DATA PROTECTION & PRIVACY | GETTING THE DEAL THROUGH

Getting the Deal Through has published the sixth edition of Data Protection & Privacy, which is available in print, as an e-book and online here. Getting the Deal Through provides international expert analysis in key areas of law, practice and regulations for corporate counsel, cross-border legal practitioners, and company directors and officers.

This volume covers many of the most important data protection and data privacy laws in force or in preparation throughout the globe. The laws governing data protection are becoming ever more significant as information becomes indispensable to commercial and public life. Topics covered include: breaches of data protection, exemptions, other affecting laws, PII formats, legitimate processing, notifications, accuracy, security obligations and breaches, registration formalities, penalties, transfers and internet use and electronic communications marketing. Danie Strachan and André Visser, both Partners at Adams & Adams, provided content for the South Africa Chapter.

To purchase the full publication CLICK HERE.

To read the South African Chapter CLICK HERE

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Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Data Protection & Privacy 2018, (published in August 2017; contributing editors: Hunton & Williams) 

DANIE STRACHAN

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ANDRE VISSER

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SANDTON & CAPE TOWN LAW SEMINAR SERIES HIGHLIGHTS LATEST INTELLECTUAL PROPERTY AND COMMERCIAL LAW DEVELOPMENTS

The annual legal Crammer events presented by leading intellectual property and commercial law firm, Adams & Adams, took place recently in Johannesburg and Cape Town, respectively – bringing together in-house legal representatives, entrepreneurs and executive decision-makers for a morning of intensive panel discussions and presentations. In focusing on trade mark, copyright, patent, commercial and property law developments, legal professionals and industry guest speakers reviewed interesting updates and legislative developments on subjects ranging from innovation funding, copyright and brand development, to data protection and a number of significant IP and commercial case law studies.

In various discussions – mainly centred on trade marks, patents and commercial law – speakers brought attention to topical matters affecting organisations in a South African context. An enthralling keynote address was delivered by historian and storyteller, Michael Charton, who, in the spirit of the event, was able to cram hundreds of years of South African history into a thought-provoking and insightful story presentation, “My Father’s Coat.”

The firm’s biggest and boldest Crammer® event to date, subjects ranging from tech innovation funding; to due diligence in IP; data protection and policy in light of happenings such as the “GuptaLeaks”; rules around community schemes; trade mark judgments by the SCA; and a number of significant IP cases drew a great deal of interest. There was even time to squeeze in a fascinating chat about the now-infamous ‘monkey selfie’ by Cape Town Partners, Charné Le Roux and Phil Pla.

“These kinds of innovative events and seminars are an important part of our firm’s efforts in actively engaging with both clients and lawmakers so that we are able to pro-actively promote our customers’ interests,” commented firm Chairman, Gérard du Plessis. “In another innovative move, and as part of our annual Africa IP Network Week in September, Adams & Adams co-hosted the inaugural Africa Patent Examination Summit with the European Patent Office (EPO), where registrars, officials and examiners from twenty African jurisdictions, as well as regional bodies such as WIPO, ARIPO and OAPI met to discuss the various approaches to patent examination available and to gain insights into developments in this regard around the world.”

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GERARD DU PLESSIS

Partner & Firm Chairman
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DARREN OLIVIER

Partner & Crammer MC (Johannesburg)
Trade Mark Attorney

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PHILIP PLA

Partner & Crammer MC (Cape Town)
Patent Attorney

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HISTORICAL DEBT FOR MUNICIPAL SERVICES | CONCOURT RULES THAT NEW OWNERS ARE NOT LIABLE

On Thursday, 29 August, the Constitutional Court of South Africa handed down judgment in an application for confirmation of an order by the High Court of South Africa, Gauteng Division: Pretoria (High Court) that declared section 118(3) of the Local Government: Municipal Systems Act, 2000 constitutionally invalid. This section provides that an amount due for municipal services rendered on any property is a charge upon that property and enjoys preference over any mortgage bond registered against the property.

This judgement is important as it confirms that section 118(3) of the Local Government: Municipal Systems Act should not be interpreted that historical debt for municipal services survives transfer of a property to a new owner.

Click here for the MEDIA SUMMARY

Click here for a copy of the JUDGMENT

 

ROELOF GROVE

Partner
Property Attorney

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THE GOVERNMENT PROCUREMENT REVIEW | SOUTH AFRICA CHAPTER

The Law Reviews has recently introduced the fifth edition of The Government Procurement Review, which incorporates contributions from six continents and 23 countries (excluding the EU chapter).

Leading thinkers at the world’s top law firms provide analysis of global legal issues and their commercial implications. The Law Reviews acts as an essential information tool for practitioners, in-house counsel, governments and corporate officers. Editors are internationally-renowned industry experts in key practice areas with a network of experts that includes more than 1,200 law firms covering 57 areas of law, creating a global road map to help our readers navigate the increasingly complex legal terrain.

The South Africa Chapter on Government Procurement has been authored by Partner, Andrew Molver, and Specialist Consultant, Gavin Noeth.

Read the South Africa Chapter by CLICKING HERE

An electronic version of the full publication can be ACCESSED HERE

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Reproduced with permission from The Law Reviews. The Government Procurement Review (published in August 2017; contributing editors: Jonathan Davey, Amy Gatenby, Addleshaw Goddard LLP)

ANDREW MOLVER

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Litigation Attorney

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GAVIN NOETH

Specialist Consultant
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A SUGGESTED FRANCHISING PLAN FOR AFRICA

Africa needs to develop small and medium sized businesses across the continent. A good vehicle to adopt to substantially contribute towards this initiative, is franchising. This includes adopting successful and appropriate business systems and prudently locating them, so as to as far as possible ensure their success.

