Business Day Business Law & Tax, May 2021

BUSINESS LAW &TAX

MAY 2021 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Greener goals no longer a ‘nice-to-have’

A CLEANER WORLD

that do not pursue net-zero emissions •willCompanies be left behind and shunned by investors Lloyd Christie & Zinzi Lawrence ENSafrica

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he race to achieve net zero emissions has played a significant role in pushing forward the fight against climate change.

Key stakeholders are becoming alive to the opportunity presented by a decarbonised economy and those who do not get on board now risk being left behind.

What is net zero?

Simply put, net zero is premised on attaining a balance between greenhouse gas emissions produced and the amount removed from the atmosphere.

The concept of net zero gained momentum following a 2018 report by the Intergovernmental Panel on Climate Change that concluded that to reach the 1.5ºC target

committed by various countries in the Paris Agreement, global emissions must be reduced by half by 2030 and need to reach net zero by 2050. Various countries, cities and companies have made commitments to achieve net zero. Most notably, in 2020 the EU, Japan and China announced their commitments to achieve net zero.

For its part, SA, a country still heavily reliant on fossil fuels for power generation, has committed to achieving net zero by mid-century in its low-emission development

WHAT REMAINS CLEAR IS THAT INVESTOR FOCUS ON ESG WILL CONTINUE TO GROW IN THE COMING YEARS

strategy published in 2020.

What does net zero mean for investment?

Realising their role as catalysts in the global fight against climate change, investors are increasingly focusing on companies’ integration of environmental, social and governance (ESG) in their business model and commitment towards achieving the net zero target.

This is given credence by Larry Fink, CEO of BlackRock, the world’s largest asset manager, in his annual letter to CEOs where he urges companies to commit to net zero and alludes to a possible divestment in companies that fail to do so.

From an investor’s perspective, companies that are best placed to receive ESG investment are those that voluntarily adopt ESG principles and commit to achieving net zero.

In 2020, the Financial

/123RF — SAMANTHA CRADDOCK Sector Conduct Authority, in collaboration with the International Finance Corporation (IFC), conducted an industrywide survey that was published in March 2021. This survey looks into the opportunities available for the SA retirement industry to leverage on green and climate finance. This is a clear demonstration that key stakeholders are taking action towards facilitating the transition to a low-carbon economy.

In its survey, the “IFC estimates there is $588bn in climate mitigation investment potential in selected sectors in SA up to 2030, and $29-trillion investment potential across 21 emerging markets representing 48% of global emissions. This does not include investments needed to support adaptation

and resilience.”

What impact has Covid-19 had on net zero and ESG? The Covid-19 pandemic has intensified the sense of urgency around climate change. The International Energy Agency highlighted in a report this year that global carbon dioxide emissions have returned to pre-pandemic levels.

It has been argued that the Covid-19 pandemic has derailed some companies’ plans to “green” their businesses and integrate ESG. However, the pandemic, undoubtedly presents an opportunity for companies to align more closely with climate change objectives, including the commitment to achieve net zero as part of their post-crisis recovery programmes.

Investor sentiment high-

lights that companies that do not adapt will be left behind, while those that embrace change will see greater opportunities. It should not be understated that to attain the net zero target and achieve success in attracting ESG investment will be costly and success will be dependent on a company’s ability to transition to clean sources of energy, reducing emissions from appliances by making use of available technology, among other efforts.

What remains clear is that investor focus on ESG will continue to grow in the coming years. For SA-based companies, the robust environmental and regulatory framework provides a good basis for such companies to position themselves favourably and to attract ESG investment.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX LATERAL THINKING

Close look at free trade deal

Celia Becker, ENSafrica’s Executive: Africa Regulatory and Business Intelligence, speaks with •Business Law & Tax Editor Evan Pickworth about the African Continental Free Trade Area agreement

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elia Becker specialises in advising large multinationals expanding into Africa on the tax efficient structuring of investments, country risk profiles and tax and regulatory compliance requirements of countries throughout Africa, as well as the in-country application of legislative provisions.

EP: Trading under the African Continental Free Trade Area (AfCFTA) agreement has taken effect, creating the largest free-trade area in the world. Are you positive about the prospects this agreement will bring for Africa?

CB: The fact that all member states of the AU (with the exception of Eritrea) have signed the AfCFTA, is a clear and positive indication of the collective intent for regional cooperation on the continent.

However, the effective implementation of the agreement is far more complex and subject to various conditions to be successful. A key obstacle to successful implementation is the lack of trade complementarity (the degree to which the export profile of one country matches the import profile of another) among the African member states. Not all African countries would benefit equally from a reduction in trade barriers, with the largest proportional gains tending to accrue to countries with the most open economies already trading extensively in the region. The AfCFTA is expected to result in about $4.8bn of lost tariff revenue for African nations, which will impact their willpower to implement the agreement.

A risk also exists that products manufactured in low-cost countries would be dumped duty-free on the markets of jurisdictions with limited infrastructure and manufacturing capabilities, thus further reducing their manufacturing capacity and resulting in job losses.

Participating jurisdictions would need to weigh up the potential increase in corporate and personal income tax and value-added tax which result from an increase in trade, job creation and product diversification against the lost tariff revenue.

Without adequate provisions to compensate for losses resulting from regional integration the agreement is unlikely to be fully imple-

mented by all member countries. The recent trade dispute between Kenya and Uganda is a case in point.

EP: It’s early days, but have you noticed an uptick in activity, or the intention to trade across borders?

CB: Africa’s regional economic communities are displaying strong support for the cross-border trade under the AfCFTA. Private sector lobbies in the continent’s six trading blocks have formed the African Business Council, a continental umbrella body to spearhead the business agenda for the AfCFTA. The Common Market for Eastern and Southern Africa (Comesa) also announced it will establish a partnership framework to support the implementation of the continental trade regime.

Southern African Customs Union (Sacu) member states including Eswatini,

AFRICA’S REGIONAL ECONOMIC COMMUNITIES ARE DISPLAYING STRONG SUPPORT FOR CROSSBORDER TRADE Lesotho, Namibia and SA have signalled their commitment to the AfCFTA by submitting their tariff offer, providing for preferential tariffs for imports from AfCFTA member states, in February 2021.

However, Botswana, the remaining Sacu member, has not yet ratified the agreement, which is delaying implementation of the AfCFTA for all Sacu countries.

At national level, countries have been putting measures in place to facilitate trade under the AfCFTA arrangement. Kenya has finalised an AfCFTA national implemen-

tation strategy, which is aimed at expanding its supply capacity and increasing its export of key goods and services to strategic markets across Africa.

Botswana’s President Mokgweetsi Masisi announced that his government has secured support from UN Economic Commission for Africa to develop Botswana’s AfCFTA implementation strategy and that the country was at an advanced stage of developing an e-commerce strategy, aimed at using digital platforms to facilitate trade.

Zambia, which has ratified the AfCFTA as recently as February 5, has announced the government will soon issue a statutory instrument under the Customs and Excise Act, required for the agreement to have the force of law in Zambia to pave the way for trading under the agreement.

Nigeria is focusing on creating an enabling environment for businesses in the technology, agriculture, medical and mining sectors.

The federal government has approved the expansion of existing free trade zones (FTZs) and the introduction of new FTZs in the medical and agricultural sectors in response to the demands of the AfCFTA. The Ghana Revenue Authority offers free registration with its customs division to potential exporters seeking to do business under the AfCFTA and invites exporters and the trading public to visit the Customs Technical Services Bureau at the Ghana Revenue Authority headquarters in Accra for all enquiries concerning exporting under the AfCFTA. EP: Which areas of crossborder trade look the most promising over the next couple of years?

CB: Based on recent trends in trading, there is a reasonable expectation that trade in manufactured goods, food and agricultural products will increase, while natural resources will remain a key commodity. Opportunities also exist in the information and communication sectors.

EP: Are tax regimes keeping pace with these changes?

CB: There have been some recent tax amendments directly or indirectly supporting the aims of the AfCFTA. Ghana recognises that for the private sector to benefit from the AfCFTA, fiscal

incentives are required to improve the competitiveness of businesses. An industrial transformation programme was launched in terms of which import duties on imported equipment, machines and raw materials for local manufacturing companies are waived and other tax relief measures are introduced to boost the local manufacturing industry.

Uganda’s Income Tax Amendment Bill 2021 introduced a tax exemption for income derived from the manufacture of chemicals, textiles, glassware, leather products, industrial machinery and electrical equipment subject to certain minimum capital investment and local sourcing and employment requirements.

Rwanda approved its “Manufacture and Build to Recover Programme” in December 2020, which extends tax breaks and tax credits to businesses to reduce the cost of investment for new manufacturers as well as those seeking to expand existing operations.

EP: Which African countries stand out for developing business-friendly policies?

Please give a few examples of these policies.

CB: It is still difficult to do business in most African jurisdictions, as compared to the rest of the world. Only two African economies rank in the top 50 of the World Bank’s 2020 Ease of Doing Business report (Mauritius at 13/190 and Rwanda at 38/190).

Rwanda remains at the

KEY CHALLENGES REMAIN RELIABLE ELECTRICITY, AFFORDABLE HOUSING AND TRANSPORT INFRASTRUCTURE

forefront of driving continuous improvement of its business environment. Following a complete overhaul of its Income Tax Act and Companies Act in 2018, it gazetted a Partnership Law in February 2021. According to the Kigali International Financial Centre, aimed at becoming a leading financial centre for global investors seeking panAfrican opportunities, the law is expected to benefit international private equity funds and fund managers.

Kenya has also been focusing on facilitating the ease of doing business in the country. Its Business Laws Amendment Act, 2021 signed into law on March 30 2021, amends various laws, including the Law of Contract and the Companies Act in line with this objective.

