Business Day Business Law & Tax, June 2021

BUSINESS LAW &TAX

JUNE 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Google has good reason to be API

CODE OF CONDUCT

tech giant recently won a legal battle brought •byThe Oracle over use of its Java application program André J Maré ENSafrica

T

he US Supreme Court has ruled that Google was entitled to use elements of Oracle’s Java application programming interface (API) code when building Android (the mobile operating system).

This brings an end to a decade of litigation.

The decision overruled an earlier federal court decision that held that Google’s use of the API had infringed Oracle’s copyright. There was, as you might imagine, a great deal of money at stake — if Google had lost, it might have faced a damages award in the region of $9bn.

In this case, the claim was that the “structure, sequence and organisation” of the Android APIs infringes Oracle’s copyright in the Java code. The litigation dealt with

about 11,500 lines in Android’s codebases representing 37 separate APIs. The court made two major findings. ● APIs are distinct from other forms of software APIs allow programmers to access other codes. This makes them very different from other kinds of computer programs. The court said this: “As part of an interface, the copied lines are inherently bound together with uncopyrightable ideas … and the creation of new creative expression.”

FAIR USE CAN PLAY AN IMPORTANT ROLE IN DETERMINING THE LAWFUL SCOPE OF A COMPUTER PROGRAM COPYRIGHT

The court went on to say this: “Google copied only what was needed to allow programmers to work in a different computing environment without discarding a portion of a familiar programming language. Google’s purpose was to create a different task-related system for a different computing environment (smartphones) and to create a platform — the Android platform — that would help achieve and popularise that objective.” ● Fair use The court held that what Google had done constituted fair use: “Google’s copying of the API to reimplement a user interface, taking only what was needed to allow users to put their accrued talents to work in a new and transformative program, constituted a fair use of that material.

“The upshot, in our view, is that fair use can play an important role in determining

/123RF — TIMUR ARBAEV the lawful scope of a computer program copyright.”

The court was, however, keen to make it clear that this ruling was subject-specific: “We do not overturn or modify our earlier cases involving fair use — cases, for example, that involve ‘knockoff’ products, journalistic writings and parodies.”

The court went on to make the point that API code enables new creative expression, which is something the fair-use doctrine is supposed to promote: “The upshot, in our view, is that fair use can play an important role in determining the lawful scope of a computer program copyright.”

DIFFERENT PERCEPTIONS

There, are, of course, two sides to every story. There was a certain amount of hyperbole in the reactions, but this doesn’t detract from

the fact that this case involved big issues.

A Google spokesperson said: “The Supreme Court’s clear ruling is a victory for consumers, interoperability and computer science. The decision gives legal certainty to the next generation of developers whose new products and services will benefit consumers.”

An Oracle company spokesperson said: “The Google platform just got bigger and market power greater — the barriers to entry higher and the ability to compete lower. They stole Java and spent a decade litigating as only a monopolist can. This behaviour is exactly why regulatory authorities around the world and in the US are examining Google’s business practices.”

Judge Breyer suggested that Oracle’s API claims were akin to claiming copyright on the QWERTY keyboard: “If

you let somebody have copyright on that now, they would control all typewriters … which really has nothing to do with copyright.”

If you thought the headline on this article was cheesy …

Now that you know what’s been exercising the finest legal minds in the US, we’ll end with a quick mention of what the judges of the EU’s highest court have had to contend with.

Can you have copyright in food taste, more particularly a Dutch cheesy dip called Heksenkaas (witches’ cheese)?

This issue arose because an “infringing” product came on the market. The answer is a definitive: no.

A taste cannot enjoy copyright, but you probably didn’t need us to tell you that.

We’re not sure what these two very different cases say about two of the world’s major economies!

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX LATERAL THINKING

Covid effects still being felt

Business Day Law & Tax editor Evan Pickworth interviews Audrey Johnson from ENSafrica’s employment •department on the latest labour developments of importance to business

E

P: It seems to be strike and protest season all over the country. What is the impact on the economy and do you see some resolution to these any time soon?

AJ: Protracted strikes have an immediate detrimental impact on businesses, employees and their families and, eventually, also on the growth of the economy.

Economic growth is directly linked to consumer spending. Protracted strikes not only affect consumer spending while they are ongoing but also for some time thereafter. This is because the principle of no work, no pay applies while employees are on strike. As a consequence employees who are on a protracted strike lose a substantial amount of income.

More often than not, these are low-earning employees who have a number of relatives who depend on their salaries. The strike affects their cash flow drastically, resulting in more debt and poverty in the long run and affecting consumer spending.

Strikes also affect the foreign investment required for economic growth since stable labour relations are a key factor potential investors consider.

If the economy is not showing signs of growth, employment opportunities are shed, unemployment increases and poverty also becomes the end result. The rapid growth in the economy required to enable it to deal with high levels of unemployment and poverty … is unlikely to be achieved.

As to whether the prevalence of strikes will improve any time soon, unfortunately this does not appear to be likely. In my experience there has in fact been an increase in strike activity in recent months as a direct consequence of the negative impact Covid-19 has had on many employees’ earnings and conditions of employment.

EP: What’s your key message to those trying to negotiate settlements?

AJ: Both parties — employers, on the one hand, and employees and trade unions on the other hand — have to be reasonable and understanding in the demands they make of each other and must to find a willingness to meet each other half way if it is at all possible.

It is often very challenging for the disputes that have given rise to a strike to be resolved because the parties are just too far apart.

Unions make demands that do not take cognisance of economic reality and the financial position many employers find themselves in in light of the devastating effect Covid-19 and the related restrictions have had on their businesses.

They fail to appreciate that if their demands were met, it would affect the future viability and sustainability for the business and would ultimately lead to job losses, which would be worse for their members.

At the same time, we have seen employers who are

IN MANY INSTANCES, EMPLOYERS GENUINELY ARE IN A DIFFICULT FINANCIAL POSITION using the Covid-19 pandemic as a convenient excuse for not being in a position to pay bonuses or give increases or make any sort of comprise in response to employee demands in regard to these issues. In many instances, employers genuinely are in a difficult financial position and there simply isn’t room for compromise.

But there are some instances where employers are also not being reasonable or showing any appreciation for the desperate financial position employees are in.

EP: What is a reasonable salary increase in current circumstances when just having a job is seen as a bonus?

AJ: That’s a difficult question because what is reasonable

does vary from industry to industry and business to business. Many businesses have not been in a position to grant increases at all because of the pandemic and as you say have asked employees to be understanding and accepting of this in light of the fact they at least still have a job. In … many instances employees are still on layoff, working reduced hours or receiving only a percentage of their normal remuneration.

This results in any increase actually being academic because they aren’t receiving their full remuneration.

But as a general rule, an increase of 4% to 5% is probably reasonable given that it will at least curb the effects of inflation.

EP: Are there any alternatives to reduced salaries and work time, or is that something employees will have to face for a while yet?

AJ: The alternative is unfortunately usually retrenchments and job losses. Given our high rate of unemployment and low rate of economic growth this is potentially much worse for employees who are unlikely to easily secure alternative employment.

Employers could also consider implementing an incentive scheme in terms of which employees agree to forego a percentage of their remuneration and for that amount to be invested in a long-term incentive scheme … For example, in listed entities, the agreed percentage of their remuneration could be invested in a phantom share scheme so that employees receive notional shares that track the value of the actual share price and can be cashed in at a future date, subject to certain conditions.

Employers can also review and analyse the use and rostering of employees who are employed on atypical contracts of employment such as flexible, zero-hour contracts and fixed-term contracts. Employers could seek to make full use of the flexibility, and benefits of automatic termination based on expiry, that these contracts provide. However, the risks associated with taking these steps must be carefully considered.

EP: Have you seen an increase in disputes over retrenchments as a result of the weak economic conditions?

AJ: Yes, there certainly has been an increase in litigation

over retrenchment exercises that were undertaken by many employers in the course of the last year.

EP: Is SA’s retrenchment law keeping pace with these developments?

AJ: Our retrenchment law is actually very well developed and seeks to carefully balance the employer’s prerogative to make decisions it considers to be absolutely necessary to meet its operational needs and objectives against the employees’ rights to be consulted and to ensure they are afforded a fair opportunity to make representations about viable alternatives the employer should consider. Our law does require an employer to demonstrate the retrenchments were the last resort and all alternatives that could potentially achieve the business objective the employer is seeking to achieve have been properly considered.

Having said that, our law doesn’t require an employer to be in dire financial straits before it can retrench. It is permissible for an employer to retrench simply to make a business more profitable.

EP: The employment & labour committee recently heard oral submissions on the Employment Equity Amendment Bill.

How important is this bill for business going forward and when can we expect it to be implemented?

AJ: The bill will have an impact on businesses and particularly those wanting to be able to access state contracts. If passed, it will be more necessary than before for businesses to ensure compliance with the EEA, or they may be negatively impacted.

Of most significance is the fact the amendments to the EEA proposed in terms of the bill will empower the employment & labour minister to establish sectoral numerical targets for the purpose of ensuring the equitable representation of

suitably qualified people from designated groups at all occupational levels in the workforce.

The bill also makes provision for the promulgation of section 53 of the EEA. This section has never been promulgated in the 21 years of the EEA’s existence and the section has never actually come into effect.

Section 53 (which is not yet in force) requires that, in order to conclude an agreement with any organ of state for the furnishing of supplies or services or for the hiring or letting of anything (state contracts), employers must: ● Comply with the act (chapter 2 and both chapters 2 and 3 for designated employers); and ● Attach either a certificate obtained from the minister confirming its compliance with the act or a declaration by the employer that it complies with the act, which constitutes conclusive compliance when verified by the DG [director-general].

Failure to comply with the requirements of section 53 of the act is sufficient ground for rejection of any offer to conclude, or for cancellation of, any state contract.