The plan should commence with a study of franchising and small business activity, as well as the potential for franchising, by franchise experts, in the relevant country or region. Once the status quo, commencement point, possible supportive regulatory framework and franchise business potential has been determined, a plan should be created to develop and support franchising, small and medium size business development.

It is suggested that a full business concept franchise model be adopted. From a legal perspective this essentially includes, the licensing of intellectual property, usually primarily trade marks, copyright and knowhow, as well as a full business system, by the franchisor to the franchisee, in return for some sort of remuneration and subject to compliance with required standards, the business model and quality control.

Although quality standards and strict compliance with the business system, are onerous to a franchisee, this usually ensures the sustainability and viability of the franchise business, on an ongoing basis. The usual benefits include comprehensive initial training and establishment support, the use of a refined business system and the right to use a trade mark and brand, which enjoys considerable goodwill.

It is to be noted that a pure distributorship agreement, agency agreements, multi-level marketing agreements, also known as network marketing, and pyramid schemes, are not franchise arrangements.

Cognisance should be taken of the franchise industry in South Africa, which is the most developed on the continent, with over 757 franchise systems which include around 35 000 business outlets and offers direct employment to around R330 000 people. These figures exclude a number of franchise systems such as motor vehicle and equipment dealerships, motor vehicle and equipment rental, fuel and service stations, hotels and a number of other businesses, which are franchise systems, but not always viewed as such.

The franchise laws and regulatory framework in South Africa can be used as a basis for consideration. This includes the Consumer Protection Act (CPA) which includes, inter alia, Regulations 2 and 3. Regulation 2 sets out what must be dealt with and included in a Franchise Agreement and Regulation 3 sets out the contents of a disclosure document, which must be given to a prospective franchisee, at least 14 days in advance of signing a Franchise Agreement. Regulation 2 attempts to include the best practices and requirements, relating to Franchise Agreements in such documents.

Pre-contractual disclosure of material issues includes the details of the franchisor, the business system, the expenses and income of a typical franchised business, the costs of the investment, establishment, set up, training and related expenses, as well as the likely working capital and estimated break-even point, as well as all other relevant information, so as to place the prospective franchisee in a position where they are able to properly assess the business to be invested into.

The spirit and intention of the CPA is to provide franchisees with consumer type rights including equality, choice, information, honest dealing, fair value, good quality, safety, privacy, fair and responsible marketing and supplier accountability. The CPA also strives towards reasonableness, equity and no unjust prices.

If at all possible an independent or government and business driven franchise association should be developed and supported, so as to promote ethical and best practice franchising, as well as of course to educate and increase the awareness and benefits, as well as possible pitfalls of franchising.

Franchise education and training are also key elements to develop an awareness and an understanding of franchising and to assist with the development of prospective franchise systems.

In addition to the legal and regulatory frame work, the Franchise Association of South Africa (FASA) has over more than 35 years promoted ethical franchising and best franchising practices. This has substantially supported and assisted with the development of franchising in South Africa and their Code of Ethics and Business Protections, is recommended for consideration.

FASA has also assisted with the establishment of the Pan African Franchise Association (PAFF). It is intended that the members of PAFF will be franchise associations in African countries. The development and establishment of franchise associations in other African countries has been slow and consequently PAFF development has been slow. There are however various PAFF initiatives to develop and support ethical and best franchising practices on the African continent.

So as to support franchising and small business development, various government initiatives should be implemented to support, empower, develop and finance, small, medium and franchised businesses. Miro and social franchising also have a great deal of potential and wherever possible and appropriate, should be considered. A micro franchisor development program should certainly be looked at and considered very carefully.

The protection of intellectual property is a key aspect for investors and franchisors granting the use of their valuable trade marks, copyright, knowhow and business systems, into the African business landscape. Although there are in many instances sufficient intellectual property laws to protect franchisors and investors, the registration and enforcement processes and practices of the intellectual property is usually a lengthy and very drawn out process and can be fraught with difficulties, to the substantial detriment and discouragement of franchisors and investors.

In addition to creating support mechanisms and facilitating the access to funding, entrepreneurship and franchising development, should also be promoted. Best practices and ethical franchising should be encouraged, developed and maintained on an ongoing basis by establishing and maintaining a supportive legal and commercial frame work, keeping up with international trends, attracting required and appropriate franchise systems and business concepts and at all times supporting small and medium sized business development.

Wherever the aforegoing have been promoted, supported and pursued, franchising has thrived, leading to the substantial development of sustainable small and medium sized businesses. Further, as the development, awareness and knowledge of the franchise concept and business model grows and develops, this provides fertile ground for local competitors and entrepreneurs to develop similar and competing businesses, which may then potentially allow those business owners to become franchisors, and if successful, to franchise their brands and business systems, to other aspiring entrepreneurs locally and internationally, leading to economic development and increased employment.

The time is therefore ripe for African governments and businesses to carefully consider this massive opportunity and to take steps along the lines of those suggested above. There is no need to re-invent the wheel. The franchise industry is already well developed in South Africa and in certain African countries, as well as internationally. It is simply the opportunity of making this a priority and then pursuing and supporting best franchise business practices and ethical franchising.

