the agreement for no additional compensation and being held liable for customer dissatisfaction in relation to a product or experience being advertised by the influencer.

The legal risk to influencers is real and can be material, resulting in significant financial losses.

For example, in 2018 the American Securities and Exchange Commission brought charges against professional boxer Floyd Mayweather Jnr and music producer Khaled Khaled for failing to disclose payments they had received for promoting

investments in initial coin offerings (ICOs), whereby new currencies are sold to investors (essentially promoting certain ICO issuers/cryptocurrencies as being reliable and generally a good investment).

The ICO issuer was subsequently charged by the Securities and Exchange Commission, premised on allegations that its ICO was fraudulent.

Without admitting or denying the findings of the commission, Mayweather and Khaled agreed to pay disgorgement, penalties and interest to the value of $614,775 and $150,725, respectively. In addition, Mayweather agreed not to promote any securities for three years and DJ Khaled agreed to a similar ban for a period of two years.

The US office for the southern district of New York filed parallel criminal charges against the pair.

As the impact of influencers increases in the advertising industry, the need for carefully considered legal drafting and jurisprudence in

this area will increase. In SA this is largely, albeit indirectly, regulated by the Consumer Protection Act and, more specifically, Appendix K to the Code of Advertising Practice (being the Social Media Code published by the Advertising Regulatory Board, a document many influencers may not be familiar with).

The industry is largely unregulated and, given the fast-changing nature thereof, closely regulating it is likely to prove challenging.

This, however, places an even greater responsibility on bodies such as the Advertising Regulatory Board to keep a close eye on the developments in the industry, to ensure that companies, influencers and customers are adequately protected.

It also highlights the need for all parties involved to obtain proper legal advice, preferably at the inception of the commercial influencer relationship, enforcing the old adage that prevention (in this instance, both from a risk and cost perspective) is better than cure.

Monetary policy change affects investors Natalie Scott & Kyra South Werksmans On June 8, the South African Reserve Bank commenced with its 12-week transition to a new monetary policy implementation framework.

According to the Bank, the “monetary policy committee (MPC) makes decisions on interest rates and the [monetary policy implementation framework] is the mechanism through which these decisions are made effective and transmitted through the SA economy.

“The amendments to the framework are technical in nature and will affect how monetary policy is implemented, but will not affect the inflation target range or the interest-rate decisions of the

MPC.” If the Bank’s amendments to SA’s monetary policy implementation framework are only technical in nature, let’s explore why it is important to know what these amendments are.

SCARCE-RESERVES FRAMEWORK

Historically, the Bank implemented the shortage or classical cash reserve system for implementing monetary policy (Scarce-Reserves Framework) which ensured that there was a shortage of cash reserves in the market and that a limited amount of cash reserves was available to commercial banks. Commercial banks were thus required to source additional cash reserves from the Bank at the repurchase (repo) rate and which in turn ensured

the interest rate on such cash reserves was equal to the policy rate.

We understand that the Scarce-Reserve Framework worked relatively well in SA up until the director-general of the World Health Organisation characterised Covid19 as a pandemic on March 11 2020 and SA declared the outbreak of Covi-19 in SA a national disaster.

During the pandemic, the Bank implemented measures to relieve the liquidity squeeze Covid-19 placed on commercial banks and noted in the latter half of 2020 that liquidity in the market had largely normalised, save in relation to the money markets, where the liquidity shortage was consistently smaller than it was before the start of the pandemic.

On investigation, the Bank determined SA’s structural liquidity surplus had built up over time resulting in the Scarce-Reserve Framework being “difficult and costly to operate” and that the “tieredfloor” system would be a better and more cost efficient monetary policy implementation framework for SA.

TIERED-FLOOR SYSTEM

Under the tiered-floor system, the Bank will provide a surplus of cash reserves to satisfy commercial banks’ demand for cash reserves and will place quotas on all commercial banks (i) limiting the amount of cash reserves they’re able to deposit with the Bank — and earn interest (at the repo rate) on — and (ii) preventing the hoarding of cash reserves. By introducing

quotas to the Tiered-Floor System, the Bank hopes to encourage commercial banks to lend some of their excess cash reserves to other commercial banks thereby alleviating the pressure on the Bank as sole liquidity provider. While SA is the first emerging market to adopt the tiered-floor framework, the Tiered-Floor System not a new concept, and has been successfully implemented in several first world countries, such as New Zealand and Norway, and which has proven to have been effective at stabilising commercial banks’ demands for cash reserves.