This means the failure to comply with sectoral numerical targets that are now proposed to be introduced, absent a reasonable ground to justify such noncompliance to the satisfaction of the minister, may preclude a business from concluding state contracts.

In terms of the current EEA, employers may also

OUR LAW DOES REQUIRE AN EMPLOYER TO DEMONSTRATE THE RETRENCHMENTS WERE THE LAST RESORT face fines for noncompliance with the act. This is not changed by the amendments, except that employers may also face a fine for noncompliance with the sectoral numerical targets.

It could be argued the proposed amendments that require a designated employer to meet the targets set by the minister and to be assessed on this criteria, particularly before it may do work for the state, is not

really a “target” but actually more akin to a “quota”.

Our courts have previously found quotas in employment equity plans are not permitted by the EEA and on this basis the amendments, if passed, may not ultimately pass constitutional muster.

The bill also does not provide an employer with an opportunity to apply for exemption from compliance with these targets. Employers who fail to meet the minister’s targets may, however, provide a reasonable justification … although it is not clear what would be considered to be reasonable and the extent to which deviations may be excused.

The bill was introduced by the labour minister on July 21 2020. It is still under consideration by the National Assembly. After that, it must be approved by the National Council of Provinces and then signed by the president.

The amount of time taken to implement a bill varies, but the Parliamentary Monitoring Group estimated that from introduction to commencement, the process usually takes more than a year.

EP: What will the effect be for noncompliant companies?

AJ: As set out above, noncompliant businesses will not be able to attain a certificate of compliance and will therefore be precluded from accessing state contracts.

In addition, they may be fined for their failure to comply. The imposition of a fine must be preceded by specific enforcement procedures, which include a review and recommendation to the employer by the DG in relation to compliance and where such recommendation is not followed, the DG may approach the labour court for relief (including a fine). Companies can be fined between R1.5m and 2% of turnover, to R2.7m and 10% of turnover for contravening employment equity laws.

EP: And lastly, your advice for young students planning on a career in labour law.

AJ: I would strongly encourage any aspiring lawyer to consider a career in labour law. It is a wonderfully dynamic area of our law that is constantly changing and developing. Whether the economy is flourishing or floundering, there is always stimulating and challenging work emanating from the field of employment law.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Welcome clarity on BBBEE

come after practice •noteMoreontoownership vehicles Lance Fleiser Bowmans

A

practice note recently released by the trade, industry & competition minister has brought muchneeded clarity on various matters relating to the allocation of shareholdings in companies to broad-based BEE (BBBEE) vehicles.

One of the ways a company (measured entity) can score ownership points under the ownership pillar of its BBBEE scorecard is from shareholdings held in it by broad-based ownership vehicles operating primarily or wholly for the benefit of black people or a subclass of black people (for example, black women).

Two examples of such broad-based vehicles which are specifically regulated by the BBBEE sector codes and generic codes are broadbased ownership schemes and employee share ownership programmes (ESOPs).

Often structured as trusts administered by trustees, they operate for the benefit of specifically designated groupings (for example, communities or students), or employees of the measured entity, respectively.

Over the past few years, differing views have been expressed by the BBBEE Commission (on the one hand) and certain other stakeholders, including many measured entities, advisers and BBBEE verification

agencies (on the other) on the rights of measured entities to attain BBBEE ownership points through broad-based vehicles.

The BBBEE Commission has adopted the view that rights of ownership (particularly the rights to cash flows from shareholdings in measured entities and to vote those shares) must vest in the beneficiaries of the broadbased vehicle, not in the trustees of the broad-based vehicle. Other stakeholders have interpreted the relevant provisions as allowing rights of ownership to vest in the trustees, for practical and other reasons, on the understanding that the vehicle operates for the benefit of those beneficiaries.

As other examples, the BBBEE Commission has: ● Held the view that it is not sufficient for the vehicle’s trust deed/constitution to identify the beneficiaries as a class of beneficiaries unless accompanied by a closed list setting out the names of each individual within that class who is a beneficiary; ● Objected to provisions in constitutions pursuant to which named beneficiaries might cease in future to be

THE BBE COMMISSION REQUIRED THAT DISTRIBUTIONS BY BROAD-BASED VEHICLES BE IN THE FORM OF CASH

SHARE OF THE PIE

/123RF — DMITRY VOLKOV beneficiaries, even where that occurred in fault-related circumstances; ● Adopted the position that ownership points cannot be claimed if the beneficiaries are minors; ● Been of the view that the constitution must set out the percentage of each distribution by the vehicle to which each beneficiary is entitled, for example, “30% of each distribution is to be made to person X, 30% of each distribution is to be made to person Y, and the remaining 40% of each distribution is to be made to person Z”; and ● Required that distributions by broad-based vehicles be in the form of cash, and the cash must be placed in the hands of each beneficiary.

What is contained in the practice note?

Ownership can vest in the broad-based vehicle itself. The practice note recognises that ownership points can be derived from the shareholdings of broadbased vehicles as typically

structured in this market; that is, with ownership rights vesting in the broad-based vehicle rather than in the beneficiaries.

Identification of beneficiaries. The practice note clarifies that the inclusion of a defined class of persons in the constitution is sufficient (without the need to list each beneficiary), that the constitution can provide that persons who are members of that class will cease to be beneficiaries should they cease to be members of that class and that ownership points can be claimed if the beneficiaries are minors. An example of a defined class of beneficiaries is “black people living in Gauteng”.

Perpetual structures are acceptable. The practice note recognises that ESOPs can operate on a perpetual or evergreen basis. It follows that it is not necessary for there to be an outside date on which an ESOP sells, or can sell, its shareholding. It can continue to operate indefi-

nitely for the benefit of the employees from time to time of the measured entity.

Vested entitlements. The practice note clarifies that the constitution need not set out the percentage of each distribution to which each beneficiary is entitled. It is sufficient for it to specify what the total percentage is of distributions to be made to black people falling into the defined class (which will be 100% in circumstances where the class is limited to black people).

The form that distributions take. The practice note provides that distributions to beneficiaries do not need to take the form of cash placed in the hands of each beneficiary. It states that, for example, money can be used by the broad-based vehicle to pay for skills development, education or training on behalf of beneficiaries or to facilitate access to funding or fund social or community interventions or developments for the benefit of the beneficiaries.

OTHER POINTS

The practice note states that “challenges with existing schemes (covering their funding mechanisms, fronting practices, inadequate information to intended beneficiaries and governance challenges) will need to be addressed”. The minister anticipates that further laws or communications will follow which will focus on the need for greater communication and interaction between the measured entity and the beneficiaries.

At this stage, it is merely conjecture as to what is specifically contemplated,

and whether this will entail the introduction of additional qualification requirements for a broad-based vehicle to qualify as a broad-based ownership scheme or ESOP. These might require greater education to be provided to beneficiaries on the principles of ownership, or further information disclosures on the measured entity and its activities; or that broad-based vehicles or beneficiaries should have representation on the board of directors of measured entities.

There remain areas not addressed in the practice note where the views of the BBBEE Commission and certain other stakeholders differ.

For example, there are differing views on the impact of the inclusion or exclusion of certain terms and conditions in shareholders agreements regulating the relationship between broad-based vehicles and the other shareholders of a measured entity. The commission has regularly taken the approach that if certain rights and protections are not afforded to a broadbased vehicle in the shareholders agreement, no real ownership is created, so BBBEE ownership points cannot be awarded.

We welcome the minister’s statement that increased steps are contemplated to counter fronting.

The minister should be respectfully commended for addressing critical areas of confusion that have existed up until now. We look forward to the clarifications creating impetus for an increased number of transactions involving BBBEE vehicles.

Africa ups its anticompetition game amid Covid Lerisha Naidu & Angelo Tzarevski Baker McKenzie Johannesburg With the growth of economies across Africa, competition law has remained one of the key drivers for effective market participation, consumer protection and fair business practices.

However, Covid-19 introduced new challenges for competition authorities in Africa and abroad, with each enforcer pursuing the most beneficial method for its national or regional jurisdiction.

These efforts were aimed at curbing the persistence of unjustified price hikes, anticompetitive co-operation between competitors and other harmful business prac-

tices that sought to undermine competition.

In addition to the urgent responses to the unprecedented effects of the global Covid-19 crisis, competition authorities in countries and regions across Africa continued to introduce new laws and amend existing legislation as a sign of the rapidly increasing prioritisation of competition law enforcement on the continent.

Competition authorities had already established strategies for maintaining competition and limiting instances of customer exploitation in their respective countries by early March 2020. Authorities in Kenya, Malawi, Mauritius, Namibia, Nigeria and SA reacted quickly to pandemic impacts by introducing new guide-

lines and regulations.

In addition, various jurisdictions have recently strengthened their competition law regimes by way of amendments to the existing legislation or by introducing entirely new laws to facilitate their enforcement efforts.

NEW LAWS

For example, Botswana’s Competition Act came into force at the end of 2018.

Kenya recently introduced a host of new laws, guidelines and rules that relate to buyer power, the valuation of assets in merger transactions, block exemption of certain mergers from notification, merger thresholds and filing fees, market definition and new guidelines for the determination of administrative penalties.

Ghana’s Draft Competition Bill is currently before parliament awaiting passage into law, and Egypt and Mauritius amended their competition legislation by introducing or giving effect to new provisions and regulations.

In SA, price discrimination and buyer power provisions that were previously introduced by the Competition Amendment Act have since come into effect. Guidelines were also issued to facilitate the interpretation and application of these provisions.

African competition law continues to develop at a rapid pace, boosted by the implementation of protective strategies necessary during the peak of the pandemic.

In addition to countryspecific regulations, a number of regional competition

regulators in Africa are also impacting domestic markets.

Such regulators include the West African Economic Monetary Union (Waemu), the East African Community (EAC), the Common Market for Eastern and Southern Africa (Comesa), the Economic Community of West African States (Ecowas) and the Economic and Monetary Community of Central Africa (Cemac).