Nigeria has been noted in the World Bank report for the notable improvement in its business environment. Over the past year it has reduced the time needed to register a company, improved its online platforms and simplified the

GOVERNMENTS SHOULD DEVELOP A HOLISTIC POLICY FRAMEWORK IN CONSULTATION WITH STAKEHOLDERS process for business premises registration. Kenya, Rwanda and Nigeria also feature in the top 10 list of RMB’s investment attractiveness rankings for 2020.

EP: While the focus with the AfCFTA is trade and investment, is it true that most African countries are not doing enough to match this by developing infrastructure and policies to support growth?

CB: Agreed. Africa has a vast infrastructure deficit which is constraining growth. The Covid-19 pandemic has further interrupted efforts to deliver key infrastructure projects. Key challenges remain reliable electricity, affordable housing and transport infrastructure, which also impact on the ability of the AfCFTA to deliver its intended benefits.

African governments adopted the second phase of the Programme for Infrastructure Development in Africa (Pida) with an esti-

mated budget of $161bn in February with the aim to deliver 69 regional infrastructure projects in the energy, transport, transboundary water, and information and communication technology sectors. Projects which contribute to integration across regions and especially those facilitating the implementation of the AfCFTA have been prioritised. Hopefully the intended benefits of these projects will soon become a reality.

The UN Economic Commission for Africa is working with African countries to increase investment in key sectors on the continent, including infrastructure.

EP: How can African countries improve incentives for the private sector to invest in infrastructure?

CB: An inclusive consultative partnership approach is important.

Governments should develop a holistic policy framework in close consultation with stakeholders, taking into consideration not only relevant legislation but also operational rules and administrative arrangements.

There is also a definite need to improve proper governance, transparency and fairness in the development and procurement of infrastructure projects.

Regulatory and ongoing compliance requirements for project developers and contractors should be clear and be applied in a straightforward and consistent manner through user-friendly administrative processes.

Targeted tax relief and simplified administrative procedures, particularly in respect of the importation of equipment and materials is of key importance. Facilitating the granting of visas and/or work permits to key expatriate staff members also contributes to attracting relevant investors.

EP: Finally, your advice for a budding young lawyer looking at excelling in providing advice for businesses across Africa.

CB: A thorough knowledge of local legislation and regulations is of the utmost importance. However, even more imperative is a clear understanding of the practical application of such provisions by authorities and an appreciation of the commercial realities faced by businesses to provide clients with comprehensive practical advice and solutions.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Privacy claims on metadata

Consent not only basis on which •information may be processed Ahmore Burger-Smidt Werksmans

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n the EU, metadata is a known data privacy problem. The question is, in the context of SA, are companies and regulators sensitive to what metadata is, what its implications are, and why it is relevant in the data privacy regulatory space; and are any regulatory changes anticipated in light of international developments?

Metadata refers to data concerning other data. Examples of metadata would include the information that relates to an electronic file, such as the time at which the file or document was created, the author who created the file, where or how the file was created, and so forth.

Historically, this area of data privacy law has been left largely unregulated. More recently, however, and in all likelihood owing to greater awareness of the potential risks it may pose if abused, there has been a considerable drive towards the regulation of metadata.

The concern for regulators and private individuals alike is that metadata, much like data, can reveal sensitive and personal information about a user, which if left unregulated, would allow data processors to build a consumer or user profile which may relate to aspects of their lives such as their tastes, habits and

UNDER THE MICROSCOPE

day-to-day activities.

This is because metadata includes telephone numbers called, websites visited, geographical location, time, data and duration when an individual made a call, for example. This allows processors or analysts to build a consumer profile and draw accurate conclusions as to a particular data subject’s private life, social relationships and whereabouts.

Considering the above, EU regulators have recently published a draft ePrivacy Regu-

THE CONCERN IS THAT METADATA, MUCH LIKE DATA, CAN REVEAL SENSITIVE AND PERSONAL INFORMATION lation, which seeks to regulate this area of the law.

SA has no equivalent ePrivacy regulation. But European data protection laws tend to set the tone for the rest of the world and also SA law. As such, European developments remain particularly relevant for companies conducting activities in SA and who may soon be required to have more comprehensive privacy policies and notices in place which specifically refer to how they

/123RF — IMILIAN intend to deal with a user's metadata collected via its website, for example.

What then, are the key amendments proposed by the draft regulation in relation to metadata?

In its current form, the regulation first and foremost makes it permissible for electronic communications metadata to be processed, and for that processed information to be stored and collected using terminal equipment from the end-user’s terminal.

It also creates additional safeguards for individual privacy by requiring that a “data protection impact assessment” is conducted as well as a “consultation of the supervisory authority” prior to any processing of metadata, where such processing of

metadata is “likely to result in a high risk to the rights and freedoms of natural persons”.

A further aspect which the draft regulation sheds light on is the concept of location data — defined as “data processed by means of an electronic communications network or service, indicating the geographic position of the terminal equipment of a user of a publicly available electronic communications service”.

The processing of location data is particularly useful in circumstances where, for instance, a spam caller needs to be traced or where emergency services need to respond to persons critically injured or in critical danger.

The draft regulations say that under such circumstances, measures such as call line identification would in fact

constitute a justifiable limitation or restriction on the right to privacy.

While many people tend to think of consent as the predominant basis in terms of which metadata (or even data for that matter) may be processed, various other lesserknown acceptable reasons for processing do exist and would include: ● Where such processing is necessary for the performance of an electronic communications service contract; ● Where the processing is compatible with the initial reason for collection; and ● The protection of a vital interest.

To elaborate, the draft regulation has first and foremost included “performance of a contract” as an acceptable legal basis in terms of which metadata may be processed.

Second, it states that metadata may be processed, for reasons unrelated to that for which the metadata was initially collected, where the processing of such metadata is nevertheless in accordance with (or compatible with) “the purposes which the metadata [was] initially collected for”.

Third, where humanitarian purposes or disasters (presumably such as Covid19) and other phenomena pose a threat to a vital interest, the processing of such metadata in order to protect such an interest is also permissible.

To safeguard the above, the end-user must still be provided with the requisite information concerning such

processing activities, and would still have the right to object to such processing, in terms of the draft regulation.

To realise the importance or relevance of metadata from a commercial perspective, one would merely have to consider a few practical examples of commercial usages of such metadata, such as: ● Heat maps, which are data visualisation techniques that display the extent of a phenomenon through colours (such as a footballer’s heat map showing where he/she has spent most of his/her time on the pitch); ● Traffic movements in specific locations at specific times (as when one uses a GPS navigation app and it gives you the ability to alert other drivers of a police presence at particular intersections); and ● Emergency services applications — examples which spring to mind are that of Namola, ReactPlus or Discovery Insure.

Without the processing of metadata, these benefits would not be available to the end-user.

Insisting on anonymity of information is also not necessarily a solution to the problem of metadata processing as one’s identity is often required for the metadata collected to have any significance or relevance.

All in all, fresh regulatory changes are on the horizon when it comes to the use of metadata and SA companies ought to be prepared for the time when these translate into SA law.

CONSUMER BILLS

As disasters increase, resilience diminishes

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he capacity of people and corporations worldwide to cope with huge losses caused by disasters is under strain.

Enormous losses are being borne by governments, by insurers and, most of all, by individuals as the pandemic has proved.

Scientific creation and individual procreation have produced a highly complex and highly populated world where the size and complexity of the systems and the size and concentration of populations is matched by the size of the losses incurred when anything goes wrong. For those who can afford insurance, the balance between the right premium and the cover you can buy for a possible loss is slowly becoming difficult to bridge.

You build one of the

PATRICK BRACHER biggest container ships in the world and a strong wind and other circumstances cause it to block the Suez Canal.

Within a week the insured losses alone are close to $100m. Winter Storm Uri causes a freeze in Texas that causes widespread power outages, bringing down almost the entire Texas power grid. The losses have been estimated at $130bn, of which the insured losses will be about $15bn.

The SolarWinds cyber catastrophe in December 2020 attacked software

which is used by more than 300,000 organisations worldwide, including major international companies, resulting in a direct cost to insurers estimated at $90m.

The losses from cyberattacks including data breaches, ransomware attacks and business e-mail scams are happening all the time and the losses are growing exponentially. Some experts have estimated that global economic cybercrime costs will reach $10.5-trillion annually by 2025.

The recent Cape Town fire reminds us that in October 2018 the town of Paradise, California, with a population of 26,000 was 95% destroyed by fire in a town where risks were uninsurable at a reasonable cost. The state governor has signed a bill allocating $536m to fight wildfires in

California which cost the state about $9bn in 2020.

In the face of these potential losses, there are calls for an increasing number of initiatives for public-private collaboration to cope with the disasters.

We are all familiar with what is happening locally in the face of the pandemic where government spending had to be diverted to private losses but could not go nearly far enough.

Internationally, world leaders have called for a global treaty to protect states after Covid-19 because of the inevitability of future global pandemics, which no single government nor the insurance market worldwide can address.

Social unrest in SA in the late 1970s led to the establishment of the SA Special Risks Insurance

Association under the auspices of the government to cope with potentially huge losses beyond the ordinary scope of the insurance market. In 2021, the Swiss Federal Council rejected a proposal for a governmentbacked insurance scheme to cover the losses from future pandemics — but that may not be the last word on that subject.

If you look at the losses to the insurance market and the losses to the public in general from any disaster you will find that up to 90% is borne

ESTIMATES ARE GLOBAL ECONOMIC CYBERCRIME COSTS WILL REACH $10.5-TRILLION ANNUALLY BY 2025

by the uninsured. Publicprivate initiatives are important where there are major international risks such as pandemic health risks, cyber risks and international terrorism.

Of course, the money has to come from somewhere and we will all have to pay for it somehow or other in taxes, premiums or levies.

Insurers and reinsurers will always play a major part in keeping the commercial world going but they cannot do everything.