The Bank expects that the implementation of the Tiered-Floor System (with quotas) will “provide the Bank with a resilient and effi-

cient framework for implementing monetary policy in SA”, and encourage commercial banks to deposit cash reserves with the Bank, as opposed to requiring the Bank to provide liquidity to commercial banks.

But what does the change to SA’s monetary policy implementation framework mean for investors?

According to Rand Merchant Bank, the “change in the MPIF will have implications for fixed-income investors, since it is likely to result in changes to the supply and demand of certain instruments and, consequently, structural adjustments to market reference rates. The overall effect, especially at the short end, is an expected reduction in spreads over the repo rate”.

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BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Remedy for strike losses

can use section of Labour Relations •ActBusinesses to claim compensation if action turns violent Kerrie-Lee Olivier ENSafrica

T

he possibility of strikes, whether protected or unprotected, is an ever-looming threat to SA businesses.

These strikes almost always result in some form of financial loss for the business and leave them with little recourse for recovery.

Section 68(1)(b) of the Labour Relations Act, 1995 (LRA) provides that, if an employer has suffered loss as a result of an unprotected strike or conduct in furtherance of such a strike, it may claim compensation that is “just and equitable” from the responsible party.

However, the question arises whether the section also permits an employer to claim compensation if the strike is protected? This question was considered in the recent decision of the labour court in Massmart Holdings Ltd & others v South African Commercial Catering and Allied Workers Union.

In this matter, various companies within the Massmart Holdings group of companies sued the SA Commercial Catering and Allied

Workers Union (Saccawu) for the payment of compensation in terms of section 68(1)(b) of the LRA totalling R9,383,454.57.

This compensation was sought for losses the companies claim they suffered during the course of a protected strike called by Saccawu. The companies contended that, during the strike, Saccawu’s

SECTION 69 OF THE LRA REGULATES THE RIGHT TO PICKET AND EMPOWERS THE LABOUR COURT TO INTERVENE IN DISPUTES members committed various offences and that their conduct; ● Was not peaceful; ● Did not comply with the provisions of the LRA; ● Did not comply with the Covid-19 regulations in force at the time; and ● Did not comply with picketing rules determined by the Commission for Conciliation, Mediation and Arbitration.

Saccawu excepted to the

company’s statement of claim on various grounds. Of most importance for the purposes of this article was the argument that the labour court does not have jurisdiction to consider claims for compensation in terms of section 68(1)(b) if the strike is protected.

The court rejected this argument on the basis of its interpretation of section 68(1)(b). It argued as follows: ● Section 68(1)(b) states that the court has jurisdiction to order the payment of just and equitable compensation for any loss attributable to an unprotected strike “or conduct”. The term “conduct” is not explicitly linked to an unprotected strike. Neither is it qualified as being conduct in furtherance of an unprotected strike. ● Section 67(6) of the LRA gives unions and their members immunity from any civil legal proceedings in respect of conduct in contemplation or furtherance of a protected strike. However, this does not apply to unlawful conduct in contemplation or furtherance of a protected strike. ● Section 69 of the LRA regulates the right to picket and empowers the labour court to intervene in disputes con-

RAISE YOUR HANDS

/123RF — JARA3000 cerning pickets. It may make a variety of orders, and these are expressly stated to be “in addition” to any relief contemplated in section 68(1) of the LRA. In closing, the court stated that: “[22] …it would be anomalous if an aggrieved employer or union was entitled to pursue a claim for compensation in this court under section 68 for loss attributable respectively to a strike or lockout that does not comply with

Chapter IV but not for loss attributable to conduct that constitutes a breach of the same chapter, simply because the strike or lockout is protected.”

The importance of this case is that it demonstrates that employers can now rely on section 68(1)(b) to claim compensation for losses attributed to a strike that has subsequently turned violent and resulted in various offences.

We advise that employers

should insert into their picketing rules specific provisions of the LRA that would be breached or other offences that would be committed if a protected strike turns violent.

This would assist with establishing an offence and as such proving that the immunities in terms of section 67 do not apply. ● Reviewed by Peter le Roux, an executive consultant in ENSafrica’s employment department.

