BUSINESS LAW & TAX
OCTOBER 2020 WWW.BUSINESSLIVE.CO.ZA
A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW
Never too late to knock on TikTok’s door over copyright
VIVE LA VIDEO
Tricky to distinguish between dance routines and •lip-synch posts as parody and therefore original Ilse du Plessis ENSafrica
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or the benefit of any adults reading this article, TikTok is a social network for amateur music videos, a global phenomenon that started in China as recently as 2016. What happens is youngsters use 13-second music clips that they can upload to TikTok and add their own little twists, which may take the form of a funky dance or lipsynch. Lots of other youngsters then watch these videos. It’s still way too early to tell whether anyone involved in this process goes on to get a life! Some TikTok videos become huge and there are a number of performers who
have become global stars with enormous followings and brand endorsements. The focus now seems to be shifting to copyright issues, as it should. An article that appeared in the IPKat blog entitled “TikTok Signs Copyright Licensing Agreements With Music Publishers” addresses some of these issues. The author, Hayley Bosher, makes some interesting points. Bosher suggests that Tik-
THE INTELLECTUAL PROPERTY ISSUES SURROUNDING TIKTOK ARE COMPLEX AND THERE MAY STILL BE SOME WAY TO GO
Tok can actually have a positive outcome for some musicians, in the sense the TikTok videos have the effect of pushing the original recordings up the charts. She lists as an example Lil Nas X’s (yes really, that’s the artist’s name) song Old Town Road which, after going viral on TikTok, holds the record for the longest-reigning Billboard Hot 100 No 1. The music industry and the collecting societies have been trying to negotiate a deal with TikTok for some time, and legal proceedings have been threatened. In July 2020, TikTok signed licensing agreements with certain independent distributors. This was followed up with news that TikTok had signed a copyright licensing agreement with the UK
/123RF — OPTURADESIGN National Music Publishers’ Association (NMPA). Earlier attempts aimed at reaching a copyright agreement ended up with a matter being referred to the UK Copyright Tribunal — the matter was subsequently withdrawn when the parties announced they would try arbitration. As for TikTok users, the terms and conditions they agree to when they upload content state that they remain owners of the copyright. But the rights they purport to grant are so broad and farreaching — there is talk such as unconditional, irrevocable, nonexclusive, royalty-free licences permitting use, reproduction, modification and adaptation of material — that Bosher feels they have the effect of “completely
undermining the entire music copyright system”. Bosher finally considers whether a 13-second video might be regarded as parody, which is significant because parody is sometimes regarded as an exception to copyright infringement. Bosher suggests a mere dance routine would probably not amount to parody, although an elaborate and funny lipsynch routine might. It seems clear that the intellectual property (and particularly copyright) issues surrounding TikTok are complex and there may still be some way to go. But the fact that they are being tackled should probably be regarded as a positive thing. Meanwhile, US President Donald Trump has made sure there are other, non-intellec-
tual property issues to consider. As many readers will know, Trump has been fixating on TikTok for a while. Whether this is because TikTok is Chinese-owned or because it is known to have hosted content that mocks Trump is not clear. But he does seem convinced that TikTok poses a security threat to the US, in the sense that it allows the Chinese state to access or harvest information about US citizens through their cellphones. The president has made big demands: find a buyer of TikTok’s US business or face a ban. Perhaps he sees TikTok as an election winner? The chances are we will be talking about TikTok for some time to come. Even those of us who aren’t singing or dancing along to it!
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX
Prepare for a wave of postCovid tie-ups
STRONGER TOGETHER
more work may have to done to smoothen •theEven passage of merger deals by the authorities Heather Irvine Bowmans
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ovid-19 will affect the economy long after the state of disaster ends. While our competition authorities have been quick to react to the immediate impact of the pandemic, even greater challenges lie ahead. The global experience has been that merger activity is reviving quite quickly as lockdowns around the world ease, and SA may also experience a wave of proposed acquisitions. The recession due to the pandemic may cause some firms already in distress to fail, and profitable firms to battle, particularly in industries which have been hard hit by the social changes wrought by the pandemic (such as sports and entertainment) and sudden shifts in consumer demand (such as brick and mortar retail). It may no longer be possible for diversified companies to carry divisions that are not profitable or core to their business, or to continue with businesses that are still in development. For resilient and well-resourced buyers, the current market offers a chance to acquire quality assets at reduced prices. Acquisitions may be a means to build critical mass and greater resilience against
future events of this kind. Assessing these transactions will present our competition authorities with some tough choices. Consolidation can create greater efficiency and facilitate cost-cutting and investment in new technology. In industries in which scale really matters (such as mobile telecommunications or airlines) combining smaller rivals may preserve their ability to grow and compete more aggressively with their larger rivals in the future. Merging SA competitors could potentially strengthen our national champions and place them in a better position to compete with foreign giants on the global stage. Vertical mergers, which combine firms at different levels of the supply chain, can eliminate double margins and drive efficiencies. However, what traction these arguments will gain with our competition watchdogs is uncertain. Many SA markets are already highly concentrated. In many cases, the potential buyers will be
AUTHORITIES HAVE TO TRY TO FORECAST WHETHER A PROPOSED TRANSACTION WILL BENEFIT OR HARM COMPETITION
firms that already have a substantial market share. Allowing mergers with them may further strengthen dominant firms and affect the competition for years to come. While traditional economic theory recognises that vertical mergers give rise to efficiencies, a significant number of these transactions have been prohibited by the Competition Commission in the past. The recent draft report on its first impact study, in the forestry sector, suggests it may continue to apply high levels of scrutiny to vertical transactions. Although our legislation recognises that a merger that substantially lessens or prevents competition may be approved if it leads to efficiencies that outweigh these anticompetitive effects, relatively few transactions have been approved on this basis in recent years. The Competition Act also envisages that mergers involving a “failing firm” may be approved even if they harm competition, but this doctrine too has seldom been relied on by merging parties in recent years. Allowing further consolidation in SA markets may make it even harder for new competitors to enter, or for existing competitors to participate and sustain themselves. This may potentially harm consumers in the long run, if bulked-up firms with
