The Law Magazine

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R40.00 (Inc. VAT) Vol 12 No 7, August 2012 TThhee LLaaww MMaaggaazziinnee ENS WPBestOct2011 10/11/11 3:09 PM Page 1

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ithout prejudice is officially supported by a number of Wcorporate law firms and corporate law advisers. This support underlines the importance placed by many cor - porate attorneys on the magazine’s ability to reflect current issues and to comment on these. This does not mean that the opinions carried in without prejudice in any way reflect those of the supporting firms. Indeed, without prejudice’s editorial independence and integrity is jealously guarded. To give effect to this, an editorial advisory board provides direction and counsel and meets three times a year. EDITORIAL The corporate law firms supporting without prejudice are: Editor Myrle Vanderstraeten Correspondents: Carmel Rickard, David Rees, Eben van Wyk, Dewaldt van Wyk Michael Avery, Vaughn Williams Design and Layout Janine Harms - Gleason Design Studio

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Disclaimer: This publication is not intended to constitute legal advice which can only be given having regard to particular facts and circumstances. Any liability that would or could arise from or of the contents hereof is hereby excluded. Always seek professional advice from a suitably qualified lawyer on any specific legal problems or matters. 2 August 2012 FFrroomm mmyy wwiinnddooww

ne swallow doesn’t make a summer. What a pity, An article in this month’s issue concerns Basel III (p14) but at least it’s enormously satisfying to be able to and the global requlatory standards required of the banking Owallow gloriously in South Africa’s warm winter industry. It draws attention to the Libor scandal in which it sun while characters such as Shane Warne (famous as an appeared that a variety of banks colluded in order to set the enemy) are forced to eat very humble pie through the course daily interest rate for inter bank borrowings. Libor sets the of the first cricket test match between England and South standard for interest rates around the world. Africa for some years. Warne avoided saying too much by The damage done to banking, coming as it does on top of resorting to the lazy man’s messenger: the tweet. In former the 2008 financial disaster sparked by America’s mortgage pay - English wicketkeeper Alec Stewart’s opinion, England’s bats - ments problems, is probably incalculable. The media and men enjoyed a slight edge; Warne politicians have been quick, as reckoned England would win two of usual, to blame the bankers but it is the three match series. now beginning to seem that the Instead, South Africa’s batsmen core of the problems resides inside delivered a feast of attacking, aggres - the US Federal Reserve and the sive but well controlled stroke play. Bank of England, organisations that The vaunted English bowling have been struggling (and failing) to attack, especially spinner Graeme handle the problems associated with Swann, was tamed by the fluency of widespread financial deregulation. the South African batsmen. Currency stability and a deep Hashim Amla scored a litany of seated faith in the financial system records, the most important being are elements critical to the growth that he is the first South African of the world’s economic and finan - ever to post a triple century in a test cial systems. Both have been badly match (311 not out). shocked and poorly served by The Barmy Army, England’s recent events – and, increasingly, it vociferous in-song supporters have coined a song about is beginning to become clear that powerful politicians, Amla in which he is said to have his head on the wrong way notably those in the United States - are those with most to round. The good natured Amla giggles when he hears it. hide, or at the least to disguise. And it’s been a good month for South African sportsmen There is an old law that requires that voters need to be resi - in other fields. The incomparable Ernie Els pulled off an dent in specific places for certain periods of time if they are to astonishing victory to walk away with the British Golf be allowed to take part in voting exercises. It is clear this Open’s Claret Jug, the second time he’s won this Major. needs now to be reinforced to the extent that all lawmakers Kenyan born and St John’s College, Johannesburg educated must be in possession of minimal economic information. Chris Froome, who played a major role in securing Bradley The problem is going to be making sure that voters Wiggins’ victory in this year’s Tour de France, seems well set understand what they’re selecting. In this brave new world to win the Tour himself in the future. Everyone is wonder - it is no longer sufficient to assume that politicians possess ing when he’ll make his move, which will probably require the information and the ability to interpret it that has him to shift to another team. become so necessary. N

______DAVID GLEASON August 2012 3 CCoonntteennttss

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NET# WORK BBDO 8014072 4 August 2012 EEddiittoorr’’ss nnoottee

hen South Africa became a democracy there were, for me, was going to a place of learning which had been my dream and ambition three essential elements that would now be available to and there was a sense of being in an environment where you could learn, Wcitizens regardless of creed, colour or gender. In no particu - you could challenge and there was a freedom, a political freedom.” lar order – an independent legal system on which everyone could David Gleason in his Torque column in Business Day on count to be fair; the possibility to be the very best in whatever field Wednesday, July 18, wrote that “Between 2003 and 2012, the sums was selected and education for all – without which there is nothing devoted to education at the provincial level total R965bn. If you add in else. what’s been spent at a national level, the amount easily trumps R1 trillion.” I am a glass “pretty close to full” kind of person and no doubt I Access to higher education has improved but the constraints wore rose-coloured spectacles but then, having been part of a society remain the academic capabilities and absenteeism of staff, the ineffi - where many injustices took place, I was not alone in being full of con - ciencies of the system, destructive behaviour of students who demand fidence that a new and much better era had dawned. to be passed regardless of ability, the below par standard of literacy, Equality and education form the basis of the purported desires of maths and science learning. But surely that sum of money should have the Legal Practice Bill. produced much greater results than it has. without prejudice and the magic circle Editorial Board have long It is without question that what is at stake goes beyond core teach - keen to secure an article dealing with the ing. Both mature and emerging economies Bill. There was discussion last year but it was show that higher education is fundamental to difficult to get one’s hands on a copy of the creating leaders; producing graduates who can draft which was still being amended. We think critically and who can solve problems have this month an article by Carmel that face countries; increasing the earning Rickard, who always takes an objective view power of individuals and making a greater of issues, and another which we received contribution to the tax burden; improving the from the Department of Justice and are economy of the country and voting with the pleased to publish. mind. These will all assist in ensuring less The aim of the magazine – to encourage racial fragmentation and a better life for all. debate – should be satisfied by these two And it is also fundamental that the value of articles. Regardless on which side of the degrees and the esteem in which they are held fence one stands, the swingeing powers should not be diminished. given to the Minister should be a major con - So, it was with profound disbelief, dismay cern. Perhaps the current Minister does not and disappointment that I listened to a news wish to use a heavy hand but legislation is bulletin stating that President Zuma had laid not written with only today in mind – what the blame for non-delivery and destruction of of a future Minister who is determined to text books squarely at the door of Hendrik make a particular mark? I have to hope that Verwoerd. There can be no question that the cognisance will be taken of the concerns abysmal standard of education for people of and comments made and that possible future colour during the apartheid era did much to dangers are recognised, and acknowledged. keep people in a state of servitude. But, after 18 years of democracy, Certainly not as much change has taken place as might have been surely that is carrying things too far? The problem is that everyone is hoped for but, realistically, those children born 18 years ago are only given to passing the buck – it wasn’t my fault ... What the President in matric, and those who were already at school and have had the should have done was to have shown leadership, to have come down opportunity of tertiary education are still gaining experience. It is heavily on those who perpetrated this crime – not only were books wishful thinking that anything happens overnight and no positive not delivered, some were burnt, some dumped and who knows what change will take place for as long as things are expected as a right. happened to the rest. Maria Ramos, in an interview for a book on leadership, Courageous Is that the excuse he gives those parents who are making enor - Conversations , spoke passionately and eloquently on the value of edu - mous sacrifices to keep their children in school rather than sending cation, the difficulties she encountered as an immigrant and her deter - them out to work to assist with the finances of the family? And those mination to be educated. “.. there was no money to go to University so I children whose educational road and future ability to get decent jobs went to work and the only job I could get was as a bank clerk. I knew that has been marred by this injustice – is that also the fault of those long wasn’t what I was going to do for the rest of my life but it was a job and I dead? Why does our President not expect people to accept responsibil - grew up in a family where a job was something precious, as was education.” ity and take the blame? There is a well known character called “Evron She found the bank had a scholarship programme – not open to Else.” Do those who lead our country really want a nation of people women – she soon set about changing that but it was a long hard road with no backbone who are constantly blaming “Evron Else?” Time for with many obstacles placed in her path. She said all she wanted was a leaving a legacy of hope is fast running out Mr President. N fair chance – no guarantees that she would be selected but an oppor - tunity to apply. And she attained her goal – she attended Wits “... I MYRLE VANDERSTRAETEN

6 August 2012 thhee llaaww The Legal Practice Bill

CARMEL RICKARD

Chaired by one of the Association’s members, Judge Fayeeza Kathree- HEN lawyers and ordinary members of the Setiloane, the debate continued for an hour or so, with questions from the public try to get to grips with the proposed judge and from the audience. W Unterhalter argued that so far in South Africa’s post-apartheid period, Legal Practice Bill, on what basis should they interests that must be independent under the constitution have had a ‘ patchy decide whether to support it or not? history ,’ something that could be deeply subversive of the rule of law. Institutions needed to be ‘ immunised ’ against any kind of intrusion. ‘We are not doing well at maintaining independence.’ The Constitutional Court Clerks’ Alumni Association organised a mid-July Rogers on the other hand said that there were ‘ substantial safeguards ’ to debate on the subject of the controversial draft to help clarify the issues. Held prevent manipulation of the election at Bowman Gilfillan’s offices in Sandton, the debate was addressed by two procedure. prominent silks – David Unterhalter SC was briefed by the Association to The organised profession re- argue that the Bill infringes the independence of the legal profession and mained in control of the profession Owen Rogers SC to argue the reverse, namely that the profession would be and would ‘ probably replicate ’ what was safe under the proposed legislation. already in existence and that there At the start it was emphasised to the audience that the two had been were many matters where ‘ we would asked to take these positions regardless of their personal views and neither be better off with the views of both sides would be drawn in the subsequent questioning about where they stood per - of the profession .’ sonally on the debate. A member of the Association explained to me after - In the middle of the debate came wards that this approach was deliberate, chosen to ' model the independence of an unexpected moment of agreement: the profession and the duty of its members to represent a client's case regardless of the I had not been aware that the legal advocate's own views .' profession had already conceded the The legal independence issue was the right focus for the debate: trailers need to have some form of public par - highlighting the impact of this draft legislation on fees and affordable legal ticipation on its disciplinary bodies. representation miss the main show. If the Bill undermines the independence When Rogers said there was an inter - Rickard of the profession it would be irrelevant that legal advice could be obtained at national trend towards recognising a ‘ more reasonable price; ’ no matter how important accessibility may be, that that the public did not have confidence in a profession whose discipline was particular end could not justify the means. If that ‘means’ threatens the inde - ‘self-regulating .’ Unterhalter agreed. There would be ‘ little disagreement’ on this pendence of the profession, with the inevitable threat such a move would particular issue , he said. The present system allowed the profession to ‘ close pose to the independence of the courts and of course to the rule of law itself, ranks .. it could not be other than unconstitutional. ‘We do not think that public representation (on disciplinary bodies) would Unterhalter noted that the Minister of Justice would have three represen - imperil … independence. If that were all, there would not have been a clamour tatives on the proposed council, the body that would effectively run the pro - about the Bill.’ fession. Why should the minister have any representatives on such a body, Government claims that the draft would result in better access to legal asked Unterhalter? Their task would be to influence the rest of the council services did not result in quite the same agreement between the two speakers and be his ‘eyes and ears.’ Instead of professional autonomy we would see the however. Rogers said under the proposed new system it ‘ might be easier ’ to minister ‘ keeping his finger in’ and ensuring he is a player. ensure that pro bono work was done than under the present system. ‘ You may Rogers, on the other hand, said the state (and the public) had an ‘ entirely be sceptical ,’ he added, anticipating Unterhalter’s objections. ‘ If you kicked legitimate interest ’ in the governance of the profession. In his view the profes - against it, large numbers of lawyers could make the system fail but it would be better sional independence that was critical to the rule of law was the ‘ freedom to act to make it work .’ for clients in their best interests without fear of state reprisals .’ As long as that free - And indeed Unterhalter was sceptical, calling for ‘ less self-flagellating ’ on dom was safeguarded, many models for regulating the legal profession, with the question of the Bar’s pro-bono work. He doubted that it could be done any differing degrees of state involvement, would be valid. This was a reality better through the proposed ‘ highly centralised scheme ,’ certainly there was no recognised by no less a body than the International Bar Association, he said. evidence that this would be so. Members of the Bar were obliged to spend 20 ‘We are not entitled to insist on unfettered private governance,’ said Rogers, ‘but hours a year on pro bono work and many were willing to do even more. ‘It is on independence in fearlessly representing all who seek our services.’ not fair to depict us as only self-interested.’ August 2012 7 thhee llaaww

‘Some problems will never be resolved by schemes like this: the needs are Ruth Deech (Baroness Deech of Cumnor for those who enjoy honorifics so great.’ and titles), chairs the UK’s Bar standards board. In a recent wide-ranging Rogers had to agree. It was true that large numbers of people would like speech (May 2012) dealing with the roughly equivalent legislation in her to do more pro bono work but a way had to be found to organise this. No Bar country, the 2007 Legal Services Act, she complained that the new law’s could say with any certainty how well its members were doing (on discharg - ‘heavy structure ’ was not suited to as small a profession as the Bar. One possible ing their pro bono obligations) because ‘ they do not know .’ It needed enormous reason for the heavy-handed approach, she surmised, was ‘a hidden plot to crush organisation and commitment to administer a pro bono system and perhaps an the Bar out of all recognition.’ appropriate council could help to follow-up on the recalcitrants. Many people in South Africa, and not only lawyers, surmise that the Unterhalter’s final comments were that the Bill gave the minister too same thinking lies behind the draft legislation. There’s an attempt to camou - much power ‘ across a wide range of issues ’ that were properly the domain of flage this behind the feel-good intentions listed in the Bill’s introductory the profession. This could lead to the ‘ kind of damage seen in other parts of pages, but it’s unmistakeable. public life.’ If the independence of the profession escapes unscathed from this latest ‘The Bill puts key elements at risk; far too much is put at risk.’ attack it will be another of South Africa’s post 1994 miracles. But was it nec - As she closed the debate, Judge Kathree-Setiloane reminded the audience essary to go down to the wire like this? Suppose that, early on in the period of that the deadline for comments was July 27. The General Council of the Bar transformation, the Bar and the legal profession as a whole, had decided to was still making submissions she said, urging people to read the Bill and form confront the many problems associated with law and justice that impact on their own conclusions on the issues raised during the debate: ‘You have your the public and on lawyers - access to justice, access to the profession, transpar - opportunity now to have your say about what should be done.’ ent professional discipline and regulation and so on - in a way that illustrated In a way those final remarks sum up the problem: one comment from the the new openness of those times. Suppose that all its members were invited to floor during the debate expressed surprised concern over how little debate debate and discuss these issues and the way forward for the profession and the there had been within the profession about not just the crucial issues touched country. Suppose that the public was invited to participate in the discussion, on that evening, but about the whole range of legal transformation problems. and that the profession had worked out and adopted thorough-going changes Ten days between the debate and the deadline for submissions is hardly that impacted positively on its members and the public. What moral high an appropriate gap for thorough-going consultations and discussions about ground that would have provided from which to fight off what many now fear how the legal profession can respond to post-apartheid challenges. are attempts at ‘ crushing ’ the Bar and its independent spirit. As a concerned on-looker, I can’t help but feel that anxiety about legal If, God help us, the Bill is passed, that consultation is still desperately independence under the new Bill is very valid, despite the view expressed in a needed. For the proposed council ought to reflect the views of the profession’s recent formal legal opinion on the issue. You only have to look at what has members on a wide range of issues. These have not yet been canvassed, let become of the Judicial Service Commission to see how a body, supposed to be alone debated, formulated and implemented. Yes, there have been changes independent, can be brought to heel by a powerful minister and his party. over the last 18 years, and they are significant, but they have been piecemeal, But at this stage it seems the profession is limited in its potential response: ad hoc , and not part of a thorough-going attempt to ensure that the profession it can make representations for or against the draft. How much stronger approaches the future in a way that is best for the public and for the legal sys - would its position have been, however, if the advocates and attorneys, sepa - tem. That is a weakness, whether caused by oversight or arrogance, which rately and even together, had organised discussions and consultations years government is now able to use for its own purposes. N ago, to deal with the problems that the minister now claims to be addressing via the Bill. Rickard is a legal journalist and a columnist for without prejudice 8 August 2012 thhee llaaww Measures to transform state legal services

DEPARTMENTAL SUBMISSION

Attorney briefing practices he recently released Policy Framework on the The Department has been inundated with calls from members of the legal Transformation of State Legal Services is another profession for the transformation of state legal services. In their contention, T they expressed their concern about the exclusion of the Previously milestone in the advancement of the transfor - mation goals mandated by the country’s Constitution. Disadvantages Individuals (PDIs) in the allocation of briefs. Those who expressed concerns also indicated that, in rare occasions where they are allo - The policy framework forms part of legislative and other cated responsibilities, the values of the briefs are not commensurate with measures undertaken by the Department to advance the transformational objectives set out in the Constitution. The following are transformation of the entire judicial system. These some of the inadequacies relating to allocation of legal work to practitioners: measures include the Constitution Seventeenth Briefs are not awarded on an equitable basis: big law firms in the cities Amendment Bill and the Superior Courts Bill currently and affluent areas and white counsel get preference over PDIs and one- being considered by Parliament and a Discussion man practices in under privileged areas Document on the Transformation of the Judicial System Women are overlooked due to gender prejudices and the Role of the Judiciary in the Developmental South PDIs are not briefed to perform specialised and commercial legal work African State released by the Minister in February. PDIs are not briefed in constitutional matters, resulting in a select few advocates appearing in the Constitutional Court more often to the exclusion of others. It is believed that the transformation of the judicial system, and of the judi - Many young advocates who join the Bar are not given work, which ciary in particular, would be incomplete without the transformation of the results in their struggling to sustain their practices. legal profession. There are perceived allegations of corruption in the awarding of briefs. The adoption of the Policy Framework is intended to ensure that legal The policy framework also seeks to address challenges emerging as a result practitioners in both private and public sectors are adequately skilled, and that of state and certain other government entities briefing private counsel direct - the advancement of women into leadership positions in society is accelerated. ly, with some of them even engaging the services of private counsel on a The legal profession plays a significant role in training and retainer basis. Much reliance is placed on the reputation preparing professional persons to advance to important for success of certain counsel, and this, in turn, creates a positions within the legal profession including the judiciary. pattern of briefing to the exclusion of other competent This proposed policy document will broaden the pool counsel of colour. The consequence is that White practi - from which competent legal practitioners will be drawn tioners get preference over PDIs, particular with regard to for placement in national and international institutions, specialised legal fields such as constitutional, commercial, among other positions. Founded on the principles of pro - tax, and environmental law. fessionalism, efficiency, collegiality, accountability and These challenges come against the backdrop that the value for money, the proposed policy document will radi - state is the biggest consumer of legal services in the cally transform the legal service and ensure effective co- country and its litigation account runs into billions ordination. The lack of effective co-ordination of legal annually. However, it is evident that the cake is not services has led to a number of operational challenges shared equitable among the diverse constituencies of experienced across government, which include: practitioners, with Black and women practitioners Prescription of claims involving government trapped at the bottom of the ladder. Default judgements granted against government Therefore, the proposed policy framework, in part, seeks Insufficient preparation by attorneys and advocates Justice Minister Jeff Radebe to remove obstacles to access and unleash the potential of Instead of settling matters, attorneys and advocates all practitioners, by ensuring a fair and equitable distribu - proceed against instructions and consequently burden the state with tion of legal work. unnecessary cost orders Lack of monitoring systems over the work and outputs of attorneys and Functional structure advocates The primary objective of the Policy Framework, in the medium term, is to Inconsistency in the determination of counsel fees by the different consolidate and streamline all state legal services under a single functionary branches of the Office of the State who will be appointed as Head of State Legal Services. The Head of State August 2012 9 thhee llaaww

Legal Services, who will occupy a position of, or similar to that of Solicitor- to PDIs in order to redress the imbalance of past discriminatory practices General in comparable jurisdictions, will be the state’s chief legal adviser in the legal profession and the state. This is intended to ensure the pro - who will represent the state in all civil litigation (in the same way that the gression of PDIs, in particular women, in the practise of law, the judiciary National Director of Public Prosecutions represents the state in criminal and other positions of responsibility in the broader community and inter - prosecutions). The Solicitor-General will oversee the following streams of nationally. N units of the State Legal Services: Intergovernmental Co-ordination One of the controversial issues continues to be the the allocation of Specialist Litigation work and new attorneys are nurtured to work in fields to which they General Litigation are best suited. The normal presumption is that cases on which con - Mediation Services and Alternative Dispute Resolution Mechanisms siderable effort and money will be expended will be allocated to coun - Legislation Certification sel who have demonstrated an acceptable proficiency. There are no State Legal Advisory Services rehearsals and failure to do this may result in yet further expenditures Corporate Management and Research (Co-operative Governance) of taxpayer moneys. without prejudice has seen much change to the The appointment of the Head of State Legal Services will be done as a gender and race make-up of the so-called “white” departments of the matter of urgency for the desired consolidation, mainstreaming and co-ordina - law firms. Like all things in life things take time and care if they are tion of the State’s Legal Services to begin in earnest. This will set in motion all to achieve optimum levels - Editor the institutional arrangements aimed at transforming State Legal Services. Together with the Legal Practice Bill, which has been introduced into The debate about the transformation of legal services will be helped parliament, this Policy Framework will go a long way towards the develop - by the views of the Department of Justice reflected in the article. This ment of jurisprudence necessary to advance a democratic society as envis - article is carried at the request of the Department and expresses the aged by the Constitution. views of that Department. Editing has been restricted to the minimum The objectives of the policy framework are, therefore, to develop legal consistent with the high standards applied by without prejudice to all skills in the private sector through the equitable outsourcing of legal work articles it publishes - Publisher

60910 PMR Award CT 155x230.indd 1 2012/03/16 1:35 PM 10 August 2012 tthe llaw Independence of the NPA – The devil in the detail

MAMARAME MATSELA

Defence Force s202(2) provides that the command of the defence force must be exer - Part 2 cised in accordance with the directions of the cabinet member responsible for defence, under the authority of the President. he Supreme Court of Appeal, in Democratic Accordingly, the defence force is not designed to be independent TAlliance v President of South Africa & Others although the theme combined with our fears of living under barrel of [2011] ZASCA 241, deliberately ignored the differ - the President’s gun prompt some of us wish it were. ence in wording throughout the Chapters, which is very specific and designed to achieve a deliberate purpose. In Police Service doing so, it committed a fallacy by using perfectly valid s206(1) provides that a member of the cabinet must be responsible for premises to arrive at a somewhat incoherent, incongruent policing and must determine national policing policy after consulting and thus invalid conclusion. This is that the silence of the provincial governments and taking into account the needs and priorities of the provinces as determined by the provincial executives. Constitution means the courts, the executive and the legis - s207(1) provides that the President, as the head of the national execu - lature must ignore the letter of the Constitution and rather tive, must appoint a woman or a man as the National Commissioner paint all state institutions, established in terms of the of the police service, to control and manage the police service. Constitution, with the same “ independence ” brush because Despite the theme and the moral notion that the nature and impor - the general theme selectively supports the moral inclination tance of the mandate of the police service requires that it be guaran - that independence must be read in. teed independence, the Constitution clearly indicates that the police service is by no means independent.

According to the Court, the independence and autonomy of an agent Intelligence Service acting on behalf of a principal must be read in, based on nothing other s209(2) provides that the President, as head of the national executive, than a mysterious theme that is not supported by the letter of the must appoint a woman or a man as head of each intelligence service, Constitution and the Act. and must either assume “political responsibility” for the control and The drafters of the Constitutional text were deliberate in their use of direction of any of those services, or designate a member of cabinet to language and the difference in the wording leads one to conclude that assume that responsibility . The alleged controversial activities in the where the legislature meant for certain institutions to be independent, intelligence services in recent times may prompt others to approach it provided clear language to that effect. As far as the independence of the court based on its creative method of shoving square pegs in round the NPA is concerned, our moral judgement says one thing and the holes (that is, reading in independence based on the theme card), to Constitution, as the supreme law negotiated on our behalf by our elected compel it to follow its own precedent by declaring the intelligence political representatives, says otherwise. A rather tough brick to services “ independent ” despite the fact that the Constitution clearly swallow. dictates otherwise. If the argument of the court is taken even further and is deemed cor - rect in its conclusion that the overbearing consideration should be a The Role of International Law theme that dictates the reading in of independence, then the same con - s232 provides that customary international law is law in the Republic clusion should also be applied to state institutions established under unless it is inconsistent with the Constitution or an Act of parliament. Chapter 11 of the Constitution. This would lead to an absurdity. s233 provides that when interpreting any legislation, every court must Chapter 11 regulates the establishment and powers of pivotal security prefer a reasonable interpretation of the legislation consistent with service institutions such as the defence force, the police service and the international law over any alternative interpretation that is inconsistent intelligence service without clothing them in an ounce of independence: with it. August 2012 11 thhee llaaww

Ultimately, the validity of all law, including court decisions, must be achieving that result is through Constitutional amendment and not the tested against the Constitution. If, according to the Constitution the muddying of Constitutional jurisprudence to superimpose an intention on NPA is not independent and foreign or international law indicates other - the legislature that it did not have when the content of the Constitution wise, as relied on by the court in support of its conclusion regarding prose - was negotiated and finalised. cutorial independence, then the Constitution must prevail. Uultimately the NPA is an agent of the state, acting on a Consti- Fortunately, the Constitution is not cast in stone and may be amended tutional mandate which it must execute impartially in accordance with if deemed necessary. Compelling arguments would have to be made to the Constitution and the Act, but not independently. It is trite that persuade the legislature to amend the Constitution to provide for the agents who fabricate their own mandate as they go along and act inde - independence of the NPA, in keeping with such international standards pendently without the concur - cited by the court. However, that cannot be achieved through creative rence of their principals are interpretations leading to court decisions that go against the letter of the said to act outside the scope of Constitution in an attempt to sidestep prescribed Constitutional proce - their authority or ultra vires . dures for achieving the desired result. To illustrate the point, an honest agent dealing in pre - Impartiality in support of the bill of Rights cious stones impetuously acts The NPA is authorised to institute criminal proceedings on behalf the on a time sensitive opportunity state, including those that have a direct impact on the rights entrenched by making a premature elec - in Chapter 2 of the Constitution (Bill of Rights), such as the right to free - tronic payment that happens dom and security of the person, the right to dignity, the right to equality, miraculously to save the prin - the right to privacy and the rights of arrested, detained and accused per - cipal copious amounts of sons, to name but a few. The Constitution only entitles the NPA to limit money, but does so while dis - rights in accordance with the provisions of s36. regarding his principal’s direct In light of the manner in which the apartheid regime utilised the instructions to hold back on criminal justice system and the letter of the law to silence its opponents action for a given period while and settle political scores, one is compelled to hold the view that it is in the principal applies his mind the absolute interest of the protection of fundamental human rights of all to the offer (for instance to have the NPA function impartially, to avoid abuse by those momentar - checks the authenticity of the Matsela ily in power. Its impartiality would go a long way towards ensuring that it precious stones and their remains the watchdog of the people, capable of rooting out criminal ele - paperwork to ensure that they are legal) and is fired for misconduct. This ments in the higher echelons of government and confirm that all are is similar to the dismissal of the then NDPP, despite being on point about indeed equal before the law as envisaged in the Constitution. That said, Selebi. the requirement to be impartial cannot be equated to independence. Our moral inclination leads us to sympathise with agent for acting swiftly and saving the day while his principal was being indecisive when Observations and Conclusion time was of the essence. Note how your opinion would change if pay - Unacceptable as it may be to some that the State President has the power ment had been made and the precious stones turned out to be fake or ille - to launch an investigation leading to the arrest, detention and conviction gal. It is important to examine the true basis for the dismissal, which is of an irritating political opponent or, of course, the withdrawal of the failure to adhere to instructions, notwithstanding excellent results investigation, it is difficult to ignore compelling evidence that the obtained while flouting them. The law entitles the principal to take dis - Constitution itself provides ample support and confirmation that legally, ciplinary action for failure to adhere to instructions, which is an essential the NPA and other topical state institutions that have come under fire in ingredient in building and maintaining a relationship of trust. recent times (such as the police and the intelligence services) are not On that note, my crystal ball predicts that, despite any court decision independent and were never designed to be independent and free of to the contrary, it would be unwise for an incumbent of the hot NDPP political oversight. seat publicly to gamble with the moral notion of prosecutorial autonomy Respect for the rule of law and separation of powers cannot be applied from ministerial oversight. The current Constitution does not support it in a piecemeal fashion. The role of the legislature is to promulgate laws nor, by the look of things, does the executive. while the courts must interpret and apply them. It is the duty of the Then again we live in interesting times. Who knows, the courts to resist the urge to resolve moral issues, by cherry picking princi - Constitutional Court can always creatively surprise the public by whip - ples and applying them in a manner that undermines the rule of law, sep - ping out the good old Carmichele “policy considerations card” to thwart aration of powers and the very Constitution that they are mandated to or support the illogical REM based “theme card” adopted by the Court. N uphold. Where the people are of the view that the NPA and other similar state Matsela is an attorney with SAAB institutions must be independent in order to guarantee protection against frivolous convictions propelled by political meddling, the best means of See Part 1 – July issue of without prejudice p8 12 August 2012 thhee llaaww Lessons from Noseweek

HANS MUHLBERG

shot of the matter while others end up changing their cell phone numbers. The partners of these firms are completely shielded from the public ire. hough I’m a practising attorney, I spent some That’s because all calls go to call centres, whose operators are seemingly Tfive years with Noseweek, both as an investiga - unable to, or are under strict instructions not to, refer any calls to part - tive reporter and as a managing editor. For the ners. These operators are poorly-trained – mention prescription and most part it was a rewarding experience. But it was pro - they’ll ask you why you’re talking about your medication. foundly depressing to see just how bad the public’s per - The operators never have the file in front of them and they’re never ception of attorneys really is. And how attorneys are able to find any documentation that the person who’s being harassed has either totally oblivious to this fact, or simply don’t care. sent. What they are trained in is gimmicks: pay 80% of the amount owing today and we’ll write off the balance; pay a small amount now and your name will be entered into a draw, if your name’s pulled out of the hat your debt will be written off (this is presumably done as a way of interrupting Noseweek – part corruption- buster, part bubble-buster, part consumer rag – is prescription and to what extent these competitions comply with the CPA a fairly accurate barometer of consumer sentiment. The magazine relies is anyone’s guess). The operators have absolutely no interest in getting to almost entirely on tips-off and complaints for its stories and, with the possible the truth of the matter. exception of banks, attorneys generate more complaints than anyone else. These firms have, I think, harmed the image of the attorneys' profes - What do people complain about? Undoubtedly one of the biggest gripes sion enormously. One Noseweek reader had some sage advice on how to over recent years has been the conduct of the mega debt collecting firms. deal with them: There are a few of these firms about and they seem to have a penchant for ‘Firstly, you must state your position in writing, and send it, per registered acronyms, though it’s not clear whether that’s because their partners are post. You should offer to pay just as soon as they have provided satisfactory proof embarrassed about what they do, or because they know that it’s that you do indeed owe the money. This puts you on the high moral ground. not very sensible to advertise the fact that you’re white. Now it’s up to them to respond, by providing whatever is necessary to These firms have split personalities – commercial entity prove the debt. You should also state that no further correspondence or the one minute (presumably when pitching for work), discussion will be entered into until this first letter has been adequately law firm the next (when making threats). They collect responded to. From then on, every time they call you, all you say is: debts for huge organisations – municipalities, the “Do you have the correspondence in front of you?”They won’t have. SABC, banks, gyms – and my understanding is that in They don’t work that way. So there is a long silence. You bring the some cases they actually buy the debt books. Either conversation to an end by saying: “Please call me when you have way, they seem to have no interest in scrutinising the correspondence in front of you. Goodbye”. I sometimes add a the debts reflected in these books “Fuck off” or two. This doesn’t materially alter the position, before sending off their missives. but it does relieve a certain amount of the frustration.’ Here are just a few of the questions they apparently fail to ask – has the amount actually been paid, has the debt prescribed, is the person we’re about to start harassing actually the person who incurred the debt? The harass - ment takes the form of endless faxes, calls and texts, and it causes real misery and angst, so much so that some people will pay money that they’re sure they don't owe simply to get August 2012 13 thhee llaaww

