Business Law & Tax (August 2022)

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Highs and lows of claiming copyright protection

• Top Gun, Mariah Carey and remarkable Rodriguez have all made news with this particular IP right

Gaelyn Scott

ENSafrica

Copyright isone of the main intellectual property (IP) rights, yetit tends to enjoy less attention thansome oftheothers, particularly trademarks. Fortunately, themedia seem determinedto put things right. Hereare a few recent stories.

TOP GUN

The1986movie Top Gun was huge. Tom Cruise,of course, played the leading role as US navy pilotPete Mitchell,a manwhowent bythenickname Maverick.In 2022,a sequel wasreleased entitled Top Gun: Maverick Predictably, it’s beena

great success, earning $54m in the first 10 days. As a result, Cruise is very much in the news again, even being photographed at the Queen’s Platinum Jubilee celebrations. But it’s notall goodnews. Thewidowand sonofone Ehud Yonay, a man who penned an article that was published in 1983in the California magazine under the title “Top Guns”, have filed a lawsuitin aLosAngeles court, claiming copyright

RODRIGUEZ CREATED EXTRAORDINARY MUSIC IN THE 1970S, AND MANY OF HIS SONGS DEALT WITH SOCIAL ISSUES

infringement.The claimis the article “Top Guns” inspired the original Top Gun film, and therightsthatweregrantedto Paramountat thattime terminated in2020.

The claimants allege that in2018, theyspecifically advisedParamount ofthe upcoming 2020 termination date.According tothearticle, theproductionofthefilmwas delayedby Covid-19,which may suggestthat thestudio’s thinkinghad beentorelease the film before the 2020 expirydate. Yonay’s widow and son argue that the entire TopGun franchiseisdependenton Ehud’s “literary effortsand evocativeprose and narrative”

There are distinct copyrights involved in this case. Yonay’s widowand sonare relying on copyright in a

literary work,and theyclaim that this copyrighthas been infringed ina cinematograph film.We willno doubtreport on the outcome.

ALL I WANT FOR CHRISTMAS

Thereis aclaim thatMariah Carey infringedthe copyright in the song AllI Want for Christmas is You,a song that wasreleasedin1994andwas hugely successful,with sales of morethan 16-million. Carey is beingsued for $60m.

The infringement claim hasbeen madeby oneAndy Stone,anartistwhoperforms under thewonderfully oldschool nameVince Vance& The Valiants.Stone released

his All I Wantfor Christmas is You back in1989. Thesong apparently didquite well,but not nearly as well as Carey’s. Reasonsinclude thefact that thetwo songsare completely different,with the similarity relatingto nothing more than the song title (which the authorsays does not enjoy copyright in the US),as wellasthe hugedelay in bringing proceedings. (Carey’s songwas released 28yearsago andit’s very well known.)

RODRIGUEZ: THE COLD

FACTS

A newspaperrecently published anarticle about Rodriguez, amusician whois undoubtedly betterknown in

SAthan heis anywhereelse, and thatincludes hishome country, the US. Rodriguez’sstory istruly remarkable. Hecreated extraordinary musicin the 1970s, and manyof his songs dealt withsocial issues.Yet his album, Cold Fact, made absolutely noimpression in the US or anywhere else. Except,of course,inSA. Somehow,afewcopiesofthe albummade theirwayto apartheid SA,where the album receiveda rapturous reception from sectorsof the population, especiallyafter it wasbanned bythegovernment as being subversive. In total, 500,000 copies of

discover more

Highs and lows of claiming copyright protection

thealbum weresold inthe country. Copiesof thealbum apparently alsomade their wayto AustraliaandNew Zealand.

Yet Rodriguezknew nothing of this success. Not until many years later, when a SouthAfricanby thenameof Stephen Segermanmade it his quest to findout what had happened tothis artisthe so admired. Segerman finally tracked Rodriguezdown and told himthe astonishing news: “you werean absolute legend in my country”

Thisled toRodriguez performing sell-outconcerts inSA.Thisamazingstorywas captured inthe Oscarwinning documentary Searching forSugar Man, Sugar Man beingthe name of one of Rodriguez’s songs.

Thearticle discussesthe fact that Rodriguez, who is now nearly80 yearsold and whospentmuch ofhislife working asa poorlypaid construction worker,is able to live his final years in relative comfort.All thanksto the royaltyincome thata copyrightownerisentitledto, and thatRodriguez isfinally receiving.

Finally, an IP aspect to this story!

RODRIGUEZ IS ABLE TO LIVE HIS FINAL YEARS IN RELATIVE COMFORT, ALL THANKS TO THE ROYALTY INCOME HE IS RECEIVING

Popia needs pepping up

• Business Law and Tax editor Evan Pickworth interviews Era Gunning and Ridwaan Boda, executives at ENSafrica, on why it is time for a data protection health check, especially by those corporates that have been complacent on compliance

With the Protection of Personal Information Act’s (Popia’s) first anniversaryhavingcomeand gone on July 1, a question many organisationsare beginning to ask is: “Have we done enough to comply?”

EP:Itseemsthatmanycompanies areonly halfway there at best – so even those who think theyhave done enough to date – what is the best advice for them?

A: Manyorganisations are able to demonstrate a good level of “theoretical” Popia compliance setout intheir policies.However, itisless clear whether whathas been documented onpaper has actually been implemented in practice andwhether operative compliancehas been achieved.

Manyhave investedlarge amounts of time and money into theirPopia compliance. However, numerous organisations arestill unsureas to what the “must-haves” or mandatory obligationsare when it comes to compliance,and wheretheyshould now befocusing theirattention.

Some organisationsare alsonot surewhetherthe time and effort invested in their complianceinitiatives to date meetthe minimum requirements forcompliance.

Proactive organisations

are strongly advised to: ● assess whether the compliance measuresthey’ve taken todate meetthe minimum requirements for compliance; and ● establish what (if any) improvements can be made.

EP: Can you give an exampleof oneof thebigger stumbling blocks?

A: Abusiness mayhave a well-drafted datasubject access request policy, but staffmaynot betrainedadequately toidentify adata subjectaccess requestor todistinguishitfromarequestfora record interms ofthe Promotionof AccesstoInformation Act, 2002 (Paia), and employees fall victim to phishing attacks.

EP: Is training a problem?

A: Yes many organisations have notyet appointedinformation officers (or registered these officerswith theinformation regulator). In terms of PopiareadwithPaia,theCEO

or their equivalent would automaticallybetheinformation officer unless they authorise another person to act in this role.

Without leadershipfrom a properly trainedinformation officer and a suitable compliance framework in place, policies and procedures of a business are not sufficiently understood andimplemented by the workforce.

Data breachesmost often occur dueto humanerror when peopleand teamsare unawareof whattheyshould be doing toensure compliance. Training forthe information officer and staff should be ongoing(we recommend yearly and upon induction) and should be practical, easy to understand and relevantto theroles of those being trained.

EP: To evidence accountabilityintermsofPopia,you need the right documents fromthe outset.Iwould imagine this remains a major challenge due to weak compliance?

A: Although many organisations have good policies in place, some organisations are still missing key documentation. For example, many organisationsdo nothavea process for conducting personal information impact assessments or have policies or procedures in place to deal with data subject access requests.

Many organisations either do not have Paia manuals in

place or their manuals are outdated anddo nottake the changes into consideration brought about by the latest regulations promulgated in terms of Paia.

In addition,existing incidentresponse plansareoften impracticaland donotadequately address cyber insurance and the interaction between the notification requirements under Popia and the Cybercrimes Act, 2020.

EP: With thedigital world

MANY ORGANISATIONS FAIL TO UNDERSTAND HOW TO BALANCE THE RIGHTS TO ACCESS INFORMATION

evolvingsofast,datasubject requestsare ontherise. Whatis thechallengeyou are seeing here?

A: Many organisationsfail to understand how to balance the rightsto accessinformation in terms of Popia and Paia and thegrounds for refusal of suchrequests. This may lead to complaints to the regulator.

EP: Thisfast paceof change is making thingsworse for laggards, so howcan they play catch-up on compliance?

A: While Popiarequires that information officers conduct a preliminary risk assessment,for instance,thereality isthatbusinessesevolvewith time and risk assessments concluded ayear agooften don’t reflectthe realityof the organisation’s processing activities.This isamajor compliance gap.

Banks must determine if loan cover is deductible

Riëtte Lombard AJM

Section 16(3)(c) of the ValueAddedTaxAct, 89of1991 (VAT act)provides fora vendor to deduct an amount equaltothetaxfractionofany amount paidto indemnify anotherperson interms ofa contractof insuranceifthat contractof insurancewasa taxable supply.

Inthe caseofCommissioner for the SA Revenue Service(Sars) vCapitecBank Limited (94/2021)[2022] ZASCA 97 (21 June 2022), the SupremeCourt of Appeal (SCA) had to determine whetherCapitec Bank Limited correctlyclaimed a

deduction under section 16(3)(c). Capitecclaimed the deductions regarding loan cover payoutsto creditcustomers incircumstances whereit providedtheloan cover to the credit customer for no consideration. Sars disallowed the deductions because,so it

A CRUCIAL FINDING BY THE SCA THAT APPLIES TO ALL TAXPAYERS IS THAT CAPITEC WAS REASONABLE IN MAKING THE DEDUCTION

argued, theinsurance contract was nota “taxable supply”

After initialsuccess for Capitecinthe taxcourt, the SCA overturnedthe judgment, allowingSars’ appeal and denyingCapitec the deduction.

In thiscase, Capitec advanced personalloans to customers underterm loan contracts. Thestandard loan contract ensuresthat Capitec provides itscustomers with loancover, theproceedsof which are applied to settle or reduce theoutstanding loan amountdueto Capitecinthe event of thecustomer’s death or retrenchment.

Capitec claimeda deduc-

tion interms ofsection 16(3)(c) equal to the tax fraction of the total insurance payouts (whichit recovered from its insurersto settle the outstanding loansowed by customers).

