Business Law & Tax (BD, May 2022)

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Peppa Pig just one victim of Russia’s IP backlash

• War-hungry Moscow has detailed measures that will affect intellectual property rights of critics

Gaelyn Scott

ENSafrica

For thepast few weeks, we’ve all been transfixed and horrified by events in Ukraine. Intellectual property(IP) is obviouslynot themajorissue in thiswar, yetthe conflict hashad seriousIPramifications. Several major internationallawfirmshaveleftRussia as a result of the war among themLinklaters, NortonRoseFulbrightandSquire PattonBoggs.

IP-rich companies pulled outof Russiaquickly.Among them wereAdidas, Apple, Coca-Cola,Disney,Heineken, Hermes, Ikea,Levi’s, L’Oreal, McDonald’s, Nikeand Starbucks. Some companies,

such as Burger King and Marks&Spencer,havefound leaving difficult, however, becauseof thecomplexfranchising arrangements they havewithRussianfirms

Some Russiancompanies have responded to the withdrawal by filing trademark applications to register logos thatlooksimilar tothelogos ofthosewhohaveleft.

RUSSIA CO-OPERATION

The EuropeanIntellectual Property Office (Euipo) cut ties withRussia becauseof thewar, whereastheUS Patent & Trademark Office (Uspto) announced it would terminate its Global Patent Prosecution Highwayagreement withthe RussianIP office,Rospatent.

China’s IPOffice, however, took a different

discover more

BUILDING A CASE

approach, announcingan extension ofthe Eurasian Patent Organisation’s Patent ProsecutionHighway(PPH).

DOMAIN NAMES

TheUkrainianregistry,which isin chargeofthe .uadomain names, moved itsservers to the EU early on.It also asked the InternetCorporation for Assigned Namesand Numbers (ICANN)to disconnect the RussianccTLDs including .ru and .su, but ICANN

IP-RICH COMPANIES PULLED OUT OF RUSSIA QUICKLY. AMONG THEM WERE ADIDAS, APPLE, COCA-COLA, DISNEY AND NIKE

refused,saying itdoesnot havethepowertodothis.

There havebeen anumber ofdevelopments and, frankly, they’requite confusing, but this is our understanding:

● There’s adocument in Russia entitled “Priority action plan for ensuring the development ofthe Russian economy inthe conditionsof externalsanctionspressure”

Thedocument setsout measuresthat willaffectthe IP rights of those who act against Russia’s interests. This document talksof “ cancellationofliabilityfortheuse of software unlicensedin the Russian Federation,owned by a copyright holder from countries thathave supportedsanctions”

Thedocument alsoproposes compulsory licensing

mechanisms forcomputer programsanddatabases,giving thegovernment “rights to an invention,utility models, industrialdesigninrelationto computer programs, databases, topologiesof integratedcircuits”

● There’sa draftlawthat gives thegovernment the power totemporarily annul theprotectionofIPrights.

● There’s also alaw that allows Russianauthorities to exclude specificgoods from IP protection,thus allowing for parallel imports and IP infringement.

PEPPA PIG CASE

Thishasbeen muchinthe news. Acompany called Entertainment One(part of the Hasbro group)owns the trademarkrights toacharactercalled PeppaPig.When

Hasbro sued aRussian companyin aRussian courtfor infringement ofits trademark, thejudge ruledagainst it, makingit quiteclear that “theunfriendly actionsofthe US andaffiliated foreign countries” hadinfluenced his decision.

The judgesaid this: “In view ofthe restrictivemeasures imposedon theRussian Federation(sanctions) and theplaintiff’s status(a foreign company),the court considers the plaintiff’s actionstobeanabuseofright, which isan independent ground forrefusing the claim.”

Clearly, damagesawards are not high in Russia apparently, Hasbro would have beenawarded the

Peppa Pig a victim of IP backlash

equivalentof about £400 in damagesif itsclaim hadsucceeded. Though,as one report points out, the damagesaward wouldinfact have beenworth nomore than£230giventhedramatic devaluationoftherouble.

DAILY MAIL WADES IN Some readers willbe aware that the PeppaPig character isheld inhighesteem inthe UK.The DailyMailhad thisto say about thecase: “Russia has madethe astonishing decision tosanction beloved cartoon characterPeppa Pig and Daddy Pigas the crisis deepens over Vladimir Putin’swarinUkraine.”

The paper went on to issue thisgrave warning: “The rulingby JudgeAndrei Slavinsky ina provincial arbitration courtin Kirov could pave theway for the mass abuseof Western trademarks andcopyrights allowingRussiatofloutcopyright lawsby refusing infringementclaims.”

Followedbythis:“Theruling couldtrigger more widespread abuseof trademarks as wascommon in Russiain theyears afterthe fall of the Soviet Union in 1991.”

Let’send withsomething light the words of Boris Johnson.TheDailyMailcould notletthis mattergowithout reminding readersthat the primeminister oftheUK isa serious fan of Peppa Pig. According tothe paper,the “Russians couldhave been aware ofBoris Johnson’s admirationforPeppaPigafter hisbizarreNovemberspeech totheConfederationofBritish Industry”

Thiswas thespeech where theprime minister saidthis:“YesterdayIwent,as we all must,to Peppa Pig World Ilovedit.PeppaPigis very muchmy kindof place who wouldhavebelieved thata pigthatlooks likea hairdryerorpossiblyaPicasso-like hairdryer, apig that was rejectedby theBBC, wouldnow beexportedto 180countries.”

BUSINESS LAW & TAX

SA may gain from tool to fight profit-shifting

• Intent seems more to level the playing fields between emerging markets and tax havens

In October 2021,the Organisation for Economic Co-operation & Development (OECD)/Group of20 Inclusive Frameworkon BaseErosionand Profit Shifting was agreed to asa two-pillarsolutionfor the taxchallenges arising from the digitalisation of the economy.

Oneoutcomeisthatwhile quitecomplex,itmayactually benefitan economylikeSA’s, which has been making positive stridesto implement rulesthat keeppacewith globaldevelopments.

Aglobal minimumcorporatetax rateofat least15% underpillar twowas oneof the recommendations, but other moreimportant changes will simplify, update and make theentire globaltax systemmoretransparentand equal.Allsaidanddone,itisa gargantuantask.Butitshould beworthit.

At aminimum itshould havea neutraleffect as the intentseems moretolevel the playingfields between emerging marketsand tax havens, andthose thathave tended to toethe line. The recent cut incorporate tax from28% to27%may, infact, juststart toswaythe scalea little into SA’s favouras a favourable nationfor investors seekingupside.

Someof theprovisions arestill beingironed outbut asit stands,in-scopecompanies arethe multinational enterprises (MNEs)with globalturnoverabove€20bn and profitabilityabove 10% (profit beforetax/revenue) calculated usingan averaging mechanism.

The turnover threshold wouldbereducedto€10bnif implementationissuccessful, includingof taxcertaintyon “AmountA”,withtherelevant review beginningseven years afterthe agreement comes intoforce, andthe reviewbeingcompletedinno morethan ayear. No doubt lawyers andtax accountants willneed tofireup theircalculators to work alot of this out. Butessentially they would needto determine who iscovered as said, these will be highly profitable businesses and then begin workingoutAmountAofpillarone.This isessentiallythe

basisfor alltheprovisions, whichin turnintroducea new taxing right over a portion of the profitof large and highlyprofitableenterprises.

Itwill benecessary touse consolidated groupfinancial accounts asthe startingpoint for computing the Amount A taxbase.

Model rules arealso being developed to provide a template thatjurisdictions could use as the basisto give effect to thenew taxingrights over

THE RECENT CUT IN CORPORATE TAX FROM 28% TO 27% MAY, IN FACT, JUST START TO SWAY THE SCALE A LITTLE INTO SA’S FAVOUR

Amount A intheir domestic legislation. Evenmore commentary onthese rulescan beexpected beforetheyare made law in member countries,includingSA.

However, SA will be free toadaptthese modelrulesto reflect itsown constitutional law, legalsystems and domestic considerations and practices forstructure and wording oflegislation as required, while ensuring implementation is consistent in substancewith theagreed technical provisionsgoverning the applicationof the new taxingrights.

Accordingto recentupdates, aprovision thatmay benefit emergingmarket economies is includedin pillarone asanew specialpurpose nexusrule permitting allocationof AmountA toa market jurisdictionwhen the

in-scopeMNEderivesatleast €1min revenuefromthat jurisdiction.ForsmallerjurisdictionswithGDPlowerthan €40bn, the nexuswill be set at€250,000.

While benefitingother jurisdictions, anotherimportant aspectof thesechanges istoprovide moretaxcertaintyfor the companies themselves. In-scope MNEs willbenefitfromdisputepreventionand resolutionmechanisms,which willavoid doubletaxation forAmount A,including allissuesrelated toAmountA(suchastransfer pricingor businessprofits disputes), in a mandatory and bindingmanner.

For in-scope MNEs, 25% of residual profit defined as profitinexcessof10%ofrevenuewillbeallocatedtomarketjurisdictions withnexus usinga revenue-basedallocationkey.

Revenue will be sourced to the endmarket jurisdictionswhere goodsorservices are usedor consumed. Tofacilitate theapplicationof thisprinciple, detailedsource rulesforspecificcategoriesof transactionswill bedeveloped.In applyingthesource-

ing rules,an in-scopeMNE must usea reliablemethod based on the MNE’s specific factsandcircumstances.

