Business Law & Tax (BD, November 2021)

BUSINESS LAW&TAX

REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX

Player brands boost clubs

• Intellectual property rights are effective money generators

Rowan Forster ENSafrica

Footballplayers are brands, often very valuable brands. Football clubs are brands too,and they arealso oftenvery valuable.In thisarticlewe lookat how thevalue offootball playerbrands canaffectthe value of the brands of the clubstheyplayfor.

LionelMessiandCristiano Ronaldo havedominated world footballfor many years, each winningthe Ballon d’Or (thetrophyawarded to the world’s best player) multipletimes.

We have seen how assiduously topplayers protect their brands.In Ronaldo’s case, his CR7 mark, derived from his initials and his shirt number, plays abig role. Messihashad toworklong and hard to gethis name registered in the face of opposition from theowner of the brandMassi.

We have notedhow top players haveconsiderable trademark portfolios,with Messitopping thelist with115 registrations, followed by NeymarandthenRonaldo.

Recent developments showhow thevalues offootballers andfootball teamsare inextricablylinked.

SHOCK MOVES

Messi and Ronaldo have both moved clubs,Messi leaving Barcelonawherehespent20 years,for theFrenchclub Paris SaintGermain (PSG), andRonaldoleavingJuventus for the club where he first made hisname, Manchester United.

In Messi’scase themotivation wasalmost certainly financial Barcelona is in serious financialtrouble and itcannotaffordtopaythesort of money playerslikehim expect. In thecase of Ronaldo,itisnotquiteasclearwhat his motivation was, but it is possible he sawUnited as the perfect placeto enda stellar career.

IMPLICATIONS

The possibleimplications of the Messi move are discussed in a recent article. “FC Barcelona, nowthe secondbiggest footballclub trade-

Wehave alsoreviewed top football clubs,and the valueof theirbrands.We have noted thatthe most valuable clubsare Real Madrid (€1.28bn), Barcelona (€1.27bn), Manchester United (€1.13bn), Manchester City (€1.12bn) andBayern Munich (€1.01bn).

ENSafrica’s tax team grows

mark,risks losingits placeto the clubParis Saint-Germain as a resultof Lionel Messi’s departure”, thearticle says and goes onto suggest “this departure maynot only impactontheclub’squalityof play but alsoits finances and especially itsintellectual propertyrights”

A reference in an article in Brand Finance(August 6

2021)estimatesthedeparture of Messi couldreduce Barcelona’s value by 11%, resulting inalossof£137m.

THE SIGNING OF MESSI LED TO A 100% RISE IN THE VALUE OF PSG’S CRYPTOCURRENCY

On the other hand, the article predictsgood things forPSG.The clubnowhas two of the biggest footballers interms ofbrandportfolio, Messi andNeymar. ItsuggestsMessi’slargetrademark portfolio “is alsoan assetfor theclubthatrecruitshim,asit increases itsimportance and influence”. Theclub “could see thevalue ofits brand

increaseconsiderably”

The article goeson to make thepoint thatthe signingofMessiledtoa100%rise in the value of PSG’s cryptocurrency,the PSGFan Tokens,taking thetokens’ capitalisationto about£144m inthreedays.

As for Ronaldo’s move,

BUSINESS LAW & TAX

Africa likes competition law

• Enforcement increasingly used as tool to boost economies and revitalise trade and industry

Angelo Tzarevski & Zareenah Rasool Baker McKenzie

Competition policy continuestobeviewed by regulators as a key driverofeconomicgrowth.

AcrossAfrica,competition policy enforcementis increasingly beingemployed as atool toboost economic performance andpromote the revitalisation oftrade and industry afterthe devastating effectsofCovid-19.

The pandemichas ledto negative economicgrowth in a number of African jurisdictions, and has given rise to opportunistic, anticompetitivebehavioursuchasunreasonable priceincreases and price gouging, co-ordination among competitors,and various otherunsavoury businesspractices

Overthe pasttwoyears, African competition regulatorshave activelyengagedin effortsto dealwiththese pandemic-related effects; however, therehas alsobeen ageneral upwardtrendin competition policy enforcement acrossthe continent. Several African jurisdictions have strengthenedtheir competition and antitrust regimes byway ofamendments toexisting legislation, the introductionof newlaws andregulations,andrenewed fervour andpolitical willto enforceexistinglaws.

Matrices usedto analyse economic transformation, such asthe Bertelsmann Transformation index,have noted the existenceof comprehensive competitionlaws thatare enforced(tosome degree),in atleast 46African jurisdictions. Thisis reflected by theenforcement scores foreach ofthe 46countries listed, measured ona scale of 1 to 10, where10 denotes the existence ofcomprehensive competition lawsthat are strictlyenforced.

Almosthalfofthejurisdictionsreceiveda scoreoffive or higher,demonstrating robust enforcementacross muchof thecontinent.Additionally, areview ofhistorical scores indicatesa year-onyear increase inrespect of a number ofAfrican jurisdic-

tions, withcountries suchas Eswatini, Ethiopia and Namibia eachranking higher thanthepreviousyear.

This upwardtrend in enforcementishighlightedby significant recent developments incompetition law regulationonthecontinent.

On September 62021, the Comesa Competition Commissionissued itsfirstpenaltyfor failuretonotify atransaction withinthe prescribed time, whichamounted to 0.05% of theparties’ combined turnoverin thecom-

THE PANDEMIC HAS GIVEN RISE TO OPPORTUNISTIC, ANTICOMPETITIVE BEHAVIOUR

mon market inthe 2020 financialyear. Thiswas imposed inrelation tothe proposed acquisition by HeliosTowers of the shares ofMadagascar Towers and MalawiTowers

The authority’s decisionto impose a penalty in this matter isa clearshift towards stricter enforcementof mergerregulations. Thishas beenobservedforsometime, withthe authorityincreasinglyapproaching partieson the basis ofpublicly available information andrequesting further information about transactions toenable itto assesswhether thetransactionsarenotifiable.

Untilthe HeliosTowers decision,the authoritygenerally adopted a softer stance in relationto thetimingof merger notifications. The decisionto penalisethepartiesisintendedtodeterfuture violationsof thecompetition regulationsand signalto marketparticipants thatthe authoritywill enforcethe regulationsmorevigorously.

In Mozambique, almost sevenyearsafterthepromulgationof competitionlegislation,the CompetitionRegulatoryAuthority becameoperationalin January2021. Shortly after that,on August 162021,theauthorityamendeditsmergerfilingfees. Priorto theamendment, therehad beensignificant concernaround theexorbi-

tantfilingfees of5%ofmerging parties’ turnover. Followingthe amendment,the applicablefiling feewas changed to0.11% ofthe turnover in the year before filing, with amaximum limit of2.25-million metical.This movehighlighted theauthority’swillingness tobereceptive tochanging marketand economic conditionsand valid concernssurrounding competitionpolicy.

Also, therapid risein the digitaleconomy hasresulted insome competitionauthoritiesacknowledging thatthe regulationof digitalmarkets necessitatesa morenuanced approach. InMay 2021,the SA Competition Commission launcheda marketinquiry into onlineintermediation platforms,which focuseson digitalplatforms thatintermediate transactions betweenbusinesses andconsumers. The scopeof the inquiry coverse-commerce

marketplaces, online classifieds,travelandaccommodationaggregators, fooddeliveryandappstores.

The MalawiCompetition andFair TradeCommission submitteditselftoaVoluntary PeerReview, throughatool used by theUN Conference onTrade andDevelopment, whichevaluatesthecompetitionlawandpolicyofacountry, aswell asits institutional arrangements andeffectivenessin competitionlaw enforcement.

The reviewwas begunin October2020 andwas finalised in July2021. Unctad issuedareport totheMalawian authority,in whichit made recommendationsin respectofamongotherthings the substantial amendment orrepeal oftheCompetition and FairTrading Act;the commission’sbudget;andthe commission’s approach to disputeresolution andadjudication.

The review process soughtto identifyareasfor improvement in Malawi’s legaland institutionalframework to enhancethe quality andcompetency ofcompetitionlawandpolicy Amendmentsto thecom-

petition lawregime inthe countryare expectedinthe comingyears.

Ina movetowards enhancingthe efficiencyand effectivenessof itsenforcementactivities, theCompetition Authorityof Kenyaoperationalised an Informant Reward Schemeon January1 2021.The schemeprovidesa mechanism and framework forinformants toreceivefin-

THE AUTHORITY GENERALLY ADOPTED A SOFTER STANCE IN RELATION TO THE TIMING OF MERGER NOTIFICATIONS

ancial rewards in exchange for actionable information in the course of the competition authority’sinvestigations.The schemeistargetedatpersons with credibleintelligence regarding restrictive trade practices, mainly cartel-like conduct.