COURT DECISION

The main issue the SCA faced waswhether thesupplyof theloancoverbyCapitecwas ataxable supplymade inthe course and furtheranceof its enterprise, which would entitle Capitecto thededuction. The courtconcluded that Capitec suppliedthe loan coverinthecourseofmaking exempt suppliesbecause the credit insurance policies

ensured therecovery ofthe credit advancedto customers. Allother activities involved inmaking the exempt supplywere merely incidental. Accordingly, the tax fraction ofthe loan cover payouts did not qualify for the deduction in terms of section 16(3)(c). This is in stark contrast towhat wasdecided by the tax court.

Financial institutionsthat provide loans along with loan cover,forwhichnoconsiderationis charged,shouldbe awareof thisjudgmentand carefully consider whether theloan coverprovidedis taxableornot andwhetherit will be entitledto a deduction.

A crucialfinding bythe SCAthatappliestoalltaxpayersisthat Capitecwasreasonableinmakingthededuction inthe circumstances since itobtained afavourable opinion fromsenior counsel andthe onlywayit couldtest the issue was to claim the deduction in the tax return. This determination regarding “reasonableness” is welcomed,as thereareseveral instancesin taxlaw where the “reasonableness” ofthe taxpayer’s position is used as a yardstick. This will provide guidance when consideringwhether a taxpayer’s behaviouris reasonable incertain circumstances.

BUSINESS LAW & TAX

Is IP law fit for purpose in SA and in Africa?

• The Copyright Act is outdated but the president has sent the amendment bill back to parliament

Janine Hollesen Werksmans

SA intellectual property (IP) legislation includestheTrademarks Act, Patents Act, Designs Act, Copyright Actand Plant Breeders’ RightsAct. Each piece of legislation deals with the particularIP right concerned,but isitall fitfor purpose?

Asthese actsfollowthe lead ofinternational treaties towhichSAisasignatory,the legislation isfit forpurpose, savefor theCopyrightAct, whichisoutdatedandinneed of amendment,also taking technological advancements into account.

FurtherIPlegislationisthe Counterfeit GoodsAct, which has effectiveenforcement mechanisms toprevent the importation and sale of counterfeit goods.

Inaddition, theBorder Management AuthorityAct, which isstill being implemented, hasbeen promulgated with the object of establishing integrated and

co-ordinated border management at ports of entry.

Muchhas beenwritten about theCopyright Amendment Bill,with numerous stakeholders providingcomment inthe variousrounds and iterations thereof.

Thoughthe billwas passedby parliament,itwas returned toparliament by President CyrilRamaphosa

OUR COPYRIGHT ACT MUST BE AN EFFECTIVE MEANS AND AN INCENTIVE FOR CREATORS AND AUTHORS TO CREATE WORKS

for reviewwith concerns with regards toits constitutionality and thatthe rights of creatorsandauthorscouldbe weakened.

The president’s reservationsare interalia thatthe proposed copyrightexceptions couldconstitute arbitrary deprivationof property

in that owners will share less, and it may be in conflict with the international treaty to which SA is a signatory.

In December2021, the department of trade & industry calledfor commentin relation tospecific clausesof thebill, includingexistingand new sections. Comment closed on January 28 2022.

Seeing that thebill has been in consultation for nearly adecade andwith new comments being called for and consideringthe president’s reservations, it might take some time for the bill to be passed.

Therehasbeenmuchcriticism concerned with the actualdraftingof thebilland commentary, especially in respect tothe introductionof the exception to copyright infringement based on fair use as opposed to fair dealing (which is currently provided for). Fair dealingprovides for clear instances asto what usage is permissible, whereas fair usewill be determined by a court, which is to decide asto howmuch useis considered to be fair.

The criticismis thatthis should not be left up to the courtstodecidebutshouldbe specifically included in the legislationto makeforcertainty. The amendment could thereforelead tomorelitigation and favour the party with the deeper pockets as opposed tothe authoror creatorwho isattemptingto enforce works of copyright.

Itisnosecretthatlitigation of whatever nature is notoriously costly.It iscrucially important for our Copyright Act tobe alignedwith the treaties weare partyto and, what ismore important,it must be aneffective means and an incentive for creators and authorsto createworks. The weakening ofrights can never incentivise creators to produce new works, which isessential foranyeconomy. This is important today where innovativethinking and creativity is the future.

Is Africamaking progress in recognising IP rights?

Although IPin Africais receiving greater prominence and being recognised

CONSUMER BILLS

as a key economic driver with developments in IP law in various countries, enforcement remains onerous.

Although trademarkprotection is territorial and requires protection in each country, there are two regional systems which are advantageous for trademark ownersseekingcosteffective protection in these regions:

● Oapi/Aipo (African Intellectual PropertyOrganisation) includesall 17West African countries:Benin, Burkina Faso,Cameroon, Central African Republic, Chad, Congo,Comoros, Equatorial Guinea, Gabon, Guinea, Guinea Bissau, Ivory Coast, Mali, Mauritania, Niger, Senegal and Togo.

Recent and welcome changes that were introducedinclude theabilityto cover both goods and services inone registration(previously,it wasnecessaryto file separate applications for goods and services), reducing theopposition termfromsix monthsto threemonthsand counterfeit goods may now

bedetained bycustomsofficials onthe basisof trademark registrations.

● Aripo (African Regional Intellectual PropertyOrganisation) differs from Oapi, requiring the designation of countries covered, withup to 12 member countries: Botswana, Gambia, Lesotho, Liberia, Malawi,Mozambique, Namibia, Eswatini (previously Swaziland),São Tomé and Príncipe Tanzania, Uganda and Zimbabwe.

As the Aripooffice has streamlineditsprocessesand offers digital online platforms for filing, searching, receiving and sending notifications to its member states, time frames have improved.

As themajority ofAfrican countries adopt a first-to-file rule and onlyallow for enforcement onceregistered, it is important to seek protection assoon aspossible as there are frequently long delays in registration.

In addition,anticounterfeiting measures have been introduced with customs recordation of IPrights only being available ina minority ofthe 54Africancountries (apart from SA) namely Algeria, Ivory Coast, Egypt, Kenya, Mauritius,Morocco and Tunisia.

Recently, Kenya introduced theAnti-Counterfeiting (Recordation)Regulations in a further attempt to deal with counterfeit goods. It requiresall IPownerswho importgoods intoKenyato record their rights with the anticounterfeit authority, to be renewed annually.

This could assistwith the importation andexportation of counterfeitgoods. IPprotection, however,remains crucially important for the protection ofIP rightsin the African territories.

In managing risk, insurance reflects the world

Insurance is essentially about two things. It is about managing risks and pooling risks.

A risk is the chance that an uncertain event may occur, coupled, in the insurance context, with the possibility of harm. The insurance industry manages these risks by spreading the risk among a number of persons all exposed to the same risk.

With the world population fast approaching 8-billion people with a matching growth in risks, the insurance market has come to reflect the major concerns of society. And the greater the risks, the greater the losses, the greater the premiums, and the greater the number of uninsured risks. As risks grow so does insurance. Global premiums have reached an annual $7-trillion but that does not

PATRICK BRACHER

mean every major risk can be covered.

Major pandemic losses that were thrust on general insurers contrary to the original intention of the cover have led to an almost universal rejection of any pandemic cover despite, or rather because of, the prediction that Covid-19 is not the last major pandemic we will see. The litigation explosion and enormous damages awards have seriously curbed the market.

A few years ago it was difficult to sell directors and officers insurance because

there were so few claims.

Worldwide, directors and executives are being sued for failing to foresee and cover the risks of pandemics, climate change and cyber risks, for instance. The cover is now more difficult to obtain and much more expensive than it ever was, while directors and officers insurance has become more essential than ever.

If you look at any list of the risks that most concern companies, you will find cyber risk at or near the top of the page. Cyber risk insurance is obtainable but insurers have seen the potentially huge consequences of malicious hacking resulting in lower limits of insurance, increasing premiums and the requirement that the insured do their best to avoid the risk if they want cover. Regulators see it as one of the

biggest risks for insurers if proper limits are not in place.

The most interesting recent consequence of climate change is the fact that property insurers in Florida in the US have either shed policies (more than a million of them), ceased to write any property business or have been declared insolvent, with skyrocketing costs of reinsurance following enormous claims arising from the increasing incidence and destructive force of hurricanes in the state.

These events caused the state itself to pass legislation for a $2bn reinsurance fund. The outcome is partly a result of the fact that Florida accounts for nearly 80% of all property insurance lawsuits filed in the US. This litigation explosion has discouraged insurers and distorted the market.

The latest corporate trend is the environmental, social and governance (ESG) responsibilities of companies. Companies and their directors and executives are being pursued by shareholders, investors and third-party climate activists on an increasing scale. The recent absurd $94bn Japanese award against directors of the Fukushima nuclear plant is one extreme example.

The effect is to put the risks into the pockets of individual companies and their managers, who will have a growing need for more expensive insurance cover.

GLOBAL PREMIUMS HAVE REACHED AN ANNUAL $7-TRILLION BUT THAT DOES NOT MEAN EVERY MAJOR RISK CAN BE COVERED

The basic problem is that, despite $7-trillion in premiums, not everyone has insurance and not everyone can afford insurance. A stark example is that 70% of South African motorists have no insurance. Despite one insurer paying R26bn for the KwaZulu-Natal riots, most of those affected have no cover.

The ideal is a situation where insurance is not a grudge purchase and not the first thing we stop in hard times, because otherwise the transferring and spreading of risks will increasingly fall behind. Time, perhaps, to teach risk management at school.

●

director

BUSINESS LAW & TAX

E-platforms show gaps in fairness ethics

• Anticompetitive behaviour could spell trouble with watchdogs for leading online platforms in SA

ENSafrica Competition/ Antitrust team

On Wednesday July 13,the Competition Commission published its provisional reportin the online intermediationplatforms marketinquiry. The report, which follows on 14 months ofintensive evidence gathering, makes several hard-hitting and potentially industry-changing recommendations.

While the report is only provisional innature, interested andaffected parties have been invited to make submissions tothe commission onthe findingsand recommendations byAugust 24. The commissionintends to publish its finalreport in November 2022.