While not a regional regulator, the African Competition Forum, an association of African competition agencies, promotes competition policy awareness in Africa and the adoption of competition policies and laws. The forum also facilitates regular contact between authorities, creating a platform for the sharing of best practice and domestic

competition trends.

An increasing number of jurisdictions have adopted laws and regulations, established authorities, secured membership to regional antitrust regimes and ramped up enforcement of suspected violations of prevailing competition laws at both domestic and regional levels.

As such, organisations transacting across borders in Africa must ensure they are compliant with a myriad local and intersecting regional competition laws to avoid falling under the spotlight of the continent’s competition authorities.

Access to standardised, cross-border information on the latest competition law developments in Africa has become essential for those transacting in the region.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

When to sign off on digital signatures

SIGN ON THE DOTTED LINE

agreements require written authentication, •soSome make sure you know when to put pen to paper Pierre Burger Werksmans

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hat is an electronic signature, and when will it be valid in place of a handwritten signature?

These questions appeared to have been answered by the Supreme Court of Appeal (SCA) in Spring Forest, but recent case law has introduced an element of uncertainty.

To recap, the section 13 (Signature) of the Electronic Communications and Transactions Act (ECTA) provides as follows: 1. Where the signature of a person is required by law and such law does not specify the type of signature, that requirement in relation to a data message is met only if an advanced electronic signature is used.

2. Subject to subsection (1), an electronic signature is not without legal force and effect merely on the grounds that it is in electronic form.

3. Where an electronic signature is required by the parties to an electronic transaction and the parties have not agreed on the type of electronic signature to be used, that requirement is met in relation to a data message if: (a) the method is used to identify the person and to indicate the person’s

approval of the information communicated; and b) having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.

Spring Forest clarified that “required by law” in section 13(1) means required by statute, and does not extend to a signature requirement imposed by agreement between the parties — in which case an “ordinary” electronic signature would suffice.

Further, the typewritten names of the parties at the foot of their e-mails, which were used to identify them,

PARTIES NEED TO BE ABLE TO LOOK AT THE SIGNATURE, SEE WHETHER IT COMPLIES … AND RELY ON IT IN GOOD FAITH IF IT DOES complied with the definition of “electronic signature” and fulfilled the function of a signature, that is, to authenticate identity.

Thus, where a contract requires a written and signed document for a valid agreement to vary, an exchange of e-mails (which constitutes writing in terms of ECTA)

with the parties’ typewritten names at the bottom would comply with the requirements of section 13(3).

In Global and Local Investments Advisors (Pty) Ltd v Fouche, a mandate by Fouche to his financial services provider (FSP) required his signature for a valid instruction and made no mention of an electronic signature. Fouche’s e-mail account was hacked, and fraudulent instructions with the typed words “Regards, Nick” and “Thanks, Nick” at the end were sent to the FSP, resulting in the FSP paying out some of Fouche’s funds to the fraudster.

In an action to recover damages from the FSP, the SCA held on appeal that since the parties had not agreed to accept an electronic signature as contemplated in section 13(3), the position was that a signature in the ordinary course, that is, in manuscript form, was required, even if transmitted electronically. Hence, the FSP’s appeal failed.

Spring Forest was distinguished on the basis that the authority of the persons who had actually written and sent the e-mails had not been in issue in Spring Forest, as it was in the present case. In Spring Forest, there was no dispute regarding the reliability of the e-mails, accuracy of the information communicated or the identities of the persons who appended their

/123RF — KEBOX names to the e-mails, whereas in the present case the e-mails were fraudulent.

In Borcherds and another v Duxbury and others, the high court confirmed that a manuscript signature in electronic form would meet the requirements of a signature for the purposes of the Alienation of Land Act (ALA), even

A MANUSCRIPT SIGNATURE IN ELECTRONIC FORM HAS COME TO ACQUIRE THE STATUS OF A HANDWRITTEN SIGNATURE though ECTA does not apply to the ALA. This confirms that a manuscript signature in electronic form has come to acquire the status of an ordinary handwritten signature.

Global and Local is, however, problematic for other reasons. First, where a contract requires a signature but does not specify the type of signature, the default position is that an electronic signature is indeed compliant. This, in my view, is the clear effect of

section 13(2). Furthermore, Spring Forest confirmed the position by necessary implication if not explicitly, in finding that section 13(3) applies in any instance where the parties require a signature (not necessarily an electronic signature) but do not specify the type of electronic signature that is required.

This renders an electronic signature presumptively equivalent to an ordinary signature, except in instances subject to section 13(1).

Second, the fact that the signatures in Global and Local were fraudulent while the signatures in Spring Forest were not is not a coherent basis for distinguishing Spring Forest.

FORMAL REQUIREMENTS

The question is what the formal requirements for a valid signature are. The parties need to be able to look at the signature, see whether it complies with the formal requirements, and rely on it in good faith if it does. If those requirements can change depending on whether the signature later turns out to have been fraudulent, then a party receiving a signed document cannot know upfront

whether it is formally compliant and cannot rely on it.

The court in Global and Local ought therefore to have followed Spring Forest and held that the FSP was entitled to rely on Fouche’s typed name at the end of the relevant e-mail as constituting his signature — unless (and this was not covered in the judgment, so it is impossible to comment) it was clear from the contract the parties intended the signature to provide a higher than usual degree of authentication, such as for example if it provided for a sample signature that could be checked against the signature on any mandate ostensibly received from Fouche, which would have implied that a manuscript signature was required.

Nevertheless, in light of Global and Local, parties entering into a contract that requires a signature for any purpose should be alert to specify whether or not an electronic signature will be compliant. If so, it would be pragmatic to specify what form of electronic signature will be acceptable — whether a manuscript electronic signature is required or a typed version will suffice.

Injury bill now includes domestic workers Audrey Johnson ENSafrica A recent labour law development business needs to be aware of comes in the form of mooted changes to the Compensation of Injury on Duty Amendment (Coida) Bill.

There are substantial changes proposed to the provisions related to the appointment of inspectors and regarding enforcement and compliance. This enables inspectors to monitor and enforce compliance with the

act, through inspections and investigation of complaints.

Inspectors will have the power to enter homes and workplaces subject to consent from the occupier/ owner, to enforce compliance with the act. Inspectors will have the power to issue compliance orders, which will ultimately become an order of court.

RELIEF FOR DOMESTIC WORKERS

One of the most significant and interesting amendments

(albeit not relevant to business) is that domestic workers, who were previously excluded from the protection granted by the act, are now included in its ambit and protected from occupational injuries and diseases.

This follows the decision of the Constitutional Court in Mahlangu and Another v Minister of Labour and Others (CCT306/19) [2020] ZACC 24, which ruled that the provision in Coida, which excluded domestic workers from being able to claim from

the Compensation Fund in the event of injury, illness or death, is unlawful and violates the right to social security, equality and dignity.

The bill has also introduced the concept of a multidisciplinary employee-based process in which employee rehabilitation, reintegration and return to work processes must be undertaken by employers for employees who suffer occupational injuries or disease.

These measures will force employers to ensure that

they have exhausted all processes before embarking on dismissal processes.

When the bill is enacted, employers will most likely be expected to revise their incapacity procedures and poli-

THESE MEASURES WILL FORCE EMPLOYERS TO ENSURE THAT THEY HAVE EXHAUSTED ALL PROCESSES

cies to align it with the bill.

IMPLEMENTATION DATE

The bill was introduced in September 2020. It is in the second stage of the process, where it is being commented on by the employment & labour portfolio committee, and is unlikely to be implemented any time soon.

Based on the government’s summary of the public hearing held on April 21 2021, industry groups are not happy with the proposed amendments.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Battle of green vs fast fashion in investment

MATERIAL VALUES

Several environmental laws add confidence for •investors to move to more sustainable clothing Carlyn Frittelli Davies & Njabulo Mchunu ENSafrica

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outh Africans’ recent celebration of Freedom Day signalled 27 years of democracy. Our constitution further brought us rights and obligations to guide our rainbow nation, including freedom of expression and environmental rights to protect the environment, our health and our wellbeing while focusing on the sustainability of the environment.

Although clothing serves a function and a need, for many luxury clothing is the gold standard of self-expression and success. A growing “luxury” trend is that of sustainable clothing.

Moves to net zero emissions and a decarbonised economy have focused investors fighting climate

change on identifying companies which voluntarily adopt environmental, social and governance (ESG) business models. With further celebrations and anniversaries such as Earth Day, the Rana Plaza collapse and Fashion Revolution Week, a possible new trend presents itself. Workers Day, which is an internationally celebrated event, adds to the focus of sustainability.

SA’s clothing, apparel, textiles and footwear industry The clothing, textile, apparel and footwear industry has

TECHNOLOGICAL ADVANCES HAVE RESULTED IN PACKAGING WHICH USES NATURAL AND BIODEGRADABLE MATERIALS

long been identified by the government as a source of employment and an investment opportunity. Before trade sanctions were lifted in 1994, the fashion industry supported itself, but no modernisation from a manufacturing perspective or that of the protection of workers was established.

When trading borders were opened, the market was flooded and taken hold of by imports from China and India. In the past two decades, the industry has experienced more than 200,000 job losses. The government has since established initiatives to revive the industry and workers are protected far better than before. Unfortunately, with fast fashion to compete with, it seems that the local industry is still struggling.

Climate change and environmental effects As consumers become more

/123RF — HXDBZXY aware of the true effects of the fashion industry and start influencing the value chain, a shift to sustainable and local products is evident. Pressure is mounting against the global fashion industry, particularly fast fashion.

While large global corporations respond to consumer demands by investing in and creating new technology, lobbying governments and putting pressure on its value chain (which is vast and complex), smaller and newer companies can implement ESG business models and commit to net zero emissions more easily. A return to slow fashion by smaller and newer companies may represent the enticement required by investors.