A longer-term view needs to be taken so that we do not have to rely on random decisions made to cope with immediate problems. We have to start doing better than that. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Investigation reports in arbitration

ON FILE

Can employers be compelled to disclose •pre-hearing reports in arbitration proceedings?

Siphamandla Dube & Lee Masuku ENSafrica

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mployers who suspect employees are guilty of misconduct often appoint forensic investigators or legal practitioners to investigate whether such misconduct exists. They then prepare a report with recommendations on how to proceed, including whether disciplinary actions can be taken against the employees concerned.

In cases where disciplinary steps are taken based on the facts and recommendations set out in the report, it is not uncommon for employees facing these charges to request the employer disclose the investigation report. But is the employer obliged to do so?

In SA Sports Confederation and Olympic Committee (Sascoc) v CCMA and Others, the labour court had to consider the circumstances in which the discovery of an investigation report may be compelled during arbitration proceedings.

In this case, Sascoc’s board appointed its attorneys to conduct a preliminary investigation into the conduct of three of its employees.

Sascoc’s attorneys provided it with two investigation reports dealing with allegations of misconduct commit-

ted by the employees.

This prompted the employer to institute disciplinary proceedings against the three employees. This resulted in their dismissal.

The employees challenged the fairness of their dismissals and, during the subsequent arbitration proceedings, the employees’ legal representative requested that Sascoc disclose certain documents, including the reports.

Sascoc refused to do so because the documents were not relevant.

RELEVANCE MUST BE ASSESSED IN RELATION TO THE NATURE OF THE PROCEEDINGS BEFORE A COMMISSIONER The employees then made a formal application to the arbitrating commissioner for disclosure of the reports.

The application was opposed by Sascoc because the reports were irrelevant and, in any event, protected by legal professional privilege in circumstances where its attorneys had been instructed to prepare them.

In determining the application, the arbitrating commissioner considered rule 29 of the Commission for Con-

ciliation, Mediation and Arbitration (CCMA) rules, which deals with the disclosure of any documents or material relevant to the dispute.

The arbitrating commissioner concluded that the reports were not protected by legal professional privilege because they had not been obtained for the purposes of pending or contemplated litigation, nor for the purpose of giving or receiving legal advice.

Insofar as relevance is concerned, the commissioner concluded the reports related to the substantive fairness of the employees’ dismissal in that they were charged based on information found in the reports.

He further found the employees may have wished to use the reports to challenge Sascoc’s witnesses’ credibility during the arbitration. Therefore, it would also be relevant to the proceedings for this purpose.

Sascoc took the commissioner’s ruling on review to the labour court. As a starting point, the labour court noted that the reports were not used as evidence in the employees’ disciplinary hearing. Instead, the reports formed part of the factual basis for Sascoc’s decision to pursue disciplinary charges against the employees, based on documentary evidence uncovered during the investigation, which was discovered

/123RF — IQONCEPT to the employees. Furthermore, as summarised in the reports, the witnesses who provided information to investigators would, where relevant, testify at the arbitration, as had been the case in the disciplinary hearing.

In coming to its decision, the labour court considered the wording of rule 29 of the CCMA rules. It held that rule 29 ought to be interpreted in the context of the fact the CCMA is a statutory dispute resolution agency and that a commissioner is required, in terms of section 138(1) of the Labour Relations Act, 1995 to determine a dispute fairly and quickly and with the minimum of legal formalities. It further held that the only criterion for the disclosure of documents that rule 29 sets out is relevance.

Relevance, it was held, must be assessed in relation to the nature of the proceedings before a commissioner, which involved whether certain dismissals were allegedly substantively and procedurally unfair.

The labour court pointed out that an arbitration is a new hearing, and it found the commissioner appeared to have ignored this fact. In proving that the employees’ dismissals were procedurally and substantively fair, it was

incumbent on Sascoc to establish, on the evidence that it elected to lead in the arbitration, that: ● There was a fair reason for the dismissals; ● Dismissal was an appropriate sanction; and ● The employees were afforded an opportunity to state their cases before being dismissed.

What a commissioner must determine is whether a dismissal is fair in light of the evidence admitted at the arbitration. This does not mean the commissioner must merely review the evidence considered by the employer when it decided to dismiss an employee.

The labour court found the employees had no right to the discovery or disclosure of the reports when the disciplinary hearing was convened.

Therefore, the commissioner was incorrect in holding that the reports contained information relating to the substantive fairness of the

A COMMISSIONER MUST DETERMINE WHETHER A DISMISSAL IS FAIR IN LIGHT OF THE EVIDENCE ADMITTED AT THE ARBITRATION

employees’ dismissals merely because they gave rise to the charges against the employees. Instead, the disciplinary chair provided the substantive reasons for the employees’ dismissals in his findings, which reasons were discovered and provided to the employees.

The labour court, therefore, found the reports were entirely irrelevant to the fairness of the employees’ dismissals, particularly given that they were not used in the disciplinary hearing and would not be relied on by Sascoc in the arbitration.

Given its finding that the reports were not relevant, the court held that it was unnecessary to deal with the application of legal professional privilege concerning the reports.

Ultimately, it set aside the arbitrator’s ruling and held that reports were not subject to disclosure in terms of rule 29 of the CCMA rules.

THOUGHTS ON THE JUDGMENT

The basis for the labour court’s finding was that the employer’s investigation report had not been relevant to the arbitration. The employer had not relied on the investigation report itself to justify the dismissal of the employees. Rather, it had utilised the documentary and other evidence set out in the report to justify the dismissal.

This evidence had been disclosed to the employees.

This means that, should employers wish to ensure such a report should not be disclosed, they ought to extract the documentary evidence obtained during an investigation and rely on such evidence, together with witnesses’ oral testimony, during a disciplinary hearing.

This is to avoid creating a situation where an investigation report becomes relevant to the issues in dispute and must, therefore, be disclosed to employees. ● This article was reviewed

by Peter le Roux, executive consultant in ENSafrica’s employment department.

Why ultimatums to strikers should be clear Jonathan Goldberg & Grant Wilkinson Global Business Solutions When a company issues an ultimatum to striking workers — that they must return to work or otherwise face dismissal — this ultimatum needs to be clear and unambiguous.

If it does not meet these requirements, the company could risk having dismissed employees reinstated. The case of Association of Mineworkers and Construction Union obo Rantho and

others v Samancor Western Chrome Mines — (2021) 30 LAC 1.11.7 illustrates this principle.

During 2013, members of the Association of Mineworkers and Construction Union (Amcu) engaged in two unprotected strikes in support of a demand that Amcu should be recognised as the sole bargaining agent in two of the employer’s mines.

A total of 158 Amcu members — who were on final warning for the earlier strike — were dismissed. The employee and union referred

the matter to the labour court, which found the dismissals of these employees to be fair.

The matter was referred to the labour appeal court (LAC) by the employee and the union. The court noted that the company had issued three ultimatums, giving the night shift 23 hours to resume work, the afternoon shift eight-and-a-half hours and the day shift one hour. It indicated that disciplinary action would follow against those who did not comply.

On the basis of these facts, the appeal court held that the

labour court had misunderstood the legal consequences of the first ultimatum.

While participation in an unprotected strike constitutes misconduct, the Code of Good Practice: Dismissal makes it clear that such participation does not always warrant dismissal. The code also provides that unprotected strikers should be given sufficient time to comply with ultimatums, which must be clear and unambiguous.

The first ultimatums, in this case, were not clear but indicated that dismissal

would follow if a final ultimatum was not complied with.

When unprotected strikers resume work in response to an ultimatum, they may not be dismissed for the act of striking. An ultimatum is a waiver of the right to dismiss the strikers who heed it, unless there is good reason for a change. In this case, the strikers must be timeously informed of the withdrawal of the waiver.

The employer had not reversed or amended its waiver. That the right to take “disciplinary action” against

the strikers was reserved in the first ultimatum. The right had created a measure of ambiguity that favoured the employees. The court held that dismissal was not an appropriate sanction in the circumstances.

The court found that the employees should be reinstated. The court limited the period in which the reinstatement should be made retrospective to June 1 2020.

The appeal was upheld, and judgment of the labour court was amended accordingly.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Galaxy S7 is indeed a phone

rules Samsung device is •notCourt a machine for tariff purposes Keketso Kgomosotho & Virusha Subban Baker McKenzie

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n March 18 2021 the Pretoria high court handed down judgment in the matter between Samsung Electronics SA and the SA Revenue Service (Sars). The court had to decide whether the Samsung Galaxy S7 should be classified under the “machine” tariff, as contended by Samsung, or remain under its “telephone” tariff determination.

On July 3 2017, Samsung applied for a tariff determination for its imported multifunctional device, the Samsung Galaxy S7, under tariff heading TH 8517.62.90 or tariff heading TH 8517.69 (the machine tariff). This was after Samsung discovered that a competitor product had received a tariff determination under tariff heading TH 8517.62.90 — the classification of “machines for the reception, conversion and transmission or regeneration of voice, images or other data”. This classification also applies to laptops and computers, and is duty free.

At the time of importation, Samsung’s Galaxy S7 had received a determination under TH 8517.12.10 — the classification for “telephones for cellular networks or for other wireless networks designed for use when carried in the hand or on the person” (the telephone tariff), which is subject to an ad

valorem duty of 9%. Samsung immediately submitted applications for refunds of the customs duty on previously imported goods.

On September 27 2017, and after having reconsidered the Samsung Galaxy S7’s specifications, Sars agreed with Samsung that the devices are “smart devices classifiable under tariff subheading 8517.62.90” and gave Samsung a formal tariff determination under tariff heading TH 8517.62.90 (the machine tariff).

Sars made undertakings to process Samsung’s refund applications.