The onlineintermediation platforms marketinquiry is thefirst initiated under the upgraded market inquiry provisions of the Competition Act1998 asamended. Itsgoal is toidentify potentialmarket features ofonline intermediation platformsthat may impede, distortor restrict

competition, witha focuson the participation of small and medium enterprises(SMEs) and firms owned/controlled by historicallydisadvantaged persons.

Online platforms facilitate transactions betweenbusinesses andconsumers for the saleof goodsand services. They include:

● E-commerce marketplaces;

● Online classifiedsand price comparator services;

● Software application stores; and

● Intermediated services such as accommodation, travel and food delivery.

Theinquiry focusedon fivecategories ofonlineplatforms:

● Software app stores;

● eCommerce;

● Online classifieds;

● Travel and accommoda-

CONSIDERABLY MORE CHALLENGES ARE DUE TO HISTORIC DISADVANTAGE, ESPECIALLY IN FUNDING AND SUPPORT

tion; and

● Food delivery.

In eachof thesecategories, the report identified “leading platforms”, which include the likes of the Apple andGooglePlayStores,Takealot.com, Property24 and Uber Eats

The findingsand recommendations of the report, whichareextensiveandhave potentially far-reachingconsequences, largely apply to the identified leading platforms. Key provisional findings andrecommendations are as follows:

● GoogleSearch, asaninput to platform competition, is a de facto monopolist in search in SA.The prominenceof paid search resultsand the insufficient distinctionfrom organic search results materially restricts platform competition, as does Google’s self-preferencing in respect of shopping andtravel. The inquiry’s proposalsinclude improving advertidentification and/or elevating organic search results.

● Inrespect ofonlineclassifieds, the inquiryflagged the lack of interoperabilityof the listing engines used by propertyclassifieds asanimpedi-

WIDENING DIGITAL NET

ment to competition.It also raised concerns with the R500 fee onlistings sourced from third-partyengines, whichthecommissiondetermined maybe theresult of collusive conduct, and with the shareholding of large estate agents in it. Recommendations includethe removalof thefee,the requirement that leading property platforms such as Property24andPrivateProperty must interoperate with third-partyplatforms,andthe large estate agents should divest from private property.

● For food delivery, the inquiryfoundthatcontracting restaurantchainsbytheleading platforms incentivises the chains tofocus theirsupport on these platforms, which results in a lack of support for competing national and local food delivery platforms. Price parity clauses and predatory conductas aresult ofaggressive promotion and delivery subsidisationwerealsofound

to be problematic. Recommendations todeal with these concerns include the removal of incentives that limit multihoming by restaurants, the removalof price parity clauses and remedial actionto endpredatoryconduct.

● For travel and accommodation platforms, the market inquiry flagged parity clauses and loyalty schemes as potential impedimentsto competition. Suggested remedies include the removal ofprice parityclauses anda prohibition onexclusionary loyalty scheme design.

● With regard to e-commerce, theinquiry againtook issue with priceparity clauses as causing an impediment to competition, as well as the widespread subsidisationof products below variable cost. The removal of price parity clauses was recommended, as wasremedial actionin respect of the predatory pricing conduct.

● Finally, with respect to software app stores, the inquiry found that the complete exclusion of competing softwareappstoresandsideloading by Apple impedes effective competitionfor commission fees.Similarly, the default arrangements of Google Play impedes competition from other Android software app stores. Given concerns about the likely effectiveness of more traditional remedies, the inquiry hastaken theunusual stepof recommending price regulation, or a complete end.

On the participation of the historically disadvantaged, the report concludes that the digital economyis farless transformed than many traditional industries, and considerably morechallenges are due to historic disadvantage,especiallyinfundingand support.

The reportproposes several measuresto tryto correct this concern.

End of vaccine mandates at work? Not so fast

Bradley Workman-Davies

Werksmans

A lot ofattention has been paidin themedia recentlyto the positionadopted bytrade union federationCosatu in relation toemployers that have adopteda mandatory vaccination policy.

In particular,Cosatu has painted StandardBank’s dismissalof about40employees who were dismissedin accordance withthe bank’s mandatory vaccination policy as victimisationand has demandedthatitreinstatethe dismissed employees.Standard Bankhas recently withdrawn its mandatory vaccination policy. Cosatu’s position is premisedon itsstancethat thenationalstateofdisasteris nolongerinplace.Inaddition,

the SASociety of Bank Officials (Sasbo) hasadopted the position that itis better to encourage vaccinationsas opposed toimposing them. CosatuandSasboalsoappear tohavebeenencouragedbya recent Commissionfor Conciliation, Mediationand Arbitration (CCMA) ruling which found thatthe dismissal ofan employeefor failure to complywith the employer’smandatoryvaccination policy was unfair.

This CCMAaward also determined thata mandatory vaccination policy was unconstitutional. TheCCMA case in questionis Baroque Medicalv Tshatshu,aJune 2022award bytheCCMA which deviated fromall previous CCMA awards.

Arguably this award overstepped the boundaries of the

jurisdiction ofthe CCMA, which inthe caseof determining whetheran employee’s dismissal isfair (among some of itsother functions, but none of whichis to interpret constitutionalrights) must solelyconcern itself with whetherthe employer had afair reasonto dismiss the employee, andwhether it followed a fair procedure in doing so.

In Tshatshu,the CCMA commissioner heldthat only thegovernment hastheright to formulatea vaccination policy, and not an employer. The requirementof the employer tovaccinate being held tobe unconstitutional, thedismissaloftheemployee was found to be unfair. However, thisaward is problematic fora numberof reasons, not leastof which is

thatit deviatesfrom allpreviousCCMA awardsonthe topic. Butit fundamentally errsbypurporting togivethe CCMA commissionerthe powerto makeaconstitutionalruling.Thisisafunction reserved, properly,for the Constitutional Courtitself. As such, any reliance by Cosatu and Sasboon thisruling would be dangerous ground.

In addition, itmust always beborne inmind byemployersthat onJune24 2022,the labour &employment minister published a new code which replaced the Code of Practice: ManagingExposure to SARS-CoV-2 inthe Workplace, of March 15 2022.

Both codes entitle an employer toimplement a mandatory vaccination policyafter conductingarisk assessment in respectof its

particular workplace and workforce profile.

As such, thecurrent legislative frameworkstill entitles employersto conduct thisassessmentand, infact,if there are sufficient health and safety factorspointing towards theprevalence of Covid-19 being arisk to health and safetyin the workplace, forreasonable safety measures which may includethe mandatory vaccination ofemployees to be put in place.

Employers shouldtake comfortthat ifthey havefollowed the code (whether the

EACH CASE, AS ALWAYS, MUST BE ASSESSED ON ITS OWN MERITS

oldor newcode,or anyprevious legislationunder the national state of disaster) and conducted arisk assessment which leadto theconclusion that theimplementation ofa mandatory vaccination policywas orremains areasonable safety measure, any dismissal of employeesfor failure to comply has generally beenaccepted bytheCCMA asfair, andtherecent caseis an anomalywhose findings on unconstitutionalityare not binding.

For so long as Covid-19 remains ahazardous biological agent, as recognised by the newcode, mandatory vaccination policiesmay be viewedas areasonablemeasuretoensure thehealthand safety ofemployees. Each case, asalways, mustbe assessed on its own merits.

BUSINESS LAW & TAX

Ruling clarifies and confuses

• Appeal court judgment brings clarity to Tax Act but confusion over interpretation of ‘voluntary’ term

Francis Mayebe with Virusha Subban Baker McKenzie

Thejudgmentbythe Supreme Court of Appeal in Purveyors South Africa Mine Services (Pty) Ltdv CSARS bringsboth clarityinthe interpretation and application of section 227 of the Tax Administration Act,2011, as well as confusion as to how narrowly onecan interpret the term “voluntary”

Itremains uncertainfrom this judgment,particularly afterthe appealcourt’s view that the “voluntary disclosure programme (VDP)application wasprompted by compliance actionby the South AfricanRevenue Service’s (Sars) officials and the advice fromits auditors”, therefore the requirement thatthe applicationmustbe “voluntary” was not met.

However, the question remains asto whethertaxpayers whoare advisedby their auditors, tax or legal advisers in relation to their tax defaults, and any potential penalties thatmay be

imposed bySars before applying forVDP, wouldstill meettherequirementof“voluntary”. Another question that remainsunanswered is whether therequirement of “voluntary” wouldbe met where VDP applications made bya taxpayerare prompted bycompulsion from any other third party (other than Sars).

The appeal court’s ’s finding on thismatter narrows

IT FURTHER NARROWS THE MEANING OF VOLUNTARY AS PREVIOUSLY SET OUT BY THE GAUTENG HIGH COURT

the scope in which the VDP could be applied and used. It isimportant tonote that the VDPwas introducedwith an intention to encourage taxpayers to voluntarily disclose tax defaults. However, taxdefaults fromataxpayer’s perspective are not usually certain and, in particular

instances, taxpayers would require clarity before engagingintheprocessofVDP.Followingthisfinding, itcanbe certain thatan inquiryto Sars abouta potentialtaxdefault excludes you from the benefits of the VDP, as this would be consideredas “not voluntary”. An additional consideration following this judgmentisthat itfurthernarrows the meaningof voluntaryas previouslyset outby the Gauteng high court.

When dealingwith what could constitute a voluntary disclosure, in Reedv Minister of Finance, thehigh court indicated that the crucial factor is whether the taxpayer had priorknowledge ofa pending audit or investigation. The high court went on to define “voluntary” as bringing information to Sars when thereis noimpending Sarsinvestigation,andifthere isaninvestigationthetaxpayer must not be aware of it.

In Purveyors,Sars had knowledge of the defaults by the taxpayer; but they had not instituted any investigation or auditsonthe matterandthe taxpayer had no knowledge of any impending investiga-

FULL DISCLOSURE

tions.To thateffect, onecould see how theoutcome of Purveyorscould havebeendifferentshould thisapproach have been taken. Onthecontrary,onecould arguethatthe actionofSars in looking into the taxpayer’s defaults afterthe inquirywas made,could constitutean investigation. However,the circumstancesin Reedare different from thosein Purveyors,in thatReed didnot first inquire with Sars, while inPurveyors aninquiry

LABOUR PAINS

was made bythe taxpayer toprompt Sarsto lookinto its affairs.