Itis worthnoting thatpillar tworefers toa fewinterlocking rules. These include anincomeinclusionrule(IIR), which imposes top-up tax on a parententity inrespect of the low taxedincome of a constituent entity; and an

THE OECD IS MOVING FAST AND FURTHER REQUESTS FOR INPUT FROM STAKEHOLDERS ARE GOING TO BE MADE SOON

undertaxed paymentrule (UTPR),which deniesdeductions orrequires anequivalent adjustment to the extent thatthelow taxincomeofa constituententity isnotsubject totax under an IIR;and a treaty-basedrule thesubject to tax rule (STTR)) that allows source jurisdictionsto imposelimited sourcetaxation on certain related party

paymentssubject totax belowaminimumrate. While itis stillearly days, theOECDis movingfastand furtherrequests forinput fromstakeholders aregoing to bemade soon.These includethe amountsinvolved, and the administration of and compliancewithpillartwo. Companies also need to watch other movesto regulate thedigitised world,with theOECD recentlyreleasing apublic consultationdocument concerning a new globaltax transparencyframework to provide for the reportingand exchangeof informationwith respectto crypto-assets,aswellasproposedamendments tothe common reporting standard (CRS)for theautomatic exchangeoffinancialaccount information between countries. The purposeof the consultation is toinform policy makerdecisions aboutthe possibleadoptionofanysuch frameworkand itsrelated designcomponents. There iscertainly alot of movement on theglobal tax front andcompanies needto stayin touch,or beleft behind.

Nuts and bolts of fuel levy cut

• An example of how the principle of retrospectivity can be used to relieve pressure not add to it

Louis Botha CDH

The rateof petrol, diesel and the concomitant fuel levies, which are included in the price paid by consumers of petrol and diesel, has been the subjectof muchdebate andscrutiny inthe pastyear, especially withongoing increases.

Followingtherecentspike inthe internationaloilprice, the concern wasraised that the (already) highprice of petrolanddieselpaidbyconsumers couldincrease even more,and aR2per litrehike was predictedfor thebeginningofApril.

Fortunately forconsumers, itwas announced the fuellevy wouldbe reduced temporarilyand the National Treasuryissued a media statement onApril 1 confirming theannouncement made by the finance minister andthe mineral resources &energy minister onMarch 31, regarding a temporary reductionin the generalfuellevy.

The media statement notes thatthe temporary reduction willbe fundedby a liquidationofaportionofSA’s strategic crude oilreserves. It specifically statesthat “the general fuel levyfor petrol anddieselwill bereducedby R1.50 per litre between April 62022,andMay312022.”

Understandably, most consumers are concerned about how the fuel levy reduction affectstheir pockets at the endof the day. However, theprocess of amending thelegislation that makesthistemporaryreduction possibleis equally important, aswithout this legislationthere canbeno temporary reduction. We look at the legislation briefly inthisarticle.

The media statement notes that the2022 draft Rates Bill thatwas published with thebudget inFebruary this year includes the tax rate and thresholdadjustments thatwere announcedinthe 2022 budget,and includes changes tothe personal income taxbrackets and rebates, theemployment tax incentive andexcise duties onalcoholandtobacco

Itthen explainsthe revised version of the 2022 draft RatesBill publishedon April1 2022includesthe temporary reductionin the generalfuel levyandconsequential amendmentsto the levy onbiodiesel, whichwill

MOST CONSUMERS ARE CONCERNED ABOUT HOW THE FUEL LEVY REDUCTION AFFECTS

THEIR POCKETS

temporarily decrease to R1.10 per litre overthe two-month period betweenApril 6 and May 31 2022.This is alongsidesimilar reductionsinthe value of dieselrefunds for farming, mining and other eligibleactivities.

Ratesbills, likethe2022 draft Rates Bill,are passed on an annual basisto give effect to changes announcedin tax rates, personal income tax brackets andthe fuellevy, amongotherthings.

CONSTITUTION

The 2022 draft Rates Bill, which constitutes a money bill interms ofsection 77of the constitution,must be dealtwith interms ofthe process insection 75of the constitution. The process in section75 requires,insummary,that thebill bepassed bytheNationalAssemblyand the National Council of Provinces following which it must besubmitted tothe presidentforassent.

Inrecent years,ratesbills and other tax amendment bills (suchas theTaxation Laws AmendmentBill), which are published annually, are passed and comeintoeffectonlytowards the end of the calendar year inwhich theyare published or atthe beginningof thefollowingcalendaryear.

This then raisesthe question:howdoesthetemporary reduction in thegeneral fuel levy comeinto effectbefore

RUNNING ON EMPTY

the2022 draftRatesBill comesintoeffect?

Theonlywaytoimpactan amendmentofa taxrateor the fuellevy fora periodpreceding the legislation being passed by parliament is through the principle of retrospectivity.This isalsothe sameprinciple thatappliesto effect the temporary reductioninthegeneralfuellevy.

Under the Customs and ExciseAct91 of1964(C&E Act), itis possiblefor aduty specifiedinpart2, 3,4,5Aor 5B of schedule No1 to the C&E Act tobe amended with retrospective effect.(There are similar provisionsin otherpiecesoftaxlegislation,but theyarenotdiscussedhere.)

Thegeneral fuellevyis statedin part5B ofschedule No1 tothe C&EAct. Inthe current instance, the revised 2022 draft RatesBill ensures

that retrospectiveamendment ofthe temporaryR1.50 reduction in thegeneral fuel levy for petrol takes place by statingin section5(5)that from April6 toMay 312022, the general fuellevy will be 235c a litre, asstatedin schedule II part IV(a) to the 2022 draftRates Bill,thereby amendingpart5Bofschedule No1totheC&EAct.

It then statesin section 5(6)thatfromJune12022,the generalfuel levywillbe 385c/l,as statedinschedule II part IV(b)to the 2022 draft Rates Bill, thereby amending part5BofscheduleNo1tothe C&EAct.

Inrecentyears,ithashappened thatthe financeministerannouncedachangeintax rates, such asdividends tax and capital gainstax, with effect fromthe daythat he gave thebudget speechfor

that yearand madethe announcement. These announcementswereunderstandably not welcomed as they sprung a surprise and resultedinthe taxpayablein terms ofa particulartransaction suddenlyincreasing, through no faultof the taxpayers. These changes were justifiedbythegovernmentin termsofthe principleofretrospectivity, which was considered in thePienaar Brothers decisionand discussedin our Taxand ExchangeControlAlertofJune92017. Considering that the temporary reduction of the general fuel levy,which affects virtually all consumers, is made possible bythe principle of retrospectivity,there is atleastoneexampleshowing thatthe powerto changetax rates retrospectively is not onlyabadthing.

Beware: Competition Act back in full force

Sphesihle Nxumalo & Jarryd Hartley Baker McKenzie

In 2020,then government declared a nationalstate of disaster in terms of the National DisasterManagementAct,duetotheoutbreak ofCovid-19.

This declarationwas followed byseveral interventions from the government to maintain business viability andmitigate theworst ofthe pandemic’s effectson the economy. Among these interventions were various “block exemptions” issued by the trade, industry & competition ministerto aidgovernment programmesdesigned tofightCovid-19. Importantly, these block exemptions appliedfor as longasthe declarationofthe Covid-19 pandemicas a nationaldisastersubsisted,or until withdrawn bythe min-

ister (whichevercame earlier).

On April 4 2022 President Cyril Ramaphosaannounced thatthe nationalstate ofdisaster in response to the Covid-19pandemicwouldbe terminated, effective midnightonApril 52022.As such, regulationsand directions that weremade in termsof theDisasterManagement Actfollowing the declaration ofthe national state ofdisaster areeffectively repealed(with the exception of a few transitionalmeasures).

The 2020block exemptions exemptedagreements which wereundertaken at therequestof, orincoordination with,the relevant government department,for the solepurpose ofrespondingto theCovid-19national disaster, fromthe application of sections 4 and5 of the Competition Act (excluding

communications or agreements inrespect ofpricing [meaning price-fixing]unless specifically authorisedby the relevant minister).Parties in the relevantindustries that participated inany agreements orpractices falling within thescope ofthe block exemptions werealso required tokeep minutesof meetings held,and written records ofsuch agreements orpractices.

Specifically, theseblock exemptionscomprised:

● Block exemptionfor the health-care sector, effective March 19 2020 and expandedApril82020.Thisexemption allowedplayers inthe health-care sectorto cooperate to ensurethere was adequate capacityand stock at health-carefacilities, as wellasto mitigatetheeffects of the disaster and ensure access to health care, reduction ofprices andprevention

ofexploitationofpatients.The exemptionapplied toarange of health-careservice providersandsuppliers.

● Block exemptionfor the banking sector,effective March 232020. Commercial banks weregranted exemption fromthe provisionsof the Competition Act to allow them todevelop common approaches todebt reliefto mitigatethenegativeeffecton consumers, and manage banking infrastructureand payment systemsduring the nationaldisaster.

● Block exemptionfor the

BANKS WERE GRANTED EXEMPTION … TO ALLOW THEM TO DEVELOP COMMON APPROACHES TO DEBT RELIEF

retail propertysector, effective March 24 2020. This exemption wasaimed at ensuring thesurvival and continuity, particularlyof designated retailtenants, including smalland independent retailers.The exemption enabledconcertedconductin the retailsector tominimise the negativeimpact onthe ability ofdesignated retail tenants,includingsmallindependent retailers,to manage their financesduring the nationaldisaster andbe ina position tocontinue normal operations beyond the nationaldisaster.

● Block exemptionsfor the hotel industry, effective March 7 2020. This exemption was aimed at exempting parties in thehotel industry fromtheact,topromoteconcerted conductaimed atalleviating, containingand minimising the effects of the national disaster, and

enabling the hotelindustry to collectively engagewith the departments ofhealth and tourism respectivelyto identify andprovide appropriate facilities forindividuals placed underquarantine, as determined bythe departmentofhealth.

PENALITIES

The terminationof the national stateof disaster means thatany agreements or concertedpractices between parties in all these industries, whichmay contravenesections4 and5of the CompetitionAct, willno longer beexempted from those provisions ofthe Competition Act, and may now attract investigationand/or penalties fromthe competition authorities.Parties in these industriesshould thus be careful notto engage in conduct whichmay contravenetheCompetitionAct.