An informant who provides intelligence leading to theclosureofaninvestigation

through penalisation is entitledto upto 1%of theadministrative penalty imposed by the authority, which payment hasbeen cappedat1-million Kenyanshillings.

Globally, similar schemes generally have been instrumental in uncovering and prosecuting cartelbehaviour and bolstering competition law enforcement. The implementation of ascheme in Kenya reflects the competition authority’s increasing appetite to enforce the regimeand rootoutrestrictivepractices.

These recent developments in competition policy enforcement draw attention to Africa’s collective enthusiasm in ensuring competition compliance, and its determinationtopromoteandprotect more effective economies. We expect that this trend will continue, with more intensive competition policy enforcement becomingpredominantacrosstheregion. As competition authorities gain traction inthe execution of their mandates, businesses transacting in Africa should ensure they are fully compliant withall competitionlaws andregulations.

Player brands boost clubs: IP rights are effective money generators

CONTINUED FROM PAGE 1

there wasfevered speculationasto whetherhewould reclaim his old number 7 shirt.The iconicshirt hepreviously worewas alsoworn

by ManchesterUnited legends such asGeorge Best, EricCantonaandRyanGiggs. Itwasneverindoubtreally, especiallyas Ronaldo’s ownbrandisCR7.Theholder ofthe shirt,EdisonCavani,

was given another number and the money immediately started flowingin. Withinthe spaceofa fewdays,before the kick-off ofthe match in which Ronaldo would make his return,No 7replica shirts

worth about £187m had been sold, more than covering Ronaldo’stransferfee.

As significant (apparently) was that the announcement of Ronaldo’s move attracted 13-million likes on Instagram,

and 700,000 more mentions on Twitter than the news of Messi’smove!

WHAT THIS TELLS US

Itmerely confirmswhatwe already knew intellectual

property rights are extremely effective money generators that play a huge role in highlevel sport, asindeed they do insomanyareas oflife.Itis well worth investing in them andprotectingthem.

ENSafrica has a large team, operating across every key element of the employment sphere

BUSINESS LAW & TAX

Trends shaping the HR function

• Human resources and payroll professionals have critical roles in taking a business to the next level

Yolandi Esterhuizen Sage Africa & Middle East

Over the past decade, South African human resourcesand payroll professionalshave seenthe complexityoftheir rolescompounded.

Theshift towardsdigital technology,thearrivalofnew generations inthe workplace and acomplicated legaland tax environmenthave all contributed tothis evolving landscape.

Moreso,with therapid rise of remote working models and the fallout from the pandemic, HRand payroll professionals have even more challenges toface. This all unfoldsat atime when businesses recognisethat strategically focusedHR and payroll departmentshave a pivotalroleto playinbuilding a workforcethat providesa competitiveedge.

Sageresearch of1,000 small andmedium enterprises shows that93% of small andmedium enterprises (SMEs) in SA aiming to growinthe nextfiveyears

sayrecruitmentandresourcing should be atthe heart of growth. Thishighlights the criticalrole ofHR andpayroll in taking abusiness to the nextlevel.

Infact,85% agreeHRand payroll professionals deserve aseatat theseniormanagementdecision-makingtable.

Here are fivetrends shapingthe HRandpayroll profession:

1. Compliance complexity

The HRand payrollfunction is becomingincreasingly complex, particularly in terms of taxand compliance. At a time when HR professionalsneed tofocuson strategic concernssuch as talent recruitment,development,engagementandretention,they arespendinga growing portion oftheir time on complianceinstead. Additionally, 77%consider payroll taxes complex,while 50% finditchallengingtoexplaina taxcalculation.

Their challenge, however, isn’t limited topayroll taxes such aspay-as-you-earn (PAYE), Unemployment Insurance Fund(UIF), the Skills DevelopmentLevy and constantly evolvingHR legis-

lation. HR professionals also need tocomply withprivacy regulations like the Protection of Personal Information (Popi) Act, GeneralData Protection Regulation(GDPR) and health, safetyand environmentalregulations.

2. Getting a handle on remote work

Everypartofthebusinesshas needed toadjust tonew remote-working models over thepast 18months, including HR. For many organisations, remoteor hybrid workingmodels appear to be here to stay. By August,82% ofSouthAfrican SMEswere stillrunningfully remote or largely remote models,accordingtotheSage survey, while half (50%) have been hiring, training and managing employees in a remote/hybrid work environment over the past year. Forward-thinking organisationsare looking carefully at using cloud-based systems for HR management to drive performance.

3. New generations equal new workplaceexpectations

HR departmentsare wrestling with how work is

PIECES OF THE PUZZLE

changingasanewgeneration moves into the workplace and millennials moveup the ranksinmanagement.

Furthermore, younger generations such as Generation Z expectmore from employers regarding ethics, social responsibility and social issues. These digital natives have different expectations of workand how and where theydo it.Importantly, they are beginning their careers ata timewhen “work” aswe knowit is evolving. Thisplaces theHR andpayroll functionsinan advantageous position to structure their cultures and waysofworkingtoattractthe bestyoungtalent.

They collaborateand use technology differentlyfrom older employees because they grew up in a world of digital saturation. They also have new expectations in termsofwork/lifebalance.

4. Covid-19 aftershocks Covid-19 isn’tover, butwe

/123RF

are hopefully getting better at managing it through a mixture of vaccinationand nonpharmaceutical interventions.However, wearestill feelingtheshockwavesofthe hardlockdownandtheworst monthsofthepandemiccoupledwiththeJulyunrest.This has employees worried about job security, and those with scarceskills comewith new demands and expectations, especiallyaround remotework.

HR departmentsneed to manage theseexpectations through a delicate balancing act.But theyareoverwhelmed after adifficult year and ahalf. Processessuch as recruitment,retention, onboarding andoffboarding have become more complex, and HR professionals in our survey reported they are generally less confident dealingwiththeimpactofCovid.

5. Tied upin manual red tape

Even though HR and payroll

automation solutionshave been available for decades, many HRprofessionals report spending a staggeringly high percentage of their timeonmanualwork.

More than a third (35%) saidtheyspend 30%ormore of theirdaily timeon payroll preparation andprocessing, while83% agreedHRand payroll involve many repetitivetasks.Thisheavyreliance on manual processes not only drains timebut also opens businesses to complianceandsecurityrisks.

GETTING COMPLEXITY UNDER CONTROL

ForHR professionalstostep up andtake amore strategic role in thebusiness, they need to tame the challenges they face in administration and compliance. This is where forward-looking HR and payroll departments see technologyplayingavitalrole in their future. Those with accessible, integratedcloudbased platforms are already reapingtherewards. Such systems streamline andautomatetheirprocesses and providereal-time employee and organisational dataneededforbetterreporting and analytics to inform strategy and planning. This equips themwith therealtime insightthey needto make substantial contributions at boardroom-level discussions about strategy, data security to improve compliance, and astreamlined payrollprocess toreduceerrors, cut costs, and increase employeesatisfaction.

Inturn, thishelpsthe organisationharnessitstalent moreeffectivelyasacompetitiveadvantage.

How firms can mitigate ESG lawsuit risks

Merlita Kennedy & Tobia Serongoane Webber Wentzel

Litigation on environmental, social andgovernance (ESG) matters is risingglobally and domestically, butthere are various stepscompanies can taketomitigatetherisks.

Investor andsocial pressure on miningand energy groupstoreport onESGand considerrenewableenergyis immense. TheCentre for Research onEnergy and Clean Air(CREA) named state-owned power utility Eskom asthe world’s biggest emitter ofthe pollutantsulphur dioxide (SO2). Eskom emits moresulphur dioxide than Chinese, USand EU powersectorscombined.

According tothe studyby airpollutionexpertMikeHolland, theseemissions contribute to high levels of ambientairpollution andto2,200 airpollution-relateddeathsin SA everyyear. Mostof these deaths are dueto SO2 emissions, whichform deadly

PM2.5 particlesonce releasedintotheair.

The study poses a legal threat to Eskomas climate change litigationis gaining momentuminSA,particularlyinrelationtoairpollution.

ESGhas risentothe topof theboardagenda.Companies are increasingly aware that a failureto addressthesematterscan bedetrimental tothe company’s business purpose, reputation, corporate values, approach torisk management andrelationships with host communities, investors, suppliers, customers,staff and otherstakeholders. As ESG continuesto growin importance, thenumber of ESG litigationmatters will becomeself-perpetuating.

LITIGATION RISKS

Companies and state-owned power utilitiesglobally employ ESGpolicies and procedures inthe energy sector,butEskomhaslagged.