Further, Section 223 of the act providesfor theunderstatement penalty percentage table.Thefifth columninthe table provides for a voluntary disclosure after notification of auditor criminalinvestigation. With the judgments discussed above, which excludes disclosure after notificationor knowledgeof an investigationby Sarsfrom VDP,oneis lefttoanswerto

therelevance ofthefifth columnunder Section223of the act.

With this uncertainty, a taxpayerwho suspectsthey might havea taxdefault and wouldlike tobenefitfrom VDPmust consultdirectly withatax expert.Shoulditbe ascertainedthat thereis indeeda default,thetaxpayer must timeously makea voluntary disclosure to Sars in theprescribed format,as required bySection 227(c)of the act.

Lots of boxes to tick to prove poor performance

At the end of the day, managers and supervisors are paid to manage and supervise two things: employee conduct and employee performance. From an employment law point of view, the conduct aspect of management becomes important when the employee’s conduct becomes misconduct.

Misconduct is a blameworthy act or omission, which requires employers to trigger a disciplinary process.

On the other hand, the type of poor performance addressed in the Labour Relations Act is the nonblameworthy, incompetence specie of poor performance. When all is said and done, poor performance is either blameworthy or not blameworthy. Put differently, sometimes the employee is blameworthy for their poor performance and sometimes they aren’t. If it can be proved that the employee is blameworthy for their performance, a disciplinary procedure is followed, because the employer is able to prove

TONY HEALY

that the employee was capable of better performance than they delivered, importantly, in circumstances where there were no extraneous factors causing the poor performance over which the employee had no control. In circumstances where it cannot be proved that the employee is blameworthy, or at fault for their poor performance, there is no misconduct; rather, there is incapacity, meaning that the employee’s performance is poor but for reasons beyond their control. The Labour Relations Act obligates employers to follow a counselling, not misconduct, procedure, in an incapacityrelated scenario of poor work performance. In fact, there are even occasions where there are elements of both incapacity

and misconduct in an employee’s poor performance.

The Labour Court passed judgment on this issue in the case of Moneyline Financial Services (Pty) Ltd v Tsientsi Chakane & 1 other (Case no: JR2454 /17). This case dealt with a dispute relating to the management of poor work performance.

The background, as described in the judgment, was that “the respondent employees failed to achieve the performance targets between September 2016 and January 2017. On October 12 2016, the first letter warning the respondent employees of poor work performance was issued in respect of the month of September 2016. On November 9 2016, a second letter then serving as a final ultimatum was issued in respect of the respondent employees’ poor work performance for the month of October 2016.

The respondent employees were afforded the opportunity to make written representations wherein they were to give reasons for failing to meet the

performance targets. The applicant (the employer) found their explanation unacceptable. On January 18 2017, the respondent employees were served with the notices to attend performance inquiries and were ultimately dismissed for poor work performance.

At the Commission for Conciliation, Mediation and Arbitration, the arbitration award held that the dismissals were substantively unfair as “the dismissal was not an appropriate sanction as training could have been a reasonable alternative. He accepted that the reasons proffered by the respondent employees for nonperformance as genuine and plausible given the context of the industry”

The employer took this arbitration award on review to the Labour Court, which dismissed the review application and upheld the arbitration award’s finding that the dismissals for poor performance were substantively unfair.

In so doing, the judgment emphasised what was held in Gold Fields Mining South

Africa (Pty) Ltd (Kloof Gold Mine) v Commission for Conciliation Mediation and Arbitration and Others [2014]

1 BLLR 20 (LAC); (2014) 35 ILJ 943 (LAC), namely that “in order to find that an employee is guilty of poor performance and consider dismissal as an appropriate sanction for such conduct, the employer is required to prove that the employee did not meet existing and known performance standards; that the failure to meet the expected standard of performance is serious; and that the employee was given sufficient training, guidance, support, time or counselling to improve his or her performance but could not perform in terms of the expected standards. Furthermore, the employer

THE COMMISSIONER CORRECTLY FOUND THAT THE APPLICANT FAILED TO EXPLORE ALTERNATIVE MEASURES SHORT OF DISMISSAL

should be able to demonstrate that the failure to meet the standard of performance required is due to the employee’s inability to do so and not due to factors that are outside the employee’s control.”

The judgment continued that “in the present case, the applicant failed to show that the respondent employees were given sufficient training, guidance, support, counselling and reasonable time to improve their performance. The respondent employees had genuine concerns that were outside their control and could have been managed with the assistance from the applicant. Clearly, the commissioner correctly found that the applicant failed to explore alternative measures short of dismissal, like training. It follows that the applicant failed to show that the dismissal of the respondent employees was an appropriate sanction.”

● Tony Healy is a labour law expert at labour law consultancy Tony Healy & Associates www.tonyhealy.co.za

BUSINESS LAW & TAX

D-day looms for Fica action

• If SA misses the February 2023 deadline the country could be placed on a damaging grey list

Era Gunning ENSafrica

SA hasuntil February 282023 to meet atight deadline toamend its Financial IntelligenceCentre Act,2001(Fica) or facethe consequencesof its financialinstitutions being added to agrey list alongside countries suchas Yemen, South Sudan and Haiti.

TheFinancial ActionTask Force (FATF) is an independent intergovernmentalbody that developsand promotes policies to protectthe global financial system against money laundering, terrorist financing andthe financingof the proliferationof weapons of massdestruction. FATF recommendations arerecognisedas theglobalantimoney laundering(AML) and counter-terrorist financing (CTF) standards.

Through apeer-reviewed process facilitatedby the FATF, SAwas evaluatedin 2019on itsAML andCTF legal framework,including Ficaand theefficiencyof its implementation.Out of 40ratings onlegislationadequacy, half of SA’s ratings scored as only partially compliant or noncompliant.

Followingits mutualevaluation reportin October 2021, the FATF isdue to visit

SA at the end of October 2022 toascertain whether sufficient progresshas been madeafter aone-yearobservation period.If not,SA may be grey-listed bythe FATF as early as February 2023. ShouldSA notcomply withthe FATF’srules bythe deadline, itcould meanthe country willbe addedto the noncompliancelistanddisinvestment couldoccur in financial institutions. The

FICA PLACES NUMEROUS

OBLIGATIONS

ON ‘ACCOUNTABLE INSTITUTIONS’, AS DEFINED IN SCHEDULE 1 OF FICA

FATF’s grey-listed countries include Cambodia, Cayman Islands, Burkina Faso, Albania, Yemen, Pakistan and Syria.

On June 15 2022, in the hope the National Treasury’s report and proposed amendmentsto theschedulesto Fica would be rubberstamped to avoida greylisting by theFATF, the Treasury and the Financial Intelligence Centre briefed the National Assembly’s standing committeeonfinanceandthe

National Council of Provinces select committee on finance on proposed amendments to schedules 1, 2 and 3 of Fica.

Speaking virtually from Berlin,where heattendeda FATF meeting, the Treasury’s acting director-general, IsmailMomoniat,said:“Given the [grey-listing] we face, the soonerwe dothings, thebetter for us.”

However, inan unexpected turn ofevents, members of parliament criticised the Treasury for nothaving given parliament more time to follow“dueprocess”ratherthan attempt to force parliament’s hand in makinga “rushed” decision.

In response,the acting director-general reminded parliamentthattheprocessof aligning SA withglobal standards hadstarted in2015 and “has been aslow [process] with lots of consultation”

Fica placesnumerous obligations on “accountable institutions”, as defined in schedule1 ofFica, suchas banks and certain financial services providers. These obligations include:

● Registration with the Financial Intelligence Centre;

● Conducting customer due diligence;

● Record-keeping of client information andtransaction records;

● Developing, documenting,

THINGS TO DO

maintaining and implementinga riskmanagementand compliance programme (RMCP);

● Ongoing trainingof employees on Ficaand the institution’s RMCP;

● Appointment of a compliance officer; and

● Reporting obligations such asthe submissionofcash threshold reports,suspicious transactions reports and terrorist property reports. Furthermore, Ficaimposes cash threshold reporting obligations on institutions

that also includes motor vehicle dealers. If the proposed amendments were to be approved by parliament, the accountableinstitution’s net would be cast much

THE PROCESS OF ALIGNING SA WITH GLOBAL STANDARDS HAD STARTED IN 2015

AND ‘HAS BEEN A SLOW [PROCESS]’

wider to include credit providers ascontemplated underthe NationalCreditAct, 2005; any person carrying out a businessof dealing in high-value goods, where in respectofsuchtransactionor aseries oftransactions,payment in anamount of R100,000or more;trustand company serviceproviders (which will include accountantswho prepareorcarry out transactions for clients relating to specific types of activities); and crypto asset service providers.

Two laws apply when axing a director

Mpumelelo Nxumalo, Ziningi

Hlophe, Kalene Watson & Masibulele Mabanga Webber Wentzel

Removing adirector from officeinan unfairorunlawful manner exposes companies toliability undertheLabour RelationsAct aswell asthe Companies Act.This article raises somekey considerations forcompanies looking toachieve thesmoothdeparture of a director.

Parting ways with a director israrely uncomplicated, particularly from alegal perspective,astwodistinctareas of lawapply. TheLabour Relations Act 66 of 1995 (LRA)will guidehowthe employment isterminated. Onthe otherhand, theCompanies Act71 of2008 (Companies Act) guideshow the directoris removedfromthe board of directors. The apparentoverlap in the law leavesmany with uncertainty onwhich laws would apply.

Directorship and employment thereforefall under separate legislative provisions, whichhave distinct requirements andconsequences. In terms of the LRA, the terminationof an employee’s employment (with or withoutnotice) by an employer constitutesa dismissal.

A dismissal of an employee,interms oftheLRA, should besubstantively and procedurally fair.On the otherhand,theirremovalasa director should bein accordance withthe requirements of and for thereasons set out in the Companies Act.

Section 71 of the CompaniesActprovidesthatadirectormay beremoved bya shareholder orboard resolution if, for example, the director is incapacitated, convicted of theftor fraud,has neglectedtheir dutiesorbeen derelict in their duties.