/123RF — MACGYVERHH market power can charge more, or innovate less. Merger review is by its nature a predictive exercise: competition authorities have to try to forecast whether a proposed transaction will benefit or harm competition. They have to do so based on the economic evidence available, which includes how many competitors there are, and how easy entry into the relevant markets is. Past experience — for example, of whether firms have been able to enter the market, or have been forced out, or how closely two competitors have competed with one another — often provides a valuable guide to what may happen. However, the unprecedented disruption caused by the pandemic across the global value chain will make this predictive exercise even more challenging. What used to be true may no longer hold: we have never before experienced such widespread disruptions locally, or globally. Competition authorities all over the world will have to grapple these issues, including in industries that have already been changing rapidly due to new technologies (such as the taxi industry) or in which the pandemic has dramatically accelerated the pace of change (such as grocery and clothing retail). In SA, however, the merg-
er evaluation exercise is even more complicated, because our authorities are required to assess not only the impact of a proposed transaction on competition in the relevant (defined) market, but also to consider the impact on a number of broadly defined public interest factors, which were significantly expanded in the amendments to the Competition Act in 2019. Balancing public interest effects with efficiency gains is difficult: while consolidation may salvage businesses and drive efficiencies, job losses are deeply unpalatable at a time when unemployment in SA has never been higher, and employees’ chances of finding alternative employment has never been so low. Consolidation may also have disproportionately negative impacts on small, medium and micro businesses and firms owned or controlled by historically disadvantaged people, since they may be disproportionately affected by pricing from their dominant suppliers, or squeezed out by increasingly powerful purchasers. To date, our competition authorities have tended to deal with such public interest concerns by asking merging parties to agree to a “package” of public interest conditions. In some cases, pressure was applied to prevent merging parties from retrenching any
staff, even if proposed job losses are unrelated to the merger, for up to five years. Acquiring firms, especially wealthy foreign ones, are frequently asked to set up small supplier development funds or staff bursary schemes. Although such conditions were initially imposed in megadeals featuring a foreign firm (as in the Walmart/ Massmart merger) only, they have gradually become more prevalent, even in relatively modest local mergers (61% of conditional mergers in the 2018 financial year, and 54% in 2019.) This has imposed significant additional costs: in 2019, in seven instances, the tribunal required of parties to large mergers to commit more than R6bn to local production expansion and to contribute R10.2bn to development funds. While it is relatively easy for acquiring firms to make these substantial commitments when the economy is relatively stable, they may be far more difficult after the pandemic. Merging parties need to anticipate these challenges and help the competition authorities to deal with them. Proactive engagements with trade unions and government departments — whether public interest conditions are feasible, for instance — may need to be held in advance of merger filings with the competition authorities. Since evaluating and balancing these competition and public interest effects are likely to extend the time needed by competition authorities for merger reviews, transaction timetables will need to be adjusted. If claims about efficiencies or failing firms are made, these will have to be substantiated with detailed economic analysis. While the Covid-19 pandemic and its aftermath may spark a fresh wave of merger activity, this is unlikely to provide a free pass for transactions which raise competition or public interest concerns. Merging parties will still have to do their homework if they want to get their transactions cleared.
Proposed new taxation law could hurt contract miners Denny Da Silva Baker McKenzie Johannesburg Contract miners play a significant role in managing a mining company’s capital budgets. From a tax perspective, though, it has been a hotly debated topic for some years as to whether contract miners should be entitled to claim the accelerated capital allowances available to taxpayers conducting “mining” or “mining operations”. On the face of it, it does not seem like much of a debate, and one would assume a contract miner should qualify as an entity conducting “min-
ing” or “mining operations”. However, up until the Benhaus judgment delivered last year by the Supreme Court of Appeal, there was no absolute certainty in this regard. The Benhaus judgment clarified the matter and the contract mining industry breathed a collective sigh of relief as a result. Fast forward to 2020 and in the midst of Covid-19, on July 31 2020, the Treasury released the Draft Taxation Laws Amendment Bill for comment. The bill includes proposed amendments to section 15 and section 36 of the Income Tax Act, effec-
tively noting that capital expenditure allowances are only available to taxpayers who hold the relevant mineral rights. This proposed amendment was alluded to earlier this year as part of finance minister Tito Mboweni’s budget speech, during which he noted it was being considered. The proposed amendment, if passed in its current form, will mean contract miners will not be entitled to claim any accelerated capital expenditure allowances, and will have to claim allowances for capital expenditure in terms of other provisions in
the Income Tax Act. Contract miners will therefore no longer be entitled to claim 100% of the capital expenditure incurred in a particular year, and will instead need to determine whether other allowances are applicable — for example, the 40/20/20/ 20 allowance in 12C, available to taxpayers conducting manufacturing operations. It is clear this will have a significant effect on the contract mining industry. What is not clear, though, is how contract miners will transition from a regime where they were able to claim 100% to a regime
where they cannot claim 100%. More particularly, it is unclear what will happen to the historical allowances claimed under section 15, read with section 36. One would assume, under legal principles, that those allowances previously claimed will remain. The problem, however, is that the so-called “unredeemed capex” can only be used to offset mining income, so contract miners are potentially in the precarious situation of having allowances they cannot utilise. Furthermore, just because a contract miner may be entitled to claim a 12C
allowance, for example, it does not mean it would qualify for the allowance, as some of the allowance provisions are only applicable to new and unused machinery, or machinery brought into use for the first time in a process of manufacture. These are just some of the ramifications of the proposed amendment and we will be making a submission to the Treasury in this regard. However, given that this has been a bone of contention for many years, contract miners would be wise to consider the effect of the proposed amendment on their businesses.
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX FOCUS ON: ETHICS
ESG in mining no longer ‘nice to have’
WHEELS OF CHANGE
increasingly expect environmental, social •andInvestors governance factors to be key considerations Wildu du Plessis & Jo Hewitt Baker McKenzie
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nvironmental, social and governance (ESG) encompasses a broad range of issues across the spectrum of environmental (climate change; biodiversity; waste, water and resource use; pollution), social (human rights; labour practices; health, safety and environment; diversity) and governance (corporate governance; ethics; compliance) matters. The mining sector has become increasingly exposed to ESG risks, which they must address urgently — including concerns around emissions, water use, deforestation and community relations. ESG considerations have moved rapidly from the margins to the heart of decision making and are now considered essential for business survival and resilience, especially in an uncertain, postCovid-19 world. With immediate-term setbacks and delays due to the spread of Covid-19, the definition of ESG is also by necessity growing to encompass a focus on protecting the health of those involved in projects, including workers and the populations where projects are under way.