Another perennial complaint: I can’t find an attorney who’ll represent me with their clients in plain lan - against my bank. This, of course, relates to the fact that the banks have guage. And steer their clients panels of attorneys, and that the attorneys who are on these panels know away from litigation – a full well that part of the deal is you don’t act against the bank in any mat - process that’s unlikely to bring ter. There was a public revolt against this form of servitude last year (well satisfaction – to ADR, and a few attorneys carped in De Rebus ), but sadly this rare outbreak of inde - even less formal methods of pendence was motivated not by principle but by the perception that dispute resolution, like talking. being on a bank’s panel is no longer worth the candle – what with con - But the profession as a veyancing instructions being down due to the recession, yet there being whole can surely act too. Even no let-up in the requirement to buy the bank’s software. if it doesn’t have the clout to Communication’s a bugbear. It’s quite extraordinary how many attorneys ensure that the administration keep their clients completely in the dark and who, despite claiming to ‘ take of justice is sorted out, it can at instructions ,’ do exactly as they please. And who, when they’re absolutely least communicate better and compelled to communicate with their clients, do so by using incomprehensi - educate the public about the ble, jargon-filled language. A charge that’s often levelled against attorneys attorneys’ milieu . Few under - who specialise in my field, intellectual property, is that they send out stand why a lawyer needs to demands that are not only outlandish and heavy-handed but in language instruct another lawyer, one Muhlberg that can only be described as code. Another bugbear: the Law Societies are who’s mysteriously called toothless old boys’ clubs that simply look after the interests of their members. ‘counsel .’ Why litigation takes I could go on and it would be a shame not to. At Noseweek I heard so long and costs so much. Why, when you’ve won your case with costs, horror stories of attorneys (and advocates) abandoning their clients on you only recover a portion of the costs. Why, when things turn sour, the the steps of court, in circumstances that suggested that some deal had Law Society is unable to intervene or offer legal advice? Or the fact that been done with the other side. Stories of interminable litigation – one many of the frustrations encountered along the way are down to people memorable story related to a R100 000 Magistrates’ Court action that over whom attorneys have absolutely no control – advocates, prosecutors, took eight years to get to court, only for the trial to last a full eight days magistrates, judges, sheriffs and masters. and for the losing plaintiff’s legal costs to come to three times the value of There’s another thing the profession can do: it can take steps to ensure the claim. Stories of horrendous legal bills. Stories of attorneys who flatly that good news stories are spread. Because, as we all know, there are many refused to provide their clients with any form of itemised billing. Stories attorneys out there doing very good things. N of attorneys who stole money; attorneys who put huge mark-ups on the fees of forensic accountants and other professionals; attorneys who paid Muhlberg, is an attorney, a UK solicitor and an EU trade mark attor - kickbacks to estate agents for conveyancing instructions; attorneys who ney. For five years he was a major contributor to, and the Managing received kickbacks from auctioneers for auction instructions. Editor of, Noseweek magazine. He now has a consultancy called The lessons? Cleary those attorneys who’re letting the side down could Muhlberg IP, and provides IP consulting and specialist writing services clean up their acts. And many attorneys could do more to communicate to various law firms. www.muhlberg.co.za 14 August 2012 BBaannkkiinngg llaaww Bringing Basel III to South Africa

ANTHONY COLGRAVE

revealed that the credit losses came out of retained earnings and asel III is a global regulatory standard for the bank - the countries’ different definitions of capital and lack of disclo - ing industry agreed upon by the members of the sure resulted in an inability of the market to compare the quality of capital across institutions. 7 B 1 Basel Committee on Banking Supervision (BCBS). 2.2 In terms of the quality of the capital base, Basel III prescribes that only Tier 1 8 and Tier 2 9 capital remain while Tier 3 10 capital has been abolished and can no longer be used to satisfy a per - The third of the Basel Accords was centage of the necessary capital required. 11 The Regulations for specifically developed in response Basel III will implement the Basel III minimum requirements for to the 2008 financial crisis which quantity of capital in phases until January 1 2015: highlighted the weaknesses of the 2.2.1 common Equity of Tier 1 capital (unencumbered capital banking sector. According to the of such a high quality that it can absorb losses on a going BCBS, the banking sectors of many concern basis where the bank is financially sound or in countries had built up excessive periods of stress) must be at least 4.5% of RWA. 12 The sheet leverage accompanied by an Regulations for Basel III provide for a minimum level of erosion of the level and quality of core primary capital adequacy ratio of 6.5% of RWA. 13 the capital base. 2 2.2.2 tier 1 capital (primary capital adequacy ratio) must be at Many banks were also holding least 6% of RWA. 14 The Regulations for Basel III provide insufficient liquidity to buffer for a minimum level of primary capital adequacy ratio of against any trading or credit losses. 4 8% of RWA. 15 The banking sector deficiencies 2.2.3 Total Capital Adequacy Ratio (Tier 1 plus Tier 2 capital) were transferred to the rest of the Colgrave must be at least 8% of RWA. 16 The Regulations for Basel financial system and the economy, III provides for a minimum level of total capital adequacy resulting in a contraction of liquidity and credit availability. 4 Thus the ratio of 10% of RWA. 17 aim of the Basel III reforms is to strengthen global capital and liquidity 2.3 It is noted that the Regulations for Basel III provide for higher rules with the goal of improving the banking sector’s ability to absorb quantity of capital than the minimum standards of Basel III. shocks arising from financial and economic stress. 5 Therefore, we assume that the SARB sees the improvement of 1.1 Countries are required to implement the rules of Basel III by the quality and quantity of the capital base as an essential com - January 1 2013, which will introduce the slow phasing-in of the ponent to strengthening the South African banking sector and minimum standards of the rules from January 1 2015 until is following the historical trend in South Arica of regulatory January 1 2019. In the interim, countries are implementing the conservatism. rules of Basel 2.5 (which reflects changes introduced to enhance Basel II, particularly the risk-weighted asset (RWA) calculation, 3. Liquidity Standards in 2009). 6 South Africa’s amended regulations relating to banks 3.1 There are currently no international liquidity standards. Basel to give effect to Basel 2.5 came into effect on January 1 this year. III introduces minimum liquidity requirements to address prob - 1.2 On March 30 , the South African Reserve Bank (SARB) pub - lems which were faced by well capitalised banks during the 2008 lished for public comment by May 18 2012, Draft 1 of the pro - financial crisis when the asset markets slowed down. 18 The two posed amended Regulations Relating to Banks (issued pursuant liquidity tests are: Liquidity Coverage Ratio (LCR) and Net to the Banks Act, 1990) to implement Basel III (Regulations for Stable Funding Ratio (NSFR). Basel III). We have chosen to highlight key aspects of Basel III 3.2 LCR that are intended to be introduced by the proposed Regulations. 3.2.1 The LCR is aimed at ensuring that banks have a stock of high-quality liquid assets that can meet a 30-day cash out - 2. Quantity and Quality of Capital Base flow in the event of a crisis and a run on the bank. 19 It is 2.1 Basel III seeks to ensure that the banks’ risk exposures are assumed that management would be able to take correc - backed by a high quality capital base. The 2008 financial crisis tive action within the 30-day period. August 2012 15 BBaannkkiing llaw

3.2.2 The Regulations for Basel III implement the LCR test downward pressure on asset prices, further exacerbating the posi - over a 30 calendar day period to be implemented as a tive feedback loop between losses, declines in bank capital, and minimum standard by January 1 2015. 20 contraction in credit availability. 28 Therefore, the BCBS agreed 3.3 NSFR to introduce a simple, transparent and non-risk based leverage 3.3.1 The NSFR is aimed at ensuring banks have enough long- ratio. The leverage ratio is intended to restrict the build-up of term stable funding to protect against a protracted stress leverage and provide a non-risk based back-stop measure. 29 period of up to one year. 21 The NSFR requires a minimum 5.2 The leveraged ratio is the ratio of T1 capital: total (non-risk amount of stable sources of funding at a bank relative to weighted) assets plus off balance sheet exposure. In terms of the liquidity profiles of the assets, as well as the potential Basel III, T1 capital has to be at least 3% of assets (even where for contingent liquidity needs arising from off-balance there is no risk weighting). 30 This limits banks to lending no sheet commitments. The NSFR aims to decrease reliance more than 33 times their T1 capital, which is a significant on short-term wholesale funding when market liquidity is reduction in lending capability for some banks. 31 high and encourage better assessment of liquidity risk 5.3 The Regulations for Basel III provide for a bank to calculate a across all on- and off-balance sheet items. 22 non-risk based leverage ratio to supplement the bank’s risk based 3.3.2 The Regulations for Basel III provides for implementation of leverage requirements. 32 This is calculated as the qualifying cap - the NSFR test as a minimum standard by January 1 2018. 23 ital and reserve funds in terms of the non-risk sensitive expo - 3.4 Problems have already been identified with implementing these sure. The requirement for South African banks to limit their liquidity standards in South Africa due to the nature and source lending has not, as yet, been identified as a potential problem of funding that is available to our banking industry. These issues for our banks. and the measures that the SARB is proposing to address the concerns are discussed more fully below. 6. Governance and risk management 6.1 One of the aims of Basel III is to strengthen the corporate gover - 4. The Capital Conservation Buffer nance of banks to resolve a number of issues including inade - 4.1 During the 2008 financial crisis, banks continued to make distri - quate board oversight of senior management, insufficient risk butions out of retained earnings, even as their capital and finan - management and a non-transparent organisational structure. 33 cial condition deteriorated. Basel III provides for a capital con - An ineffective corporate governance structure severely hampers servation buffer to restrict distribution policies that are inconsis - a bank’s ability to respond quickly and adequately in circum - tent with capital conservation. The idea is that it is to be coun - stances of financial stress. Basel III therefore includes measures tercyclical in that it builds buffers during time of growth and to align senior management’s incentives with the long-term sta - uses those buffers during times of contraction. 24 bility of the bank and introduces new fit and proper tests for 4.2 Basel III established the capital conservation buffer of 2.5%, directors, increased public disclosure and a duty of care towards comprised of Common Equity Tier 1, above the regulatory mini - the banks. 34 mum capital requirement. 25 The ratio reflects the banks’ long- 6.2 The Regulations for Basel III includes provisions to strengthen term liquidity and requires the banks to match longer-term the corporate governance of banks and states that the board of deposits against long-term loans. The ratio will require a bank directors is ultimately responsible for the effective risk manage - to retain an increasing higher percentage of earnings at its capi - ment and capital management of a bank. 35 The Regulations for tal ratio declines through loss absorption. Basel III includes reference to “sound compensation policies” 36 4.3 The Regulations for Basel III introduces the capital conservation linked to long-term capital preservation and the financial buffer to be phased-in between January 1 2016 and January 1 strength of the bank. This may result in variable compensation 2019 in 0.625% annual increments. 26 As required by Basel III, periods for directors and senior management over a longer time the capital conservation buffer is in addition to the required core period. The new fit and proper requirements for the board of primary capital adequacy ratio, primary capital adequacy ratio directors and senior management include requiring directors and and total capital adequacy ratio already specified. The senior management to have detailed business knowledge of the Regulations for Basel III provide for it to range between 0 and major business lines of the bank and sufficient experience to 2.5% of the bank’s relevant amount of risk-weighted exposure. understand the various financial instruments. 37 The Regulations for Basel III also provide for the countercyclical capital buffer as an extension of the capital conservation buffer. 7. Problems with implementation of Amended Regulations This shall ensure that a bank is subject to restrictions when it 7.1 As referred in terms of the Basel III liquidity minimum standards, does not meet the relevant capital aggregate requirement. 27 South African banks do not currently meet these new liquidity stan - dards. Tests on seven banking groups in South Africa show that as a 5. Leveraged ratio collective they meet about 67% of the liquidity requirements, repre - 5.1 During the 2008 financial crisis, the banking sector was forced senting a shortfall in recognised high-quality assets used to meet the by the market to reduce its leverage in a manner that amplified liquidity funding gap. 38 The banking sector is heavily reliant on fund - 16 August 2012 BBaannkkiing llaw

ing from wholesale deposits, predominantly by companies and other hibit the use of a liquidity facility and it is therefore uncertain how financial institutions, and not by retail clients. 39 The NSFR poses this liquidity facility can be utilised. The SARB has announced plans additional complications as banks traditionally use short-term to meet with the BCBS to discuss South Africa’s liquidity concerns. 42 deposits to fund long-term loans, creating a funding mismatch. The Regulations or Basel III are aimed at ensuring banks have enough 9. Conclusion high-quality long-term funding and sufficient funds available to meet 9.1 South Africa is on track to implement the majority of the rules of the needs of depositors. Basel III by January 1 2013. This will provide for a more resilient 7.2 Compliance with these standards will require structural change to banking sector by, inter alia , increasing and improving the quality of the financial system, which will allows banks to increase the maturity the capital base, providing for more liquidity, providing a capital con - of their funding and investment managers to increase the horizon of servation buffer and increasing the leverage ratio. In addition, Basel their investments. The first step in this approach has been the III provides enhanced corporate governance rules including revised amendment to Regulation 28 of the Regulations to the Pension compensation policies to ensure that the goals of the board of direc - Funds Act, 1956 (Regulation 28) to allow banks access to more long- tors and senior management are aligned with the long-term financial term financing. Pension funds will now be allowed to buy long-dated stability interests of the bank. bank debt. Changes to the definition of “ cash ” in Regulation 28 will 9.2 However, the current pressing concern of the SARB and banking reduce incentives for pension funds to hold large amounts of short- industry in South Africa in respect of the implementation of the term operational funds outside the banking system. Basel III is meeting the minimum liquidity standards. The SARB 8. The SARB has announced a committed liquidity facility that can may have to obtain some form of exemption from the BCBS from cover the shortfall should there be a crisis. 40 We note, however, that the minimum liquidity standards or provide a liquidity facility to in terms of the NSFR test, the Regulations of Basel III prescribe that South African banks to resolve this issue. We wait in anticipation of extended borrowing from central bank lending facilities, outside regu - these further developments and expect future amendments to the lar open market operations, falls outside the calculation of the NSFR Regulations for Basel III. N so as not to create an environment in which banks rely on the SARB as a source of funding. 41 The Regulations for Basel III appear to pro - Colgrave is a director of Bowman Gilfillan

1 The Basel Committee on Banking Supervision consists of senior representatives of bank supervisory 19 Ibid. authorities and central banks from Argentina, Australia, Belgium, Brazil, Canada, China, France, 20 Regulation 26(12) of the Regulations for Basel III. Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the 21 Basel III Framework, p9. Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the 22 Ibid. United Kingdom and the United States. It usually meets at the Bank for International Settlements 23 Regulation 26(14) of the Regulations for Basel III. (BIS) in Basel, Switzerland, where its permanent Secretariat is located. 24 Basel III Framework, p6. 2 BCBS, Basel III: A global regulatory framework for more resilient banks and banking systems, 25 (December 2010, revised June 2011), Bank for International Settlements, ISBN 92-9197-859-0 Common Equity Tier 1 must first be used to meet the minimum capital requirements (including the (online) ( Basel III Framework ), p1. 6% Tier 1 and 8% Total capital requirements if necessary), before the remainder can contribute to the capital conservation buffer. See Basel III Framework, p55. 3 Ibid. 26 Regulation 38(8) of the Regulations for Basel III. 4 Ibid. 27 Ibid. 5 Ibid. 28 Basel III Framework, p4. 6 BCBS, Instructions for Basel III Implementation Monitoring (February 2012), Bank for International 29 Settlements, ISBN 92-9131- 870-1 (online), p2. Ibid. 30 Basel III Framework, para 153, p61. 7 Basel III Framework, p2. 31 Basel III Rules tougher than they seem. Wall Street Journal On-line. (14 September, 2010) 8 Tier 1 capital is regarded as “core capital” predominantly consisting of common shares and retained earnings but may consist of non-redeemable non-cumulative preferred stock. [http://blogs.wsj.com/source/2010/09/14/basel-iii-rules-tougher-than-they-seem]. 32 Regulation 38(17) of the Regulations for Basel III. 9 Tier 2 capital is regarded as “supplementary capital" consisting of undisclosed reserves, revaluation reserves, general loan-loss reserves, hybrid (debt/equity) capital instruments, and subordinated debt 33 BCBS, Basel III: Principles for enhancing corporate governance (October 2010), Bank of capital. The main criteria for inclusion in Tier 2 capital is the ability to provide loss absorption on a International Settlements, ISBN 92-9197-844-2 (online), p2. gone-concern basis. 34 Ibid. pp2-3. 10 T3 capital is short-term subordinated debt which was previously capped and only available to cover 35 Regulation 39 of the Regulations for Basel III. market risks. 36 Regulation 39(5)(k) of the Regulations for Basel III. 11 Basel III Framework, p2. 37 Regulation 39(6) of the Regulations for Basel III. 12 Basel III Framework, para 50, p12. 38 This amount is estimated at about 200 billion. See SA seeks clarity on Basel 3 liquidity concerns , 13 Regulation 38(9) of the Regulations for Basel III. Ndzamela, Phakamisa, (5 June 2012), Business Day. 14 Basel III Framework, para 50, p12. 39 SA needs to start saving seriously, Donnelly, Lynley, (14 June 2012), Mail & Guardian Online. 15 Regulation 38(9) of the Regulations for Basel III. 40 Facility to Assist Big 5 with Basel III Liquidity , SCAD Software Blog (18 May 2012). 16 Basel III Framework, para 50, p12. 41 Regulation 26(14)(D) of the Regulations for Basel III. 17 Regulation 38(9) of Basel III Regulations. 42 SA seeks clarity on Basel 3 liquidity concerns , Ndzamela, Phakamisa, (5 June 2012), Business Day. 18 Basel III Framework, p8. B C T T F 0 C a D D 1 1 1 1 0 1 1 1 1 1 1 1 1 1 0 1 C C N G b 8 o a a h h o o o 3 2 0 1 9 4 5 5 6 3 2 1 0 7 9 4 o S o r y y o 3 r e : : : : : : : : : : : : : : : . o o n n e n

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DAVID VLCEK AND CLINTON SLOGROVE

actually came to the attention of the consumer .” The debate regarding the deliv - n 2010 we wrote a series of articles regarding the ery of the enforcement notices to a defaulting consumer in terms of s129 and unforeseen impact that the introduction and inter - s130 stems from the fact that the word “ delivered ” or “ delivery ” is not defined I in the Act. pretation of the National Credit Act, 2005 was hav - The uncertainty pertaining to the enforcement notices and delivery in ing on debt collection for credit providers. The terms of these sections, has now been put to rest by the Constitutional Court Constitutional Court, in Sebola v Standard Bank of South in the Sebola judgement. Africa Limited and another CCT98/11 and provincial high Sebola’s appeal to the Constitutional Court was against a judgement of courts recently confirmed the requirements that the Act the Full Court of the South Gauteng High Court, which dismissed an appeal was imposing and approved the courts when credit against the judgement refusing to rescind a default judgement that had been providers were approaching them in order to enforce the entered against the consumers in September 2009. The bank instituted agreements in terms of which they had extended credit action against the Sebolas to recover a home loan on which they had to consumers. The notice must be sent by registered defaulted. post to the domicillium address or actual proven address The Sebolas argued that they had never received the s129 and s130 enforcement notices nor had they received the summons commencing of the consumer and delivered to the post office in action. They put the interpretation of the relevant provisions of the Act in whose area the address is situated. issue and argued that the interpretation given to the provisions of s129 and s130 in the Rossouw judgement failed to give effect to s8(3) and s39(2) of the Constitution, (1996). Our previous articles addressed how a credit provider was required not only The Court, when coming to its ultimate determination of the correct to plead compliance with the Act, but also to satisfy the court that the nec - interpretation of s129 and s130 explained that the Act aimed to secure a essary notices in terms of s129 and s130 had been complied with and the credit market that is competitive, sustainable, responsible and efficient. stipulated time periods had lapsed prior to the commencement of litigation. Thus, any interpretation of the Act We explained what the Act required of the credit called for a careful balancing of the provider in ensuring that the enforce - competing rights and responsibilities ment notices in terms of these of both the consumer and the credit sections were received by or provider. came to the attention of The Court held the Act does not the consumer. demand that the credit provider prove the The Act shifts the onus enforcement notices had actually come to onto the credit provider attempt - the attention of the consumer since that ing to recover a debt in terms of a will ordinarily be impossible to do so. Nor credit agreement to prove that does the Act require proof of delivery to a the consumer’s default had specific address. However, the Court went been brought to his/her or on to state that, given the significance of their attention. the enforcement notices, the credit The judgement of provider must make the necessary Rossouw and Another v averments in the summons to satisfy Firstrand Bank Limited (2010) the Court, that the enforcement ZA SCA 130 was inform - notices, on a balance of probabilities, ative at the time and in had reached the consumer. our article relating to Before a credit provider resorts to legal this judgement, we con - action, the Act insists that the consumer cluded that “ once the notice has should have the benefit of notice and this is been delivered, it is necessary for the in line with the statutory objective of the credit provider to ensure that it Act and this in turn significantly influences the August 2012 19 FFiinnaanncciiaall llaaww

meaning and interpretation given to notices being provided to a defaulting the word “ deliver ” in s130 of the Act. consumer, s130 provides that where It is not enough simply to dispatch action is instituted without prior the enforcement notices. The Act notice to a consumer, the action is requires the notice to come to the not void. The Court hearing the attention of the consumer and credit matter is compelled, in terms of providers must now prove, on a bal - s130(4), to adjourn the matter and ance of probabilities, that the enforce - make the appropriate order requiring ment notices have been sent to the the credit provider to comply with defaulting consumer and received by the provisions of the Act relating to him or her. the service and delivery of the This means that the credit enforcement notices. N provider must plead that the enforce - ment notices were delivered to the Vlcek is an associate and Slogrove a Vlcek appropriate post office in whose dis - candidate attorney with Norton Rose Slogrove trict the address is situated and pro - SA. vide proof of that delivery. This can be achieved by using the track and trail service on the South African Postal Services website in order to track regis - Given without prejudice’s experience over the past four months during tered letters. If the consumer disputes this delivery, the Court is then obliged which an inordinate amount of mail has not reached people and despite to establish the truth on the evidence presented. the strike now being at an end – or at least so we are told – it would be However, the Constitutional Court indicated that, while s129 of the Act very unfair for any assumption to be made that mail, even registered, prohibits the commencement of legal proceedings prior to the enforcement reaches its destination - Editor

21357 BG WP.indd 1 17/07/2012 11:39 20 August 2012 FFiinnaanncciiaall llaaww Stimulating a dysfunctional co-operatives sector

LUKE MCMICHAEL

the economy which transformed society and threatened the livelihoods of he Co-operatives Amendment Bill, 2012 seeks many workers. The sector in the UK has developed into a strong co-ordi - to drive the development of co-operatives in nated division of the economy. For example, the Co-operative Group T produces and supplies food products to the retail co-operative, Co-opera - South Africa. tive Food, which distributes the product to over 3 300 small food retail stores in the UK. 2 In the democratic South Africa, the role of the co-operative move - Despite government’s push to develop co-operatives, this is unlikely as ment has resonated in numerous State of the Nation addresses and mid- they are too bureaucratic and complicated to establish and manage. term reports to parliament as part of a new empowerment discourse. In Other less complicated and more socially relevant institutions, such as 2005, the Act was passed with the intention of fostering the develop - stockvels, better serve the interests of the majority of South African ment of co-operatives in South Africa. The Act aims comprehensively society. to regulate the formation, registration and functioning of co-operatives Co-operatives are voluntary associations that developed from the law to facilitate sustainable employment, self-reliance, democracy, equality, of partnership. In terms of the Co-operatives Act, 2005, it is an transformation and social responsibility. autonomous association of persons united voluntarily to meet their com - The preamble to the Act states that its aim is to ensure compliance mon economic and social needs and aspirations through a jointly owned with international co-operative principles. These principles are central and democratically controlled enterprise organised and operated on co- to the Act and it must be interpreted to give effect to them. For the operative principles. purposes of the Act, a co-operative complies with the principles if: Potentially co-operatives can membership of that co-operative is open to persons who are able to promote economic growth and sus - accept the responsibilities of membership. However, the constitution tainable development for disadvan - of a co-operative may restrict the persons eligible for membership, if taged, vulnerable, and marginalised the restriction reasonably relates to the business of a co-operative and groups as well as those with limited does not constitute unfair discrimination; resources. The creation of an econ - each member of a co-operative has only one vote; omy of scale in a co-operative to the extent feasible, members provide the capital required ; improves the odds of success and the return paid on member capital is limited to the maximum per - establishes a separate legal personal - centage fixed in accordance with the constitution of that co-opera - ity to represent the members’ inter - tive; ests, minimising the financial risk at least five percent of any surplus is set aside as a reserve in a reserve involved in starting a small enter - fund and is not divisible among its members; and prise. it must provide education and training to its members and employees. Co-operatives have been used as a highly successful business model McMichael Co-operatives in South Africa may be incorporated on a primary, sec - abroad. In certain countries, like ondary or tertiary level. Primary co-operatives are made up of individu - the UK, co-operatives have improved the sustainability of community als and provide employment or services directly to their members. enterprises and opened the economy to disadvantaged and vulnerable Secondary co-operatives consist of primary co-operatives that incorpo - social groups. In 2011, UK co-operatives employed 12,8m people and rate on a sectoral basis. And tertiary co-operatives combine several sec - generated £33 billion. 1 ondary co-operatives performing similar activities in order to liaise with The co-operative sector in the UK is diverse, working in all parts of government bodies responsible for their sector of enterprise. the economy including the agricultural, tourism and banking sectors. In A variety of co-operatives can be formed. The Act recognises, among the 19th century co-operatives began as a grassroots movement in others housing, worker, social and agricultural co-operatives, co-opera - response to the industrial revolution and the increasing mechanisation of tive burial societies and financial services co-operatives. Other kinds of August 2012 21 FFiinnaanncciiaall llaaww

co-operatives, not specifically described in the Act, may also be regis - Development Agency and the Co-operatives Tribunal. The objectives tered. The functions and activities a co-operative can engage in are of the Agency include providing financial and non-financial assistance, determined by its constitution. training and education to assist members with the establishment and The most common forms of co-operatives in South Africa are agricul - registration of co-operatives and to facilitate access to local and interna - tural and worker co-operatives. The growth and concentration of co- tional markets. The Bill further seeks to establish the Co-operative operatives is mainly in the two provinces where there is a high concen - Development Fund which will provide the funding for the Agency to tration of poor rural populations; Kwazulu-Natal and the Eastern Cape. 3 fulfil its objectives. The Agency will be expected to set up satellite The growth of co-operatives in Kwazulu-Natal has been driven by the offices in each province. Provincial government and, though the state’s support of co-operatives is Even with the increased support to co-operatives in terms of the Bill, well-intentioned, it is not developed in accordance with member needs it will be difficult to convince people to join or establish co-operatives. and capacities but rather in terms of government’s development agenda. 4 Other “informal organisations,” such as stockvels, that are not registered These co-operatives are not autonomous and as soon as the state with - provide the same benefits to the rural poor and have the benefit of being draws its support they tend to collapse. simpler to establish and manage, are genuine grassroots movements, are An application for registration of a co-operative must be made to the not regulated and can, therefore, avoid certain negative implications Registrar of Co-operatives (Registrar) whose office is in the Companies such as tax. and Intellectual Property Commission (CIPC). The application for reg - Due to their informal nature, stockvels are difficult to define but istration must be made in the prescribed form and be accompanied by broadly are informal and unregulated community-based saving schemes, the constitution of the co-operative signed by the founder members, a aimed at improving the lives of their members, both economically and list of the founder members, a list of directors, and the prescribed fee socially, by providing them with financial support within a social or com - (which is currently R50). Registration usually takes between two and munity-based grouping from their own contributed funds. The stockvel four weeks. Once the process is complete a registration certificate will has its origins in African customary law. Behind the concept is the tradi - be issued reflecting that the co-operative is incorporated with separate tion of group solidarity or Ubuntu . Stockvels, though falling outside the legal status from its members and its name and registration number. formal economy, are estimated to have contributed R5,6bn to South The highest decision-making structure of a co-operative is the annual Africa’s economy in 2003. 5 general meeting of members where each member is entitled to a single And, unlike co-operatives, stockvels are uncomplicated, non-bureau - vote. At the meeting, the members must appoint an auditor, approve a cratic and easy to establish, especially for disadvantaged and uneducated report of the board on the affairs of the co-operative for the previous people. They are established informally and members can impose their financial year, approve the financial statements and auditor’s report for own regulations. They are usually formed by people who work together the previous financial year, elect directors and decide on the future busi - or who belong to the same community,and come together to form a ness of the co-operative. The chairperson of the meeting is responsible stockvel. Becoming a member is generally based on the recommendation to ensure minutes of the meeting are made and kept at the registered of an existing member. It also has legal personality through conduct, as office (as stated in the constitution) of the co-operative. well as limited liability of the members in so far as a member will not The affairs of a co-operative must be managed by a board of directors generally be held liable for an amount exceeding his contribution during consisting of the number of persons permitted by the co-operative’s con - the existence of the stockvel. stitution. The board is accountable to the members in annual general Forming part of the informal sector, stockvels fall outside the legisla - meetings. tive and regulatory regime of banks and, specifically the South African Co-operatives are formed to provide financial benefits to members. Revenue Services and the National Credit Act. They can avoid taxa - They are not eligible for public benefit status under the provisions of s30 tion which the more “formal” co-operatives cannot. of the Income Tax Act, 1962 and therefore are not tax exempt. For tax - In order for the co-operative sector to develop, the state would need ation purposes a co-operative is treated as if it is a company. However to consider making co-operatives less bureaucratic and complicated. The they may still access tax benefits as small business corporations. The rate development of tax exemptions/incentives, which have been adopted in of tax for companies in South Africa is currently 28%. other jurisdictions such as the Philippines, would be a step in the right Despite the good intentions of the Act, co-operatives have generally direction. lacked financial or active support; as a result many co-operatives have a Until such measures are undertaken it is unlikely that the Bill will paper membership and operate in a dysfunctional manner. In an rejuvenate the co-operative sector in South Africa. N attempt to remedy these defects, the Bill has been drafted and will be put before parliament. The Department of Trade Industry (DTI) is set McMichael is a candidate Attorney with Norton Rose SA. The super - to increase support for co-operatives by establishing a Co-operatives vising director was Georg Kahle.