Therelevantdirectormust begivenappropriatenoticeof the meeting to pass this reso-

lutionaswell asanopportunity tomake representations before theresolution is adopted.

An aggrieved director may apply tocourt to review the decision. The court would be requiredto decide whether theremoval was lawful and whether it complied withthe requirements and procedures ofthe Companies Act.

The removal ofa director fromthe boarddoesnot, however, meanthat they have automaticallybeen dismissedas anemployee.As mentioned above, in terms of theLRA,theterminationofan

THE LAW PRESCRIBES THAT EMPLOYERS MUST SATISFY THE FAIRNESS REQUIREMENTS

CONTEMPLATED IN THE LRA TO DISMISS AN EMPLOYEE

employee’s employment (with or withoutnotice) by an employer constitutesa dismissal. Thelaw prescribes that employersmust satisfy the fairness(substance and procedure) requirements contemplated inthe LRAto dismiss an employee.

In SAPost Officev Mampeule, the courtconsidered a provision in the Post Office’s contract ofemployment that stated that the removal of a directoralso equatestotheir dismissal as an employee.

The courtmaintained that thiswas notpossible, asa removal from theboard of directorsand adismissalas an employeewere different processes, withdifferent legislative requirementsand consequences.

The court distinguished between therequirements for the removal of a director in terms ofthe Companies Act andthe requirements fora fairdismissal ofan employeeintermsoftheLRA and the different remedies

available toa directorand employeeintheeventoftheir removal and/ordismissal.

The Post Office, in this case, attempted to contractout of the remedies afforded to a director and employeein the event of their removal and/or dismissal, whichthe court ruled against.

The remediesavailable to a director if sheor he is unlawfully removedfrom the board ofdirectors differfrom thoseavailable ifthesame person, in the capacity as an employee, wereunfairly dismissed.

In theevent ofan unfair dismissal dispute,the LRA provides thata successful applicant maybe reinstated (which may includethe payment of back-pay)or be granted anorder forcompensationforupto12months’ remuneration.

Intheeventofanunlawful removalof adirectorfrom the board,various remedies are at their disposal, such as a claim fordamages equivalent

tothevalue oftheremainder of their term as a director. Therefore, an unlawful removal from theboard of directors orunfair dismissal of anemployee mayhave costly consequencesfor the employer, and employers need toensure boththe LRA andCompaniesActboxesare tickedbefore adismissaland removalof anemployeewho isadirector canbevalidly affected.

The appointmentof a director almostalways entails anemployment contract, butthe difference between thetwo should always beappreciated. When dismissing employeeswho are alsoboard members, employersneedtoappreciate the differencebetween their removal from theboard of directors (whichmust be done within the confines of the CompaniesAct) andtheir dismissal asemployees (which must bedone in accordance withthe fairness standards in the LRA).

BUSINESS LAW & TAX

Foreign concept of work

• Employers must consider tax issues of remote working abroad

Aneria Bouwer Bowmans

Remote working from foreign jurisdictions has become increasingly popular during the Covid-19 pandemic.

Despite the lockdown rules being relaxed in most jurisdictions, itappears that employers shouldnot expect theworkplacetoreturntothe wayitwas beforethepandemic.

For example,Microsoft 365 corporatevice-president JaredSpatarosaid:“Asorganisations aroundthe world make thedefinitive shiftfrom remote to hybridwork, one thingis clear:the peoplewho went hometo workin 2020 are not the same people returning tothe officein 2022.”

For personalreasons, growingnumbersofemployees are choosing to relocate to otherjurisdictions while remaining withtheir employers. In many

instances, theemployers will go alongwith thesearrangements,sometimes asacontinuation ofremote working duringlockdownandinother instances toattract valuable employees.

Butthere arerisks involved risks of which many SAemployers maynot be aware.

Thisis adifferentworld fromtwo yearsago. Inthe past,employerswouldestablishapresence inotherjurisdictions;now itisemployees whowant towork fromforeign jurisdictions.Often, these employeeswill argue thattheycanbeasproductive working remotelyas from the office, and that this should

SA EMPLOYERS ALSO … FAIL TO REALISE THEY COULD STILL HAVE AN EMPLOYEES’ TAX WITHHOLDING OBLIGATION IN SA

GLOBAL WORKFORCE

make no difference to the employer. However, the situation maynot beas straightforward as it seems.

Therisks forSA employersincludethepossibilitythat an employee’s presence in another country may amount to creating a permanent establishment for the employer, thuscreating atax presence for theemployer in the foreign jurisdiction.

The interestof aforeign taxauthority maybetriggered by something as apparently harmless as the employee havingbusiness cards bearing theSA company’sname andthe addressof

/123RF LIAKOLTYRINA

his orher homeoffice inthe host country.

Though unusual,where the executives ofa business work remotely, this could evencreateariskofchanging acompany’splaceofeffective management (POEM) and thusthecompany’scorporate tax residence.

Other taxconsiderations include the riskthat the SA employer maybe obligedto registerasanemployerinthe foreign jurisdiction and pay employees’ tax and social securityin theforeignjurisdiction.

SA employersalso sometimes fail to realise they could

LEGAL SCOOP

Verbal cessions are not the most

Acession is a bilateral act whereby a right is transferred by agreement between two consenting parties.

Though this act effectively involves three parties (that is, including the debtor), the cession can take place without the agreement of the debtor.

In the recent unreported matter of Imbuko Wines (Pty) Ltd v Reference Audio CC (405/2021) [2022] ZASCA 110 (July 15 2022), the Supreme Court of Appeal considered a verbal cession entered into between two consenting parties and ruled decisively on its enforceability.

Pursuant to a verbal cession, the high court in Johannesburg ordered Reference Audio CC (Reference Audio) to pay R602,866.22 to Imbuko Wines (Pty) Ltd (Imbuko).

Reference Audio appealed this order to the full court in Johannesburg and the appeal was upheld. Imbuko then appealed the full court order to the Supreme Court of Appeal.

During 2012, Dipole CC (Dipole) and Reference Audio concluded a verbal agreement in terms of which Dipole supplied audio

equipment to Reference Audio.

Imbuko alleged that during December 2012, Dipole verbally ceded to Imbuko its right to claim payment from Reference Audio for the audio equipment. Apparently, this verbal cession arose from Dipole’s difficulties in rendering regular invoices to Reference Audio. Consequently, during December 2012, Dipole decided to cede Dipole’s claims against Reference Audio to Imbuko so Imbuko could invoice Reference Audio on time.

After each collected payment, Imbuko agreed to pay Dipole the amount owing to it. Reference Audio denied it had any knowledge of the cession but nonetheless admitted it had made two payments to Imbuko. Thereafter, Reference Audio denied these payments were

made pursuant to a verbal cession.

To justify this assertion, Reference Audio referred to the ongoing business relationship between Dipole and Reference Audio, in terms of which Reference Audio continued to make purchases from Dipole (paying Dipole directly). Notably, this ongoing relationship was post the payments that formed the subject of this matter.

Generally, parties conclude an out-and-out cession or a cession in securitatem debiti. An outand-out cession is the cession in question in this particular matter, whereby Dipole ceded its rights as against Reference Audio to Imbuko.

In contrast, a cession in securitatem debiti is a form of pledge where the debtor pledges its rights as against its own debtors (its book debt) to another party as security for an obligation owed to that party.

A cession may be entered into either verbally or in writing. As is generally the case with any type of verbal contract, the terms of a verbal cession must be expressly agreed.

As set out at paragraph 12

still havean employees’ tax withholding obligation in SA.

However, it isdifficult to say definitively if and when such risks will actually materialise without taking the specific facts into account.

It all depends there is no one-size-fits-all answer. Thus, the best course of action for anemployer considering anemployee’s requesttowork forthecompany from aforeign jurisdiction is toseek expert local advice.

QUESTIONS TO ASK

When doing so,some of the questions employers should be askingare: isthere arisk that theemployee couldcreate ataxable presencefor the employer in theforeign jurisdiction?

Which countryhas the right to taxthe employee’s remuneration?

Would theemployer still be obliged to withhold employees’ tax in the country where theemployer istax resident and/or is there a risk thatitwouldalsohavetoregisterasan employerinthe foreign jurisdiction?

During April2020, the secretariat of the Organisa-

tion for Economic Co-operation and Development (OECD) issued guidance regarding the interpretation of taxtreaty conceptssuch as POEM andpermanent establishments during the Covid-19 pandemic,when people were stranded overseas.

However, employers shouldkeep inmind thatthe relatively relaxed stance many foreignjurisdictions and regulators adopted to remote working during the Covid-19 pandemic will not last.

A returnto “normality” also means a return to normal tax rules.While there does seem tobe a realisation that theworld ofwork isdifferent to the pre-pandemic world, thetax rulesare still theonesthatwerecreatedfor such an “old” world.

While aremote working arrangement couldoffer exciting opportunities for employers and employees alike, it is crucial for employers to carefully consider the risks that a more permanent cross-border remoteworking arrangement could have for the employer, before agreeing thereto.

sensible option

of Lynn & Main Incorporated v Brits Community Sandworks CC 2009 (1) SA 308 (SCA), a cession of rights is ineffective as against a debtor until such time as he or she has knowledge of it.

To consider whether Reference Audio knew about the cession, it is necessary to refer to the terms of the cession to determine whether the parties conducted themselves consistently and in accordance with such terms.

Nine invoices were sent to Reference Audio between January and April 2013 reflecting Reference Audio as a debtor of Imbuko in respect of goods purchased from Dipole. Reference Audio did not dispute the invoices, as would have been expected from an entity that bore no knowledge of what it was being billed for in the invoices. In fact, it paid two of these invoices.

During the relevant period, the only entity that claimed any amount from Reference Audio was Imbuko (as per the agreement between itself and Dipole). This points to some form of cession having been concluded.

The relationship between Reference Audio and Imbuko

was strained. Reference Audio was not receiving invoices for goods purchased on time, and Dipole was not receiving regular payments as a result.

In these circumstances, it is clear that a cession (verbal or otherwise) benefited both parties. The external involvement of Imbuko as the party to issue the invoices and receive payment on Dipole’s behalf improved the relationship between the parties. So much so that their relationship continued for some time without difficulty.