INVESTOR INTEREST
And as climate change impacts become clearer and nearer, there is a major role for ESG policies to play in helping to mitigate some of the effects, through planning and building for hotter temperatures, higher sea levels and more extreme weather conditions, as well as in seeking to minimise the environmental impacts of projects. Further, ESG reporting obligations and institutional and other investor interest in what resource companies are doing in this space are rapidly increasing. Not only are companies required to be compliant with a growing number of regulations in this area, but practising good ESG is also critical
from strategic, reputational and marketing perspectives. In SA, a plethora of legislation, such as the Prevention and Combating of Corrupt Activities Act 2004, govern ESG factors including business and financial sector conduct, economic and social empowerment and environmental protection. Voluntary codes such as the King 4 Code on corporate governance and the Code for Responsible Investing in SA also serve as a guide. Looking globally, ESG requirements are evolving from loose guidelines to mandatory, country-specific obligations to report and comply. While UK legislation in this area, such as the Bribery Act 2010 (UK) and the Companies (Miscellaneous Reporting) Regulations 2018 (UK), is arguably the strictest, relevant legislation in other countries includes the Foreign Corrupt Practice Act (FCPA) in the US.
THE RELATIONSHIP BETWEEN THE MINING INDUSTRY AND COMMUNITIES CLOSE TO THEIR OPERATIONS HAS BEEN UNIQUE Further, many (often overlapping) voluntary codes and principles also exist, which can make it difficult, particularly for smaller companies, to determine exactly which principles to follow. Some examples of voluntary standards include the Extractive Industries Transparency Initiative (EITI), the Responsible Gold Mining Principles’ the UN Guiding Principles on Business, and the Human Rights and UN Guiding Principles Reporting Framework. When considering which of the voluntary codes to subscribe to, mining companies should remember that, by complying with applicable mandatory ESG requirements, they are likely already complying with certain of the voluntary codes, in which
case it would be possible to sign up to such codes without increasing the overall existing scope of their ESG strategies. In addition, considerations around which of the voluntary codes will likely become hard obligations in the future (eg the EITI principles are being implemented into domestic law in a number of countries) will be relevant, as well as whether its investors are focused on certain codes in preference to others. Risks for noncompliance with the multitude of laws, voluntary codes and best practices governing ESG range from criminal prosecution and hefty fines to reputational risk and business failure. Alongside these developments, actual and perceived noncompliance with ESG regulations and best practices have engendered activist shareholder protests and action against the parent companies of global mining groups.
FUNDING CRITERIA
Investors and lenders are increasingly focused on ESG factors when making investment decisions. This means that, in many cases, to access capital miners now need to demonstrate commitment to ESG concerns and how their project meets (or will meet) relevant ESG standards. Investors concerned about ESG can obtain information from a number of sources in addition to disclosures made under the regulations and codes. Many larger investors will have in-house specialists in this area, but there are also indices and ratings agencies (such as FTSE4Good, DJSI, Sustainalytics and MSCI) that rank companies according to their actual or perceived ESG strengths. A number of institutional investors have publicly committed to taking ESG into account when making investment decisions. Alongside the increased investor focus on ESG, certain lenders are also now prescribing particular ESG principles a company must meet to receive funding. This places scrutiny on miners’
/123RF — JAROMIR CHALABALA management plans and how these will assist the company in meeting its key performance indicators (and, indeed, the ESG requirements set out by lenders). Other bodies, including the World Gold Council, are lobbying for insurance providers to become more involved in the ESG movement, in particular by requiring mining companies to uphold ESG principles to be eligible for insurance policies. However, in addition to informing the way in which investors deploy their capital in the first place, ESG factors have also led to a rise in shareholder activism, whereby existing investors use their shareholding to seek to influence the relevant company’s ESG performance. In the oil and gas industry, groups such as Follow This have been making themselves known at annual general meetings, often diverting attention from other key strategic messages boards wish to communicate. We anticipate the mining industry will soon follow as a target. To stay competitive in the market, it will be important for miners to engage meaningfully with ESG and to build (and, in some cases, publish) a clear and robust ESG strategy that speaks to both the mandatory and voluntary ESG standards and codes and also works for their strategic priorities. A drive to meet ESG targets should in theory have a positive impact on the mining industry, help to assuage
TO STAY COMPETITIVE IN THE MARKET, IT WILL BE IMPORTANT FOR MINERS TO BUILD A CLEAR AND ROBUST ESG STRATEGY
investor concerns and promote continued investment. However, as evidenced by the ongoing Exxon security fraud case in the US, as ESG targets rise, so does accountability. While this case hinges on the price of carbon emissions, climate costs and the forecasting of future policy impacts, it acts as a reminder that companies need to be both ambitious and realistic about what they can deliver.
CORPORATE GOVERNANCE POLICIES
Mining companies should consider the voluntary codes applicable in each sector and jurisdiction in which they operate (or have entities incorporated) and prepare a group-wide strategy for complying with the requirements. When considering which voluntary codes to subscribe to, it is worth bearing in mind that certain voluntary codes may become hard obligations in the future, and so may be worth considering now. For example, the EITI principles are being implemented into domestic law in a number of countries. Further, a mining firm may already be complying with certain of the voluntary codes by way of compliance with applicable mandatory codes, in which case it would be possible to sign up to such codes without increasing the overall existing scope of the ESG strategy. In addition, different investor groups may be more focused on certain codes than on others — companies may wish to discuss priorities with key investors.