1 Co-operatives UK “Facts and figures” (2012) available at http://www.uk.coop/economy/figures. 4 Ibid. 2 Ibid. 5 UCT Unilever Institute of Strategic Marketing “Making Social Cents” (2003). 3 V Satgar “The State of the South African Co-operative Sector” (2007) available at www.copac.org.za /files/State%20of%20Coop%20Sector.pdf. 22 August 2012 CCoomppeettiitiion llaw Needs to do some homework

CHRISTOPHER KOK

due process in a regulatory environment but, as a result of these decisions, he legal fraternity, and particularly the competi - the Commission will now have to follow the normal appeal procedure in both matters. tion law sphere, has been eagerly awaiting the T In the ordinary course, the Commission (or any would-be appellant for Constitutional Court's ruling in the cases of that matter) seeking to appeal a decision of the CAC would be required Competition Commission and Yara South Africa (Pty) Ltd, either to seek leave from the CAC to appeal the matter to the Supreme Omnia Fertilizer Ltd and Sasol Chemical Industries Ltd - Court of Appeal (SCA), or, if the matter concerns a constitutional issue, CCT81/11 [2012] ZACC 14 (Yara) and Competition seek leave from the CAC or the SCA to appeal to the Constitutional Commission and Loungefoam (Pty) Ltd, Gommagomma Court. In specific instances, when it is in the interests of justice to do so, (Pty) Ltd, Vitafoam (Pty) Ltd, Steinhoff Africa Holdings leave from the Constitutional Court may be sought directly. In both the (Pty) Ltd, Steinhoff International Holdings (Pty) Ltd, Feltex Yara and Loungefoam matters, the Commission (despite applying to the Holdings (Pty) Ltd and KAP International Holdings (Pty) Ltd SCA for leave to appeal), elected to seek direct access to the Constitutional - CCT 90/11 [2012] ZACC 15 (Loungefoam) . Court, effectively bypassing both the CAC and SCA. Though the Commission's actions resulted in many people accusing it of " forum shopping ," the Commission explained that not only was it entitled to seek direct access in terms of legislation but that the urgency and impor - Both cases have practical implica - tance of settling the disputed legal principles raised constitutional matters tions on how the Competition and justified appealing directly to the Constitutional Court. Commission initiates and refers The Constitutional Court has only been requested to rule on Competi- complaints to the Competition tion Law issues on exception, as it is highly specialised and has its own Tribunal and will have an impact on specialised court to hear appeals, the CAC. a number of pending referrals in which similar objections have been background raised. The background to each matter is briefly: The matters are also symptomatic In the Yara matter the Commission appealed a decision of the CAC which of the on-going debate regarding found that the Commission was not entitled to amend a complaint so as to whether or not statutory bodies like introduce a new complaint or new respondent unless a fresh complaint the Commission should be allowed alleging this has been properly initiated. the freedom to conduct their man - The Constitutional Court considered the Commission's condonation dated duties. On one hand, compe - argument, whether or not it was in the interests of justice to grant leave to tition authorities may argue that it is Kok appeal and focussed on s63(2) of the Competition Act read with s167(6) of being hamstrung by respondents rais - the Constitution. In essence, the majority judgement of the Constitutional ing "overly technical" points and by courts that do not necessarily possess Court held that the Commission's delay in lodging this application was the necessary understanding of economic principles central to Competition excessive and that "the explanation that the Commission attempts to advance is Law. On the other, legal practitioners may argue that Competition Law is so manifestly unsatisfactory that it can almost be rejected as no explanation at all" still developing and legal challenges are natural and necessary in order to (para 34 of the judgement). establish competition jurisprudence within South Africa. The Constitutional Court held that the Commission had failed to apply to the CAC in accordance with s63(2) of the Competition Act and that, The judgements for these reasons, the Commission's applications stood to be dismissed. The On June 26 2012 the Constitutional Court ended immense speculation and Court held further that even if the condonation application was allowed, it legal debate when it handed down judgement in the Yara and Loungefoam was not in the interests of justice to grant the Commission leave to appeal matters. It dismissed both of the Commission's applications for leave to directly to the Constitutional Court. appeal earlier decisions of the Competition Appeal Court (CAC) with costs. In the Loungefoam matter the Commission appealed the entire judgement The CAC previously ruled that the Commission could not amend its of the CAC. The CAC judgement found that, among other things, any complaint referrals to introduce new evidence and/or allegations or to join amendment including a new complaint should be initiated before it could be new respondents. Not only do both decisions highlight the importance of referred. The majority decision of the Constitutional Court considered similar August 2012 23 CCoommppeettiittiioonn llaaww

factors to those in the Yara judgement and found that, irrespective of one's procedural grounds. The judgements were firmly based on interpretations of interpretation of s63(2) of the Competition Act, the Commission failed to the relevant statutes and rules of court with a strong emphasis on the seek leave from the CAC before approaching the Constitutional Court and importance of due process. These matters are the last in a chain of cases showed no compelling circumstances that could justify a direct appeal. regarding technical challenges questioning the Commissions' powers of Ultimately, the Commission failed to show that the SCA investigation, initiation and the would not deal with the matter expe - referral of matters to the ditiously or bring finality to some Competition Tribunal. or even all of the issues All is not lost for the between the parties. The Commission, however, as it Constitutional Court held that still has pending applications the matter should to be dis - in both matters for leave to missed on this basis alone and appeal before the CAC and thus found it unnecessary to potentially the SCA. The decide condonation of the minority judgements in Commission's seemingly excessive both matters in fact hinted delay. that there may indeed be Both of the Constitutional Court's merit to the Commission's decisions accept that issues concerning cases. Whether or not these the powers of and function of any courts will entertain the appli - organ of state raise crucial cations and/or whether or not Constitutional Law questions. The the Commission will proceed Constitutional Court, however, held with these applications is uncer - that due process must be adhered to tain, as pursuing the cases will and that these issues should first be con - undoubtedly result in further delays. sidered by the specialist competition court Whatever the Commission chooses (the CAC), and then, if required, also the to do, both majority judgements of the SCA. Constitutional Court stress the importance of due process and procedure, and emphasise the fact Implications that failure to adhere to the legislative framework will This development is arguably a substantial setback for the Commission in not be tolerated. what has been an extremely long and arduous journey following the matter This is a crucial lesson not only for the Commission but must be noted of Woodlands Dairy (Pty) Ltd and Another v Competition Commission 2010 by all within the legal field. N (6) SA 109 (SCA) (Woodlands) . The merits of neither matter were consid - ered by the Constitutional Court and the applications were dealt with on Kok is an associate with Webber Wentzel 24 August 2012 Probono Doing pro bono right: the nuts and bolts of managing the attorney / pro bono client relationship

NICKI VAN’T RIET, LIESL WILLIAMS AND JESS MOODLEY

refined approach, focusing on areas in which your attorneys have expressed a keen interest, such as marginalised women and children or socio-economic lient management is a complex and delicate task rights? It is a good idea to list those areas of law in which the firm has no Cand managing a pro bono client is no exception. expertise and thus in which it will In addition to the usual complexities of client not entertain pro bono requests. If management, the relationship with a pro bono client you would not take on the matter as comes with its own unique challenges. Because the stan - fee paying, do not take it on as a pro dard of service offered by attorneys should not differ bono matter. It is unprofessional con - between fee-paying and pro bono clients, it is important duct to use pro bono clients as “guinea to manage the pro bono section of your practice effec - pigs” to break into areas in which you do not have expertise. tively. This can be achieved by adopting a pro bono policy The next logical step would be to and implementing appropriate supporting procedures. define who would qualify for pro bono assistance, be it individuals or organi - sations, and what the qualification Pro bono policy criteria will be. The main (and A clearly planned and drafted pro bono policy will help achieve your objec - sometimes only) criterion is a finan - tives in an efficient and effective manner. The policy should be tailored to cial means test. Will you develop Van’t Riet suit your firm and your attorneys. your own means test or apply that At the outset, you should define what the firm’s commitment to pro bono developed by your law society? Do work will be. Will each individual attorney be required to render a certain you consider only the income of the number of pro bono hours work each year or will the firm create a position / individual applying for pro bono assis - department to take care of the firm’s pro bono commitment? Bear in mind tance or do you take into account while the Law Society of the Northern Provinces’ pro bono scheme allows for their marital status (and thus spousal aggregation of hours thus allowing one or more people to fulfil a whole firm’s support) and whether or not they pro bono obligation, the Cape Law and the KwaZulu Natal Law Societies’ pro own assets? bono schemes do not. Each member of those law societies is required to ren - Placing emphasis on the means der 24 hours pro bono service each year in accordance with the respective tests only can lead to deserving mat - rules. Furthermore, the Legal Practice Bill does not provide for an aggrega - ters being turned away. Due consid - tion of hours at this stage. eration should also be given to the A definition of “ pro bono work” is obviously crucial. The various law strength of the merits of the matter, societies’ have their own definitions. Will you copy their rather narrow defi - your areas of expertise, your capacity, nitions or find a definition that is more in line with your vision for what pro any conflicts of interests and lastly, whether or not there is a public inter - bono should look like? This goes back to the firm’s commitment to this Williams work. Why is it being undertaken? To comply with the requirements of the est element. Consider how you will law societies and in anticipation of the Legal Practice Bill coming into force? deal with situations where, for example, the means test is “failed” but the Or because of a sense of moral obligation to play a transformative role in matter is of significant public interest. A rigid approach in applying qualifi - society? Being honest about why you are undertaking pro bono work will cation criteria will lead to some absurd results. It is suggested rather that a help ensure your pro bono programme is structured in a way that works best more flexible system be applied when weighing up the qualification criteria, for you and makes a meaningful contribution at the same time. bearing in mind the rationale for pro bono work – access to justice for those Delineating the type and nature of pro bono work the firm wishes to who would otherwise be denied it. undertake will help focus the sourcing of the work. Will you take on Where will you find your pro bono matters? Will you only take on mat - instructions in all areas of law in which you practice or will you adopt a more ters that are recognised by the various law societies as “ pro bono ” in terms of August 2012 25

their rules or will you cast your net wider than that? Again, it comes back to antees can be given and that even matters with strong merits are not sure- your vision of pro bono and the reason for undertaking this type of work. If fire bets, and that attorneys require full disclosure of the truth and not simply you only wish to undertake pro bono work that will be recognised by your law the best possible version of events. Serial pro bono clients are very adept at society, you will need to follow its rule to the letter. abdicating responsibility for their problems to anyone vaguely willing to The Cape Law Society, for example, has on its website a list of recognised entertain them. Beware of them! structures. If you do work for these organisations or individuals properly referred Because pro bono clients are not paying for your legal services, they often by them, your work will automatically qualify for recognition under Rule 21 do not appreciate the value of what they receive from you and have no (the pro bono rule). The Law Society of the Northern Provinces has appointed qualms in demanding far more of you than would a fee paying client. At the ProBono.Org as a recognised structure. Thus any instructions taken on from outset it is important to put in place clearly defined boundaries with a pro that organisation will automatically qualify as pro bono under Rule 79A. bono client as to what is acceptable behaviour from them and what is not. If The law societies do have application forms to have work not received you wouldn’t accept the behaviour from a fee-paying client, do not accept via recognised structures recognised as pro bono for the purposes of the rules. the behaviour from a pro bono client. If you are going to cast your net wider than the law society rules, will you The only distinction between the two types of client is that the former partner with NGOs, university law clinics, entities like Legal Aid South pays your legal fees while the latter does not. No other exceptions should be Africa or the Human Rights Commission? Casting the net too wide can made. As their attorney you do your client a disservice when you attempt to cause you to lose focus, which will hamper your efforts at having a stream - take on other roles such as psychologist, financial adviser, mentor, spiritual lined, effective pro bono programme. Positioning yourself strategically, how - counsellor, parent, sibling or friend. Maintaining a healthy professional dis - ever, will expose you to the clients whose matters you want to take on and tance at all times is in both your and your client’s best interests. Where a pro for which you have a passion bono matter is of a particularly personal or traumatic nature, refer the client On a more administrative note, who will be responsible for overseeing to an appropriate organisation that can provide free psycho-social support, and administering the firm’s pro bono programme? How will accepted pro such as the Family and Marriage Association of South Africa (FAMSA), the bono instructions be allocated to attorneys within the firm? How will dis - Centre for the Study of Violence and Reconciliation, Lifeline and the South bursements be handled and what will African Depression and Anxiety Group (SADAG). Many religious organi - the budget be for writing off disburse - sations also offer free counselling services. ments (bearing in mind that pro bono clients often cannot afford even the Engagement letter most basic of disbursements)? One way to create certainty around this issue of managing client’s expecta - Can your current computer sys - tions is to provide the client with a pro bono Terms of Engagement letter, tems accommodate a pro bono data - clearly setting out in plain and easily understandable language, the grounds base and all the reporting require - on which the mandate may be terminated. Make sure clients understand ments (bearing in mind the law soci - what they are signing. The engagement letter should also deal with the eties also have reporting require - aspect of costs. It is advisable to have the client cede their rights to any costs ments)? How will pro bono work be that might be awarded to them in successful litigation. tracked, reported on, accounted for Other aspects that an engagement letter should cover are the matters of and recognised? Does your current FICA, confidentiality, client care, complaints procedures and disbursements. time recordal system lend itself to Acting pro bono does not mean that disbursements must automatically be tracking pro bono matters or will you absorbed by the firm. At the outset the client should be informed of the Moodley need to create a separate system for expectation that they cover the disbursements in whole or at least part. pro bono matters? Will work on pro Obviously a client’s inability to cover disbursements should not be a bar to bono matters be recognised on scorecards come performance appraisal time? them receiving your pro bono services, but failing to canvass this issue with These questions require careful consideration to ensure that the right people the client could lead to unpleasant surprises down the line. are appointed to manage your pro bono programme and that you achieve With a little thought and planning, your pro bono programme can easily optimal use of the resources allocated to your programme. be integrated into your fee-paying practice. The more specific the policy, the easier (and less time consuming) it is to PS The computing systems generally utilised by SA law firms do not find the right pro bono matters, assess them, allocate them, track them and accommodate pro bono work and a large part of the reporting ends up being report on them. done manually. This allows for human error to creep in. pro bono Net, a New York based legal NGO has developed pro bono ManagerTM, a very use - Managing the client’s expectations ful piece of software specifically designed to cater for pro bono programmes. More often than not, pro bono clients tend to be less sophisticated than the Unfortunately, the solution being hosted in the USA presents various chal - average fee paying client. Managing their expectations thus becomes critical. lenges, in particular because of their Patriot Act. Perhaps it’s time for a local Unfortunately there seems to be a perception among pro bono clients that software company to design a pro bono programme - pro bono . if you get an attorney on your side you simply cannot lose. Similarly, they have a tendency to window–dress their matters in hope that this will bolster Van’t Riet and Williams are associates and Moodley a candidate attorney their case. pro bono clients need to be made to understand that that no guar - at Norton Rose SA.

Brought to you by 26 August 2012 CCoommppaannyy llaaww Mouritzen and the new era of derivative actions

SIYABONGA SHANDU

both K and D Mouritzen) holds 98 derivative action is a court action initiated by a shares in the capital of the person (for example a shareholder or director) Company and D Mouritzen and his A wife hold 49 shares each. K and D on behalf of a company in order to protect the Mouritzen were paid equal monthly company’s legal interests. It is referred to as a derivative salaries by the Company and were action because the person who initiates it derives the issued with credit cards in their right of action in law from the company whose legal names, on the basis that transactions interests is sought to be protected. on those credit cards were debited to and paid by the Company. K Mouritzen alleged that D Mouritzen was abusing his credit It is generally used where a person who commits wrongdoings against a card to the detriment of the company, controls decision-making within that company and uses his or Company and the shareholders. On her control (alone or with others) to prevent it from instituting legal pro - May 23 2011, K Mouritzen, through Shandu ceedings against the miscreant. his attorneys, sent a letter (which Globally, the concept of derivative action is inextricably linked with constituted a s165(2) demand) to the Company’s postal address and to the case of Foss v Harbottle . That case introduced what became the ‘rule both the Company’s attorneys and D Mouritzen by e-mail, in terms of in Foss v Harbottle ’1 or the ‘proper plaintiff rule.’ In terms of the rule, only which he demanded that the Company institute legal action against the company may institute legal proceedings in relation to wrongdoings (D Mouritzen) to compel him to produce records of his credit card trans - committed against it. The rule, however, acknowledged that if a company actions and necessary supporting documents. These would enable the failed to institute legal action against a wrongdoer, a shareholder could, in Company to determine whether or not the expenses were properly certain circumstances, 2 institute action on behalf of that company. charged against the Company. However, a shareholder was precluded from instituting action if an alleged D Mouritzen sent an e-mail to K Mouritzen’s attorneys disputing the wrong could be ratified by the majority of the shareholders. allegations. K Mouritzen then approached the court for an order granting The wisdom of Foss v Harbottle was later questioned. It was argued him leave to institute a derivative action, in the name of the Company, that it stifled the effectiveness of derivative actions. In order to circum - against D Mouritzen for delivery to him of the full account of his debit vent the deficiencies of common law derivative actions, the legislature card expenditure, the assessment of expenses in the account and payment promulgated s266 of the Old Companies Act, (61 of 1973) (Old Act). to him (as a representative of the Company) of any amount that appears International trends later changed and favoured the abolition of the com - to be due to him, as a representative of the Company. mon law derivative action in order to avoid confusions in the concurrent application of both the common law and statutory derivative actions. D Mouritzen argued that: These international trends heavily influenced South Africa’s adoption of the letter sent to the Company’s postal address (the s165(2) demand) was s165 in the Companies Act, (71 of 2008) (New Act). s165 specifically improperly served; Mouritzen’s derivative action was in bad faith; and abolishes the common law derivative action as set out in Foss v Harbottle H Mouritzen (wife of D Mouritzen) was driven by personal animosity, and sets out a new statutory derivative action. which existed between the Mouritzen brothers. In Mouritzen v Greystone Enterprises and Another 3 (Mouritzen Case), Ndlovu J handed down the first judgement in South Africa in relation to Section 165 the new statutory derivative action. This note analyses Mouritzen and It provides that: highlights key aspects, which are useful in understanding the process of any right at common law of a person other than a company to bring a initiating derivative actions under the New Act. derivative action is abolished and substituted by s165 (165(1)); The facts in Mouritzen that K Mouritzen and D Mouritzen are broth - a person may serve a demand upon a company to commence a deriva - ers and the only directors of Greystone Enterprises (Pty) Ltd. The tive action if that person is a shareholder or director of that company Mouritzen Family Trust (the beneficiaries of which are the families of or is a trade union representing employees of that company (s165(2)); Think quality. Think value. SAVE 30% on LexisNexis Major Works

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a company that has been served with a demand in terms of s165(2) may cise of its discretion, is satisfied that the demand was duly served on the com - apply, within 15 business days, to a court to set aside the demand only pany for which it was intended.” 7 on the grounds that it is frivolous, vexatious or without merit (s165(3)); Though Mouritzen clarifies the issue of service, it is submitted that it if a company does not make an application contemplated in s165(3), will be prudent for persons initiating derivative actions to ensure that that company must, within 60 business days after being served with there is adequate proof of delivery of a s165(2) demand to the company the demand, either initiate or continue legal proceedings, or take related in issue to ensure that service is beyond reproach. legal steps to protect the legal interests of the company, as contemplated in the demand or serve a notice on the person who made the demand, refusing to comply (s165(4)); and Refusal to comply with the s165(2) demand Ndlovu J noted the e-mail response by D Mouritzen to the s165(2) a person who has made a demand in terms of s165(2) may apply to a demand (where he disputed the allegations made by K Mouritzen in rela - court for leave to bring or continue proceedings in the name, and on tion to the abuse of his credit card), and said that the response was in D behalf of the company, and the court may grant leave only if the court is Mouritzen’s capacity as a director of the Company and decided that it satisfied that the applicant is acting in good faith , the proposed or con - constituted a refusal to comply with the s165(2) demand as contemplated tinuing proceedings involve the trial of a serious question of material con - in s165(4)(b)(ii) of the New Act. sequence to the company; and it is in the best interests of the company that the applicant be granted leave to commence the proposed proceed - ings or continue the proceedings, as the case may be (s165(5)(b)). Was K Mouritzen acting in good faith? In this aspect of his judgement, Ndlovu J compared s165 of the New Act with similar legislation in New Zealand, Canada and Australia and s165(2) Demand – directory or peremptory? Ndlovu J observed that the use of the word “ may ” in relation to the serv - referred to decided cases on statutory derivative actions in Australia. In ice of a s165(2) demand may obscure the legislative intent that it is a pre - this regard, Ndlovu J borrowed from Australia 8 the following factors requisite for the institution of a s165(5) derivative action. He said: which South African courts must consider when determining whether or “...I observe that the service of the demand on the company is an essential not the ‘good faith’ requirement set out in s165 has been fulfilled: prerequisite for the institution of an application under section 165(5) and whether or not the applicant honestly believes that a good cause of without which such person is obviously barred from launching the applica - action exists and has a reasonable prospect of success; and december C 11/20/08 7:25 AM Page 1 CMY CM MY CY CMY K tion. Given this observation, it is imperative and compulsory that a prospec - whether or not the applicant is seeking to bring the derivative suite for tive applicant must comply with the service requirement before proceeding in such collateral purpose as would amount to the abuse of court process. 9 terms of section 165(5). On this basis, the section ought, in my view, to be Ndlovu J decided that, though a court should take into account per - understood in the context that an applicant ‘must’ serve the demand on the sonal animosity between parties when considering whether or not the company. It is a peremptory provision.” 4 applicant has satisfied the ‘ good faith ’ test, personal animosity on its own It is submitted that s165(2) of the new Act must always be read with does not constitute proof that a person who initiates a derivative action is s165(6) which provides that a person contemplated in this section (that acting in bad faith. 10 is, a shareholder, director, prescribed officer etc.) may, in exceptional cir - One of the reasons for the overhaul of company law in South Africa cumstances, apply to court for leave to bring a derivative action without was to harmonise the South African company legislation with best prac - serving a s165(2) demand. tices internationally. Therefore, our courts will, where appropriate, use The issue of whether or not a s165(2) demand is directory or peremp - foreign law in order to develop the South African company law jurispru - tory was also raised in academic cycles prior to the new Act becoming dence under the New Act, as Ndlovu J did in Mouritzen .11 operational. 5 Ndlovu J was not specifically called upon to decide on the directory or peremptory nature of the serving of the s165(2) demand; Is the derivative action in the best interests of the company? however, his clarification of this important procedural aspect of s165 Ndlovu J referred to the Australian case of Swansson v Pratt where, in the should be welcomed. context of a provision similar to s165(5)(b)(iii) of the New Act, it was decided that s237(2)(c) of the Australian Corporations Act require the Service of the s165(2) demand court “…to be satisfied, not that the proposed derivative action may be, appears As indicated, D Mouritzen argued that the s165(2) demand sent by his brother to be, or is likely to be, in the best interest of the company, but, that it is in the was not properly served because it was not delivered at the Company’s regis - best interests.” In concluding that the derivative action was in the best tered address or principal place of business. Ndlovu J noted that there was interests of the Company, Ndlovu J said: nothing in s165(2) of the New Act which suggests that it must be served by “The applicant is a trustee of the Mouritzen Family Trust which has the delivering it to the registered office of a company 6 and said: majority shareholding in the company. Any financial maladministration and “…I find that the purposive interpretation of section 165(2) does not mismanagement of a company will naturally adversely affect the financial require that a demand referred to in that section must necessarily be condition of that company. Therefore, as a representative of the majority served on a company by delivering it at its registered office or its shareholder, the applicant is entitled to call for a proper investigation of any principal place of business . In my view, any legally recognizable manner suspected irregularities and abuse of the company’s assets. The Mouritzen of service of any court process or document initiating application proceedings Family Trust has a direct and substantial interest in the success and prosperity shall be adequate, provided that the court considering the matter, in the exer - of the company in that if the allegations against the second respondent are

Composite August 2012 29 CCoommppaannyy llaaww

proven, that would have a direct negative impact on the value of the One of the criticisms of derivative actions is that persons considering Mouritzen Family Trust’s shareholding in the company.” 12 instituting derivative actions may be discouraged by prohibitive legal costs. In Mouritzen , Ndlovu J left the issue of costs for determination by Comment the court hearing the actual derivative action. It is hoped that court will The judgement in Mouritzen is an important initial judicial step towards use its discretion in terms of s165(10) to ensure that it does not give cre - removing the dark shadow of the common law derivative action from dence to views that have been expressed in Australia 13 that courts are South African jurisprudence. The ability of shareholders, directors, pre - reluctant to allow derivative action applicants access to company funds to scribed officers, and trade unions to bring successfully derivative action in cover litigation costs even when the company is in a financial position to terms of s165 is likely to encourage good corporate governance practices cover them. N and serve as a deterrent against malfeasance by those who control com - panies. Shandu is a director of Tony Tshivhase

1 [1843] EngR 478. 9 Mouritzen Case, at Para [58]. 2 These circumstances included instances where a wrongful act done against the company was 10 Mouritzen Case, at Para [59]. This conclusion is supported in Swansson v Pratt (note 10 unratifiable (e.g. fraud on the minority) and the wrongdoers controlled the company. above), at Para [41]. 3 [Case No. 10442/2011], (as yet unreported), handed down 8 June 2012 in the KwaZulu Natal 11 Hopefully judges will always keep in mind the following warning by Schutz J: “…ransacking the High Court, Durban. libraries of the world may, where not appropriate, lead to not more than more paper, more cost, more 4 Mouritzen Case, at Para [24]. delay and even more confusion, without any commensurate benefit.” Standard Bank Corporation v 5 L Coutzee “A comparative Analysis of the Derivative Litigation Proceedings under the Companies Act The Competition Commission & Others 200(2) SA 798 (SCA), Para [30]. 61 of 1973 and Companies Act 71 of 2008” Acta Juridica 2010, 276 Juta at 300. 12 Mouritzen Case, at Para [64]. 6 Ndlovu J said that if the legislature intended delivery to the registered address to be a require - 13 N Frawley “The Cost of Bringing a Statutory Derivative Action in Australia – Is it time to reconsider ment of service, it would have expressly done so as it did in s 345(1)(a)(i) of the Old Act. the terms of s 242 of the Corporations Act”. Paper presented in February 2007 at the Corporate 7 Mouritzen Case, at Para [33], Emphasis added. Law Teachers Conference (Deakin University, Melbourne) 4-6 February, available at http://www.clta.edu.au/professional/papers/conference2007/2007NF_CBSDAA.pdf (accessed on 8 Swansson v Pratt [2002] NSWSC 583. 7 July 2012). december C 11/20/08 7:25 AM Page 1

CMY CM MY CY CMY K

Composite 30 August 2012 CCoommppaannyy llaaww Getting clever with business rescue

ERIC LEVENSTEIN

creditors who are not employees and who are not related to the company udging from the numerous court hearings on the either by way of shareholding or directorship). Jtopic, business rescue is fast becoming part and par - Shareholders will only get a vote if their rights are affected in some way, cel of restructuring companies in financial distress. such as a dilution of their position within the company's shareholding and It is an option for financially distressed companies to file which is suggested by the plan. Shareholders would have to approve the plan for the supervision of the company's business and affairs in this instance, by way of a majority vote. Once the business rescue plan has been voted in, it is binding on the com - by a business rescue practitioner pending the voting in of pany and on each of the creditors of the company, including shareholders. a business restructuring plan in terms of Chapter 6 of the An interesting option available to all affected persons where a business res - Companies Act, (2008). cue plan has not been accepted, is the ability of any affected person or combi - nation of affected persons to make a binding offer to purchase the voting inter - ests of those persons who opposed adoption of the business rescue plan. In Once the business rescue practitioner has had an opportunity to consult with terms of s153(1)(b)(ii) these voting interests can be bought out at the liquida - all affected persons, including creditors, employees, trade unions and share - tion value independently and expertly determined by a third party at the holders, he is obligated to put together a restructuring plan. This must effec - instance of the practitioner. This results in a "cram down" on dissenting credi - tively suggest the manner and form of the restructuring of the company's tors and would ensure that those creditors in favour of the plan would have the affairs, business, property, debt and other liabilities and equity in a manner opportunity to vote in the plan at the relevant 75% threshold. that maximises the likelihood of the company continuing to exist on a sol - Creditors who are bought out at an unfair or unreasonable liquidation vent basis. value are entitled to apply to court to review, re-appraise and re-value a If it is not possible for the company to continue on a solvent footing, the determination by the third party independent expert. At this stage, we have practitioner must formulate a plan, which would result in a better return for not seen any challenges being made to these valuations but there is no doubt creditors or shareholders than would otherwise result from the immediate that this could become a litigious issue. liquidation of the company. If neither of the options is possible, the practi - The nature of what is a " binding offer " is also up for debate. Generally, a tioner is obligated to place the company into liquidation. party would only be bound to sell once an offer has been made and there - Once the plan has been formulated it is put to creditors for voting at a after accepted. The " binding offer " concept envisages a process where the dis - s151 meeting. It is here where creditors need to "up their game" in what is a senting creditor is forced to sell at liquidation value – a concept quite foreign minefield of new law and opportunity. to our law. At this meeting, the practitioner must provide details of the proposed If creditors feel that a vote has been made inappropriately, they are entitled business rescue plan for consideration by the creditors and, if necessary, to apply to court to set aside the result of such a vote. Grounds to be consid - shareholders, and attempt to persuade the meeting that there is a reasonable ered by a court would include a vote that is prejudicial to the interests of these prospect of the company being res - creditors who are adversely affected by the implementation of the plan. cued. Alternatively, payment of a Once a plan is voted in, any creditor that has had its claim compromised, larger dividend than in a liquidation results in a discharge of the balance of the debt. must be on the table. After discus - If the effect of this mechanism is considered, it is very important to estab - sion and possible suggestions on lish, very early on in the process, where the "value breaks" when it comes to amendments to the plan, the practi - voting. If a creditor votes down a plan, it could result in the creditor's vot - tioner must call for a vote to approve ing interest being bought out by other creditors at a very negligible amount. the plan. (liquidation value). In principle, this could result in creditors or sharehold - In such a vote, the proposed busi - ers taking control of a company where there is value but where the company ness rescue plan will only be ap- has run out of an ability to meet its debts from a cash flow perspective. proved if it is supported by the hold - Venture capitalists, minority shareholders and creditors could place them - ers of more than 75% of the credi - selves in a very advantageous position once they understand the voting tors' voting interests that were voted mechanisms in business rescue, which could ultimately result in them taking (votes must include at least 50% of control of companies with potential future value. N independent creditors' voting inter - Levenstein ests – independent creditors are those Levenstein is a director of Werksmans August 2012 31 CCoommppaannyy llaaww Individual director due diligence

NATASHA BOUWMAN

committees and the individual directors should be evaluated every year ompany law dictates that individual directors (Principle 2.22). According to King III, the evaluation of individual have fiduciary duties to act in the best interest of directors should be led by the chairman through the nominations com - C mittee, or by an independent service provider. However, it is recommended the company and a duty of care skill and dili - that independent performance appraisals should be considered in the gence in the performance of their duties as directors. To interest of eliciting candid responses. The yearly evaluations of individual what other criteria are individual directors required to directors provide the basis for identifying future training needs and also adhere to demonstrate that they have performed against assist with nominations for re-appointment of directors at the AGM – as their duties as director? it provides a basis to explain why a re-appointment may or may not be appropriate.

best practice: Annual assessment of the board and Directors Considerations when assessing individual directors The King Report on Governance in Southern Africa, 2009, the Institute The King Committee released a practice note of questions that should be of Directors in Southern Africa (King III) recommends the board, its asked when conducting an assessment of an individual performance

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against his/her duties as direc - To determine if a director effectively executed his/her duties, the tor. 1 These questions could be director in question should have: utilised by the Chairman and contributed actively and positively to discussions at meetings; nominations committee, or by exercised appropriate diligence by being properly prepared for an independent service board meetings; provider, when conducting demonstrated a thorough understanding of the matters to be dis - the assessment. In addition, cussed at the board meetings; individual directors could attended all the scheduled board meetings; assess themselves in advance dedicated sufficient time to the performance of board duties; of a formal assessment to acted in the best interest of the company at all times; ensure they understand their acted with due care, skill and diligence; duties and will be able to responded to issues in a timely and effective manner; and demonstrate performance consulted with management, staff and external advisors where against their duties during the necessary. formal assessment. 2. Additional considerations for independent non-executive directors and The Practice Note’s sug - chairmen gested questions to be used Bouwman Additional considerations should be taken into account when evalu - when the performance evalua - ating directors who are independent non-executive directors, mem - tion of individual directors relates to the required knowledge and skills as bers of board committees or the chairman or the chief executive offi - well as the execution of their duties as director: cer (CEO). 1.1. Knowledge and skills 2.1. Additional considerations for independent non-executive directors To determine if a director demonstrated the knowledge and skills During the evaluation of an independent non-executive director required, the director in question should: (‘independent director’), it should be confirmed that the inde - have the necessary skills to contribute to the board; pendent director: have the skills appropriate to the company’s complexity, size and is independent in accordance with the criteria in King III nature, as well as its industry; (see King III, Principle 2.18); have an adequate understanding of the organisation’s business and has a sufficiently independent voice and is consistently ready the long term strategic interests of the company; to take constructive stands at meetings when necessary; and have an understanding of, and be committed to his/her duties and has not served a term beyond nine years (for example, three responsibilities; three-year terms), without being subject to a rigorous assess - be willing and able to devote the time needed for effective execu - ment by the board. tion of board responsibilities; have a clear understanding of the distinct roles of directors and King III recommends that non-executive directors classified managers and demonstrate this understanding; as ‘ independent ’ should undergo an annual evaluation of their display characteristics such as: independence by the chairman and the board and that the clas - integrity, sification of directors in the integrated report, as independent or judgement, otherwise, should be done on the basis of this assessment independence of mind, (Principle 2.18). credibility, 2.2. Additional considerations for board committee members trustworthiness, When assessing directors who are members of board committees, intuition, it is important to remember that these directors are required to willingness to handle conflict constructively, fulfil their role as a committee member in addition to their role an ability and desire to learn, as a director on the board; that is the duties and responsibilities an openness to new ideas, of the members of the committee are in addition to their duties good communication skills, and responsibilities as members of the board. Therefore commit - decision-making skills, and tee members will still undergo an assessment of their perform - inter-personal skills; ance as individual directors; however the board committee demonstrate commitment to good corporate governance; should also be assessed separately to establish its performance have the courage to take and stand by ‘tough’ decisions; against its delegated mandate (as usually set out in its terms of have kept up to date with key developments affecting his/her reference as approved by the board). required skills set and the business environment; have attended an induction programme (if a new board member). 2.3. Additional considerations for chairmen of board and Chief Executive Officers 1.2. Execution of duties August 2012 33 CCoommppaannyy llaaww

Should a director also fulfil the role as the chairman or the by additional requirements important to a specific company’s unique business CEO, there will be additional considerations when evaluating if environment and culture, such as a company’s unique values. N their role is effectively fulfilled. Next month’s article will focus on the different roles of the chairman and the CEO as well as Bouwman is Head: Secretariat, National Empowerment Fund the importance of ensuring that the roles of both does not vest in one person. Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the National Empowerment Fund. Conclusion The questions could be adjusted for all types of organisations and where If it is really necessary to put questions along these lines to directors additional legislative and other binding provisions exist, these considerations every year, then they shouldn’t have been appointed in the first could be included in the evaluation process. They could also be supplemented place - Publisher

1 ‘King III Chapter 2: Individual Director Evaluation questionnaire, March 2011’ can be accessed at www.iodsa.co.za.