EUGENE HONEY

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DISPUTE RESOLUTION REVIEW | SOUTH AFRICA

The Dispute Resolution Review provides an indispensable overview of the civil court systems of 40 jurisdictions. It offers a guide to those who are faced with disputes that frequently cross international boundaries. This ninth edition follows the pattern of previous editions where leading practitioners in each jurisdiction set out an easily accessible guide to the key aspects of each jurisdiction’s dispute resolution rules and practice, and developments over the past 12 months. The South African Chapter has been authored by Jac Marais, Andrew Molver and Renée Nienaber from Adams & Adams.

Key developments in South Africa over the past year followed global trends and included:

  • Clarification of the effect of a pending application for a restraining order and the scope of issues capable of referral to court in terms of Section 20(1) of the Arbitration Act;
  • Further progress towards more active judicial management of the dispute resolution process;
  • Approval of the International Arbitration Bill; and
  • The Community Schemes Ombud Services Act coming into effect.

To read the full South African submission, CLICK HERE, or for the full Dispute Resolution Review publication, CLICK HERE.

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JAC MARAIS

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ANDREW MOLVER

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RENEE NIENABER

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THE LAW OF PROMOTIONAL COMPETITIONS | Ts & Cs APPLY

Anyone who has ever entered a competition will know these two phrases very well: “the judges’ decision is final” and “no correspondence will be entered into”. Trouble is, these may not in fact be lawful conditions because they could infringe consumers’ rights.

It might also be unlawful when organisers of a competition say, in the fine print, that they “reserve the right” to change the terms and conditions or even to suspend or cancel the competition altogether.

According to attorney Danie Strachan, under the Consumer Protection Act these well-known elements of the “Ts&Cs” that seem to apply to most competitions might actually violate consumers’ rights to “fair, just and reasonable terms and conditions”.

Strachan, a partner at Adams & Adams, has just received a doctorate in law, focussing on promotional competitions and, among other issues, the pitfalls that consumers and organisers should take care to avoid.

Strachan said since the Consumer Protection Act took effect in 2011, promotional competitions have fallen mostly under that law, though they were also still partly regulated by the legislation on lotteries. This in turn meant when there were disputes over aspects of promotional competitions, the courts would look at whether the rights of participants as consumers were properly considered and protected by the organisers.

Many charities did not realise that under the new laws they were not entitled to use promotional competitions to raise funds, and that in 2008 the Supreme Court of Appeal had actually declared a competition unlawful on the basis that it was not a promotional competition, but rather a fund-raiser for charities under the umbrella of the South African Children’s Charities Trust.

To qualify as a promotional competition, it was essential that the competition must be aimed at “promoting a producer, distributor, supplier, or the sale of any goods or services” and it cannot be conducted for any other purpose, such as fundraising.

The fact that consumers are protected under the law when they enter competitions like this means, for example, that it would be unlawful for the organisers to show a picture of the vehicle being offered as a prize and for it to turn out that the vehicle offered to the winner was something quite different. That would amount to misleading the people who entered the competition. Similarly, if the organisers said participants could “win a year’s supply of milk” it would be misleading if in fact the prize was a maximum of one litre of milk a day. To avoid legal action, the organisers must spell out precisely what was being offered as well as the terms and conditions that applied.

What about the lucky winner? – Organisers of many competitions insist that the winner be photographed and that image is then used for further marketing material. In fact however a competition rule that “requires” the winner to allow the organisers to use their photograph in this way would be invalid. The consumer who enters such a competition must always have the choice to refuse to participate in further marketing or to have their photograph taken.

Another issue dealt with by Strachan is the broader question of privacy for everyone who enters competitions. Obviously the organisers will be trying to extend the range of their marketing efforts to as many consumers as possible; but that doesn’t mean they are entitled to infringe the right to privacy of the people who enter the competition. While the law may allow suppliers to “conduct direct marketing” that complies with the consumer laws, they have to stop sending directing marketing to consumers who requests them to do so.

Will there be any serious consequences for a supplier who simply ignores the law on questions like this? Strachan points out that if the supplier won’t comply the matter could be investigated by the National Consumer Commission, either through its own initiative or following a complaint by a consumer. The commission could then issue a “compliance notice” if it believed the law had been infringed. If there was no response, the commission could apply to the National Consumer Tribunal to impose a fine. And it might be quite severe: up to R1-million or 10 percent of the offender’s annual turnover. The dispute might also be referred for prosecution, with a possible fine and/or imprisonment of up to 12 months if there is a conviction.

Strachan says all this shows organisers should be careful that they set up and run their competitions in a lawful way. “If this is not done they could face significant penalties.” But, he warned, however harsh they were the penalties would only work as a deterrent if the law were actively enforced. Thus, the National Lotteries Commission and the National Consumer Commission should monitor promotional competitions, investigate non-compliance and ensure that steps were taken against offenders. Only then would consumers be effectively protected.

For assistance in drafting promotional competition guidelines, contact Danie Strachan | Danie.Strachan@AdamsAdams.com

[Article by Carmel Rickard]

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CAN AN EMPLOYER RECOVER DAMAGES FROM EMPLOYEES?

In an employer-employee relationship it often happens that an employee violates his employment agreement in a manner that results in the employer suffering damages. For example, an employee performs his duties in a grossly negligent manner and the employer suffers a financial loss or an employee decides to quit without giving the agreed upon notice. If such a situation occurs, the employer is always left wondering whether it can proceed against the employee, and if so, how to proceed and whether, it can recover damages from the employee in question.