FUNDAMENTAL CHANGE
There is a fundamental change in the way our financial system and our economy as a whole work. With the adoption of the UN sustainable development goals and the Paris Climate Agreement
and a global move towards stakeholder capitalism, onedimensional, short-term maximising of profit is no longer a viable option for companies. ESG strategies are no longer a “nice to have”; they are essential to companies’ licence to operate in the long term, especially postCovid-19. The relationship between the mining industry and communities close to their operations has always been unique. But Covid-19 has shone a brighter light on the ESG values stakeholders at all levels expect the mining industry to uphold, including how mining companies protect and ensure the safety and health (as well as the livelihoods) of both their workforce and local communities. Covid-19 has necessarily meant that the emphasis has shifted towards the “S” of ESG, but that doesn’t mean the other areas do not still garner attention. Recent events in the industry have demonstrated that investors require ESG factors to be considered at all levels of the corporate decision-making process and will demand accountability at a senior level where these expectations are not met. Covid-19 has also been a catalyst for a notable shift in the way the mining sector operates at the asset level, the most obvious being the move towards increased remote working. This has the potential to bring wider social benefits in attracting and retaining a diverse range of talent, as well as reducing the carbon footprint of the industry. By continuing to draw on and develop these efficiencies, and in playing a leading role in the setting of health and safety-related standards for its workforce, the mining industry is well placed to embrace and drive the ESG agenda for others to follow.
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX LATERAL THINKING
Lessons on ethics from Africa
An inherent •sense of
community is central to a person’s moral conduct, writes Evan Pickworth
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s we contemplate messages from Ethics Month around the world, it is a time for deep reflection and introspection by state and private sector actors in SA. A rogue’s gallery of SA business people, politicians and parastatal managers rank highly on the list of global crooks who put their interests above the needs of societies, economies and the poor and downtrodden. Their recent abysmal conduct is among the reasons there is a need to raise awareness for a month about basic standards of ethics and stewardship in the first place. From Steinhoff to the Guptas and state capture, all the way to Eskom and lights out, most people are fed up with it all and calling for radical change — together with orange overalls for the bigger fish who continue to cause the rot. This is nothing new, however. An article in the Harvard Business Review in 1993 laid bare the challenges of asking people in the business world to place ethics before profits. Granted, with professions such as law and science, it is easier to draw the line between the needs of people and the push for profits. The early 1990s, however, was when business ethics started gaining ground as a new core component within curricula in business schools. Before that, balance sheets, earnings, sales and the bottom line ruled the roost. It was actually the social responsibility advocates of the 1970s who got the ball rolling towards business
ethics as a new managerial discipline. However, what quickly became apparent was many business ethicists found the precepts of corporate social responsibility profoundly dissatisfying. Harvard makes the point that business ethicists have two basic problems with the enlightened self-interest answer to the question of why managers should be ethical. First, they disagree that ethical behaviour is always in a company’s best interest, however enlightened. Second, they object that even when “doing good” is in the company’s best interest, acts motivated by such selfinterest really can’t be ethical. The expectation from managers often leaves them bewildered and there is no clear solution, no matter how many new iterations of the King Code are thrown at the C-suite. The problem is that it is within the grey area of what is good for the company and shareholder (and can be conveniently fitted within a tickbox compliance exercise) vs what is truly ethical behaviour that corrupt politicians and business people have crept, operating with reckless and almost unchecked abandon for way too long.
MANY BUSINESS ETHICISTS FOUND THE PRECEPTS OF CORPORATE SOCIAL RESPONSIBILITY PROFOUNDLY DISSATISFYING The world has had enough with companies and individuals operating on the edges of the ethical spectrum to selfish ends at the cost of other important societal needs. In her excellent recent book Reimagining Capitalism, Rebecca Henderson highlights the need for a longer-term focus on the environment, society and governance, which leads to sustainable profits anyway. The double-digit GDP losses caused by climate change alone in the near future should be enough to realise that the effects on the globe — and notably its agricultural supply chain — will be too severe to contemplate. Strong calls for a broader ethical foundation are being heard, including in Africa. It is time for change and for true leaders to step up and set course in a new direction. A superb article by famous Ghanaian philoso-
MORAL COMPASS
/123RF — OLIVIER LE MOAL pher Kwame Gyekye, in the Stanford Encyclopedia of Philosophy, highlights the concept of ethics from an African perspective. A deeper understanding of the approach to ethics in Africa may also hold the key to how companies can overcome their mental block with why and how ethics needs to be applied more broadly. Of course, the notion of ethics refers to a set of social rules, principles and norms that guide or are intended to guide the conduct of people in a society, and as beliefs about right and wrong conduct as well as good or bad character. African humanitarianism and communitarianism often do not feature strongly in this discussion, which mostly veer towards Aristotle’s virtue ethics and try to fit that round block into the square hole of the modern economy. However, these principles may indeed offer some solutions to the global debate about ethics, which tend to focus on individual duties and morality in isolation. They may also solve the problem of
WITH PROFESSIONS SUCH AS LAW AND SCIENCE, IT IS EASIER TO DRAW THE LINE BETWEEN THE NEEDS OF PEOPLE AND THE PUSH FOR PROFITS
business ethics highlighted by Harvard — a business is itself a part of the community and it needs to do what is right for the community it serves to be called a success. Approached this way, many businesses would never need to lose sleep over whether to act in their enlightened selfinterest or not. The paper by Gyekye notes that a substantial number of sub-Saharan African languages do not have words that can be said to be direct equivalents of the word “ethics” or “morality”. So a number of inquiries were made from native speakers of a few African languages and how statements about a person’s ethical or moral conduct are expressed in those languages, including two of the prominent languages in Ghana, Akan (the author’s native language) and Ewe. When a speaker of the Akan language wants to say, “He has no morals” or “He is immoral” or “He is unethical” or “His conduct is unethical”, he would almost invariably say, “He has no character” (“Onni suban”). The statement, “He has no morals” or “He is unethical” is expressed by a speaker of the Ewe language as “Nonomo mele si o” (which means “He has no character”). In Yoruba language and thought, the word “iwa” means both character and morality (it also means “being” or “nature”).