BUSINESS LAW & TAX

Firms must factor in ESG when lending

• Companies could be held liable if money doled out is used for projects that harm the environment

Mihlali Sitefane & Dalit Anstey ENSafrica

Historically, lenders have been mainly concerned with theborrower’s abilityto serviceits debt and the indirect environmental risks,relating to existing liabilitiesand noncomplianceoftheborrower.

However,recentdevelopments inenvironmental law and financehave seena growing emphasison the potential liability ofa lender for environmentalharm causedbytheborrower.

Therise ofenvironmental, social andgovernance (ESG) makes it essential for lenders to be awareof lender liability inthe contextofenvironmentallaw.

Theconceptof“lenderliability”, namely theidea that a lender is held liable for the actions orconduct ofa borrowerthatresultsinenvironmentalharm, existsonly asa theoretical possibilityin SA environmentallaw.

While there is no specific provision forlender liability in SAenvironmental law, section28 oftheNational Environmental Management Act,1998(Nema)providesfor a wide statutory duty of care in respect ofthe environ-

ment. In terms of section 28 of Nema, anyperson who causessignificantpollutionor degradation ofthe environmentandfailstotakereasonable measuresto prevent such pollutionor degradation from occurringcould beheld liableforresultantharm.

Theauthorities areentitled to recover the costs from personsin controlofthe land/premises wherethe harm occurred;persons responsible foror who directly/indirectly contri-

THERE IS A GROWING BODY OF PRECEDENTS WHERE COURTS HAVE BEEN PREPARED TO PIERCE THE CORPORATE VEIL

butedtothe pollution;orany personwhonegligentlyfailed toprevent thepollution.In certain circumstances,the authorities may pursue a lender for therecovery of costs.

Therisk ofexposureis determined by the lender’s degree of control over the borrower. Control could be demonstrated in anumber of ways, including through con-

tractual terms and structuring in financing agreements, majority shareholding, a power toappoint andcontrol aboard, ownershipofproperty(assecurity)ortheuseof property. Theduty ofcare is notlimited bythecorporate veil, which may be pierced to attributeliability.

Thereisagrowingbodyof international precedents where the courtshave been preparedtopiercethecorporateveiltoattributeliabilityto alender ora parentcompany (the latterof whichcan be considered an indirect form of lender liabilityas the parent company operating in another jurisdiction from the subsidiary is heldliable for the subsidiary’s actions, which resulted in environmentalharm).

A highlytopical and precedent-setting case in the area oflender liabilityis the caseofBudha IsmailJam,et al vIFC. In Jam vIFC, fishing communities and farmers in Gujarat, India, challenged the International Finance Corporation (IFC) for its role in funding and enabling the Tata MundraUltraMegacoal-fired powerplant.

The constructionand operation of a 4,150MW powerplantalongtheGujarat coastwas allegedtohave destroyed critical natural resourcesreliedonbygener-

CORPORATE CARE

ations of local families for fishingandfarming.

The plaintiffs sued the IFC in Washington DCfor the environmental harm that resulted.

However, theIFC claimed it had “absolute” immunity from suit. Historically, the principlehasshieldedtheIFC from claims againstit in respect ofthe projectsit has funded in the developing world.

On February27 2019,the supreme courtruled thatin principle,the IFCcouldbe sued (thatis, thatit couldnot relyona blanketshieldof immunity to defend itself against claims brought against it).As withthe parent liabilitycases inthe UKand EU,thisdecisionwasdecided purely on aprocedural basis and the case had to return to the trialcourt forfurther litigation.

TheIFCfiled amotionto dismiss, arguing that the exceptions to immunity did notapply, andinFebruary 2020, this motion was granted. The district judge

found the IFCwas immune under the facts of the case because the relevant acts occurred in Indiaand immunity applied unless the lawsuit was basedon commercialactivityintheUS.

Theplaintiffstriedtoshow that all relevant actions, including the approval of the loan, took place in Washington,but thisargumentwas dismissed bythe court.The plaintiffs unsuccessfully appealed the decisionto the DC circuitcourt ofappeals and appealed tothe US supreme court in January 2022.

Though thecourts have been sceptical about the strength of the plaintiffs’ claimagainst theIFC,the

LENDERS SHOULD CONDUCT IN-DEPTH ESG DUE DILIGENCE AND … INCLUDE APPROPRIATE CLAUSES IN CONTRACTS

finding thatthe IFC,as a lender, does not have absolute immunity mayresult in the opening of floodgates for similarclaimsinfuture.

The theoreticalpossibility of liability may result in the IFCbeingmorewillingtosettle withclaimants toavoid risk and totake the recommendations of internal IFC accountability mechanisms seriously.

This casechallenges the notion that lenders stand at a distance from borrowers’ activities. Given these developments, lendersshould conduct in-depth ESG due diligence at the transaction screening phase and include appropriate clauses in contracts with borrowers to restrict and mitigate environmentalliabilityrisks. But this isunlikely to be enough: lenders will need to monitorand assesstheperformance of the borrower throughout the project life cycle to demonstrate they acted responsibly and reasonably, and to discharge theirdutyofcare.

The new, new normal for your workplace

Jonathan Goldberg & John Botha Global Business Solutions

Although the state of disaster has beenlifted, thisdoes not mean workplacescan go backtothe waythatthey wereinthepre-Covid19era.

Thevirusis heretostay andemployersneedtohavea sustainable workplace plan sothey areableto ensure(as far asreasonably possible) the healthand safetyof their employees.

The firststep indeveloping such a planis that you need to be familiar with the CodeofPracticeonManaging Covid-19 atthe Workplace.

This code states that if you employ morethan 20 employees you needto conduct arisk assessment. Thingsyouwouldlookatare, for example,how many employees have comorbidities, howmany employees are full vaccinated and does your workplacehave a propensity for riskof infection ortransmission of Covid-19?

Thenext stepisdeveloping arisk mitigationplan so you can tothe best of your ability minimisethe risks facedbyyouremployeesand thirdparties onyourpremises in terms of contracting Covid-19 atthe workplace.

So,forinstance,ifyourworkplace isn’t big enough to allow forsocial distancing among youremployees, you could divideyour employees intoteams andeachteam wouldcometo theofficeon alternatedays.

CONSULT

What’s importantto remember is thatbefore you implement yourrisk mitigation plan you needconsult with your occupationalhealth and safety committees and if your environmentis unionised youneedtoconsult with the unions who are sufficiently represented in yourworkplace.

In addition you need to integrate thehazardous biologicalagentsregulationsinto yourplan.

ThenumberoneriskmitigationstrategyagainstCovid19 is for allemployees to be fully vaccinated.This means that either they will have had one Johnson & Johnson vaccination andtwo boostersor two Pfizervaccination and onebooster.

However,therehavebeen cases whereemployees refuse tovaccinate. These employees canbe divided intotwogroups:

1.Thosewhorefuseonthe groundsoflegitimatemedical reasons;and

2.Thosewhorefusebased onotherreasons. For the first group, if they produce alegitimate medical certificate, whichstates the reasonswhy theycannotbe vaccinated, theymay be accommodated ina position whichdoes notrequirethem tobevaccinated. Interms ofthesecond group, you needto counsel the employeeabout themerits of being vaccinated and, if the employeechooses, allow them to consult with a health and safetyrepresentative or tradeunionofficial.Iftheystill refuse tobe vaccinatedyou need totake reasonablesteps to accommodate them in a

position wherethey don’t needtobevaccinated.

There are substantial record-keeping obligations placed on the employer as you need tokeep all Covidrelated documentation for 40years.

Inaddition,ifyoudon’tfollowany ofthe properproceduresin relationto themanagement of Covid-19 in the workplace youcould facea fine orimprisonment. This means it isimportant you implement solid processes and procedure first and, if you’reunsureaboutanything, you consult witha professional who willbe able to assistyou.

BUSINESS LAW & TAX

Essential food prices are still a top concern

• Companies in consumer goods and retail sector are being scrutinised by competition authorities

Lerisha Naidu, Sphesihle Nxumalo & Jarryd Hartley Baker McKenzie

The Competition Commission in SA has madeit clearit iscloselywatching the price volatility ofessentialfooditemsinSA.

Thejustification ofprice hikesfor fooditemswill continueto beafocus forthe competition authority, despite legalinterventions intendedto guardagainstthis happening duringthe pandemic recentlybeing repealed bythe endof the nationalstateofdisaster

Across the continent, competition authorities are increasingly acknowledging their role as guardians of fair practice andconsumer protection, andthey have expressed theirintention to enforce these principles goingforward. Atthesame time, businessesthat operate inthe consumergoodsand retail (CG&R) sector are having to contendwith serious supply chain disruption caused bygeopolitical and environmental challenges, madeworse bythepandemic,but alsoaffectedby alack ofinfrastructure.

In early 2020, the trade, industry &competition minister issuedvarious regula-

tions inresponse tothe declaration of Covid-19 as a national disaster inSA. Such regulations wereintended to mitigate the impact of the pandemicontheeconomy.

Onesuch regulationwas directed atthe CG&Rsector in SA: the Consumer and Customer Protection and National DisasterManagement Regulationsand Directions, which came into effect onMarch192020.OnApril6 2022thenationalstateofdisasterwas liftedin SAand with thatmost regulations and directions made in terms of theDisaster Management Act wererepealed, including the consumer protection regulations.

At thebeginning ofthe pandemic inMarch 2020, concerns bythe government and consumersthat firms could seek to charge higher prices for certaingoods due to supplyshortages caused by Covid-19prompted the minister topromulgate regu-

FIRMS IN THE CG&R SECTOR SHOULD ENSURE PRICE INCREASES OF ESSENTIAL FOOD ITEMS CAN BE JUSTIFIED

lations that prohibited “excessive pricing” by dominant firmsin thesector. The Competition Act prohibits a dominant firm from charging excessive pricesto thedetriment of consumersor customers.

