BD Law & Tax Review

Business Law & Tax Review

Full steam ahead for SA’s rail legal architecture

Eleven new operators are laying the tracks for ‘the creation of a functional and competitive rail marketplace’

By DEBORAH CARMICHAEL, PETA MYBURGH & LIZA VERMAAS ENS

In May 2026, the Transnet Rail Infrastructure Manager (TRIM) announced that it had successfully concluded Rail Access Agreements (RAAs) with all 11 Train Operating Companies (TOCs) that were allocated slots, transitioning from negotiation to binding commitment.

What was once only a policy blueprint is now a functioning framework, and the legal architecture underpinning South Africa’s reformed rail system is rapidly taking shape.

The conclusion of the RAAs with all 11 TOCs represents the critical transition from regulatory approval to contractual obligation. TRIM s CEO Moshe Motlohi characterised the milestone as signalling “the creation of a functional and competitive rail marketplace”, noting that the sector has moved from policy design to practical implementation, enabling real private sector participation and investment in rail

The new operators (ARC South Africa, The Railway Corporation, TLD Marine, MENAR, Sharp Logistics, Barberry, Grindrod, Minrail, IRACEMA, Motheo Logistics and Interlinks) cover vital sectors including coal, manganese, containers, fuel and general freight. These agreements increase the number of active operators on the national rail network from one to 12, spanning five strategic corridors.

Collectively, these new entrants are projected to add some 24-million tonnes of annual freight capacity in the near term, a figure that could increase to as much as 52-million tonnes within the next five years, advancing the government s broader ambition of increasing total rail freight to 250-million tonnes by 2030.

While the RAAs provide the contractual backbone, the broader legislative framework required to sustain a competitive, multi-operator rail sector is still being assembled. Several concurrent legal and regulatory workstreams are converging to create the institutional architecture necessary to govern this new market.

The National Rail Bill

The National Rail Bill, which is being finalised for submission to the cabinet by September 2026, is the centrepiece of the legislative reform agenda.

The bill aims to create an enabling legislative framework for a competitive rail sector. Until the bill is enacted, the sector operates within the existing National Rail Policy, supplemented by the contractual arrangements concluded between TRIM and the TOCs. The passage of the bill will be pivotal in converting policy positions into statutory obligations and providing the legal certainty that operators, funders and investors require to invest in rolling stock with greater confidence.

The National Rail Master Plan

The cabinet approved the publication of the National Rail Master Plan (NRMP) for public comment on April 1 2026. Building on the foundations laid by the White Paper on National Rail Policy, the NRMP sets out a long-term vision

for overhauling and expanding the country’s rail infrastructure. Its stated objective is to foster an affordable and competitive rail system that actively draws in private sector investment and participation.

Stakeholders had until June 22 2026 to submit comments on the NRMP, which presented a valuable window to influence the regulatory and policy direction of the sector going forward.

The Transport Economic Regulator

The Transport Economic Regulator (TER) entered its initial operations on April 1 2026, with the

Collectively, these new operators are projected to add some 24-million tonnes of annual freight capacity in the near term

board tasked to oversee and establish the institution’s governance framework, capacity needs and design of regulatory frameworks needed to fulfil its mandate. The board is also tasked to oversee the transition of existing regulators into TER. The TER is expected to be fully operational from the beginning of the 2027/28 financial year.

Minister Barbara Creecy confirmed in her

budget vote speech that the TER is being established so that going forward port and rail fees are independently determined to ensure a level playing field for all operators By removing tariff-setting from the infrastructure manager’s hands and placing it with an independent body, the TER is better positioned to guard against discriminatory pricing and ensure that all operators compete on a level footing.

For TOCs and their funders, this institutional safeguard is a reassuring development, offering the kind of regulatory stability, transparency and formal avenues of recourse that are critical to building investor confidence and securing the long-term capital commitments the sector so urgently needs.

Network Statement Version 4

Following the Interim Rail Economic Regulatory Capacity s review of the current Network Statement, TRIM is now at an advanced stage of finalising Network Statement Version 4, the key regulatory document governing access to the rail network, including capacity allocation, tariffs and operational requirements. Notably, Version 4 has been shaped by feedback from both operators and financial institutions, a collaborative approach that has enhanced the bankability of rail projects and signals TRIM s recognition that the access terms must be robust enough to support the financing structures that TOCs will need.

Institutional restructuring: TRIM as a subsidiary

A key structural reform underpinning the entire access framework is the separation of rail infrastructure management from rail operations within Transnet. During the quarter ended March 2026, Transnet submitted its Public Finance Management Act pre-notification application for the establishment of TRIM as a subsidiary. The success of the multi-operator model depends in large measure on whether the infrastructure manager can credibly demonstrate independence from incumbent operators, a principle that is well established in comparable rail reforms internationally.

Bankability and investor confidence

President Cyril Ramaphosa, speaking at the South32 Hillside Aluminium Anniversary on May 7, affirmed that “South Africa is transitioning to the early stages of a multi-operator rail system, with 11 private train operating companies having been granted access to freight rail lines and noted that investment, reform and delivery are now firmly under way in rail and port infrastructure” Concrete investment commitments are also materialising. South32 pledged R3.9bn at the South Africa Investment Conference to upgrade rail infrastructure in KwaZulu-Natal and the Northern Cape. Meanwhile, the Durban Container Terminal Pier 2 Concession has reached financial close, establishing what Creecy described as “a bankable model for future public-private sector participation Government is also backing the reform drive with significant public capital. Some R16.8bn has already been approved and is being deployed through the Budget Facility for Infrastructure across the coal and iron ore rail lines and port infrastructure, while applications for an additional R23.6bn are currently being prepared.