In South Africa, it is generally believed that South African labour legislation is overprotective of employees and offers little to no protection to employers. This is evident from the myriad labour statutes that protect the rights of employees in South Africa and the high rate of success of cases brought against employers. The misconception as to the protection offered to employers is well demonstrated in the case of Rand Water v Johan Stoop (JA 78/11) where counsel for the defendant argued that the Basic Conditions of Employment Act (BCEA), 1997 was designed to only permit claims by employees against their employers and not vice versa.

However, the court in the above matter held as follow:

“there is simply no warrant for interpreting the BCEA in a partisan manner. The BCEA benefits both employers and employees….The BCEA was designed to promote the right to fair labour practice which is available to everyone employees and employers alike. If the employee can claim damages for breach, so too can the employer, to suggest otherwise is to argue that this section is unconstitutional.”

Section 77(3) of the BCEA stipulates that ‘the Labour Court has concurrent jurisdiction with the Civil Courts to hear and determine any matter concerning a contract of employment, irrespective of whether any basic condition of employment constitutes a term of that contract.’

This provision of the BCEA clearly applies both ways and permits the employer to sue and recover from an employee damages caused by the employee, if the wrongful conduct constitute a breach of the contract of employment. Obviously, the normal principles of common law applicable to claims for damages will apply to such a claim.

For example, an employer will have to prove that it actually suffered damages or loss as a result of the breach of contract. The courts have wide powers in terms of the BCEA and may make any order considered reasonable on any matter concerning a contract of employment, including an award of damages. For example, the courts have upheld claims for payment of damages resulting from the repudiation of an employment contract by an employee, and a failure by an employee to work his full notice.

However, a claim for damages may not always be the simplest and most effective route for an employer to take and there are less acrimonious courses of action to pursue. For example, an employer may make salary deductions from an employee’s remuneration, to recover loss or damages only if such damages occurred in the course of employment and was due to the fault of the employee. For such a deduction to be in compliance with the BCEA, the employer must comply with a number of requirements, such as, the employer must follow a fair procedure and give the employee a reasonable opportunity to show why the deductions should not be made, the total amount of the debt must not exceed the actual amount of the loss or damage, and the total deductions from the employee’s remuneration must not exceed one-quarter of the employee’s remuneration in monetary terms.

Unfortunately, these formalities cannot be seen as mere guidelines and have to be complied with strictly. This was confirmed by the court in Shenaaz Padayachee v Interpark Books (D243-12) where the court stated that the BCEA confers a right on the employer to make deductions from an employee’s remuneration in respect of damages or loss caused by the employee but stipulates that this cannot be done unless the prescribed formalities are complied with. These prescribed formalities include an internal hearing to determine the liability of the employee and a written agreement by the employee to reimburse the employer in respect of the damages.

If the employee does not admit liability, and consequently, does not agree to the salary deductions the employer can proceed with court action and claim contractual damages. In this instance, the employer will rely on section 77 (3) of the BCEA as set out above and establish a case of breach of the relevant employment contract. The normal principles of common law applicable to claims for damages will apply to such a claim.

In conclusion, employers should not labour under the misconception that its employees are immune to civil action. In fact, the above principles clearly demonstrate that an employer can recover damages from an employee under Section 77(3) of the BCEA if the breach by the employee of his contract of employment resulted in damages or financial loss to the employer. It has also been established that an employer can recover damages by making deductions from an employee’s salary, subject, the formalities prescribed by the BCEA.

by Thami Khoza | Candidate Attorney

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MEET GAVIN NOETH | COMMERCIAL SPECIALIST

When Gavin Noeth isn’t tackling large-scale banking and finance structuring or advising on complex public private partnership agreements, then he is tasked with the gargantuan task of helping his wife raise two very busy 4-year old twin boys. “I think the latter is the more difficult one, “he laughs. “But it’s also the more rewarding ‘project’.”

Gavin is one of two ‘heavy-weight’ consultants – the other being Tim de Wet – to join the progressive commercial law team at Adams & Adams Attorneys this quarter – their aim: to mentor and assist the young, dynamic and ambitious groups under Commercial, Property and Litigation Chair, Grégor Wolter. The expanding commercial practice has an enviable track record and client base, with many luminaries and experts in the fields of administrative, public procurement, property, constitutional, competition law and litigation.

Noeth joins Adams & Adams after more than 20 years of commercial experience with both Norton Rose Fulbright and Cliffe Dekker Hofmeyr. He has built a speciality practice around mainly the financing of infrastructure projects, public private partnerships and South African export credit work; and has a strong background in a broad spectrum of industries such as energy, mining, commodities and toll roads.

Gavin hails from Pretoria and attended Clapham High School in the city before deciding to study law. He articled in 1990 at Bowman Gilfillan, did short stint at Arthur Andersen and returned to practice with Norton Rose Fulbright in Johannesburg “I am excited now to consult for a firm with such a great spectrum of expertise in commercial, property law and litigation,” he adds. “I see great scope for using my insight into banking and finance law to help grow the group at Adams & Adams.”

Added to Gavin’s general banking and finance law expertise, he has also been involved in advising private and public sector project sponsors and lenders (including development finance institutions) on financing of a range of projects. He has significant PPP and export credit (ECIC) experience, and dealings with the IDC and Development Bank of SA.