Under theseregulations, the authorities scrutinised material price increases for certain goods or services, wherethe increasedidnot correspondto, orwasnot equivalent to,the increasein the cost of providing that goodorservice;orwherethe increaseinflatedthenetmargin or mark-up on that good or serviceabove theaverage marginor mark-upofthat goodor servicein thethree monthsbeforeMarch12020.

The regulationsapplied to a numberof goodsand services, including medical and household cleaning equipment.Notably,essentialfoods itemswere alsoincludedon the list: cookingoils, wheat flour, rice, maize meal, pasta, sugar, long-life milk, canned and frozen vegetables, canned, frozen and fresh meat, chicken or fish and bottledwater.

After thepromulgation of theseregulations,therewasa flurry of reports regarding excessive priceincreases, including for basic foods. The Competition Commission

COUNTING THE COST

investigated more than 1,199 reports, which eventually led to the successful prosecution of two firms for excessive pricingofsurgicalmasks.

While thecourts heldthat thesecasesweretobeprosecutedunder theact (dueto the regulations not applying retrospectively), the test set out in the regulations was usedto establishthatthe price increases bore no reasonable relation to increased input costs and therefore the excessivenessoftheprices.

Despite the fact these regulations are now repealed, firmsin theCG&Rsector should continueto takethe utmost careto ensureprice increases of essential food items can bejustified, especially during supply or demandshocks.Theauthoritieshave notneeded torely ontheseregulationstoinvestigate or prosecute such conduct, and these prosecutions havenotbeenlimitedtofirms that aredominant undernormalmarketconditions.

Theissueofpricevolatility with regard to essential food items was alsoaddressed in the Competition Commission’s latest Essential Food Pricing Monitoringreport, where certain fruits, meat andcookingoilwerelistedas itemsthat havebeensubject

to recent volatile price increases. Itwas notedthat suchprice increaseshadthe most detrimental impact on poorercommunities.

Not all essential food price increases have been due to the pandemic, however.

Changing weatherconditions (fromdrought toheavyrain), oil price fluctuations, serious supply chain blockages and huge geopoliticalchallenges have all led to a decrease in supply and a subsequent increaseinprices.

The commissionnoted that the decreasingsupply of essential food products has beenmostly drivenbylocal events. Itstated it would be keepingaclose watchonthe price of essential foods items, including onimported food items, to ensure anticompetitiveconduct doesnotoccur and the increasein prices of essential fooditems canbe justified.

The pricevolatility of essential food itemsis an increasing concernacross the continent. With the growth of economies across Africa, competition law has remained one of the key drivers for effective market participation, consumerprotection and fair business practices. The pandemic introduced new challenges

for competition authorities in Africaand abroad,witheach enforcer pursuing the most optimal enforcementmethod forits nationalorregional jurisdiction.

These effortswere aimed at curbing the persistence of unjustified price hikes, anticompetitive co-operation between competitorsand other harmful business practices that sought to undermine competition. In addition totheurgentresponsestothe unprecedented impacts of the global Covid-19 crisis, competition authoritiesin countries and regions across Africa continued to introduce laws and amendexisting legislationasasignoftherapidly increasing prioritisation of competitionlawenforcement onthecontinent.

While contending with serious supply chain concerns, suppliers and retailers in theCG&R essentialfood items sector should carefully consider any price increases andensuretheyareabletobe justified.

Due tocurrent geopolitical, economic and environmental challenges, the focus on the pricingof essential food itemsis expectedto remain an area of core focus for competition authorities acrossthecontinent.

Green finance taxonomy could help SA turn green to gold

Zaeem Soofie & Khatija Kapdi Dentons

Aftera two-yearconsultation and developmentprocess, SA’sfirst nationalgreen finance taxonomy was launched onApril 1 by the taxonomy working group as part ofSA’s Sustainable FinanceInitiative.

Thegroup, chairedby theNational Treasuryand hosted by the Banking AssociationSA, includedrepresentativesfrom nationalgovernment, financialsector regulatorsand thefinancial servicessector.

Thetaxonomy isdesigned forinvestors, issuers,lenders andother financialsector

participants totrack, monitor and demonstratethe credentials of their green activities. The taxonomy serves as an official classificationof a minimum setof assets,projects, and sectorseligible to bedefinedas“green”orenvironmentallyfriendly. While theemphasis ison the environment,it incorporates criteriaaimed atensuring implementationof SA’s labour lawsand policies. Takentogether,thetaxonomy supports nationalpolicy and voluntary privatesector initiatives promotingsustainable financeby reducing costs anduncertainty inclassifyingacore setofgreen activities. Itaims tounlock a numberofbenefits:

● Provides clarityand certainty inselecting green investments inline with international best practices and nationalpriorities and standards;

● Helps unlocklarge-scale capital for climate-friendly and greeninvestment inSA by increasingthe credibility and transparencyof green activities;

● Reduces financial risks through enhanced management ofenvironmental and socialperformance;

● Reduces thecosts associated withlabelling andissuing greenfinancial instruments;and

● Supports regulatoryand supervision oversightof the financialsector.

For each ofthe activities identified inthe taxonomy, technical screening criteria have beendeveloped that include bothprinciples, as well asmetrics andthresholds. Theprinciples inform the underlyingrationale for how,andwhether,anactivity will resultin asubstantial contribution oravoidance of significant harmto theenvironmentalobjective. This is thenfurther developed bythe methodsin which environmentalperformance ofthe economicactivitywill bemeasured.This produces aguideline to determining whethera certain economicinvestment or activityisindeedgreenandin support ofSA’s sustainable

policiesandpriorities.

Not only doesthe taxonomy supportnational priorities, it isaligned with internationaltrendsandthemodel adopted by theEU. Support for thetaxonomy’s development was alsoprovided by theIFC inpartnershipwith theSwiss statesecretariatfor economic affairsand the Swedish InternationalDevelopmentCooperationAgency

All of this bodes well for foreign investmentin SA, including inthe muchneeded renewable energy sector,government’sRenewableEnergyIPPProcurement Programme (REIPPPP). The timing could not be better, with bidwindow 6having openedon April6, aimedat

bringing another 2,600MW of wind and solar PV power tothegridas afurtherstepin implementing the Integrated Resource Planand reducing SA’sdependency oncoaland oilat atime whenthe petroleum industryis facing record crude pricesand a greater dependency on imports followingthe warin Ukraine anddeclines inlocal refining andproduction at majorSA’srefineries.

A copyof thetaxonomy can be foundat https: //sustainablefinanceinitiative. org.za/taxonomy/

● Zaeem Soofie is the SA CEO of Dentons. Katija Kapdi is a candidate legal practitioner at Dentons

BUSINESS LAW & TAX

Dark side of moonlighting

• Employers might not take kindly to you working a side hustle particularly if it is a conflict of interest

Kerrie-Lee Olivier ENSafrica

Moonlighting has become more common for those looking to make extra money, but do employees needto disclose theirside businessesto their employers, especially whena conflictof interestis possible?

In thecase ofBakenrug meat (PTY)Ltd t/aJoostenbergMeatv CCMAandothers this questionwas consideredbythecourt.

The employer’s business in this matterwas the productionand saleofa rangeof meatproducts.Theemployee wasa salesrepresentativeat the business.However, the employee alsooperated a businessofherowninwhich she marketed biltong(a meat product).

When the employer became aware ofthis, she was dismissed after she was found guilty of the charge “that she tookup employment whileworking in anothercapacity”

Aggrievedby this,the employee thenreferred the mattertotheCommissionfor Conciliation, Mediationand Arbitration (CCMA) alleging that herdismissal wassubstantivelyunfair.

The commissionerfound thatthe dismissalwassub-

stantively fairbecause the employee independently operated aformal business thatmarketedameatproduct while theemployer wasalso inthe businessofproducing andselling meatproductsin which shewas thesalesperson.

As aresult, theemployer should havebeen made aware ofthe employee’s activitiesfor ittodecide whetherthere wasaconflict ofinterest.

The failure toinform the employer amountedto dishonestyand itwasinsignifi-

DAVIS JA HELD THAT THERE WAS CLEAR EVIDENCE THE EMPLOYEE DID NOT DISCLOSE AN ESSENTIAL AND MATERIAL FACT

cant that theemployee did not market identical meat products in comparison to theemployer.

LABOUR COURT

Aggrievedbythefindings,the employee launched a review application in the labour court.

Cele Jfound thatthe dismissal was substantively unfair.Hegavetwomainreasonsforthisfinding.

First, heaccepted that there isno dutyon thepart of an employee toinform his or her employer abouta potential conflict of interest. An employee is onlyrequired to informan employerofa potential conflict where there iscompetitionofsomesort.

Second, onan assessment of theevidence, CeleJ found that the employee operated her business onthe weekends. Accordingly, there was no “ nexus ” that her “sideline” business negatively affected/impacted on the performance of her duties towards the employer during theweek.

Cele Jthen foundthe evidence failed to establish that the employee wasguilty of the chargethat she “took on employment whilealso workinginanothercapacity”

The learned judge concluded the commissioner’s decision that thedismissal wassubstantively fair would not have beenreachedbyareasonable decision maker,and heset asidetheaward.

LABOUR APPEAL COURT

Onappeal, thelabourappeal court (LAC) overturned the labour court’s decision. Davis JAheld thatthere wasclear evidence the employee did notdisclose anessentialand material fact that she was independently operating a business in marketing meat products, even if the meat

LABOUR RELATIONS

products were not identical tothoseoftheemployer.

Thefact thatoperatingher business did notaffect her performance was insignificant. What was important is shewasemployed asasales representative in a business of marketing meat products; while shewas alsoinvolved inthe marketingofmeat products.

Her failure to inform the employer of these martial activities amounted to dishonestyandaviolationofher dutyofgoodfaithtowardsthe

CONSUMER BILLS

employer.Davis JAtherefore found that basedon the evidence, the commissioner arrived ata reasonabledecision thatthe dismissalwas substantivelyfair andset aside the judgment of the courtaquo.