Nevertheless, the fact there was an ongoing relationship between Dipole and Reference Audio after the relevant period does not detract from the validity of the cession for the period in respect of which invoices were raised by Imbuko against Reference Audio.

Given the conduct of the parties, the Supreme Court of

AS WITH ANY TYPE OF VERBAL CONTRACT, THE TERMS OF A VERBAL CESSION MUST BE EXPRESSLY AGREED

Appeal concluded that it can safely be accepted that Reference Audio was not only aware of the cession, it conducted itself consistently in terms thereof.

The court accordingly found that the high court was correct to order that Imbuko had established a verbal cession on a balance of probabilities.

KEY TAKEAWAYS

Verbal cessions, while legally binding, may lead to a great degree of uncertainty and corresponding disputes. When entering into any form of agreement, it is advisable to reduce the agreement to writing. This reduces the doubt that often arises from a verbal agreement.

Had Reference Audio entered into a written agreement at the inception of the relationship with Dipole, it could have included a pactum de non cedendo in this agreement (effectively, an agreement not to cede without the permission of the debtor). This would have avoided the litigation that arose entirely, together with the corresponding costs that accompanied it.

● The Legal Scoop is brought to you by Fluxmans

Consumers can nail firms in high court

• While Consumer Protection Act offers remedies, some cases

qualify for judicial intervention

Wandile Ndabambi & Atlegang Raganya ENSAfrica

Itisnowpossibleforconsumersto taketheir complaintdirectly tothe highcourt in instances where the adjudicative and dispute resolution mechanismsprovided forinthe Consumer Protection Act, 2008(CPA) arenot adequate to dealwith theinfringements alleged.

In the case of Steynberg v Tammy TaylorNails Franchising2022, thecourt concluded ithas jurisdictionto deal with acomplaint in terms of the CPA. It stated there would be no purpose to require theapplicant to approach theconsumer goods and services ombud or the NationalConsumer Tribunalor filea complaintwith theNationalConsumerCommission.

Inthis case,Christina Johanna Steynberghad signed afranchise agreement with TammyTaylor; however, within aweek, she alleged thatTammy Taylor had not been open and honest withher regardingthe actual costsof purchasing

and establishinga franchise. Steynberg cancelledthe deal and demandeda refundof the R346,000franchise fee. Tammy Taylor refused. Steynberg arguedthat TammyTaylor failedtocomply with the CPAand the regulationsthereto byfailingto include,onthe firstpageof the agreement, that the franchise maybe cancelledwithin 10 businessdays without

THE COURT HELD THAT AN OMBUD WOULD NOT BE SUFFICIENT OR APPROPRIATE TO DEAL WITH THE MATTER

any costsor penalties.Steynberg further arguedthat the failure to comply with the CPA rendered the franchise agreement void and unenforceable,andtherespondent shouldbe directedtorefund the franchise fee.

Steynberg instituted motion proceedings against Tammy Taylor to set aside a franchise agreemententered

into betweenthe parties.It was common cause that Steynberg was a consumer andTammy Taylorasupplier, resulting in theCPA having application in the matter.

The main issue was the jurisdiction of the high court to hearthe matter.Tammy Taylor argued that in terms of the CPA, Steynberg was only entitled to relief from the high court “if all other remedies available tothat personin terms of national legislation have been exhausted”

The CPAprovides several avenues to follow before approaching the courts. These include:

● the National Consumer Tribunal;

● the (consumer goods and services) ombud;

● applying to the consumer court (whichhas notbeen established), referring a matter to an alternative dispute resolution agent; or

● filing a complaintwith the NationalConsumerCommission.

Only afterthese remedies have beenexhausted isa party entitledto approacha court with jurisdiction over the matter.

However,in thiscase,the

courtheld thatthecomplaint fell within the ambit of:

● Section 40(unconscionable conduct);

● Section 41 (false, misleading, or deceptive representations); and

● Section 48 (unfair, unreasonable or unjust contract terms) ofthe CPA,which grantsthecourt thepowerto makeasuitable orderinthe circumstances.

The court heldthat an ombud wouldnot besufficient or appropriate to deal with thematter asit isdoubtful whether theombud has the powerto grantthe relief sought by Steynberg.

Asfar asrecourse tothe National ConsumerTribunal was concerned, its powers are restricted byits rules and do not includethe power to grant declaratoryrelief orto dealwithclaims forthepaymentofmoney,which,onthe other hand,has beenspecifically entrustedto thecourt in terms of the CPA.

Furthermore, the court cited theobiter remarksof

theSupreme CourtofAppeal in Motus Corporation (Pty) Ltd t/aZambezi MultiFranchiseand anothervWentzel, that theCPA shouldnot be read to exclude the rights of consumers to approach the court to obtain redress

SA courtshave always had jurisdiction to resolve suchclaims before,andthere isnoapparent reasonwhya consumer should be precluded from approaching the courts before having exercised the remedies afforded to the consumer. Itis alsoreferredto inthe unreported judgment of Takealot Online (RF) (Pty) Limited and Drive consor-

ONLY AFTER THESE REMEDIES HAVE BEEN EXHAUSTED IS A PARTY ENTITLED TO APPROACH A COURT WITH JURISDICTION OVER THE MATTER

tium Hatfield(Pty) Limited,a Western Cape high court decision, which found the argument that the CPA requires aparty toexhaust all other remedies is misplaced because,in termsofsection 52 of the CPA,only a court of law candeal withissues relatingto section48(unfair, unreasonable, or unjust contract terms) of the CPA.

Tammy Taylor relied on two unreported cases decided in the Free State high court, namely AFCA Trading andSupply (Pty)Ltd vCity Square Trading and Supply 604 (Pty) Ltdand Joroy 4440 CC t/a Ubuntu Procurement v Potgieter NO and Another. In both these cases, it was heldthat thecourt didnot have jurisdiction to deal with the matters because the plaintiffs had not exhausted allremediesavailabletothem intermsof theCPA.However, thecourt foundotherwise, citing the obiter remarks of the Supreme Court ofAppeal asthe authority.

If you tell your boss ‘I quit’ you had better mean it

Arecent LabourCourtjudgmenthas reinforcedthe unilateralnature ofan employee’s resignationand clarified the legalauthority of anadministrator tohire employees. Reading like Shakespeare’s The Comedy of Errors, therecent Labour Court judgmentwades throughmuddied waterto reiterate the crystal-clear effect of an employee’s resignationin Mohlwaadibonav DrJS MorokaMunicipality (J718/21) [2022] ZALCJHB 91. While the eventsof this matter unfolded, the employer,Dr JSMoroka Municipality, wasunder administration andthe appointed administrator,Mr

Mhlanga,dealt withthe matter.The employeewas sufferingfrom amysterious illnesswhich resultedinhis resignation withimmediate effect on April 1 2021. Fifteendays later,bya strokeof miraculousgood fortune,his healthcondition improved, andhe wrotea letter to his employer seeking to withdrawhis resignation. Onthe sameday he receiveda letterfrom Mhlanga,who informedhim thewithdrawal ofhisresignation was not accepted. Claiming thathe hadnot seen Mhlanga’s response, the employeereturned towork and receivedhis Aprilsalary. Heturned totheacting municipalmanager toaffirm his continuedemployment, whoaccepted thewithdrawal on May 10 2021.

Wastheemployee’sresignation even capableof being retracted?The courtrecognisedthat resignationsare unilateralacts thattakeeffect oncecommunicated bythe employeeto anemployer. They donot requireany furtheraction fromthe employer.This actservesto terminate theemployment relationshipand theemployee’snotice doesnotconstitute a cooling-off period dur-

THE EMPLOYEE’S NOTICE DOES NOT CONSTITUTE A COOLING-OFF PERIOD DURING WHICH TIME AN EMPLOYEE MAY BACKTRACK

ing whichtime anemployee may backtrack While employees are obliged toserve theirnotice period,failureto dosodoes notnegatethe effectofaresignation.The courtexplained that anemployee retractinga resignation iseffectively seekingto berehired orreemployed.If bothemployee andemployer consentto continue theemployment relationship, thesubsequent employment relationship will be basedon a newoffer and acceptance of employment.

Onthis reasoning,the employee’s argument that his employment relationship continued unaffected because he reported for duty and received a salary had to fail.The unilateralretraction could not hold.

The courtthen turnedto

Mhlanga’srefusal andthe acting municipal manager’s acceptanceof theretracted resignation. Which decision wouldprevail? Sincea mutuallyagreed retractionof aresignation amountstoreemployment,therepresentative acting for the employer must have the authority to offeremployment. Ifthis authority to hireis lacking, any attempt to rehire the employee is invalidand has no force or effect.

Inthe localgovernment sphere,the LocalGovernment:Municipal SystemsAct 32 of2000 andMunicipal Financial ManagementAct 56of 2003provide forthe mannerin whichmunicipal powersand functionsare exercised.With referenceto these acts,the courtdetermined the actingmunicipal

managerdid nothaveunfetteredpowers toincur expenseson behalfofthe municipality, including those associated with new hires. Therefore, theacting municipal manager’s actions could not beenforced since he did notcomply with the statutory mandates required tolawfully bindthe municipality. Thesteadfastfindingofthe courtreinforces thenotion that a voluntaryand deliberate resignation has the legal effect of endingthe employment relationship.Reviving thatrelationship canonly takeeffectin theformofa new offer and acceptance. This offer must be made by arepresentative ofan employerwith therequired authorityandlegalcapacityto make it enforceable.

Cautions for companies, influencers

•

There

is much to be

learnt

from some prominent international cases that have arisen of late

Darren Willans & Sarah Passmoor Werksmans

In2022, eventhemost pessimistic advertiseris unlikelytobet onthefact that the risein popularity oftheinfluencerindustry isgoing todissipateanytime soon.

Companies areincreasingly turning to social media influencers ofdifferent backgrounds andfollowings to market theirproducts, campaigns andcompanies. One ofthereasonsisthatthisform of advertisingis generally comparatively less costly. Through influencer advertising, companies no longer need to allocate significantbudgetstowardsTVand radioadvertising,whichoften includes locationand equipment costs,the hiringof photographers and so on.