CCoonnssuummeerr llaaww Please don’t be alarmed if a scorpion wanders across the menu

NICK ALTINI

What is less clear is whether restaurants are purveyors of goods or serv - ver since the CPA took effect, the Consumer ices for purposes of the CPA, or both. The definition of a " service " under Commissioner, the regulator tasked with ensuring the CPA includes the provision of sustenance. On the other hand, the E definition of the term " good " in the CPA includes anything intended for compliance with CPA, has been active and vocif - human consumption. erous. While the Commissioner may not yet have Ultimately though, not much placed much emphasis on restaurants in general, restau - may turn on this distinction as rants should not assume that they are immune from the the CPA contains a wide vari - provisions of the CPA. They are as obliged to comply ety of provisions, which apply with it as any other supplier of goods and services. to restaurants irrespective of whether they are deemed sup - pliers of goods or services or Compliance with regulatory obligations begins with education and infor - both. mation. Those restaurants that have not yet fully acquainted themselves with the vast provisions of the CPA should do so without further delay. Liability Issues What follows is a short précis of only some of the highlights of the CPA The CPA specifically provides that may apply to restaurants. that consumers of services who All suppliers transacting with consumers are subject to the provisions do not receive service of a of the CPA, irrespective of whether their typical clientele are well heeled, standard and quality they feel commercially sophisticated and experienced consumers or whether the they are generally entitled to restaurant is an establishment that seeks to provide affordable fare to any - expect, may either demand one who may wish to patronise it. that the service defect is reme - Altini 34 August 2012 CCoonnssuummeerr llaaww

died or seek rectification by paying less than the agreed service amount. Most reputable restaurants would already employ the practice of not charging consumers for meals they find dissatisfactory, alternatively offer - ing a discount or free meal or some other form of compensation. Restaurants must realise now, however, that what the CPA does is legis - late the rights of consumers either to demand a new meal, alternatively a refund or a reduction of the price and these are no longer to be considered discretionary mollifications. More daunting, however, are the provisions of s61 of the CPA, which essentially impose strict liability on suppliers of goods in the instance that the good supplied is defective, unsafe or hazardous and causes any form of damage to a con - sumer (even if the consumer did not enter into the transac - tion in terms of which the good was supplied). What is signif - icant about this provision is that it gives consumers the right to seek to recover all forms of damages (whether they relate to physical pain, suffering and disfigurement, claims for loss of support as a result of death, damage to property, medical expenses, loss of income or damage to property) without the consumer having to prove at any point that the supplier was negligent in supplying a defective good. This innovation in our law considerably lowers the bar in consumer product liability type litigation. What is particularly pertinent for restaurants in this regard is the fact that the provisions of s61 not only apply to suppliers of goods, but also suppliers of services and goods. This may mean that restaurants that supply defective meals Also very important is that certain types of terms and conditions must to consumers, however innocently and with whatever lack of negligence, be brought to the attention of the consumer in a manner that ensures the could find themselves the subject of strict liability claims at the stomachs reasonably alert consumer could not fail to notice them. In particular, of consumers who suffer damages. terms which limit the risk or liability of the supplier, place risk or liability Given that the provisions of s 61 do not limit the type of damages that on the consumer, cause the consumer to have to indemnify the supplier consumers can claim as a result of suffering harm from the receipt of or a third party or which constitute some form of acknowledgement of a defective goods, all suppliers who are subject to this provision are well fact by a consumer, must be very prominent and, naturally, written in advised to ensure that their insurance policies could cater for possible plain language if they are to be enforceable. claims. The CPA also specifically provides that when the consumer is granted access to a venue or facility that may place the consumer at risk of Terms and Conditions encountering a circumstance of an unusual character or nature, the pres - The CPA regulates consumer contracts in a variety of ways and while it is ence of which the consumer could not reasonably be expected to be not usually the case that patrons of a restaurant are required to sign any aware of or notice, or which could result in serious injury or death, this form of agreement, it is the case that many restaurants have contractual must be specifically drawn to the attention of the consumer at the earliest terms and conditions in place either printed on menus or placed on signs opportunity. Examples of such facilities in the restaurant world may at the entrance. Typical examples include the payment of mandatory include restaurants in a bushveld setting where wild animals may have service charges over and above the price of meals, no tolerance of menu access to the premises. deviations, rights of admission and disclaimers of liability relating to inci - The CPA also regulates the use of unfair, unreasonable and unjust dents that may occur through patronising the establishment. terms and conditions. Restaurants should review their customer policies The most important provision of the CPA in these respects is that all to try and ensure that however popular an establishment may be, it does such warnings and notices must be written in plain language. The term not seek to take advantage of its popularity by imposing unreasonable and "plain language " is in itself not well elucidated in the CPA but suppliers unfair terms and conditions on consumers. should, at the very least, ensure that the notice appears in a language that it likely to be understood by the majority of patrons and is written using Non-Discrimination words and a style that is relatively simple and easy to understand, free of The CPA effectively extends the anti-discrimination provisions enshrined any legalise or jargon and other unnecessary complication. A failure to in the Constitution and incorporates them into its body. While no observe the plain language requirements of the CPA may simply result in restaurant of any worth would knowingly and unfairly discriminate the term or condition not being enforceable. against patrons based on arbitrary characteristics such as race, religion, August 2012

CCoonsumeerr llaaww IP FOR AFRICA Our migrations political affiliation or educational standard, the CPA goes somewhat fur - ther and gives an indication of specific instances in which discrimination through Africa have based on age, in particular, is permissible. It is not impermissible to discriminate based on compliance with pub - now taken us to lic regulations or where it is reasonable to protect the health, welfare or safety of a minor. Suppliers can reasonably refuse to enter into transac - Umhlanga tions with minors and may, if they wish, designate facilities, permanently or from time to time, for the exclusive use of minors generally, minors of a specified age or adults who have attained a specified age of at least 60 years. Similarly, suppliers are specifically permitted to offer to supply or provide access to facilities exclusively to persons of one gender. Last, the CPA also specifically states that it is permissible for suppliers to market their services in a manner that implies or expresses a prefer - ence for a particular group of consumers distinguishable on one of the arbitrary grounds of discrimination set out in the Constitution (for exam - ple, gender, age, language, race, culture, religion and the like) provided the goods or services being marketed are reasonably intended or designed to satisfy the specific needs or interests common to or uniquely character - istic of that particular group of consumers. In other words, a kosher restaurant could justifiably market its services in a manner discriminatory to people who are not of the Jewish faith if its main target market is Jewish customers. What is important about these provisions is that irrespective of the basis of discrimination, be it gender or age, there should be a rational and justifiable ground for the discrimination.

Marketing under the CPA Possibly of greatest consequence for restaurants is the myriad provisions dealing with marketing activities. Once again, the CPA goes from the general to the specific. At a level of generality, the CPA prohibits marketing initiatives which are in any manner intended to be misleading to consumers or which are otherwise untruthful or dishonest. More specifically, however, the CPA regulates trade coupons and similar special deals where it is most important to note that suppliers engaging in trade coupon and simi - lar promotional type activities must ensure that they are able to meet all reasonable demand created by the special offer. From a bait marketing point of view, the CPA specifically states that consumers must not be misled about the availability of a good or service at a particular price. If a restaurant is offering a discount on meals and the supply is only for a limited number of customers, then this should be specifically stated in the advertisement. Promotional competitions, in particular, are subject to extremely rigorous and, in fact, onerous regula - tion in terms of how a competition has to be run, and also the records that are required to be retained.

Overselling and Overbooking It is also well worth noting that the CPA specifically regulates the instance in which a service provider has undertaken to provide a particu - PATENT, TRADE MARK, COPYRIGHT, DESIGN, lar service on a particular date and time and then cannot due to capacity COMMERCIAL, PROPERTY & LITIGATION ATTORNEYS constraints that arise as a result overselling or overbooking. If the incapacity to render the agreed service on the agreed date and Pretoria | Johannesburg | Cape Town | Durban time was within the reasonable control of the supplier and immediate Angola | Burundi | Cameroon (OAPI) Mozambique (ARIPO) | Tanzania Tel: +27 (0) 31 536 8240

www.adamsadams.com 36 August 2012 CCoonsumeerr llaaww

and reasonable steps were not taken to notify the consumer, then he will ing subject to a reasonable cancellation penalty. What is reasonable will be liable to pay the consumer all costs incurred directly incidental to the be dependent upon the circumstances such how far in advance the con - breach. In addition, there are further provisions which regulate the supplier sumer gave notice and the expenses already incurred by the supplier in having to refund the consumer any money paid in advance together with catering for the booking as well as his ability reasonably to find a replace - interest at the statutory rate. ment consumer once the booking has been cancelled.

The Consumer's Right to Cancel Advanced Reservations, Conclusion bookings and Orders This is just a short summary, the actual provisions of the CPA and its reg - While most restaurants accept the fact that consumers may make bookings ulations are far more extensive and any consumer-orientated business that and then not arrive to honour those bookings, it should be noted that con - intends to continue and be successful has no choice, but to ensure its con - sumers have a right under the CPA to cancel any advance reservation, stant compliance with the legislation. A failure to comply will not only booking or order (this does not apply to special order goods ordered in result in expensive and costly legal proceedings but could ultimately result advance by the consumer) and if a consumer exercises this right, the sup - in a financial penalty of up to 10% of the turnover of the business con - plier may only charge a reasonable cancellation fee in the circumstances. cerned in the preceding financial year. As restaurants generally do not take deposits in advance this would, in This alone is sufficient incentive to ensure an effort is made towards most cases, mean that the restaurant simply has to accept the consumer's compliance. N cancellation of an advanced reservation. But to the extent that a con - sumer may have made a booking for a large group in advance and paid a Altini is a director and National Practice Head, Competition and deposit, the supplier will have to allow the consumer to cancel the book - Regulatory Practice, Cliffe Dekker Hofmeyr

IInntteelllleeccttuuaall pprrooppeerrttyy First come, best served

CHRISTOPHE VAN ZYL

brand protection strategy uch is being said in the media about the growth One important aspect of business expansion into any country is proper prospects of sub-Saharan Africa. Recent reports brand protection strategy. From what we have seen in practice as trade M mark practitioners, some large international businesses, even in less cer - indicate that the World Bank predicts 5% growth for the region in 2012 and 5.3% in 2013. 1 tain times, aggressively protected their brands in sub-Saharan African Increasingly, many medium and small South African busi - countries by diligently filing trade mark applications in each country. A reason for prudence is that the laws relating to trade mark rights are not nesses are focusing on opportunities in the region to gen - consistent. Trade mark rights are generally territorial. Therefore, identical erate growth. or confusingly similar trade marks are owned by different proprietors in different countries. For a business that carries on no trade in a particular country but intends to expand later, the most effective strategy is to One often cited by South African businesses for expanding into sub- obtain registration of the business’ essential brands in those countries. Saharan Africa is that the returns on investment can be significantly higher than in South Africa. The growth figures indicated for sub- Prevalent registration systems in Sub-Sahara Saharan Africa include South Africa, which is experiencing modest In terms of trade mark legislation in most former British colonies, the growth. South Africa’s growth is expected to slow this year to approxi - rights in a trade mark date back to the earliest of either: mately 2.7%, down from 3.1% in 2011. If it is excluded from the growth the date of filing a trade mark application in that country; or calculation for Sub-Saharan Africa, the region is reported to have grown a date prior to filing a trade mark application on which the trade mark at a steady rate of 5.7% in 2011. 2 was first used in that African country by the applicant for registration August 2012 37 IInntteelllleeccttuuaall pprrooppeerrttyy

in good faith or a person permitted by the applicant, provided that the ness that has an effective regional use was continuous from the earlier date. brand strategy. The reports are stag - gering. According to some reports, On the other hand, in former colonies of European countries such as there are businesses losing up to Portugal, France, Germany and Belgium the “first to file” principle usually 70% of their potential revenue as a applies, so that the person who is first to file a trade mark application in result of Africa becoming a dump - good faith acquires the strongest right. This also applies to the French ing ground for cheap counterfeit speaking African Union Countries where a single OAPI registration goods. 6 extends to 16 countries. In many countries, owning a However, even these general principles are not applied consistently. trade mark registration entitles the The courts in Zambia, a common law country, have interpreted its trade proprietor to notify customs author - mark law to mean that the first to file has the right to register, even ities of the owner’s rights in the though almost identical legislation in the United Kingdom and South hope that customs will identify and Africa was to the opposite effect. 3 stop suspected counterfeit goods from entering the country. Also, Van Zyl Well-known marks action to stop trade in counterfeit Some Sub-Saharan African countries, including South Africa, have legis - goods through criminal sanction is available in various African countries. lation that gives effect to an international treaty, which protects foreign However, registered rights are usually required before any action will be trade marks that have an extremely high degree of recognition in those taken. countries, as “ well-known ” marks. 4 There are extremely well-known trade marks that may qualify for protection in some African countries, despite not being used or registered in those countries. business relationships with distributors Another factor to consider when protecting trade marks in Africa is the Even so, those trade marks, such as MACDONALDS, COCA effect that obtaining registration may have on business partnerships with COLA and the like, are the exceptions. The trade marks of typical South local distributors. When consumer goods are exported from South Africa African businesses that are well-known in South Africa would often not to other African countries, businesses looking to expand their market qualify as well-known marks in other countries in sub-Saharan Africa. It is, share often appoint a local distributor to oversee a company’s expansion furthermore, extremely costly to try to prove that a mark is well-known in into that market. There are advantages to entering a foreign market with terms of the laws of a particular country. a local business partner; it reduces the cost of expanding and allows a for - eign company to gain from the expertise of the local distributor. Even so, unnecessary re-branding What the trade mark registration system means for many businesses that a challenge that often occurs where a local distributor is appointed is that may expand trade under an established South African mark into Africa at the local distributor may not always be trustworthy. some time in the future is that disappointment could arise when the time It is not uncommon for a local distributor to register the trade marks of arrives to commence business. A business could find that its own goods South African businesses. The South African business then struggles to infringe the rights of another business that registered the same or a similar recover its rights. The law in some African countries makes it possible to trade mark first. A consequence is that re-branding of goods may have to go to court to cancel a registered trade mark registered in bad faith or be considered if those goods are lawfully to be sold in those countries because the registrant is not the true proprietor of the trade mark. However, where other traders have earlier rights. in “first to file” countries, the distributor may validly own the rights. Another risk of doing business in Africa is that the court systems are not Guarding and growing market share necessarily efficient. In Nigeria, for example, it may be several years before Besides limiting the risk of having to re-brand in the event of expansion, an application to cancel a trade mark is heard, In other countries such as there are significant strategic benefits in obtaining registration in the most Cameroon and Zimbabwe, we have experienced shorter waiting periods. important African economies. The consumer goods market is one of the There are significant challenges to resolving disputes on this conti - fastest growing markets in Africa. For example, the World Bank has reported nent, especially those of a commercial nature. The inconvenience being that the GDP per capita in Nigeria increased to an average of $1118 in forced to litigate to recover a trade mark can often be avoided by filing a 2009, compared with approximately $203 in the mid-1990s. This places trade mark application before conducting trade and certainly before Nigeria at a similar income level to India ($1134) 5. The notable increase in entering into an agreement with a local distributor. GDP per capita is driving demand for consumer goods from around the globe, including from South Africa. With such growth potential, brand Conclusion protection is essential to guard and expand market share by preventing Filing trade mark applications throughout Africa is not a magic pill competitors from selling goods under the same or confusingly similar marks. that will guarantee success to expanding businesses on the continent but registering trade mark applications in countries where there is a Counterfeit goods real prospect of doing business is probably essential to limit the risks The trade in counterfeit goods is a challenge threatening investment in of conflict with others and to protect market share. Africa and one that can be combated, even if not eliminated, by a busi - Even if a business’ plans are interrupted by a war or coup de etat , trade 38 August 2012 IInntteelllleeccttuuaall pprrooppeerrttyy

mark rights, unlike physical property, cannot be destroyed and, when con - Van Zyl is a senior associate, Trade Mark Litigation with Adams & ditions return to normal, owning a trade mark registration will often allow Adams. The article was verified by Alan Smith, Senior Partner, Trade a business to say: “I was here first, get out of my way.” N Mark Litigation

1 http://www.engineeringnews.co.za/article/sub-saharan-africa-economic-growth-remains-robust- http://www.adamsadams.com/index.php/media_centre/news/the_demise_of_unregistered_trade_mar world-bank-2012-06-13 ks_in_zambia/ 2 http://www.engineeringnews.co.za/article/sub-saharan-africa-economic-growth-remains-robust- 4 Article 6bis of the Paris Convention on the Protection of Industrial Property refers. world-bank-2012-06-13 5 http://uk.reuters.com/article/2011/01/12/nigeria-consumer-idUKLDE70B0UY20110112 3 We refer to the article entitled “The demise of unregistered trade marks in Zambia” by Nicole 6 http://news.bbc.co.uk/2/hi/africa/8424403.stm Haworth and Alan Smith of Adams & Adams. The article may be read on the website Traditional Knowledge

CHRIS BULL

date copyright laws to deal with the digital revolution. In fact, it’s quite he hottest topic in South African IP at the possible that the only reason why the criticism of the TK Act hasn’t been moment is traditional knowledge. It’s dealt with in even more intense is because many doubt whether it will have much T practical application. Yet the TK Act certainly does make fundamental a piece of legislation innocuously entitled the changes to South African IP law . Intellectual Property Laws Amendment Act (2007) (for convenience I’ll refer to this as the TK Act) , which amends Copyright various pieces of IP legislation. The TK Act adds a new type of work to the existing categories of protected works - literary works, musical works, artistic works, cinematograph films, sound recordings, broadcasts, But though the TK Act has been approved by parliament, it has yet to be programme-carrying signals and signed by the President and is, therefore, not yet in force. This has left published editions. This new some people hoping that it may still be scrapped altogether, or at least work is called a ‘traditional altered radically – one professor of IP law has gone so far as to draft a work’ , and it’s defined as ‘a liter - piece of legislation that he hopes to persuade the government to adopt in ary work, an artistic work, or a place of the TK Act, one that takes traditional knowledge out of the musical work, which is recognised realm of IP altogether. by an indigenous community as The TK Act is controversial for a number of reasons, though the fact having an indigenous origin and a that it clearly seeks to give expression to an overriding redistribution traditional character.’ political agenda is not one of them. The expression ‘ indigenous The objections, which have mainly come from the IP profession, are community ’ is itself defined to primarily of the ‘square peg/round hole’ variety. It’s felt by many that tradi - mean any community living in tional knowledge is so far removed from intellectual property that it South Africa. Unlike most cat - should be treated as a sui generis right and handled by way of specific legis - egories of works, a traditional lation, as WIPO is itself proposing to do. In fact, some critics believe that work will not need to be traditional knowledge is so different from IP that the TK Act will seriously reduced to a material form undermine South African IP, inter alia , because the rights granted are lim - before it enjoys copyright, but ited to South African communities, making a nonsense of the reciprocity it will have to be ‘ communicated Bull that’s at the heart of all IP legislation. to the public ’. Copyright protec - Another criticism is of the ‘fiddling whilst Rome burns’ variety - tradi - tion is conferred on any such work that is created after the commence - tional knowledge is not what South Africa should be concentrating on ment of the TK Act, or within 50 years preceding it, and the term of pro - right now, the country would be much better off updating sadly out-of- tection will be 50 years from the date of the commencement of the Act, August 2012 39 IInntteelllleeccttuuaall pprrooppeerrttyy

or from the date on which the work was first communicated to the public, It’s envisaged that there will be a database of these works, as well as all whichever term expires last. the other types of ‘ traditional intellectual property ’, a term that’s defined as The ‘ author ’ of a traditional work will be ‘ the indigenous community from ‘any intellectual property that has an indigenous origin and is owned or could be which the work originated and acquired its traditional character ’, though own - owned by an indigenous community as determined by the Registrar ’, and that’s ership will vest in a new body known as the National Trust Fund for intended to cover traditional innovations, traditional copyright works, Traditional Intellectual Property. Transfer of ownership will not be possi - traditional terms and expressions, traditional designs, and traditional per - ble, but licensing of rights will. The owner will have the exclusive right to formances. In keeping with the somewhat statist nature of the TK Act, reproduce (including 3-D versions of 2-D works, and vice versa ), publish, there’s also provision for the creation of an advisory body, the National perform in public, broadcast, include in a cinematograph film, transmit in Council for Traditional Intellectual Property. a diffusion service, and make an adaptation of the work. These rights will not be enforceable against anyone who acquires rights to the work prior Performers’ Protection to the commencement of the TK Act or against any member of the par - The Performers’ Protection Act (PPA) makes it unlawful to broadcast or ticular indigenous community, but if either derives a commercial benefit record performances of literary, musical or artistic works without authority. from the work they must pay a royalty to the Fund. The TK Act brings traditional works within the ambit of the PPA, by

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making various changes to it: it defines ‘literary and musical works’ to Registered Designs include dramatico-muscial works and expressions of folklore; it defines In South Africa, it’s currently possible to get registration for aesthetic designs ‘performance’ to include the performance of any traditional work; and it and functional designs. The TK Act adds a third category, namely the ‘tradi - defines a ‘traditional performance’ as ‘a performance which is recognised by an tional design,’ which is defined as ‘any design applied to any article, by whatever indigenous community as a performance having an indigenous origin and a tra - means it is applied whether for the pattern, shape, configuration or ornamentation ditional character.’ It also provides for the payment of royalties for the thereof.... whether or not it has features which are necessitated by the function broadcast and recordal of performances of traditional works, and it creates which the article to which the design is applied is to perform, which design is recog - yet another body– the National Council for Traditional Performances – as nised by an indigenous community as having an indigenous origin and a traditional the collecting society for negotiating such royalties. character.’ The proprietor will be the community from which it originated. A traditional design will be registrable if it is ‘new and has features which are Trade Marks based on or derived from the designs of an indigenous community and which have a The TK Act makes two major changes to the Trade Marks Act. The first traditional character’. Novelty is dealt with as: the design will be deemed to be is that it creates something called a ‘traditional term or expression’, which is new if it is different from, or does not form part of, the state of the art imme - defined as ‘a term or expression which is recognised by an indigenous commu - diately before the date of application, or the release date, whichever the earlier. nity as a term or expression having an indigenous origin and a traditional char - In cases where the release date is the earlier, the application must be filed acter and which is used to designate, describe or refer to goods or services.’ It within two years of the release date, although in cases where the design was provides that a traditional term or expression can be registered as a trade released within ten years of the commencement date of the TK Act, the mark if it is capable of distinguishing the goods of an indigenous commu - application must be filed within two years of the commencement date. nity from those of another community. Any application for registration Traditional design applications will be referred to the National Council. will be sent to the National Council for advice. Registration cannot inter - The duration of the right is 15 years from the date of registration or the fere with prior use, or with use by a member of the relevant community, release date, whichever is the earlier. Once again there can be no interfer - but if there is commercial benefit from such use a licence fee will be ence with prior rights or with use by members of that community, subject to payable. the proviso that royalties will be payable if there is a commercial benefit. Second, it introduces the ‘geographical indication’, which is defined as ‘an indication which identifies goods as originating in the territory of the Summary Republic or in a region or locality in that territory, and where a particular quality, The TK Act makes major changes to South African IP law and for that reputation or other characteristic of the goods is essentially attributable to the reason it cannot be ignored. To what extent it will have any real signifi - geographic origin of the goods, including natural and human factors’. It pro - cance, however, remains to be seen. N vides that geographical indications can be registered as certification marks or collective marks. Where a geographical indication is registered the Bull is a director, IP Department, Edward Nathan Sonnenbergs Department of Agriculture must be advised. ([email protected]) Can you nick someone else's trade mark?

BRIAN WIMPEY

tion to goods or services for the purpose stated, " and went on to say "the espite living in a modern global village, the fact that a trade mark is registered and has been used, even extensively used, owner of a trade mark in the USA may not be by one person in a foreign country does not in itself constitute a bar to its D adoption and registration by some other person in South Africa.” And, “in able to enforce its rights in South Africa. A the case of a foreign trade mark, there is no legal bar to its adoption in South 2012 case serves as a stark reminder to foreigners to Africa unless it is attended by something more." ensure that their brands are protected in South Africa via The ‘something more’ could be any number of things, one of them a local trade mark registration. being fraud or a breach of confidential arrangements by the adoptee; another being the fact that the appropriated trade mark is well known and therefore protected under the South African Trade Marks Act In the 1994 Appeal Court decision in Victoria's Secret Inc v Edgars despite not having been registered here. Stores Limited 1994 3 SA (A), the court held that "one can claim to be The general principle and the exception was brought into focus the proprietor of a trade mark if one has appropriated a mark for use in rela - again recently in New Balance Athletic Shoes Inc vs. Abdullah Mohamed August 2012 IInntteelllleeccttuuaall pprrooppeerrttyy

Dajee (and three others), which was heard in the Supreme Court of Appeal (SCA) in February 2012. On the one side was a Mr.Dajee, the owner of a 1996 South African trade !"#$ !"%&'( ) mark registration for POS - TURE FOUNDATION - PF *+*,%-,% )) in class 25 for footwear. On &$.(/#( )$#%&'( the other side was New Balance Athletic Shoes Inc, ‘Big fish are caught with big fish hooks’ owner of South African trade is a proverb that explains how the Kerewe speaking people in mark registrations P-F FLY - Tanzania approach not only fishing but also disputes. It’s about using the right technique and approach to achieve the optimal ERS and P-F in class 25 for outcome. Our understanding of Africa’s diverse cultures and footwear, dating back to 1968 different legal systems combined with over 100 years of experience means we know how to tackle any litigation issue, no matter Wimpey and 1972 how big or small the fish – and how to avoid being hooked. We Dajee, who had been oper - understand there is more to law in Africa than knowing the law – ating a family clothing business since 1968 and using POSTURE and that’s why clients throughout the continent keep us close. FOUNDATION–PF as a brand for shoes, had learnt that New Balance Visit www.werksmans.com to find out more about our legal success in Africa. SA was planning to promote footwear at a trade exhibition bearing the trade marks P-F and P-F FLYERS. This in itself may not have spurred Mr Dajee to action, but New Balance’s intent to use its trade marks in association with the phrase POSTURE FOUNDATION did. Dajee demanded that New Balance refrain from infringing his trade mark POSTURE FOUNDATION-PF. New Balance refused to comply with the demand and, in response, threatened to expunge Dajee's trade mark on the grounds that it constituted a mark in respect of which Dajee had no bona fide claim to proprietorship. Undaunted, Dajee applied for the removal of New Balance's two trade marks on the grounds of non-use and the latter brought a count - er-application for the revocation of Dajee's trade mark as forewarned in its replying letter. Focusing on Dajee’s bona fides , the basis for the allegation was that POSTURE FOUNDATION, P-F and P-F FLYERS were trade marks in the USA, and consequently, the adoption (and subsequent registra - tion) of POSTURE FOUNDATION-PF in South Africa by Dajee was invalid. A US corporation, BF Goodridge Company, had owned these three marks in the USA (and perhaps elsewhere in the world) but sold them at some unspecified time to a succession of third parties. New Balance Athletic Shoes Inc acquired the South African trade marks, P-F and P-F Flyers, by way of assignment in 2001. There was some, not very compelling, evidence that BF Goodridge Company had used the marks in the USA and elsewhere since the 1930's. Dajee, who had been casting about for a new brand for footwear in 1996 adopted the trade mark POSTURE FOUNDATION P-F believing that the mark had been abandoned and had fallen into disuse. Satisfied that the mark was unknown to consumers in South Africa, he registered it in class 25 in 1996. New Balance Inc's counter-application for revocation of Dajee’s trade mark POSTURE FOUNDATION-PF was dismissed. Keep us close The Appeal Court confirmed the territorial nature of registered THE CORPORATE & COMMERCIAL LAW FIRM trade marks. While dismissing New Balance Inc's appeal, the court JOHANNESBURG +27 (0)11 535 8000 CAPE TOWN +27 (0)21 405 5100 www.werksmans.com

2 8 6 4 N J _ G L T 42 August 2012 IInntteelllleeccttuuaall pprrooppeerrttyy

approved Nicholas' interpretation of the verb 'appropriate' to mean 'to son might be considered to have adopted a mark, and thus become its propri - take for one's own' in Victoria's Secret Inc v Edgars Stores Limited 1994 3 etor, notwithstanding that it has been used in a foreign country” SA (A), and added that “a trade mark is a territorial concept, with the Since there was no evidence that Dajee had had any dealings with consequence that a person might be considered to have adopted a mark, and BF Goodridge Company or any of the subsequent owners of the mark, thus become its proprietor, notwithstanding that it has been used in a foreign nor that any of BF Goodridge Company’s marks were well known in country.” South Africa, the adoption of POSTURE FOUNDATION and adapta - The court went on to say of New Balance’s approach “Much of the tion to POSTURE FOUNDATION -PF by Dajee was held to be unex - argument was directed ... to inviting us to depart from the territorial ceptionable. N approach to trade marks and to embrace in its place a trans-territorial con - cept, having the effect that foreign proprietorship of a mark should cling to the Wimpey is a director at Norton Rose SA. mark when it is used in this country. The concept of territoriality, it was sub - mitted in short, has become outmoded in the global village.” The Court con - See too without prejudice May 2012 p12 Following the paper trail – cluded “a trade mark is a territorial concept, with the consequence that a per - Gerard du Toit

TTaaxx But are these extensions of Exchange Control regulations lawful?

BENJAMIN CRONIN

While on the face of it, this amendment is a positive step in that n June 8 the President gazetted a brief amend - it attempts to create certainty by Oment to the Exchange Control Regulations to establishing a partial definition of extend their application to " any intellectual the term " capital " and of the phrase property right ", whether " registered and unregistered ". "exported from the Republic ," there Unfortunately, this far-reaching amendment is potentially are continuing problems with its both unlawful and unconstitutional. practical implementation: neither the term " capital " nor the phrase " exported from the Republic " is in fact fully defined, This amendment to the Exchange Control Regulations is clearly an and attempt to close the gap created by the Supreme Court of Appeal (SCA) the new phrase " any intellectual judgement in Oilwell (Pty) Ltd v Protech International Ltd (295/10) [2011] property right " is itself not defined. ZASCA 29 ( Oilwell Judgement), which held that exchange control Cronin approval is not required when a South African resident transfers owner - Consequently, this amendment ship of intellectual property to a non-resident. not only perpetuates the on-going uncertainty with regard to the applica - To close this gap the meaning of the otherwise undefined term " capital " tion of the term " capital " but inclusion of further broad, undefined terms in the Exchange Control Regulations was extended to include " any intel - and phrases adds to it. In addition to these practical challenges, there are lectual property right ." The effect of this purported lawful extension of further uncertainties as to the lawfulness of this extension in light of the exchange control restrictions is a freeze on the direct or indirect export of inherent limits of the empowering provision to make the Regulations all intellectual property from South Africa, without prior express permis - themselves contained in s9(1)(a) of the Currency and Exchanges Act (9 sion from the South African Reserve Bank. of 1933 (CE Act)). August 2012 43 Tax

Potentially unlawful use of empowering provision s9(1) of the CE Act refers to the ability of the President to " make regulations in regard to any matter directly or indirectly relating to or affecting or having any bearing upon currency, banking or exchanges “. While the terms " currency " and " banking " on an ordinary interpretation would not include a reference to intellectual property, the use of the term " exchanges " could arguably be broad enough to encom - pass an intangible asset such as intellectual property. This very issue was, however, considered in the Oilwell judge - ment and the court, in considering its meaning, looked to the Afrikaans version of the CE Act which used the term "wisselkoerse ", a reference to " exchange rates ". The SCA in Oilwell , held in light of this that exchange controls can only apply to cash and currency transfers. The empowering provision in the CE Act arguably, there - fore, does not cover intellectual property, making any regulation dealing with intellectual property, in the absence of a legislative amendment, potentially unlawful.