Joint account fails to weed out ‘injustice’ Jonathan Goldberg & Grant Wilkinson Global Business Solutions In Never v Barloworld Equipment, a division of Barloworld South Africa (Pty) Ltd (JS 633/20; JS 926/20) [2022] ZALCJHB 161 (June 1 2022), an employee was employed from April 11 2007 in a position of category analyst, which was a desk position.

Her position did not constitute a safety-sensitive job in that she was not required to operate heavy machinery or drive any of the employer’s vehicles. The employee had an unblemished disciplinary record until she was dismissed on April 30 2020.

The employee was dismissed on account of repeatedly testing positive for the cannabis drug, which breached the employer’s alcohol and substance abuse policy.

At the labour court (LC), the employee claimed her dismissal was automatically unfair and that the employer’s policy discriminated

/123RF — OPENRANGESTOCK against her on arbitrary grounds. The employee sought reinstatement.

The employee testified that some time ago she suffered severe constant migraines and anxiety that affected her wellbeing and she had trouble sleeping.

The employee was prescribed pharmaceutical drugs that required the daily consumption of about 10 pills to ease pain and assist in falling asleep.

The employee had gradually moved away from consuming pharmaceutical pills to using cannabis oil and smoking rolled cannabis as an alternative to achieve the same results. It was the employee’s testimony that this improved her bodily health, outlook and her spirituality, as smoking cannabis made her feel closer to God and assisted in her quest to address internal struggles.

The employer had an

alcohol and substance policy the employee was aware of.

In terms of the employer’s reviewed policy, and in order to gain biometric access to the employer’s premises, employees were required to undergo medical tests.

On January 29 2020, the employee was subjected to such a medical test. The employee tested positive for cannabis.

On the same day, the employee was informed that

she was unfit to continue working and directed to leave the premises of the employer immediately. The employee was placed on a seven-day “cleaning-up process”, which entailed the test being repeated on a weekly basis until the employee was cleared by testing negative.

At the time of undergoing the medical test, the employee was not impaired or suspected of being impaired in the performance of her duties nor was she performing duties that would be a risk to her own safety or that of her fellow employees.

During the period from January 29 2020 to February 28 2020, the employee was denied access to the employer’s premises as her further

SMOKING CANNABIS MADE HER FEEL CLOSER TO GOD AND ASSISTED IN HER QUEST TO ADDRESS INTERNAL STRUGGLES

tests continued to detect cannabis in her system. The employee was accordingly charged with breach of the employer’s alcohol and substance abuse policy on February 25 2020.

The employee pleaded guilty to the charge on the basis that she had tested positive for cannabis.

The employee indicated that she did not plead guilty to being intoxicated or impaired at work. She also indicated she was never “stoned” at work and reiterated the importance of smoking rolled-up cannabis every evening as well as daily use of CBD oil to maintain her improved medical benefits that reduced her pharmaceutical drug dependency.

Notwithstanding all these, the employer instructed the employee to undergo a “cleaning-up process” and that she would continue to be tested every seven days until she tested negative. This process was in line with the alcohol and substance abuse policy. On April 29 2020, the employee was dismissed.

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BusinessDay www.businessday.co.za August 2022

BUSINESS LAW & TAX

Taxpayers can’t just wing it with VDP

STAMP OF APPROVAL

Noncompliant taxpayers risk being burnt if they •bend the definitions of ‘voluntary’ and ‘disclosure’ Francis Mayebe, overseen by Virusha Subban Baker McKenzie

T

he voluntary disclosure programme (VDP) in SA, introduced by the Tax Administration Act, 2011, aims to increase tax collection, promote good management of the tax system and allow the best use of SA Revenue Service (Sars) resources.

The VDP allows noncompliant taxpayers an opportunity to regularise their tax affairs by disclosing any tax defaults in previous years of assessment.

Section 227 of the act sets out the criteria with which a taxpayer must comply for a voluntary disclosure to be considered valid for purposes of the VDP. To be accepted by Sars as a valid voluntary disclosure application, the application must: ● Be voluntary; ● Relate to a default that has not occurred within five years of the disclosure of a similar default; ● Be full and complete in all material aspects; ● Relate to a behaviour referred to in column 2 of the understatement penalty table in the act; ● Not result in a refund due

by Sars; and

● Be made in the prescribed form and manner.