The consequencesof fallingbehind canbesevere and farreaching, forexample

by falling foulof climate change litigation(class actions). Thereis increasing focuson whetheracompany conducts its operationsin a sustainable wayand without violatinganyhumanrights.In some cases,internationally andlocally, boththe stateand a company weretaken to taskfor notactingappropriately to improveair quality and thus thehealth and wellbeingofcitizens.

Sharmaand othersvMinister for theEnvironment –Australia

On September 8 2020, eight young peoplefiled aputative class actionin Australia’s FederalCourtto blockacoal project.Thelawsuitsoughtan injunction tostop the Australian Government from approvinganextensionofthe Whitehaven Vickery coal mine.

The court foundthat a novelduty ofcareis owedby the minister for the environment toAustralian children who mightsuffer potential “catastrophic harm” from the

climate changeimplications of approving the extension to the Vickery coalmine in New South Wales.Ultimately, the court ordered the minister to paycosts.

MilieudefensieetalvsRoyal Dutch Shell Netherlands

The environmentalgroup Milieudefensie/Friends ofthe Earth Netherlandsand coplaintiffsfiled acaseagainst Royal DutchShell (RDS) requestingthe courttorule thatthe Shellgroup’s annual CO2 emissions and RDS’s failuretoreducethemconstituted unlawfulacts toward the claimants; and order RDS toreduce,bytheendof2030, the Shell group’s CO2 emissionsby 45%net, relativeto 2019levels.

In thisgroundbreaking decision,RDSwascompelled to reduce its global group carbon emissions45% net (compared withits 2019 emissions)by2030.

IN SA

In June 2019, the VEJMA and groundWork, represented by

the Centrefor Environmental Rights, launchedlandmark litigation againstthe state, askingthe courttodeclare that the poor ambient air quality in theHighveld was a violationofSection 24ofthe Constitution.On May172021 thePretoriahigh courtforthe first timeheard argumentsin what hasbecome knownas the “Deadly Air” case: a case about thetoxic airpollution on theMpumalanga Highveld.

MITIGATING THE RISKS

To manageand mitigate some of the risksof ESG litigationthe keyisto beproactiveandto:

● Involve legal counselat an earlystage toensureESG compliance with reporting anddisclosurerequirements;

● Conduct duediligence and environmental legalcompliance withthe suiteof environmentallaws;

● Point outpossible exposure to liabilityunder a changing environmentalregulatorylandscape;

● Auditthe suiteofcontracts individually andensure they contain indemnificationand other contractualterms to protect againstthe impactof environmentalliabilities;

● Intheevent ofabreach, involve legal counsel to assist withcrisismanagement;

● Undertake a feasibility study to see whether corporate structuresand operations havethe necessary resources andexpertise to handle any ESG matters that mayarise.

● Engage effectivelywith stakeholders, includingregulators, investors, employees, consumers and communities;and

● Move beyondtreating ESG as a tick-the-boxexercise to ensuring robust governance and accountabilityat board level andintegrating material ESG factorsinto strategic decision-making. Also, anycompany should seek specialistlegal advice beforerespondingtoanyESG litigation issuesthat theymay face.

BUSINESS LAW & TAX

New focus on US-Africa trade

• Potential benefits for infrastructure, energy and climate solutions, health care and technology sectors

Virusha Subban Baker McKenzie Johannesburg

The USadministration announced in Julythat the Prosper Africainitiative, launched in 2019 underthe Trump administration, would be renewedandreinvigoratedto increasereciprocaltrade.

The initiative willfocus on improving tradeand investmentin sectorssuchas infrastructure, energyand climate solutions,health care andtechnology.

Anadditional $80mwill reportedly berequested to supportitsprojects.The17US government agencies workingaspart ofthisinitiative have a mandate to, among other things,empower African businesses,offer deal support andconnect investors fromthe USwith those inAfrica.

Also noted at the renewed Prosper Africa launchis the intention to focus on trade projects thatsupport women, and smalland medium enterprisesinAfrica.

When formerpresident Donald Trumpintroduced his USAfrica strategyat theend of2018,hesaidtheUSwould promote intraregionaltrade and commercialties withits African allies,shifting the focus from “indiscriminate aid” to one of trade and investment andpositioning the USas amore sustainable alternative to whatit termed “predatory” Chinese and RussiainterestsinAfrica.

Under President Joe

Biden, USengagement with African countrieswill focus on thestrengthening these trade relationshipsin astrategic, co-operativeand reciprocal way.The Biden administration haspointed out that itsfocus in Africa will be lesson countering Chinese influencein the continent andmore onthe vision of “shared prosperity” betweenAfricaandtheUS.

The valueof importsand exports between the US and Africa from January to July this year outlines the current nonreciprocal natureof trade between thetwo regions.

Datashows theUSimported $6.3bn moregoods from Africa than itexported to the

STATISTICS SHOW THAT THERE IS POTENTIAL FOR TRADE BETWEEN THE US AND AFRICA TO BE GREATLY INCREASED

continent. The US Census Bureau revealed that in this timeframe, the US exported goodstothe valueof$14.7bn to Africa, andit imported goods fromAfrica tothe valueof$21bn.

Further statisticsfrom the bureau showthat thereis potential for trade between theUSandAfricatobegreatlyincreased,whencompared tootherUStradingpartners.

For example,US goods exported to UKalone totalled

$35.3bn, and goods imported into theUS fromthe UKfrom January to July were valued at$32.1bn.

The Biden administration is reportedly also supportive of the African Continental Free Trade Area agreement (AfCFTA), the landmark free trade dealthat aimsto bring together 54 African countries with a population of more than1-billion peopleanda combined GDP ofmore than $3-trillion. Now that AfCFTA has launched, theUS is likely to look atnew reciprocal trade agreements with Africa that complement this continent-wide free trade agreement. Such new agreements are expected to eventually replace the nonreciprocal African Growth and Opportunity Act (Agoa), which allows duty- and quota-free exports from eligible African countries tothe USbut isdue toexpirein2025.

Agoa was signedinto law byBillClinton,andpresidents Bushand Obamaextendedit duringtheirtenures.

All futuretrade agreements signed between the USand Africancountrieswill have toalign withAfCFTA’s trade stipulations and, considering Biden’s environmental stance, new agreements are likelyto include climate change provisions and tariffs on high-carbon imports. Biden willalso focus on trade agreementsthat do not disadvantage US businessesandconsumers.

However, forfree trade acrossthe continenttobe successful, infrastructure is

Sciencefrequently outrunsthelaweven beforelegislationis passedwhichtriestokeep pace.Privacylaws,which havebeenovertakenby informationtechnologyand hackers,provideagood example.Thatdoesnotmean wecannotallkeeppace whenwecan.

Sciencehaslongsince recognisedthatsexand genderarenotbinary. Betweenthosewhowere traditionallylabelled“male” and“female”aremany peoplewhoeithershouldn’t be,ordon’twanttobe, burdenedwiththoselabels.

Arecentcaseinthe Englishhighcourtshows howobtusethelawcanbe.A transgenderman,bornwith

reproductiveability,gave birthtoachildafter transitioning.Althoughhe hadobtainedagender recognitioncertificateasa male,adoptedthename Alfred(Freddy),livedasa transman,undergone hormonetreatment,been artificiallyinseminatedina licensedclinicasamaleand givenbirth,theregistrarof birthsinEnglandinsistedon recordinghimasthe

urgently needed to facilitate thefree movementofgoods and services across Africa’s borders.There is an urgent imperative to address funding gaps in transportation, energy provision, internet access and data services, education and healthcare infrastructureprojects

As such,the USis already amajor playerinfunding African infrastructureprojects. For example, according to IJ Global data in Baker McKenzie’s report, “New Dynamics: ShiftingPatterns in Africa’s Infrastructure Funding”, two US development agencies the ExportImport Bank of the US and the Overseas Private Investment Corporation funded infrastructure projects to the

CONSUMER BILLS

valueof $4.7bnand$3.6bn respectively, from 2008 to2020.

The US hasn’tkept pace with Chinese lending into African infrastructureprojects IJGlobaldatafromthe same reportreveals thatthe China EximBank alonelent $29bn to African infrastructure projects in the same timeframe 2008 to 2020. However, Biden’s renewed

BIDEN’S RENEWED FOCUS ON IMPACTBUILDING AND FINANCING

STRATEGIC LONGTERM PROJECTS IS ENCOURAGING GOODS ON THE MOVE

focus on impact-building and financing strategic long-term projects in theregion is encouraging,as ishisadministration’s willingnessto work with regional development finance institutions to reduce theinfrastructure gap.

Africa needsstrong partnerships toaddress itsdevelopment challenges so that, among otherthings, itstrade andinvestmentpotentialwith major global playerscan be fullyreached.

Assuch,theBidenadministration’s renewedProsper Africainitiative, aspart ofits sustainable and reciprocal approach toAfrica, isexpected to lead to a plethora of opportunities for investors in boththeUSandAfrica.