The empowering provision in the CE Act is potentially unconstitutional Even if the proposition that intellectual property could be the subject of ambit of the empowering statute. This Constitutional protection is particu - Regulations under the CE Act were to be accepted, then the s9 power to larly relevant in respect of amendments that criminalise everyday activities, create this restriction may itself be unconstitutional. This is because the as alluded to in the Oilwell judgement. Indeed the Constitutional Court power to legislate is given by the Constitution exclusively to parliament, held in Executive Council, Western Cape Legislature v President of the Republic which in turn may prescribe circumstances in which secondary or delegated of South Africa 1995 (4) SA 877 (CC) that the extension of the power to legislation (such as Regulations) may be issued. amend an act to the President would be unconstitutional. Effectively the CE Act, in s-s 9(3) and 9(2)(e), gives the President the The result is arguably that the current Exchange Control Regulations power to amend a piece of legislation (including the CE Act) and allows unlawfully and unconstitutionally restrict the export of intellectual property. for the retrospective criminalisation of certain actions by means of issuing Government may, through an appropriate statute, legitimately regulate trans - Regulations. Neither of these powers is consistent with the Constitution actions involving intellectual property across international borders. However, the and their potential use is questionable. lawful power to issue such regulations must first be put in place by parliament. If Further, the authority to issue Regulations does not, in any event, mean government wishes to avoid further court action like the Oilwell judgement, par - that the President can usurp from parliament the power to legislate. Regula- liament needs to intervene to rectify this legislative shortcoming. N tions that attempt to broaden the scope of a piece of legislation are poten - tially ultra vires , as the delegated power to legislate is circumscribed by the Cronin is an associate with Webber Wentzel 44 August 2012 TTaaxx

Exchange control and Intellectual Property

LAVINA DAYA

trade mark or any other form of intellectual property. Consequently an assignment of a trade mark offshore does not require prior SARB outh Africa’s exchange controls are governed approval in terms of Regulation 10(1)(c). Sby the regulations issued under the Currency As a result of the Oilwell case it appeared that, in principle, South and Exchanges Act ( 9 of 1933). Regulation African residents now had the ability to assign intellectual property to 10(1)(c) deals with restrictions placed on South related parties offshore without exchange control approval. While African residents with regard to the export of capi - National Treasury has, since the 1990s, embarked on a process of tal and stated (prior to the recent amendments gradually relaxing South Africa’s exchange controls, on June 8 the thereto discussed later in this article) that: " No per - President amended Regulation 10(1)(c) by inserting a new son shall, except with permission granted by the Regulation 10(4) to deal with the transfer of intellectual property. Treasury and in accordance with such conditions as Regulation 10(4) reads as follows: the Treasury may impose, …. enter into any trans - "(4) For the purpose of sub-regulation (1)(c) – action whereby capital or any right to capital is (a) 'capital' shall include, without derogating from the generality of directly or indirectly exported from the Republic ". that term, any intellectual property right, whether registered or unregistered; and (b) 'exported from the Republic' shall include, without derogating from the generality of that term, the cession of, the creation of a Though the term “ capital ” was hypothetic or other form of security over, the assignment or not defined in the Regulations, transfer of any intellectual property right, to or in favour of a prior to the judgement of the person who is not resident in the Republic." Supreme Court of Appeal in Oilwell (Pty) Limited v Protec The application of Regulation 10(1)(c) is now expanded to International Ltd & others 2001 include as “ capital ” " any intellectual property right ", whether " regis - (4) SA 394 (SCA) during tered or unregistered ". 2011, the prevailing view was The purpose of this amendment is to restrict the direct or indirect that the prior approval of the export of all intellectual property from South Africa, unless prior Financial Surveillance express permission is obtained from the SARB. Department of the South It would appear that the amendment is an attempt to close the gap African Reserve Bank (SARB) created by the Oilwell case, which as stated, supported the contention was required for the transfer of that the prior approval from SARB was not required when a South intellectual property from a African resident transfers ownership of intellectual property to a non- South African resident / entity Daya resident. abroad. The impression was Therefore, as a result of the amendment or Regulation 10(1)(c), that failure to obtain approval would result in the transaction being the transfer of intellectual property by a South African resident off - null and void since it contravenes Regulation 10(1)(c). shore would, absent prior SARB approval, constitute a contravention In the Oilwell case, the Supreme Court of Appeal, found that the of Regulation 10(1)(c). N terms " capital " and " right to capital " must be interpreted restrictively to mean cash and money and should not be interpreted to include a Daya is a Tax manager with Edward Nathan Sonnenbergs August 2012 45 TTaaxx iinntteerrnnaattiioonnaall US taxation of its citizens

ANTHONY MARKHAM AND DALILA VER ELST increase of eight times that of 2008. n May 16 United States Senate Finance As a percentage of US citizens living Committee member Charles E. Schumer and abroad, the number who renounced O in 2011 is only 0.059%. Sen. Robert P Casey Jr., introduced the While the Ex-Patriot Act may not Expatriation Prevention by Abolishing Tax-Related achieve greater patriotism, it may Incentives for Offshore Tenancy Act (Ex-PATRIOT Act). deter potential renunciants of US citi - This was in response to the high profile renunciation of zenship ( ex-patriots - a hurtful term to US citizenship by billionaire US citizen Eduardo Saverin many Americans who give up citizen - of Facebook Inc. ship after many years of devotion, even military devotion, to the United States) by prohibiting them from Citizenship renunciation, though not a new phenomenon, has increased. returning to the US unless tax penal - Ordinary US citizens who live and work outside the US and find the filing ties are paid and an additional 30% Markham and reporting obligations imposed by the IRS too onerous and costly, are now tax is paid on any capital gains on considering the benefits of renouncing their US citizenship if the citizenship of investments they made after the another state is available to them. enactment. The 30% tax would apply US citizens are generally subject to tax based on their worldwide income, even if the investment was made after even on income which they earn while living abroad, and they are subject to he or she renounced U.S citizenship estate tax on their worldwide estate. While this may not be unduly problematic and at a time when he or she no for US citizens whose income and residence is in the US, an estimated 6.3 longer lived in the US. million US citizens living outside the country have to comply with increasingly The provisions of the Ex-Patriot complex reporting and filing obligations to the Internal Revenue Service, or Act target expatriates who have left face fines of $100 000 or 50% of the undeclared accounts, whichever is larger. the US for the purpose of avoiding US citizens can exclude foreign income (up to an amount of $95 100 in taxes and there is a proposed con - 2012), but there is no exclusion for investment earnings. comitant amendment to the For several decades US citizens, wherever they may live, with $10 000 or Immigration and Nationality Act more in foreign bank accounts have had to file a form disclosing all their for - whereby persons who fall within the eign accounts, including joint accounts held with other persons, accounts for description of the target expatriate Ver Elst corporations in which the US person owns more than 50% of the value of will be denied admission into the US. shares, or any interest in a foreign trust. These are known as the FBAR regula - Continuing the theme of patriotism, nationalism and taxes, a proposal was tions (Foreign Bank Account Reporting). passed in the Senate in February 2012, which would allow the non-issuance of The Foreign Account Tax Compliance Act (FATCA) introduces the new passports to be used as a tool to increase collection of unpaid taxes from tax - IRS Form 8938 (Report of Specified Foreign Financial Assets) on which speci - payers who owed at least $50 000 to the IRS. fied investment assets with an aggregate value of $5 000 or more must also be US citizenship can only be renounced outside of the US. It involves a visit disclosed with US tax returns filed for the 2011 tax year. For a married couple by the renunciant to the US consular office of his new country of abode. After that files jointly, the threshold is raised to assets with a value of $100 000 on an interview with the consular officer, the renunciant is usually given a period, the last day of the tax year or more than the length of which is at the discretion of the consular office and may range $15 000 at any time during the tax year. The thresholds are raised higher from a few hours to several months, to reflect upon his decision. If he remains still for US citizens living abroad, to $400 000 on the last day of the tax year or resolute in his wish to renounce US citizenship, he makes the oath of renunci - $600 000 at any time during the tax year. ation before the US flag. It is an unequivocal and irrevocable relinquishment In addition, under FATCA, foreign financial institutions will have to pro - of US citizenship. N vide information to the IRS on any US clients or investors; failure to do so Markham is a partner of and Ver Elst senior associate with, Maitland results in a 30% withholding tax on US sourced income and gains, regardless of any tax due on the underlying investment. I shall be fascinated to learn what the US Supreme Court makes of these Perhaps in response to increasing reporting and filing obligations, an esti - laws and regulations in the light of that country’s constitution which in any mated 1 800 US citizens living abroad gave up US citizenship in 2011 – an event already provides for a form of second class citizenship - Publisher 46 August 2012 TTaaxx iinntteerrnnaattiioonnaall Good governance for NGOs

LOUISE BICK

I have not been disqualified from evelopment in the requirements for charities to be serving as a company director; and I will at all times seek to ensure the regarded as tax exempt in Canada, New Zealand D charity’s funds, and charity tax reliefs and, most recently, the United Kingdom, may received by this organisation, are have much needed application in the South African context. used only for charitable purposes” 5.

Similar provisions relating to ineligibility 6 of individuals to be From April 1, all charities intending to apply for tax relief from the UK members of a board of a charity HM Revenue & Customs (HMRC) must comply with the four conditions were implemented in Canada from set out in schedule 6 to the UK Finance Act of 2010. It is the final condi - January 1 and in New Zealand from tion, being the ‘management condition,’ which has raised some debate and is February. In Canada, the ineligibility of particular interest to non-profit regulation in South Africa. provisions also exclude persons who The ‘ management condition ’ is met by a charity “if its managers are fit and have been convicted of a criminal proper persons to be managers of the body or trust.” 1 The rationale behind Bick offence or a non-criminal but rele - this requirement is, according to HMRC, “to ensure that charities…entitled vant offence such as financial dishonesty or offences under fundraising to charity tax reliefs are not managed or controlled by individuals who might and consumer protection legislation. They also exclude individuals who misuse the valuable tax reliefs the organisation receives. Unfortunately fraud - have controlled a charity during a period in which that charity was found sters have been known to exploit charity tax reliefs so the fit and proper persons to be in breach of the requirements for registration and the registration test exists to help prevent that.” 2 was revoked within the last five years. 7 The provisions in New Zealand There is no legislated definition of the term ‘fit and proper person.’ The are similar. 8 HMRC has been tasked with determining this test, with the starting In South Africa, there is no comparative requirement relating to ineli - point that “an individual is ‘fit and proper’ if they ensure that charity funds and gibility of management or members of a non-profit to register as a NPO tax reliefs are used only for charitable persons” 3. HMRC will rely on, inter- (Non Profit Organisation) with the Department of Social Development alia , the following factors to determine whether a manager is a ‘ fit and or as a PBO (Public Benefit Organisation) for certain tax relief and proper person ’: exemption from SARS. “individuals with a history of tax fraud or other fraudulent behaviour includ - The Non Profit Organisations Act (71 of 1997) (NPO Act) is aimed ing misrepresentation and/or identity theft; at improving accountability, transparency and governance in the non- individuals for whom HMRC has knowledge of involvement in attacks profit sector, thus increasing its credibility 9. However, in relation to the against, or abuse of, tax repayment systems; people running the charities, the NPO Act merely requires their personal individuals who are barred from acting as a charity trustee by a charity regulator or particulars, without any details on their background or ethical standing. court, or have been disqualified from acting as a company director” 4. It does require the constitution of the organisation to set out that the The practical effect is that HMRC now requires the managers of a member or managers have “no rights in the property or other assets of the charity –the board members, trustees or directors – to complete a declara - organisation solely by virtue of their being members or office-bearers” 10 and tion that: that all financial transactions be conducted through a bank account 11 . A “I am not disqualified from acting as a charity trustee; condition of registration as a NPO is that the organisation must keep I have not been convicted of an offence involving deception or dishonesty (or proper accounting records and provide the NPO Directorate with a copy any such conviction is legally regarded as spent); of its annual financial statements, together with a report thereon, within I have not been involved in tax fraud; nine months of its financial year-end. 12 I am not an undischarged bankrupt; However, registration as a NPO is voluntary. According to recent sta - I have not made compositions or arrangements with my creditors from which tistics 13 , there are believed to be around 150 000 non-profit organisations I have not been discharged; in South Africa, of which an estimated 85 000 are registered as NPOs. I have not been removed from serving as a charity trustee, or been stopped Registration with SARS as a PBO is also voluntary. However, charities from acting in a management position within a charity; must obtain PBO status in order to, inter-alia , issue s18A tax exemption August 2012 47 TTaaxx iinntteerrnnaattiioonnaall

certificates to donors. Organisations have to comply with a range of management head on. A group of NPOs have this year proposed a Draft requirements set out in the Income Tax Act (58 of 1962) (ITA) 14 . The Voluntary Independent Code of Governance and Values for Non Profit requirements that specifically relate to the members/founders/directors/ Organisations in South Africa (Draft Independent Code) 22 . One of its trustees of the organisation include that: objectives is in recognition of the position of trust held by NPOS – a there must be at least three people who accept the fiduciary duty of trust that is both towards the beneficiaries of the public benefit activities, the organisation and they may not be connected persons in relation to but also “a duty of accountability to a number of interested parties, including each other 15 ; donors, members, employees and the general public.” 23 no single person may directly or indirectly control the organisation 16 ; The values set out in the Draft Independent Code focus on a commit - they may not directly or indirectly distribute the organisation’s funds ment to “ fidelity, or loyalty to purpose ” which creates the need to devote all to any person other than in carrying out the public benefit activities of “resources, energies and activities” to “promoting its public benefit purpose and the organisation 17 ; not to any personal or private objective” 24 and on the public interest as he/she is required to utilise the funds of the organisation only for the opposed to self- interest 25 . The values call on board members to exhibit objectives that it was established to carry out 18 ; and “the highest standards of integrity” and set out provisions relating to conflicts they may not pay excessive remuneration to office bearers or economi - of interest. cally benefit any person by carrying out its objectives 19 . Practically, it is not anticipated that SARS or the NPO Directorate will move to include a formal “ fit and proper person ” test as part of the require - While the requirement for at least three people to accept fiduciary ments to register as a PBO or NPO. The criticism levelled against this responsibility for the organisation does, to some extent, recognise that approach in the UK is that it creates increased bureaucratic and administra - there must be at least three people who hold “a position of trust or responsi - tive requirements and gives HMRC too much discretion over the sector 26 . bility including decision making powers with respect to the affairs of an organisa - As is illustrated by the figures previously mentioned, the majority of tion” 20 , there are no specific requirements in the ITA that the people community-based and voluntary associations in South Africa do not even involved with the management of the charity comply with a ‘ fit and proper apply to SARS for PBO status in the first place, which means that the person ’ standard, as has been introduced in the UK or ineligibility stan - inclusion of such a provision would not improve levels of accountability dards as in Canada and New Zealand. in those institutions in any event. It is noted that if the non-profit organisation is a registered charitable It is, therefore, suggested that the approach of Canada, New Zealand trust or a non- profit company, there are certain fiduciary and ineligibility and the UK be taken into consideration by these organisations as a guide - requirements on the trustees or directors in terms of legislation. However, line and that they consciously choose to ask for a similar ‘ fit and proper if the non-profit organisation is a voluntary association (which is the sim - person ’ declaration of those requesting to become involved in their organ - plest and cheapest form of registration) or informal community based isations at management level. The purpose would include being informed organisation (CBO), there is no mandatory regulatory framework for cor - of any concerning historical behaviour but even more to raise an aware - porate governance or disqualification of managing members. ness of the kind of behaviour required of a person trusted with the man - The issue of proper corporate governance of charities in South Africa agement of a non-profit organisation. This would also harmonise well is not new. It is raised continuously by the media, such as the recent Carte with the commitment and undertaking to be taken by non-profit organi - Blanche expose on NPO Out of Africa , where questions were raised about sations, as proposed by the Draft Independent Code 27 . N this organisation’s accounting and management practices and whether or not its founder was managing the funds and donations received in an accountable manner 21 . Bick is a senior associate, Public Interest Law Department with The non-profit sector is facing the need for better practice in charity Werksmans

1 Schedule 6, Article 4(1) 15 Section 30(3)(b)(i) 2 HMRC “Fit and Proper Persons Helpsheet” at 1 online http://www.hmrc.gov.uk/charities/guidance- 16 Ibid notes/chapter2/model-dec-ff-persons.pdf 17 Section 30(3)(b)(ii) 3 Ibid at 1 18 Ibid 4 Ibid at 2 19 Section 30(3)(d) 5 Ibid at 3 20 SARS “Tax Exemption Guide for Public Benefit Organisations in South Africa” (2007) at 1 6 As set out and discussed in K J Cooper “New Ineligibility Requirements for Directors, Officers and 21 Transcript of the episode available at http://beta.mnet.co.za/carteblanche/Article.aspx?Id=4549&ShowId=1 Staff of Registered Charities” 2012 National Charity Law Symposium (May 2012) 22 Full text available at http://www.inyathelo.org.za/docs/draftcode_3.pdf 7 Ibid at 4-5 23 Draft Independent Code, Objective 9 at 2 8 Ibid 9-11 24 Draft Independent Code, Value 1 at 6 9 http://www.dsd.gov.za/npo/index.php 25 Draft Independent Code, Value 2 at 7 10 Section 12(2)(f) NPO Act 26 David Ainsworth “Lawyers issue warning about HM Revenue & Customs ‘fit and proper’ test” Third 11 Section 12(2)(k) NPO Act Sector (20 April 2010) online http://www.thirdsector.co.uk/Finance/article/997606/Lawyers-issue- 12 Sections 17 and 18 NPO Act warning-HM-Revenue---Customs-fit-proper-test/ 13 Set out in the Independent Code at 3-4 27 Draft Independent Code at 17 14 Set out in Section 30 of the ITA 48 August 2012 Puubbliic llaw Protecting the Public Purse

KERRY WILLIAMS AND PRELISHA SINGH

claim it must be shown that the he comprehensive regulation of public spend - amount claimed was transferred in ing is fundamental to a well-functioning terms of an agreement that is void T and unenforceable because it is pro - democracy, particularly one founded on the hibited by law ( First National Bank of constitutional imperatives of accountability, transparency Southern Africa Ltd v Perry NO and and efficient and effective financial management. Others 2001 (3) SA 960 (SCA)) and the conduct of the party making the claim must be free from turpi - To make this regulation possible, the Public Finance Management Act (1 tude, that is it must not have acted of 1999) and the Local Government: Municipal Finance Management Act dishonourably ( Afrisure and Another (56 of 2003) delineate the framework within which permissible public v Watson and Another [2009] 1 All spending at national, provincial and local government level is to occur. SA 1 (SCA)). These laws prohibit unauthorised, irregular and fruitless and wasteful It is the specific requirements of expenditure, create offences relating to acts of financial misconduct and each condictio which present difficul - Williams prescribe the criminal sanctions which attach to the offences (a fine or ties in the operational reality of pub - imprisonment for a period of up to five years). lic institutions. While this regime may appear comprehensive, our concern is that there The case of Affirmative Portfolios is no simple mechanism to recover monies paid as a result of an unlawful CC v Transnet Ltd t/a Metrorail contract. This is not to say there are no recovery remedies available to a [2009] 1 All SA 303 (SCA) high - government department or public entity as they may be able to bring an lights the difficulty in respect of the unjustified enrichment claim. This relatively uncommon claim is available excusability requirement of the con - when someone has been unjustifiably enriched, for example, where there dictio indebiti . Affirmative Portfolios was a mistake as to what was being sold, where the contract was illegal or CC (AP) was a labour broker became impossible to perform, at the expense of the person bringing the which provided services to Transnet claim. Ltd, trading as Metrorail (Metrorail), The problem is that the requirements for a claim do not square neatly in terms of a contract awarded to it with the realities of public spending. This renders an unsatisfactory solution following a tender process. to a problem, which may be best resolved by an amendment to the statutory Post the award of the contract, regime. Alternatively, the judiciary could play a role to support govern - AP increased its hourly rate, alleging ment in its endeavour to recover these misappropriated funds through the that it had been informed by a Singh enrichment action by relaxing some of the requirements for such a claim. Metrorail manager that the regional manager had agreed to the increase. Metrorail denied this. At a subse - There are three central requirements to any enrichment action: quent meeting, Metrorail informed AP that the increase was not in accor - 1. the enrichment of the defendant; dance with the terms of the contract and that it was to return to charging 2. which is unjustified, that is without legal cause; and the agreed rate. 3. the correlative impoverishment of the plaintiff. When Metrorail summarily terminated the contract a few months later, For each specific enrichment action, or condictio (as the Romans called AP sued for damages on the basis that Metrorail had underpaid AP for cer - them), the plaintiff will have to prove additional elements to succeed with tain services. Metrorail counterclaimed on the basis of the condictio indebiti the claim. To rely on the condictio indebiti , for example, it must be proved for the amount that was overpaid to AP before it returned to charging the that the transfer of money was made on the mistaken belief that the money agreed rate, that is, the money was paid under the mistaken belief it was due. was due. In addition, it must be established that the mistake, be it of fact or While the court was reticent to prescribe hard rules on the circum - of law, which gave rise to the payment is excusable ( Willis Faber Enthoven stances that would constitute an excusable error, it did discern certain gen - (Pty) Ltd v Receiver of Revenue and Another 1992 (4) SA 202 (A)). eral principles from the case law on this point. Accordingly, the court Another claim is the condictio ob turpem vel iniustam causam . For this maintained that grossly negligent conduct or inexcusable slackness would August 2012 49 PPuubblliicc llaaww

generally (but not necessarily) be inexcusable conduct. take into account the doing of simple justice between man and man ". While this The court set out the following factors which might inform a determina - condictio will avail a public institution where the party to whom the money tion of excusability: was paid acted with turpitude, unless a court can be convinced to allow the the relationship between the parties; condictio to operate in the interests of justice, the conduct of a public official the conduct of the defendant and whether it contributed to the plain - who solicits a bribe in contemplation of awarding a contract could, for tiff's decision to pay; and example, bar a government department from successfully claiming back the the plaintiff's state of mind and culpability of his or her ignorance in money paid under the contract. making the payment. It is evident that recovery under the enrichment action in the opera - tional reality of government departments and public entities is difficult. The determination as to whether a mistake is excusable thus involves a Inexcusable mistakes happen and the money paid over is spent, with the value judgement and will turn on the specific facts of the case. result that this particular enrichment action runs the risk of becoming a As a result, the court held that the Metrorail’s failure to explain why the hollow remedy. Additionally, in contexts where both the private party and mistake had occurred repeatedly over several months, even though a writ - the public entity display turpitude (for example, where a bribe is paid to ten agreement was available to Metrorail officials to ascertain the true secure the award of a contract) it is not clear why government should bear amount, the failure of the Metrorail's officials to detect the unauthorised the burden of the expenditure (where it is responsible for public funds). increase and to verify the increased rate charged by AP in its invoices This undesirable situation motivates for intervention. The courts could, against the amount to be charged as per the written agreement, constituted therefore, continue to consider relaxing the inexcusability requirement in a extreme slackness or negligence on the part of the officials. The court, manner which acknowledges the challenges of governing. The courts could accordingly, found the respondent's conduct " culpable to a degree rendering also consider the conduct of both the plaintiff and the defendant (and same inexcusable ." where the financial burden should rightly fall in light of the challenges of It is not difficult to see how a mistake of the kind perpetrated in the governing and government responsibility for public funds) when consider - Transnet case could occur in the day-to-day operations of a government ing if certain dishonourable conduct means an unjustified enrichment claim department or public entity. These entities enter into a plethora of agree - is excluded. ments which require payments to be made and it is often the case that the Alternatively, the legislature could intervene to provide a statutory rem - person entering into the agreement is not the one administering the pay - edy which makes an unjustified enrichment claim more likely to succeed ment. While the court in Transnet did maintain that the requirement of where there has been unjustified payment or over-payment of public money excusability is not immutable, intimating that there may be scope for a to parties contracting with government departments or public entities. relaxation of or deviation from this requirement which, it could be argued, A statutory remedy could be preferable as it could address an additional might find application in the context of public finance management, courts general difficulty with enrichment actions which relates to the actual continue to apply the excusability requirement to the mistakes of govern - amount that may be recouped. The amount which may be recovered is cal - ment departments and public entities. culated by reference to what, if anything, is remaining of the money paid as As a result, in the recent case of Nelson Mandela Metropolitan at the date the action is commenced. Given that the majority of the con - Municipality v Hewitt-Coleman and Others [2012] JOL 28602 (SCA), the tracts entered into by government departments and public entities will be Supreme Court of Appeal found the overpayments made by the with parties which, in turn, have to pay their employees and/or incur dis - Municipality to the consultant respondents excusable on the basis of the bursements to perform under the contract, the extent of a party's enrich - Municipality's limited capacity and expertise to ascertain the extent of its ment may be minimal by the time the claim is brought. liability and the extent of the consultants' entitlement. It follows that A statutory right of recovery by government departments or public enti - excusability bears a direct relationship to institutional ability. Thus the ties (which could include the circumstances in terms of which such a recov - courts will deem a mistake inexcusable where it can be shown that the entity ery is permissible, the amount which may be recovered and the limits appli - could have avoided the mistake. The slackness or indifference of the par - cable to such recovery) would better enable government to recoup most of ticular officials responsible will be attributed to the entity depriving it of an the otherwise lost funds. This would bolster the public finance manage - action under the condictio indebiti . ment regime and go a long way to protecting the public purse. N While it is possible to rely on the condictio indebiti to recover payments made in terms of an unlawful or ultra vires agreement even where it has been entered into by a person acting in a representative capacity ( Bowman, Williams is a partner of and Singh an associate with Webber Wentzel De Wet and Du Plessis NNO and Others v Fidelity Bank Ltd 1997 (2) SA 35 (A)), where the agreement is prohibited, reliance must be had on condictio While protection of the public purse is clearly important, it is equally op turpem vel iniustam causam . The seminal requirement of this particular important that private companies and individuals are protected from enrichment action, commonly known as the par delictum rule , provides that the maladministration of individuals within government and public it would be contrary to public policy to assist those who defy the law. As a entities. I find it difficult to believe that a company should suffer result, because the law should discourage illegality, where the plaintiff acted because of errors that may occur when, as quoted, the person entering dishonourably the condictio is excluded. the agreement is not the one administering it. That would not be con - However, in light of the judgement in Jajbhay v Cassim 1939 AD 537, sidered an excuse in a private operation so nor should it be acceptable the application of this rule may be relaxed where " public policy should properly from public entities. – Editor 50 August 2012 IInntteerrnnaattiioonnaall The World in July

ublic relations executives say that despite Andy Murray’s loss to Roger Federer in the ine climbers were killed by an avalanche Pfinals of the annual Wimbledon tennis tour - in the French Alps, the worst accident of Nits kind in France in 12 years. The disaster nament, the humility and emotion he showed after the match have won him the hearts and minds of struck in the early hours as 28 climbers ascended thousands. In his post-match interview, the Scottish Mont Maudit (“the cursed mountain”), a satellite athlete choked back tears and struggled to speak as he peak of Mont Blanc. Survivors described being swept came to terms with the result. And tears were falling 800 ft down the mountain by a block of snow 60ft among the millions of men and women sitting on high and 500 ft wide. Centre Court and watching at home. PR expert Max Clifford said this tide of emotion has "changed the way he Red Cross says it now regards the conflict in people perceive Murray" and will open up all kinds of Syria as a full-blown civil war. In a leader arti - Tcle headlined “Towards the endgame,” the doors for him. The 25-year-old already has advertising campaigns with sports London Economist says the bombing of the national security companies and Clifford said Murray’s headquarters in Damascus was a pivotal event likely to weaken performance will give him wider the regime in a number of ways. “A blast from a huge bomb appeal, beyond the world of sport. somehow smuggled into the inner sanctum will sow mis - "His tears are potentially worth mil - trust and suspicion at all levels.” The event is reminis - lions to him," he told Sky News cent of the attempt to kill Adolf Hitler in 1944 by a Online. "His career and popularity bomb smuggled into this campaign headquarters. will now be more successful and lucrative and last a lot longer." US Senate investigation has established that HSBC , Europe’s largest bank, allowed itself Ato be used as a money-launderer for “drug bet placed on Wimbledon champion Roger Federer near - kingpins and rogue nations” between 2006 and 2010. In Aly a decade ago has netted more one case cited during the investigation, two of the than £100 000 for Oxfam . In 2003 Nick bank’s US affiliates processed $19 4bn of transactions Newlife , from Oxfordshire, made a wager of £1 with non-US subsidiaries over seven years without dis - 520, at odds of 66/1, that the Swiss tennis star closing links to Iran. And the bank moved billions of would win seven Wimbledon titles by 2019. dollars from its Mexican subsidiary into its US Banks Newlife died in 2009 but left the betting slip to despite warnings from the US and Mexican authorities Oxfam in his will. Federer's defeat of Britain's that such large sums must have had ties to the drugs Andy Murray in the Wimbledon final means trade. David Bagley , head of compliance at HSBC, the charity will now collect a payout from resigned this week, ahead of rumours that the bank bookmaker William Hill of £101 840. could face a fine of $1bn. Oxfam executive Andrew Barton told BBC Radio 5 live that it had been a dif - he US is currently facing its widest drought since 1956. After a ficult match to watch because his loyalties particularly mild winter, farmers expected a bumper harvest but Tdry weather in the Midwest has devastated crops in Illinois and were split. It's just so unfortunate that he nailed it against Andy Murray," he said. “I was just sitting there watching the Iowa pushing corn prices to near highs. Scorching temperatures haven’t tennis and I kept finding myself calling for Murray, particularly in that long helped and it’s estimated that more than half the country is now affected game in the third set.” Newlife, who was 59 when he died, had written to by the drought. William Hill requesting the bet in 2003. William Hill said it had already paid out £16 750 to Oxfam from another bet placed by Newlife, of £250 at udists in Vienna were left stranded when police towed away 66/1, that Federer would win 14 Grand Slam events. The Swiss reached their cars with their clothes locked inside. Nearly 60 cars near a Nnaturist bathing area on the Danube were parked illegally. that mark at the 2009 French Open. August 2012 51 IInntteerrnnaattiioonnaall

When they saw their cars being removed, the nudists “rushed to be for him they never want to see his new partner their clothes, but they were too late.” It must have been quite a sight. Valérie Trierweiler again because of the way Police said it was “a matter of safety.” she has treated their mother Ségolène Royal. Last month Trierweiler tweeted her support he estate of a father of two who died from a fatal heart attack dur - for Royal’s rival in a parliamentary elec - ing a three-in-a-bed romp with another man and a woman (not tion. Royal then lost, dashing her hopes This wife) is richer by $3m. A court found that his cardiologist for political office. Trust the French. should have warned the man, who suffered from high blood pressure, not to take part in vigorous exercise. ichard Zanuck, film pro - ducer of epics such as study of rings on semi-fossilised trees has found that Britain was RJaws, The Sound of significantly warmer 2 000 years ago than today. This explains Music and The Exorcist died Ahow Romans were able to cultivate vines in northern England. July 13 aged 77.