The legal architecture for South Africa’s multioperator rail system is taking shape in real time.

The conclusion of RAAs with all 11 TOCs, the operationalisation of the TER, the imminent bill and the corporatisation of TRIM as a subsidiary together represent the construction of a comprehensive legal ecosystem for South Africa’s rail sector. A number of TOCs aim to have trains running before the close of 2026, with the balance expected to come online progressively through 2027.

The coming months will test whether the contractual frameworks, statutory instruments and institutional arrangements now taking shape can deliver the certainty, enforceability and fairness that operators, funders and the broader economy demand. For stakeholders in this space, the reform train is moving full steam ahead, and the stakes have never been higher.

Government is also backing the reform drive with significant public capital. Some R16.8bn has already been approved

GAAR after Absa v Sars: a broader approach to ‘party’ and ‘tax benefit’

To test whether a tax benefit arises, it is necessary that a transaction is ‘stripped of its avoidance features’

By ENS TAX TEAM

Several important questions were addressed by the Constitutional Court in Absa Bank Ltd and Another v C:Sars. In this article, we explore the concepts of party and tax benefit.

In terms of section 80L, the definition of “party” includes any person who participates or takes part in an arrangement. The definition of arrangement means any transaction, operation, scheme, agreement or understanding ... including all steps therein, or parts thereof

The court held that the question whether a taxpayer is a party to an arrangement requires a broad construction and a purposive interpretation. This is underscored by the deliberate duplication of the synonyms participates and takes part

The concept of a “party” should thus not be limited to those with full knowledge of all of the various steps to the arrangement as this would frustrate the purpose of the GAAR. The court held that the enquiry is objective, ie whether the taxpayer s conduct forms part of the chain of transactions constituting the arrangement.

The court held that Absa did receive a tax benefit. However, it held that section 80B(1) empowers Sars to determine the tax consequences for any party . This is not limited to the party which obtains the tax benefit. Therefore, even if a party did not receive a tax benefit, the provisions of section 80B(1) would nevertheless apply to it.

In making this determination the court rejected the argument that the presumption in section 80G indicates that it is only the party obtaining the tax benefit to which liability could be attached and held that the role the presumption in section 80G plays must be properly understood. That section addresses the evidentiary burden, not the scope of liability. The “party obtaining a tax benefit” merely identifies who bears the onus of rebuttal.

To test whether a tax benefit arises, it is necessary that a transaction is stripped of its avoidance features . The court held that the correct test to determine if a tax benefit arose requires assessing whether, but for the tax avoidance features and dressing up of the relevant transaction, a tax liability would have occurred. The test is therefore no longer an analysis of whether, but for the transaction, the relevant taxpayer would have incurred a tax liability

The court held that, stripped of the arrangement’s anti-avoidance features, the tax benefit accrued to Absa and United Towers. In particular, the court held that Absa received an enhanced yield in respect of its preference share investment.

In this regard, a tax avoidance feature of the arrangement was the swap of the taxable income paid by MSSA to the foreign trust for the tax-free interest income arising in respect of the Brazilian government bonds, which was vested and distributed by the foreign trust to PSIC 4. Absent the swap, PSIC 4 would have been taxed on the interest received by the foreign trust from MSSA, which would then have been invested in it. A further avoidance feature may have included the “conduit” nature of the arrangement.

The court held that once the swap and associated conduit steps are removed, the

economic substance of Absa’s investment is no longer that of a genuine preference share yielding exempt dividends but of a tax-neutral, yieldprotected funding instrument producing a return functionally indistinguishable from interest . The court therefore held that if one strips away the avoidance feature (ie the swap and, potentially, the conduit nature of the arrangements), this converts what Absa received into interest and then Absa did obtain a tax benefit.

Conclusion

Arrangement

In applying the GAAR provisions, it is necessary to determine firstly whether there is an arrangement as defined in section 80L of the Act. As set out above, this definition refers to any transaction, operation, scheme, agreement or understanding including all steps therein or parts thereof.

Avoidance arrangement

For an arrangement to constitute an “avoidance arrangement” it is necessary that the arrangement results in a tax benefit

To determine whether a tax benefit arises, it is necessary to ask whether, but for the tax avoidance features and dressing up of the transaction, a tax liability would have occurred. In this regard, a tax avoidance feature constitutes

the artificial or contrived elements of the arrangement that serve no genuine commercial purposes beyond securing tax-exempt treatment.

In respect of the facts under consideration, the court held that such artificial features constituted both the swap and the conduit nature of the arrangement.

The court held that the correct test to determine if a tax benefit arose requires assessing whether, but for the tax avoidance features and dressing up of the relevant transaction, a tax liability would have occurred

On the basis that there is a tax avoidance feature, there is then a tax benefit and an avoidance arrangement

Impermissible avoidance arrangement

The next question is whether such avoidance

arrangement constitutes an impermissible avoidance arrangement” ie whether the avoidance arrangement’s sole or main purpose was to obtain a tax benefit and the abnormality provisions are met.

In determining the sole or main purpose test (ie whether the avoidance arrangement constitutes an impermissible avoidance arrangement) it is necessary to consider, on an objective basis, the purpose of the entire arrangement as well as all of the relevant steps in the arrangement. The objective enquiry in relation to purpose as enunciated by the court will, however, necessarily involve an analysis of the subjective intention of the relevant parties reasonably considered in light of the relevant facts and circumstances.