Time to recognise sex and gender are not binary

“mother”ofthechild.

TheEnglishhighcourt refusedtohelphimonthe basisthattheEnglish commonlawconceptthat only“mothers”givebirthto childrenoverrodeFreddy’s admittedrighttorespectfor privatelifeunderthe EuropeanConventionon HumanRights.

Englandisneveragood exampleofhumanrights becausetheydonothave awritten,norany,billof rightsapproachingwhatwe haveinSA.

InSA,becauseof ingrainedbutoutdated thinking,theidentitycards thatreplacedtheidentity bookincludethe“male”and “female”descriptionofthe person.Thelawhastocatch

up.Thereiscurrently lobbying,andpotentially litigation,tochangethe AlterationofSexDescription andSexStatusActof2003 andanumberoflaws relatingtotheregistrationof birthsandtheissuingof identitydocumentsand passportsandtoallowforan unspecifiedcategoryfor individuals.Itishopedthat conservativethinkingwill notdeteriorateintothe concernthatsome peoplehadintheapartheid yearsaboutwhattoilets peoplewilluse. Lawyersandothers draftingdocumentsstillfall intothebinarygendertrap. Theyusethepronoun“he”to representallgenders,they put“hisorher”or“his/her”

indocumentsandtheystart affidavitswithphrases describingthewitnessas“an adultmale”.(Atleastthey havegonebeyondthe previous“adultwhitemale”, whichshowsthatchanges canproperlybemade.)

Confiningpeopletoheorshe isdiscriminatoryandan affronttothedignityand realityofmanypeople.

Exceptforanoccasional lapse,statutesnolongeruse

CONFINING PEOPLE TO HE OR SHE IS DISCRIMINATORY AND AN AFFRONT TO THE DIGNITY OF MANY PEOPLE

gender-specificwordsofthis natureandthereisnoreason whyanyofusneedsto.The pluralpronouns“they”, “them”and“their”are properlyusedinEnglishas singulars.Otherlanguagesin SAdonotusesuchgenderspecificpronouns.Thereare manywaysofavoiding discriminatorylanguage. Wenolongerrecognise raceasadeterminerinforms andcontractsexceptwhen promotingpreviously deprivedrights.Whydowe doitforgender?Ourbillof rightsoverridesoutdated thinkingandanoutdated commonlaw.Let’srespectit.

● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

LATERAL THINKING

The virtues of simplicity

• Business Law & Tax Editor Evan Pickworth interviews founder of Caveat Legal Yvonne Wakefield on the future of the legal profession in the new normal

EP:Your company, Caveat Legal, recently celebrated 10years in business. Ithas certainlyshakenupthesector, beingbased ona new law consultancymodel. What have been the top three highlightsfor you over the past 10 years?

YW: Watchingthe virtual platform-style business model proveits appropriatenessto thelegal sector,both for commercialclients and forleadinglawyers.

Beingapproached bya number of investorskeen to invest inthe business(and, being so lighton capital requirements, turningtheir generousoffersdown).

Watchingthe companyfly during Covid-19,posting 65% revenuegrowthforthefinancial yearending February 2021.

EP: Whereto nextand how will you maintain your edge in anincreasingly competitive legal space?

YW: With themarket having validated Caveat’s business model, wehave turnedour effortsto rapidscaling.We’ll keepour edgebystaying tuned intowhat ourcustomers want,and responding to small shiftsin demand quickly. And,of course,we will keepstriving tobe the best homefor leading lawyers.

EP:Thelegalprofessionisin astateoffluxatthemoment, in essencewithout achief justice, whohas beenon long leavesince May.Do youthink thisuncertaintyis opening the doorfor more workfor firmslikeyourselves?

YW: Yes, theindustry is indeedinflux,withmanytraditionalfirms notadmittingto having scaled backon hiring

and promotionsduring the pandemic, whichcreates the perfect environmentfor disruption. The markethas also learnedthat brickandmortar infrastructure isn’t necessary for theprovision oflegal services,sowe expecttosee many more playersin the space.At theendof theday,

WHEN STARTING A CAREER IN LAW, CHOOSE THE OPTIONS THAT GIVE YOU THE MOST INTENSIVE TRAINING EARLY ON

healthy competition is excellentfor consumerssowe encourageitwholeheartedly.

EP: What doyou think of legal fees overalland as a result ofyour modelhow much lower areyou able to take fees for nonreserve commercial work?

YW: People don’t like the idea of the “billable hour” but, in reality, lawyers, like doctors, accountants, architects and others, charge for their time. There isn’treally atruly different, yet viable, alternative

tothis. Havingsaid this,we knewfrom theoutsetthat heavy overheads like large buildings andteams ofsupportstaff arenotnecessary fortheprovision oflegalservices, andset Caveatup tobe virtual fromday one.So for the past 10 years, our clients havehad accesstolawyers who have grown up at our largestlawfirms,atabouthalf theprice. Andbecausethe margins arethin, ourpanel members earn more than their peers in traditional practice.Soeveryonewins.

EP: Areyou notgetting too big yourself leading to higher feesdown theline for marketing, space and specialist work?

YW: We areoptimistic we can remainlean andnimble throughourruthlessfocuson simplicity.So far,byavoiding complexity at everyturn, we have builta business inherently light and scalable, and seenoneedtochangethat.

EP: Are you seeing growth in mediation and arbitration work?

YW: Unfortunatelynot, despite doing a huge amount of marketing forthe work and having accredited mediatorsonourpanel.Asalitigator inmy pastlife, I’m very clearthatlitigationis forthe

mostpart alose-losegame, and that mediationis often the most common sense option, but unfortunately we haven’tseenthemarkettakeupthatwe’dhopedfor.

EP:Keytrends fortheCsuite to watch in the commerciallaw spaceinthe next year?

YW: Compliance,especially around data protection, is high onthe agendawhile we waitto seehow theregulator behaves and how the courts applyPopia.Theemployment spacehasbecomeevenmore tricky through Covid-19 times, with policies having beenseriously putto thetest, andwiththeimpactofCovid19 on employee mental health.Andthen,nowthatthe world is (hopefully) returning tosome kindofnormalcy, general housekeeping like making sure stakeholder relations are properly recorded andupdated (inMOIs orshareholderagreements).

EP: Areyou excitedabout Africa’s potentialand

prospects forcross-border deals? Specifically, the African ContinentalFree Trade Agreement has kickedoff andit ishoped this sparks more trade

YW: Definitely. Wedo a significantamount ofworkin this space, and I’m always amazed by thevolumes of

BY AVOIDING COMPLEXITY, WE HAVE BUILT A BUSINESS INHERENTLY LIGHT AND SCALABLE

deals onthe go atany given time.

EP: Which sectorsof the professionexcite youthe most right now?

YW:Financial services,with the new TwinPeaks regulatory model and specifically howthecrypto spacewillbe affected;data protection

and how the regulator will keep up with its impossible task;andtelecoms withthe new entrants,incumbents andinbetweeners vyingfor space.

EP:Advice forstudents planning on a career in law?

YW:Whenstartingacareerin law, choose theoptions that give youthe mostintensive training earlyon. Stayon as steepa learningcurveas possible for aslong as possible, andkeep youreyes open for aspectsof theprofession thatcanbeimprovedupon. EP: Your message to young lawyers thinking of going it alone

YW:Runningyourownpracticecanbedifficulttojuggle whileyoudo yourwork,you needtokeep aneyeonmarketing efforts, administration, finances, insurance etc.Or, if you’re on topof your game, youcanjoinCaveatandallow ustodoallthatforyousoyou can focus ondoing the work youlovewithoutdistraction.

Paia Guide helps seekers of information

Peter Grealy & Karl Blom

Webber Wentzel

The Promotion ofAccess to Information Act2000 (Paia) requires theinformation regulator topublish aguide (Paia Guide) toassist aperson who wishes toexercise aright contemplated in Paiaor the Protection ofPersonal InformationAct2013.

The recently published

Paia Guide is an updated version of the existing guide published by the SA Human RightsCommission. Itis importantforan organisation tounderstand when it must ormay refuse a request,topreventfallingfoul ofPaia. Ifarecord fallswithin one ofthe mandatory groundsofrefusal,anorganisation mustrefuse accessto it. Examplesinclude where the record requested is leg-

IN SOME CIRCUMSTANCES, ORGANISATIONS HAVE DISCRETION TO GRANT OR REFUSE A REQUEST

allyprivilegedorifaccesstoit wouldresultintheunreasonable disclosure of an individual’spersonalinformation.

In somecircumstances, certainorganisations(suchas government departments) havethediscretiontograntor refuse arequest, forinstance ifaccessto therecordwill hamperthe operationsofthe organisation.