en need to be careful about wearing skinny jeans. Research has he much loved found that they can increase urinary tract infections and lead to President Nelson Mthe agony of a twisted testicle . Dr Hilary Jones, a specialist in the TMandela turned 94. area, says wearing tight fitting clothes over a prolonged period can cause uri - nary tract infections leading to a low sperm count and fungal infections. erfidious Albion pulled off the impossible – for the first time oris Johnson , the uncharacteristic Mayor of London, is mad as hell Pever the Tour de France, professional cycling’s peerless race, was won with the Port of London Authority. “We have drunk it, skated on it, by an Englishman – Bradley Wiggins , an Olympic gold medallist, won the Bpainted it, drawn its inexhaustible waters to boil hides, brew beer, and 99th edition. Wiggins’ teammate, Mark Cavendish, won the Champs float the boats that made the empire. And in all the thousand years that the Elysee stage for the fourth successive year. Next year though, South African mighty Thames has nourished us, under all those kings and queens and parlia - eyes will be on Chris Froome, Kenyan born and South African educated ments – even during the Great Stink of 18587 – we have never been told we (St John’s College, Johannesburg) who came second this year. And former can’t immerse ourselves in it.” But the Authority has decided that there can champions Alberto Contador and Andy Schleck are likely be no swimming in the Thames in future without a permit. to be back in contention too. “In all the dismal annals of elf and safety, if people want to take their lives into their own hands, then they nd Hashim Amla became the should be able to do so with all the freedom of our highest scoring South African woad-painted ancestors. This sort of gratuitous legis - Aever in cricket test when he lation saps our moral fibre. No wonder we lose at struck an unbeaten 311 in the first test football to the Italians.” between the Proteas and England at the Oval ground where South Africa has never won a as Yasser Arafat deliberately poi - match. Jacques Kallis was at his majestic best soned with Polonium, the same with 182 not out when the Proteas declared. At Wdeadly radioactive substance that close of play on the fourth day England were 102 Russian agents used to kill the dissident Alexander for four in their second innings, railing the Litvinenko in London? Swiss forensic experts say an Proteas by 150 runs. examination of Arafat’s clothing contain strong traces of the substance and Arafat’s widow has now ost people had written him off but agreed that his body can be exhumed so the Ernie Els was having none of it: to truth can be known. Ariel Sharon, Mthe general astonishment of everyone Israel’s prime minister when Arafat except himself, Els won the British Open, golf’s died, made no secret of his determina - ultimate accolade. It is the second time his tion to kill the Palestinian. Get ready name is inscribed on the Claret Jug. To be for deadly fallout. fair, though, most golfers will agree that it was more a case of Australian Adam Scott ew French president squandering a four stroke lead than Els playing François Hollande’s love magical golf. This is Els’s fourth Major title. N Nlife is getting more com - plicated. His children have told Compiled by David Gleason 52 August 2012 IInntteerrnnaattiioonnaall llaaww Obamacare Judgement

PATRICK BRACHER

no question that it is the he ABA Journal Law News Now has not come responsibility of this Court to through for a few weeks. As a stopgap I have enforce the limits on federal T power by striking down acts of taken extracts from the Obamacare judgement Congress that transgress those of the US Supreme Court because it gives some fascinat - limits.” ing insights into the workings of the US Constitution and Majority on the fact that the US Supreme Court. the individual mandate in the law sought to oblige people to take out health insurance: In the National Federation of Independent Business and Others v Secretary of “Every day individuals do not Health and Human Services and Others , various bodies and states chal - do an infinite number of lenged the constitutionality of the Patient, Protection and Affordable things. In some cases they Care Act, 2010. The Act was partially upheld by a majority judgement decide not to do something; in led, to the surprise of some, by Chief Justice John Roberts in a carefully other cases they simply fail to reasoned opinion. The judgement highlights the role of federal govern - do it. [If we allow] Congress to ment vs state government and the commerce and tax clauses in the justify federal regulation by Bracher Constitution. It also has some lessons for the constitutional approach in pointing to the effect of inac - South Africa. tion on commerce [it] would Majority led by Roberts, CJ: “We do not consider whether the Act bring countless decisions an individual could potentially make within the embodies sound policies. That judgment is entrusted to the Nation’s scope of federal regulation.” elected leaders. We ask only whether Congress has the power under the Majority on the same point: “To consider a different example in the Constitution to enact the challenged provisions.” health care market, many Americans do not eat a balanced diet. That Roberts, CJ: “The Framers created a Federal Government of limited group makes up a larger percentage of the total population than those powers, and assigned to this Court the duty of enforcing those limits. without health insurance. The failure of that group to have a healthy The Court does so today. But the Court does not express any opinion on diet increases health care costs, to a greater extent than the failure of the the wisdom of the Affordable Care Act. Under the Constitution, that uninsured to purchase insurance.” The court then quoted research to the judgment is reserved to the people.” effect that the annual medical burden of obesity has risen in the USA to Majority: The Federal Government “is acknowledged by all to be one almost 10% of medical spending amounting to about $147 billion in of enumerated powers.” That is, rather than granting general authority to 2008. perform all conceivable functions of government, the Constitution lists, Majority: “Under the Government’s theory, Congress could address or enumerates, the federal government’s powers. Congress may, for exam - the diet problem by ordering everyone to buy vegetables” ple, “coin Money”, “establish Post Officers,” and “raise and support The majority regarding inactivity and the Commerce Clause: “To an Armies.” The enumeration of powers is also a limitation of powers, economist, perhaps, there is no difference between activity and inactivity; because “the enumeration presupposes something not enumerated”.” both have measurable economic effects on commerce. But the distinc - Majority discussing the Commerce Clause: “The power of activities tion between doing something and doing nothing would not have been that substantially affect interstate commerce can be expansive. That lost on the Framers, who were “practical statesmen,” not metaphysical power has been held to authorise federal regulation of such seemingly philosophers.” local matters as a farmer’s decision to grow wheat for himself and his live - Majority: “The Commerce Clause is not a general license to regulate stock, and a loan shark’s extortionate collections from a neighbourhood an individual from cradle to grave, simply because he will predictably butcher shop.” engage in particular transactions.” Majority: “Congress may also “lay and collection Taxes” … The Majority: “As the Government puts it, “health insurance is not pur - Federal Government may enact a tax on an activity that it cannot autho - chased for its own sake like a car or broccoli; …”. “But cars and broccoli rise, forbid, or otherwise control.” are not more purchased for their “own sake” than health insurance. They Majority on the powers of the Supreme Court: “And there can be are purchased to cover the need for transportation and food.” August 2012 53 IInntteerrnationall llaaww

Majority on constitutional oversight: “The rule is settled that, as … spare neither sex nor age, nor high nor low, nor sacred nor profane.” between two possible interpretations of a statute, by one of which it Minority on the Commerce Clause: “All of us consume food, and when would be unconstitutional and by the other valid, our plain duty is to we do so the Federal Government can prescribe what its quality must be adopt that which will save the Act.” and even how much we must pay. But the mere fact that we all consume Majority: “But taxes that seek to influence conduct are nothing new. food and are thus, sooner or later, participants in the “market” for food, does … Today, federal and state taxes can compose more than half the retail not empower the Government to say when and what we will buy.” price of cigarettes, not just to raise more money, but to encourage people The minority on the fact that the majority upheld part of the Act and to quit smoking. And we have upheld such obviously regulatory measures struck down a part: “The Court regards its strained statutory interpreta - as taxes on selling marijuana and sawed-off shotguns.” tion as judicial modesty. It is not. It amounts instead to a vast judicial Roberts, CJ: “When we invalidate an application of a statute because overreaching. It creates a debilitated, inoperable version of health-care that application is unconstitutional, we are not “rewriting” the statute; we regulation that Congress did not enact and the public does not expect.” are merely enforcing the Constitution.” Minority: “The fragmentation of power produced by the structure of Minority led by Scalia, J: “What is absolutely clear, affirmed by the our Government is central to liberty, and when we destroy it, we place text of the 1789 Constitution, by the Tenth Amendment ratified in 1791, liberty at peril. Today’s decision should have vindicated, should have and by innumerable cases of ours in the 220 years since, is that there are taught, this truth; instead, our judgment today has disregarded it.” structural limits upon federal power – upon what it can prescribe with The court upheld most of the Affordable Care Act, not on the basis respect to private conduct, and upon what it can impose upon the sover - not that is was permissible under the commerce clause, but because it was eign States.” a proper exercise of Congress’s taxing powers. The majority struck down Minority led by Scalia, J: “If Congress can reach out and command the Medicaid part of the act suggesting that the law could stand alone even those furthest removed from an interstate market to participate in without it. N the market, then the Commerce Clause becomes a font of unlimited power, or in Hamilton’s words, “the hideous monster whose devouring jaws Bracher is a partner with Norton Rose

Advertissiinngg Tweet, tweet, a whole new world

GAIL SCHIMMEL

Nike believed the tweets should be viewed in the context in which they recent decision from the UK Advertising Standards appeared and said that Wayne Rooney and Jack Wilshere were communi - cating to Twitter members who had chosen to "follow" them and that both Authority highlights where the concerns of adver - A footballers were well known for being sponsored by Nike, as were the teams tising regulation are headed as we enter the digital for which they played; Manchester United and Arsenal. and social networking age. It believed, therefore, that Wayne Rooney and Jack Wilshere's Twitter followers would not be misled about the relationship between the foot - ballers and Nike. Nike believed the tweets could be objectively viewed as The complaints related to two tweets for Nike on Twitter from the official marketing communications because of the presence of the Nike URL with - accounts of Jack Wilshere and Wayne Rooney. The tweet from Wayne in the body of the tweets, which indicated that the tweets' purpose was to Rooney said, "My resolution - to start the year as a champion, and finish it direct followers to the Nike website. as a champion...#makeitcount gonike.me/makeitcount." Jack Wilshere’s It provided examples of personal tweets by both footballers which did tweet stated "In 2012, I will come back for my club - and be ready for my not contain the Nike URL and did not refer to their professional capacity country. #makeitcount.gonike.me/Makeitcount." as footballers. Nike said when viewed alongside each other, which was simi - The complainant was disturbed that the tweets were not obviously iden - lar to the way followers would view a Twitter feed, they believed it was tifiable as marketing communications. clear which were personal tweets and which were ads. 54 August 2012 AAddvertising

The UK ASA upheld the com - 4.1.1 which is intended to promote the sale, leasing or use of any goods or plaint, and found that “ the average services; or Twitter user would follow a number of 4.1.2 which appeals for or promotes the support of any cause. people on the site and they would Promotional content of display material, menus, labels, and packag - receive a number of tweets throughout ing also fall within the definition. Editorial material is not an advertise - the day, which they may scroll through ment, unless it is editorial for which consideration has been given or quickly. We noted the Code did not just received. require ads to be identifiable as market - The word "advertisement" applies to published advertising wherever it ing communications but that they must may appear. It does not apply to editorial or programming publicity. be obviously identifiable as such .” In addition, the ASA rules are explicit that advertising must be clearly The principle that came out of identifiable as such. In addition, the enforcement processes allow that the this was that tweets, which amount ASA can – after due process – issue a blanket ban against a particular to advertising, must be clearly iden - advertiser on the grounds that it has failed to abide by an ASA ruling. The tifiable as such. fact that Twitter is not a medium that falls directly within the ASA control Turning to our own ASA, it Schimmel is, therefore, irrelevant. would seem that the issue of tweets It will be interesting to watch this space and see what happens, as it is has never been considered. The South African ASA can be justifiably indeed only a matter of time. And when it happens, I’ll be amongst the first proud of the definition of advertising that appears in its Code, which is to be tweeting about it! N wide enough to encompass the concept of Twitter: 4.1 "advertisement" means any visual or aural communication, representa - Schimmel is an attorney specialising in advertising law tion, reference or notification of any kind – Follow Schimmel at @GailSchimmel – for advertising law updates.

Prroopertyy llaaww The right to adequate housing

PAULINE SANNASI-PILLAY

periods (the longest since 1994), dur - 26(1) of the Constitution provides that everyone has ing which the landlord could termi - nate for breach (including non-pay - the right to access to adequate housing. This right in S ment of rent, damage to the premises, practice is of the utmost importance for both lessors and contravention of laws or by- and lessees. laws). After being entered into, the lease would continue on the same terms and conditions, subject to ter - The question whether termination of a lease by the lessor constitutes an mination by either party to the lease infringement of the right to adequate housing has recently been decided in on specified written notice. the Constitutional Court and has been described as a ground-breaking In September 2008 the landlord, judgement 1. in terms of the lease to vacate the The Socio-Economic Rights Institute represented 15 tenants of property, gave written notice to the Lowliebenhof, a ten-storey block of flats in Braamfontein, who contended lessees, but noted that, should ten - that the termination of their leases was unreasonable and unfair and was ants wished to remain on the property, Sannasi-Pillay thus against public policy and amounted to an infringement of their they were offered new leases, with a Constitutional right to adequate housing. higher rental, on the same terms and conditions. The tenants resisted and The tenants entered into leases with various entities, each for specified lodged a complaint with the Gauteng Rental Housing Tribunal for the August 2012 55 Property llaw

excessive rental charges and threatened evictions by the respondent, which The decision emphasises the remedy available to an aggrieved party to a conduct could have been regarded as “ unfair practice ” in terms of the Rental lease agreement whose interests and/or rights have been infringed. The Housing Act 2 (RHA). party must lodge a complaint of unfair practice with the Tribunal, unless Mediation was held without success and the dispute was referred to arbi - proceedings have been instituted in another court when urgent relief is tration. But before the hearing the landlord approached the court for evic - sought. tion of the tenants, who then withdrew their complaint from the Tribunal. Tenants and landlords are protected against unfair practices,by the provi - Both the high court and the Supreme Court of Appeal dismissed submis - sions of the RHA and are encouraged to lodge complaints for acts or omis - sions by the tenants that the termination of the leases amounted to unfair sions which inter alia include changing of locks, deposits, damage to property, practice in terms of the RHA. demolitions, forced entry and obstruction of entry, intimidation, issuing of The tenants then approached the Constitutional Court and submitted receipts, municipal services, nuisances, overcrowding, maintenance and that the circumstances in which the landlord exercised the power to termi - health matters, as provided for in s15(1)(f). nate the lease and not the termination clauses themselves, rendered the ter - In terms of s13(14) of the Act, the Tribunal does not have jurisdiction to mination unfair, unreasonable and contrary to public policy. They contended hear applications for evictions and, therefore, a landlord who wishes to evict that the termination of their leases unfairly and unreasonably infringed on a tenant must institute his application in a magistrates’ court or high court their Constitutional right to access to adequate housing as provided in with jurisdiction to hear applications. Such a court is competent to hear s26(1) of the Constitution. applications for evictions in the absence of a dispute regarding unfair prac - The applicants referred to the Constitutional case of Jaftha v Schoeman tices. and others 3, where the question of whether a law that permits the sale in exe - In terms of s13(9) the Tribunal has jurisdiction to hear matters arising cution of peoples’ homes because they have not paid their debts, thereby from a dispute in respect of unfair practice, unless proceedings have already removing their security of tenure, violates the right to have access to ade - been instituted in another court. This would, therefore, preclude a tenant quate housing, as enshrined in s26. from lodging a complaint with the Tribunal to avoid eviction proceedings, Counsel for the applicants submitted that "any measure which permits a which have already been instituted in a court. A magistrate may at any time, person to be deprived of existing access to adequate housing, limits the rights protected however, refer the matter to be heard by a Tribunal should it relate to unfair in section 26(1). Such a measure may, however, be justified under section 36 of practice. the Constitution." The RHA protects the interests and rights of a landlord against unfair They also submitted that the termination clause was invoked to avoid practices by a tenant who will likewise be afforded an opportunity to have a the clause which required the respondent first to seek authority of the complaint referred to the Tribunal. Landlords will, therefore, be able to lodge Tribunal before it could increase rent as high as it sought. complaints with the Tribunal for the recovery of arrear rental. s4(5)(c) of the RHA provides that a landlord's rights against the tenant The advantages of a complaint being heard by a Tribunal are that it is include his or her right to terminate the lease in respect of rental housing both cost-effective and may be resolved quickly. A Tribunal’s ruling has the property on grounds that do not constitute an unfair practice and are speci - same effect as a magistrate’s court order. fied in the lease. Landlords are cautioned to familiarise themselves with the provisions of s7 of the Act provides for the creation of Rental Housing Tribunals by the the RHA and with the existence of the Tribunal and to ensure that their MEC by way of notice in the Gazette to establish a tribunal in the Province. conduct, act or omission does not amount to unfair practices and also to s13(1) entrenches a right in which any tenant or landlord or group of ensure that lease agreements comply with the provisions and requirements of tenants or landlords or interest group may, in the prescribed manner, lodge a the RHA. complaint with a provincial Rental Housing Tribunal concerning an unfair Likewise, prospective purchasers of immovable property subject to leases practice. should familiarise themselves with the provisions and requirements of the The Constitutional Court found that a matter involving the termination Act as well as the functions and powers of the Rental Housing Tribunals. of a lease concerning unfair conduct by the landlord falls within the ambit of Landlords especially should take care when deciding to renovate and the RHA and must, therefore, be heard by a Tribunal. Accordingly the upgrade property to improve standards of living but will result in increased Constitutional Court held that the Tribunal is the appropriate board to rentals. decide unfair practice disputes under the Act and that tenants must be given It would be prudent for landlords to familiarise themselves with what an opportunity to have their complaint heard. The tenants’ appeal against they are able to do and what they are prohibited from doing in terms of their their eviction was, therefore, successful. lease agreements and the RHA prior to approaching investors and financial The order granted by the Court affords the tenants an opportunity to institutions to put the wheel in motion.This will save landlord and investors have their complaint heard by the Tribunal within a stipulated period and time, money and, possibly, unnecessary legal proceedings. N allows the parties to apply to the Constitutional Court for further directions once the Tribunal has given a ruling or once the complaint has been dis - Sannasi-Pillay is a candidate attorney at Eversheds. The supervising part - posed of in any other way. ners were Johan Jacobs & Dave Pennington.

1 Maphango and Others v Aengus Lifestyle Properties (Pty) Ltd (Inner City Resources Centre as Amicus 2 Act 50 of 1999, as amended by the Rental Housing Amendment Act 43 of 2007 Curiae) 2012 (5) BCLR 449 (CC) 3 2005 (2) SA 140 (CC) 56 August 2012 PPllaatttteellaanndd ppeerrssppeeccttiivvee Understandable confusion

Rickard CARMEL RICKARD but this time in the Western Cape. The convicted rapist in this case, Ebrahim Tofie, had appealed against conviction and sentence after the HREE recent rape cases illustrate why the public magistrate imposed two consecutive 10-year terms. The high court judges Tis understandably confused. Every reader will confirmed the conviction, and then turned to look at the question of sen - know that minimum sentences have been pre - tence. scribed that should apply except where ‘ substantial and Like the Pretoria judges in the Matwa matter, the Tofie magistrate compelling ’ circumstances exist to make an alternative found just two substantial and compelling reasons not to impose life sentence more appropriate. And it’s what may legiti - imprisonment. First, Tofie had spent 14 month in custody awaiting trial. mately be considered ‘ substantial and compelling’ cir - Second, the girl was ‘ almost ’ 16. cumstances that causes the confusion. Dealing with these two grounds the judges said that against a back - ground where the minimum prescribed sentence was life, the 14 months ‘falls into insignificance .’ They also dealt with the fact that the rapist had not used a condom: this does not appear to have been considered by the In May, two judges of the high court in Pretoria had to consider the life trial magistrate, and it is significant that the two judges picked up on this sentence imposed by a magistrate on Bafana Matwa, 30. He had raped a and made clear their agreement with previous high court decisions hold - seven-year old child and would, therefore, automatically face life impris - ing that this constituted an aggravating feature. onment (a mandatory punishment where someone under 16 is raped) in What about the second grounds for not imposing the prescribed sen - the absence of serious grounds for the court to impose another sentence. tence? The magistrate had said that because the girl was eight months In Matwa’s case the two judges acknowledged that the child had suf - short of 16 years, she ‘had a little more life experience than a very young child fered ‘ serious mental anxiety ,’ but they nevertheless found grounds to and therefore a bit more ability to deal with the trauma.’ This argument was reduce the punishment to 22 years. They had two reasons: Matwa was ‘ a flawed, said the judges, ‘as the offence of rape is traumatic for … any age.’ first offender ’ and second, the child, despite the noted ‘ serious mental anxi - They added that it was particularly difficult to understand the magistrate’s ety ,’ was ‘ not physically injured ’ other than the signs of ‘ forced vaginal pene - reasoning on this question given the victim impact report, referred to by tration ’ observed by a doctor. the magistrate, that clearly showed the impact on the girl’s life. How likely is it, a reader may ask, that a seven year old child could be In addition to the finding on the significance of the girl’s age on sen - raped and not show signs of ‘forced vaginal penetration ’; isn’t that the tence, the court also found it was not a mitigating feature that she had essence of the physical result of rape? And what exactly was the nature of not sustained 'permanent serious physical injuries.' and they considered the the ‘serious mental anxiety’ she experienced as a result of the attack? How psychological trauma resulting from the rape to be an aggravating feature. well did the court consider the long-term psychological impact? They went through the report on the psychological damage sustained as a The case caused something of an outcry and I understand that the result of the rape and concluded that there were ‘no substantial and com - public prosecutor has asked for the file to consider an appeal. Whatever pelling circumstances present to justify a deviation.’ In the result, the convic - happens from here on though, it was clear that the two judges decided tion was upheld, the two 10-year sentences were set aside, and two life they were obliged to intervene and alter the sentence passed. sentences were imposed instead. The second case is another in which the judges, again two members This second case seems to show a different approach from that in the of the high court bench, considered the sentence imposed by a magistrate, Matwa matter: the fact that someone who has been raped did not sustain August 2012 57 PPllaatttteellaanndd ppeerrssppeeccttiivvee

‘permanent serious physical injuries’ is not automatically a substantial and The trial court had not properly taken his age - 54 - into consideration or compelling ground to impose a lesser sentence on the rapist. properly considered whether it was appropriate to impose another sen - Finally there’s the June high court decision in S v M that makes things tence. even more confusing. The accused, found guilty of rape by the regional Under these circumstances life sentence was too severe (‘te ingrypend court in Bethlehem and sentenced to life imprisonment, appealed to the en swaar’) and 15 years would be more appropriate for the facts of the high court in Bloemfontein against sentence as well as conviction. case. He was convicted of raping his 14-year old daughter: he came home, It’s not an easy judgement: on the one hand the judges complain that after he had been drinking, and woke up the three children with whom the trial court did not properly weigh up the appropriate sentence, on the he shared the bedroom so that they would open the door. After they had other the appeal court does not explain why its sentence was any less gone back to sleep he climbed into bed with his daughter, tied a cloth inappropriate. The only ‘new’ factor put into the scale, it seems, is that round her mouth to prevent her screaming, took off her clothes and raped the father was 54 years old, and the appeal court simply states, without her. explaining why, that the original sentence was too severe. The next day she told a teacher at school who helped set in motion The judges did, however, point out an even more troubling aspect of the process of medical examination and police investigation. The high the matter: no report or evidence had been presented during the trial on court judges upheld M’s conviction, but raised problems with the life sen - the psychological or physical impact of the rape on the girl. How is it pos - tence imposed by the magistrate. sible that the prosecution can fail in such an important respect, or that a Rape was a serious problem, said the judges. But life imprisonment court can allow such a situation to develop without challenge? Why did could only be imposed in appropriate cases after all the circumstances the magistrate not ask for a report? Why did the appeal court not chide were considered. They pointed out that the accused was a first offender, the magistrate for failing to ask for it? Speaking as yet another confused father of seven children, that he was the bread winner and was employed. member of the public I can only say that I’m mystified. N

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Deal Makers ® 58 August 2012 NNoott tthhee llaaww rreeppoorrttss Preventing unnecessary interference with education

“in schools,” the ILO includes among the worst forms of child labour “work under particularly difficult conditions such as work for long hours or during the KOHN V THE MINISTER OF EDUCATION AND OTHERS night or work where the child is unreasonably confined to the premises.” That oss-Harbottle J : The applicant is a 14-year old sounds like a fair description of homework. One media article commented schoolboy who seeks a declaration of rights on that what homework does is “rob children of childhood, play havoc with family F life and asphyxiate their natural curiosity,” behalf of all schoolchildren under the age of 15 prohibiting any school from giving them homework. The Over 100 years ago Mark Twain commented that he never let his class action is brought under s38 of the Constitution schooling interfere with his education. Fran Libowitz remarked that “In which allows anyone acting as a member of, or in the real life there is no such thing as algebra.” Those who want to pursue algebra for pleasure or profit can do it at school or at home. Those who are interest of, a group or class of person seeking to enforce unlikely to see an equation for the rest of their lives should be allowed to their human rights. do something more useful after school. Needless to say the applicant’s parents opposed the application. But they could not explain in their answering affidavit why, if unfair discrimi - Not many human rights exist in the classroom. And, the applicant says, nation on the grounds of age is prohibited by s9 of the Bill of Rights, they that unfair situation must not escape the grounds of the school. should be allowed to watch television and pursue other pleasures while Education is dealt with under s29 of the Bill of Rights. Not only is educa - the applicant had to do his homework using the internet to search for tion a right and not an obligation, it is a right to receive education “ in solutions to his teacher’s problems and not to life’s problems. The system public educational institutions .” That does not, says the applicant, entitle of education has not done particularly well. As George Carlin pointed the educational institutions to intrude into the private home. out: “Think how stupid the average person is and then realise half of them are The applicant found his opportunity with the passing of the Basic even stupider.” When it comes to finding out what is really important in Conditions of Employment Amendment Act which prohibits anyone life, homework is like marking up the important part of life’s script with a from “ requiring or permitting a child under the age of 15 years to work ” partic - black magic marker. ularly where that places the child’s well-being at risk. Anyone who has helped their child with homework will know the futility The law has its origins in the Minimum Age of it. Most of the time the parent does not have a clue what is going on Convention, 1973 of the International which shows the system did not work for them. In fact it occurs to me that Labour Organisation. That Convention if, instead of pretending to help their children with homework, the parents prohibits child labour. Though the were to spend time being taught by their children to master electronic skills Convention does not apply to work and social networks, the world might be a better educated place. done by children But I do not have to decide who is right or wrong in the debate from a moral point of view. This court does not make the law, it applies the law. If international conventions, the Bill of Rights and parliamentary leg - islation prohibit work under particularly difficult conditions for long hours during the night in unreasonably con - fined premises, it is not my fault that the prohibi - tion exactly describes homework. The order is granted. There will be no more homework for under-15-year olds. No order of costs is necessary. The applicant did all the research himself for his argument on his tablet computer and successfully represented himself which shows what you can achieve when you don’t do homework. N

Reported by Nemo Judex August 2012 59 HHuummaann rriigghhttss llaaww

Who knows what about you

SIMONE MONTY

which the organisation outh Africa does not have comprehensive requires to use that infor - mation. privacy or data protection legislation. Some S be careful how the infor - aspects are covered in various other statutes mation is used and to that are consumer protective, such as the Consumer whom the information is Protection Act, the National Credit Act and the disclosed. Electronic Communications and Transactions Act. devise proper secure stor - age of data.

Comprehensive data han - In a move to give effect to the right to privacy, which is entrenched dling strategies, processes and in South Africa's constitution, and to align South Africa with procedures as well as systems many other international jurisdictions that have privacy or data will need to be devised and protection legislation in place, the government introduced the implemented in order to Monty Protection of Personal Information Bill in 2009 (POPI). comply with the legislation. POPI has been in the pipelines for almost two years and it is The Bill requires organisations to: anticipated it will be passed this year. collect and use only the minimum information necessary to The objective of POPI will be comprehensive protection of accomplish their objectives, information relating to personal detail of an individual. to maintain the information accurately, In the bill, " personal information " is defined as covering a very to safeguard personal information, and wide range of data pertaining to individuals and juristic persons. to delete or destroy information when it is no longer needed. The new laws are intended to cover any person or entity that collects, uses or stores, (in any manner whatsoever) personal infor - Notably, organisations will be required to notify the mation and will, therefore, involve the majority of organisations individual(s) and the new Information Regulator of any compro - conducting various types of businesses having to assess how they mises to their personal information, including loss, theft, unautho - handle personal information. rised access or disclosure, hacking incidents, and so on. When the POPI becomes law, it will place a notable onus on The Bill provides rights for individuals to: businesses that process any personal data in respect of any person. know the reasons why their information is collected. Failure to comply will in all probability result in an administrative know the purposes for which it will be used. fine of no less than R10 million for non-compliance, while viola - have the right to object, on reasonable grounds, to use of their tions may also result in criminal charges or lengthy prison sentences. information. Fortunately, it does seem there will be a grace period of a year to enquire whether an organisation holds information about the comply fully with the regulations once the bill is promulgated into individual, view and correct that information, and ask that it be law. N deleted.

These laws will impact almost every business in South Africa Monty is a partner of Eversheds and hefty penalties are envisaged for non-compliance. From a prac - tical point of view almost all businesses will need to: Why on earth do organisations need a year to ensure the ensure that standard terms and conditions cover the authority to information they hold on individuals is correct and valid? - use any information submitted to the organisation for purposes Publisher 60 August 2012 HHuummaann rriigghhttss llaaww Registration as parents by lesbian couples

SUSHILA DHEVER

The Children’s Act (2005) largely restated s5 of the 1987 Act, with a n terms of s40 of the Children’s Act (2005), a lesbian few key changes. It replaced the phrase ‘artificial insemination’ with ‘artifi - couple married under the Civil Union Act (2006) can cial fertilisation.’ It removed references to husbands, wives or same-sex I partners and simply used the term ‘spouse’ instead. both register as the parents of a child born to either woman as a result of artificial fertilisation. According to the So in 1987, the relevant section stated: Act, the child must “for all purposes be regarded to be the Whenever the gamete or gametes of any person other than a married woman child of those spouses.” or her husband have been used…for the artificial insemination of that woman, any child born of that woman as a result of such artificial insemina - tion shall for all purposes be deemed to be the legitimate child of that woman and her husband… There should, therefore, be no need to adopt the child. Since the two After the J&B decision, the section read: women are regarded in law as the child’s parents, they should be able to Whenever the gamete or gametes of any person other than a married woman follow the ordinary procedures for the registration of a birth as set out in or her husband or permanent same-sex life partner have been used…for Chapter II of the Births and Deaths Registration Act (1992). the artificial insemination of that woman, any child born of that woman as a If the couple was not married at the time the child was born, they can result of such artificial insemination shall for all purposes be deemed to be the apply to amend the registration of legitimate child of that woman and her husband or permanent same-sex the birth to record their marriage. life partner… This would be an application in The 2005 Act replaced this with: terms of s11 of the Births and Whenever the gamete or gametes of any person other than a married person Deaths Registration Act, read in or his or her spouse have been used…for the artificial fertilisation of one the light of s13 of the Civil Union spouse, any child born of that spouse as a result of such artificial fertilisation Act (2006) (which provides that must for all purposes be regarded to be the child of those spouses… references to ‘marriages’ etc. in This provision came into effect on July 1 2007. other statutes now include civil unions). The 2005 Act does not define the term ‘spouse.’ However, s13(2)(b) s5 of the Children’s Status Act of the Civil Union Act (2006) clarifies that references to ‘spouses’ in (1987) applied to married couples other acts now include partners in civil unions. who used artificial insemination to Though the language is slightly tidier, the 2005 Act is effectively a conceive a child. Any child so con - restatement of the 1987 Act, as read in the light of the J&B judgement. ceived would be deemed “for all In other words, the civil union partner of a woman who gives birth to a purposes” to be “the legitimate child of Dhever child following artificial insemination is regarded in law as the parent of that woman and her husband.” that child. In J & B v Director-General of Home Affairs (2003 (5) BCLR 463 The Births and Deaths Registration Act (1992) provide procedures for the (CC)) a lesbian couple used artificial insemination to conceive twins. registration of a birth by a child’s parents. Certain sections refer to the ‘father’ The eggs were taken from one of the women and implanted in her part - and ‘mother’ of the child, for example s11(4) (which applies to ‘a person who ner’s womb. Her partner subsequently gave birth to a boy and a girl. The wishes to acknowledge himself to be the father of a child born out of wedlock’) . couple applied to be registered as parents of the children. There was no Admittedly, this might cause problems with a same-sex couple; though they problem registering the woman who gave birth to the children as their are both legally the ‘parents’ of a child conceived through artificial insemina - mother but her partner could not also be registered as a parent under the tion, it may be difficult to characterise a lesbian partner as a ‘father.’ law, as it stood. However, it is difficult to escape the conclusion that a failure to The Constitutional Court found that s5 of the 1987 Act unlawfully dis - acknowledge the equivalent rights of married and same-sex couples in criminated against homosexual couples by counting married spouses but terms of registration of births would constitute unlawful discrimination, as not same-sex life partners, as the parents of children conceived by artificial it did in J&B . N insemination. The Court struck out references to ‘married’ couples in s5 and read in references to ‘same-sex life partners’ where appropriate. Dhever is an associate in the Pro Bono Department of Bell Dewar August 2012 61 LLaabboouurr llaaww Reasonable expectation of renewal of fixed term contracts

BRADLEY WORKMAN-DAVIES AND VAL MOONSAMY

The major benefit of fixed term contracts is that, where legitimately used, he use of fixed term contracts of employment when the contractually agreed fixed term expiry date or event which has appeals to employers for a number of reasons, been agreed up-front by the parties arrives, the contract expires. T With some exceptions, the Labour Relations Act (66 of 1995), recog - some of which are legitimate and others of which nises this as a mutually agreed termination of employment, or the termi - are frowned upon by the Labour Courts and Commission for nation of the employee’s employment with the employer. For the purposes Conciliation, Mediation and Arbitration (the CCMA). In par - of the LRA, and in respect of determining the jurisdiction of the CCMA ticular, where fixed term contracts are used by employers to and the labour courts, this is not a dismissal; since the LRA only allows avoid the consequences of full-time employment, their use the Labour Courts and the CCMA jurisdiction in respect of dismissals, it may be found to be impermissible and can attract punitive is immediately apparent that a fixed term contract is an attractive mecha - consequences for employers. nism by which to provide for the termination of employment which would prevent disputes in regard to unfair dismissals.