Party to a transaction

For the purposes of section 80B and section 80G of the act, it is then necessary to determine whether a taxpayer is a party to an arrangement. As set out in paragraph 118 of the minority judgement, the “party issue” is relevant in the context of section 80B(1). In terms of this provision, the commissioner s powers to determine the tax consequences of an impermissible avoidance arrangement are confined to the tax consequences “for any party” It is therefore necessary to determine whether a taxpayer is a “party” to an impermissible avoidance arrangement.

This is also dealt with in paragraph 23 of the majority judgement where the court refers to the fact that Sars invokes section 80G of the act in submitting that the scheme is presumed to have been entered into or carried out for the sole main purpose of obtaining a tax benefit.

Sars contended that Absa was a party to the arrangement for purposes of section 80G of the act.

In this regard, it is an objective test as to whether a party s conduct forms part of the chain of transactions constituting the arrangement. It is therefore necessary to determine the entire arrangement, including all parts thereof and any entity which forms part of such “arrangement” will constitute a party in relation to such arrangement, regardless of their knowledge in respect of all aspects of the arrangement and also whether or not they participated in the entire arrangement or merely one part thereof.

The provisions of section 80B of the act allow the commissioner to determine the tax consequences of an impermissible avoidance arrangement by, for example, disregarding, combining or re-characterising any step in or part of the impermissible avoidance arrangement.

The court held that the commissioner may apply this provision to any party regardless of whether such a party obtained a tax benefit

This is on the basis that, once there is an “impermissible avoidance arrangement” the commissioner is empowered to utilise the provisions of section 80B and may do so in respect of any party

The court held that in terms of section 80B(1), Sars is empowered to determine the tax consequences for “any party”. This is not restricted to a party which obtains a tax benefit.

Why SA needs a stronger turnaround culture

South Africa s business rescue regime is entering a defining period. The latest data presented by the Turnaround Management Association Southern Africa (TMA-SA) paints a stark picture of growing corporate distress.

A record 48 companies entered business rescue in February 2026 alone, the highest monthly figure since the introduction of Chapter 6 of the Companies Act. More than 1,400 companies are currently in rescue proceedings, and filings are expected to continue rising as businesses contend with subdued economic growth, elevated interest rates, persistent cost pressures and an increasingly uncertain global environment.

Yet the rising number of business rescue filings should not necessarily be viewed as a sign of failure. If anything, it highlights the growing importance of restructuring as an economic preservation tool.

The challenge is South Africa still lacks a mature business rescue culture.

Too often, business rescue is viewed as a last desperate act before liquidation rather than what it was intended to be: a strategic intervention designed to preserve viable businesses, protect employment, maximise creditor returns and retain economic value.

The data tells an important story.

According to research presented by TMA-SA, about two-thirds of companies entering business rescue achieve a positive outcome, while up to

87% of economic value can be preserved through successful restructuring efforts. These are outcomes that compare favourably with liquidation, where value destruction is often rapid and irreversible.

The problem is not that business rescue does not work. The problem is that companies frequently enter rescue too late.

One of the strongest themes emerging from both practitioners and recent court decisions is that directors often delay confronting financial distress. Warning signs are ignored, difficult decisions are postponed and rescue is considered only after creditors, lenders and suppliers have exhausted their patience.

By that stage, practitioners are frequently attempting to rescue businesses that have already suffered significant operational, financial and reputational deterioration.

Recent court judgments have reinforced this reality. South African courts are increasingly supportive of genuine restructuring efforts while simultaneously becoming less tolerant of attempts to use business rescue as a mechanism to delay inevitable liquidation.

The courts have repeatedly emphasised that business rescue is not a litigation tactic or a shield against creditors. It must be supported by realistic prospects of rehabilitation and a credible path to recovery.

At the same time, the judiciary has

EVAN PICKWORTH EDITOR LAW & TAX REVIEW

Business rescue must be supported by realistic prospects of

rehabilitation and a credible path to recovery

provided greater certainty around the powers and responsibilities of business rescue practitioners. Recent decisions have confirmed that practitioners should not be judged with the benefit of hindsight when reasonable commercial decisions fail to deliver the desired outcome. Rescue inherently involves risk. What matters is whether practitioners act transparently, competently and in good faith.

These developments are important because confidence is the currency of any restructuring system.

Confidence, however, remains one of the sector s greatest challenges. The

business rescue ecosystem continues to face a trust deficit. Lengthy proceedings, disputes over fees, highprofile failures and inconsistent outcomes have created scepticism among creditors, shareholders and even some directors.

At the same time, concerns persist around practitioner capability and experience.

The reality is that business rescue is one of the most complex disciplines in the corporate environment. It requires a combination of legal expertise, financial restructuring capability, operational turnaround skills, stakeholder management and strategic leadership. Not every distressed company can be saved, but every company deserves a restructuring process led by appropriately skilled professionals.

This points to a broader issue that South Africa must confront: whether the current framework remains fit for purpose in a changing economy.

The Chapter 6 framework introduced in 2011 was a significant advancement and remains fundamentally sound. However, there is growing recognition that refinement is required.

A one-size-fits-all approach no longer adequately serves the vastly different realities of state-owned enterprises, large listed corporates, medium-sized businesses and small enterprises. Likewise, South Africa risks losing its leadership position in restructuring if legislative reform and

institutional development fail to keep pace with developments elsewhere on the continent and internationally.

The establishment of specialised insolvency courts represents a positive step forward. Further judicial training, legislative refinement and greater alignment between practitioners, regulators, lenders and investors could significantly strengthen outcomes.

Ultimately, however, legislation alone will not solve the problem. South Africa needs a cultural shift.

Business rescue should not begin when a business is on life support. It should begin when management first recognises that intervention is needed.