Some of the key elements contained in thePaia Guide are:

● How to requesta record which is inthe possession of an organisation,including a

step-by-step process map and guidanceon theappropriateformstobeused;

● What typesof information can be requested. The Paia Guidenotesthatsometimesit is not clearwhether a record ispublicor private,andthe publicisadvised toseeklegal adviceonthisissue;

● Who can make a request forinformation;

● The fees payablefor making a request andthe costs of

providing accessto records thatarerequested;

● The role of an organisation’s informationofficer and /or deputyinformation officerand theroleof theinformationregulatorinrelationto arequest;

● The timeframes andlimits forproviding aresponse toa request;and

● How to challengean organisation’s decisionabout a request.

BUSINESS LAW & TAX

Copyright but not as we once knew it

• What nonfungible tokens and 68-billion melodies may mean for intellectual property rights

Gaelyn Scott ENSafrica

In this articlewe discuss two unusualcopyright issues thatintellectual property lawyerswould neverhave hadtoconsiderafewyearsback.

The first dealswith nonfungibletokens(NFTs),which are,ofcourse,alltherage.The term “nonfungible” means not easilyinterchangeable and the NFT isa form of cryptocurrency that uses blockchain technology. What thismeans isthat anew block is createdwith each transaction, which apparentlymakesittamperproof.

Ithas seeminglybecome derigeurforartistsandmusiciansto useNFTs forselling art andmusic. ThroughNFTs, workscan betokenisedto create a digital certificate of ownershipthatcanbebought or sold. When it comes to music, articles sold by musicians includeconcert tickets (virtual andphysical), previews ofunreleased songs,

album downloads, physical copies of limited-edition albums anddigital artwork. It’sthe rarityofthe NFTthat createsthevalue.

Oneof theperceived benefits ofNFTs isthat they create alternativerevenue streams forartists, revenue

ONE OF THE PERCEIVED BENEFITS OF NFTS IS THAT THEY CREATE ALTERNATIVE REVENUE STREAMS

streams that cutout the middleman and enable fans tosupportartistsdirectly.

Possible downsides of NFTsare thefact thatsales aredriven byhype andthey areseeminglythepreserveof big-nameartists.

There wasan interesting report onthe BBC recently about NFTs. A 12-year-old London lad, Benjamin

Ahmed, has createda series of pixelated artworks called Weird Whales. Ahmed was apparently “inspired” by a well-known whalememe image anda populardigitalart style, althoughhe used his own programto createhis 3,350emoji-typewhales. Ahmedhas donewellfor himself, sellingthe seriesof artworks asNFTs foran impressive £290,000. Ahmed is keepinghis earningsincryptocurrency,inthis caseethereum.

LEGAL ISSUES

The boy’s father,Imran, isa softwaredeveloper andheis very supportive of his son, claiming he is “100 % certain” that Benjamin has not infringed anycopyright. Imran claims that he has engaged lawyers toaudit the worksandsays heisseeking advice onhow Benjamincan “trademark”thedesigns. Clearly copyrightis the main issue.If Ahmedhas copied other workshe may wellbe guiltyofcopyright

infringement.It’simportantto notethatwithcopyrightthere must havebeen actualcopying before therecan be an infringement, co-incidental similarityisnotactionable.

If Ahmed hascreated the works independently of any other works, and there was indeed no more than inspiration,heshouldbefine.

But thedifference between inspiration and copyrightcanbeafineone.

Aclosing noteonNFTs with somewords froma Christie’s auctioneer,which suggest thatthere isstill considerable scepticism about NFTs.Inthe BBCarticlethe auctioneer describespeople whobuy NFTsas “slight mugs”. But, headds, “I hope theydon’tlosetheirmoney.”

MUSIC LAWSUITS

No song is new (we) have exhausted the data set (we)

havemadeallthemusictobe abletoallowfuturesongwriterstomakealloftheirmusic.

These remarkable words appear in amagazine article. Theyare thewords oftwo lawyerswho claimtohave created analgorithm thatcan create,and allegedlyhascreated,every 12-note melody that has been written or indeedcaneverbewritten.

The creation of this algorithmis premisedonthe assumptionthat thereisa finitenumber ofmelodies that can exist. The lawyers talk of the fact that songwriters are “walkingon a melodicminefield”

So how many melodies are there? It’s68-billion, and they’reapparently allavailableon allthemusic.info.But the two lawyers are not claiming any ownership, rather they’re releasingthe entirecatalogue inthe hopeit

will putan end toall music copyrightlawsuits. It’s hard to know what to make ofthis anddifficult to commenton thescience behind it,but thebasis of copyrightprotection isoriginality.Not inthe senseof uniquenessor noveltybut ratherin thesense of “sweat ofthebrow”

INFRINGEMENT

You canclaim copyrightin a work(like asong) thatyou have createdindependently, inotherwordswithoutcopying anyother work. Ifa third party then copies your work and perhaps youhave clear proof thatthey did,surely therewillbeaninfringement. So this development, although quiteremarkable and undoubtedlyinteresting, is notquite the endof the music copyright infringementclaim.

New tax rules can boost African recovery

Denny Da Silva Baker McKenzie, Johannesburg

One hundredand thirty-six ofthe140 membersofthe OECD G20Inclusive Framework, includingSA, have agreed on a newset of global tax rulesthat willreform the world’staxsystem. Notably, two African countries thatare members of theInclusive Framework havenotyetjoinedtheagreement KenyaandNigeria. The two-pillarsystem is be presented tothe G20 Leaders’ Summitat endOctober andresult ina reallocation of taxing rights from resident tosource countries of certain multinational enterprises(MNEs),ifthresholds are met, inaddition to a 15% globalminimum taxrate for some organisations implementedfrom2023.

Theagreementisintended to redress global tax revenue imbalances and is set to benefit developingeconomies in

Africa. African policymakers saya multilateralapproachto tax collection has many benefitsforthecontinent.Smaller economies such as in Africa rely moreon business income taxthan larger economies. TheAfrican Tax Administration Forum(ATAF) has noted that 16%of tax revenue in Africancountries is corporatetax,comparedwith 9%inOECDcountries.

African countrieshave improved revenue-collection methods andimplemented punitive measuresto clamp down ontax avoidance because revenuecollected is of utmost importanceto their economicstability.

But currenttax ruleshave meant thatAfrican countries could notcollect taxrevenue from multinationals,even if they wereoperating profitablyintheircountries.

The OECD’sPillar One changes enablemarket jurisdictions to charge income tax ona portionofthe profitsof

large multinational companies operatingwithin their borders. It willreallocate taxing rightsfrom resident countries tomarkets where they conductbusiness and generateprofits,regardlessof their physicalpresence in thatcountry.

Pillar One willapply to MNEs withsales ofmore than€20bnandthatgenerate a netprofit above10% (profit beforetax/turnover).Amount Ahasbeen confirmedat25% of an MNE’s residual profit (ie profit inexcess of10% of revenue)andwillbeallocated to marketjurisdictions with sufficient nexususing a revenue-basedallocationkey being a revenueof at least €1mfrom thatjurisdiction(or atleast €250,000 for jurisdictions with a GDP of less than€40bn).

No agreementhas yet been reached onthe implementation anddesign of AmountB, whichintendsto simplify thearm’s length

principle forbaseline marketing anddistribution activities,but theintention isfor thistobecompletedin2022.

PillarTwoproposesanew networkof rulesthatwill reallocate taxing rights according toa newglobal minimum tax regimeof 15% aimed atensuring aminimum effectivenet taxrate across all jurisdictions. It will apply to allenterprises generating arevenue above €750m. Modelrules for bringing PillarTwo into domestic legislationwill be introduced in2022 and becomeeffectivein2023.

OntheAfricanfront,ATAF submitted proposalsto the OECDon thenewagreement and announcedin October 2021that manyof itsproposals wereincorporated into Pillar One,including broadening theagreement to incorporate allsectors, but excluding the extractives sector. ATAFstated that resource-rich African coun-

triesprice theirmineralson their “inherent characteristics” and noton “market intangibles”,andassuch,taxingrights shouldgo tothe resource-producingcountry.

ATAFsaidtheirrequestfor greatersimplificationofsome oftheruleswasalsoincorporated. Thenexus threshold was reduced to €1m, down from €5m,with alower threshold of €250,000 for smaller jurisdictionswith GDPs lower than €40bn and no “plus factors”. ATAFalso secured anelective binding dispute resolutionmechanism,asopposedtotheexisting mandatorydispute resolution process,for eligible developingcountries.

ATAF wasalso pleased that theSubject toTax Rule (STTR)would beaminimum standard that developing countries can requireto be included inbilateral tax treaties with Inclusive Framework members,and that theSTTR wouldcover

interest, royalties,and a defined setof otherpayments.But therewasdisappointmentthattheagreement allocatesonly 25%ofthe residual profitto market jurisdictions underAmount A.ATAFpushedfor35%.