Slow or sustainable fashion focuses on less produc-

tion of hand-made clothing.

Textiles are, therefore, sourced in smaller amounts with an emphasis on sustainable, natural fibres and dyes or digital prints.

This also allows for greater transparency in the value chain relating to agriculture and manufacturing of textiles.

Transport is likely to require carbon offsets, although an increase in online shopping may streamline logistics and the need for storage in numerous facilities.

Technological advances have resulted in packaging which uses natural and biodegradable materials.

The rise in second-hand and vintage enterprises is also encouraging which, arguably, is the most sustainable clothing of all. Holes in

sustainable clothing labels are evident but many companies in SA have started the scrutinised journey.

Environmental laws that regulate the industry Depending on the particular link of the value chain, environmental laws are numerous and will provide investors with added confidence. For example: ● From an agricultural perspective, water and soil impacts are regulated by, among others, the National Water Act 1998; ● The textile and leather industry is identified for purposes of the national greenhouse gas emission reporting regulations (Government Gazette 40762, Notice No.275 of April 3 2017, as amended) and therefore carbon tax; and ● The extended producer responsibility scheme for paper, packaging and some single use products (Government Gazette 43882, Notice No1187 of November 5 2020, as amended) requires the management and recycling of packaging by the industry as opposed to leaving it to consumers.

Acceptance of climate change and the drive to slow emissions present new business opportunities. This may be the white flag the SA fashion industry needs to slowly but surely increase investment. Behaviour is changing and campaigns to support local, conscious and sustainable clothing in order to tread more gently on the earth are growing in popularity as the pressure on fast fashion grows.

Practice note clarifies Broad-based BEE Codes Sanjay Kassen & Witness Makhubele ENSafrica Long-awaited clarity on the Broad-Based Black Economic Empowerment (BBBEE) Codes has been provided by a practice note on May 18.

Among other matters, it has been clarified that economic interest in the BBBEE Codes attach to the “right” to receive dividends and not the dividend itself. Measured entities and collective enterprises cannot be penalised for not having made distributions in any particular year as any retained earnings would in any event vest in the individual or defined class of natural persons who had vested rights in such earnings.

The practice note clarifies that benefits could be in cash or in kind as, in most instances, collective enterprises provide benefits in the form of skills development, education or training on behalf of beneficiaries, or provide access to funding or fund social or community interventions or develop-

ments. These benefits in kind do not, according to the minister,detract from the economic interest recognition through these schemes.

This clarification recognises collective enterprises which serve a “single purpose” such as educational, developmental and community upliftment types of BBOS or trusts and, as such, are to be recognised.

It is further clarified that evergreen Employee Share Ownership Programme (ESOP) structures that provide perpetual benefit to employees would also meet the requirements of ownership under the BBBEE Codes, which specifically permit an ESOP to identify the participants as employees of the measured entity for as long as they remain in its employ.

The BBBEE Codes state that all accumulated economic interest in such a scheme is payable to the participants at the earlier of a specified date or event, or the termination of the scheme, but there is no requirement to have an earlier date or event to be

specified. The purpose is to ensure the accumulated economic interest of the scheme goes to its participants only.

Thus, an ESOP is permitted to simply provide that all accumulated economic interest must be distributed to its participants on termination or winding-up of the scheme.

VOTING BY COLLECTIVE ENTERPRISES

The practice note states that beneficiaries of discretionary collective enterprises seldom have the right to vote at general meetings of underlying entities. Their rights are represented by the fiduciaries of the schemes who make decisions for and on behalf of the beneficiaries. Voting rights, though exercised by such fiduciaries, will be attributed to the race and gender of the beneficiaries for measurement purposes in terms of the measurement principles discussed below.

BBBEE MEASUREMENT OF COLLECTIVE ENTERPRISES

In respect of the BBBEE

measurement of discretionary collective enterprises, the race and gender composition of the rights of ownership that will flow through to measured entities must be determined with reference to the constitution of the enterprise. In this regard: ● Where the constitution is clear on the racial or gender composition of beneficiaries, that will serve as a written record of those facts, thereby satisfying the requirement for identification; ● Where the determination of race and gender of beneficiaries are not practically determinable from the constitution, reliance may be placed on an independent competent person’s report estimating the rights of ownership that flows through the enterprise. Such report may have regard to various factors which could include ad hoc distributions to beneficiaries of income and capital; official estimating records such as publicly available municipal records, university or school enrolment records and the SA census reports;

● Where the determination of race and gender of beneficiaries is indeterminable, the beneficiaries must be regarded as nonblack.

REPORTING REQUIREMENTS BY JSE-LISTED COMPANIES

JSE listed companies are required to annually report on their BBBEE compliance to the BBBEE Commission in terms of section 13(G) of the BBBEE Act, as read with the BBBEE Regulations.

If such entities recognise any black ownership from discretionary collective enterprises with a class of beneficiaries, it may not be possible to report on all the information required by the BBBEE Commission, such as the number of beneficiaries, their provincial location, age, racial classification etc.

This may be the case as the defined class of natural persons may not make this distinction or the competent person may be unable to do so. In any event, the minister acknowledged that the BBBEE Codes do not require

this level of information for a BBBEE verification.

The practice note provides that a measured entity in these circumstances will be required to report only on the participation of black people but not the other categories, and must do so in line with the information that the collective enterprises are able to produce. Measured entities, however, cannot be compelled to provide such information if it is not available.

This clarity will finally put to rest the uncertainty over the legitimacy of broadbased empowerment schemes such as the collective enterprises and the future of many legitimate and collective enterprises in the market.

It is expected that all adverse assessments and investigations by the BBBEE Commission on those schemes that are compliant with the applicable rules set out in the BBBEE Codes as clarified in the Practice Note will need to be withdrawn and assessed differently going forward.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Kenya set to rein in fintech

Proposed regulations could •stifle the burgeoning sector

T

he regulatory net is closing on Kenya’s fintech industry.

Fintech is one of the least regulated segments of the country’s financial services sector, but the industry’s unregulated days are numbered.

Recent signals from various regulatory authorities indicate that change is coming — and it might be more constraining than some industry actors might like.

Several events in 2020 are likely to have had a significant effect on the growth and development of fintech in Kenya. These range from the introduction of new taxes to the drafting of legislative amendments to bring digital service providers into the regulatory net as well as the ongoing pandemic that is pushing businesses to provide innovative solutions and services to their customers.

Nonetheless, we believe the mainstream use of fintech will continue gaining traction in Kenya in 2021.

The fintech space in the country is vibrant, with significant development in digital lending, digital banking, insurtech and payment services solutions. Kenya was ranked 63 in the global top 100 of Findexable’s 2020 The Global Fintech Rankings. But, as in the case of most tech-

TAXING TIMES

nologies, laws are always playing catch-up with technological advances. In Kenya, the law may be starting to catch up with the sector.

Fintech products and services are regulated under Kenya’s existing financial services regulatory framework, which was designed for more traditional products and services.

As a result, there are instances where certain fintech players, products and services are not regulated.

This has tied the hands of

THERE IS NEED TO ENSURE THERE IS CONCERTED EFFORT TO HARMONISE THE PROPOSED BILLS INTO ONE PIECE OF LEGISLATION regulators to some extent.

When picking up dubious practices — as has happened in the digital lending domain — they have been limited to issuing warnings or cautionary notices to the public.

The proposed Central Bank of Kenya (Amendment) Bill, 2020 (National Assembly Bill No 21) is aimed at introducing direct regulation of the digital financial sector in

/123RF — RAWPIXEL Kenya, bringing it under the jurisdiction of the Central Bank of Kenya (CBK). This bill underwent its first reading on July 28 2020 and was referred to the relevant committee.

However, it is not only digital financial services and credit providers that stand to be affected. Financial products and services are broadly defined under the bill. When read in the context of the CBK’s enhanced jurisdiction, the implication is that expanded supervisory jurisdiction will affect any financial service and product, including many fintech products and services. This broad scope could be counterproductive.

In addition, the proposed Central Bank of Kenya

(Amendment) Bill, 2020 (National Assembly Bill No 47) seeks to introduce the licensing of mobile money lender platforms. This bill underwent its first reading on February 25 2021 and was referred to the relevant committee.

A third Bill, the Central Bank of Kenya (Amendment) Bill, 2021 was gazetted on April 16 2021.

It is important that regulation evolves to meet changing consumer protection and public interest concerns, while maintaining an environment conducive to innovation. Unfortunately, the proposed bills introduce provisions that give the regulator wide discretionary power which, if not judiciously exercised, could stifle innovation.

Similarly, there is need to ensure there is concerted effort to harmonise the proposed bills into one piece of legislation.

Meanwhile, the fintech industry also stands to be affected by Kenya’s new digital service tax (DST) and value added tax on digital marketplace supply (VATDMPS).

These taxes are aimed at entities that offer in-scope digital services to Kenyan consumers, such as artificial intelligence, cloud computing, digital streaming and digital marketplaces.

The taxes are likely to have an effect on fintech development in Kenya and may act as a deterrent.

In addition, there is the Data Protection Act 2019 to take into account.

It is clear that fintech service providers will be affected by this act as they do rely on processing personal data to offer services.

More clarity on their position can be expected through the work of the Taskforce for the Development of the Data Protection (General) Regulations, appointed on January 15 2021. The draft regulations were recently published.

POSITIVE DEVELOPMENTS

Meanwhile, fintech players also have some positive developments to look forward to. Greater collaboration among multiple players can only do the fintech indus-

try good. In the mobile payment sector, the CBK has been working with fintech players and other regulators such as the Communications Authority of Kenya.

Another positive trend is the progress of the Capital Markets Authority’s regulatory sandbox for emerging technologies in the capital markets space. The regulatory sandbox has also paved the way for a potential multisector regulatory sandbox for cryptocurrency and evolving payment technologies to be operated as a collaboration between the Capital Markets Authority and the CBK. To date, seven fintech firms have been admitted to the sandbox to test various fintech solutions.