However, on April 11 2018 Sars again changed its mind and withdrew Samsung’s determinations under the machine tariff, with retrospective effect from August 4 2017. The withdrawal meant that Samsung was no longer entitled to any refunds with respect to previous imports and was now liable for duties in respect of the imported products. In its place, Sars made a new determination in terms of which the Galaxy S7 was classified under tariff heading TH 8517.12.10 (the telephone tariff).

Samsung insisted the use of the device had long

SAMSUNG’S ARGUMENTS FAILED BECAUSE THEY WERE PREMISED ON THE POST-USE OF THE PRODUCT

MOBILE MUDDLE

/123RF — DENNIZN evolved from a principally telephony function; that the use of the device relates to the connection to the internet, social media, music and games, and not mainly the making of telephone calls. As such, the appropriate classification was the TH 8517.62.90 (the machine tariff).

Samsung relied on a number of market survey reports, which indicated that the principal functions of smartphones like the Samsung S7 are mainly not for telephony use, but rather for apps (which are not available in a traditional mobile phone); lightning-quick wireless internet connection; video calls, messaging and pictures;

and a range of data communications. On this basis, voice transmission is not the principal function of products like the Galaxy S7 and therefore the appropriate classification of the product is under the machine tariff.

Sars, on the other hand, maintained that the use of the product, using the wireless network to make WhatsApp calls, Skype etc fell under the definition of operating as a telephone “for other wireless networks under subheading 8517.12”. Sars’s strategy here was perhaps more fundamentalist — drawing the court’s attention to the device’s basic constitutive features, which cumulatively

meant the Galaxy S7 was a telephone facility network.

For example, Sars stated that: ● “The design is such that they are small enough to be carried in the hand or on the person with a high-resolution touchscreen of about five inches; ● It has a speaker at one end which is audible when placed against the operator’s ear and at the other end has a microphone to receive speech or voice from the operator’s mouth; ● It has slots for the insertion of SIM cards to operate as telephones and communicate on a cellular network; and ● It has electronic keypads and software which enable the user to dial a telephone number to initiate a telephone call and to terminate a telephone call.”

This appears to be a rather elementary view of devices such as the Galaxy S7, which in use and design resembles a computer more than a traditional telephone. A research report from a global study conducted by Counterpoint shows that smartphone users use their devices for mobile computing activities primarily. Many users run businesses and other affairs from their devices, while others consume digital content.

Despite this, the court disagreed with Samsung and held that Samsung’s assertion that the product is not a telephone for cellular networks but a machine akin to a laptop or desktop was disingenuous — given it has telephony functions. The court was unpersuaded by the fact the device has functions found in laptops and desktops, holding that those functions do not detract from its principal

function of being a telephone for cellular networks.

Ultimately, Samsung’s arguments failed because they were premised on the post-use of the product. The court was clear that the standard for determining the appropriate tariff heading the device would fall under was the objective characteristics and properties of the device at the time of presentation for customs clearance. Accordingly, Samsung’s intention regarding the customer’s use of the product after importation was, contrary to Samsung’s premise, not conclusive of its classification.

The court concluded the Galaxy S7 has all the features that conform to the description of tariff heading TH

A REPORT SHOWS SMARTPHONE USERS USE THEIR DEVICES FOR MOBILE COMPUTING ACTIVITIES PRIMARILY 8517.12.90 in that it is handheld and its principal function is telephony.

Samsung’s application was dismissed with costs.

Competing businesses that import cellphone products into SA using the machine tariff now face the risk that Sars could attempt to reclassify those devices in line with the Samsung judgment. This means importers could be liable for an ad valorem duty of 9% if devices are reclassified under the telephone tariff.

Provident fund changes kick in — at last Wesley Grimm, Joon Chong & Sam Varrie Webber Wentzel From March 1 2021, members of provident funds on retirement will have had to buy an annuity with twothirds of their retirement funding, bringing them in line with pension and retirement annuity fund members The mandatory annuitisation of provident funds, which was first proposed in 2013 in the Taxation Laws Amendment Bill, 2013 (2013 bill), finally became a reality on March 1 2021 after a historic agreement with all Nedlac constituencies.

Previously, only pension fund and retirement annuity fund members were required to annuitise two-thirds of

their retirement interest upon retirement. This applied unless a member’s interest in a retirement fund was less than R247,500, where the full amount could be withdrawn as a lump sum on retirement.

The explanatory memorandum that accompanied the 2013 bill suggested that a “strong link” existed between the inadequate retirement funds held by members of provident funds after their retirement and lump sum payouts to provident members on retirement.

The purpose of the change was to ensure provident fund members had a secure source of income during retirement and to ensure that retirement interests were not depleted too quickly.

Significantly, it was also to

harmonise the treatment of the three different forms of retirement funds in SA, namely pension funds, provident funds and retirement annuity funds.

Labour unions initially challenged the proposed compulsory annuitisation of provident funds. It was also later noted, during the standing and select committees on finance’s discussion on the Revenue Laws Amendment Bill, 2016, that a misconception arose that the proposal to annuitise provident funds was an attempt by the government to nationalise provident funds.

Consequently, the implementation of the mandatory annuitisation of two-thirds of provident fund payouts on retirement was postponed

multiple times, until it was finally announced in parliament in 2020 that the change would be effective from March 1 2021. This was confirmed by finance minister Tito Mboweni during the 2021 budget speech.

With effect from March 1 2021, and subject to certain conditions and provisos, no more than one-third of the total value of a member’s interest in a provident fund may be commuted for a

THE PURPOSE WAS TO ENSURE PROVIDENT FUND MEMBERS HAD A SECURE SOURCE OF INCOME DURING RETIREMENT

single, lump sum payment and the remainder must be annuitised.

This general rule will not apply where two-thirds of the total value of a member’s interest does not exceed R165,000, or the member is deceased, or the interest is transferring to a preservation or retirement annuity fund.

The general rule is subject to several provisos, including that the interest held by provident fund and provident preservation fund members who are 55 or older on March 1 2021 will be unaffected.

Their additional contributions and fund returns will also be unaffected by the amendment.

In any other case, the interest and fund returns of members of provident funds

or provident preservation funds who were members on or before March 1 2021 will be unaffected by the change, as will additional amounts credited. Only contributions made from March 1 2021 will be affected by the general rule.

The implementation of the mandatory annuitisation of two-thirds of provident fund payouts on retirement forms part of the government’s plan to ensure that provident fund and provident preservation fund members access their retirement funds sustainably and is to be welcomed.

However, the significant and in our view unnecessary delay in its commencement means that a number of people may have withdrawn and spent their interests in full in the intervening period.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Alternative compensation

Constitutional Court opens the door to other •ways to pay damages than a monetary lump sum Aslam Moosajee & Vishana Makan ENSafrica

T

he Constitutional Court recently handed down a landmark judgment that damages may be allowed to be paid by methods alternative to monetary compensation.

The judgment related to a matter that was previously handled by the high court and Supreme Court of Appeal. In this matter, the mother of a minor (plaintiff/respondent) who was diagnosed with cerebral palsy following injuries sustained at birth at a state health-care facility, claimed in excess of R32m in damages from the MEC for health, Gauteng (defendant/applicant).

The high court granted an order pursuant to an agreement between the parties, which stated that “the defendant shall pay to the plaintiff 100% of her agreed or proven damages in her representa-

tive capacity for and on behalf of her minor child”.

The applicant sought to develop the common law to allow for compensation through alternative means, such as the provision of medical services in the public health-care sector in lieu of the payment of monetary compensation. The Constitutional Court had to determine whether the high court order meant that payment of the damages could only take the form of one lump sum sounding in money.

The Constitutional Court reiterated the general rule relating to the interpretation of court orders: “The starting point is to determine the

THE INCLUSION OF THE WORD ‘PAY’ DID NOT NECESSARILY PRECLUDE ALTERNATIVE METHODS OF COMPENSATION

CASH IS KING … OR IS IT?

manifest purpose of the order. In interpreting a judgment or order, the court’s intention is to be ascertained primarily from the language of the judgment or order in accordance with the usual well-known rules relating to the interpretation of documents. As in the case of a document, the judgment or order and the court’s reasons for giving it must be read as a whole in order to ascertain its intention.”

IMPLICATION

On a purposive reading of the court order, it was held that the inclusion of the word “pay” did not necessarily preclude alternative methods of compensation, but rather that the implication of the order was that the MEC for health was liable for compensation.

The court also held that the above interpretation is better aligned with the values of the constitution and that where a viable interpretation of any document promotes constitutional values, that

/123RF — ARTUR SZCZYBYLO interpretation must be preferred over an interpretation which does not.

The court was of the view that confining the high court’s order to payment of a lump sum in damages is at odds with the rights of access to courts and potentially undermines the right of everyone to have access to public health services. It also potentially

undermines the rights of children to basic health-care services. In addition, an interpretation should not limit the courts’ ability to develop the common law in terms of sections 39(2) and 173 of the Constitution.

The Constitutional Court also took into consideration that confining payment to lump sum monetary pay-

ments impedes the funding of health-care programmes, which will be affected if a large portion of the state’s budget gets allocated to medico-legal liabilities.

This judgment opened the door for the development of the common law by interpreting the order in a manner which did not limit the manner of payment.

Market inquiries: commission surges ahead Daryl Dingley, Tenisha Burslem-Rotheroe & Hoosein Mayet Webber Wentzel The Competition Commission has published final terms of reference for an inquiry into competition among selected digital platforms, as well as its findings from an investigation into competition in public transport.

In recent years, the commission has used market inquiries as an important tool to assess the competition dynamics in several industries, such as telecommunications, health care and grocery retail.

Over the past few weeks, there have been key developments in two current market inquiries. In relation to the online intermediation platforms market inquiry (OIPMI), guidelines for participation in the OIPMI and final terms of reference (TOR) have been published.

The commission has also released the final Public Passenger Transport Market Inquiry (PPTMI) Report.

We briefly discuss the outcomes and the status of these market inquiries below.