It is often the influencer who bearsthe responsibility for theseexpenses, including photographers, videographers andanything else that may be required to bring the hiringcompany’s vision to fruition.

Thereare severallegal aspects inthis ever-evolving

market thatcompanies and influencers shouldbear in mind whenundertaking to advertise in this manner.

Although SAcourts have notyetdealtwithasignificant number of influencer/social media-related cases,there is much tobe learntfrom some prominent international cases that have arisen of late.

Aspects for the company to consider As anorganisation lookingto work withan influencer,it is

THE LEGAL RISK TO INFLUENCERS IS REAL AND CAN BE MATERIAL, RESULTING IN SIGNIFICANT FINANCIAL LOSSES

advisable to, among other things, ensure that certain clauses are particularly well drafted in any influencer contract. For instance, invariably a company would want to ensureit retainsits rightto review andthereafter approve or deny content

before it isuploaded to social media. This servesto avoid problematic and/or damaging content from being published, thereby tarnishing the company’s reputation and even potentially exposing the company to claims.

Moreover, well-drafted breach, termination and disputeclauses arenecessaryto ensurethecompanyisableto enforceits rightsin theevent of social media-related damages being suffered.

The importance of some of these clauses is illustrated in the international cases of SnapInc (PRConsultingInc) v Luka Sabbat (about a $90,000 claim) and Konus (Catwalk to Sidewalk Inc) v Luka Sabbat (about a $40,000 claim).

In both instances the celebritycontractedtoadvertise certain products simply failed to satisfactorily fulfil their contractual obligations. Both companies were constrained to enforce their rightsin termsof theprovisionsofthecontracttorecover the amounts already paid.

Aspects for the influencer to consider Many influencers do not have

IMPACT OF INFLUENCE

alegal backgroundand, asa result,are unawareofsome of the consequences associated with certain clauses contained in commercial contracts. It is for this reason influencers are strongly encouraged to seek legal advice prior tosigning any influencer contract.

Legal issues thatare particularly relevant to the influencer industry include unreasonable restraintof tradepractices,the useofthe influencer’s content outside of thebounds ofthe agreement for no additional compensation and being held liable for customer dissatisfactioninrelationtoaproduct or experience being advertised by the influencer.

Thelegal risktoinfluencersisreal andcanbe material, resulting in significant financial losses.

For example,in 2018the American Securities and Exchange Commission brought charges against professional boxer Floyd Mayweather Jnrand musicproducerKhaled Khaled for failing to disclose payments they had received for promoting

investments in initial coin offerings (ICOs), whereby new currencies aresold to investors (essentiallypromoting certainICO issuers/cryptocurrencies as being reliable andgenerally a good investment).

The ICO issuer was subsequently charged by the Securities andExchange Commission, premised on allegations that its ICO was fraudulent.

Without admittingor denying thefindings ofthe commission, Mayweather andKhaled agreedtopay disgorgement, penalties and interest tothe valueof $614,775 and $150,725, respectively. Inaddition, Mayweather agreed not to promote any securities for three years and DJ Khaled agreed to a similar ban for a period of two years.

The US office for the southerndistrict ofNewYork filed parallel criminal charges against the pair.

As the impactof influencers increases in the advertising industry, the need for carefully considered legal drafting and jurisprudence in

this area will increase. In SA thisislargely,albeitindirectly, regulated by the Consumer Protection Act and, more specifically, Appendix K to the Code ofAdvertising Practice(being theSocialMedia Code published by the Advertising Regulatory Board, a document many influencers may not be familiar with).

The industry is largely unregulated and, given the fast-changing nature thereof, closelyregulatingitislikelyto prove challenging.

This, however, places an evengreaterresponsibilityon bodies such asthe Advertising Regulatory Boardto keep a close eyeon the developmentsin theindustry,to ensure that companies, influencers and customers are adequately protected. Italso highlightstheneed forall partiesinvolvedto obtain proper legal advice, preferably at the inception of the commercial influencer relationship,enforcingtheold adage that prevention (in this instance, both from a risk and cost perspective) is better than cure.

Monetary policy change affects investors

Natalie Scott & Kyra South

Werksmans

OnJune8, theSouthAfrican Reserve Bank commenced with its 12-weektransition to a newmonetary policy implementation framework. According to theBank, the “monetary policy committee (MPC) makesdecisions on interestrates andthe[monetary policyimplementation framework] isthe mechanism throughwhich these decisions aremade effective and transmittedthrough the SA economy.

“The amendmentsto the framework aretechnical in nature andwill affecthow monetary policyis implemented, but will not affect the inflation target range or the interest-rate decisionsof the

MPC.” If the Bank’s amendments to SA’s monetary policy implementation frameworkare onlytechnicalin nature, let’s explorewhy it is important toknow what these amendments are.

SCARCE-RESERVES FRAMEWORK

Historically, theBank implemented theshortage orclassicalcash reservesystemfor implementingmonetarypolicy (Scarce-ReservesFramework) whichensured that there was ashortage of cash reserves inthe marketand thatalimited amountofcash reserves wasavailable to commercial banks.Commercial bankswere thus required tosource additional cash reserves from the Bank at the repurchase(repo) rate andwhich inturnensured

theinterest rateon suchcash reserves was equal to the policy rate.

We understandthat the Scarce-Reserve Framework worked relatively wellin SA up untilthe director-general of the WorldHealth Organisation characterisedCovid19 as a pandemicon March 11 2020 and SA declared the outbreak of Covi-19 in SA a national disaster.

During thepandemic, the Bankimplementedmeasures to relievethe liquidity squeeze Covid-19placed on commercial banksand noted in the latter halfof 2020 that liquidity inthe markethad largely normalised,save in relation tothe moneymarkets, wherethe liquidity shortage was consistently smaller than it was before the start of the pandemic.

On investigation,the Bank determined SA’s structural liquidity surplushad builtup overtime resultinginthe Scarce-Reserve Framework being “difficult andcostlyto operate” and thatthe “tieredfloor” systemwould beabetterand morecostefficient monetary policy implementation framework for SA.

TIERED-FLOOR SYSTEM

Under thetiered-floor system, the Bank will provide a surplusof cashreservesto satisfy commercial banks’ demand forcash reserves andwill placequotas onall commercial banks(i) limiting theamount ofcashreserves they’re able todeposit with theBank and earninterest (atthereporate) on and (ii) preventing thehoarding of cash reserves. By introducing

quotas tothe Tiered-Floor System, the Bankhopes to encourage commercial banks to lendsome of their excesscash reservestoother commercial banksthereby alleviating thepressure on the Bankas soleliquidity provider. While SAis the first emerging market to adopt the tiered-floor framework,the Tiered-Floor Systemnot a newconcept, andhasbeen successfully implementedin several firstworld countries, such as New Zealand and Norway, andwhich has proven to havebeen effective at stabilisingcommercial banks’ demandsfor cash reserves.

The Bankexpects thatthe implementation ofthe Tiered-Floor System(with quotas) will “provide the Bank with a resilient and effi-

cient frameworkfor implementing monetarypolicy in SA”, and encourage commercial banks todeposit cash reserveswith theBank,as opposed torequiring the Bankto provideliquidityto commercial banks. Butwhat doesthechange to SA’smonetary policy implementation framework mean for investors?

According toRand Merchant Bank,the “change in the MPIFwill haveimplications forfixed-income investors, sinceit islikely to result inchanges tothe supply anddemand ofcertain instruments and,consequently, structural adjustments tomarket reference rates.Theoveralleffect,especially at the shortend, is an expected reductionin spreads over the repo rate”

BUSINESS LAW & TAX

Remedy for strike losses

• Businesses can use section of Labour Relations Act to claim compensation if action turns violent

Kerrie-Lee Olivier

ENSafrica

The possibility of strikes, whether protected or unprotected, isan ever-looming threat toSA businesses. These strikesalmost always result in someform of financialloss forthe businessand leave themwith little recourse for recovery.

Section68(1)(b) ofthe Labour RelationsAct, 1995 (LRA) provides that,if an employer has suffered loss as aresult ofanunprotected strikeor conductinfurtherance of such astrike, it may claim compensationthat is “just and equitable” from the responsible party.

However, the question arises whetherthe section alsopermits anemployerto claim compensationif the strike isprotected? This question wasconsidered in the recentdecision ofthe labour courtin Massmart HoldingsLtd&othersvSouth African CommercialCatering and Allied Workers Union.

Inthis matter,various companies withinthe MassmartHoldings groupofcompanies sued the SA Commercial Cateringand Allied

Workers Union (Saccawu) for thepaymentofcompensation interms ofsection 68(1)(b)of the LRA totalling R9,383,454.57.

This compensation was sought forlosses thecompaniesclaim they suffered during the courseof a protected strike called by Saccawu. The companies contendedthat, during thestrike, Saccawu’s

SECTION 69 OF THE LRA REGULATES THE RIGHT TO PICKET AND EMPOWERS THE LABOUR COURT TO INTERVENE IN DISPUTES

members committed various offencesand thattheirconduct;

● Was not peaceful;

● Did not complywith the provisions of the LRA;

● Did not complywith the Covid-19 regulations in force at the time; and

● Didnot complywithpicketingrules determinedbythe Commission for Conciliation, Mediation and Arbitration.

Saccawu exceptedto the

company’s statement of claim on various grounds. Of most importancefor thepurposes of this article was the argumentthat thelabour court does nothave jurisdiction toconsider claimsfor compensationin termsof section68(1)(b)if thestrikeis protected.

The court rejected this argument on thebasis of its interpretation ofsection 68(1)(b). It argued as follows:

● Section68(1)(b) statesthat the court has jurisdiction to orderthe paymentof justand equitable compensationfor anyloss attributabletoan unprotectedstrike “ or conduct”. The term “conduct” is not explicitly linked to an unprotectedstrike. Neitheris itqualified asbeingconduct in furtherance ofan unprotected strike.

● Section 67(6)of theLRA givesunions andtheirmembersimmunity fromanycivil legalproceedings inrespect ofconduct incontemplation or furtherance ofa protected strike. However, this does not apply to unlawfulconduct in contemplation or furtherance of a protected strike.