One participant, Pezesha Africa Limited, successfully exited the sandbox in October 2020, enabling it to operate a debt-based crowdfunding platform.

The Capital Markets Authority is also joining 23 other regulators under the Global Financial Innovation Network in testing innovative financial products, services, business models and regulatory technology.

All in all, fintech in Kenya is well placed for the future and hopefully legal and regulatory changes will be measured, clear and targeted to achieve the balance needed to ensure industry growth, innovation and consumer protection.

CONSUMER BILLS

Insurers increasingly taking on societal burdens

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or a few years now insurance has been affected by the rising costs of what is known as social inflation.

The rising costs incurred by insurers in meeting claims, including increasing litigation, broader concepts of liability, consumer-friendly decisions, pressure from regulators and large jury awards in the US, have put pressure on casualty insurers.

Added to social inflation are the expectations being placed on insurers to deal with broad societal issues.

Workers compensation, medical schemes and pensions have long since been regulated in a socially useful way.

Insurance is easily described. The insurer pools the risks of many consumers who pay a periodic premium so that when a future uncertain event insured by the policy occurs the

PATRICK BRACHER policyholder can recover their loss. An insurance policy was originally a simple contract between private persons with private rights and obligations.

As insurance has grown, risks have expanded and the pool of money available to pay claims and make investments has increased significantly — but so have the risks.

The weight of consumer pressure was felt recently in the worldwide Covid-19 claims for interruption of hospitality and tourism businesses. The supreme court in the UK for instance, by a sleight of hand,

overturned centuries of law relating to causation and obliged insurers to pay claims well beyond anyone’s pre-pandemic expectations.

Insurers are now being urged to get involved in society’s biggest problems.

There is a rising tide of natural catastrophe losses attributed to global warming.

Annual catastrophe losses are heading for $100bn, including losses from perils such as thunderstorms, hail, tornadoes and wildfires.

Credit insurers are taking a big knock and rates will increase because of debts resulting from the effect of the coronavirus on the world economy.

In Switzerland insurers were requested to consider a proposal for an insurance scheme to cover future pandemics. The attempt to shift public responsibility into private hands was rejected, but who knows where this will go to.

An international reinsurer has backed a public-private disaster insurance scheme in one of the Indian states. At a recent international conference insurers were urged to engage with the risk of biodiversity losses to protect natural capital and ecosystems. The Australian state of Victoria is projecting that revenue from insurance stamp duty will increase by 29% in 2024/2025 to help balance the books for their increased spending on bushfire risk reduction projects.

In the meantime the scale of international trade and the growing world economy have seen other pressures.

World leaders have called for a post-pandemic global treaty and insurers are likely to be called in. Locally, we see medical schemes being roped into the vaccination requirements of the country.

A misstep affecting one of the world’s largest container

ships in the Suez Canal led to insurers forking out claims likely to be in the $100m bracket for one single event, besides the $900m that was claimed by the Egyptian government.

The US winter freeze in Texas has led to losses of $15bn. Not all were insured, but the growing size of the risks is apparent.

Because of the many claims and higher ransom demands and severe losses insurers are retreating from one of the world’s biggest risks, cyber risk. The recent closing down of an oil pipeline in the US, which led to a R70m ransom demand

RATES WILL INCREASE BECAUSE OF DEBTS RESULTING FROM THE EFFECT OF THE CORONAVIRUS

and still-to-be-calculated business losses, has made the market nervous. Cyber risk is a greater risk than pandemic risk because noone seems to be able to prevent hacking into the most highly secured and societally important systems.

Insurers are urged to treat customers fairly and those they take on must be treated fairly. Their policyholders are not the entire population, however, and the entire population does not pay the premiums. If the insurance industry takes on societal burdens more people will have to pay more premiums.

Whether these risks are insured or not, consumers will pay for them in higher premiums or higher prices.

We are going to have to find a balance, but we are a long way from doing so. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Patel clarifies nature of BEE collectives

TRANSFORMATION AGENDA

Minister says beneficiaries do not have to hold direct ownership or be identified at start of scheme Sanjay Kassen & Witness Makhubele ENSafrica

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fter years of uncertainty, trade, industry & competition minister Ebrahim Patel issued a longawaited practice note on May 18 2021, clarifying the treatment of discretionary collective enterprises for ownership purposes under the broad-based BEE (BBBEE) codes.

These collective enterprises include broad-based ownership schemes (BBOS); employee share ownership programmes (Esops); trade union investment holding companies; not-for-profit companies (NPCs); co-operatives and trusts.

Patel says government policy has always been to promote broad-based empowerment, which embraces facilitating ownership by groupings of designated persons through vehicles such as co-operatives, women’s investment vehicles, youth empowerment structures and community welfare projects.

However, these arrangements differ from the traditional model of share ownership being held directly or indirectly in the name and for the account of individuals from the designated groups. It was acknowledged that such structures have benefited many black beneficiaries in terms of economic empowerment and/or access to the economy.

It was further stated that the BBBEE legislation should ensure broad participation as well as meaningful participation by black people in the economy and, in doing so, will lead to BBBEE addressing the triple challenges of poverty, inequality and unemployment.

Patel says BBBEE should empower and be inclusive of entrepreneurs and investors; small, medium and micro enterprises and suppliers; employees; communities; as well as other marginalised groups.

The practice note clarifies that broad-based empowerment through collective

enterprises was always, and remains, part of the transformation agenda of the government and, as such, should be recognised.

However, significant differences in interpretation of the BBBEE legislation by the BBBEE Commission, the department and the private sector have resulted in the BBBEE Commission finding that the vast majority of broad-based schemes such as trusts and not-for-profit companies are not compliant with the BBBEE legislation and do not result in genuine and effective ownership for, and participation by, black people in the economy.

This has had a severe effect on business, the economy and the black beneficiaries of collective enterprises and led to desperate pleas to the government for policy and regulatory certainty on the issue.

The practice note seeks to clarify the interpretation and application of the BBBEE legislation in respect of the mea-

BBBEE LEGISLATION SHOULD ENSURE BROAD PARTICIPATION AND MEANINGFUL PARTICIPATION BY BLACK PEOPLE IN THE ECONOMY surement, evidentiary and reporting treatment of collective enterprises and related matters.

Rights of ownership of beneficiaries of collective enterprises One of the major concerns about collective enterprises is that the beneficiaries who hold their ownership rights through these enterprises must hold ownership rights in the underlying measured entities themselves.

The practice note clarifies that this is not required, as the BBBEE codes expressly recognise that black people are entitled to participate in measured entities on an indirect basis.

The beneficiaries of a trust, for example, do not acquire any rights of ownership

directly in the measured entity. They may acquire rights against the trust to participate in the distribution of benefits but they do not acquire any rights directly in the underlying entity. It is the essence of a trust that the beneficiaries of the trust may acquire personal rights against the trust but do not hold real rights in its underlying assets held by the trust.

Discretion to identify beneficiaries and their benefits The practice note clarifies that the beneficiaries of collective enterprises need not be identified at the commencement of the scheme, nor is a written record of names required in the constitution of the scheme. The BBBEE codes expressly permit the beneficiaries to be defined by a class of natural persons, creating broadbased and meaningful ownership by black people, communities and workers.

Patel says this is best served through the mechanism of identifying a natural class of persons to benefit from the scheme as opposed to a list of individuals with vested rights against the income and capital of the scheme. The use of a defined class of natural persons is also not necessarily limited to BBOS, Esops and trusts as other juristic persons, as NPCs also utilise it from time to time.

In this regard, the defined class of natural persons would have a vested right against the income and capital of the scheme but the individuals who might form part of that defined class of natural persons do not have a similar vested right. These individuals would have a “spes” or hope to participate in income and capital but not a vested right to it.

Furthermore, such schemes would provide for discretion to the fiduciaries of the scheme to, from time to time, select individuals from the defined class of beneficiaries that would benefit from distributions of the scheme.

Such discretion also extends to the determination of portions of the scheme’s income and capital as to be distributed to a defined class of natural persons (to the

/FREDDY MAVUNDA exclusion of others) once he/she is selected out of such defined class.

Patel says discretions like these do not contradict the BBBEE codes, which provide that fiduciaries may have no discretion in relation to defining beneficiaries and their proportion of their claim to receive distributions.

He goes on to say that it logically follows that if the constitution of a scheme expressly provides for a fixed percentage of distributions to vest in the defined class of natural persons, that would satisfy the rule of identifying the proportion of entitlement of beneficiaries by means of a written record of fixed per-

THE CODES PLACE NO RESTRICTIONS ON THE NATURE OF BLACK PEOPLE WHO MAY BE BENEFICIARIES OF COLLECTIVE ENTERPRISES centages of benefits.

Provided that the scheme does not provide for a discretion to the fiduciaries to distribute less than that fixed percentage to beneficiaries to, or deviate from the prescribed formula to determine the claims of, persons selected from members of the defined class of natural

persons, the requirement that the fiduciaries may have no discretion in relation to these terms is also met.

Once this discretion is exercised, each beneficiary selected to partake in a particular distribution acquires a vested right to the portion of the particular distribution allocated to them at that point in time.

Importantly, if a beneficiary was selected to receive one particular distribution of the scheme, it does not necessarily entitle that individual to partake in future distributions (that is, beneficiaries could be recycled on an ongoing basis).

The practice note provides a useful example of how collective enterprises can operate: “As an example, a bursary scheme that is 100% for ‘black female students who matriculate in Gauteng province’ would be such a Collective Enterprise. In this example the defined class of natural person would be ‘black female students who matriculate in Gauteng province’ and the fixed percentage of proportion of claim of this defined class would be ‘100%’.