The commission has published final TOR ahead of an inquiry into any potentially anticompetitive aspects of selected digital platforms. The

updated final TOR comes less than two months after the draft TOR. The commission has adopted an expedited approach to the OIPMI, in line with the 18-month completion deadline for market inquiries introduced by the Competition Amendment Act. The OIPMI will commence in mid-May 2021 and the commission is expected to conclude the inquiry by October 2022.

Following public and stakeholder comments on the draft TOR, the scope of the inquiry has not changed substantially in the final TOR. One change is the removal of specific industry participants and sectors in the OIPMI. The participation guidelines set out the four phases of the OIPMI and parties that may participate (for example members of the public, the government and firms that represent stakeholders).

The participation guidelines also provide details of how relevant parties will be able to participate in the inquiry, with particular reference to written submissions and virtual public hearings for oral presentations. The guidelines highlight that the commission may summon individuals or organisations to appear before the inquiry in terms of section 49A of the Competition Act.

The OIPMI will be the first market inquiry conducted following the extensive amendments to the Competition Act. In terms of the new market inquiry provisions, the commission does not need to conclude that there has been a substantial lessening of competition within the relevant market. In the OIPMI (and all future market

THE COMMISSION HAS RECOMMENDED THAT GAUTRAIN AND METRORAIL OPERATIONS ARE INTEGRATED INTO A SINGLE OFFERING inquiries), the commission is only required to decide whether there has been an adverse effect on competition in the market. This is arguably a much lower threshold and one of the reasons the commission may be opting to conduct market inquiries in certain industries instead of investigations.

Once the OIPMI is concluded, the commission may, among other things, make recommendations for new or amended policy, legislation or regulation, initiate a complaint on the basis of the

information obtained during the market inquiry, or recommend that the Competition Tribunal make an order in relation to divestiture.

Given the new prescribed timelines for completing market inquiries, market participants can expect a fastpaced process, multiple stakeholder engagements and tight deadlines for responding to extensive information requests. Since the commission’s recommendations in previous market inquiries have substantially influenced operations in some industries, market participants would be well advised to understand the scope of the inquiry with the necessary proactiveness and be prepared to engage fully with the commission.

FINAL PPTMI REPORT

The commission recently published the final PPTMI Report. In summary, it indicates that the public transport network lacks integration, has a skewed subsidy system and requires policy frameworks. Some of the key findings and recommendations are set out below. ● Integration: The report indicates a lack of efficiency and co-ordination, particularly in the passenger rail sector. The commission found that public transport

systems operate in silos with duplicated infrastructure and not as an integrated network.

The commission has recommended, among other things, that Gautrain and Metrorail operations are integrated into a single offering. ● Skewed subsidy system: The commission indicates that the current subsidy scheme excessively favours buses and railway services, with the taxi industry receiving just 1% of the allocated government subsidy even though it carries about 66% of commuters. The commission has recommended an equitable allocation of subsidies through a subsidy policy which recognises both the taxi industry and rural buses. ● Bus services: The commission found it is unreasonably difficult for newcomers to enter the bus services market due to the moratoria on bus service operating licences. To address this difficulty, the commission has recommended an overhaul of the system for issuing operating licences and the removal of all quantity restrictions. Another recommendation is that Prasa’s Autopax operation must become structurally separate from Prasa’s facility operations, to prevent price discrimination against nonPrasa bus operators.

● E-hailing and metered taxis: The commission found that e-hailing services and metered taxis face numerous regulatory challenges. The commission recommended that e-hailing services and metered taxis be regulated by the same legislation. This should allow metered taxis to have access to the same areas and price opportunities that e-hailing services already have.

The outcomes of the recent retail and data services market inquiries indicate that market inquiries are a powerful enforcement instrument that the competition authorities will continue to utilise.

In previous years, market inquiries have taken an extensive amount of time, resources and expenditure to complete. It will be interesting to see how the recommendations of the PPTMI will be implemented and whether the OIPMI will be completed in the 18 months stipulated.

THE COMMISSION FOUND E-HAILING SERVICES AND METERED TAXIS FACE NUMEROUS REGULATORY CHALLENGES

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

How patents truly protect and serve

UNDER THE SPOTLIGHT

While there are many approaches to intellectual •property, patents will bring you the biggest rewards Rowan Forster ENSafrica

R

ecently, there was a fascinating article on intellectual property (IP) in the Harvard Business Review, “Elon Musk doesn’t care about patents. Should you?” was always going to enjoy considerable attention. The opening lines very much set the tone: “Ownership seems straightforward in business: get a patent or copyright when you create something.

Charge for its use. Avoid ambiguity about who owns what. But much of this wisdom is wrong.”

The authors go on to say that the “world’s savviest businesses already know this”. They say that HBO tolerates theft, SpaceX forgoes patents and Airbnb started operating without even knowing whether its product offering was legal. We’re introduced to the term “ownership engineering”. We’re

also told about three ownership engineering strategies, namely: 1. Tolerating theft HBO chose not to pursue people who were using the passwords of others and thereby “stealing” content.

Instead, it decided to let the unauthorised usage grow the brand and create an addiction to the product. Microsoft did the same with its software in China, with Bill Gates saying: “As long as they’re going to steal it we want them to steal ours … they’ll get sort of addicted and then we’ll somehow figure out how to collect sometime in the next decade.”

Microsoft has seemingly

OF THE THREE IP RIGHTS, THE PATENT PAYS THE GREATEST DIVIDENDS, WITH AN AVERAGE 36% HIGHER REVENUE PER EMPLOYEE

figured it out, with China now accounting for 10% of the company’s annual revenue.

The authors even suggest this thinking has application in the luxury goods market, citing a study that showed 40% of people who bought counterfeit luxury goods went on to buy the genuine version later.

2. Foregoing ownership The authors argue that the basis for legal ownership is misplaced. There are substitutes available such as secrecy. Musk is quoted as follows: “We essentially have no patents. Our primary longterm competition is China. If we published patents it would be farcical because the Chinese would just use them as a recipe book.”

The authors also argue that a common strategy is building on top of another platform.

3. Leaning in to ambiguity The authors argue that legal clarity as to ownership is less important than many believe.

They cite the fact that lack of clarity didn’t stop Uber from

/123RF — ARTUR SZCZYBYLO starting a business where car owners charge people for conveying passengers, or Airbnb from starting a business where apartment owners charge holiday makers.

They cite this aphorism: “It’s better to ask for forgiveness than permission.” Ownership ambiguity, they say, creates “legitimate and valuable business opportunities”.

There’s even talk of the old American west, where people simply claimed ownership. According to the authors “only later did the law arrive and, when it did, states often recognised early-bird claims”.

Some thoughts in rebuttal The article is interesting indeed. Yet, as IP lawyers, we obviously have some issues with it. Just recently there was an article in Forbes about how a US start-up invested

heavily in IP from the outset and, though it struggled for a number of years while the patents were being registered, it was finally able to use the IP to get rid of the competition.

A recent joint report of the European Patent Office and the EU Intellectual Property Office makes the point that businesses with at least one registered patent, design or trademark have an average of 20% higher revenue per employee than businesses with no IP rights.

Of the three IP rights, the patent pays the greatest dividends, with an average 36% higher revenue per employee. These figures do, we suggest, establish a clear link between IP ownership and commercial success.

Ever since the Venetians granted exclusivity to the

Murano glass makers in the 15th century, we’ve been granting time-limited monopolies (generally 20 years for patents) to inventive people. There is simply no doubt the system of monopoly protection in exchange for information has played a significant role in technological progress. Much of this progress has been good — we see it now more than ever with Covid-19 vaccines (though there is controversy as to whether these patents should be suspended in this time of crisis).

As for Musk’s comments about China, they do sound a bit dated — China is increasingly part of the IP world.

The Harvard Business Review article is, without doubt, a cracking read, but we don’t think it tells the whole story.

Kenya gives clarity Nema rules changing on withholding taxes Garyn Rapson & Lerato Molefi

Webber Wentzel

Karen Miller & Joon Chong Webber Wentzel A recent decision by the Tax Appeals Tribunal of Kenya has provided much-needed clarity on withholding tax payable by SA residents who provide services to Kenyan entities.

Kenya applies a 20% withholding tax on payments made for services rendered by nonresidents to Kenyan residents. SA residents providing such services have argued that the withholding tax provisions should not apply because under Article 7 of the SA-Kenya Double Tax Agreement (DTA), SA has the taxing rights on the service income (provided the SA entity does not have a permanent establishment in Kenya).

The Kenyan Revenue

Authority (KRA) has, however, argued that Article 7 does not apply and it has sought to impose the withholding tax.

This issue has finally been ruled on in the recent case of McKinsey and Company Inc v Commissioner of Legal Services Board Co-ordination held at the Tax Appeals Tribunal in Kenya.

COMFORT

The tribunal, finding in favour of the taxpayer, held that professional fees paid by the Kenyan entity to the SA service provider fell within Article 7 of the DTA and that the KRA had no right to withhold taxes on the payment of the fees.

While the KRA may appeal the decision, the outcome of this case provides some comfort to SA residents

providing services to Kenyan entities. There should be no Kenyan withholding taxes imposed on service fees paid by the Kenyan entity to the SA entity.

Where withholding taxes have already been withheld and paid to KRA, it should be possible for the SA resident entity to claim a refund. (This also means the SA entity would not qualify for any section 6quat rebate claimed on the Kenyan withholding taxes, against SA income tax.)

THE OUTCOME OF THIS CASE PROVIDES SOME COMFORT TO SA RESIDENTS PROVIDING SERVICES TO KENYAN ENTITIES

On April 22 2021, the forestry, fisheries and the environment minister published notice of her intention to amend for the third time the transitional arrangements contained in the Nema Financial Provisioning Regulations, 2015 (FP Regs).