In Igbo language of Eastern Nigeria, the word “agwa”, meaning character, is used in such a statement as “He has no morals” (“Onwe ghi ezi agwa”). In Shona, the language spoken by a substantial majority of the people of Zimbabwe, the word “tsika”
STRONG CALLS FOR A BROADER ETHICAL FOUNDATION ARE BEING HEARD, INCLUDING IN AFRICA means “ethics” or “morality”. But when they want to say of a person that “He has no morals” or “He is unethical”, they would often use the word “hunhu”, which directly means “character”. Thus, “Haana hunhu” means “He has no character”, “He is not moral”, “He is unethical”. In South Sotho, a language spoken widely in Lesotho and southern Zimbabwe (Matebeleland), there are no words that are the direct equivalents of “ethics” or “morality”. References to the moral or ethical life or behaviour are made using words that mean behaviour or character. Thus, moral statements such as “He has no morals” or “His action is unethical” will be expressed by words such as “maemo” — which means
character or behaviour: thus, “Maemo a mabe” means “He has a bad character”, “His behaviour (action) is unethical.” When a person behaves (or acts) in ways that are morally right, they would say “He has a good character”, using the words “lokileng” or “boitswaro”, both of which mean good character or good behaviour. These concepts are often misunderstood, but I agree with Gyekye that recognition in the African ethical traditions of all human beings as brothers by reason of our common humanity is indeed a lofty moral ideal that must be cherished and made a vital or robust feature of global ethics in our contemporary world. In his stirring words: “It is a bulwark against developing bigoted attitudes toward peoples of different cultures or skin colours who are, also, members of the universal human family called race.” ● Evan Pickworth, an admitted attorney, is editor of Business Day’s Business Law & Tax.
A BUSINESS IS ITSELF A PART OF THE COMMUNITY AND IT NEEDS TO DO WHAT IS RIGHT FOR THE COMMUNITY IT SERVES TO BE CALLED A SUCCESS
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX
Beating trademark squatters
ways •toThree protect
STAY ON THE BALL
against brand opportunists
Chiraag Maharaj Adams & Adams
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acing mounting pressure from major retailers and the public, the Washington Redskins NFL franchise finally announced it will be retiring its controversial Redskins name and logo. The team’s name has been widely contested, with a decades-long campaign from Native American groups, describing it as a “dictionarydefined racial slur”. While the possibility of a team name change has been circulating for years, it appears the franchise has not yet taken steps to secure ownership rights to use some of the more likely, or popular, replacement names that have been suggested. According to the Law.com Daily Business Review, someone who is keen to “steal a play” on one of the NFL’s oldest franchise’s nam-
/123RF — YANNAWIT DHAMMASARO ing predicament is an American entrepreneur, Philip McCaulay. Quick to his feet, he has been registering a host of potential Washington franchise names for apparel and merchandise, as well as websites that feature American football content, with trademarks such as “Washington Americans”, “Washington Bravehearts”, “Washington Federals” and “Washington Gladiators”. In an attempt to derive as much as possible from this sneaky yet “lucrative” opportunity, McCaulay has filed additional intent-to-use applications for these possible trademarks.
Law.com Daily Business Review indicates that US trademark law allows for an application to be filed on an intent-to-use basis before the mark is actually used commercially to secure a priority date. In other words, the application will not proceed to registration until use of the mark in commerce begins and can be proven. Nonetheless, McCauley’s actions have all the hallmarks of “trademark squatting”. Simply put, trademark squatting (or hi-jacking) is where one party intentionally files a trademark application for another party’s registered trademark in a country
where the second party does not currently hold a trademark registration. Or in the Washington Redskins case, the trademark squatter registers a mark with the intention of selling it to the brand holder or another willing third party, often for an outrageous price. A more elementary version of this sort of “bad faith” commercial squatting would be a case of registering a website domain before a brand holder is able to secure it — or cybersquatting. As confirmed by the Law.com writers, the US follows a first-to-use rather than a first-to-file system, “so a common law user who proves it has priority in the mark would likely be successful in challenging a registration on that basis”. In attempting to show he is using the “opportunistic” trademarks in commerce, McCaulay is producing branded T-shirts, caps and other merchandise. But if one of his choices hits the mark, then a challenge by the NFL franchise would likely turn on whether he genuinely intended to, and did in fact, use the trademarks commercially. The main motivation
behind trademark squatting is simply to make money, even more so in jurisdictions where instituting invalidation proceedings is lengthy and expensive. The squatter knows if the brand holder is not prepared to wait and then institute cancellation proceedings based on nonuse, then the easiest thing to do is to pay the squatter off. What can brand holders do to fend off the unpleasant menace? The brand owner should quickly search and register all possible trademarks. This would include all trademarks to be used,
THE MAIN MOTIVATION BEHIND TRADEMARK SQUATTING IS SIMPLY TO MAKE MONEY including names, labels, logos, slogans, acronyms and devices. Consider filing the trademarks in all classes that are relevant or that may be relevant as part of a growth strategy, and pay specific attention to subclasses.
Companies should consider registering their mark in any countries in which: ● Their goods or services are sold; ● Products or parts for their products are manufactured; ● Research & development facilities are located; ● Their products pass through during shipping; ● They might expand their business in the future; and ● Counterfeiting is known to be a problem. Brand owners should ensure that they have properly drafted contracts in place with their suppliers and distributors, particularly those based in other jurisdictions. Protecting one’s intellectual property (IP) is costly, but it is surely nothing compared with the cost of trying to claim it from a “resourceful” squatter. It is important to engage an IP law professional who would be able to help identify and quantify your IP assets, then devise a plan to protect and commercialise those resources. In the meantime, it will be interesting to see whether McCaulay’s “Hail Mary” gamble pays off or whether he’ll be caught offside with a load of unusable shirts and coffee mugs.