“Typically, not all black female students who matriculate in Gauteng have a vested right to receive bursaries out of the scheme’s limited funds, but only those who are selected by the fiduciaries from year to year. The defined class of natural per-

sons’ rights are, however, vested and the fiduciaries are not allowed to award a bursary to any individual who falls outside of the defined class of natural persons by, for example, awarding a bursary to a black male or white female or black female matriculating outside of Gauteng province.

“Also, the value of a distribution to a black female student selected may, if such discretion is provided to the fiduciaries, differ from the value of distributions to other black female students who were selected as long as the ‘defined class of natural person’ do not receive anything less than provided for by means of the fixed percentage (100% in this example).”

These discretions, Patel says, are critical to ensure meaningful beneficiation of some members of the class of natural persons and will not disqualify collective enterprises from qualifying for recognition under the ownership scorecard.

Black minors are recognised The practice note states the BBBEE codes place no restrictions on the nature of black people who may be beneficiaries of collective enterprises.

In particular, minors are not restricted from being beneficiaries in any way whether as part of a defined class of natural persons or individually.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX LATERAL THINKING

Growing Africa’s engines

Baker McKenzie’s latest report, New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding, •explores the state of the African infrastructure market, and how the major global players’ approach to

infrastructure lending on the continent is changing. Business Law & Tax editor Evan Pickworth interviews Baker McKenzie partner Lodewyk Meyer on the key trends and forecasts

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hile global data shows a decline in the value of infrastructure lending, it is expected that as economies recover, new types of financing will be unlocked.

EP: Can you tell me a bit more about what the key data in the report showed?

LM: The report’s data shows that multilateral and bilateral lending into Africa has declined — with investment levels falling successively in 2019 and 2020 compared to peak levels seen after the financial crisis. In 2019, bilateral and multilateral lending into Africa amounted to $55bn, which drops to $31bn in 2020. Over the past six years, the decline is significant — deal values dropped from $100bn in 2014 to $31bn in 2020.

EP: What caused this slowdown?

LM: This slowdown was attributable to a number of factors, including the pandemic. Economic contraction has affected Nigeria and SA, meaning that the region’s largest economies have not been feeding in growth as in previous years. However, market fundamentals signal a region with underlying resilience and, as the global economy recovers, finance will be unlocked.

There are already positive indicators of forthcoming

investment.

Commodity prices are rising and landmark deals are returning. For example, mining multinational Sibanye-Stillwater recently committed R6.3bn to SA infrastructure projects.

EP: What about the number of deals, did they also decline?

LM: The data also shows that deal tenor is contracting — from a high of 17 years in 2019 to 13 years in 2020.

However, the long-term nature of infrastructure projects means international partners have made lasting commitments to the region, which are unlikely to be abandoned despite immediate pressure on national finances.

EP: China’s role in infrastructure funding in Africa showed an interesting trend, especially since it was expected to be negatively affected by the pandemic. Can you tell me more?

LM: Surprisingly, given the

pandemic, the data shows that lending by Chinese banks into energy and infrastructure projects in subSaharan Africa saw a small uplift in 2020, though deal values are well below their 2017 peak. In 2017, Chinese banks lent $11bn to African infrastructure projects, which decreased to $4.5bn in 2018, $2.8bn in 2019 and $3.3bn in 2020.

Overall, there has been a slowdown in the number of infrastructure deals from China. In the short term, we expect to see more targeted lending — fewer projects of a higher quality using sophisticated structures — and new finance options, such as factoring, used to deploy Chinese capital into the region.

EP: What about the other international players like the US and the UK? LM: It is clear that other international players have the region in their sights, with key political changes in the US and UK likely to see capital flow into Africa.

Up until now, the US hasn’t kept pace with Chinese lending into Africa. The recent change in administration is likely to renew focus on impact-building and financing strategic long-term projects in the region, but bankability and risk-sharing remain a priority for US lenders.

The infrastructure funding gap is so large, and of such strategic importance, it

remains necessary to encourage international investment to fill it. African development finance institutions are very good at collaborating and I am encouraged by the actions of the new US administration, the UK government and the New Development Bank, in particular in their willingness to work with regional institutions in this regard. The UK is making a strong play for influence, investment and trade with Africa post-Brexit. Further to key summits held in 2020 and 2021, there are signs that finance will be redirected into Africa.

EP: Where is funding most needed and where is it coming from?

LM: The report points to infrastructure gaps in energy provision, internet access and transportation that have resulted in an urgent imperative to identify and enable new sources of finance outside traditional lenders and international partners. Fur-

ther to the expected return of multilateral and bilateral lending, there is room for evolution to bridge the funding-opportunity gap.

EP: What about the commercial banks, are they still lending?

LM: This vacuum is unlikely to be filled by commercial banks, noting that in 2020, just 84 projects were supported by commercial bank finance and their involvement in DFI and export credit agency deals continues on a downward trend.

Banks are likely to be focusing on managing liquidity, with lenders deploying capital selectively.

EP: Tell us more about the DFIs and new financing solutions.

LM: Local and regional banks, specialist infrastructure funds and private equity and debt are stepping in to collaborate with DFIs and access returns.

This outlines the deepening DFI involvement in the infrastructure ecosystem at large, with DFIs increasingly anchoring the infrastructure ecosystem in Africa — serving a critical function for project finance as investment facilitator and a check on capital. This is because they can shoulder political risk and access government protections in a way that others can’t, enter markets others can’t and are uniquely capable of facilitating long-term lending.

Private equity, debt finance and specialist infrastructure funds are also primed to enter the market, and multifinance and blended solutions are expected to grow in popularity as a way to de-risk deals and support a broader ecosystem of lenders.

We expect to see an increase in nonbank activity in Africa in future as a result of new credit mitigation products come to market. We have seen an increase in appetite from established market participants, such as development banks, to create products that are not tied to existing arrangements that may have limited the type of finance available.

EP: What does this mean for Africa in the long term?

LM: Last year was a relatively difficult year across jurisdictions and for investors — with considerable uncertainty and change in the ways in which we do business.

Shutdowns had a depressant effect on the infrastructure market, as deals in the pipeline were delayed and projects halted as a result of Covid-19.

Full vaccination in Africa is a long way off comparatively, so we can’t expect a full and fast return to normal activity. But we’ve reached the bottom, and the only way is up. With new patterns of infrastructure funding emerging, the future looks brighter for the continent.

Local regulator seeks legal advice on WhatsApp policy Wendy Tembedza Webber Wentzel On May 13, the Information Regulator released a statement indicating that it would seek legal advice on possible next steps regarding WhatsApp’s updated privacy policy, which came into effect in SA on May 15.

The regulator’s primary concern is that WhatsApp has adopted two distinct privacy policies, one to be implemented in the EU and the other to be implemented in jurisdictions outside the EU (non-EU policy). The regulator notes that WhatsApp’s adoption of the non-EU

policy in SA is regardless of the fact that the Protection of Personal Information Act 4 of 2013 (Popia) contains minimum standards that govern the processing of personal information. These standards are substantively similar to those in the General Data Protection Regulation 2016/679 (GDPR), which regulates the protection of personal information in EU member countries.

Broadly, the EU policy gives WhatsApp users substantially more information about how and when WhatsApp will use their personal information. For example, and unlike the non-EU policy,

the EU policy informs users that WhatsApp may use their personal information for its own legitimate interests, a concept which is the topic of ongoing discussion as to the scope of its application.

There are also discrepancies in the extent to which users under the EU policy and those under the non-EU policy are notified how they can exercise their rights under data protection law.

While the distinction is understandable from a legal compliance perspective, as the GDPR contains more prescriptive provisions about the information that WhatsApp should provide to users, it is

potentially the principle adopted by WhatsApp which raises concern. It is important to note that the spirit of data protection law is that data subjects should be given enough information to make an informed decision on whether they consent to sharing their personal information with the relevant controller (WhatsApp).

It is not clear why WhatsApp has adopted an approach that, while presumably resulting in similar if not identical uses of personal information across the world, provides data subjects that are not in the EU with considerably less information about

what WhatsApp (and the Facebook group of companies) intends to do with their personal information.

The backdrop of the updated WhatsApp policy is the acquisition of WhatsApp

by Facebook in 2014, which resulted in Facebook becoming WhatsApp’s parent company. Facebook stated its intention was to, among other things, gain access to additional consumer data that it could monetise (mainly through advertising-related revenue channels).

The changes to the WhatsApp policy must be viewed in this context.

Notably, other jurisdic-

tions are also looking closely at the impact of the privacy policy updates on users.

Specifically, the German Information Regulator has banned Facebook from accessing and using WhatsApp user data, despite the fact that the more comprehensive EU policy applies to WhatsApp users in Germany. The German regulator stated the ban was intended to “safeguard the rights and freedoms of the many millions of users” who give their consent to the WhatsApp privacy policy. It remains to be seen whether, having considered legal advice, the SA regulator will adopt a similar approach.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Ready for destination Popia?

From July, hospitality businesses will have new •requirements to protect guests’ personal information Lisa Swaine & Wendy Tembedza Webber Wentzel

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e all hope for more travel and tourism soon.

Hospitality players waiting for the big travel surge should use this time to ensure they understand the requirements of the Protection of Personal Information Act (Popia) within their industry.

SA offers luxury hotels and resorts, game reserves, wine estates, affordable B&Bs, golf courses, mountains, forests and golden beaches. It’s no wonder we are a destination of choice for keen travellers locally and abroad. Be it for work or play, from the moment that travellers arrive at your reception desk, their comfort and happiness are largely your responsibility.

That’s not, however, where your responsibility ends. With the introduction of the Protection of Personal Information Act (Popia), which comes into full force on July 1, businesses in the hospitality industry take on a new set of responsibilities to protect their guests’ personal information.

Most of the big players in hospitality in SA have already had to deal with the EU’s General Data Protection Regulation (GDPR), which was introduced in 2016 and requires businesses to take measures to protect the per-

sonal data of EU citizens.