The FP Regs were published on November 20 2015, creating a provision applicable to holders of prospecting or mining rights who applied for such rights before November 20 2015, regardless of when the right was obtained. The effect of this provision was that the holder of such rights must now comply with the FP Regs no later than June 19 2021.

Until finally transitioned, such holders are regarded as having complied with the provisions of the FP Regs if the holder continues to com-

ply with the old Mineral and Petroleum Resources Development Act, 2002 system of calculating and annually assessing its financial provisioning for rehabilitation and closure.

TRANSITION DATE

The proposed amendment seeks to further extend the transition date for compliance to June 19 2022.

This further delay in terms of the transition to the FP Regs was inevitable because: ● We know that the FP Regs are to be repealed and replaced by a new set of financial provisioning regulations: ● The first draft set of replacement regulations was published on November 10 2017 under GN R1228; ● The second draft of the replacement regulations was published on May 17 2019 under GN R667; and ● The department has indicated that a third draft of the

replacement regulations is being prepared, which we expect will again be issued for public comment before the final replacement regulations are gazetted; and ● The replacement financial provisioning regulations cannot be made final until National Environmental Management Laws Amendment Bill IV (Nemlaa4) has been gazetted into law.

Nemlaa 4 plays a crucial part in this puzzle as it proposes a range of changes to the Nema, which changes must be made final before the final set of replacement regulations can be published.

Members of the public are invited to submit comments on the proposed amendment of the FP Regs transition date

by May 22 2021.

We suspect that the mining industry will not be jumping to oppose the amendment, as the further extension of the deadline will be a welcome relief for many.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Huge potential on SA’s green hydrogen map

ROAD TO RENEWABLE ENERGY

Legal certainty is needed and infrastructure •shortfalls must be dealt with to boost investment /123RF — MALP Kieran Whyte Baker McKenzie

I

t was recently announced that SA’s Hydrogen Society Roadmap is expected to be submitted to the cabinet for approval at the end of 2021, or in early 2022.

The roadmap will explain how the country’s resources, including reliable sources of renewable energy such as solar and wind, as well as its ample supply of platinum group metals (PMGs), can be effectively harnessed to produce green hydrogen.

SA began the process of creating policy for the green hydrogen market by implementing the Green Hydrogen Atlas-Africa initiative in July 2020. As part of this, the roadmap is intended to provide a guide for the country’s transition to a hydrogenbased energy system. The roadmap will be a policy document outlining the costs, challenges, gaps, benefits and potential of green hydrogen, with the aim of eventually incorporating it into SA’s renewable energy plan.

A recent report by global law firm Baker McKenzie, “Shaping Tomorrow’s Global Hydrogen Market” outlines how, despite regulatory challenges, legal complexity and the current lack of incentives to invest in decarbonised hydrogen without government support, important

opportunities exist for businesses seeking to reap firstmover advantages.

SA’s green hydrogen potential could produce significant advantages for investors and the country, but legal certainty is needed, and infrastructure shortfalls must be dealt with. While it is still early in the process, transactions have begun around the world and investors are starting to look at what governments are doing to support hydrogen initiatives. As such, the roadmap is eagerly awaited by the energy sector.

HYDROGEN IS A WAY FOR COUNTRIES TO REDUCE EMISSIONS AND TO LIMIT GLOBAL WARMING TO BELOW 2°C The report outlines how countries have been rapidly concluding that a successful decarbonisation path cannot solely rely on renewable electricity and that a zerocarbon hydrogen solution is needed. The report explains how governments around the world are supporting decarbonised hydrogen, as they did with renewables, to drive down cost.

For example, the report details how hydrogen-related

research and development (R&D) budgets in China, the EU and Australia, for example, are on the rise. In 2018, funding for hydrogen-related technology research and pilots increased 8%, representing more than $50bn in US dollar equivalent. This rise in global R&D funding can be largely attributed to an rise in spending from China, whose budget almost quintupled in only three years.

In 2021, the EU is expected to institute a long-lasting and ambitious hydrogen research programme as part of its “Horizon Europe”, including a new “European partnership” for hydrogen. In essence, this partnership is an R&D association specifically dedicated to hydrogen research with the objective of dealing with “market failure for first movers”.

Australia adopted a National Hydrogen Strategy in 2019, which sets a path to build Australia’s hydrogen industry. The government plans to accelerate the commercialisation of hydrogen, reduce technical uncertainties and build up its domestic supply chains and production capabilities. The Australian Renewable Energy Agency (Arena) has identified renewable hydrogen as one of its three investment priorities.

In 2019, Japan adopted a new strategic roadmap for hydrogen, making the development of hydrogen technol-

ogy one of its centrepieces. It is working toward decreasing the cost of decarbonised hydrogen production tenfold by 2050. Also, in 2019, South Korea announced its hydrogen economy roadmap and Ulsan’s future energy strategy, with a primary focus on leading the hydrogen vehicles and fuel cell industry as well as establishing a system for hydrogen production and distribution.

Hydrogen is considered to be essential in SA’s new energy mix, due to its important role in combating climate change and delivering on decarbonisation targets.

According to the report, there is a growing consensus in academia, industry and among political leaders that a decarbonisation path based (quasi-)exclusively on electricity networks (an “electricity only” model) is unrealistic and too expensive. Deep decarbonisation will require of hydrogen to satisfy the current industrial demand; no molecules, no deep decarbonisation.

Clean hydrogen also allows countries to meet the goals outlined in the Paris Climate Agreement. The report notes that hydrogen is a way for countries to reduce emissions and to limit global warming to well below 2°C. The report notes that within just a few decades, all the world’s energy needs,

electricity, industry, transport, buildings and agriculture will have to come from carbon-free sources. This will require huge changes in little more than a single generation, and innovative solutions, technologies and policies. Hydrogen will play a crucial role in making this fundamental change to the globe’s energy systems.

The hydrogen market is already big and growing, with total demand listed in the report at around 115-million tons in 2018, representing $135.5bn. Hydrogen also holds long-term promise and is expected to reach $25bn by 2030. Future applications include road transport, maritime and air transport, buildings and energy-intensive industries.

SA has excellent renewable energy capacity, especially in wind and solar, which can be used to generate the energy needed to split water into hydrogen and oxygen. However, the current renewable energy programme will have to be upscaled to raise capacity.

Additionally, clear policy and a regulatory environment that encourages investment will enable SA to be part of this energy transition and benefit considerably from exporting green hydrogen to other parts of the world.

Green hydrogen could also be utilised to grow SA’s clean

energy supply via a decarbonised energy system.

To export green hydrogen, SA needs to develop the infrastructure necessary to store and transport the product. And while capital outlay and investment are needed, jobs could also be created by new income-generating ventures.

So far, developments in the hydrogen market in SA have mostly come through the mining sector. Its ample supply of PMGs is an advantage as PGMs can act as catalysts during the electrolysis process that converts water into hydrogen and oxygen. As such, a zero-carbon hydrogen solution is one of the key evolving end-uses for PGMs. New solutions are urgently needed to deal with Africa’s power crisis and boost its postpandemic recovery. Such solutions must consider the energy transition and the global drive towards a decentralised, decarbonised and secure energy supply that tackles climate change and stimulates economic growth.

Green hydrogen can lower energy costs, increase the power system’s flexibility and facilitate the decarbonisation of African industries.

Its benefits are ample and the opportunities it will create, not only for SA but other African countries, look very promising.

Weapons cannot be carried during strikes Lizle Louw, Shane Johnson & Justin de Wet Webber Wentzel The Labour Appeal Court has ruled that employees can be dismissed for carrying weapons during a strike and it is reasonable to expect them to know that this is a dismissible offence.

The court recently confirmed that it is fair to dismiss employees who carry weapons during a strike and that employers can reasonably expect employees to know that having dangerous wea-

pons at work (or during a strike) is unacceptable and a dismissible offence.

The dismissed employees were Numsa members employed by Pailpac (Pty) Ltd, who participated in a protected strike, during which they carried weapons (sticks, PVC rods, sjamboks and golf clubs). They were charged for “brandishing and wielding weapons during a strike”.

The employees referred an unfair dismissal dispute to the Metal and Engineering Industry Bargaining Council for arbitration, where their

dismissals were found to be unfair. Pailpac applied to the labour court to review the arbitration award but the labour lourt upheld it. Pailpac then appealed to the Labour Appeal Court.

The primary issue was to determine whether the dismissed employees were aware of the rule not to carry weapons during the strike.

The picketing rules were placed on the official notice board where employees obtained various workrelated information, for example what doctors they

could see. It was clear to the Labour Appeal Court that the dismissed employees were fully aware of their obligation to read the notices and other communications posted on the board. Accordingly, the court found that the employees were aware, or could reasonably have been expected to be aware, of the picketing policy.

While the judgment turned on the question of employees being aware of workplace rules, the Labour Appeal Court stated that any reasonable employee would

in any event know that having dangerous weapons at work is not acceptable.

In terms of the sanction of dismissal, the court therefore held that: “[30] As acknowledged by the arbitrator in her award, any reasonable employee would know that bringing a dangerous weapon to work would not be tolerated. Thus, to do so in flagrant disregard of a clear workplace rule which prohibits such conduct during a picket or strike, and expressly warns that the consequence of the breach is the sanction

of dismissal.”

The practical relevance of the judgment is the test to be applied when employees claim they were not aware of workplace rules. The correct test is not only whether the employees were aware of the rule, but also whether they could reasonably be expected to be aware of it.

It is also relevant that the Labour Appeal Court. confirmed that sticks, pipes, sjamboks and golf clubs are “dangerous weapons”, a term which is usually found in picketing rules.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

JSE seeks listing efficiency

The bourse has released a consultation paper for •input on proposed changes to reduce red tape Riyaad Cruywagen & Elodie Maume Webber Wentzel

T

he JSE has issued a consultation paper proposing changes to the listings regulations to cut red tape and achieve an effective, fit-for-purpose set of regulations for financial markets.