African countrieshave until 2023to implementthe newtax rules,navigatingdifficulties oftax implementation due tocapacity challenges and issueswith how the ruleswill affectcountries that are notmembers of the InclusiveFramework.

But the OECD has said it willensure therules canbe effectively andefficiently administered andthat they will offercomprehensive capacity buildingsupport to countriesthatneedit.

Overall, theglobal tax changes aregood newsfor Africa andexpected toresult inhigher taxrevenuefor African countries at a time when capital is needed direly forpost-pandemicrecovery.

Guide on how to avoid biting by watchdog

• Competition authorities’ bid to help companies do localisation right is flawed but a step forwards

Heather Irvine Bowmans

Statistics SArecentlypublishedupdated employee numbersfortheSA manufacturing sector, which indicatethat as apercentage ofthe totalpopulation, this isthe lowest it hasbeensince1935.

Increasing localproduction hasbeen identifiedas a top priority for SA after the Covid-19 pandemic andis a key proposeddriver of growth andemployment in theEconomicReconstruction and RecoveryPlan (ERRP) and severalindustry master plans.

Therole ofcompetition policy inpromoting localisation has also been recognised bythe departmentoftrade, industry& competitioninthe Competition Policyfor Jobs and Developmentit publishedearlierthisyear.

Insupport ofthisobjective, theCompetition Commission hasissued draft guidelines on collaboration between competitorsin both public andprivate sector localisation initiatives.It aims to providecompanies with guidance on how they can engage indiscussions with their rivalsand reachagreements whichenhance local production anddecrease reliance onimports, without fallingfouloftheoutrightprohibitions onprice-fixing and market allocationcontained in section4(1)(b) ofthe CompetitionAct.

Agreements by competitors on sellingor purchase pricesoron dividingupsuppliers(orcustomers)areprohibited outright,even ifthis leads toprocompetitive, efficiencyortechnologicalbenefits orpromotes anational priority suchas localisation. Even afirst-time contraven-

tionof thissectionof theact canresult ina fineof upto 10%ofturnover.

Historically, prosecutions by thecompetition authorities of companiesin industries such as glass and steel, who had triedto facilitate more local scraprecycling in some cases,even if initiatedorsupportedbythegovernment has tended to deter companiesfrom exploring theseopportunities. Competitionlaw riskis often cited bymanagers as the reason for their reluctance to discussand imple-

LOCALISATION INITIATIVES SHOULD PROMOTE ENTRY AND EXPANSION OF SMALL-, MICROAND MEDIUM-SIZED ENTERPRISES

ment industry-wide localisationefforts.

The commission’s draft guidelines list various initiatives which could support localisation, includingidentifying opportunities for localisation; settingindustry-wide and individual firm local procurement targets; and demand forecasting. Although it notes thatthis isnot aclosed list, theguidelines wouldalso applyto otherkinds ofcompetitorinitiatives.

The commissionsuggests ways in which companies taking partin theseefforts candosowithoutcontravening the Competition Act. For example, in identifying productswhich couldbe thesubject ofa localisationdrive, the commission notes that competitors should appoint a facilitator(who couldbea representative from a government department) to col-

LOCAL IS LEKKER

lect pricingand othernecessary information, and to ensureonlyaggregatedinformationisshared.

The commission’s draft suggests that final industrywidetargets mustbedetermined by the facilitator, rather than by agreement among the competitors, and these discussions must be minuted, and notifiedto the commissionwithinareasonable time.It proposesthat the commission may request accessto therecordingor minutesof thesemeetingsat anytime, althoughit isnot clearthatthecommissionhas anypower tocompelproduction, outside of a complaint investigation or market inquiry.

Thedraft guidelinesarea helpfulextension oftheprinciples set out in the commission’s guidelines on information sharing by competitors (which remain indraft form).

In addition to recognising companies’ need to collect detailedpricingandpurchase information, and disseminate it,to makeinformeddecisions aslongasappropriate safeguards areput inplace the draft guidelines indicate the commission accepts that companies should beable to set industry-wide targets which affect individual companies’ pricing and purchasingdecisions,as longasthey appoint an independent facilitator to determinethe final targets.

This provides practical guidance to companies who want to avoidpotential prosecution under the CompetitionAct.

In line withthe objectives ofthe act,thecommission notes that localisation initiatives should beinclusive and, in particular, should promote theentry andexpansionof small-, micro- and mediumsized enterprises and firms owned by historically disad-

vantagedpersons.

However, itis unfortunate that theguidelines donot highlight that localisation efforts should only be undertaken if they do not harm the overalllevelofcompetitionin arelevant market;or ifthey do, thatthis onlypasses muster under section4 of the act ifit leadsto efficiency, technological or procompetitive gains which outweigh theseeffects. Itshouldbe clearthatlocalisationprojects that shutout healthycompetition from imports without delivering clear benefits, and therefore harm SA consumers, are not shielded from complaints brought in terms oftheact.

In particular, localisation efforts which benefit existing inefficient localmonopolies shouldnotescapescrutinyby thecompetitionauthorities.

Itis alsonotclear thatthe commission’s guidelines go far enough toprovide adequatelevelsof comforttoSA companies that they can safelyparticipate inthegovernment’s localisationdrive, without risking prosecution. For example, the guideline should mention that in terms of section 3(1)(e) of the act, “concerted conduct designed to achieve a noncommercial socioeconomic objectiveor similar purpose” is excluded fromtheambitoftheact.

It would be helpful if the commission wouldexplain the criteria which the commission considers tobe relevant to a determination of conductthatis“noncommer-

THE COMMISSION COULD IMPLEMENT POLICIES AND PROCEDURES THAT ARE DESIGNED TO SUPPORT LOCAL FIRMS

cial” and provide examples of “socioeconomic”projects.

The draftguideline could also mention that in line with ourcourts’analysisofsection 4(1)(b)in theAnsac andSAB cases, some agreements by competitors, even if they involve the fixing of a price, should be characterised as falling outside of the prohibition on price-fixing, because it is clear from the surrounding facts and circumstances that thisis notcollusive in nature. This approach is already appliedby theCompetition Tribunal in assessing reasonable restraints on the seller of a business in the context of a sale of business, forexample.

Some practical examples of how the commission believes this principle would apply in the context of localisation initiatives would be useful, particularly since the Competition Commission is not currently issuing formal advisoryopinions.

In additionto publishing these guidelines, the commission could implement policies and procedures that are specifically designed to support local firms in their localisation efforts. This could include, for example, articulating thatas amatter ofpolicy, the commission will grant exemptions to competitors interms ofsection 10(3)(b) of the act, if their conduct isintended toadvance localisation and does not have anticompetitiveeffects or,if theseare suitablyoutweighed by efficiency, procompetitive, technologicalor othergains.

The potentialfor thecommission to grant more exemptions hasbeen enhanced by the amendments tothis sectionof the act in 2019, since it now recognises that an exemption may be grantedif an agreement orpractice bycompeti-

tors will contribute to “ competitiveness and efficiency gains that promote employment or industrial expansion”.Once again,thecommission could provide guidanceonthekindsofevidence it will requirein support of applications of this nature, and the circumstances in which it islikely to grant them.

Given that there is no timeline specified in the act for applications for exemptions tobe granted,and some have takenmonths oreven years to process,it would alsobehelpfulifthecommissionwouldspelloutanexpedited investigationprocedure

LOCALISATION EFFORTS WHICH BENEFIT EXISTING INEFFICIENT LOCAL MONOPOLIES SHOULD NOT ESCAPE SCRUTINY

and a fast-track timeline for exemption applicationsof this nature.Safe harbour perhaps evenin the formof a blockexemption would permit morelocalisation efforts bysmall firmswhich clearly donot harmcompetitionin theoverall market(for example,if dealsto buylocallyproduced productsby small companies accounting for lessthan 35% ofthe purchasingmarket wereautomaticallyexempted). Localisationwillbecritical forSAafterthepandemicand our competition authorities have akey role toplay in ensuringithappens inaprocompetitiveandefficientway, in accordancewith theCompetition Act. Clearand comprehensive guidelinesfor businessare animportant stepintherightdirection.

What you need to know about open banking

•

A closer look at the concept and the Reserve Bank’s survey and consultation paper

Angela Itzikowitz & Era Gunning ENSafrica

InNovember 2020the nationalpaymentsystem department of the ReserveBank issuedits “consultation paperon open-bankingactivitiesinthe nationalpaymentsystem”

During the development of this paper,the Bank conducted a survey of screenscraping practicesand openbankingactivities inthepaymentsindustry.