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However, being aware of the possible misuse of fixed term contracts by in the employee’s favour on the employers to evade the responsibilities and consequences of permanent basis that, in the circumstances, she employment, the LRA recognises that, in certain circumstances, the ter - had a reasonable expectation of mination of a fixed term contract may amount to a dismissal. renewal. However, the court inter - As such, the LRA deems that where an employer fails to renew or preted the renewal to be on the extend a fixed term contract (in other words, where the employer allows same or similar terms as the previ - the fixed term contract to terminate by effluxion of time and for the ous contract (being three months) employment relationship to terminate thereby) in circumstances in which and found that the terms of the the employee has a legitimate expectation of renewal or extension, the ter - fixed term contract could not give mination of employment is a dismissal. Flowing from this deeming provi - rise to an expectation of permanent sion, the Labour Courts and the CCMA are entitled to exercise jurisdic - employment. tion over disputes arising between the parties in regard to such a dismissal. This case clearly highlights the The immediate question then is, in what circumstances can the employee difficulty that may be experienced be said to have a legitimate expectation of renewal or extension, and how by employers if they do not specify far does this expectation extend? Can it even extend to an expectation of the exact date of termination of the Moonsamy permanence? Recent case law gives some guidance in this regard. fixed term contract as well as the consequences of suggesting or tacitly implying renewal of a fixed term contract. Can an employee claim unfair dismissal on the basis of an In the most recent case on this topic, the Labour Appeal Court con - expectation of permanent appointment? A dismissal is deemed to have taken place, in terms of s186(1)(b) of the sidered whether an employee engaged on a fixed term contract can have LRA when – an expectation of permanent employment. In the case of University of “an employee reasonably expected the employer to renew a fixed term con - Pretoria v Commission for Conciliation, Mediation & Arbitration and Others tract of employment on same or similar terms but the employer offered to [2012] 2 BLLR 164 (LAC), after serving a series of fixed term contracts renew it on less favourable terms, or did not renew it.” for three years, the respondent employee applied for one of several perma - nent positions which the applicant was seeking to fill. She was unsuccess - In the case Owen and Others v Department of Health, KwaZulu-Natal ful but was offered a further fixed term contract which she declined to (2009) 30 ILJ 2461 (LC), the court found that if an employer permits an accept. employee to continue working beyond the expiry of a fixed term contract, The employee referred a dispute to the CCMA claiming that she had the contract is deemed to have been tacitly renewed on the same terms been dismissed because she had acquired a reasonable expectation of per - and conditions, but for an indefi - manent employment and the employer had failed to offer her this posi - nite period. This case indicated tion. The court stated that an expectation of permanent employment did that an employee engaged on a not fall within the ambit of s186(1)(b). fixed term contract may even be The court made this finding by applying a technical and strict interpreta - able to claim an expectation of per - tion of the relevant provisions; it held that the critical phrase in s186(1)(b) manent employment with his was that the employee had to reasonably expect renewal of a “fixed term employer, despite there being no contract” “on the same or similar terms,” and found that this therefore could agreement between the parties in not extend to any expectation of permanent employment. this regard. The cases of Gubevu Security Group and University of Pretoria are, In a later case, also decided by therefore, instructive in overturning the approach adopted in Owen and the Labour Court, in 2011 ( Gubevu Others v Department of Health. It is clear from these cases that an employee Security Group (Pty) Ltd v Ruggiero who is employed on a fixed term contract cannot claim to have been NO & others (2011) 20 LC ), the unfairly dismissed in terms of s186(1)(b) by claiming an expectation of a employee was employed on a fixed permanent employment relationship. term contract for three months. In Workman-Davies an e-mail sent to the employee, the When is the employee’s expectation of renewal or extension employer’s financial director wished reasonable? the employee “all the best and welcome aboard. We look forward to many According to the case Price / National Health Laboratory Services [2011] 8 years of business together.” The employee’s fixed term contract was due to BALR 860 (CCMA), the commissioner held that the notion of a reason - expire on November 30 2009. However, the employee continued work - able expectation calls for an objective inquiry to determine whether the ing until December 3 2009, after which she was told that she could work facts proved would lead a reasonable employee to expect renewal. Facts until the end of December as a notice period but that her fixed term con - relevant to that inquiry include – tract would not be renewed. terms of the contract; She referred the dispute to the CCMA in terms of s186(1)(b) of the the past practice of renewals; LRA claiming that she had been unfairly dismissed. The CCMA found the nature of the work; August 2012 63 LLaabboouurr llaaww

the reason for fixed term; an expectation is not created and employees should not be taken by sur - any assurances that the contract would be renewed; and prise in learning that their services are no longer required. What would failure to give reasonable notice of non-renewal of the contract. constitute “in advance” has not been determined and will probably be a subjective determination according to the matter at hand. In this case the expectation of renewal was determined to be reasonable, as The cases reviewed in this article serve as a warning to employers to the employers Recruitment and Selection Policy provided for the annual ensure that employees are informed expressly that they do not have an renewal of the fixed term contract. The actual fixed term contract was silent as expectation of renewal of their fixed term contract. They also provide to the expectation of renewal and did not specifically make provision that no employers with some comfort that if an employee is employed on a fixed expectation is created for the contract to be extended. This case clearly implies term contract, any reinstatement or re-employment claims for unfair dis - that if an express provision restricting the renewal of a fixed term contract is not missal will be limited to the period of the fixed term contract, and that fixed included in the fixed term contract, an employee may have a reasonable expec - term employees cannot claim expectations of permanent employment. N tation to renewal and that non-renewal will be an unfair dismissal. The commissioner further stated that an employer must communicate Workman-Davies is a director of and Moonsamy a candidate attorney its intention not to renew the contract in advance in order to ensure that with Werksmans Warning bells for all employers

DILSHAAD SAMSODIEN

The court a quo made reference n employer’s liability for the wrongful act or omis - to the case of Bezuidenhout & sion of an employee can be a fairly controversial Another v Eskom 3 which held that A when dealing with the test for vicar - one. This concept of vicarious liability is recognised ious liability: as a form of strict liability as fault on the part of the employ - "the determination of whether an act er is not required. falls within or without the scope of employment is a question of fact and often one of degree. The court 1 Neethling (et al) provide three requirements to be met for an employer to which is seeking to achieve the bal - be vicariously liable for the delict of his employee. ance to which the remedy is directed, 1. the existence of a contract of employment; must have regard to all matters rele - 2. a delict committed by the employee; and vant to the question." 3. the act of an employee must be within the course and scope of The classic formulation of the employment. Samsodien principle underlying vicarious liability The full bench of the Western Cape High Court confirmed in arose from the case of Mkize v Martens 4 where Innes CJ stated: November 2011, in the case of Kasper v Andre Kemp Boerdery CC 2011 “a master is liable for the torts of his servant committed in the course of his 2 JDR 183 (WCC), that a farmer can be held liable for the negligent act of employment, bearing in mind that an act done by a servant solely for his own his farm-hand despite the fact that the farm-hand acted contrary to his interests and purposes, and outside his authority, is not done in the course of direct instructions. his employment, even though it may have been done during his employment”. This case stemmed from a fire that destroyed extensive areas of moun - tain fynbos and agricultural land and caused damage to various farm fences The court in Minister of Police v Rabie 5 found that the examination of the and irrigation pipes in the process. The farm-hand was specifically instructed standard test to determine whether an act of an employee falls within the by the farmer to clear a piece of land, overgrown with weeds and unwanted course and scope of employment is twofold and entails both a subjective and plants and to transport it to a place where it would be dumped. The employee objective enquiry. The former has regard to the employee’s intention, and the had decided to lighten his burden by setting the gathered heaps alight. The latter involves the liability of the employer where a sufficiently close link fire had rapidly spread across the employers land, onto adjacent land and between the employee acts for his own interest and purposes and the business burned for several days. of his employer is in existence. One of the key issues in dispute was whether the employee acted within There are many instances in our law reports where employers are held the course and scope of his employment when he started the fire. liable for the actions of employees despite the fact that the employee acts 64 August 2012 LLaabboouurr llaaww

contrary to the employers express instructions. The bases for the employers’ instance for an employer to have been required to foresee the possibility of liability in such instances are summarised by Watermeyer CJ: an employee acting contrary to specific instructions? While on the face of “(if) the servant is doing his master’s work or pursuing his masters ends, he is it, it may not seem so, it should be noted that in Feldman (Pty) Ltd v Mall acting within the scope of his employment even if he disobeys his masters Watermeyer CJ found that a master creates a risk of harm to others in pur - instructions as to the manner of doing the work or as to the ‘means’ – by which suing his own interests 1945 AD 733 – at 741. 10 the end is to be attained…consequently, a servant can act in disobedience of his Consequently, according to Neethling (et al), 11 the employer should be master’s instructions and yet render his master liable for his actions”. 6 held liable against third parties on the grounds of fairness and justice for the creation of the risk. The authors are of the view that the creation of When dealing with prohibited acts by employees, a distinction must be risk principle is directly related to the enquiry as to whether an employee’s drawn between a prohibition which “limits the sphere of employment” and a act falls within the course and scope of employment and is a factor to be prohibition which only deals with “conduct within the sphere of employ - taken into account in determining the liability of the employer. ment”. Only the latter is regarded as falling within the course and scope of the employee’s employment. 7 From this test Saldanha J, in the court a quo , found even though subjec - Mitigation of employers’ risk The Kasper case certainly rings the warning bells for all employers to miti - tively viewed, the farm-hand’s intention was to lighten his burden; from an gate (as far as possible) their risk of, and exposure to, liability for the objective point of view the burning of plant material on a farm cannot be wrongful acts or omissions of their employees. This can be achieved in var - regarded as a deviation of the farm-hand’s employment and accordingly the ious ways, including - farmer was accountable for the farm-hand’s actions. 1. ensuring that a written employment contract is concluded between the employer and the employee, which Constitutionality a. sufficiently details and restricts the scope of employment of the The full bench of the Western Cape High Court confirmed in the Kasper case employee; and the decision of the court a quo and found it to be in line with the Consti- b. excludes specific conduct and activities from the scope of employ - tutional Court case of K v Minister of Safety and Security ,8 in which O’Reagan ment of the employee; and confirmed the constitutionality of the twofold test already discussed. 9 2. adequate monitoring systems should be put in place by employers if possible to ensure that the conduct of employees are monitored consis - Fairness and justice tently, so as to afford the employer an (early) opportunity to Even if the principle that leads to the liability of an employer in such cir - a. intervene where instructions have not been adhered to by the cumstances appears to be settled in law, the issue remains controversial. employee; and/or The question that comes to mind is whether it is just in this particular b. mitigate the risk of liability in any other manner possible.

However, these suggestions may, in practice, be difficult to implement at all levels of employment spanning across vari - ous sectors or industries. There is unfortunately no way an employer can fully guard against or foresee all potentially negli - gent acts or omissions of employees in order to limit the scope of employment specifically.

Samsodien is a candidate attorney with Werksmans. The article was reviewed by Gerhard Cloete, director.

It is easy to understand why a neighbour in a case like this would be delighted with the outcome. For the employer, who gave specific instructions, which were ignored, the logic must appear a farce - Editor

1 Neethling, Potgieter and Visser Delict (6ed) at 366. 8 2005 (6) SA 419 (CC). 2 2011 JDR 1863 (WCC). 9 O’ Reagan found at paragraph 32 that “the Subjective consideration of the employees state of mind 3 2003 (3) SA 83 at 94. is a purely factual question”. The objective consideration is a question of law and its application does 4 1914 AD 382 at 390. not offend the “spirit, purport and objects of the Bills of Rights.” 5 1986 1 SA 117 (A). 10 1945 AD 733- at 741. 6 1945 AD 733 at 774. 11 Op cit note 1 at 371. 7 Mogamat v Centre Guards CC 2004 (1) All SA 221 (C). August 2012 65 LLiittiiggaattiioonn Justice

SELWYN COHEN

and post-traumatic stress and with his is a sad story of a very poor woman who her low intellectual functioning she committed a serious crime but was fortunate could think of no solution other T than ending her own life and those enough to appear before a remarkably sympa - thetic judge. of her children. She was deeply depressed and, according to the experts, would be likely to try and take her life again. Their recom - Saziso pleaded guilty to murdering her two young children and entered mendation was that, as they found into a plea agreement. It is not known whether she was represented at the no violent tendencies in her char - trial. Acting Judge Guido Penzhorn was asked to ratify the terms of the acter, she needed treatment for her agreement. despair rather than imprisonment. The sentence was for 15 years imprisonment. However, Judge Acting Judge Penzhorn accepted Penzhorn requested a probation officer's report and invited a Durban sen - that it was unlikely she would, in the ior advocate experienced in criminal matters to become involved pro overcrowded prison system, get the Cohen amico . He engaged the services of an expert psychologist experienced in treatment she needed; the case did the field of suicide and " extended suicide " which is a situation where a per - not call out for retribution. She had acted out of love for her children for son kills himself or herself after having killed someone else " out of love ." whom she could not provide adequate care and for whom she saw no future. Twenty-six year old Saziso was a single mother living on a farm in a While emphasising that her crime was serious, the judge said that it rural area. She was not formally employed but occasionally did some work had to be seen in the context of the facts. The killing was not planned for which she earned very little. Her father left the family when she was and there were substantial and compelling reasons justifying lesser sen - very young and her mother died several years before from HIV-Aids com - tence: plications. This left her solely responsible for the wellbeing of herself, her the particular circumstances leading up to the killing of the deceased children and her grandmother. as described in evidence; Towards the end of June 2009, during school holidays, she arranged to the accused's diminished responsibility in that she was in a depressed go with her children, aged 8 and 3 to visit the children’s father at his and emotional state; house in Umlazi. the fact that she did what she did out of love for her children; and However, when they arrived he assaulted her in front of the children she was a first offender and not prone to violence. and said he did not want her there. The court accepted that this was a common pattern of their relationship. He was persuaded by an uncle to The judge said: " On the facts before me and in particular once it is accepted let them stay the night. The next day he threw them out with R120 for that the Accused, in the emotional state that she was, did what she did in the travel expenses, saying he never wanted to see them at his house again. genuinely held belief that this was the best for her children, there would be no The money was insufficient to get them back to the farm and after some purpose in my view in sending her to prison. This is not a case "which is cla - distance they spent the day sheltering under a bush. A journalist writing mant for retribution". The Accused is not a danger to society and it is also not on the matter commented, " it’s a powerful image: two terrified children and necessary for that reason to remove her from the community. This is also a very their beaten up mother huddled together in a strange place with nowhere to go." unusual situation which is highly unlikely to recur. For this reason the element of The children asked their mother why their father had beaten her and deterrence hardly plays a role." the older child said it would be better if they all died. They prayed and The judge refused to confirm the sentence agreed by her with the pros - tried to comfort one another and eventually when it grew dark the chil - ecution and imposed the following: dren fell asleep and Saziso swallowed a cocktail of tablets she had with Counts 1 and 2 are taken together for purposes of sentence and the Accused her. It is unknown what they were nor why she had them. In her state of is sentenced to ten (10) years imprisonment wholly suspended for five (5) depression and helplessness she then strangled the children while they years on condition that the Accused is not convicted of a crime involving an were asleep and lay down next to them to die. assault and in respect of which she is sentenced to an unsuspended term of However, when she awoke up the next morning she went straight to a imprisonment without the option of a fine. police station to report what she had done. In terms of Section 276(l)(h) of Act 51 of 1977 the Accused is sentenced to cor - Expert evidence showed she suffered from battered woman syndrome rectional supervision for a period of three (3) years on the following conditions: 66 August 2012 LLiittiiggaattiioonn

The Accused is placed under house arrest for the full duration of the cor - The Accused shall refrain from the use/abuse of alcohol and/or drugs rectional supervision of three (3) years as from 14 December 2010. The (other than for medical purposes) for the duration of this sentence. Commissioner of Correctional Services ("the Commissioner") is autho - The Accused shall notify the Commissioner forthwith in writing of any rised to reduce this period by not more than twenty five (25) percent and change of residential or work address. to reintroduce such period. The Accused shall report to the Correctional Office at Durban High The Accused is ordered to perform free community service for a period of Court on 14 December 2010 at 2pm. sixteen (16) hours for each month of the sentence. The Accused shall comply with any reasonable instructions given by the The Commissioner is authorised to reduce this period by not more than Commissioner for the compliance with this sentence. twenty five (25) percent and to reintroduce such period. The Accused may not leave the magisterial district in which she resides The Accused is ordered to submit herself for an assessment and attend without the permission of the Commissioner. the specific programmes aimed at improving her identified problem areas The Commissioner is authorised to determine aspects of the place, the which may seem necessary during the serving of the sentence, and which times and the duration of the conditions set out above. shall be determined by the Commissioner. This was a case of a court administering justice compassionately. This The Accused is ordered to consult with any State psychiatrist as directed judgement should not be regarded as a licence for “battered women” (or by the Commissioner who would be able to provide psycho-pharmacologi - anyone else) to commit murder and get away free or with only a minor cal intervention for the Accused's depression, and any other identified sentence. N condition that requires to be treated. The Accused is ordered to consult with a clinical psychologist as directed by the Cohen is a consultant to Eversheds Commissioner with a view to receiving individual psycho-therapeutic interven - tion of an intensive nature for any period recommended by that psychologist. The judgement is unreported; copies available from [email protected] Look before you leap

PIERRE NAUDÉ

She alleged that the second defendant acquiesced to her completing ersons and organisations involved in holding po- an application form pertaining to skydiving instruction while knowing tentially dangerous events and activities such as that at the time she was a minor. It was also alleged that inasmuch as she P did not have the necessary permission or authority from her parent or skydiving, and which may involve minors, should guardian, her training and subsequent jump should not have been permit - take heed of a recent decision of the [.] Court in E de ted by the club and its instructor. She did not allege that her training or Kock (plaintiff) v Witbank Skydiving Club (first defendant) the jump itself was conducted in a negligent manner. and K Elliot (second defendant.) The court was obliged to In a special plea filed on behalf of the first and second defendants, examine the consequences of a skydiving jump that went they relied on an “ indemnification and consent ” form with which the plain - wrong and where the injured person was a minor. Briefly tiff had familiarised herself. The form incorporates terminology to the the facts were: effect that the plaintiff acknowledged that parachuting is potentially haz - ardous and that by participating she put herself at risk of injury and indeed death. The form also incorporated an indemnity in favour of the On the May 17 2008 the plaintiff completed her first static line skydiving two defendants. jump at the Witbank Skydiving Club. On landing, she was injured. She In their plea to the merits, the first and second defendants pleaded sued the first defendant under whose auspices she underwent the skydiving that the plaintiff had represented to them that she had the consent of her training and her instructor, who was responsible for her de facto instruction guardian to participate in the first jump giving rise to the injury. They and who also accompanied her on her first jump, as second defendant. also relied on the signed indemnification and consent form. In the alter - The plaintiff’s claim was couched in delictual terms. She alleged that native, the defendants pleaded that the plaintiff was fully aware of the at the time of the incident she was a minor. The plaintiff alleged that at risks and dangers of participating in sky jumping activities and that she all times there rested an onus on the defendants to take steps to ensure voluntarily consented to the associated risks (volenti non fit injuria). that a minor, such as herself, would not participate in skydiving jumps The consent / indemnity form received the court’s scrutiny. The evi - without having obtained the necessary permission and training. dence revealed that it was a printed form consisting of two parts; the first August 2012 67 LLiittiggaattiioonn

provided for the furnishing of personal details as well as the signing of the the first defendant’s manifest officer even deems it appropriate to complete a indemnity, the second provided a space for the furnishing of the consent form ex post facto for the sole purpose of complying with the first defendant’s of a minor’s parent or guardian. It also incorporated a declaration con - requirements that forms must be completed, confirms this.” firming an acknowledgement that parachuting and skydiving is a poten - The court continued: tially hazardous activity and, by participating, persons put themselves at “He made no effort to ascertain any verification of the identity of Jackie risk. It further indemnified the first defendant against claims. Rossouw or even of her own age. He made no enquiries from Jackie In respect of the first part of the form, the plaintiff inserted her details Rossouw as to her version of her relationship to the plaintiff. His explana - (that is first name, surname, etc.) and signed the indemnity. The second tion as to what a “guardian” could be, falls far short, not only of any proper part was completed by a person court awarded or other form of guardianship, but even short of whether unrelated to the plaintiff (one Jackie Rossouw was in any manner “in control” of the plaintiff or acting in Jackie Rossouw) who, however, did the stead of her parents. He blandly relied on the explanation given by the not complete the portion indicating plaintiff (by then a known minor) as to whether Rossouw was her guardian her relationship to the plaintiff, nor or could in fact qualify as such.” did she complete the portion in which she should have given her The court concluded that the first defendant was negligent of the duty as permission for the plaintiff to par - pleaded. ticipate in a first jump. The evi - An interesting question posed during the judgement was whether the dence led at the trial made it clear defendants could rely on the plaintiff’s misrepresentation applying the beyond doubt that Rossouw was not principles of estoppel (that is, whether the plaintiff could be legally pre - the guardian of the plaintiff and vented from relying on the lack of consent of her parent or guardian. was merely another student at the The court correctly pointed out: Witbank Skydiving Club. “This issue has attracted some debate in analogist circumstances where an The court was clearly impressed unassisted minor has fraudulently misrepresented his majority and contractu - Naudé with the evidence of the second al capacity.” defendant, the instructor. He had Having considered case law on the matter, the court expresses the follow - vast experience spanning 30 years as a parachutist / instructor starting ing view: with his career in 1977 in the British Parachute Regiment. Over many “In my view the answer lies in the following: whilst a doli capax minor (a years he trained thousands of students and received among others, the minor with full legal appreciation of his or her conduct) (my underlining) “chief instructor of the year” award from the Parachute Association of may be held liable for committing a delict, i.e. wrongful act where he is prej - South Africa in 2004. He had nothing to do with the completion of the udicing another party, those acts should be distinguished from acts where the form. He was merely briefed for the day as instructor as he had been age of majority should operate to protect those minors who may unilaterally many times before. More importantly, the plaintiff did not allege or plead think that they are doli capax enough to consent to the risk of injury to them - a claim against him based on the manner in which he completed the selves. I am further fortified in this view in that my reading of the whole instruction nor the jump itself. Based on the evidence before it, the court content and tenor of the Children’s Act and the subsequent case law regard - thus dismissed the claim against the second defendant and focused on the ing the best interests of children, all emphasize the need for the protection of case against the first defendant. “young persons”. This protection should also be in respect of their obliga - The court examined the position in regard to voluntary assumption of tions and liabilities against themselves or their own conduct, if not in general, risk with emphasis on minor children. It found that, both factually and then certainly in respect of the present case and the risk of injury inherent in objectively, the plaintiff had not obtained assistance or consent from her the activities presented by the first defendant. I therefore find that the parent or guardian. It was common cause that the person who signed the defence of estoppel cannot be relied on by the defendants.” indemnity after the plaintiff was not the plaintiff’s legal guardian and could not furnish the necessary assistance or authority. The court con - In a further attempt to avoid liability, it was argued on behalf of the cluded that it was necessary for assistance to have been given in the first first defendant that there was no factual / causal connection between the instance to enable the defendant to rely on the defence based on volun - injuries sustained by the plaintiff and the conduct of the first defendant. tary assumption of risk. It is convenient to quote from the judgement in this regard: It held that the defendant had a legal duty to ensure that the plaintiff “In the present instance one need not speculate whether the injury would received the appropriate consent and assistance from her parent or have ensued had there been proper consent for the mere participation in the guardian. It found that this requirement assumed the character of a legal potentially risky sport of skydiving and the potentiality of a novice minor duty in the first defendant’s sphere of operations and then asked: injuring herself is exactly what could have been prevented by insistence on “Has the first defendant breached this legal duty? It is clear from the evi - legally competent consent. There was no evidence of any attempt to get hold dence which I have extensively referred to above, that the first defendant, of the plaintiff’s mother or any other indication as to whether she would have although it requires consent to be given and an indemnification to be com - granted or refused her consent. As facts stood “on the day” the plaintiff pleted, did so for formality’s sake only and not substantively. The fact that would not have gone up in the aircraft and performed a student “first jump” 68 August 2012 LLiittiggaattiioonn

had it not been for the first defendant’s negligent breach of its duty. … I party contracting with a minor to ascertain whether she was duly assisted therefore find that the injury, manifesting exactly the risk foreseen by the first in concluding a contract. Had the first defendant made the enquiry it defendant, is causally sufficiently closely related to the defendant’s breach.” would have realised that it was dealing with a contracting party whose capacity to do so was legally imperfect. Had the enquiry been conducted, The plaintiff succeeded with her action against the first defendant, the plaintiff would not have participated in the skydiving exercise and having failed to establish a liability on the part of the second defendant. would not have been injured. N The judgement is an interesting example of the need to make enquiries regarding the legal status of a contracting party. Based on the facts in question, the court held that there was a need on the part of a Naudé is a director of Norton Rose SA

CCoonnssttiittuuttiioonnaall llaaww Unions must carry the can

JACQUES VAN WYK, MICHIEL HEYNS AND ANDRÉ VAN HEERDEN

In addition, it hired 500 marshals in an attempt to curb any violence, he recent Constitutional Court judgement in the intimidation or damage to property. Despite this, the protest resulted in significant damage to the property of a number of stakeholders within the matter of South African Transport and Allied City Bowl, the result of which was an application in the high court for T 1 Workers Union and another v Garvis and Others reparations. The applicants succeeded in their claim. SATAWU appealed answers a question many South Africans have been asking: to the Supreme Court of Appeal (SCA) and subsequently to the Consti- can a trade union be held liable for the damages and losses tutional Court. caused by its unruly members during a march or gathering In essence, the Constitutional Court had to consider the defence to on public land? The answer is a resounding "yes. the liability created within s11(1), which provides that in the event of any ‘ riot damage ’ being caused as a result of a gathering, any organisation under whose auspices the gathering occurred, or any convener of such gathering, will be jointly and severally liable as joint wrong doer with the The Constitutional Court had to consider the constitutional validity of s11(2) individuals who caused the damage. As such, an innocent party will have of the Regulation of Gatherings Act (205 of 1993) (as amended), which limits a right of recourse against the organiser for the damage caused without the defences available to an organiser or convener of a gathering in circum - having to institute a claim against the individual(s) directly responsible stances where they are liable under the Act and innocent bystanders seek to for the damage. s11(2) then provides a defence to a claim for damages as recover damages, caused as a result of such a gathering, from them. follows: The South African Transport and Allied Trade Workers’ Union “It shall be a defence to a claim against a person or organisation contemplat - (SATAWU) argued that if a trade union is held responsible for damages ed in subsection (1) if such a person or organization proves - caused by riot activity during a protest march it would unjustifiably (a) that he or it did not permit or connive at the act or omission which infringe upon a citizen’s right to picket, present petitions, demonstrate caused the damage in question; and and assemble, peacefully and unarmed as provided for by s17 of the (b) that the act or omission in question did not fall within the scope of the Constitution. It would have a ‘ chilling effect ’ on protest activity. objectives of the gathering or demonstration in question and was not This particular matter has a long history. It stems from litigation aris - reasonably foreseeable; and ing from a protest organised by SATAWU in the Cape Town City Bowl (c) that he or it took all reasonable steps within his or its power to prevent the in May 2006. This protest action was the ‘ culmination of a protracted strike act or omission in question: Provided that proof that he or it forbade an action ,’ which had turned violent. There was significant tension between act of the kind in question shall not by itself be regarded as sufficient proof the various constituencies of employees, representatives, business owners that he or it took all reasonable steps to prevent the act in question.” within the Security Industry, property owners and the City and SATAWU gave the necessary notice of the protest action and enlisted the assistance The Constitutional Court, per Mogoeng CJ for the majority, had to of the local authority. determine: August 2012 69 CCoonnssttiittuuttiioonnaall llaaww

whether the words “ and was not aware of the obligations, rights and duties incumbent upon them namely: reasonably foreseeable ” cause s11(1) only creates liability on the part of organisations under whose s11(2)(b) to be internally incon - auspices a gathering or demonstration was held; sistent and irrational, thus ren - the gathering or demonstration must be found to have degenerated dering the section constitution - into a riot. A “riot” is a defined term under section 1; and ally invalid; and if not, s11(2) provides for a defence subject to the three conditions listed whether s11(2) limits the right therein, the most notable being that the damage was not reasonably to freedom of assembly and, if so foreseeable and that all reasonable steps were taken to prevent dam - whether the limitation is justifi - ages 7. able in terms of s36 of the This decision has application to ‘strike action’ as defined in terms of the Constitution 2. Labour Relations Act (66 of 1995) (as amended) (the LRA). The LRA In holding that there was no governs damages caused by ‘gather - internal inconsistency within the ings’ or ‘demonstrations.’ In terms of provisions of the Act the s1 of the LRA the definitions of Van Wyk Constitutional Court held, inter alia : both ‘gatherings’ and ‘demonstra - “there is an inter-relationship tions’ are broad enough to encom - between the steps that are taken by an pass most forms of strike action. organiser on the one hand and what is In addition, the Constitutional reasonably foreseeable on the other… if Court acknowledged that the defi - the steps taken at the time of planning nition of ‘riot damage’ contained of the gathering are indeed reasonable within the Act is extremely wide 8. to prevent what was foreseeable, the However, one significant restriction taking of these preventive steps would is that, in order to attract liability render that act or omission that subse - under the Act, the action must quently caused riot damage reasonably take place upon a public road, or unforeseeable, both section 11(2)(b) any other public place or premises and 11(2)(c) would then have been Van Heerden wholly or partly open to the air. fulfilled” . The organiser will still have A key requirement to this is that recourse in the event of any damages being awarded against them. The “the steps that the organisers are Heyns Constitutional Court makes express reference to the applicability of the required to take must be within their Apportionment of Damages Act (34 of 1956) (as amended) in such a sce - power. Where steps need to be taken that are not within their power they must nario. To this extent the organiser will have a claim against any other ensure that those who have the duty to take steps are notified of the need to do individual(s) who participated in the offending behaviour and caused the so” 4. resultant damage. Nevertheless, this claim will only be useful in situations The majority then went on to find that, given the fact “compliance with where the other parties are ‘men of substance;’ not poor, underprivileged the requirements of section 11(2) significantly increases the costs of organising persons. In addition, in circumstances where the organiser is a union it is protest action” 5 and that the costs may impugn the ability of smaller organ - unlikely that it will pursue its own members for the recovery of damages. isations to hold marches, the provision accordingly limits s17 of the In conclusion, it seems the time of impunity for lawless conduct during Constitution. protest and strike action is over. The message sent by the Constitutional Nevertheless the court found further, having regard to s36 of the Court should be heeded by employees and trade unions before any strike Constitution, that such a limitation was reasonable. It found that the pur - action is conducted in a public space as any party (such as an innocent pose of the limitation contained within s11(2) of the Act is to protect the street vendor or employer of the striking or protesting employees) who other members of society, including “those who do not have the resources or suffers damages due to the riot activity of a union’s members may be able capability to identify and pursue the perpetrators of the riot damage for which to hold the union liable for such damages. N they seek compensation” 6. Arising out of this matter, it is imperative that all stakeholders Van Wyk is a director of, Heyns an associate and Van Heerden a involved in and affected by a protest action subject to this provision are candidate attorney with Werksmans

1 CCT 112/11 [2012] ZACC 13 5 Ibid at paragraph 57. 2 South African Transport and Allied Workers Union and another versus Garvis and Others CCT 112/11 6 Ibid at paragraph 67. [2012] ZACC 13 at paragraph 26. 7 As discussed above. 3 Ibid at paragraph 43. 8 Ibid at paragraph 56. 4 Ibid at paragraph 45. 70 August 2012 Appoiintments serviices courses August 2012 71 NNaattiioonnaall nneewwss

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Head of Renewable Contact: Energy. His main areas Shana Dozetos BA LLB Simon Shane M. Com (Attorney) (Industrial Psychology) of activity are the finance, mining, con- Tel: +27 11 327 1244 Charles Marais Ashleigh Graham E-mail: [email protected] struction and power www.ﬂuxmansconsulting.com sectors. Ashleigh Graham, a candidate attorney at Eversheds, received the P.O. Box 2187, Parklands, 2121 Johannesburg South Africa Johannesburg Society of Advocates prize at the annual Wits School of Law Prize Giving Ceremony on May 24 2012. This prize is awarded annually to Visit: www.legaljobs.co.za the most distinguished graduand in the degree of Bachelor of Laws.