GDPR and Popia are similar, so some businesses will be prepared for Popia, while some of the smaller establishments may not be. But there are some surprises lying in wait for even the big players, despite their international experience as Popia has some unique elements not covered by the GDPR. ● Responsibility for booking agents Travellers probably made their reservations using an online booking site such as Booking.com, Lekkeslaap.co.za or Travelstart. Travelstart, based in Cape Town, describes itself as Africa’s leading online travel agency.

MINIMALITY IS KEY — BUSINESSES SHOULD NOT COLLECT MORE PERSONAL INFORMATION THAN IS REQUIRED Behind the initial booking site, there may be other parties handling your guests’ information. Under Popia, each hospitality player will be responsible for safeguarding the information that all its agents, acting on its behalf, are collecting, and you need to identify all the parties in this chain.

If one of your booking agents sells or shares your guests’ information to a third

party without permission or starts sending them spam, your business is in breach of Popia, as well as theirs.

Your business should have a Popia addendum to existing contracts with all its agents and new contracts should contain a Popia clause.

All those parties need to agree to abide by certain conditions. They cannot be passively “opted in”.

A hospitality business is well within its rights to require its agents to submit to an investigation of their systems and processes to ensure they are Popia compliant. ● What kind of information is this?

When the travellers made their reservations, they would have supplied details personal to them such as passport or ID numbers, credit card details, telephone numbers, addresses and possibly even car registration numbers. What level of protection does this information require?

Popia defines different categories of information: personal information (such as ID and passport numbers and credit card details), special personal information (highly sensitive, such as race, health and biometric information) and information that is not personal, so does not fall under the act. There are more safeguards for special personal information than there are for personal information, but safeguarded the information shall be. ● Are we accumulating too

UNDER LOCK AND KEY

/123RF — PRATYAKSA much information?

The keen travellers have now waved you a fond farewell (and hopefully left a generous tip). For how long are you going to keep their details on file? Minimality is key — businesses should not collect more personal information than is required. “Personal information” is defined very broadly to mean any information that can be used to identify an individual person or another business entity.

So how much do you really require?

You also need to question why you are keeping personal information (is it necessary for legal purposes?).

If there is no good reason, it must be disposed of in a secure manner. This is important because under Popia even the keenest traveller has a right to be forgotten.

● 4. How secure is this information?

Taking all reasonable steps to safeguard the personal information in your possession is a critical element in both the GDPR and Popia, as the Marriott Hotel Group found out to its cost in 2018.

Marriott discovered that cybercriminals had hacked its global reservation database and accessed customer credit card and other personal details involving 339-million people. This had been happening since 2014.

Marriott was fined £18.4m in October 2020 and a class action-style suit has been

YOU ALSO NEED TO QUESTION WHY YOU ARE KEEPING PERSONAL INFORMATION

launched in the UK. While the cost in money must certainly hurt, a reputational hit often hurts more.

Popia requires a business to put in place “appropriate, reasonable technical and organisational measures” to prevent loss, theft or damage to personal information. ● Is this information travelling overseas, too?

If your hospitality extends to international partners and loyalty programmes, it is quite likely you are sharing your guests’ personal information outside SA. Popia has specific requirements for sharing information outside SA borders. ● On the subject of loyalty Much as you hope to see the travellers again and remind them of the great time they had with you, or if you want to entice new travellers to enjoy your generous hospitality, some of the ways you treat returning or new guests need to be handled very carefully from now on.

Under Popia, unless a person is an existing guest who willingly receives your marketing, a business cannot send electronic marketing information without first getting consent.

Any request for marketing consent must include language that is set out in the regulations to Popia.

We all hope to travel more and venture abroad again, once the worst of the Covid19 pandemic is past. For a hospitality player, the Covidinduced lull may provide some breathing space to get Popia compliance in check and, if necessary, take legal advice on measures to put in place urgently.

Interest on Sars refunds: know your rights Riette Lombard AJM Tax Does the SA Revenue Service (Sars) pay your VAT refunds to you within 21 business days from submission of your VAT201 returns?

If not, does Sars automatically pay interest on such delayed VAT refunds? In our experience, Sars fails to pay interest on delayed VAT refunds, despite its legal obligation to do so.

Section 45 of the VAT Act, 89 of 1991 places a legal obligation on Sars to pay interest to a vendor if it fails to pay a VAT refund to the vendor within 21 business days after the date on which the vendor submitted a return.

The 21-business day period may be suspended in the following circumstances:

● When the return made by the vendor is incomplete or defective in any material respect; ● When the vendor is in default in respect of an obligation to furnish a return, either in terms of the VAT Act or another act administered by the commissioner; ● When the commissioner is prevented from satisfying himself as to the amount refundable to the vendor by reason of not being able to gain access to the books and records of a vendor after requesting access; or ● When the vendor has not furnished the commissioner with the particulars of the enterprise’s banking details.

In practice, Sars often pays delayed VAT refunds to vendors without any interest on such delayed payments,

despite section 45 placing a legal obligation on Sars to pay interest in the circumstances automatically. This noncompliance forces vendors to submit a manual request to Sars to pay the interest that is legally due to them.

Since no formal procedure or timeline exists for such an application, a long delay (if any response is received at all) is usually experienced when a request for interest is submitted.

Furthermore, due to the limited guidance available on

SARS’S DECISION NOT TO PAY INTEREST … IS NOT SUBJECT TO OBJECTION OR APPEAL

the correct interpretation of the provisions, which allows Sars to suspend the payment of interest, uncertainty often exists as to when interest is legally due.

NO APPEAL

It appears that Sars, however, applies a broad interpretation to these provisions and the circumstances under which it may suspend its liability to pay interest on a delayed VAT refund.

Unfortunately, Sars’s decision not to pay interest following a formal request by a vendor, based on this broad interpretation, is not subject to objection or appeal, therefore limiting the remedies available to a vendor to have such decision reviewed.

Due to these remedies being so costly and time-

consuming, vendors often do not pursue their claim for interest, despite their being entitled thereto.

Section 164(7) of the Tax Administration Act, 28 of 2011 similarly places a legal obligation on Sars to pay interest on an amount that was paid by a taxpayer pending the outcome of a dispute, where such assessment has successfully been disputed.

Section 164(1) places a legal obligation on the taxpayer to pay a liability due to Sars where such liability is subject to a dispute.

If the taxpayer successfully disputes the assessment, and such assessment is subsequently reversed, Sars is obliged to refund such payment to the taxpayer, with interest calculated from the date of payment to Sars until

the amount is refunded to the taxpayer.

Similarly, in practice, Sars refunds the amount that was paid by the taxpayer but without the interest that Sars is obliged to pay.

ENFORCING RIGHTS

It is disappointing that Sars’s system will immediately levy interest where a taxpayer fails to make timeous payment of a tax liability. Still, when the same obligation is on Sars to pay interest to a taxpayer when Sars failed to make timeous payment, Sars often fails to comply with its legal obligation.

Taxpayers need to be aware of their right to interest on refunds and enforce this right where Sars is not automatically paying the interest which is due to them.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Competition policy gives Esops a boost

WEALTH CREATION FOR WORKERS

Worker ownership schemes are likely to become •common, especially in the case of mergers Daryl Dingley & Elisha Bhugwandeen Webber Wentzel

I

n granting merger approvals, the Competition Commission has begun to approve mergers subject to the condition that merging parties put employee share ownership programmes (Esops), also known as worker ownership schemes, in place.

It is also becoming common for mergers to be approved subject to the condition that worker trustees of Esops be granted a seat on the board of directors.

As recently reported in Business Day, Esops have to date benefited more than 150,000 workers in SA, with R100bn of wealth transferred. Recent deals include Coca-Cola Beverages SA (which has increased worker ownership from 5% to 15%) and PepsiCo, which, as a result of its merger with Pioneer Foods, granted 12,000

workers a 13% stake in the merged entity.

It is evident that the competition merger control process is being used to facilitate the expansion and use of Esops to make a real difference in wealth creation for workers.

The inclusion of Esops as part of the merger control framework in SA follows relatively recent amendments to the Competition Act. Public interest considerations were expanded to include an assessment of whether a merger will have an effect on promoting a great spread of ownership by workers and historically disadvantaged

TO ENCOURAGE INVESTMENT IN SA COMPANIES, IT IS IMPORTANT THAT COMPETING INTERESTS BE ACCOMMODATED WITH FAIRNESS

persons (HDPs) in firms.

Trade, industry & competition minister Ebrahim Patel has indicated he considers this public interest factor to be particularly important.

Up until a recent media briefing held by Patel (also attended by leadership of companies and trade unions which have been involved in the implementation of these structures), there hasn’t been much clarity on the complexities relating to Esops. For instance, there has been a need to understand how Esops in a merger control context correlate with existing broad-based BEE (BBBEE) legislation, in particular whether they contribute to BBBEE ownership points.

Merger parties are not always able to anticipate how much information should be submitted in merger filings relating to Esops (or future plans in this regard) and if this issue will be a concern for the competition authorities.

There have been some positive developments that

/123RF — LIGHTWISE will provide merger parties with some clarity. During the briefing, Patel undertook to issue a practice note that will address several issues relating to Esops. It is hoped this practice note — which was recently gazetted — will, among other things, not be too prescriptive and, for example, will allow for a level of flexibility in the proportion of a company’s shares that must be owned by workers (this may differ depending on the sector, size of the company and other factors), and clarify how Esop ownership aligns with BBBEE legislation.

Patel also indicated that discussions are being held at Nedlac level to facilitate potential amendments to the Companies Act to regulate workers being able to hold directorships. It would be valuable for Patel to include certain criteria for the appointment of worker trustees as directors, given the extent of directors’ responsibilities. There should be minimum qualifications

such as education and competence, which can be supplemented with training in the roles and duties of directors.