In welcoming Noeth to the firm, Grégor Wolter, partner, said “We have dealt on numerous occasions with Gavin and Tim over the decades and have developed a deep and sincere respect for the manner in which they have built their practices. So to have them on board to mentor our young Partners and assist us in providing direction for this burgeoning commercial department is a fantastic opportunity for us.”

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GAVIN NOETH

Specialist Consultant
Commercial Attorney

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ARE CIPC ANNUAL FEE CALCULATIONS UNLAWFUL?

On 5 September 2016 the Companies and Intellectual Property Commission (the CIPC) issued a media statement (the Media Statement) stating that over 15 listed companies have been under disclosing or not disclosing their proper annual turnover values and, consequently, have not been paying the correct annual return fees to the CIPC.  This, according to the CIPC is an offence in terms of the Act and is punishable by a fine or imprisonment or both.

Section 33(1)(a) of the Companies Act, 2008 (the Act) requires all companies to file an annual return in the prescribed form along with the prescribed fee.

The fee referred to in section 33 of the Act is prescribed in Table CR 2B (Annexure A to the Regulations). In terms of this Annexure the fee for filing an annual return varies according to the company “turnover” and the time of the filing.  This begs the question as to how the “turnover” of a company should be calculated for purposes of determining its filing fee. This question becomes particularly relevant when calculating the “turnover” of a “holding company” as a “holding company” normally does not trade and usually has little or no turnover.

It appears from the Media Statement that the CIPC is of the opinion that the annual return filing fee in respect of a “holding company” is calculated based on the gross consolidated turnover of that company and its subsidiaries.  The CIPC is ostensibly relying on the Companies Regulations, 2011 (the Regulations) for this interpretation.  This view is backed up by Practice Note 1 of 2016 (the Practice Note), published by the CIPC in May 2016.

Both the Practice Note and the Media Statement state that Regulation 164(4) sets out what constitutes turnover for a company and a holding company and the method required to calculate turnover for the purpose of determining the correct annual return fee to be paid to the CIPC.

Regulation 164(4) states that the annual turnover of a “holding company” is the consolidated gross revenue of that company and each of its subsidiaries from income in, into or from the Republic arising from transactions or events such as the sale of goods, as recorded on the company’s most recent annual financial statements.

It is however clear from the wording of Regulation 164 that the Regulation applies in a completely different context and does not apply to the calculation of turnover for purposes of determining a “holding company’s” annual return filing fee.

Regulation 164 refers particularly to Section 175 of the Act (“administrative fines”), which requires the calculation of the turnover of a company in a completely different context, which context cannot be ignored.  The context of Section 175 is one in which the “holding company” has contravened a provision of the Act and a subsequent compliance notice and needs to be punished by way of a fine which must be calculated based on that company’s turnover.  Section 175 of the Act, however, presents a significant problem in relation to “holding companies”, as a company may not be fined more than 10% of its turnover for the period of the contravention in terms of Section 175(1)(b), whilst “holding companies” normally have little or no turnover.  This means that “holding companies” could technically not be fined in terms of Section 175 was it not for Regulation 164(4).  It therefore makes sense, in that particular context, for the turnover of the subsidiaries of a “holding company” to be taken into account for purposes of calculating the fine payable by a “holding company” and therefore it makes sense that the Regulation 164 caters for this.

However, in the context of determining the annual return filing fee payable by a “holding company” it makes very little sense to take the turnover of its subsidiaries into account, as each of those subsidiaries have to submit their own annual returns and, accordingly, would each have to pay their own annual return filing fees based on their respective annual turnovers.  Accordingly, if the “holding company” of those subsidiaries also have to pay an annual return filing fee based on the turnover values of its subsidiaries, this would constitute a duplication of payments by that particular group of companies.  In fact, considering the sliding scale in terms of which the annual return filing fee is determined under table CR 2B, the annual return filing fee payable by a “holding company” goes beyond mere duplication of payments also made by its subsidiaries, but actually exceeds the payments made by the subsidiaries.  It is clear from the manner in which Regulation 164 was drafted (read with the other provisions of the Act and Regulations which deal with annual returns and filing fees), that Regulation 164 applies exclusively to the calculation of turnover for the purpose of calculating “administrative fines” in terms of Section 175 of the Act.  This is clear in that the Regulation contains numerous cross-references to Section 175, whilst it contains no reference to Section 33 of the Act, nor to Table CR 2B or Regulation 30 in which filing fees are dealt with.  Had the drafters contemplated that Regulation 164 should apply to the calculation of filing fees, including cross-references to Section 33 of the Act, Table CR 2B or Regulation 30 would have been the obvious and easy thing to do.  Accordingly, there can be no reasonable inference, based on the wording of the relevant provisions of the Act and Regulations, that the provisions of Regulation 164 applies to the calculation of annual turnover for purposes of determining a “holding company’s” annual return filing fee.

Accordingly, a “holding company” should not be treated differently in relation to the determination of its annual return filing fee than any other company and in our view you are not entitled to base a “holding company’s” annual return filing fee on the consolidated turnover of that company’s subsidiaries.  A “holding company’s” annual return filing fee should be based on its annual turnover only.  In light of this, companies receiving notices from the CIPC should not blindly pay the alleged deficit but should obtain legal advice as to whether they are in fact required to pay.

by Sibusile Khusi | Candidate Attorney

Helgard Janse van Rensburg | Associate

André Visser | Partner

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ANDRE VISSER

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HELGARD JANSE VAN RENSBURG

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SAFEGUARDING SA’s HERITAGE AND ARTISTIC RIGHTS

Excitement is building for the annual BASA Awards on 19 September 2016, jointly sponsored by Hollard & Business Day – and the only awards ceremony that acknowledges business support of and partnerships in the arts in South Africa.