In March, the JSE released this consultation paper to obtain input from market participants and stakeholders on proposed changes to the listings requirements, prior to actual amendments going through the formal process.

This is the second consultation paper issued by the JSE. The previous consultation paper was issued in September 2018 and focused on improving the regulation of primary and secondary listings. It resulted in final amendments to the JSE listings requirements, which came into force in December 2019.

Key areas of focus in the latest consultation paper include the approval required for transactions in the normal course of business, share repurchases, capital raising by bookbuilds, allowing directors to follow a right offer during a closed period and removing the obligation to publish an abridged version of the issuers’ financial results on Sens.

Other proposals relate to the removal of the requirements for (i) pro forma financial information in the case of a disposal by the issuer; (ii) revised listing particulars in the case of certain acquisition transactions; and (iii) a working capital statement to be included in the circular on category 1 disposals, where the consideration is paid in cash.

The JSE proposes the following measures for discussion in relation to these key areas: ● Enhancing the “ordinary course of business” exemption for category transactions and related-party transactions. The listings requirements currently provide certain exemptions from the requirements applicable to category transactions and related-party transactions, which include publication of a circular and/or shareholder approval of the transaction.

One of these exemptions applies to transactions in the ordinary course of business, where the transaction's consideration is equal to or less than 10% of the issuer’s market capitalisation.

The JSE proposes that transactions in the ordinary course of business should no longer be subject to the categorisation requirements.

Alternatively, the JSE is con-

THE JSE PROPOSES ORDINARY COURSE OF BUSINESS TRANSACTIONS WITH RELATED PARTIES SHOULD BE ANNOUNCED THROUGH SENS sidering increasing the threshold from 10% to 30%, so transactions that fall within the ordinary course of business will only require shareholders’ approval when they are categorised at (or above) 30%.

In any event, issuers will still be required to engage with the JSE to determine whether their transaction falls within the “ordinary course of business” exemp-

tion and the JSE will make the final determination.

The JSE believes the proposal will afford issuers more flexibility when conducting their business from a cost, timing and resources perspective. It will also bring the JSE in line with the London Stock Exchange’s requirements, which provide for a similar exemption, however without the 10% limitation.

The JSE also proposes that ordinary course of business transactions with related parties should be announced through Sens, and deal with the pertinent details of such transactions. ● Intragroup repurchases of securities. The JSE proposes to remove the application of the listings requirements and the required shareholders’ approval on intragroup share repurchases, provided the share repurchases take place (i) between the issuer and its wholly owned subsidiaries; or (ii) between the issuer and Schedule 14 share incentive schemes (share schemes controlled by the issuer to incentivise employees and approved by the JSE). The JSE states that any repurchase of securities must also comply with the provisions of sections 46 and 48 of the Companies Act. In addition, the effect of an intragroup repurchase as described above is different from other repurchases because there is no money leakage from the issuer’s group and no impact upon the earnings per share, headline earnings and net asset value per share, nor does it benefit one shareholder over another. The JSE argues it has no active regulatory role to play, other than through disclosure of the repurchases in the annual report. ● Capital-raising through

EXCHANGE OF IDEAS

/WALDO SWIEGERS — BLOOMBERG general issues of shares for cash. The JSE proposes to allow related parties to participate in issues of shares for cash pursuant to general authorities, subject to certain conditions. Currently, the listings requirements prohibit related parties from participating under a general issue for cash authority, which can severely limit the benefits of a bookbuild by eliminating potential participants who could be interested in providing capital to the issuer. ● One of the most common capital-raising methods in the market is the bookbuild process, often on an accelerated basis, which allows issuers to achieve the best price at which to issue shares to shareholders and/or investors. However, related parties of the issuer could possibly influence the price at which shares may be issued during the bidding process, more so when they hold a material interest in the issuer.

For that reason, the JSE proposes that related parties may only participate in a bookbuild capital-raising process by putting in a bid “at

best”, where related parties are excluded from a price formation bidding process.

They may only take up shares once the final issue price has been determined on the completion of the bookbuild process. This will result in related parties being permitted to take up shares under a general issue of shares for cash authority through a bookbuild, but only on the basis they are price takers (at best), not price makers.

The shareholder resolution granting the general authority to issue shares for cash will need to state that related parties are allowed to participate in the offer. ● Directors’ participation in rights offers during closed periods. The listings requirements preclude directors, prescribed officers and company secretaries (excluded parties) from participating in a rights offer during a closed period (a timeframe from a financial period end until the date on which the relevant financials of the issuer are published or any period where the issuer is trading under a cautionary announcement). The JSE

recognises that not allowing excluded parties (who hold shares in the issuer) to participate could negatively affect the issuer’s ability to raise cash, since the excluded parties are often considered to be natural contributors of cash to the issuer.

The JSE proposes to remove the limitation on excluded parties following entitlements pursuant to a rights offer during a closed period. This proposal would bring the JSE in line with the London Stock Exchange requirements.

The JSE is also considering extending this proposal to capitalisation issues and scrip dividends. ● No abridged report on published audited information. The JSE proposes to remove the requirement to publish an abridged report of the financial results on Sens when the issuer has published its audited annual financial statements. The abridged report provides no additional value when the annual financial statements and the short-form results announcements have already been published.

The battle in Africa to curb iIllicit financial flows Celia Becker ENsafrica Illicit financial flows remain a huge issue on the continent.

According to a 2020 UN report, an estimated $88.6bn leaves Africa annually due to capital flight and the continent loses between $30bn and $52bn a year due to misinvoicing, particularly in the extractive sector.

African countries have largely been unable to stem illicit financial flows due to

not having strong institutions, not having the capacity to monitor large multinationals and not collecting the right data.

There is a clear need for strengthening relevant institutions and collecting more and better data, requiring an increased investment in data infrastructure.

African governments should also strengthen their engagement in international taxation reform and review tax treaties to aim for

more taxing rights.

Various African jurisdictions are already implementing bilateral reform of their tax treaties. For example, Senegal and Zambia terminated their treaties with Mauritius. Botswana signed an amending protocol to its Mauritius treaty.

The Kenya-Mauritius treaty became the subject of a high court case in Kenya in 2019, when the Tax Justice Network Africa disputed the constitutionality of the treaty

inter alia on the basis that it limited Kenya’s taxing rights under various articles.

In the recent past, various African jurisdictions have also been implementing specific transfer pricing regulations (generally based on the OECD guidelines), but tax auditors tasked with enforcing these provisions often lack the required technical skills, experience and business knowledge.

Multinationals often attempt to bypass local tax

systems as they are perceived to be unfair and subject to a high degree of administrative and/or political discretion.

To ensure that African jurisdictions collect their fair share of taxes, but at the same time keep and encourage foreign investment, clear and simple tax systems, which are transparent and trusted by taxpayers to be fairly applied are of the utmost importance.

Revenue authorities

should also build adequate systems and improve the skills of their staff members.

The combating of corruption and anti-money laundering initiatives should be scaled up.

A number of African jurisdictions, including Angola, Ghana, Kenya, Mauritius, Rwanda and Seychelles, among others, have recently introduced or strengthened anti-money laundering legislation and guidelines, which is a step in the right direction.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Litigation has begun to test Popia limits

OUT IN THE OPEN

rules of court override privacy interests under •theTheProtection of Personal Information Act Nicole Gabryk, Era Gunning & Shenaaz Munga ENSafrica

I

n the recent judgment of Divine Inspiration Trading 205 (Pty) Limited v Gordon and Others, the Western Cape High Court found, in essence, that the rules of court override the interests protected under the Protection of Personal Information Act, 2013 (Popia) and ordered that personal information be disclosed.

In this matter, the applicants sought an order for the disclosure of Katherine Gordon’s medical records from her medical practitioners. The records were required for the determination of an action wherein Gordon was suing the applicants for damages of R7m (as a result of injuries she sustained in an accident when she visited the applicants’ premises).

Gordon’s medical practitioners refused to make the medical records available to the applicants, despite having received a subpoena, on the basis that the National Health Act, 2003 directs that records cannot be disclosed without Gordon’s consent.

Prior to the launching of the application, the applicants delivered a notice in terms of rule 35(3) requesting Gordon to make the medical records available, but the request was refused on the grounds that they are not in her possession. Gordon opposed the

THE MEDICAL PRACTITIONERS REFUSED TO MAKE THE MEDICAL RECORDS AVAILABLE TO THE APPLICANTS

application for the disclosure of the records on the grounds that the discovery thereof would infringe on her right to dignity and privacy and that the disclosure of these documents would impinge on her rights under Popia.

Section 11 of Popia came into consideration by the parties and the court. This section provides that personal information may only be processed if: “(c) processing complies with an obligation imposed by law on the responsible party; “(f) processing is necessary for pursuing the legitimate interests of the responsible party or of a third party to whom the information is supplied”.

The court rejected Gordon’s argument that the disclosure of her medical records would unjustifiably trample on her rights. The

/123RF — IMMYTWS court highlighted that section 11(3) provides that a data subject (Gordon) may object to the processing of personal information in limited circumstances. In carving out this exception, the legislature specifically excluded the processing of information where it is required to comply with an obligation imposed by law.

The legislature had therefore made provision for the processing of information irrespective of an objection received from a data subject.

The court found that Gordon’s medical practitioners are responsible parties (as defined by Popia) and an obligation to deliver the medical records had been imposed on them by law by virtue of them having received the subpoenas. The court did, however,

accept that Gordon could, in terms of section 11(3) of Popia, object to the processing of her information and consequently that the responsible party would no longer be in a position to process her personal information.

In balancing these sections, the court had regard to section 12(2)(d)(iii) of Popia, which permits the collection of data from a source other than the data subject when it is required for the conduct of proceedings in any court or tribunal. This is further supported by section 15(3)(c)(iii) of Popia, which provides that the further processing of personal information once it has been collected is allowed if it is necessary for the conduct of proceedings in any court.