LABOUR PAINS
What gets employers into trouble with retrenchments
I
f you want to know what typically gets employers into trouble in retrenchment disputes, look no further than inadequate consultation and unfair selection criteria. To begin with, employers have an obligation, in respect of section 189(2) of the Labour Relations Act, to conclude “a meaningful joint consensus-seeking process and attempt to reach consensus” on essentially three things. First, ways of avoiding the proposed retrenchments; second, if unavoidable, ways of delaying the timing of the proposed retrenchments; and third, ways of mitigating the adverse effects of any confirmed retrenchments, including how much severance pay is to be paid. As has been confirmed in case law over time, including Van Vuuren v Mondelez South Africa (Pty) Ltd [2019] 3 BLLR (LC), a mechanical checklist approach is inappropriate, and will result in a presumption of unfairness. As confirmed by the labour appeal court in Wanda v Toyota SA Marketing [2003] 3 BLLR (LAC), there is
TONY HEALY no legal requirement that consensus is reached, though there must be clear evidence of the fact the employer nonetheless sincerely endeavoured to facilitate a joint consensus-seeking process, even though that process was ultimately unsuccessful. The emphasis is on there being evidence that the joint consensusseeking process followed by the employer, was meaningful. In Association of Mineworkers and Construction Union (Amcu) and Others v Shanduka Coal (Pty) Ltd, [2013] JOL 29787 (LC), the labour court confirmed that “it is well established that the consultation process envisaged under section 189 is intended to be a joint goal orientated problem solving process. It is one in which the parties ought to try to
reach a common understanding on the need for and extent of any retrenchments. In examining the need for retrenchment, the parties must, as a matter of logic, and in terms of sections 189(2)(a)(i) and (ii), explore if there are ways of addressing the operational need without shedding jobs, or at least by minimising job losses. If job losses cannot reasonably be avoided there is a need to look at what can be done to ameliorate the position of those who will be affected and how they will be selected for retrenchment. “Ideally, the logical progression of discussions would follow the sequence of issues set out in section 189(2). However, discussion on these issues often proceed in tandem, so that selection criteria might be discussed even though parties have not yet agreed on the need or extent of any retrenchments. Nothing prevents this happening but to avoid misunderstandings parties would be well advised at each round of consultations to review what has been agreed, what is still unresolved but requiring further consultation, and
what is unresolved but where neither party has anything new to suggest which might break the impasse on an issue.” However, employers who lose retrenchment cases most often do so because it has been determined the criteria adopted to select the retrenched employees were unfair. Section 189(2)(b) of the Labour Relations Act states that “the employer and the consulting parties must in the consultation envisaged by subsections (1) and (3) engage in a meaningful joint consensus-seeking process and attempt to reach consensus on the method for selecting the employees to be dismissed”. Section 189(7) of the Labour Relations Act continues on this theme in adding that “the employer select the employees to be dismissed (retrenched) according to criteria — (a) that have been agreed to by the consulting parties; or (b) if no criteria have been agreed, criteria that are fair and objective”. The significance of this section of the act was emphasised in Singh v Mondi Paper [2000] 4 BLLR (LC) —
“the selection process must rank as the most fundamental issue for scrutiny in order to determine whether the dismissal was fair or not. An employer can get everything else right but if the selection process during which the employees who were ultimately dismissed is found to be unfair and subjective, the entire process is flawed thereby.” The criteria to be adopted in the selection of potential retrenchees is something which must be consulted on; the employer may not simply unilaterally impose cast-instone selection criteria. If consensus cannot be reached on the selection criteria in the consultation process, the employer is then entitled to unilaterally identify selection criteria, as long as they are fair and objective. And that’s the rub — all too often, selection
ALL TOO OFTEN, SELECTION CRITERIA ADOPTED BY THE EMPLOYER ARE HELD NOT TO HAVE BEEN FAIR
criteria adopted by the employer are held not to have been fair and objective. It must be remembered that retrenchment is a socalled no-fault dismissal, and as noted by the labour appeal court in Porter Motor Group v Karachi [2002] 4 BLLR (LAC), the “code of good practice on dismissal in Schedule 8 to the act … lists length of service, skills and qualifications as generally accepted considerations”. That said, evolving case law does recognise that certain other criteria may be considered fair and objective. For example, in Numsa & others v Columbus Steel (Pty) Ltd [LC: case number JS529/14] the court confirmed that an “employee’s disciplinary record and attendance records, which by any account are objective benchmarks” together with “conduct, experience, skill, adaptability, attitude, potential, and the like, are on the face of it, acceptable selection criteria”. ● Tony Healy is MD at Tony Healy & Associates Labour Law Consultants, www.tonyhealy.co.za.
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX
Update on the state of Ters
Slow rate of •relief payments
CORONAVIRUS CHAIN REACTION
has created stress in the workplace
Jonathan Goldberg & Natalie Singer Global Business Solutions
T
he Temporary Employer/ Employee Relief Scheme (Ters) was negotiated and instituted at the end of March when SA entered the period of hard lockdown. Although hailed with a welcome sigh of relief by employers and employees, in the past six months this scheme has had a number of challenges. Some of these were: ● Criticism from employers and employees over continually delayed payments, valid applications that were denied and bad administration; ● Technical challenges with the Ters portal; and ● Allegations of corruption in the form of applications being made on behalf of fake ID numbers and dead people. At the time of writing this article, the Ters claim period had been extended until September 15 (with the wording of the direction stating it would continue as long as the Disaster Management Act is in effect). But pay-
/123RF — ANASTASIIA CHEPINSKA ments had been suspended because of risks identified in the system and the need for the Unemployment Insurance Fund (UIF) to implement mitigation interventions.
WHY TERS NEEDS TO WORK
Every day, there are more and more people who are losing their jobs as a result of Covid-19 and the impact on the economy. The Quarterly Labour Force Survey (QLFS) for the first quarter of 2020 states that the unemployment rate is sitting at 30.1%. As Stats SA was unable to conduct the QLFS via face-to-face interviews, as it normally does, owing to Covid-19 restrictions, the body has had to conduct the survey via telephonic interviews. This has delayed the release of the second-quarter QLFS figures. However, as GDP dropped by 16% between the first and second quarters of 2020 (which is even more than the same period in 2009, the height of the global financial crisis), the rate of unemployment is
doubtless set to increase. There can be no doubt that Ters, currently valued at more than R40bn, has provided relief to employees and their employers who have been able to put off retrenchments while restarting their businesses and resuming normalcy. However, the slow rate of payment has created pressure and stress for both employees and employers and unfortunately led to
WHEN PEOPLE’S LIVELIHOODS ARE AFFECTED THROUGH NO FAULT OF THEIR OWN, THEY WILL TAKE MATTERS INTO THEIR OWN HANDS escalating tensions at the workplace. When people’s livelihoods are affected through no fault of their own, they will take matters into their own hands, as can be seen with the case
of Macsteel Services Centre (Pty) Ltd SA v Numsa obo Members (LC) (June 3 2020) J483/20. The employer approached the labour court to prevent a strike by Numsa based on changes to salaries. The employer closed its operations on March 27 2020 because it was not an essential service. The employees received full pay during the first phase of lockdown. The no-work, no-pay principle was not applied. In May, employees were asked to take a 20% reduction in salary (which would be assessed after three months). These measures were introduced to avoid job losses. On May 1 2020, the employer resumed its operations but only at 50%. Numsa rejected the proposal on behalf of its members and demanded full pay. The employer proceeded to implement the reduced pay. Numsa referred a dispute relating to the unlawful unilateral change to the terms and conditions of its members’ employment and a notice to strike was sent on
May 26 2020. On May 28, Numsa and its members went on strike, but the strike was not in compliance with section 64 of the Labour Relations Act. The employer approached the labour court to declare the strike unlawful. The court found there was no obligation on the employer to pay salaries during the lockdown when they were not permitted to operate or work. However, after that, employees who rendered services were entitled to their salaries. While the court appreciated the circumstances brought on by the Covid-19 pandemic, the reduction to 80% was problematic. Numsa required an undertaking from the employer regarding salary shortfalls. The employer was not able to give this and so the court held that this leaves them wanting for compliance with section 64 (4). The judge commented that the strike could have been avoided through discussion at conciliation and the application could have
been avoided through constructive engagement between the parties. The application was dismissed. There was no costs order. The labour court judgment confirms the correct legal approach is that, where it is legally impossible for employees to perform services, the tendering of services by these employees is irrelevant and the employer is entitled to implement a no-work, no-pay principle, based on the legal impossibility of both parties performing. We hope Ters will be able to honour its obligations to existing claimants and continue to pay out meaningful relief to those employees whose earnings continue to be affected by the coronavirus pandemic, through temporary lay-off, short-time or reduced salaries. Business recovery will require both employers and employees to pull together to focus on re-building and seeking sustainable solutions into the future.