The BASA Awards recognise and encourage excellence and innovation in the field of business support for the arts.  Imaginative, innovative, and cost-effective partnerships between business and the arts are highlighted, demonstrating the potential for synergy, the window of mutual opportunity, and the far reaching benefits for business, for the arts, and for all South Africans.

The awards are judged by an independent panel of judges and the results are audited by Grant Thornton. A specially commissioned work of art is given to the winning sponsor in each Award category.

The event is attended by captains of industry, BASA members, and members of government. Adams & Adams, a proud member of BASA has, with its diverse partnerships, become integral to the concept of shared value in the arts sector. “To some, the partnership between a law practice and multi-disciplinary creative platforms such as BASA, Design Indaba and the Loeries may seem rather tenuous,” says partner with Adams & Adams, Mariëtte du Plessis. “But to us this is an integral part of years of promoting and protecting the intellectual property and commercial rights of the flourishing South African creative industry.”

Adams & Adams is currently providing advice to the Department of Arts and Culture in respect of setting up a trust for the benefit of all artists, whether born in South Africa, naturalised or with established links to the country, and who are 70 (seventy) years or older. A trust deed has already been drafted for The Living Legends Legacy Trust.

Of the Trust’s purpose, partner André Visser says, “The intention of the Living Legends Legacy trust is to identify, capture, preserve, protect and promote the body of work of the trust beneficiaries; provide youth leadership or development programmes in the arts culture and heritage industry; and to preserve indigenous knowledge systems and cultural practices in the arts, culture and heritage, among many other objectives.”

Each year, the BASA Awards venue is selected based on its socio-cultural importance and the theme of the Awards for that year, relevant to the current socio-political context in South Africa at the time.  Examples of previous BASA Awards venues include The Constitutional Court Foyer, The Market Theatre, Johannesburg City Hall, the Wits Art Museum, Turbine Hall Newtown, and Hollard’s Villa Arcadia.

This year the BASA Awards are seeing the inclusion of an African focus in one of the award categories, stemming from BASA’s growing engagement on the African continent to support members with operations outside of South Africa’s borders. This falls within the Beyond Borders Partnership Award, which will be awarded to a global-level partnership that builds brand reputation and audience for both the business and an arts organisation across international borders. Another exciting addition is the Cultural Tourism Award, supported by Nedbank, which recognises business support of arts and culture projects which contribute towards the growth of communities and jobs, and support the opportunities provided by local tourism.

“Adams & Adams aims to further build and develop relationships between the firm, the creative industry and Africa’s rich reservoir of heritage in the arts, by providing continual legal support and advice,” add Visser.

Release by: BASA, Adams & Adams

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ANDRE VISSER

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Mariëtte du Plessis

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Nishi Chetty

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DR DANIE STRACHAN

The Partners, professionals and staff of Adams & Adams congratulate fellow partner and colleague, Danie Strachan, who was today conferred a Doctorate in Law at a ceremony at the University of Pretoria.

Strachan, who graduated from the University with an LLB (cum laude) in 2003, and was admitted as an attorney in 2006, examined the regulation of promotional competitions in South Africa in his doctoral thesis. In it, he considered the consequences of gambling and the need for and nature of regulation, as well the related marketing and consumer protection contexts. He also explored law relating to promotional competitions in New Zealand and Great Britain is in order to compare it to the South African position. Apart from examinations of the current regulation of promotional competitions in South Africa, the CPA and the Lotteries Act, and the self-regulation of promotional Competitions, Strachan also recommended solutions for the problems identified in the analysis of the relevant legislation. (A review of the thesis will be published soon).

Dr Strachan, a member of the Law Society of the Northern Provinces and a fellow of the South African Institute of Intellectual Property Law, is frequently asked to present talks and workshops on promotional competitions, consumer protection, data protection and other regulatory topics. He regularly writes press articles regarding these topics and has been interviewed on radio numerous times. His clients range from entrepreneurs and technology start-ups to well-known multi-nationals.Due to his background in intellectual property law, Strachan is also in a unique position to advise clients regarding the commercialisation of their intellectual property rights, and franchising in particular. He has advised numerous foreign franchisors in relation to their expansion into South Africa. He also assists clients with the drafting of franchise agreements and related documentation.

Compliance is another of Dr Strachan’s focus areas and he often assists clients to understand the regulatory environment. In particular, he provides advice on consumer protection as well as data protection and privacy, a burgeoning practice area in South Africa.

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DANIE STRACHAN

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THE KING IV CODES | INSIGHTS

INTRODUCTION

The Institute of Directors in Southern Africa (IoDSA) published the draft King IV Report on Corporate Governance on 15 March 2016 and Sector Supplements on 11 May 2016 for public comment. These new draft codes are the next phase in the series of corporate governance codes produced by the IoDSA to guide and benchmark the required standards for corporate governance in South Africa. The latest draft codes are the fourth iteration of the codes since the King Committee was formed in 1992, led by former judge, Mervyn King, and are arguably one of the most drastic reinventions of the codes since their first publication in 1994. Download King IV™ Report

The King III Codes, the King IV’s predecessor, which came into effect on 1 March 2010, was published two years after the Companies Act, 2008 (the “Act”) was promulgated, but before the Act came into effect or its regulations adopted. The King III codes thus lacked insight regarding subsequent developments. In addition, whilst the King III Codes are progressive, they still followed a rule-based model of compliance and the controversial “comply or explain” approach. There have also been numerous global developments since the 2010 codes, such as the publication of the Codes for Responsible Investing in South Africa and the shift towards integrated thinking and reporting and the publication of the IIRC guidelines for integrated reporting and the work of the IRCSA.