Rather surprisingly, the

court did not consider that Popia will become fully effective only on July 1 2021 and that health information constitutes “special personal information”.

After July 1, when Popia is fully in effect, it is likely there will be a spike in data subjects relying on the rights afforded

by Popia during the course of litigation proceedings (for instance in utilising data subject access requests as alternative mechanisms to obtain disclosure of documents or in objecting to arbitration proceedings on the basis of data protection concerns). Undoubtedly, there are many unknowns in respect of Popia litigation.

However, one thing is certain: litigation involving Popia is inevitable.

Roles for private equity in business rescue Elliott Wood & Bafana Ntuli Werkmsans It goes without saying that business rescue in SA has created an opportunity for private equity players to participate in business rescue proceedings in one form or another.

Chapter 6 of the Companies Act 71 of 2008 governs SA’s business rescue regime.

If a company becomes financially distressed, it may and often does initiate business rescue proceedings subject to the Companies Act. The private equity market remains mostly unregulated in SA, but depending on structures used for private equity funds, the private equity fund managers and/or bespoke nature of a private transaction, certain legislative frameworks may apply.

It is trite that private equity investments, if done right, can provide genuine value creation for investee companies, shareholders and other stakeholders. Typically private equity investments entail

a funding boost and support for the investee company’s management team.

In a business rescue context, private equity firms may fund financially distressed companies and/or acquire their viable business assets.

Private equity investments can take different forms, including debt and/or equity funding, asset purchase, leveraged buyouts and/or mezzanine funding.

Indeed, private equity players can take up different roles in a company under business rescue proceedings.

In addition to bidding or otherwise trying to acquire viable business assets, private equity players can provide post-commencement finance (PCF) to assist the distressed company stay afloat and meet its shortand/or long-term funding obligations.

Such financing is necessary as the distressed company is being restructured.

There are commercial opportunities for private equity players and other investment houses to capi-

talise on the statutory benefits of offering PCF to a company in financial distress. A detailed review of such statutory benefits in terms of Chapter 6 of the Companies Act is beyond the scope of this article. However, the following overview sets out salient points with regards to the priority afforded to PCF: ● PCF can be secured by security over the unencumbered assets of the distressed company; ● Putting up PCF funding comes with the benefit that you jump the queue (while you fall behind secured creditors with respect to repayment from the sale of secured assets, such funder gets a jump on unsecured creditors and ranks ahead of them); ● The antidilution protections of funders (discussed below) may, subject to competition law constraints, be available to the provider of PCF, enabling such funders to jump the queue should the business rescue practitioner sell the assets of the distressed company; and ● The ability of the business

rescue practitioner to entirely, partially or conditionally suspend or cancel the company’s obligations during business rescue may assist to make the asset (notwithstanding the financial distress) more appealing.

Private equity players and other investment houses may also purchase the debt of the distressed company at a discount. This is more common in foreign jurisdictions and depends on the mandate of the fund manager, as these are often riskier transactions.

There are also some key issues that business rescue practitioners and distressed companies should take note of when engaging with private equity players (this is not an exhaustive list):

PRIVATE EQUITY PLAYERS CAN OFTEN LEVERAGE THEIR STRONG POSITION TO SOURCE BETTER FINANCE DEALS

First, the sourcing of finance by a distressed company may be difficult given the reasons for the company being under business rescue.

Private equity players are able to raise funds from their own investors or sponsors, third parties and/or banks.

Private equity players can often leverage their strong position in the marketplace to source better finance deals.

Second, if the private equity firm intends to inject funds in a distressed company by acquiring an equity interest in such a company, such private firm may require antidilution protections to protect the value of its equity shareholding. This would be the case in traditional private equity deals in any event.

Risk-mitigating strategies for a private equity firm would include pre-emptive rights, tag alongs and/or prior consent for any further rights issue by the company as well as the ability to trigger an exit event given that private equity firms usually have specific time frames for their investments or portfolios.

Third, subsequent to providing funding, the private equity firm may at times not be involved in the day-to-day management and operations of the company and may lack control over the underlying businesses. Therefore, to mitigate such risk, the private equity player may request various minority protections and veto rights for key matters on the decisions to be taken by the distressed company. This, of course, also impacts the assessments in regards to competition approvals which may delay a transaction, which is not ideal when dealing with a distressed company. The regulators do permit, in certain circumstances, expedited approvals based on a “failing firm” concept.

Ultimately, with the above being said, private equity players are likely to need a clear exit strategy in mind subsequent to funding a distressed company. Therefore, there must be a reasonable prospect of rescuing such a company for private equity players to get involved.

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BusinessDay www.businessday.co.za May 2021

BUSINESS LAW & TAX

Labour and business rescue

Employers in companies undergoing remedial •action should not ignore the rights of workers Rosalind Davey, Chloë Loubser & Nikita Reddy Bowmans

C

ompanies in business rescue have plenty of worries, but legal challenges to retrenchment are not usually top of the list.

After all, such companies are insu lated from legal action, including employee claims, through the moratorium on legal proceedings provided for in section 133 of the Companies Act, 2008.

This moratorium provision, intended to allow a business some breathing space to regain its financial viability, should not lull employers into complacency. There are still avenues employees can pursue to assert their rights to a fair retrenchment process.

With business rescue cases on the rise as a result of the Covid-19 pandemic, employers should familiarise themselves with the legal lie of the land on retrenchments during business rescue.

It is not unusual for a struggling business in the midst of business rescue to seek to retrench employees to save on labour costs.

Employees have limited leeway to challenge such retrenchment. Under the Companies Act, to bring a claim against an employer in business rescue, employees must have the businessrescue practitioner’s written permission or apply to the high court for the moratorium on legal proceedings to be lifted.

Over the years, some trade unions have attempted

to challenge the applicability of the moratorium to employment disputes.

They have done so on the basis of section 210 of the Labour Relations Act (LRA), which states that when it comes to employment matters, if there is any conflict between the LRA and another law (except the Constitution or a law that expressly amends the LRA), then the provisions of the LRA must prevail.

The argument goes that the moratorium in the Companies Act conflicts with the dispute-resolution provisions of the LRA, which must accordingly prevail. This would mean the moratorium

THIS DECISION SUGGESTS THE MORATORIUM IN THE COMPANIES ACT DOES APPLY TO EMPLOYMENTRELATED CLAIMS cannot extend to LRA disputes. This is not how the courts have tended to see the issue, however.

To date, only a couple of decisions have come down in support of the view that the Companies Act moratorium clashes with the LRA and the moratorium does not prevent a union from bringing an unfair dismissal claim on behalf of its members.

However, the more common view which has been expressed by the Labour Court is that there is no conflict between the moratorium

provisions of the Companies Act and the dispute resolution provisions of the LRA. The latest decision of this kind was the Labour Court’s ruling of February 8 2021 in the South African Airways (SAA) case. This decision suggests the moratorium in the Companies Act does indeed apply to employmentrelated claims. It confirms that only the high court can lift the moratorium on legal proceedings — even where the Labour Court has exclusive jurisdiction to hear the merits of the claim.

But there is one aspect concerning the moratorium that the courts have not considered yet: whether or not the moratorium specifically applies to a claim brought under section 189A(13) of the LRA. This section creates a specific avenue for dealing with disputes around an employer’s alleged noncompliance with a fair procedure in the context of a “large-scale” retrenchment process.

In such circumstances, to bring the parties back on track, an urgent application for relief may be lodged with the Labour Court.

In the context of business rescue, the question that arises is: What impact does the moratorium on legal proceedings have on employees’ rights to a fair retrenchment process?

Going further, how does the moratorium affect employees’ ability to bring claims in terms of this section of the LRA? Procedural fairness in business rescue The closest this question has

EMPLOYEE LIFELINE

/123RF — JAE YOUNG JU come to being aired in court was in 2020 when SAA’s business-rescue practitioners appealed to the Labour Appeal Court over the timing of retrenchments in relation to the publication of the business rescue plan.

The Labour Appeal Court refused to entertain the business rescue practitioners’ arguments about the moratorium because they had not raised this during the Labour Court proceedings.

While our Labour Court has not yet been required to decide on this issue, there may be scope to argue that the moratorium on legal proceedings should not extend to procedural challenges under section 189A(13) of the LRA. Part of the rationale for the view that there is no general conflict between the moratorium and the LRA is that employees are not deprived of their rights to continue with their claims against the company at a later stage — their claims are only suspended during the business rescue proceedings.

This rationale may not hold true for claims in terms

of section 189A(13), because such claims generally cannot be brought at a later stage.

Doing so would defeat the purpose of the provision — to bring the consulting parties back on track while they are consulting.

Claims for compensation are possible However, where the employer has been under business rescue, the Labour Court may well be prepared to entertain section 189A(13) claims that are brought after the retrenchment process.

While the primary purpose of section 189A(13) is to compel compliance during consultation, an award of compensation may be made if there is no other appropriate relief.

This means it is possible for retrenched employees to bring a claim for compensation against an employer that was under business rescue during retrenchment consultations, provided the claim is made within 30 days after the conclusion of business rescue proceedings.

Also the moratorium is not an absolute bar to section

189A(13) claims. Business rescue practitioners may well provide their written consent to claims that will have no significant effect on the company’s ability to regain its financial health.

Employees and trade unions also have the (more expensive) option of approaching the high court to lift the moratorium so that a section 189A(13) claim may be pursued in the Labour Court.

Venturing into new territory The interplay between company law and employment law in the business-rescue context is still fairly new territory for our courts and it remains to be seen how they will deal with section 189A(13) claims.

In the meantime, employers in business rescue should not be complacent or disregard the rights of employees.

Even if the risk of urgent applications is reduced due to the hurdles potentially created by the moratorium provision of the Companies Act, there are still avenues available to employees to seek relief.