CONSUMER BILLS
Human rights ignored in Caster’s court challenge
W
e have all just suffered a defeat at the hands of the Swiss supreme court in Caster Semenya’s challenge of the World Athletics regulations which oblige her and other women athletes to suffer drug intervention or surgery which would make it impossible for them to continue running successfully in their chosen events. Semenya has suffered under a system which is flawed from start to finish. It needs a total overhaul. World Athletics is situated in the privileged enclave of Monaco with expensive offices paid for by the many successful world athletes, each with their own genetic advantages that the crowds pay to see in action. This means Swiss law is not applicable to the merits of the dispute and the case has no connection to Switzerland other than that the Court of Arbitration for Sport (CAS) is
PATRICK BRACHER situated in Lausanne, Switzerland, an elite and expensive jurisdiction. The parties to CAS proceeding can authorise the adjudication panel to decide the matter according to what is equitable and good. World Athletics refused to submit their regulations to an equitable process. In its decision, the CAS ignored submissions from the UN High Commissioner for Human Rights and it ignored affidavits from human rights lawyers in SA, India, England, UK, Canada and the US condemning the regulations. The panel said it was not able to undertake an
assessment of the likely impact of the regulations on wider society because “multifaceted sociological issues are not amenable to judicial resolution by the panel”. The CAS decided to look at legal rules and not international human rights. It recognised that the inclusion of the 1,500m and one-mile events in the regulations was based at least in part on speculation and invited World Athletics to reconsider its inclusion of these events. World Athletics refused to do so. The European Court of Human Rights has suggested that the CAS is a specialised body which is capable of “prompt and cost efficient resolution of sports disputes”. If being required to find millions of rands to pursue rights in Switzerland is said to be cost efficient, it reflects the privileged nature of the bodies concerned and a complete disdain for what
access to justice means. What did the Swiss supreme court do? It found it could only review the award from the perspective of a limited set of grounds whether the CAS decision was based on “essential and widely accepted values prevailing in Switzerland”. It is impossible for a litigant to find out in advance what the judges believe those values are. The court admitted it is an extremely rare occurrence for an award to be set aside on this ground. Nor, according to the court, are sports associations directly subjected to the European Commission of Human Rights. Switzerland has a constitution but, unlike the SA’s bill of rights, it only applies to relationships between the state and individuals. The court held that the regulations do not make participation in the specified events impossible
because athletes can either agree to submit themselves to untested drugs or surgery (and stop winning) or go and run in some other events they have never trained for. Consider what the five judges found: while it is true that such a refusal will result in the impossibility for some women athletes to take part in their best events, it cannot be accepted this consequence could “in and of itself, amount to a violation of the individual’s human dignity” because the rights of other women athletes to win races is a more important value. Terminating a career by forcing drugs or surgery on someone to let other women
MOVE YOUR BASE TO A COUNTRY LIKE SA WHICH HAS A BILL OF RIGHTS THAT PROTECTS INDIVIDUALS
runners win races is apparently not in breach of public policy in Switzerland. Extraordinarily, they justified their decision with reference to previous findings in doping cases when it is World Athletics who are doing the doping. I have a challenge for the CAS and for World Athletics. Move your base to a country like SA or Canada which has a bill of rights that protects individuals and is firmly grounded in international human rights values. Then you can immerse yourself in broader social issues and surround yourself in international legal norms and champion properly-tested fairness in sport. My challenge to Switzerland is: download our bill of rights free of charge and adopt it as your own. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.