The King IV codes aim to address these and other gaps and expand on the successes achieved in the King III, as well as bring the codes in line with global developments. As a proud partner and sponsor of this Report, Adams & Adams hosted a commentary session in Sandton recently. SEMINAR VIDEOS ARE AVAILABLE ON YOUTUBE

THE NEW DEVELOPMENTS 

One of the main goals of the King IV committee was to increase the accessibility of the codes and the simplicity of its principles. This can be seen in the consolidation of the previous 75 principles into 16 succinct outcomes (17 if counting institutional investors). In an effort to move away from compliance governance or the ‘box-tick approach’, the new codes also differentiate between principles and recommended practices and how these can be used to achieve sustainable outcomes. The maxim ‘comply or explain’, has been replaced with the new ‘comply and explain’. In this way, the new codes seek a more qualitative approach regarding compliance and disclosures, with adherence to the basic outcomes being assumed.

In respect of sustainable development, the King III made use of the ‘triple context’ or the ‘triple bottom line’ framework for reporting, the areas of reporting being the economy, society and natural environment. The new codes aim to steer away from the rigidity that this brought about. Rather, the new codes makes reference to the ‘six capitals model’ as the basis for sustainable development, adopting the recommendations of the IRCSA and the work of the IIRC. These six capitals areas are financial, manufactured, intellectual, human, social and relational and natural (environmental). Although not all will be applicable to every organization, to be relevant for reporting they simply need to be used, transformed or provided.

One of the major shifts the King IV aims to bring about is greater stakeholder inclusion in corporate decision making. This is in an effort to reinterpret who the directors in a body corporate serve. In the context of a Company, has largely been accepted to be the company itself (i.e. the shareholders as a whole) however, in doing so, directors were previously required to consider other stakeholders as well, such as employees, customers and the community. This has come to be known as the enlightened shareholder model. The King IV committee distinguish the new code’s position from this model, requiring that directors in the shareholder-inclusive model consider other stakeholders, not merely as instruments to serve the interests of shareholders but as having intrinsic value for board decision-making.

Director remuneration has been a long been a worldwide corporate governance problem, particularly in the post-2008 economic environment. Remuneration of directors is a key area which the King IV committee focused on. The previous codes required any remuneration policy be approved by a non-binding advisory vote of shareholders. The new codes require that both the policy and its implementation be approved by shareholders and where less than 75% approval is achieved for either the policy or the implementation plan, compulsory shareholder engagement is triggered. In addition, with a view to address the endemically large wage gaps between directors and employees, the new codes introduce the requirement that the remuneration committee, social and ethics committee and governing body consider and disclose measures put in place to attain fair remuneration, in the context of overall employee remuneration.

The social and ethics committee was a concept first introduced under the Act and the implementation into corporate governance structures has been slow. Currently, under the Act, this committee is voluntary for most private companies. The King IV codes argue that the committee’s functions goes beyond the statutory duties specified in the Act and extend into all aspects of ethics management in an organization, and beyond mere compliance. Rather than a ring-fenced ethics committee, the King IV codes also argues for greater integration and powers of the social and ethics committee in other areas of policy-making (such as the remuneration committee).

With the publication of the rule by the Independent Regulatory Board of Auditors on 4 December 2015, the King IV committee sought to align the King principles with the increased requirements for auditor independence. King IV therefore recommends that the audit committee oversee and disclose the appointment date of a company’s auditing firm, however does not go as far as recommending audit rotation. The codes also recommend that the audit committee disclose significant audit matters and how these were addressed.

The King IV recognize the evolving risks encountered by modern globalized corporations and codes and that the traditional view that risks are ‘the effect of uncertainty on objectives’ is outdated. Mindfully taking risks into account makes it possible to identify opportunities that can be captured. The King IV codes argue that risk alone is not to be discouraged in business, but rather excessive risk taking, and the duty to identify what would be excessive rests with the governing body. The new codes therefore introduce the concept of ‘risk and opportunity governance’.

The previous King III codes came into effect six years ago, the same year as the unveiling of the first generation Apple iPad. In the space of time between the King III codes and the new draft codes, tech companies have boomed and gone bust and countless technology trends have emerged and disappeared. Whilst the King III codes already addressed some of the issues caused by this ‘fourth industrial revolution’, the King IV codes recommend greater technological pro-activity in body corporates and business model innovation to cope with technology changes and challenges. The codes also recognize information as a growing resource in business and the opportunity for capitalizing on internal information and data to increase intellectual capital. However, the codes also recognise the growing threat of cyber-security risk with more business’ resources going on-line, and require specific oversight and management of these risk areas.