Directors must become more comfortable seeking assistance early. Lenders and investors must view restructuring as value preservation rather than value destruction.

Stakeholders must understand that preserving a viable business often delivers far greater economic and social benefits than liquidation.

As corporate distress rises, the conversation must move beyond whether business rescue works. The evidence increasingly suggests it does.

The real question is whether South Africa can build a restructuring culture that embraces business rescue proactively, deploys it earlier and uses it more effectively to protect businesses, jobs, creditors and longterm economic value.

That may prove to be one of the most important economic challenges of the decade.

ICC unveils new 2026 Arbitration Rules

By JONATHAN BARNES, SAMANTHA MASON & ZANDILE GANDO Bowmans

The International Chamber of Commerce (ICC) has announced the release of its updated Arbitration Rules, which came into effect on June 1 2026 (2026 Rules). According to the ICC, these changes align with its continued focus on greater efficiency, transparency and procedural flexibility.

Anticipated changes relate to arbitrator disclosure, streamlining of the procedural timetable, expedited arbitration and emergency relief mechanisms, and the introduction of new Highly Expedited Arbitration Provisions.

Arbitrator disclosure: earlier and more structured conflict vetting, greater transparency, party participation

The 2026 Rules will reinforce arbitrator independence and impartiality by refining disclosure obligations. While the core disclosure standard remains unchanged (arbitrators must disclose any circumstances that may give rise to doubts as to their independence or impartiality), two important clarifications are now embedded in the 2026 Rules; when in doubt, disclose and disclosure does not equal conflict.

Parties must participate in the disclosure exercise by proactively submitting a list of relevant individuals and entities (with reasons) early in proceedings to assist arbitrators in considering potential conflicts. This procedure is aimed at complementing the potential arbitrator s assessment in terms of Article 12(2).

Removal of mandatory terms of reference: shift towards case management as a central procedural milestone

One of the most significant procedural shifts under the 2026 Rules is the removal of mandatory terms of reference (ToR). While ToR have historically played an important role in structuring arbitration proceedings, successive revisions to the rules had already streamlined their use and reduced their prescriptive nature. ToR are no longer compulsory but remain available at the tribunal s discretion under the 2026 Rules. Under this new regime, the case management conference becomes a central procedural milestone for structuring proceedings and ensuring efficiency.

Under the 2026 Rules, the President of the ICC Court now sets and may extend the deadline for the final award, based on the procedural timetable or a reasoned request, replacing the previous sixmonth default and improving predictability by aligning timelines with the greater procedural schedule.

Expedited and emergency arbitration: improved access, enhanced tools and greater flexibility

The 2026 Rules refine and expand both expedited arbitration and emergency relief mechanisms.

The threshold for the automatic application of the expedited procedure provisions has increased to $4m (for claims brought under arbitration agreements concluded from June 1 2026). The increased threshold broadens eligibility, reflecting rising dispute values and growing confidence in streamlined ICC procedures.

Under the 2026 Rules, and in line with the realities of international trade, emergency relief may now, through the discretion of the President of the ICC Court, extend to non-signatories to an arbitration agreement where there is a prima facie basis that they may be bound by the arbitration agreement.

For the first time, preliminary orders (including ex parte orders) have been expressly acknowledged. Requests may be made and decided on an ex parte basis when required to prevent actions such as dissipation of assets or destruction of evidence.

Highly expedited arbitration: new ultra-fast opt-in provision, final award handed down within three months

A major innovation in the 2026 Rules is the introduction of the Highly Expedited Arbitration Provisions (HEAP), which are opt-in provisions designed for parties seeking a final award within three months. This is likely to be a suitable option for parties in lower-complexity disputes with simple factual matrices and where there are distinct issues requiring rapid determination.

Core features

● Opt-in only (no value threshold).

● Sole arbitrator and to be appointed within 20 days.

● Initial CMC should take place within seven days of the arbitral tribunal s appointment.

● Final award within three months of initial CMC.

● Mandatory front-loading of submissions.

● Same cost scale as expedited procedure provisions, where parties benefit from lower tribunal fees.

● Option for awards without reasons (subject to enforceability considerations).

The 2026 Rules mark a clear commitment by the ICC towards ensuring transparency and accountability, efficiency and speed, and flexibility and party engagement in arbitration.

AI risk is a governance failure, not a technology problem

It is a cross-functional control system that must sit at executive and board level

By JOHAN PRETORIUS PKF SA

South Africa’s uncertainty over AI policy should not be misread as a delay in addressing risk.

If anything, it exposes an uncomfortable truth: AI risk is already embedded in business operations, and most organisations are not governing it.

The market conversation remains dominated by what AI can do, how quickly it scales and where it unlocks efficiency. Far less attention is paid to whether organisations have the governance structures to control it, or how costly it is to wait.

AI failures are rarely technical. They stem from failures of oversight, accountability and decision-making.

This is not a future risk to be managed later. It is a present one, already active across operations, customer engagement, finance and executive decision systems.

The cost of inaction is escalating.

According to Gartner, by 2030 fragmented AI regulation will extend to 75% of the world s economies, driving $1bn in total compliance spend.

South Africa’s policy gap: a false comfort

Regulatory uncertainty should not breed complacency. Formal policy may be delayed or evolving, but global standards are tightening, multinationals are importing governance expectations and customers are becoming more

aware. Litigation and reputational consequences will not wait for formal policy. In this environment, self-governance is the first line of defence.