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BusinessDay www.businessday.co.za October 2020
BUSINESS LAW & TAX
Cloud: getting some privacy
migrating it is imperative •thatBefore organisations consider a data
UP IN THE AIR
protection impact assessment
Isaivan Naidoo, Rakhee Dullabh & Lucinda Botes ENSafrica
T
he cloud is now the preferred location for many businesses to host their data. The cloud comes with many benefits, such as increased security, reduced infrastructure investments and operational efficiency. Cloud products are also attractive because of their flexibility, scalability and ease of implementation. However, as enticing as these benefits sound, it is imperative that organisations consider the privacy implications before migrating. Conducting a data protection impact assessment (DPIA) is one method that could help minimise the risks. Data privacy matters because when data containing personal information is transferred to the cloud:
● You lose control over that data; ● The cloud provider becomes an operator as defined in the Protection of Personal Information Act, 2013; and ● It could amount to a transborder transfer of personal information if the cloud servers are located outside SA. A responsible party must ensure any processing is compliant with Protection of Personal Information Act, appropriate operator agreements are concluded that impose obligations on the cloud provider to protect data, and that any transborder transfer of personal information is done lawfully. Therefore, it is critical to understand and assess the privacy risk of moving into cloud from the outset, especially since you as a responsible party will ultimately be liable if anything goes wrong. A great way to understand and essentially minimise pri-
/123RF — VIPERAGP vacy risks is by conducting a DPIA. The act does not mandate that DPIAs be conducted on a project-specific basis, unlike the EU General Data Protection Regulation (GDPR), which specifies that an assessment of the impact of any envisaged processing activity be conducted in instances where “a type of processing activity, in particular, using new technologies and taking into account the nature, scope, context and
purposes of the processing, is likely to result in a high risk to the rights and freedoms of natural persons”. It is our view that conducting a DPIA is best practice and should apply in the SA context, especially in instances where migrating or using the cloud is considered. Drawing from the guidance provided by the UK’s Information Commissioner’s Office, a DPIA is a process designed to help you system-
atically analyse, identify and minimise the data protection risks of a project. A DPIA entails identifying your processing activities and the purposes of processing, then assessing the necessity and proportionality of the processing in relation to the purpose, including assessing the risks to the rights of the data subjects. A DPIA is not intended to eliminate all risk but assists in minimising the risks posed
by your processing activities and helps you determine whether or not the risk is acceptable. Once the risks have been identified, a DPIA also helps you determine how those risks can be mitigated. For example, after conducting a DPIA, you may find you require additional undertakings in your agreement with your cloud provider. Over and above this, a DPIA helps to demonstrate to any interested party —the information regulator or affected data subject or in the event of a data breach or complaint being raised — that as a responsible party you have taken all reasonable steps to assess and mitigate any data privacy risks. Data privacy risks are only a subset of risks that need to be considered; organisations should also consider the financial, operational and technological risks when migrating to the cloud. To this end, we have developed a cloud risk matrix to help organisations understand the risk associated with a cloud provider and assist businesses to make informed decisions about the cloud.
COMPETITIVE EDGE
Study weighs up effects of forestry sector mergers
T
he Competition Commission has conducted its first impact study by virtue of the new section 21A of the Competition Act 89 of 1998, which expands the commission’s ability to study the impact of any decision of the South African competition authorities. The enactment of section 21A aims to address the challenges faced by small and medium-sized enterprises (SMEs) and firms owned by historically disadvantaged persons (HDP firms) trying to enter and participate in the economy. The commission has used its new powers to assess the cumulative effect of merger control decisions and complaint investigations in the forestry sector over the years. It has highlighted the trend of vertical integration (where larger private commercial operations are participating in different levels of the supply chain, especially forestry plantations and processing mills) and is concerned about the impact this has on the security of supply of logs to nonvertically integrated downstream players and smaller vertically integrated players.
COMPETITIVE EDGE The commission is particularly concerned it has so far failed adequately to address these issues as well as the sustainable participation of SMEs and HDP firm entrants in the forestry sector. The commission is concerned vertical integration and long-term contracting in the forestry sector has resulted in the foreclosure of SMEs and HDP firms that are not able to compete with the larger incumbents. SMEs and HDP firms, especially new entrants in the market, face overwhelming odds in building a sustainable business. Challenges begin with securing access to log supplies. This results in these firms experiencing difficulties in planning their production, committing to their customers and being successful in tenders. In its preliminary findings, the commission noted that
competition law has a role to play in preserving and protecting access to log supply for SMEs and HDP firms. The state also has a role to play through the implementation of industrial policy which, for example, directs the mandates of state-owned entities (SOEs) and development finance institutions (such as the IDC) to develop and support stable, long-term supply agreements with SMEs and HDP firms and invest in the upgrading of milling operations. Private-owned entities should also be incentivised to promote long-term procurement and/or supply contracts with SMEs and HDP firms. In light of this, the commission set out preliminary recommendations to address its concerns, including the following: ● Mandatory notification of all forestry mergers involving an acquisition of plantation assets by vertically integrated firms. The commission explained this will continue until there is evidence of improved conditions for the sustainable participation of SMEs and HDP firms in the forestry sector. In conducting merger assessments, the competition authorities must be cognisant of the need to
preserve SME and HDP firms’ access to log supply to prevent the continued erosion of opportunities and the ability for these firms to participate competitively in the forestry sector. ● There should be mechanisms in place which facilitate co-operation arrangements between SMEs and HDP firms, such as collective purchasing or joint ventures, subject to compliance with the Competition Act. The commission identified policy tools such as industry-level agreements and revised SOE mandates as means of ensuring greater security of input supply and greater stability in sales prospects for SMEs and HDP firms. ● The state could endeavour to determine potential public construction, timber structures and furniture opportunities to support the conclusion of longer-term contracts with downstream SMEs or HDP players. Similarly, in the private sector, commercial firms (such as mining or building supply companies) have been identified as important customers of forestry products and should be incentivised to contract with the SMEs and HDP firms.
● State development financial institutions should be required to consider smaller financing packages for the upgrading of milling operations of SMEs and HDP forestry firms, as well as the financing of the acquisition of plantation assets. The reliance on development finance emanates from the paucity of funding available to SMEs and HDP firms from commercial lenders. ● The state should consider dividing reclaimed state plantations and allocating portions to a few SMEs and HDP firms for management rather than allocating large portions to a single firm. Furthermore, plans should also be put in place to support and incentivise the new owners of forestry reclaimed land to engage in forestry farming. The recommendations of
THERE SHOULD BE MECHANISMS IN PLACE WHICH FACILITATE CO-OPERATION ARRANGEMENTS BETWEEN SMES AND HDP FIRMS
the commission appear to focus on the objective of achieving longer-term supply and demand stability for SMEs and HDP firms. The commission is relying on competition and industrial policy as well as effective enforcement and cooperation between the relevant authorities to enhance competition and reduce concentration in the forestry sector. The commission’s nonconfidential version of the impact assessment report dated July 31 2020 can be found on its website. Public commentary and stakeholder submissions on the preliminary findings and recommendations of the commission were due on September 16 2020. It remains to be seen how the impact assessment will be received by the relevant stakeholders and whether the recommendations of the commission will be enough to ensure SMEs and HDP firms are able sustainably to enter, expand and compete in the forestry sector. ● Mark Garden is a director, Tayla Theron a senior associate and Sphiwe Dlamini a candidate attorney at ENSafrica.