HER FAILURE TO INFORM THE EMPLOYER OF THESE MARTIAL ACTIVITIES AMOUNTED TO DISHONESTY

CONCLUSION

Theimportanceofthiscaseis that it illustrates the extent of the “dutyof goodfaith” that employeesowe totheir employerand thattherecan be far-reaching consequences for an employee if thisdutyisbreached.

Reviewed by Peterle Roux, anexecutive consultantin ENSafrica’s employment department.

State has failed victims of gender-based violence

Anyonewhohasheard politicianswhingeing abouttheConstitutionalCourtexceedingits mandatewhenguidingthe state’sbehaviourinhuman rightsissuesmustreadthe court’sApril2022judgment thatholdsthepoliceminister liableforthewoefully inadequatesearchand investigationeffortsmadeby thepolicetosavethe claimantfromanextended andrepeatedrape. Thejudgmentbeginsby remindingus(ifareminderis needed)thatthiscountryis plaguedbygender-based violencetoadegreethatfew countriesintheworldcanbe comparedto.Italsoreminds usthattheSAPoliceService (SAPS)issonamedbecause itisaserviceproviderand wearetheconsumersof theirimportantandpositive obligationtodischargetheir constitutionalobligations.

PATRICK BRACHER

Thesameappliestoall stateinstitutions. Whatisremarkableisthat theministerdraggedthe victimthroughthreecourts overeightyearstogetjustice whilethestatereliedon argumentsthatthecourt labelled,insomeinstances, untenable,misconceivedand inflagrantdisregardof relevantfacts.

Somethingsimilar happenedmorethan20 yearsagowhereavictimhad togotothehighestcourtto haveitlaiddownthatitisthe SAPS’sspecialdutytotake appropriatemeasuresto

combatgender-based violenceandprotectwomen fromharm.

Inthelatestcase,the ConstitutionalCourtfound theconvictionsofthe communitydemanda victim-centredapproachto policing.WhentheSAPS engagesinvictim-blaming behaviourorfailstoactwith empathyandcompassion, thisresultsinsecondary victimisationand underminesthecriminal justicesystem.

Thepolicehaveadutyto actpromptlyand expeditiouslyandtakeall reasonablemeasures availabletotheminthe circumstancesoftheir investigations,especiallyin relationtothescourgeof gender-basedviolence.

Anattitudetowards victimsofgender-based violencethatisapathetic, uncaring,intimidatingand

suspiciouscontributestothe relativelyhighrateofattrition inrespectofthesuccessful prosecutionofrapeandother sexualoffencescases.

Therequirementthat actionbetakenwithin availableresourcesisnota shieldtodefendthe governmentfromthe consequencesofinaction.

Thestate’sobligationsare markedlydifferentfrom thoseofanindividual.The factthatgender-based violence,andrapein particular,hasbeen recognisedfromthe presidentdownwardsasa

THE MINISTER DRAGGED THE VICTIM THROUGH THREE COURTS OVER EIGHT YEARS TO GET JUSTICE

scourgerequiresittobe treatedasascourgehardly comparableintheworld, whichmeansresourceshave tobemadeavailable.

Ihavewrittenbeforethat thescourgeshouldbe declaredadisaster.Ifthe disasterlegislationistobe confinedtoshort-term disasters,thenthelawmust bechangedtoenableusto dealwithsystemicissues thatthecourtrightly describedasahorrificreality.

DISASTER LEGISLATION

Theinternationaltreatiesto whichSAisboundregard gender-basedviolenceasa perniciousformof discriminationagainst womenthatunderminesthe rightsofequalityandsexual autonomyofwomen.

Ifthepoliceareundera dutytoactpromptlyand expeditiouslytodealwith thisscourge,theymustnever

beabletosaytheylackedthe resourcestodoso.

Inaddition,a compassionatevictimcentredapproachdoesnot needresources itneedsa newcultureandgreater accountability.Victims shouldnothavetoresortto theslowandexpensive processesofthecivilcourts togetjustice.

TheConstitutionalCourt haslaiddowntherules.Itis nowforthelegislatureto passthelawsandallocatethe financialresourcesneededto putthoseresponsiblefor gender-basedviolenceinjail.

Toleavethefinalwordsto theConstitutionalCourt,few thingscanbemoreimportant towomenthanfreedom fromthethreatofsexual violence.

BUSINESS LAW & TAX

MINING FOCUS

Boost power of exploration incentives

• Adopting the flow-through model used in Canada is likely to stimulate socioeconomic benefits

Andries

Myburgh & Ntebaleng Sekabate ENSafrica

The IncomeTax Act provides for upfront capital allowances in respect of prospecting anddevelopment expenditure incurred by taxpayers thatcarry on miningactivities.

Inparticular referenceto the exploratory prospecting phase of mining, the act providesforataxincentiveinthe form of a deduction from a taxpayer’s miningincome of expenditure incurredon prospecting activities, including surveys, boreholes, trenches, pitsand other prospecting work preliminarytotheestablishmentofa mine. Therefore, taxpayers are incentivised inthe sense that expenditureincurred on prospecting isdeductible. However, such expenditure may be deducted only from incomederivedfrommining.

Wherea taxpayerthat conducts prospecting is unsuccessful inits exploratoryendeavoursanddoesnot deriveany incomefromthe trade ofmining, theexpendi-

ture incurred wouldnot be deductible. Prospecting expenditure is,however, not ringfenced betweendifferent mining operations(as isthe case withcapital expenditure incurred onthe development of a mine). Ifa taxpayer carrieson miningatnumerous sites, theprospecting expenditure may be deducted from the miningincome derived from existingincome-earningminingoperations. This may have the unintended consequenceof making explorationthe exclusive arena ofestablished mining companies, whichhave the benefit ofexisting mining income against which prospecting expenditure may bededucted.

In considering the encouragement of greenfield exploration by wayof tax incentives, theDavis Tax

MORE ESTABLISHED MINING COMPANIES MAY INVEST IN GREENFIELD EXPLORATION UNDERTAKEN BY JUNIOR MINERS

Committee considered the system of “flow-through shares”. (That system is applied in Canada, which incidentally,hasfourjurisdictions ranked in the top 10 in theFraserInstitutesurvey.)

Essentially, the flowthrough share model providesfor theprovisionof equity funding by investors into companies thatcarry on prospecting andexploration activities and incur expenditure whichqualifies fora tax deduction. As the exploration company would not derive any income whileit carries on its exploration activities, and would accumulate deductible expenditure, which is renounced in favour of the shareholder, which maythenclaimthededuction against itsown income.The shareholder wouldtherefore enjoythe benefitofdecreasing its tax liability as a direct resultof investinginthe explorationcompany.

The MineralsCouncil SA submitted a proposal to the Treasury in 2020 for the introduction of a flowthroughshareincentiveinthe formof astand-alonesection of theIncome TaxAct. Inthe proposal, the Minerals Coun-

ciloutlined thepotentialbenefits to be derived from the proposedtaxincentive.

The councilmade reference to asurvey conducted bythe Prospectors&Developers Association of Canada to assess the socioeconomic impacts offlow-through shares inCanada, theresults of whichshowed thatflowthrough sharescreated employment for rural communities, generated business opportunities for residents of rural communities, led to discoveries that were developed into mines, and led to advanced knowledgeof deposits that were ultimately developedintomines.

In assessingthe potential impact of theintroduction of flow-through shares in SA tax legislation, the Minerals Council outlined the potential economic benefits to include the establishment of new financial andexploration firms, increasedemployment opportunities, industryspecialisation andincreased foreigndirectinvestment.

In addition,the proposal by the council submits that

the introduction ofthe incentive would effectively leave the fiscus ina tax-neutral position, because while the shareholder would be entitled to claim the deduction of the qualifying expenditure, the exploration company would be ina tax-paying position faster thanwould be the case where the qualifying expenditureisnottransferred and claimed as a deduction uponthe generationofminingincome.

Though theDavis Tax Committee was unconvinced regarding the success of the flow-throughsharesmodel,it may serve asa powerful incentive forjunior minersto embark on exploration activitiesand forboth localand foreign investors with other income-generating activities, or which derive passive income such asinterest and dividends from SA and incur withholding taxes, to redirect their investments to explorationcompanies.

Furthermore, thismay result in more established mining companies that typically embark on brownfield

investment due to proximity to existing mining operations to invest in greenfield exploration undertaken by junior miners, which can then specialise inexploration activities.

Given thelow exploration investment in SAand the decrease in mining exploration investment since the Davis Tax Committee report was issued, it may be the right time for Treasury, togetherwiththedepartment, to give serious consideration tothe introductionofthe flow-throughsharemodel. While it maybe true that tax incentives, orthe absence oftaxincentives,maynotbea determining factor in investment decisions, the introduction ofsuch taxincentives, together with the required regulatory and infrastructure reforms,mayaidininvestors’ decisiontochoose SAasa preferred investment destination. SAshould useall ofthe toolsavailableinitsarsenalto encourage investment, and taxincentives maybean effectivetoolindoingso.

Tax benefits key to luring more mining investment

Andries Myburgh & Ntebaleng Sekabate ENSafrica

In April, theFraserInstitute publishedthe“SurveyofMiningCompanies 2021”, where investors weighed inon what mineral endowmentsand publicpolicy factors,suchas regulatory uncertaintyand taxation, affectedtheir decisiontoinvestinexplorationin aregion.

Respondents indicated that 40%of theirinvestment decisionis determinedby policy factors and 60% by the mineralpotential.

Disappointingly, SA rankedinthebottom10jurisdictionson theinvestment

attractiveness index, despite having abundant mineral resources and extensive miningexperience. The samemonth, the department of mineral resources &energy published the “Exploration StrategyfortheMiningIndustryof SA”, outliningthe strengths, weaknesses, opportunities and threats relating to mining exploration, andthe strategic initiatives toencourage miningexploration.