● Section 69of theLRA regulates theright topicket and empowersthelabourcourtto intervenein disputescon-

RAISE YOUR HANDS

cerningpickets. Itmaymake avarietyof orders,andthese are expressly stated to be “in addition” toany reliefcontemplated in section 68(1) of the LRA.

Inclosing, thecourtstated that:

“[22] it wouldbe anomalous if an aggrieved employer or union was entitled to pursuea claimforcompensation in thiscourt undersection 68 for loss attributable respectively toa strikeor lockout thatdoes notcomplywith

ChapterIVbut notforloss attributableto conductthat constitutes a breachof the same chapter,simply because the strikeor lockout is protected.”

The importance of this case is thatit demonstrates that employers cannow rely onsection 68(1)(b) to claim compensation forlosses attributed to astrike that has subsequently turnedviolent andresulted invarious offences.

We advise that employers

shouldinsert intotheirpicketingrulesspecificprovisions ofthe LRAthat wouldbe breachedor otheroffences that would becommitted if a protected strike turns violent. This would assist with establishinganoffenceandas such provingthat theimmunitiesin termsof section67 do not apply.

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

Joint account fails to weed out ‘injustice’

Jonathan Goldberg & Grant Wilkinson Global Business Solutions

InNevervBarloworldEquipment, adivision ofBarloworld South Africa (Pty) Ltd (JS 633/20;JS 926/20) [2022] ZALCJHB 161(June 1 2022), anemployee was employedfrom April112007 in a position of category analyst, which wasa desk position. Herposition didnotconstitute asafety-sensitive job inthatshe wasnotrequired to operateheavy machinery ordriveanyoftheemployer’s vehicles. Theemployee had an unblemished disciplinary record until shewas dismissed on April 30 2020. The employeewas dismissed on account of repeatedlytesting positiveforthe cannabis drug, which breached the employer’s alcohol andsubstance abuse policy. At the labourcourt (LC), the employeeclaimed her dismissal wasautomatically unfair andthat theemployer’s policydiscriminated

against heron arbitrary grounds. Theemployee sought reinstatement. The employeetestified thatsome timeago shesuffered severe constant migraines andanxiety that affected herwellbeing and she had trouble sleeping. The employeewas prescribed pharmaceutical drugs that required the daily consumption ofabout 10pills to ease painand assist in falling asleep.

The employeehad graduallymoved awayfromconsuming pharmaceutical pills to using cannabis oil and smoking rolledcannabis as an alternative to achieve the sameresults. Itwasthe employee’s testimonythat this improvedher bodily health, outlook andher spirituality, assmoking cannabis made her feel closer to God andassisted inher questto address internal struggles.

The employerhad an

alcohol andsubstance policy the employee was aware of. In terms of the employer’s reviewedpolicy, and in order to gainbiometric accessto the employer’s premises, employees wererequired to undergo medical tests.

OnJanuary 292020,the employee wassubjected to sucha medicaltest.The employee testedpositive for cannabis.

On the sameday, the employee wasinformed that

she was unfit to continue workinganddirectedtoleave the premises of the employer immediately. Theemployee was placed ona seven-day “cleaning-up process”, which entailedthetestbeingrepeated on a weeklybasis until the employee wascleared by testing negative.

At the timeof undergoing the medicaltest, the employee wasnot impaired or suspectedof being impaired inthe performance of her dutiesnor was she performing dutiesthat would be a risk toher own safety or that of her fellow employees.

During theperiod from January 292020 toFebruary 282020, theemployeewas denied access tothe employer’s premises asher further

SMOKING CANNABIS MADE HER FEEL CLOSER TO GOD AND ASSISTED IN HER QUEST TO ADDRESS INTERNAL STRUGGLES

tests continuedto detect cannabis in hersystem. The employee was accordingly charged with breachof the employer’s alcoholand substance abusepolicy on February 25 2020.

The employee pleaded guiltytothe chargeonthe basis that shehad tested positive for cannabis.

The employee indicated thatshedidnotpleadguiltyto being intoxicatedor impaired atwork. Shealsoindicated she was never “stoned” at work and reiterated the importance ofsmoking rolled-up cannabis everyevening as wellasdailyuse ofCBDoilto maintain herimproved medical benefits that reduced her pharmaceutical drug dependency.

Notwithstanding allthese, the employerinstructed the employee toundergo a “cleaning-up process” and that shewould continueto be tested every seven days until she testednegative. Thisprocess was in line with the alcohol andsubstance abuse policy. OnApril 292020, the employee was dismissed.

Taxpayers can’t just wing it with VDP

• Noncompliant taxpayers risk being burnt if they bend the definitions of ‘voluntary’ and ‘disclosure’

Francis Mayebe, overseen by Virusha Subban Baker McKenzie

The voluntary disclosure programme (VDP) in SA, introduced by the Tax Administration Act, 2011, aims to increase taxcollection, promote goodmanagement of the tax systemand allow the best useof SARevenue Service (Sars) resources.

TheVDP allowsnoncompliant taxpayersan opportunity toregularise their tax affairs by disclosing any tax defaults in previous years of assessment.

Section227 ofthe actsets out the criteriawith which a taxpayer must complyfor a voluntary disclosureto be consideredvalidforpurposes of the VDP. Tobe accepted by Sarsas avalidvoluntary disclosure application, the application must:

● Be voluntary;

● Relate to a default that has not occurredwithin five yearsofthe disclosureofa similar default;

● Be full and complete in all material aspects;

● Relate toa behaviour referred to in column2 of the understatement penaltytable in the act;

● Not resultin arefund due by Sars; and

● Be made in the prescribed form and manner.

In the case of Purveyors South AfricaMine Services (Pty)Ltd vCSARS, thepinnacleof thediscussionsurrounded theinterpretation of the words “voluntary” and “disclosure” withinthe context of the VDP.

In2015, PurveyorsSouth AfricaMineServices(thetaxpayer) importedan aircraft into SAunder adry lease agreement withFreeport MineralsCorporation,acompany incorporatedand tax

THE TAXPAYER HAD BEEN INFORMED, ON MANY OCCASIONS, OF ITS TAX OBLIGATIONS BY NUMEROUS PARTIES

resident in the US. The aircraft was mainlyused to transport its executives and other personnel to African countries where the taxpayer had operations.

Thetaxpayer wasliableto pay importVAT onthe importation of the aircraft. Aboutayear afterthetaxpayer imported the aircraft, it became aware ofits liability topay VATandaccordingly engaged Sars in this regard,

providing an overview of the facts. In 2017,Sars held the view that the taxpayer should have paid VATon the imported aircraft and warned the taxpayer ofthe potential penalties that could be imposed as a result of the taxpayer’s failure to account for, andpay, theVAT due.The taxpayer thereafterapplied for voluntary disclosure, which Sars declinedon the basis that it did not satisfy the requirements for a valid voluntary disclosure application.

Theissuesindisputewere the interpretation of the words “disclosure” and “voluntary”. The Supreme Court ofAppeal(SCA) tookquitea strict and narrow interpretation ofthe word “voluntary” in finding that the disclosure wouldonly bedeemedto have beenmade voluntaryif “an errant taxpayer comes clean on their violation without being prompted to make amends with respect theirdefaultswheninforming Sars”

This interpretationby the SCA includes two requirements which the taxpayer failed to demonstratein this case the first being that the disclosure madeby thetaxpayer mustnot beprompted and thesecond beingthat it mustnotbesolelyintendedto avoid certain consequences ofwhich thetaxpayerhas

become aware before the disclosure.

In thiscase, thetaxpayer was well aware of its liability to payimport VAT,as wellas the applicable penalties in that respect. The taxpayer had beeninformed, onmany occasions andover aperiod of aboutthree years,of itstax obligations bynumerous parties, includingSars andits auditors, whocorroborated Sars’ views.

Thequestions toaskin evaluating the intention of the taxpayer behind the eventually made disclosure are whether the taxpayer would have disclosed its tax defaults if Sars was not already aware ofthemand ifthedisclosure wouldhavebeenmadesolely to avoid thepenalties for which it was already liable.

It isevident fromthe facts, as also pointedout by the SCA, that the taxpayer had made priordisclosures ofits transgressions to Sars, after which itsought advicefrom its auditors, who confirmed Sars’ position. The disclosure bythetaxpayerwastherefore neither a propernor an unequivocal disclosure as it failed toshow inits invoices that VAThad notbeen

chargedonthe leaseofthe aircraft.Instead, thedisclosure wasmade as aresult of Sars beingaware ofthe defaultandoutofcompulsion to make the disclosure in an attemptto avoidthepotential penalties.

It isin thisrespect thatthe SCA found that the disclosure made by thetaxpayer was notvoluntaryinthecontextof the VDP, since Sars already knew about thedefault, and thedisclosure wasmainly

THE TAXPAYER HAD MADE PRIOR DISCLOSURES OF ITS TRANSGRESSIONS TO SARS, AFTER WHICH IT SOUGHT ADVICE FROM ITS AUDITORS

promptedout offear ofthe consequencesof thenoncompliance.

The SCA further consideredwhether adisclosure did, in fact,exist in these circumstances. The taxpayer was of theview that the requirement for voluntary

disclosurewas notrestricted to the disclosureof something new,of whichSars was notaware.Sars, ontheother hand,wasof theviewthaton aproper constructionof section 227of theact, the taxpayerdid notdisclose information or factsof which Sars was unaware.

In a textual interpretation of theword, theSCA found thatthe word “disclosure” means “to open up to the knowledgeof others,to reveal”

The SCA outlinedthat the requirement thedisclosure must be made in a prescribed formatis aclearindication the application is sought to preventtaxpayers fromdisclosinginformation toSars and subsequently applying fora voluntarydisclosure application. Therefore, the disclosurewill beinaccordance with theVDP if such disclosure involves informationofwhich Sarswasnot previously aware. With the aforementioned inmind, theSCA foundthat thedisclosure madebythe taxpayer was not in line with therequirements ofsection 227ofthe act,astheapplication disclosed nothing new.

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