The exposure hidden in plain sight

In many South African organisations, AI tools are already embedded in workflows, often informally and without central visibility. Data inputs are fragmented or unverified. Accountability for AI-driven decisions is unclear. Sensitive data leakage and flawed AI outputs are not adequately assessed. Boards are not receiving structured reporting on AI risk exposure. The result is a widening gap between AI adoption and AI control. The missing governance layer

AI governance is not an IT function. It is a cross-functional control system that must sit at executive and board level. A credible framework must address who is accountable for AI systems, what decisions AI may influence or make independently, which tools are approved for use and which are prohibited, how sensitive data is protected, how models are validated and challenged, and when independent verification is required. Without this, organisations are effectively deploying uncontrolled decision engines.

Data integrity: the hidden risk multiplier AI risk is fundamentally a data problem before it is a model problem. Poor data integrity produces biased outputs, faulty decisions at scale, regulatory exposure and a loss of auditability. Most organisations overestimate the quality of their data environments. Boards should be asking: is the data feeding AI systems accurate, complete and current? Can outputs be traced back to their source? Can the organisation defend or reproduce the decisions AI made? Is sensitive client data protected from unintended leakage? If the data is flawed, the intelligence is flawed but at a speed and scale that amplifies the damage significantly.

Ethical risk: the silent reputation threat AI introduces a category of risk that is difficult to detect until it is too late: ethical failure at scale. This includes embedded bias in credit, hiring or pricing decisions; lack of transparency in automated outcomes; misuse of customer data; and results that conflict with stated ESG or governance commitments. In a market such as South Africa, where inequality, fairness and access are highly sensitive, unmanaged AI ethics can quickly become a public and political issue. Organisations must be able to reproduce, explain and comfortably

defend every consequential decision AI produces.

Board accountability: the critical shift AI risk is now a board-level responsibility. Boards cannot delegate AI oversight entirely to technology teams. The implications reach into financial reporting integrity, customer conduct risk, regulatory compliance and strategic decision-making.

Practical priorities include integrating AI risk into enterprise risk frameworks, establishing oversight mandates within existing audit and risk committees, requiring regular reporting on AI deployment and incidents, and ensuring independent auditability of AI systems and outputs. It is also worth noting that the new King V Code, effective January 1 2026, requires the assessment of emerging technology risks, making structured AI oversight increasingly relevant from a compliance and legal perspective.

The question is no longer whether a company uses AI. It is whether the board understands and governs it.

AI will not fail because the technology is flawed. It will fail where organisations deploy it without governance, without control and without accountability. The companies that will lead are not those that adopt AI fastest but those that govern it best. Terms of

Foreign workers, quotas and fines

Controversial Employment Services Amendment Bill is heading to parliament

By JONATHAN GOLDBERG & JOHN BOTHA Global Business Solutions

The Employment Services Amendment Bill, 2026 rewrites the rules on hiring foreign nationals, imposes sector quotas and threatens repeatoffending employers with fines of up to R1m or 10% of annual turnover. Here is what every South African employer needs to know.

On May 29 2026, employment and labour minister Nomakhosazana Meth gave notice in Government Gazette No 54759 of her intention to introduce the Employment Services Amendment Bill, 2026 (the bill) in the National Assembly. This follows a protracted legislative journey.

The seven amendments that matter most

1. A new chapter on foreign nationals (Chapter 3A)

The most significant change is the insertion of a completely new Chapter 3A, which replaces the existing sections 8 and 9 of the act. Under the new framework:

● No employer may hire a foreign national unless that person holds a valid visa or permit under the Immigration Act or Refugees Act or is authorised to work by another statute or binding international agreement.

● Employers must prepare a skills transfer plan for any position in which a foreign national is employed, unless the minister, acting on the advice of the Employment Services Board and by notice in the Gazette, determines that this is not practicable for a specified category of employers or a category of employees or workers.

● Employers must retain copies of all relevant visas and permits.

● Foreign nationals retain the right to enforce all labour claims.

Practical implication

Employers who currently hire foreign nationals without the correct documentation and protocols in place face significant compliance exposure.

2. Sector quotas a power the minister has never had before

Section 12B grants the minister the ability to publish a notice in the Gazette setting a maximum quota for the employment of foreign nationals in any sector. Key features are:

● Quotas can be applied nationally, regionally, by sector or by occupational category or any combination thereof.

● Small employers (fewer than 10 employees, operating a single business not formed by division of an existing one) are excluded from quotas.

● Before issuing a quota notice, a draft must be published for at least 30 days of public comment, and the board must advise the minister.

3. Dramatically escalated fines

The bill replaces the current maximum fine of R50,000 with a tiered system of penalties that increase significantly for repeat offenders (see right). This was one of the most debated issues during discussions at Nedlac, with business arguing that the highest fines could be severe enough to force some businesses to close.

Practical implication

For a medium-sized employer with a R50m annual turnover, a third-strike contravention could attract a fine of R5m. Courts must, however, consider the economic benefit derived from noncompliance when determining an appropriate fine.

4. Refugees and asylum seekers treated as South Africans A significant and underappreciated definitional shift is the amendment of the definition of “foreign national” to exclude refugees and asylum seekers. This means people who have applied for, or been granted, refugee status under the Refugees Act will have the same employment status as South African citizens and permanent residents for purposes of the act.

5. Expanded scope; workers, not just employees

The bill introduces a new definition of “worker”— any person who works for another and receives payment, whether in money or in kind and extends the act s protections to workers, not merely employees in the formal sense.