Beforeexploring theoutcomes of thesurvey, let’s examinetheseconcepts.

TheEuro BankingAssociation defines “open-banking”as“amovement‘bridging two worlds’, makingit possible for customersto use their bankingservice inthecontextof otherfintechservices, combining innovativefunctionalities frombanks and nonbanks with reach throughinfrastructure”

TheBank forInternational Settlements defines itas “the sharing andleveraging of customer-permissioned data by bankswith third-party developers and firms to build applications and services, such as those that provide real-time payments, greater financial transparency options foraccount holders, and marketingand crosssellingopportunities” Openbanking isenabled

by technologiessuch as screen scrapingand application programming interfaces(APIs).

SCREEN SCRAPING

Screen scraping is the technology thatreads and extracts data froma target website usingcomputer software thatimpersonates a webbrowser toextractdata or perform actions that users would usuallyperform manually on thewebsite. In the payments industry,it involves athird-party app which enablesdirect access toa consumer’s online banking profile, takes control of the internetbanking session andautomates apaymenton theconsumer’sbehalf.

Screen scraping requires a customer toshare his/her online bankingcredentials, including his/her login names, personal identification numbers(PINs) and passwords, withthe third party (usuallya fintech)practisingscreenscraping.

Screen scrapingis attractive tocriminals, asthey can set upan illicitthird-party payment providerbusiness

THE BANKS NOTED THEY DO NOT HAVE MECHANISMS TO BLOCK SCREEN SCRAPING AS IT IS DIFFICULT TO DO SO

with the purposeof mining personal informationand/or stealing customer funds and advantage may be taken of weakregulatoryregimes.

Accessing customers’ financial informationusing screen scraping is generally regarded asless securethan APIsfrom dataprivacyand consumer protectionperspectives. There have been growing interventions by regulators to combat this practice,asit posesrisksto theintegrity, safetyandefficiency of payment systems aswellastotheconsumer.

APIs APIs are softwaretools that enable different systems and appstotalk tooneanother and share data. APIs inaccessible to theoutside world and internally focused are known as “closed APIs”. OpenAPIs are usedby thirdparties for creating offerings that may bring convenience to existing customers and/or increase customerreach.

Inbanking,openAPIsmay be used toshare customer data,with consentfromthe customer, within the organisation orwith thirdparties. They enable consumers and businesses to obtain account information and initiate and track payments using thirdparty apps that connect directly intothe banks’ systems in asecure and seamlessmanner.

OpenAPIs donotinvolve the sharing of login credentials and arewidely considered a moresecure way of giving third-party providers accesstocustomers’financial information to enable the provision of enhanced servicesthanscreenscraping.

On the downside, APIs could give banks too much power asthey areusually ownedby banksascustodians of customerdata and the banks thus have control over what data to share, which could be anticompetitive and inhibitinnovation.

The majorityof thebanks whichparticipatedinthesurvey indicated they do not endorse or support thirdparty use of screen scraping to access customer information, butdo andwould allow approved vendors to access such information using APIs, given that they are more secure than screen scraping. However, the banks noted they donot havemechanisms to block screen scrapingasitisdifficulttodoso.

The Bank’s paper makes numerous policy proposals in respect ofopen banking, including:

● A new classof third-party providers, with access to customers’financialinformation, should be introduced to improve offerings for custo-

mers, increase competition and promote innovation.

“Good” permissible openbanking practices must be distinguishedfromprohibited “bad” practices, that may include unsecurescreenscrapingactivities.

● Allthird-partyprovidersin the national payment system (NPS) should beregulated by the relevant authorities, such asthe Bankand theFinancial Sector ConductAuthority (FSCA) and besubject to open-bankingtechnicalstandards that shouldbe devel-

CONSUMER

EDUCATION SHOULD BE CONDUCTED AS MANY CONSUMERS MAY NOT BE AWARE OF THE RISKS

opedandimplemented.

Thiscould necessitatethe establishment of open-bankingworking groupsthatmay include NPS participants, regulators (such asthe FSCA, the Information Regulator, thePrudential Authorityand the Bank), and other relevant authorities(such asthe Competition Commission andthe NationalTreasury) andstakeholders.

● Third-party providers

must:1. notstorecustomer information; 2. onlyuse the informationfor itsintended purpose;3.bear therisksand costs that they introduce to consumers;4. makethenecessaryefforts toprevent, detect and resolve any unauthorisedaccess and/ordata sharing; 5. be prohibited from theon-selling ordistributing ofdata.

In addition, they must put inplace requisiteinsurance or guaranteemechanisms againstpossible losses,protect theintegrity ofthe NPS andimplement effectiveprocessestomitigateoperational risksand mechanismsto promptly respondto, resolve and remedy any data breaches, transmission errors, unauthorisedaccess andfraud.

● Banks should provide accesstocustomers’financial information, withcustomer consent,to regulatedthirdparty paymentproviders. Banksshould grantnonbank paymentproviders accessto their systems forthe development of APIsas a safe mechanismto enablethe sharingofcustomerdata.

● Consumers shouldhave practical meansat theirdisposalto disputeandresolve instances ofunauthorised access, the failure by merchantsto honourpurchase ordersand possibledata breaches.

● Consumer educationor awarenessshould beconductedas manyconsumers may notbe awareof the potentialrisks whenusing third-partyproviderstoeffect payments or theservices of data aggregators. Education shouldinclude anunderstanding that theyhave the rightto withdrawconsentat any time, provided the withdrawal does notviolate other legitimate obligations.Custodiansof consumers’ financial information should ensure thewithdrawal ofconsentis madeaseasyaspossible. It is crucial that regulationsrelating todatasharing and open bankingstrike a balancebetween riskmanagementand thepromotion ofinnovation.

Danger of paying lip service to governance

Evan Pickworth Business Law & Tax Editor

Almost fouryears later,it’s still hardto believethe full horror of theSteinhoff collapse. Recentacrimonious multijurisdictional settlement processes andliquidation uncertainty are justadding to themess.

Director, auditingand broader executiveduties of care were inthe spotlight in theearlydays,butitwasclear thatthe fullstorystill hadto be told and damages determined.

Things spiralledrather

quickly when inMarch 2019 PwC found the firm had recorded fictitiousor irregular transactionsof €6.5bn between2009and2017. What trulybeggars belief ishow itcameto this.After all, the King Report on corporate governance forSA was released inNovember 1994, embracing an inclusive approachtocorporategovernance.It isaheavy ironythat SA has led the charge on governance rulesover the pasttwo decadesbut hashad manyof itsown entitiesfailingabysmally toabideby theselaudableprinciples.

It’s not as if companies never hadthe guidance. According to SirAdrian Cadbury, thefather ofcorporate governanceintheUK,governance isconcerned with holding thebalance between economic andsocial goals and betweenindividual and communal goals.The governanceframework isthereto encourage the efficient use of resources andequally to require accountabilityfor the stewardshipoftheresources.

Theaim isto alignas nearlyas possibletheinterests ofindividuals, corporationsandsociety.

Fast forwardto todayin SA and there are embedded legislative requirements basedon theCompaniesAct in the case of the private sector andPublic Finance Management Act inthe case of thepublic sectorand all thesearealsosolidifiedbythe principles containedin the Kingcode.

These rulesare nolonger just nice-to-havesbut form part of the legislative bedrock itself especially sections 72 and76oftheCompaniesAct.

The roleof socialand ethics committeeson many boards isincreasingly pro-

minent andtaken seriously. Everyone makessure the principles areapplied rigorously. Thisdoesn’t always filter throughand permeate every element of an organisation, butmajor stridesare being madein many companies. Yetmany steps backwards arealso being taken byothers, especiallyin thepublicsector.

In anexcellent paper, Osborn Chaukeand Mokoko Sebola fromthe Universityof Limpopo saythe burdenof complying withgood corporate governanceprinciples should not pusha marginal

company into liquidation. Instead it should steer it towardssuccess. Aligning acompany’s operations withthe prevailing philosophical, sociopolitical, legaland commercial contextwithin which itoperates iscritical forthe successofbusiness.Icouldn’t agreemore. Ultimately, it willbe better policing of bestpractice and application thatwill prevent anotherSteinhoff.

Butaslong assomecompaniespaylipservicetothese principles, anotherbig collapseliesinwait.

BUSINESS LAW & TAX

Sars penalty: who qualifies for remission?

• The urgent steps a company took to rectify the default need to be taken into account, court finds

Dr Albertus Marais AJM Tax

In a recentcase before the full benchof the high court, one of our clients, withour help,appealed against a penalty imposed by the SA Revenue Service (Sars)in relationto theostensiblelatepaymentof its December2017 PAYE amountdue.

The December 2017 amountduewasR10,648,341, which Sarsargued wasdue tobe paidtoit byFriday January52018.