In the case of Purveyors South Africa Mine Services (Pty) Ltd v CSARS, the pinnacle of the discussion surrounded the interpretation of the words “voluntary” and “disclosure” within the context of the VDP. In 2015, Purveyors South Africa Mine Services (the taxpayer) imported an aircraft into SA under a dry lease agreement with Freeport Minerals Corporation, a company incorporated and tax

THE TAXPAYER HAD BEEN INFORMED, ON MANY OCCASIONS, OF ITS TAX OBLIGATIONS BY NUMEROUS PARTIES resident in the US. The aircraft was mainly used to transport its executives and other personnel to African countries where the taxpayer had operations.

The taxpayer was liable to pay import VAT on the importation of the aircraft.

About a year after the taxpayer imported the aircraft, it became aware of its liability to pay VAT and accordingly engaged Sars in this regard,

providing an overview of the facts. In 2017, Sars held the view that the taxpayer should have paid VAT on the imported aircraft and warned the taxpayer of the potential penalties that could be imposed as a result of the taxpayer’s failure to account for, and pay, the VAT due. The taxpayer thereafter applied for voluntary disclosure, which Sars declined on the basis that it did not satisfy the requirements for a valid voluntary disclosure application.

The issues in dispute were the interpretation of the words “disclosure” and “voluntary”. The Supreme Court of Appeal (SCA) took quite a strict and narrow interpretation of the word “voluntary” in finding that the disclosure would only be deemed to have been made voluntary if “an errant taxpayer comes clean on their violation without being prompted to make amends with respect their defaults when informing Sars”.

This interpretation by the SCA includes two requirements which the taxpayer failed to demonstrate in this case — the first being that the disclosure made by the taxpayer must not be prompted and the second being that it must not be solely intended to avoid certain consequences of which the taxpayer has

/123RF — STUARTPHOTO become aware before the disclosure.

In this case, the taxpayer was well aware of its liability to pay import VAT, as well as the applicable penalties in that respect. The taxpayer had been informed, on many occasions and over a period of about three years, of its tax obligations by numerous parties, including Sars and its auditors, who corroborated Sars’ views.

The questions to ask in evaluating the intention of the taxpayer behind the eventually made disclosure are whether the taxpayer would have disclosed its tax defaults if Sars was not already aware of them and if the disclosure would have been made solely to avoid the penalties for which it was already liable.

It is evident from the facts, as also pointed out by the SCA, that the taxpayer had made prior disclosures of its transgressions to Sars, after which it sought advice from its auditors, who confirmed Sars’ position. The disclosure by the taxpayer was therefore neither a proper nor an unequivocal disclosure as it failed to show in its invoices that VAT had not been

charged on the lease of the aircraft. Instead, the disclosure was made as a result of Sars being aware of the default and out of compulsion to make the disclosure in an attempt to avoid the potential penalties.

It is in this respect that the SCA found that the disclosure made by the taxpayer was not voluntary in the context of the VDP, since Sars already knew about the default, and the disclosure was mainly

THE TAXPAYER HAD MADE PRIOR DISCLOSURES OF ITS TRANSGRESSIONS TO SARS, AFTER WHICH IT SOUGHT ADVICE FROM ITS AUDITORS prompted out of fear of the consequences of the noncompliance.

The SCA further considered whether a disclosure did, in fact, exist in these circumstances. The taxpayer was of the view that the requirement for voluntary

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disclosure was not restricted to the disclosure of something new, of which Sars was not aware. Sars, on the other hand, was of the view that on a proper construction of section 227 of the act, the taxpayer did not disclose information or facts of which Sars was unaware.

In a textual interpretation of the word, the SCA found that the word “disclosure” means “to open up to the knowledge of others, to reveal”.

The SCA outlined that the requirement the disclosure must be made in a prescribed format is a clear indication the application is sought to prevent taxpayers from disclosing information to Sars and subsequently applying for a voluntary disclosure application. Therefore, the disclosure will be in accordance with the VDP if such disclosure involves information of which Sars was not previously aware.

With the aforementioned in mind, the SCA found that the disclosure made by the taxpayer was not in line with the requirements of section 227 of the act, as the application disclosed nothing new.