A few weeks ago, Patel published proposed amendments to the merger filing forms. Once finalised, the forms will expressly require merger parties to provide detailed information on the promotion of a greater spread of ownership, in particular whether the merger increases levels of ownership by HDPs and workers in firms in the market (and if not, reasons for this), information on whether employee share schemes are in place and the extent of employee participation at board level.

These proposed amendments would require a move away from the reactive approach of merger parties responding to information requests after a merger filing is submitted, to one where parties are more proactive in providing detailed public interest related information upfront to the authorities.

For businesses, while a well-established Esop can enhance performance by incentivising employees and improving labour relations, establishing one is not “for free”. Allocating free-carry shares to employees comes at the expense of shareholders, who take on greater financial responsibilities for a lower share of the profits.

To encourage investment in SA companies, it is important that competing interests be accommodated with fairness, decisiveness and transparency.

In future, merger parties should anticipate providing the competition authorities with information on existing Esops and be open to creating future ones in instances where these are not already in place.

These arrangements are likely to become common.

Firms, particularly those contemplating M&A plans, should start assessing the possibility of incorporating these arrangements into their businesses.

No more soft approach from antitrust body Burton Phillips Webber Wentzel Webber Wentzel recently interviewed the acting director and CEO of the Comesa Competition Commission, Dr Willard Mwemba.

The regulator head indicated the time for soft enforcement was over and businesses operating in the region ought to take heed.

According to Mwemba, the commission has to date followed a somewhat soft enforcement approach, focusing on advocacy and raising awareness within the business community.

The commission has, for some time now, invited businesses operating in the common market to bring agreements to the commission for review to ensure they do not contravene the applicable competition rules and encouraged parties to engage with the commission on potentially restrictive prac-

tices and possible remedies aimed at addressing the effect of such practices.

However, in its cautionary notice on restrictive agreements, published in February this year, the commission noted its concern that some businesses operating in the common market have been engaging in, and continue to engage in, restrictive practices.

This has led the commission to adopt a harder stance against such practices, with Mwemba warning there will no longer be leniency for firms found to be engaging in anticompetitive practices and that the commission will seek to impose hefty fines on offenders.

Mwemba said the commission will focus on conduct of significant concern including cartels, abuses of dominance, and restrictive agreements. The commission’s cautionary note also highlighted the subsistence of

agreements with restrictive territorial clauses and market allocation provisions that raise barriers to trade in the common market. It also notes that the commission intends to work closely with national competition authorities in member states to ensure offenders are detected, investigated and punished. This could include fines of up to 10% of annual turnover in the common market.

The commission will, however, continue to widen its advocacy and awareness efforts to ensure not only businesses, but also consumers, are aware of the rules on anticompetitive practices.

Mwemba said it is important for consumers to understand when their rights have been violated and how to complain to the commission.

The commission recently established the Comesa consumer protection committee, which will help in bringing

exploitative conduct to the commission’s attention.

In line with this, Mwemba also said the commission intends to ramp up its review and assessment of mergers.

In particular, the commission will take a stricter line towards parties supplying incomplete or materially incorrect information when filing merger applications, especially when it was clear that incompleteness was occasioned by negligence.

Mergers involving private equity funds will also be subject to closer scrutiny. To date, most of the private equity transactions the com-

THE COMMISSION IS INCREASING STAFFING LEVELS IN THE MERGERS DIVISION, WHICH IS NOW UP TO FIVE OFFICERS

mission has reviewed have not raised competition concerns and were regarded as positive for markets. However, the commission is concerned about some private equity firms acquiring extensive investments in multiple companies in the region.

As part of its increased enforcement efforts and to improve service delivery and turnaround times, the commission is increasing staffing levels in the mergers division, which initially comprised one officer and is now up to five.

The commission is also planning to introduce a separate research division that will be able to contribute critical information for the mergers and relevant markets.

Finally, as a means to give parties greater insight into the commission’s decisionmaking processes, the commission intends to publish more comprehensive records of decisions on its website as well as additional

guidance and practice notes providing clarity on important issues. This will also assist in the commission’s enforcement goals as parties become more familiar with the commission’s reasoning and processes.

The commission has already issued a practice note clarifying aspects of its merger control thresholds. In the 2014 merger guidelines, the term “operate” referred to companies in member states that had an annual turnover or assets of more than $5m.

In addition to other clarificatory issues, in the practice note the commission confirms this definition of “operate” is no longer applicable.

It’s clear the commission is sharpening its enforcement activities. Businesses operating in the common market must take heed of the warning sounded by Mwemba or risk facing harsh enforcement action. The time for soft enforcement is over.

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BusinessDay www.businessday.co.za June 2021

BUSINESS LAW & TAX

Expropriation bill is fairer than it looks

LONG ROAD AHEAD

The bill does not make it easy to expropriate •property, nor does it appear to avoid compensation Virusha Subban & Cameron Jeffrey Baker McKenzie Johannesburg

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or decades, progress towards the integration of world economies and the establishment of a global economic market has been a feature of the times. Many nations have embraced liberal trade and investment regimes in order to expand their economies and exploit global markets.

Opening up national markets to foreign competition has resulted in the increased integration of markets for goods, services and foreign direct investment (FDI).

Overall, globalisation has contributed to economic growth in Africa, and as the continent gears up for its postpandemic recovery, many African countries will be looking at ways to align themselves more closely with their major trading partners, so that they can successfully attract foreign investment.

According to recent comments by public works & infrastructure minister Patricia de Lille, the new expropriation bill of 2020 brings SA in line with international legislative standards on the issue of justice and equity in land

ownership. This is intended to provide legal certainty for SA’s major trade and investment partners, as the bill aligns it with similar global policies on land reform.

The new bill, according to De Lille, was never intended to scare off investors, but rather to assure them the country is tackling crucial land reform in a similar way to its key trading partners.

However, these statements by De Lille do not align with the general reaction to

ITS FOCUS IS LAND REFORM, BUT UNDER THE AUSPICES OF DUE PROCESS, REASONABLENESS AND AGREEMENT the bill when it was first announced. There was much ado about the prospect of “expropriation without compensation” when it was first proposed that the constitution be amended to make it easier to do so in late 2018. To date, property owners still shudder at the use of the phrase, as the fear of answering the door to an eviction notice lingers in the minds of

many. However, while the bill does allow for expropriation of property against nil compensation, it is far more amicable towards SA property rights than is commonly believed.

Importantly, the bill is not an amendment of the property clause in section 25 of the constitution. Rather, it gives effect to the clause by serving as the legislation contemplated therein. Its focus is land reform, but under the auspices of due process, reasonableness and agreement.

In terms of section 2(3) of the bill, in the absence of urgency a power to expropriate may not be exercised unless the expropriator has tried unsuccessfully to reach an agreement with the property owner to acquire the property on reasonable terms. In other words, there should always be an agreement between an owner and the expropriator before any property changes hands, and only in exceptional circumstances should it be otherwise.

HOW IT WORKS

There are a number of hurdles to expropriation in the bill. First, the public works & infrastructure minister must be satisfied that it is in the public interest to do so, or that

/123RF — SURUT WATTANAMAETEE it is for a public purpose.

When an organ of state intends to expropriate property, it bears the burden of satisfying the minister to this effect (step 1). Next, the expropriator must determine the suitability of the property for its intended purpose (step 2).

This involves investigating and valuing the property, making use of appropriately qualified personnel.

Thereafter, the bill envisages a process of notice and negotiation, whereby the authority must serve a notice of intention to expropriate on the property owner and any other registered rightholders in the property. In effect, the notice must explain the implications of expropriation and the owner’s rights in the process; it must call on the property owner to make a claim for compensation he/ she believes to be just and equitable, and it must inform the owner of her right to object (step 3).

The authority must consider the compensation claim and any objection, and must either accept the amount claimed or make a counteroffer (step 4). Should the property owner reject the counteroffer, it then falls into the hands of the authority whether to expropriate, extend negotiations, or aban-

don the matter (step 5).

If expropriation is to go ahead, a notice of expropriation must be served on the owner and all related rightholders (step 6), outlining, inter alia, the reason for expropriation, the amount of compensation and a reminder that if the amount is disputed, the owner may institute — or request the authority to institute — proceedings in a competent court to hear the dispute.

The amount of compensation (step 7) to be paid to the owner “must be just and equitable reflecting an equitable balance between the public interest and [the owner’s interests]”. The factors to be considered include the property’s market value, current use and the purpose of the expropriation.

Yes, the bill provides that it may be just and equitable for compensation to be nil, but the factors for consideration in this light are fair. Nil compensation may be possible, all things considered, (i) when the land is not being used, and the owner’s purpose for the land is not to develop it in view of generating an income, but rather to benefit from its appreciation; (ii) when the land is state-owned and not being used for its core purposes; (iii) when the own-

er has abandoned the land; (iv) when the market value of the land is less than the value of the state subsidy or investment in it; and (v) when the property poses a health or safety risk to other persons or property.

It is clear from this list a functional property is unlikely to be taken from its owner without due compensation.

In any event, section 21 of the bill makes provision for all disputes to be referred to mediation, and absent a resolution, it provides for the determination of disputes by a court. Owners can draw peace of mind from this provision, as it not only means an owner has protection against what might be unfair to him/ her, but an expropriator would be loath to neglect due application of steps 1-7 for the sake of its own time and resources.

The bill does not make it easy to expropriate property, nor does it appear to be aimed at expropriation without compensation. It is theoretically possible for expropriation to occur at a nil compensation, but procedural fairness and the right for all disputes to be heard before a court are protections afforded to property owners.

The bill makes it clear how expropriation is likely to play out. It is balanced, recognising the need for land reform but also the importance of procedural fairness, fair resolution of disputes, consensus between parties and the right to own property.

Importantly, the property owner always has a say, as each step in the process needs to be duly heeded by the expropriator, and there is always a right for the matter to be disputed.

Although it has generally not been well received, once it becomes law it is hoped that its intention to bring SA in line with global land reform standards will provide more certainty for foreign traders thinking of entering new markets.