Unsurprisingly, oneof the strengths ofSA’s mining industry identifiedby the department isthe country’s mineral endowmentsas well astherangeofsuchminerals. Equally unsurprising, the

weaknesses identified include energy instability, road andrail infrastructure challenges, and unsatisfactorypolicyimplementation.

These identified weaknesses appearnot tohave gone unnoticedby investors, as SA’sexploration budget has decreasedfrom $400m in2007tolessthan$100min 2018,with itsshare ofglobal exploration budgets decreasingtoabout1%.

To capitalise onthe country’s mineralwealth, the department has outlined strategic initiatives and actionsto beundertakento encourage miningexploration. Thesestrategic initiatives andactions include

improvements inthe country’s geosciencedata and information, government supportforjuniorexploration companies andthe formation of private-public partnerships withjunior exploration companies, anda national investmentdrive.

IMPRESSIVE FEAT

The vision espousedby the strategy documentis to secure a minimumof a 5% share inglobal exploration investmentwithinafive-year period.This wouldbean impressive featindeed, asSA would arguablybe required to drasticallyimprove its attractiveness, orperceptions ofitsattractiveness,asamin-

ingdestination toachievethe desired4% increaseinits share ofglobal exploration investment.

Conspicuously absent fromthe listof strategicinitiatives and actions is the suggestionoftheintroduction of taxincentives formining exploration (though this would bemore appropriately handledbytheTreasury).

Initsreportonmining,the Davis TaxCommittee noted that few investments are taking place in greenfield exploration, butwas unconvinced that the lack of tax incentives wastoblame.Thecommittee suggested thatregulatory impediments aremore likely the causefor deterring

investment, and recommended thatthe department conduct anin-depth examination ofthe regulatory frameworkgoverninggreenfield investors, following which furthertax incentives should beconsidered. The committee, however, recognised taxincentives may serve as a sweetener in the encouragement of greenfield investments.

Due tothe substantial upfront investmentcosts at the developmentphase of mining, andthe prolonged periods untilthe commencement ofproduction, the Income TaxAct providestax incentives totaxpayers who carryonminingactivities.

BUSINESS LAW & TAX

MINING FOCUS

JSE points the way on ESG

• Disclosure guide is likely to set the

trend for all SA companies

Carlyn Frittelli Davies & Dalit Anstey ENSafrica

Environmental, social andgovernance (ESG) concernsinSAmaybe revolutionised by theJSE’spublicationofadocument titled “Leading the Way for a Better Tomorrow: JSE Sustainability Disclosure Guidance” onDecember 9 2021. Thepublic wasinvited to commentby February28 2022.

Todate, sustainabilitydisclosures bymost companies, including companieslisted onthe JSE,have beeninconsistent.While theKing 4code discussesthe conceptofsustainable development,it does not providedetailed recommendations orguidance with respect tothe sustainability risks,opportunitiesandmanagementpractices,orspecific sustainability disclosures. Additionally, ESGhas developed substantiallysince the publicationofKing4.

Manycompanies failto graspthe impactof ESGon their businesses.This can negatively affectcompany value and performance, which hasa knock-oneffect oninvestors.

Without meaningful, accurate andintegrated sustainability disclosuresand reporting,it isdifficultfor assetmanagersandinvestors to successfullymonitor and assess ESGperformance of their investmentsand accounttotheirclients.

As noted in the JSE publication, meaningful sustainability disclosureplays an important rolein building resilient markets,helping to attract financialcapital, and fosteringgreateraccountability andimproved business performance.

Accordingto thepublication, sustainabilitybroadly focuses onrecognising “the need todrive systemic changein achievingamore equitable societyand economy thatoperates within ecological boundaries.This understanding of sustainability focuses on an organisation’s impacts onsociety, the environment andthe economy (on ‘people, planetand prosperity’) enablingan assessment ofthe organisation’s contributiontoward global commitmentssuch as the UNsustainable developmentgoals.”

Though sustainability and ESG issuesare oftenreferred

to as “nonfinancial”, they clearly contributeto financial value. Effective sustainability responses canprotect value, createvalueandenablevalue creation. As sustainability becomes an increasingly more importantmarket concern, anorganisation’s ability to communicateits sustainability performancemore effectively andaninvestor’s abilityto trackthisbetter is increasingly affecting access tocapital.

International trendssuggest thatfinancial institutions will beincreasingly encouragedto investin the “transition” space, andto doso ina rigorous mannerrequiring evidence ofrobust sustainability riskmanagement practices.

EFFECTIVE SUSTAINABILITY RESPONSES CAN PROTECT VALUE, CREATE VALUE AND ENABLE VALUE CREATION

So what,according tothe JSE, is good sustainability disclosure? The concept of “materiality” is crucial. Material information is “ reasonably capableof makinga difference to the conclusions that reasonable stakeholders may draw when reviewing the relatedinformation. Materiality focuses on the materialinformationneedsof the primary stakeholders for thereportbeingissued.”

Fromaninvestorlens,this is anyinformation thatcould be expected to influence an investor’s economic decision-making with respect to theobjectofinvestment.Both financial materialityand environmental and social materialityareimportant.

The JSEpublication recommendsthefollowing:

● Describe the board’s oversight ofsustainability-related impacts,risksandopportunities,andits processforintegrating sustainability issues into the overall governance processes;

● Describe how an assessment ofsustainability-related impacts,risksandopportunitieshasinfluencedtheorganisation’s strategy, and what impactthis hashad onthe organisation’s overall performance, both positive and negative;

● Describehowsustainabili-

ty-relatedimpacts, risksand opportunitieshavebeenintegratedinto theorganisation’s managementprocesses;and

● Describe theperformance metrics and targets used by theorganisation tomeasure, monitor and manage its sustainabilityimpacts, risksand opportunities,and itsperformanceagainst thesemetrics andtargets.

Organisations and their boardsmay requireexternal assistancein graspingtheir ESGimpacts, risksand opportunities, and methods of ESG integration and incorporation willneed toaccount forindustry and/orsector bestpractices. Sustained and consistent prioritisation and capacity buildingare requiredbyorganisations.

MANY COMPANIES FAIL TO GRASP THE IMPACT OF ESG ON THEIR BUSINESSES. THIS CAN NEGATIVELY AFFECT COMPANY VALUE

The general ruleis that ultimate responsibility for ESGaccountability andoversight should sit with the board,butwhereshouldsustainability disclosuresbe housed?The publicationalso provides guidance with respecttoreportingformats.

GLOBAL PRACTICE

Manycompanies usean annualintegrated reportin linewiththe King3and4 codes.However, globalpractice appears to be moving towardsan annualsustainabilityreport a standalone reportdedicated toESG impacts. Somecompanies chooseto combinetheirtraditional annualfinancial report with a more detailed sustainability/ESG performance report into a single combinedreport.

Finally, theuse ofannual financial statements,which aretypically preparedin accordance withGenerally Accepted Accounting Practice,isanotherwaytocapture the financial impactsof sustainabilityinmonetaryterms.

Themining industryis

wellplaced tograspand implement thesedisclosures becauseESG factorsare alreadycritical aspectsofa successfulminingcompany.

Environmental impacts require special management andcompliance withthe National Environmental

SUSTAINED AND CONSISTENT PRIORITISATION AND CAPACITY BUILDING ARE REQUIRED BY ORGANISATIONS

ManagementAct, 1998,a suiteof otherenvironmental legislationand therequirementtomakefinancialprovisionforrehabilitation.

Withrespect tosustainability, BEEhas been driven inthe miningindustryprimarilythrough theMining Charter,and localdevelopment is driven through social andlabour plans.Mining companiesare usedto

reportingoncompliancewith theaforesaid obligations,but theinterplaybetweentheJSE publication disclosures and existing reporting obligations mayrequire miningcompaniesto reconsiderwhether theirreportingpracticesmeet thepublication’sstandards.

While sustainability leadershipmay bemore ingrainedin miningcompanies than inother industries, withdesignatedsustainability officersor directorsbeing commonpracticeintheminingindustry,itmaybenecessary tomake changesto ensure that sustainability leadershipis holisticallyintegratedinto theorganisation andthat sustainabilityissues arenot siloedto oneperson withintheorganisation.

Whilethe JSEguidance applies onlyto listedcompanies, itis likely to seta trend for all companiesin SA, as investors will increasingly expectto seeorganisations grasp theconcepts ofsustainability and ESG,as applicableto theirorganisations andto discloseand reporton sustainabilityandESG.

What shape is SA’s copyright legislation in?

• UK court’s ruling on Ed Sheeran case provides a guide for how this country’s courts would respond

Fatima Ismail & Carla Collett Webber Wentzel

In judgingcopyright infringement matters similarto thatofEd Sheeran’s Shape ofYou, SA’s courts are likely to reach asimilar conclusionto the UK highcourt, based on the Copyright Act and case law.

A UKhigh courtrecently ruledin favourof Sheeran and his two co-writers by findingthatthe “Oh I” phrase in Sheeran’s hitsingle Shape of You wasnot copied from Sami Chokri’s Oh Why released in 2015.The ruling comes nearly fouryears after Sheeran andhis co-writers launched proceedingsin 2018, asking the high court to declare that theyhad not infringed thecopyright in Chokri’s Oh Why

In coming tothis conclusion,thecourtheldthatwhile there are “similarities” between the Oh Why hook and the “Oh I” phrase in Shape of You,there are also “significant differences” and that “suchsimilarities are, however,onlyastartingpoint for apossible infringement

action”. Takinginto account the musicalelements of Shape of You,the writing processand theevolutionof the “Oh I” phrase, the judge concluded thatSheeran had not heard Oh Why before writing Shape ofYou and, in anyevent, Sheerandidnot deliberately copy the “Oh I” phrasefrom Oh Why

THE RULING COMES NEARLY FOUR YEARS AFTER SHEERAN AND HIS CO-WRITERS LAUNCHED PROCEEDINGS

In SA, copyrightis governed by theCopyright Act 98of1978.Fora“work”tobe eligiblefor protection,itmust be originaland reducedto materialform.Theactentitles an authorof a “work” to a bundle of rights that vest exclusively in the author. Artists mayrely onthese rights to protect their musical work. A songlike Shape of You comprises various forms of “works” contemplated in

theact:themusicalwork(the musical notation), the literary work (the lyrics) and the soundrecordingcomponents of an original performance reducedintomaterialform. Byvirtue ofthecopyright in thework, theholder ofthe copyright is permitted to, among other things, reproduce, publish, perform and prevent others from making unauthorised reproductions of the work,or a substantial partofit.