Penalties

Offence: General contraventions (Schedule 3) first offence Maximum fine: R100,000

Offence: General contraventions (Schedule 3) repeat within three years Maximum fine: R200,000

Offence: General contraventions (Schedule 3) two or more prior offences Maximum fine: Greater of R1m or 10% of annual turnover

Offence: Contravention of s12A (foreign national employment rules) Maximum fine: Same tiered structure as above

Offence: Exceeding quota (s12B) without exemption Maximum fine: Same tiered structure as above

Offence: Requiring a foreign national to perform unauthorised work (s12E) Maximum fine: Same tiered structure as above

6. Formal exemption mechanism

Employers (or employers organisations acting on their behalf) who are above a quota, or expect to be above it in future, may apply for an exemption under the new section 49A. They must provide a written motivation and supporting documents. If the exemption is granted, it will set out how long it applies and the maximum proportion of foreign nationals that may be employed. The exemption

may be cancelled if the employer breaks the law or does not meet the exemption conditions.

7. Restructured supported employment enterprises

Supported Employment Enterprises (SEE), which help create job opportunities for people with disabilities, will no longer be classified as a national government component. Instead, it will become part of the department. If approved by National Treasury, SEE may be allowed to operate as a trading entity.

Will the bill help or hinder business and investment?

The answer depends on your perspective. Some aspects of the bill could support business and investment, while others may create additional challenges.

The employer view

From a labour advisory perspective, the bill reflects a government trying to address unemployment while assuring investors that South Africa remains open for business. The result is a mix of sensible reforms such as refugee parity, stronger enforcement powers and the restructuring of Supported Employment Enterprises alongside measures that could create challenges if implemented without sufficient consultation.

The proposed quota system is likely to attract the most attention from business. The bill gives the minister broad powers to determine which sectors will be affected, the quotas that will apply, and how these will be implemented.

What employers should do now

Employers should begin preparing for the proposed changes by reviewing their workforce composition, particularly the number, roles and permit status of foreign nationals. Recruitment processes should be updated to ensure efforts to source local talent are properly documented, while employment records should reflect the new classification of refugees and asylum seekers.

King V signals a decisive shift and raises governance bar

By NONHLANHLA SITHOLE PKF Octagon

King V should not be seen as a compliance burden but as an opportunity to strengthen investor confidence, enhance capital allocation discipline and build long-term resilience and trust.

There are four fundamental governance outcomes set out in the code. With trust and stewardship in the spotlight, affecting both reputations and bottom lines, these outcomes are critical for boards and companies to adopt with care. The four outcomes are interconnected and collectively support organisational sustainability and stakeholder trust. They are:

● Ethical culture

● Good performance

● Effective control

● Legitimacy

Ethical culture is an organisational culture anchored in ethical values, good conduct and respect for human rights.

Good performance means achieving strategic objectives and creating sustainable value for stakeholders.

Effective control comprises systems and processes that ensure compliance, manage risk and uphold accountability.

Meanwhile, legitimacy is organisational accountability and responsiveness to stakeholders and to broader society.

How are they interconnected? An ethical culture would support good performance by fostering trust and commitment. Effective control systems would enable ethical behaviour and performance monitoring. Legitimacy is built by demonstrating all three preceding outcomes to stakeholders.

Application in practice Boards should regularly assess organisational performance against each outcome, using both quantitative metrics and qualitative assessments. The King V Report emphasises that achieving these outcomes requires ongoing commitment, resource allocation and continuous improvement rather than one-off compliance exercises.

It is important to note that King V also requires governance disclosure to be integrated into the organisation’s broader reporting framework, particularly the integrated report prepared in accordance with the International Integrated Reporting Framework. The disclosure must demonstrate how governance supports value creation across all capitals.

Organisations must provide context-specific

disclosures that reflect their unique circumstances, industry dynamics and stakeholder expectations. Generic disclosures do not meet King V’s requirements. The framework ensures stakeholders receive relevant, reliable information to assess governance effectiveness and organisational sustainability.

Disclosure should be material, balanced and provide sufficient context for informed decisionmaking. It should address both achievements and areas for improvement, demonstrating a commitment to continuous governance enhancement and transparent reporting practices.

King V signals a decisive shift in corporate governance, from form to substance, and raises the bar by demonstrating how governance drives measurable outcomes. Early adoption is encouraged, and, as mentioned above, the impact will be sharper scrutiny of how boards demonstrate effectiveness.

Most organisations should, for example, already be doing these now: Governance gap assessment

● Compare current King IV framework vs King V

● Identify disclosure weaknesses

● Assess committee mandates

● Review board charters Board education

IN YOUR COURT

Directors need training on:

● AI governance

● Sustainability oversight

● Cyber governance

● Disclosure expectations

● Stakeholder governance Disclosure redesign

Annual reports and integrated reports will need:

● Clearer governance narratives

● Exception reporting

● Outcome-based disclosures

● Evidence-linked governance reporting Technology governance review

● AI policies

● Cyber governance frameworks

● Data governance controls

● Digital ethics oversight

Sustainability integration

● Embed sustainability into strategy

● Board-level ESG oversight and accountability, supported by Social and Ethics Committee

● Climate risk governance

● Measurable sustainability KPIs The organisations likely to perform best under King V will be those that integrate governance across strategy, operations, technology, sustainability and culture, rather than treating it as a compliance function.

Nema: the cumulative impact blind spot

Arecent Supreme Court of Appeal case set out, at some length, a number of important principles dealing with the interpretation of National Environmental Management Act 107 of 1998 (Nema), in particular, and its closely associated legislation, namely the Constitution and Promotion of Administrative Justice Act 3 of 2000 (Paja).

This article has been broken up into three parts so as to encompass its length in an appropriate format. Parts A and B have already been published in previous editions.