Globalisation coupled with the strategic tax planning by multi-national enterprises (MNE’s) have led to huge savings in tax for MNE’s as a result of profit shifting, and correspondingly massive losses for revenue collectors. This has had devastating fiscal effects, particularly in developing nations, as was recognized in 2000 when global political leaders agreed that developing countries needed to strengthen their tax systems. The practices employed have, however, continued, which some describing these practices as tax ‘avoision’, being tax evasion (which is legal) of such a nature that the outcomes achieved are akin to tax evasions (which is illegal). Recent public reactions, such as the outcry in reaction to the Panama papers, have shown that these practices are no longer morally accepted by the public and are regarded as linked with corporate citizenship and reputation. The King codes recognize this and argue that the audit committee should be responsible for the tax strategy of an organization and go beyond mere compliance to take into account corporate citizenship, stakeholder considerations and reputational repercussions. In respect of group governance, the new codes also place greater responsibility on holding company boards for implementing group governance policies and frameworks.

 

COMMENTARY ON THE KING IV CODES

The developments recommended in the King IV are very commendable and innovative. The scalability and accessibility of the new codes (beyond large companies to SMME’s and other body corporates, such as municipalities) will set the tone for governance standards as a whole. Some of this had led to comments that the codes reach too wide and will be difficult to apply in all the intended circumstances. Whether or not this is correct will be determined, in part, by the application and uptake in use of the sector supplements.

The codes also build on the previous codes identification of IT governance as a key area of risk. However, the lines drawn in the new codes do not yet, arguably, reflect the reality of IT governance and the variety of risks that have emerged. It is argued that, rather than recommending that governing bodies find these tools themselves, that more robust recommendations are made in respect of IT risks, as was done with cyber-security risks. Other risks areas that could be introduced are change control, repetitional risk and social media and informational compliance (with the Protection of Personal Information Act – PoPI – looming).

It is also argued that the codes do not adequately address intellectual property as an area requiring specific attention. Although intellectual capital forms part of the six capitals model, it is given little voice in the codes, with its primary mention being in the technology and informational governance portion of the new codes. It is argued that intellectual property risks extend wide enough to require greater mention and recommendation in the codes, particularly in light of the corporate governance consequences which arose in the matter of Makate v Vodacom (Pty) Ltd 2016 (4) SA 121 (CC), where agreements entered into by directors resulted in potentially massive liabilities for Vodacom, which outcome could have been avoided.

Lastly, the new codes do not yet fully address the growing need for corporate transformation, with the only provision which tackles this definitively being principle 3.2, which prescribes this as one of the factors to consider in ensuring governing body diversity. It is argued that corporate governance codes present a unique opportunity to advocate for transformational outcomes and a forum (such as a transformation committee) that substantively and address the risk, both economical and reputational, of failing to achieve such outcomes, together with the opportunities that would arise from effectiveness in this area.

 

THE CURRENT PROCESS

A draft version of the King IV codes was made available to the public for comment on 15 March 2016. A copy of these codes can be accessed here. The deadline for public commentary was on 15 May 2016, and this has not yet been extended.

A draft version of the King IV Sector Supplements was made available to the public for comment on 11 May 2016. A copy of these codes can be accessed here. The deadline for public commentary on the Sector Supplements is 11 July 2016 and those wishing to comment will be able to access the document via an electronic portal, which will also provide a mechanism for submitting comments.

The commentary process is open and transparent and all comments submitted are made public on the IoDSA’s website.

 

BREXIT | IMPLICATIONS FOR SOUTH AFRICANS’ CONTRACTS?

The United Kingdom has voted to leave the European Union. Will this have implications for contracts between South African businesses and parties in the UK or the EU? It should be noted that nothing has changed yet. The UK must still formally exit the EU. In the meantime, EU law will still apply to the UK. However, many changes are on the horizon. South African businesses will have to keep this in mind when contracting with parties in the UK or EU.

For example, if a South African manufacturer appoints a distributor for “all countries in the European Union”, this area might not include the UK in future. Therefore, one must specify whether this area will cover all countries that are part of the EU when the contract is signed or whether the area will cover all countries that are part of the EU from time to time. The second option will mean that the UK will be excluded from the contract’s area at some point in the future.

The ‘Brexit’ will lead to many regulatory changes. In future, if a manufacturer will supplies to the UK and EU region, the products will have to comply with separate laws and regulations in the EU and UK. One would hope that the laws will not be too different. Customs and tariffs challenges will arise as well, and one will also have to try and deal with currency volatility in contracts.

Many transborder contracts are governed by the laws of England and Wales. Although EU law has been incorporated in English law in many respects, the UK’s exit from the EU will not necessarily cause an immediate and dramatic change to English law. It is possible that English law clauses will remain popular and parties may continue to choose to resolve their disputes in the UK’s courts or arbitration forums.

The future is uncertain and one will have to monitor developments closely, particularly when contracting with parties in the UK. However, drastic contractual ramifications might not yet be likely. For further advice contact our Commercial Law Department.

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Danie Strachan

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INCREASED PENALTIES INTRODUCED FOR CARTEL CONDUCT

Section 13 of the Competition Amendment Act, 2009 came into operation on Thursday, 9 June 2016, by virtue of Proclamation no. 36 of 2016. The aforementioned Section amends Section 74 of the Competition Act, 89 of 1998 (“the Act”) to provide for the following penalties in respect of a contravention of Section 73A of the Act (which Section has criminalised cartel conduct) – a fine not exceeding R500,000 or imprisonment for a period not exceeding 10 years or both.

For further details regarding the Competition Amendment Act, contact Misha van Niekerk | 012 432 6370

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Jac Marais

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