H"/'%++'4"2/'M)>%+'X**"/$2#.?)-'' armel Rickard – My column on page 6 of the July edition of Cwithout prejudice suggested that former Judge President Vuka !"#$%&$'()"*+)',#-*./)0'$"'12/$3)/'4"2/'&%/))/'.1'4"2'%/)'%#'506.7)0'57"/#)4'%#0'3%8)' +%9':/6');*)/.)#&)<' Tshabalala, now retired, had died. This is not in fact so and I regret =3)'1"++"9.#>'*"-.?"#-'%#0'6"/)'%/)'%8%.+%@+)A'

the error. Contacted at home to explain the mistake, Judge Tshabalala !!"66)/&.%+'5--"&.%$)-'%#0'B)#."/'5--"&.%$)-A'' laughed and said not only was he not dead, he was still very busy with '''''CD5E'!"6*)??"#E'=%;E'F%#G.#>'D'H.#%#&)E'(/"I)&$'J)8)+"*6)#$'%#0'H.#%#&)E''''' '''''!"#-$/2&?"#'%#0'C.#.#>E',=E'C)0.%'D'=)+)&"662#.&%?"#-<' judicial work. He has a contract with the Department of Correctional Services to oversee a team involved in prison inspections to ensure ="'%++'B)&/)$%/.)-A' !K! )'3%8)'6%#4'*"--.@.+.?)-'1"/'4"2'.1'4"2'3%8)'L'"/'6"/)'4)%/-');*)/.)#&)'%-'%'M)>%+' that conditions comply with the Constitution: he co-ordinates official B)&/)$%/4<'

prison inspections and reports on the outcome of these visits to parlia - !"#$%!$& ment’s portfolio committee and other official bodies. N%+.6%'J%#.)+-' OPLQRSTRRL' The error is sincerely regretted. OUU'QUS'SPTP' 3%+.6%V*)"*+).#-*./)0<&"

Edward Nathan Sonnenbergs

ew appointments: Tax Department : Johannesburg: Susan Ho has been Nappointed tax manager. She specialises in corporate tax and VAT. Banking & Finance Department : Associates – Johannesburg: Owen Mokoena specialises in financial markets and cross border financing. Mzimkhulu Ceko specialises in debt capital markets and securitisations. Competition Department : Johannesburg: Candice Morgan has been appointed Susan Ho an associate. She specialises in statutory merger notifications, preparation of Owen Mokoena Mzimkhulu Ceko merger filings and acting in complaint proceedings, including cartel and abuse of dominance cases. Corporate & Commercial Department : Associates – Johannesburg: Stimela Mokoena specialises in mergers and acquisitions, corporate governance and commercial contracts, as well as regulatory matters. Luyanda Mbonambi spe - cialises in companies act law; shareholders agreements; sale of shares; loan facilities and lease agreements. Cape Town: Nadia Noor was appointed a senior associate. She specialises in M&A, BEE transactions, corporate re- organisations / restructures and advising on regulatory compliance issues per - Candice Morgan Stimela Mokoena Luyanda Mbonambi taining to M&A transactions and general corporate commercial law. Associates: Dave Luckett specialises in M&A law, including the drafting of sale of business, sale of shares, shareholders’ and other related general com - mercial agreements. George Langendorf specialises in company law and cor - porate governance. ENS partnered with the Constitutional Court Clerks Alumni Association (CCCAA) to champion a Programme to raise awareness about the South African Constitution –The CCCAA targeted Alexandra as one of the many communities that could benefit from a project of this nature. The Programme ran over a period of five months and covered a broad range of topics ‘It included Nadia Noor Dave Luckett George Langendorf both practical and theoretical training to empower leaders in the community to inspire change. It brings the constitu - tion to the people by allowing key role players to learn and understand their rights and duties. “ ...democracy is not about entitlement, it is about gov - ernment providing the context in which citizens can do for them - selves.,” said Kim Robinson CCCAA representative and one of the facilitators of the Constitutional Law and Human Rights Programme. At the end of the five months, 14 of the original 21 community leaders who were hand selected to participate, completed the rigorous course and were acknowledged at a Graduation Ceremony in Alexandra. ENS and CCCAA hope to continue with this pro - Graduation ceremony in Alexandra August 2012 73 LLiiffee ssttyyllee ggaaddggeettss The day Google took a bite out of the Apple

DEWALDT VAN WYK

more. This phone is lmost overnight, Google became a successful pro - the embodiment of ducer of high-end consumer electronics. Sure, smartphone excellence. A Packing a 1Ghz quad they have been producing one of the most suc - core processor and a cessful smartphone operating systems – Android, but robust and classy Android-based phones lacked that cleverly integrated feel - design, it puts the cur - ing that one experiences when working on Apple products; rent Galaxy SII to after all it does make perfect sense for the software vendor shame and does not to have a say in the hardware development process – an look bad at all when holistic approach ensures for an overall good product. Mike juxtaposed against an iPhone 4S – looking rather classy in its glossy peb - Isaac, writing for Wired Magazine, claims that " finally, ble design with metallic finish. The phone allows for up to 64GB of addi - Android has a soul ." I'd rather not summon the incorporeal, tional external storage via an expandable microSD slot and another 50GB of cloud storage (online) -- making sure you don't run out of stor - but I would go as far as to say that the Nexus range has a age space any time soon. certain je ne sais quoi . http://www.samsung.com/global/galaxys3/

Asus Google Nexus 7 Pad The Samsung Galaxy The Nexus 7 is probably the closest Google has come to unsettling Nexus the iPad's reign. It certainly isn't an iPad killer, but it is very nicely Google teamed up with priced at (around $200 to $250) – providing excellent value for Samsung to produce the money. Although not nearly as exciting as Apple's retina display, Galaxy Nexus, operated by the 7-inch has a beautiful Android 4 and Android 1280×800 IPS touch - 4.1. The phone has a bril - screen. The Nexus 7 pad liantly crisp Super features the latest AMOLED capacitive Android 4.1 Jelly Bean touchscreen, a 1 Ghz dual and is exceptionally core processor and responsive. The 32GB/64GB of storage device is also highly (depending on model) customisable, allow - with 1GB of RAM. But, if ing you to change you like to spend a little the look and feel of more and you are looking your home screen. for more power, look no further than the Galaxy SIII. It is everything the Voice search allows you to talk to Nexus is, everything the Galaxy SII would like to be and more. your pad to perform queries http://www.google.com/nexus/#/galaxy/specs rather than typing them. The device comes in 8GB and 16GB The Samsung Galaxy SIII versions and is probably the best Aesthetically, the Samsung Galaxy SIII is not dissimilar to the Galaxy Android tablet to date. Nexus, occupying nearly the same dimensions and weighing only 2g http://www.google.com/nexus/#/7 74 August 2012 LLiiffee ssttyyllee ggaaddggeettss

Google Nexus Q 2880×1800 pixels -- four times as The Nexus Q is advertised by many pixels as the previous Google as "the World's first social Macbook Pro and it has 75% less streaming media player" and con - glare. However, you'll only benefit nects to your TV and sound sys - from a 2560×1600 resolution due to tem. What exactly is a social a graphics card limitation – but that streaming media player? is still a beautiful configuration. It is According to Google: "Why powered by a 2.3GHz quad-core shouldn’t everyone at the party be Intel i7 processor and 8GB of RAM, able to add their own music, movies which you can upgrade to 16GB. and videos to the mix and choose what’s playing? All your guests need is an Android phone or tablet and a connection to your Wi-Fi network. Prefer your own taste in music? Just turn off guest mode in your Nexus Q settings and it’s all you." As long Did you know? as you are happy to play all your movies and music off the Google's Play store A set-top box (STB) or set-top or Google cloud service and happen to have an Android tablet or phone to unit (STU) is a device that Van Wyk control the device, this device might work you – but don't expect it to work connects to a television and an with your Windows phone or play MP3's off your home network, and don't external source of signal, even think of using it for Netflix or iTunes. A brilliant design stifled by a ter - turning the signal into content, Did you know? rible business model. At $300 you are better off buying a generic media player which is then displayed on the IPS (In-Plane Switching for R500 provided you can live without the Q’s superb audio quality. television screen or other technology) panels display http://www.google.com/nexus/#/q display device. consistent and accurate colour from all viewing angles while Apple TV other panels may only display The Apple TV is a much better proposition at $99, allowing you to partial true colour. Nor do IPS play live TV shows, movies, content from Netflix, all your iTunes panels lighten or show tailing content, YouTube, and a couple of American when touched, making them sports channels. But then again, who ideal for touchscreens. watches baseball or American football in South Africa? Nevertheless, a great gadget with a few minor irks that you can, Sadly, Apple unofficially, get to work in South have decided to Africa. do away with an http://www.apple.com/appletv/ optical drive, which means Set-top boxes will die you cannot play In the future, devices like the Nexus Q and Apple TV are likely to DVDs or Blu-Ray discs on the new become obsolete as TVs become more intelligent, taking over Macbook Pro. Cloud computing is the the function of set-top boxes. The latest Samsung TVs already future, according to Apple, but when last play music and videos off a network and can also surf the did it try to access full HD movies from Internet. South Africa? Furthermore, the device is not upgradeable or Macbook Pro with Retina Display easily repairable as lots of the components are glued to (15.4-inch version) the inside of the case. Oh, and this battery-hun - Have you ever noticed how your Windows gry monster will give you only seven hours of PC, for no apparent reason, after some time battery life – three hours less than the 2010 just becomes slow and trying to shut it down version. Unless you are a graphics connois - can take up to three minutes or longer? This is seur, keep your current Mac for now. not the case with Macbooks. My very own http://www.apple.com/macbook-pro/ Macbook Pro has been running trouble-free for features/ N over two years and it still shuts down in three seconds. If you like your current Macbook, you Van Wyk is an analyst programmer might be left in awe by the latest Macbook Pro at Pathcare (Dietrich, Voigt, Mia & with Retina Display. The retina display houses Partners) August 2012 75 LLiiffee ssttylle the view from down under Two answers for every problem

DAVID REES

Over time, a series of moderate changes can add up to a considerable programme. ew Zealand’s Prime Minister, Mr John Key, has In fact – as I am at pains to point out most days in Parliament – jobs are been visiting Australia. Mr Key leads the National only created when business owners have the confidence to invest their own N money to expand what they are doing or to start something new. Party, which commands 59 seats in the 121- Giving businesses that confidence is the most important thing the member House of Representatives. New Zealand’s parlia - Government can do to ensure people have jobs, and that those jobs are sustain - ment is unicameral, and the process for electing members able and well-paid. of parliament is complex, part constituency and part pro - Sometimes voters have been thoroughly surprised by the government they portional representation, almost guaranteed, it seems, to elected. produce minority governments. Those governments have never worked out very well. So one of the things my Government has tried very hard to do over the past three-and-a-half years is to be predictable, consistent and upfront with voters. All this adds weight to John Key’s views on political leadership. Political leaders in South Africa and Australia, take note. It sounds Like Australia’s Labor Party, the National Party holds office courtesy of simple enough – probably more difficult to execute in practice, though. a coalition of minority parties. There the similarity ends. The full address is available on the Internet. Lacking the benefit of a substantial mining industry, New Zealand did I’ll tell you something else: I think Mr Key actually wrote the speech it tough through the global financial crisis but the economic growth rate himself. That sets him in a class apart from most modern politicians who has been edging higher since early 2010 (assisted in late 2012 by a boost contract out their thinking to young staffers. from the Rugby World Cup) and the unemployment rate, currently 6.7%, Do you remember a scene in the BBC television series “Yes Minister” has been trending slowly down. when the Permanent Secretary, Sir Humphrey Appleby, consults his men - Mr Keys’ purpose in visiting Australia was to interest Australian busi - tor and predecessor, Arnold, about his new Minister’s worrisomely ambi - nesses in a move to New Zealand. So he held discussions with leading tious plans for the future? public company CEOs and business organisations. Arnold responds: In New Zealand, company and personal tax rates are lower than in ‘A Minister with two ideas – I can’t recall we ever had one of those.” Australia. Unlike Australia, in New Zealand successful business people do Mr Key evidently has several ideas. It seems he has thought about not live under permanent threat of a hostile media spray from Her Majesty’s leadership and how to implement change – not for the duration of the Ministers of the Crown in search of a hit on the evening news, and subse - current parliament but as a permanent shift of policy. quent scorn and ridicule from the publicly funded broadcasting authority. In the Menzies Centre audience to hear John Key’s address was While in Australia Mr Key took time out to deliver an address to the Opposition leader, Mr Tony Abbott. Rhodes Scholar, pre-dawn cyclist, Menzies Centre, a Liberal Party think-tank, in Melbourne. surfer, ex-journalist and author, Mr Abbott has much to learn from Mr An impressive performance, the speech is worth quoting in some Key. For a man who aspires to lead a detail. Federation, Abbott’s views on According to Mr Key: Federalism are curiously unstruc - You don’t start with a blank sheet of paper; you start with the tured; his lack of interest in eco - country as it is. nomics a matter of public And by making a series of sensible decisions, which build record. None of this would mat - on each other and which are signalled well in advance, and ter if Mr Abbott had a strong team around by taking most people with you as you go, you can him. effect real and durable change, which won’t simply Ungraciously, Mr Keys reminded his Australian be reversed by the next lot who come into audience that under his watch as New Zealand’s government. Prime Minister the relevant score-line is 9-2 in favour of 76 August 2012 LLiiffee ssttyyllee

the All Blacks. To continue the rugby analogy, the Liberal Party in First, decide what you believe in. Canberra has a three-quarter line with penetration, but their ageing for - Mr. Howard wrestled with, but never quite answered, that question. wards leave these mobile players starved of the ball. Mr Key, it seems, has more than two answers. N Another British flash-back. In the early 1990s Mrs Thatcher visited Australia at a time when the Liberal Party seemed to be condemned to Rees is without prejudice ’s regular Australian columnist. Am émigré South permanent irrelevance. She advised the Liberal Party leader, John African, he has lived in Australia sinc e1986. An economist of note, Rees Howard, and his colleagues: is fond of looking at his adopted country through unsentimental binoculars.

LLiiffee ssttyyllee mmoottoorriinngg So what’s the bottom line?

VAUGHN WILLIAMS

The economy was recently bolstered by a Reserve Bank announcement of he motor industry is desperately trying to recover an interest rate drop of 0,5%. This should encourage sales and stimulate from a massive global slump which has seen the the beleaguered Motor Industry, shouldn’t it? Well, it would if all the T other factors went away. Let’s have a look at what it costs to keep a few demise of big names, the shift in power base of popular cars on the road. others and the emergence of less expensive but quality challenged newbies. Entry Level Imagine, if you would, that you are a bright eyed youngster who has recently graduated from university and are about to start your first job. Your R12 000 salary sounds like a fortune and you can’t wait to indulge your every fantasy. After deductions like PAYE, Medical Aid, Pension etc, your actual cheque is only around R8 800 but it is way more than any of your mates because you are a top earner and in the top 10% of your age bracket. You grab a newspaper and start looking for a car. A real car, not the old hand-me-down that your Dad has passed down to all and sundry over the years. Something sporty and snazzy, which will show that you are suc - cessful and earning the big bucks. A quick chat with Dad and a few uncles will tell you that fuel for a 30km round trip per day (national average) for five days, a few nightly excursions and at least one weekend trip somewhere fun, will set you back about one tank of fuel a week. That’s not bad, you say? But do the math. At over R10.61 per litre this will set you back approximately R600 per week which is roughly R2 600.00 per month. Ouch! Being under 25 is a huge asset on the squash court but in insurance terms, not so good. An entry level car in the region of R200 000 will set you back over R1 400 Add that to your fuel bill, it’s nearly R4 000, and you haven’t even bought a car yet. Have no fear, your Dad has a good name at the bank and will get you a great deal. What would you like? Well, a Golf GTI will cost R7 000 per month. Hmmm, might be too sporty. A Golf 1,6 TDI is only R5 600 (did I say only?). Ok, let’s go down a notch the cheapest new Golf (a 1,6 AUDI A8 4,2 TDI R23 535 Trendline) is a hefty R4 760. Added to the fuel and insurance costs, well MERCEDES E 350 R14 087 you had better not use any toll roads, have a girlfriend or need to eat or MERCEDES S 500 R29 150 drink because, simply put, you can’t afford to. Remember that the car instalment may not exceed 20% of your This isn’t just Volkswagen’s fault either, A Toyota Corolla 1,3 has HP income after deductions, so who is buying these cars (other than govern - pricing of R 4 000, a Yaris 1,3 is R 4 000 (and ugly) even the Hyundai ment officials)? Getz 1,4 is just under R4 000, so much for sporty and snazzy. What chance do our kids have? Finally, just for fun, let’s browse some exotics and their monthly HP payments; BENTLEY MULSANNE R120 662 ( yep, per month ) Luxury Cars MERCEDES S 600L GUARD R135 839 Taking a scroll through the prices and HP amounts of luxury cars is really AUDI R8 V10 SPYDER R45 519 an eye opener. We all know that by the time you are driving a luxury car LAMBORGHINI AVENTADOR R119 613 you are fairly well established and can afford a massive deposit. Can you? In a nutshell, for the average instalment of an Audi R8 plus insurance Well, if you can’t, have a look at these monthly instalments; and fuel you could purchase an awful looking Geely LC 1,3 every quarter. BMW 535i R15 941 The industry has gone completely mad! N BMW 740i R20 032 AUDI A6 3,0 FSI R13 745 Williams is without prejudice ’s motoring correspondent 78 August 2012 Lifee ssttyyllee wwiinnee aftertaste Three glasses and he’s sold

EBEN VAN WYK

Jan boland Coetzee – Vriesenhof Pinot he Cape Winemakers Guild, an association of Noir 2010 some of South Africa's finest winemakers, repre - This Pinot Noir is rather full bodied with strong T notes of sour cherry and a palate with earthy senting the pinnacle of South African wine achievement, celebrates its 30th anniversary this year. characteristics such as mushrooms and spice. This is a complex wine that needs a great meal Guild members have played a significant role in the to do it justice. development of the South African wine industry – from wine making techniques and innovation to its protégé Kevin Arnold – Waterford Kevin Arnold programme. Shiraz 2007 This is a fine example of a fruity (although not fruit bomb like) Shiraz made by one of South The Cape Winemakers Guild Protégé Programme, a first for the South Africa's best wine makers. This Shiraz (with African wine industry, was launched in 2006 with the goal of bringing 10% Mourvèdre) has an initial inky aroma, com - about transformation in the wine industry by giving viticulture and plimented by spice and earthy characteristics and oenology graduates the opportunity to work alongside Guild members. a smooth mouth-feel. One of my fellow, less To date eight protégés, including Howard Booysen – producer of one sophisticated, wine tasters (drinkers) picked up of the best local Rieslings I've ever tasted, have participated in the hints of bacon but this could have been the bil - programme. tong he was eating while tasting. Five of the founding members, Kevin Arnold (Waterford), Jan Boland Coetzee (Vriesenhof), Etienne le Riche (le Riche), Peter Finlayson Peter Finlayson - bouchard Finlayson (Bouchard Finlayson) and Braam van Velden (Overgaauw) remain active Missionvale Chardonnay 2010 members of the Guild. The wines made by these great winemakers are some This is an amazing Chardonnay, probably one of South Africa's best. It is a of the best the country has to offer. perfect blend of vanilla and lime; is soft and creamy and complex and deli - cate. I tasted three glasses of this wine as an appreciation of its greatness.

Jan boland Coetzee – Vriesenhof Chardonnay Peter Finlayson - bouchard 2011 Finlayson Galpin Peak Pinot This wine has a fresh, tropi - Noir 2010 cal fruit aroma that develops The Galpin Peak Pinot Noir is into a butterscotch nose as it unequivocal proof that the warms in the glass (not that Hemel & Aarde valley near there is any reason to waste Hermanus is South Africa's top time by letting this wine winemaking area for Pinot Noir. warm up in the glass, it This is a big wine, everything should be drunk). The green and more than one would apple with hints of honey expect in a bottle of top class taste of the wine is compli - Pinot Noir. The berry aroma of mented by a prominent the wine is complemented by a minerality that makes this silky smooth velvet palate equal wine a pleasure to drink. only to the best things in life. August 2012 79 Life stylle wine

braam van Velden – Overgaauw Tria Corda 2009 Van Wyk is a director of Cliffe Dekker Hofmeyr . He finds wine more inter - The Tria Corda is a Bordeaux style blend of Cabernet Sauvignon, Merlot esting than law. and Cabernet Franc with aromas of graphite, leather and capsicum followed by a soft, well balanced Yes, he does – and I now know why he writes these columns – he palate. This wine is consum - wants to be an honorary member of the Winemakers’ Guild. Think able with the utmost of ease. what that will do for his consumption! – Publisher

Etienne le Riche - Le Riche Cabernet Experience exceptional wines with a creative edge and Sauvignon Reserve great diversity of styles at the Nedbank Cape 2009 Winemakers Guild Auction showcase in Cape Town on Etienne le Riche is one of South Africa's best Cabernet Thursday 23 August Sauvignon producers. This is a fresh, fruity, well balanced (at the CTICC) and Johannesburg on Thursday 30 Cabernet with hints of cassis and black berry and a slight August (at the Atrium, Nedbank) when members of the minty character. It is remark - Guild present the wines that will go under the hammer ably soft and one of the few at this year's Nedbank Cape Winemakers Guild Auction. Cabernets that can be enjoyed without the need to find any food to compliment Bookings via www.webtickets.co.za it. N 80 August 2012

DDeeaall aaccttiivviittyy IN ASSOCIATION WITH Debtcon

MICHAEL AVERY

ith the sale of both its debtors’ books to Absa for R10bn in June, This leaves Edcon about R4,5bn short and either more money will have to Edcon has played one of its last remaining cards (if you’ll excuse be found from somewhere or new terms will have to be negotiated with some Wthe pun) in the hope to finally conquer its debt bogey. bondholders to restructure the remaining portion. It’s a company that has attracted significant attention since its delisting and And what about the other two bonds, coming due in 2015 and 2018 respec - sale to US-based private equity company Bain Capital for R25bn, a record for - tively? Money will have to be found. eign direct investment into Southern Africa at the time. It is still the largest If the clever lads at Bain can’t find any, just to compound matters even fur - ever private equity buyout of a South African company. ther, there’s a question over who is first in line if it gets to the renegotiation However, some harsh critics have implied that this is where the bouquets end stage. It’s reasonable to conclude that the 2018 bondholders, being the most for the landmark deal. For, timed as it was, just moments before the great finan - recent bondholders, would have negotiated terms commensurate with the risk cial crisis of 2008, it was always going to be difficult to show a positive return. of being the “bailout” funders so to speak. If they do manage to refinance, it will And in hindsight, raising debt on foreign boards did prove a costly decision. be on extremely onerous terms for Edcon. Speaking to Nedcor Securities retail analyst Syd Vianello, what emerges is a Maybe a listing would be a viable solution, as the market has rumoured? picture of a company that is confronted by some staggeringly complex challenges. Vianello points out that if Edcon were to list now it would be on an The private equity buyout in 2007 was largely financed via bonds listed in extremely unfavourable price earnings multiple. The company hasn’t outper - Europe (on the Irish exchange to be precise) because such capital raising was formed its peers as a private entity (something PE managers are proud to trum - mouth-wateringly attractive at the time. It formed part of what Bain termed a pet as the most important elements of taking a company private) and will “patient” capital structure from a private equity perspective. Patient, meaning return R100 for every R100 invested by Bain, a net loss factoring in inflation. that Edcon could service the interest on the borrowings over time and repay the And then there’s the management curiosity. The CEO, a Canadian with principal at a later stage in bullet form. experience in drug retailing, Jürgen Schreiber, has been in the job for a year. As the market crashed, however, Edcon’s balance sheet started to groan And two key members of the executive have been replaced in mysterious cir - under the increasing weight of the unhedged portion of its debt pile, due in no cumstances in the past six months. First to go was Hugues Witvoet, the chief small measure to the rand’s slide against the Euro. executive of Edgars Department Stores, followed closely by Stephen Binnie who Over the last five years, Edcon has undergone a complex string of refinanc - resigned as the Group’s Chief Financial Officer. ing, hedging, derivatives and securitisation of its accounts receivable (called Mark Bower, an Edcon employee for 21 years, has taken over as ‘Deputy OntheCards Investments or OtC) programmes in order to meet its obligations Chief Executive and Chief Financial Officer’, while Schreiber will manage to its short-term noteholders, and to gain access to working capital to further Edgars and Edcon. grow the business. Meanwhile, Norton Rose director and adviser to Absa, Loris Rech, said the The net result of this is that at the end of March 2012 its total net debt, deal required the full extent of the firm’s expertise to structure due to the com - including cash and derivatives (excluding OtC Receivables-Backed Notes), was plexity of the contrasting business models. sitting at a staggering R22,5bn. This consists of the carrying value of Floating “The negotiation and drafting of the transaction agreements required a high level Rate Notes of R16,3bn; the carrying value of Fixed Rate Notes of R5bn; bor - of corporate and commercial legal expertise across various areas of law,” explains rowings under the revolving credit facility of R751m; finance lease liability of Rech, “including the National Credit Act, labour, intellectual property, tax, securiti - R329m; net derivatives of R388m; less cash and cash equivalents of R265m. In zation, bond structures, Financial Intelligence Centre Act, insurance and service addition, OtC’s net debt of R3,5bn consisted of Receivables-Backed Notes agreements. The transaction required the structuring of a complex legal framework issued of R4,3bn, less cash and cash equivalents of R818m. in order to ensure that the respective parties' at times divergent business models Much of the funds raised in the deal with Absa will assist Edcon in repaying remained intact whilst being mindful of the practical and commercial exigencies nec - a portion of the debt it incurred from the Bain buyout. essary for the success of the long term strategic relationship on which the parties have Vianello reckons of the R10bn that was raised, R3,5bn will go towards set - embarked.” tling the obligations to its noteholders under the OtC programme, which leaves A small flicker of light for Edcon arrived in July with the announcement Edcon with roughly R6,5bn. R1bn of this will be used to refurbish stores, which that retail sales data is suggesting an increasingly confident mood among con - have been neglected for a few years. The remaining capital will be held as secu - sumers. Retailers registered good growth at 6,4% year-on-year in May, beating rity for the upcoming bond repayment in 2014, R11,2bn of Senior Secured economists’ expectations of a 5,2% rise. But, on balance, Edcon’s hand is loaded Floating Rate Notes (net of derivatives). with more jokers than bondholders would care to stomach. N Mergers & Acquisitions and General Corporate Finance * Legal Advisers Estimated Announcement Parties Deal Description Firm(s) Lawyer(s) Deal Value Date

Absa Bank Absa announced that Absa Bank, a wholly-owned subsidiary of Absa Group, has entered into Norton Rose Kevin Cron R10bn June 06, 2012 an agreement with Edcon to acquire the accounts and receivables relating to the private label Loris Rech store cards of Edcon in South Africa (the "Card Portfolio"). Absa Bank and Edcon have further Riccardo Petersen Zano Nduli agreed to enter into a long-term, strategic relationship under which Absa Bank will provide Joe Mothibi retail credit to Edcon customers and Edcon will be responsible for all customer facing activities. Patrick Bracher Absa Bank will acquire the Card Portfolio for a cash consideration equal to the net book value Dale Cridlin of the Card Portfolio receivables at the effective date of the acquisition. Absa Bank and Edcon Marelise van der Westhuizen expect the purchase price of the Card Portfolio to be approximately R10bn. The transaction is Pierre Swart Mike Hart expected to close during the second half of 2012. In terms of the Program, Absa Bank will Ismail Laher have responsibility for credit, management of fraud, risk, finance, legal and compliance opera - Brian Wimpey tions of the store card business, while Edcon will retain all customer-facing activities, including Milton Osborn sales and marketing, customer services and collections. This should ensure a simple and seam - Stephen Kennedy-Good less customer experience. Edcon and Absa will balance continued growth of the credit book George Kahle with appropriate credit quality. Alan Bainbridge Akshay Dosaj

Edcon Werksmans Keviin Trudgeon Paul Coetzer Ahmore Burger-Smidt Stephan Lochner Jannie de Villiers Jabulile Ndweni

Richtrau (Mvelaphanda) The independent board of directors of Avusa has received communication of a firm intention to Webber Wentzel Peter Bradshaw R2,35bn June 12, 2012 make an offer from Mvela Group, through its wholly-owned subsidiary Richtrau, to acquire the Christo Els entire issued and to be issued ordinary share capital of Avusa that it doesn’t already own. If Avusa minorities Werksmans Gerhard Johannes implemented, the offer will result in. Richtrau is acting as principal in relation to the offer and is not acting in concert with any other party. Avusa, Richtrau and Mvela Group entered into an implementation agreement on 11 June 2012 in relation to the offer, which contains the provi - sions relating to the implementation of the offer and certain undertakings from Avusa. Richtrau proposes that the Avusa Board implement the Offer with its shareholders other than Richtrau by way of a scheme of arrangement in terms of section 114 of the Companies Act, of 2008 as amended and by way of a comparable offer by Richtrau to holders of options to acquire Avusa shares in terms of the Avusa Share Appreciation Scheme, the Avusa Long Term Incentive Scheme, the Avusa Deferred Bonus Plan and to the holders of the options rolled-over from the ElementOne share scheme. Mvela Group intends, upon implementation of the Scheme, to list Richtrau on the JSE and to thereafter unbundle all its shares in Richtrau to its shareholders.

FNB Namibia (FirstRand) FNB Namibia and Metropolitan Life Namibia Limited, a subsidiary of MMI Holdings, have entered Webber Wentzel Johannes Gouws R350m June 21, 2012 into a binding sale of shares agreement in terms of which FNB Namibia will dispose of its 51% Johan Henning Metropolitan Life Namibia shareholding in Momentum Life Assurance Namibia Limited, to Metropolitan Life Namibia. The pur - Nkonzo Hlatswayo (MMI) Anne Bennet chase price payable by Metropolitan Life Namibia to FNB Namibia in terms of the Agreement is Brian Dennehy N$371 003 319 of which N$28 600 000 will remain outstanding as a vendor loan, which will Hendre Human be settled out of certain specifically determined proceeds of the banc- assurance business conducted by Momentum Life Namibia. The purchase price will be funded through Metropolitan International, a wholly-owned subsidiary of MMI Holdings, subscribing for 8 073 818 shares in Metropolitan Life Namibia for a total subscription consideration of N$350 000 000.

Investec Property Fund Investec Property Fund has entered into an agreement to acquire the Nonquebela Mall Link Fluxmans Michael Bloom R100,5m June 21, 2012 property in Khayelitsha, Western Cape, from Bakoro Capital Partners for R100,5m. The Purchase Consideration will be debt funded. The Proposed Transaction is consistent with the Fund’s objective to build a quality portfolio of properties with strong contractual cash flows to enhance its retail component in order to achieve value enhancement and sustainable distribu - tions to unitholders.

Basil Read Basil Read announced that it has concluded a subscription agreement dated 27 June 2012 with Werksmans E l li o tt W o o d R 521,1m June 28, 2012 SIOC CDT Investments Holdings (SIOC). SIOC is the investment vehicle for the Sishen Iron Ore Company Community Development Trust. In terms of the Subscription Agreement, SIOC will sub - Ramsay Webber scribe for 7 883 243 ordinary shares and 33 607 507 "A" Ordinary Shares in Basil Read. The Sishen Iron Ore Company Transaction will result in SIOC holding an effective 25,1% in Basil Read on the effective date. The Schindlers Andre Pienaar Community Development Trust total value of the BBBEE Transaction is R521,1m, of which R99,3m will be paid by SIOC in cash Keane Robertson Investments and R421,8m will be in the form of vendor funding by way of a notional loan. Post the implemen - tation of the BBBEE Transaction, it is expected that Basil Read will have approximately 36% BBBEE equity ownership (11% of which is not subject to any lock-in provisions), as determined in accor - dance with the Department of Trade and Industry's BBBEE Codes of Good Practice.

* This is a random selection and is not intended to be comprehensive ENS WPAfricaAug2011 8/17/11 8:34 AM Page 1

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