Dambuza JA referred to section 24(2)(a) of Nema and highlighted that an environmental authorisation is principally required in respect of a listed activity, rather than a development. Notwithstanding, she pointed out that in terms of Sections 24(1), 24(2)(a) and the EIA Regulations, if other components of a proposed development also include listed activities, the Environmental Authorisation Application must include all listed activities forming part of the overall development proposal. In short, the assessment must consider the potential impacts of all the activities, including cumulative impacts

Cumulative impacts is defined under the EIA Regulations as including

the past, current and reasonably foreseeable future impacts of an activity, considered together with the impacts of associated and similar activities.

Dambuza JA held that this means that:

When assessing the impact of a listed activity, the competent authority must also consider how the environmental impacts of the listed activity under consideration, when combined with impacts of other similar activities, could become significant. That must be so, particularly where such other similar or associated activities relate to the same development. Appendix 3 of the EIA Regulations also requires an evaluation of how the impacts of a proposed project, when added to similar existing and foreseeable developments, can lead to significant environmental changes that would not be apparent from the consideration of the project in isolation.

The court held that the minister had failed to consider the cumulative effect of the extraction and transportation of the gas to the proposed power plant, and that, accordingly, the argument by South Durban in this regard must be upheld.

Need and desirability

Dambuza JA referred to the comprehensive Guideline on Need and

The judge was of the view that the circumstances of the case required an exceptional approach

Desirability issued by the minister in 2017 and quoted the following extract:

“It is essential that the national policies and strategies support the growth of the economy. It is also essential that these policies take cognisance of strategic concerns such as climate change and food security, as well as sustainability in supply of natural resources and the status of our ecosystem services.

South Durban argued that the minister had failed to take into account the allocation of 3,000MW electricity

generation capacity to independent power producers. It contended that this allocation was a relevant factor in the determination of need and desirability relevant to the proposed power plant and had been ignored by both the chief director and the minister. Once again, Dambuza JA found favour in this argument.

The remedy Dambuza JA then moved to the question of what order should be made by the SCA. She referred to the remedies allowed in proceedings for judicial review as set out in section 8(1) of Paja. Specifically, she referred to the right in the preamble to the section, namely that a court may grant any order that is just and equitable. She then referred to the further right to, inter alia, set aside administrative action and to remit the matter for reconsideration by the administrator, or, in exceptional cases, substitute or vary the administrative action. In the ordinary course, the court held that once it had determined that the decision of the chief director and the minister should be reviewed and set aside, it should be remitted back to the chief director for reconsideration.

However, Dambuza JA was of the view that the circumstances of the case before her required an exceptional approach, as allowed in terms of

section 8(1)(c)(ii) of Paja. Reference was made to the Constitutional Court judgment of Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Limited and Another [2015] ZACC 22. In particular, two factors mentioned in that case were relevant, namely (1) that the conclusion that the minister must reach on reconsideration of the appeal is a foregone conclusion: the chief director did not consider the principles and factors laid down in Nema. Remitting the matter to the minister will therefore be futile”; and (2): “this court is in as good a position as the minister to make the decision because the appeal enquiry is an evaluation of whether there has been compliance with the law or statutory provisions” Dambuza JA held that exceptional circumstances in this case permit of substitution of the minister s decision. Regarding the decision of the minister, Dambuza JA substituted the minister’s decision for an order that the appeal against the decision of the chief director is upheld and the decision to issue the environmental authorisation is set aside. Dambuza JA pointed out that this order shall necessitate a fresh application by Eskom should it wish to pursue its proposed development. -Peter Blanckenberg is a Director at Blanckenberg & Associates Inc.

Misuse of AI in legal proceedings: a word of caution from the courts

By RIDWAAN BODA, NDINAE RAMAVHOYA & AOBAKWE MOTEBE ENS

Artificial intelligence (AI) is rapidly reshaping legal practice. Lawyers are increasingly using AI tools for drafting, research assistance, document review, summarisation and litigation preparation.

As adoption grows, South African courts appear to be consistently confronting the issue where legal counsel is relying on AI without any human oversight and are routinely confronting the risks associated with the technology, particularly where AI-generated content is used without proper verification or human oversight.

With the advent of AI, courts have increasingly found themselves chastising practitioners for the negligent use of AI tools in legal proceedings. In Roux v Van Greunen and Others, the court was approached multiple times on an urgent basis by a practitioner who admitted to relying on AI as an aid while preparing his legal submissions. Notably, his submissions were littered with fabricated authorities, incorrect citations and legally incoherent arguments generated by AI.

The court did not take issue with the use of AI itself. In fact, the judgment expressly acknowledged that AI can be a useful tool when used responsibly. The primary issue was Roux s reliance on material that the court found to be legally unsound and, in some instances, entirely fictitious.

Roux s submissions contained irrelevant material, ineffective legal analysis and arguments based on principles not established in South African law. In support of his case, Roux relied on Matshoba and Another v Acting Master of the High Court, Johannesburg and Others as authority for bringing the application. In this matter, the citation of the case relied on, belonged to an entirely different case, and the alleged reported judgment did not exist. It quickly became clear to the court that this was a case of AI hallucinations.

Roux attempted to explain the discrepancy by suggesting a possible clerical error in the court s electronic registry. However, this explanation was rightfully rejected by the court. In addition, the court emphasised the need for practitioners to exercise caution and to verify any legal advice and sources, especially where AI is used.

The risks of AI hallucination

An AI hallucination occurs where an AI system generates false or inaccurate information presented in a convincing manner. In legal practice, this may include:

● Fabricated cases;

● Incorrect citations;

● Invented quotations;

● Mischaracterised precedent; or ● Legally incoherent principles.