Any act the holderofthe copyright is exclusively entitled todo, andwhich isperformedby anypersonother than the copyright holder, amounts to an infringement of the copyrightin the “work”

However, analleged infringer maybe ableto rely on new defences under the Copyright Amendment Bill (whichwas passedbyparliament in2018 andsubsequently sent back to parliament by the president because of constitutional concerns), whichwould replacethecurrent“fairdealing” provision withan openended and general defence against copyrightinfringement in the form of the “fair

use”doctrine.

Whether anSA court would cometo thesame conclusion as the UK high courton thisissue cannotbe postulated with certainty, given thelack ofcase law relating to music-related copyright infringement. However, indetermining whether copyright infringement has occurred, our courtstypically relyona qualitative rather than a quantitativetest.

First, they examine whethera causallinkexists between the original work and the alleged infringing work and, second, they examine the degreeof objective similarity between the twoworks.

Tosucceedon thefirstleg ofthe test,a claimantmust show the alleged infringing party hadaccess tothe copyrighted work. Acourt will consider whether the similarities resulted from the defendant having copied the plaintiff’s work, or whether the alleged infringing work wascreatedindependentlyof theplaintiff'swork.

The second leg of the test looks at whether a “substantialpart”oftheworkhasbeen copied.

This is a factual inquiry that will largelydepend on thespecificfactsandcircumstancesof thecase andwill require the courtsto make a valuejudgment basedonthe evidence.

Though itcannot besaid with certainty howan SA court might have adjudicated onthismatter, itislikely (given the evidence placed before the UK high court) an SAcourtwouldhavecometo the same conclusion in applying the two-legged test tothe Shape of You facts.

As Sheeranmentioned in a TikTok video released shortly after the high court

COINCIDENCE IS BOUND TO HAPPEN IF 60,000 SONGS ARE RELEASED EVERY DAY ON SPOTIFY … AND ONLY 12 NOTES AVAILABLE

handed down its judgment:

“There’sonly somanynotes and veryfew chordsused in pop music. Coincidence is boundto happenif60,000 songs are being released every dayon Spotify and thereare only12 notesavailable.”

This, nodoubt, meansour courtswill havetograpple with the two-legged copyright infringement test in futuremusicdisputes.

Thiscase makesitclear there isno “onesize fitsall” approach to copyright infringement claimsand courtswill judgeeachcase onitsownmerits.

The Copyright Amendment Billwill alsochange the typeof defencesraisedto copyright infringement claimsinthefuture.

Itmay notbe toolong beforewe seehow thistest will be applied in practice as SA singerDaniel Baronis currently embroiled in a legal battle against French DJ David Guetta relating to alleged similaritiesbetween Baron’s Childrenof theSun andGuetta’s Light Headed

Something new needed from tech inquiry

Ahmore Burger Smidt Werksmans Attorneys

Isit withbated breaththat one should awaitthe outcomeof theOnlineIntermediation Platforms Market Inquiry conductedby the Competition Commission or isitaforegoneconclusion?

From anSA perspective,it is interesting tonote the submission by the print media industry bodyPublisher Support Servicestothe market inquiryhearing.

Publisher SupportServicesarguedspecifically:

● Forthe protectionoffundingofjournalisminSA;and

● That platformssuch as Google andMeta should compensate publishersfairly forjournalisticefforts.

But arethese arguments newor havewe heardthem before?

In 2020the Australian government requestedthe competition regulator to developa lawthatwould forcetechnologygiantstopay for thenews thatappears on their feeds. In fact, the competition regulatorin Australia isbeingcreditedforsucceeding where others have failed in forcingtechnology giants topayfornews.

IMBALANCE

The motivationfor embarkingonthisprocessisfounded on the argumentthat there exists animbalance between technology companies and media companieswhen one considers bargaining power and alsothat bigtechnology companies holdmarket power thatdistorts competition.Thisbringsaboutacom-

petition law problem that in itself hindersordinary commercial negotiationswithin a competitivemarket.

The AustralianCompetitionandConsumerCommission concluded in 2021 that US technology companies were reapinghundreds of millions ofadvertising dollars thatoncewenttonewscompanies. Also,there existsa notable imbalanceof power between thetechnology companies and journalism businesses. Australian Competition andConsumer Commission chairmanRod Sims said that “all media companies needFacebook and Google”

“What theyhave doneis intermediate themselves between journalistsand peoplewhowant toviewthe content, for their own finan-

cialadvantage,obviously.”

Itwas furtherstatedthat “many marketfailures you don’thavetoaddress.Butthis one isreally important because itaffects journalism, andtherefore itaffectssociety. Journalism is the classic public good, weall benefit fromit.”

MEDIA CODE

One outcome ofthe Australian Competitionand Consumer Commissioninvestigation andintervention was the News Media and Digital Platforms MandatoryBargainingCode,whichwasformally approvedon March2 2021. This mediacode wrote into law thattechnology platformshave tonegotiatea price to paynews publishers fortheir content.Failingsuch negotiations, aprocess is

provided in termsof which theseplatformswillbeforced to pay at a priceto be set for them.

Subsequent tothe Australian adoptionof themedia code,legislativeinterventions are being consideredin a number of jurisdictions. Canada aimsto introduce similar legislation and it is expected thatthe framework will closelyresemble the Australian media code. In the UK, authoritiesare developing acode thatwill regulate the relationship between platformssuchasGoogleand Metaandthirdpartiesincludingnewspublishers.

The EUextended copyright protectionsfor news publishers requiringtechnology platforms topay for displaying anythingbeyond a basicURL.

This law wasput to the test in France, where Google wasfined €500m for failing tonegotiatea dealwithpublishersin goodfaith.This finding iscurrently being appealedagainst. In SA,the Competition Commission isexpected to issueits findingsonthe OnlinePlatformsIntermediation Market Inquiry by October2022. The questionto askis whether newinsights could be observed in the final approachthatwillbeadopted by theSA commissionin relation tobig technology companies suchas Google andMeta. Or will it, as elsewhere, reflect a paint-by-numbers outcometo aproblemthat has now caughtthe eye of competitionlawregulators?

BUSINESS LAW & TAX

What carbon tax means for financial firms

• A chance to develop financial products aimed at increasing investment in sustainable finance

Mansoor Parker ENSafrica

Although the financial services industry does not emit any carbon itself,ordoessoinverysmall quantities, theintroduction of the carbon taxwill continue to play a rolein the growth, development and governance ofthe financialservicesindustryinSA.

Havingsigned theParis Agreement in 2016,SA has undertaken toreach agoal of net-zero carbon dioxide emissionsby 2050.Tothis end, SA introduced the CarbonTax Act,2019as itschosencarbonpricingmethod.

Carbon tax isa tax on greenhouse(GHG)emissions.

The Carbon Tax Act provides thatthosewhoconductactivitieslistedinschedule2(such as electricityproduction, coal miningorsteelproduction)in

SA andwhose activities result in GHGemissions that areequal toorabove aspecified thresholdas setout in schedule 2,will beliable for carbontax.

A companies’ exposure to carbonemissionscanbe:

● Scope1:direct forexample,throughburningfuel;

● Scope 2:indirect for example, throughelectricity consumption;or

● Scope 3: embodied such as through businesstravel or purchasedmaterials.

The carbon tax affects the financial services industry throughitsimpactonanentity’senvironmental,socialand governance (ESG)criteria, whicharea setofstandards for acompany’s operations that sociallyconscious investors useto evaluate prospectiveinvestments.

Many companieshave made commitments toa netzero emissionseconomy, meaning thatcompanies will seek to reduce their emissions andthat anyremaining emissionswhicharereleased asa resultof thecompany’s actions are balancedby using an offsetmechanism to absorb anequivalent amount fromtheatmosphere.

Forexample, wherea company fliesits employees overseas forbusiness, it could compensatefor this

through afforestation(planting moreforests) orthrough the useof technological optionssuch asdirectcapture(a chemicalprocessthat extractsCO2 fromtheair).

The “enterprise value” of a company,the measureofa company’s totalvalue, will likelybe affectedbyhow closely the companycan get to netzero, andfuture investors will likely seek to understand thetrue carbon cost of each company before investing.

FUTURE INVESTORS WILL LIKELY SEEK TO UNDERSTAND THE TRUE CARBON COST OF EACH COMPANY BEFORE INVESTING

Inasimilar vein,theKing 4 code regulatesthe corporate governance ofSA companies and emphasises the importance ofsustainable development in a manner that does not compromise “the ability offuture generationstomeettheirneeds”

Furthermore,acompany’s governance structure will havetobeadaptedastherole

of an entity’s CFO will grow sincecarbontax hassucha largefinancialaspecttoitand will consequently require financialconsideration.

Similarly, thereis an increasedneedforthedisclosure of information concerning the risksassociated with carbon pricing. As investors continue tofocus on “enterprise value”, it is expected that companies will be required to enhance disclosure soas todiversify their investor base and ensure the stabilityoftheirfinancing.

INCREASED COSTS

Regardless ofwhere theliability for payingthe price of carbon lies,a largepart ofthe cost willbe passedon through the supply chain, making it important to consideran entity’s own liability and the exposureit hasto carbonthroughitssuppliers.

Input costs, such as electricity,paper orplastic,and logistics costs, suchas flights or road travel, are likely to have increased. The impacts on cost withinthe supply chain, however, depend on each supplier’s ability to absorb increasedexpenses andremaincompetitive.

In thisregard, increased input costs maylead to product switching, andthe degree

towhichcarbon costscanbe passed along will therefore dependon thepriceelasticity oftherelevantproduct.

To thisend, itis important that the governance bodies of each entity maintain an understanding of where carboncosts aremost likelyto beincurred,as wellasthe dynamics of theirtarget market, as correct management ofthe entity’s financial, operational and strategic performance willenable thenecessarymitigation ofits carbon priceexposure.

INPUT COSTS, SUCH AS ELECTRICITY, PAPER OR PLASTIC, AND LOGISTICS COSTS ARE LIKELY TO HAVE INCREASED

The effectsof thepricing of carbon emissions will dependon acompany’s carbon footprint coupled with its negotiation power with suppliersandcustomers.

There areother financial and commercial aspects of the financial services industry that will be affected by carbontax,including:

● The viability of investments to reduce carbon exposure;

● The impactsof acarbon price ondecisions relatedto mergers&acquisitions;

● The options for carbon offsetsin orderto use the carbonoffsetallowance;

● Customernegotiations;

● Costing andpricing strategies for products and services;and

● Achangingcostbase.

During the2022 budget, the future carbontax price path was madeknown: “To

prepare SAfor thestructural transitionto aclimateresilient economy,governmentproposes toprogressivelyincrease thecarbon priceeveryyear byatleast $1toreach $20pertonne ofcarbon dioxideequivalent by2026.

“For the second phase, government intends to increasethe carbonprice morerapidlyeveryyear,toat least $30 by 2030, accelerating to higherlevels by 2035, 2040 and upto $120 beyond 2050.The basictax-free allowances willalso begraduallyreduced tostrengthen theprice signalsunderthe carbon tax fromJanuary 1 2026toDecember312030.”

In addition, emissions that exceed mandatory carbon budgetswillbepenalised.

CARBON BUDGET

“Themandatory carbonbudgetingsystem comesinto effectonJanuary 12023,at which time the carbon budget allowance of 5% will fall away.To addressconcerns aboutdouble penaltiesfor companiesunder thecarbon tax and carbonbudgets, it is proposed thata highercarbon tax rateof R640 per tonneof carbondioxide equivalentwill applyto greenhouse gas emissions exceedingthe carbonbudget. Theseamendments willbe legislatedonce theClimate ChangeBillisenacted.”

Itisclearthattherewillbe a downscaling ofhigh carbon emittingsectorsandkeynew growthsectors foropportunity creation such as new mineral mining,green hydrogen and renewables willemerge.

Theissueiswhetherbusinesswillbe abletoaffordthe steep increasesin thecarbon tax andat thesame time mobilisethecapitalneededto

transition to low-carbon operations.

In March 2022SA’s green financetaxonomy (GFT)was published. SA’s GFTwas developedby theTaxonomy Working Group, as part of SA’s SustainableFinance Initiative,chaired bythe NationalTreasury.

NEW OPPORTUNITIES

TheGFT isaclassification systemor cataloguethat defines aminimum setof assets,projects, activitiesand sectors that areeligible to be definedas“green”inlinewith international best practice and national priorities.It can be used byinvestors, issuers andother financialsector participantsto track,monitor anddemonstrate thecredentialsoftheirgreenactivities.

Theintroduction ofthe carbontax providesthe financial servicesindustry withthe opportunityto developnew financialproductsaimed atincreasing investment in sustainable finance,such asbonds, stocks,derivatives andfunds linkedtocarbonpricing.

It is evident the introductionofcarbon taxin2019as SA’s chosen carbon-pricing mechanismhas affectedthe financialservices industry. It mustcarefully considerthe effectsofthe carbontaxona company’s competitiveness and ESG criteria and adapt to ensurea sustainablefinancial,operational andstrategic performance.

THE EFFECTS OF THE PRICING OF CARBON EMISSIONS WILL DEPEND ON A COMPANY’S CARBON FOOTPRINT

BUSINESS LAW & TAX

Voting against a business rescue plan

Phylicia Naidoo & Christopher Holfeld Webber Wentzel

Creditors who voteagainstthe adoption ofa business rescue plan out of self-interest, without considering the rights of other affected parties,may risk having theirvotes deemed inappropriatebyacourt.

A creditor of a company undergoing business rescue proceedingsisentitledtovote on theproposed business rescue plan.However, for somecreditors, votingforthe approval of the business rescueplan wouldnotachieve theirobjectives.

If you decideto vote againsttheplaninthehopeof abetter businessrescueplan being proposed,or thecompanybeingliquidatedinstead, could your vote be deemed inappropriate, andthe resultant rejectionof thebusiness rescueplanbeatriskofbeing setaside?

Intermsofsection153(1)(a) ofthe CompaniesAct, ifa business rescueplan is rejected, thebusiness rescue practitioner isentitled to advise, atthe meetingcalled forconsideration oftheplan, that the companywill apply to court to setaside the result of the vote bythe holders of

votinginterestsorshareholders,onthegroundsthatitwas inappropriate. Alternatively, the businessrescue practitionermayask theholdersof votinginterests tovotefor approvaltoprepareandpublisharevisedplan.

Ifthe businessrescue practitioner takesneither of these steps,any “affected person ” in termsof section 153(1)(b)(i)(bb) whois present atthe meetingmayapply toa courtto setasidethe resultof thevotebytheholdersofvoting interestsor shareholders, onthe groundsthat itwas inappropriate. “Affected person ” is definedin section128 of the CompaniesAct and includes shareholders,creditorsof thecompany,registeredtradeunionsrepresentingthecompany’semployees and individualemployees or theirrepresentativeswhoare not represented by a registeredtradeunion.

Ifanapplicationismadeto setaside theresultof avote onthe groundsthat itwas

CREDITORS HAVE TO TAKE INTO ACCOUNT THE IMPACT ON OTHERS WHEN DETERMINING WHETHER TO VOTE

discover more

inappropriate, in terms of section 153(7) of the CompaniesAct,a courtmaygrant theorder ifit issatisfied itis reasonable and just to do so, havingregardto:

● The interestsrepresented bythe person/swhovoted against the proposed businessrescueplan;

● Provision, ifany, madein the proposed business rescueplan withrespect tothe interestsofthatperson/s;

● A fair and reasonable estimateofthereturntothatperson/sif thecompany wereto beliquidated.

REASONABLE

Inthe caseofFerrostaal GmbH and Another v TransnetSOC Ltdt/aTransnet National Ports Authority and Another (the Ferrostaal case) the SupremeCourt ofAppeal hadto dealwithwhether voteswereinappropriateand whether they should be set aside after abusiness rescue planwasrejected.

Theapproachtakenbythe court wasformulated inthe case of FirstRand Bank Ltd v KJFoodsCC.Thecourtneeds to determine whetherit is reasonable andjust toset aside the relevant vote against the business rescue plan by takinginto account thefactorsset outabovein terms ofsection 153(7)of the Companies Act and all

circumstancesrelevanttothe case,includingthepurposeof businessrescue.

The interpretation of the term“inappropriate”needsto take place withinthe wider contextofthe objectsofbusiness rescue, including the provision of theefficient rescue and recovery of financially distressedcompanies, ina waywhich balancesthe rights and interestsof all the relevant stakeholders, including all creditors and employees. Indetermining whether a voteagainst the adoptionofabusinessrescue plan is inappropriate or not, a court needs toconsider all the facts and circumstances andmakeavaluejudgment.

In theFerrostaal case,the appeal was instituted by Ferrostaal GmbH and Atlantis Marine Projects PtyLtd, the shareholders of the company in business rescue, FerromarineAfrica(Pty)Ltd(FMA).

FMAdid nothaveany employees, business or assets,aside fromitslease agreement with Transnet SOC Ltd t/a Transnet National Ports Authority (Transnet), which it sublet. Transnet voted against the business rescueplan asit wascommercially unviable and failed to adequately protect the interests of Transnet, the majorcreditorofFMA.

Transnet also reasoned that the implementation of the business rescue plan could not achievethe legislated objective of facilitating the efficient rescue and recovery of financially distressed companiesin away that balances the rights and interests of all stakeholders. Also, itreasoned thatthe liquidation of FMA would be advantageoustoTransnet.

SKEWED

The courtdid notset aside Transnet’s votes rejecting the business rescue plan. The court found the arrangement set out inthe business rescue plan encroached onthe abilityof Transnetto exerciseits contractual rights with FMA infuture andwasheavily skewedagainstTransnet.

There were no other affected persons whose interests needed tobe protected. Accordingly,Transnet’s oppositionto thebusinessrescueplancouldnotbe considered as unreasonable anditsvote againsttheadoptionof thebusinessrescue planwasnotinappropriate.

In the FirstRand Bank case, the companyin business rescue, KJFoods CC (KJF),had morethan200 employees, who would be ableto continueworkingfor KJF if the business rescue

plan wasadopted. IfKJF was liquidated, they would lose theiremployment. If the proposed business rescue plan was approved, FirstRand Bank’s claim would be settled in full by wayof paymentsmadeover a period oftime. Other creditors of KJFwould also benefit if the businessrescue plan wasapproved.

Another aspect the court consideredwas that,ifthe business rescue plan was approved, concurrent creditorsof KJFwouldreceive 100cintherandinsteadofthe 51cinthe randtheywould receive upon liquidation of KJF.Takingintoconsideration all the factsand circumstances, thecourt heldthat FirstRand Bank’s vote to reject the business rescue plan wasdue toself-interest andwasinappropriate.

Creditorshavetotakeinto accountthe impactonothers when determining whether tovoteagainsttheadoptionof a businessrescue plan,not onlyhow thedecisionwill affect themor theircompaniesdirectly.

Itisvitaltolookatthebigger picture beforecasting a vote,orrisk itbeingdeemed inappropriate, if self-interest is themotivation andother stakeholdersinvolvedarenot beingconsidered.