AI is a tool, not a substitute for legal reasoning

A common mistake in discussions about AI is treating the technology as though it can replace professional legal reasoning. Large language models are predictive systems they generate responses based on statistical patterns in data, not independent legal analysis or factual verification. While they are capable of producing sophisticated and persuasive outputs, they can also produce confident inaccuracies. This is precisely why human oversight remains critical.

The recent judgments by South African courts reinforce the responsibility that legal practitioners have for legal submissions, regardless of whether AI was used in preparing material as such AI cannot be blamed for a practitioner’s failure to verify authorities or validate submissions. In many

Practitioners and legal teams who understand AI’s strengths and limitations are likely to gain significant advantages

respects, this is simply an extension of existing professional obligations. Practitioners have always been expected to confirm the accuracy of authorities, ensure procedural compliance and exercise independent legal judgment. AI does not remove those duties. If anything, it increases the need for them.

Recently, a US Massachusetts court refused to admit a Morgan & Morgan attorney to a Harvardrelated lawsuit after the attorney had previously been sanctioned for filing motions containing AI-generated, fabricated case citations. In the earlier matter, eight of the cited authorities did not exist and were produced by the firm’s internal AI system.

The court found that the prior incident raised serious concerns about the practitioner s compliance with basic professional obligations, particularly the duty to verify authorities before signing and filing pleadings. This case should serve as clear indication that AI misuse can affect a legal practitioner s reputation over time.

AI legal privilege

Practitioners who use AI in their legal work remain bound by the rules of legal professional privilege. Using AI without a client s knowledge may, in certain circumstances, constitute a breach of that privilege. Where AI is used as an aid in preparing or reviewing legal documents, it must be employed responsibly, as its use may compromise client confidentiality and potentially

CONSUMER BILLS

result in a waiver of privilege.

In United States v Heppner, a court in New York held that a person who uses AI to generate legal documents may not have a reasonable expectation of confidentiality, particularly where the AI platform s terms of use expressly provide that user inputs and outputs may be used to train the underlying AI model.

Why the legal industry is still moving towards AI

Despite the risks highlighted by cases of AI hallucinations, the legal profession is unlikely to move away from AI adoption. The commercial and operational benefits are simply too significant. Used properly, AI can substantially improve efficiency across legal practice.

This shift is also driving the growth of specialised legal AI providers such as Harvey, Legora and Wordsmith which, unlike general purpose, have source-linked outputs, audit trails and controlled legal databases. The goal is not to replace lawyers, but to augment legal work while maintaining professional oversight and accountability.

A balanced approach moving forward The case of Roux v Van Greunen should not create fear around the use of AI in legal practice. Instead, it should encourage more responsible and informed adoption. This mirrors previous technological transitions within the legal sector such as e-discovery, cloud storage and digital contracting all of which were approached cautiously before becoming standard features of legal practice. AI is following a similar trajectory, but at a far faster pace.

The legal profession is unlikely to move away from AI adoption. The commercial and operational benefits are simply too significant

Legal practitioners and legal teams who understand the strengths and limitations of AI are likely to gain significant advantages in efficiency and service delivery. Those who rely on AI uncritically, however, risk serious professional and procedural consequences.

Ultimately, the lesson from the courts is straightforward: AI can be a powerful legal tool, but professional judgment, verification and accountability remain non-negotiable.

Draft AI policy struggles to keep up with tech

The bemused and amused public reaction to the Draft South African National AI Policy because it included fictitious references which were presumably generative AI hallucinations has taken the focus away from the real problem.

On reading the draft the problem emerges immediately in the explanatory note. The first discouraging revelation is that the explanatory note is on Page 2 of 86 pages. Like the rest of the document, and by ignoring generative AI’s special ability to create succinct and clear documents, the policy is obtuse because of long sentences using too many words with too many syllables. The policy is replete with jargon.

What used to be looking at the past, the present and the future has become

“integrating the Push of the Present, Pull of the Future and Weight of the Past which is based on something called the Futures Triangle. If only this method of reasoning had reached the stated aim of discovering a plausible future.

The policy tells us that 32 submissions were received in 2024 commenting on the draft framework. Most of these submissions are likely to be out of date but we have no way of

knowing what the inputs were. Despite aiming for full implementation of outstanding policy interventions which may need to be updated by 2027/2028, the policy is called a work in progress which requires extensive external consultations locally and internationally. The timetable is therefore well behind the exponential pace at which AI is improving.

We are told implementation will require a whole-of-government approach. That proposed approach does not only refer to existing government institutions. The policy proposes the creation of seven different commissions, boards, authorities, ombuds and institutes, besides the intended role of more than half a dozen existing regulators to coordinate oversight . This includes the extraordinary suggestion of an AI Insurance Superfund modelled on the

insolvent Road Accident Fund to compensate persons harmed by AI systems. AI could surely have come up with a better model. The critical sectors are said to be education, healthcare and agriculture without making it clear why those particular sectors are selected for the focus of an AI strategy. The strategic pillar of AI for growth and job creation refers to job creation in the AI industry itself and says nothing about job losses that are already being seen and felt. Before it was withdrawn, the policy was published calling on those interested to submit their comments within 60 days. Seeing that the policy was withdrawn to remove the AI hallucinations (a euphemism for mistakes), it will presumably be published in more or less its current form for comment in the near future.

The first discouraging revelation is that the explanatory note is on Page 2 of 86 pages

If you have the time to read more than 23,000 words, you may want to comment. If not, I suggest you submit the draft policy for summarising by some clever generative AI system and forward it to the minister as a suggested alternative. But delete the sections creating seven new regulators unless you are looking for a job to replace the one that AI has taken from you.

-Patrick Bracher (@PBracher1) is a director at Deneys