Thatpayment was,however, madeon Monday January 8 2018, causing Sars to levy a10% late payment penalty ofR1,064,834 against thetaxpayer.

In terms of the fourth schedule to theIncome Tax Act,when anemployeris required to deductand withhold PAYEfrom remuneration paid,that amountis required tobe paidto Sars within sevendays following the end ofthe month during which theremuneration in questionispaid.

Sarsargued herethatthe seventh dayfell onSunday January 7 2018 and therefore payment was dueby Friday January5: theTaxAdministrationActrequirespayments to be made bythe last immediately precedingbusiness

daywhere adayon whichit is otherwise required to be madefalls onaSaturday, Sundayorpublicholiday.

In an objection against the penalty, thetaxpayer argued that ithad reasonable grounds forpaying the amount in question late and therefore itqualified, atleast in part, for aremission of the amount in question.This it wasable todo asa resultof the TaxAdministration Act allowing for aremission of penalties ininstances where atransgressioninvolvesasocalled first incidence, one which has sincebeen rectified, andreasonable grounds therefore existed.However,

THE PERIOD WITHIN WHICH PAYMENT WAS REQUIRED TO BE MADE WAS ALSO SHORTER THAN THE SEVEN-DAY PERIOD USUALLY ALLOWED

Sars disallowed theobjection onthe basisthatreasonable grounds forthe latepayment wereabsent.

The taxpayer, having been advisedit hadreasonable grounds forthe latepayment comingabout,appealedtothe tax court. It argued that the

timeofyear has to be taken intoaccount. Thetaxpayer’s offices,like most,reopened only on January3 2018, at which stage itwas discovered that notenough cash was available topay the requiredamount.

Thiscame asasurprise since itsdebtor’s clerkprojectedsignificant debtorpaymentstobereceivedoverthe holiday period andin line withwhat previousyears’ experience taughtwould havebeenthecase.

The period within which paymentwas requiredtobe madewas alsoshorterthan theseven-day periodordinarilyallowed wherethe seventhdaydid notfallona weekend.

ByJanuary 3,thetaxpayer arranged for a R5m overdraft toshoreup itscashreserves toensureit wasabletomake thepaymentto Sars.Bythe Friday, however, it was still R138,262short ofthe required cash balance amountfor itspayment instructionto gothrough.It secured undertakingsfrom itsdebtors thatpayment ofat leastR200,000 wouldbe madetoit ontheFriday,and which will reflect on the Saturdayto ensurethat sufficientcash wasavailable forthepaymenttogothrough ontheSaturday.

By Saturday, however,

paymentsof onlyR132,338 werereceived, leavingthe taxpayer still R5,923short of itsliability ofR10,648,341. Paymenttherefore didnotgo thoughasplanned.

An intragroup transfer of R20,000was arranged,and the amountwas receivedon January8, allowingthe taxpayerto pay the requisite amountat10.13am.

The taxpayer’s appeal to the tax court was based on twoarguments: first,the payment was notlate; and second, due tothe facts surrounding the payment, reasonable groundsexisted forthelatepayment,meaning the penalty qualified to be remitted in termsof the Tax AdministrationAct.

The appeal failed on both counts. Inthe firstinstance, the taxpayerargued thatin termsof theTaxAdministration Act, deadlinesfor payment are imposed. The calculation ofwhen thatdeadline actually is must be determined in terms of the InterpretationAct. TheInterpretationAct determinesthat the counting of days to determinewhen adeadlineis

musttake placethrough countingthe numberofdays from December31 2017and, where aperiod socalculated endsona Sundayorapublic holiday,that thatdayshould then not be counted, with the final day of a prescribed period thenrather fallingon thenextday.

Inotherwords,thesevendayperiodwouldhaveended on Monday January 8 2018 in termsof thiscalculation, meaningpaymentbythetaxpayerwasinfacttimeous.

The tax court disagreed and found that the seven-day periodprescribed bythe IncomeTax Actshouldbe calculated withoutreferring tothe InterpretationAct rather, the plainwording of the Income Tax Act should be followed.

The tax court also found thata failuretowithhold PAYE and paysuch amounts overto Sarsin timeousfashionwouldbeunreasonable.

The taxpayerappealed againstthisdecisiontothefull bench of thehigh court, whichrecently allowedthe taxpayer’sappeal. Whileit held thatthe paymentwas in

fact late, itagreed with the taxpayer thatreasonable groundsexisted andwhich would qualifyfor thepenalty toberemitted.

While the high court agreed that failureto withhold asufficient amountof PAYE couldnot be saidto be reasonable,the urgentsteps taken by thetaxpayer in rectifyingthe defaultinquestion needed to be taken into account in considering whether reasonable grounds existedand, therefore,that the penalty stood to be remittedinfull.

This matter sets new precedentin thesense thatin considering whetherreasonable grounds foran administrativenoncompliancepenaltysuchasthepresentexistor notislinked notonlytothose circumstances creatingthe penaltyinquestionbutalsoto thestepstakentorectifyit.

We understand Sars intends to appealthejudgment,andwewaittoseehow thematter ultimatelyis resolved that is, ifa petition forappeal totheSupreme Court of Appealis indeed successful.

New chapter opens for sustainability funds

Khurshid Fazel & Karen Couzyn Webber Wentzel

Innovative fundingfor sustainabilityprojectsisspurring legal firms suchas Webber Wentzel to innovate also in theloanagreementsthatthey aredraftingforclients.

One ofthe discussion points at COP26is sustainable financeand mobilising public andprivate finance flows at scale for mitigation and adaptation. A key question is howthis funding issue isplaying outinthe SA context andwhat issues are croppingupinthespace.

Demand for sustain-

ability-linked loansis surging, with banks competing to offerthisnewformoffinance in SA. WebberWentzel is being challengedto devise innovative waysto draft termsandagreements.

JSE LISTED

A sustainability-linked loan orasustainability-linkeddebt security (collectively referred to as an SLL)is different from a greenbond orother sustainability useof proceeds debtsecurity. An SLLcould beused for any purpose, suchas making anacquisition,buttheinterest rate applicable isinformed by the achievementof certain

targets bythe borroweron environmental, socialand governancekeyindicators.

Sustainability useof proceedsdebt securities,onthe other hand, areadvanced to financeone ormoregreen, sustainable, andsocial projects. A greenbond, for example,isspecificallylentto fund a “green” activity, such asbuildingasolarplant.

A greenbond, likeany other sustainabilityuse of proceeds orsustainabilitylinkeddebt security,can be listed onthe sustainability segmentof theJSE andis available forinvestment bya wide groupof financiers, including pensionfunds and

assetmanagers. There areusually four performance indicatorsin a sustainability-linked loan three are related to the environment andone isrelated to socialfactors.

ACHIEVING TARGETS

The environmentalgoals are generally quitestandard improving thelender’s carbon footprint,waste and water management.However,thesocial elementisusuallyunique andisspecifically tailoredtotheenvironmentin which theborrower operates. For example, a sustainability-linked loanto a hospital mightdepend on

achieving aspecified levelof patientsatisfaction.

Thesewillnot allbeabsolute goals. Theycould also be incremental. Forexample, a borrower couldstate its current carbon footprint is X and it intends to improve this to Y during theterm of the loan or evenbeyond the maturity of the loan, in which caseannual targetswouldbe setduringthetermoftheloan and theirachievement would be independentlyverified. Whether theborrower achieves its targetswill influencetheinterestrate.

One ofthe reasonsbanks are ableto offerSLLs at favourable interestrates is

related totheir back-to-back funding. Entities such as the World Bankand International Finance Corporation(IFC) will provide fundingto banks for onward lending at a concessional interestrate, on condition thosefunds are only lent toachieve sustainability objectives.Using this form of financeimproves the funding costsof commercial banks,andtheycanofferbetterratestotheircustomers. SLLs arebecoming popularin SAandwe expectthis trend willcontinue. The governmentcanplayarolein promoting sustainabilitylinked financingby providing moretaxincentives.

BUSINESS LAW & TAX

LATERAL THINKING

Laying out the ABCs of ESG

• Business Law & Tax Editor Evan Pickworth interviews Jason Wilkinson, a partner from Bowmans Finance Practice, on the National Treasury’s Draft Green Finance Taxonomy, which sets out a more concrete regulatory framework for SA’s environmental, social and governance goals

EP: ESGhas been seen assecondary inimportance tothe bottom linefor along time bycorporates. Does this change that?

JW: ESG initiatives are key market driversfor governments andcorporate leaders, given the overwhelming need toadvance sustainable investing. It isrewarding to see that sucha key global initiative is being driven from afew criticalpressurepoints: primarilyfrom (a)aregulatory perspective;(b) an investor-driven perspective; and (c)a consumer-driven perspective.

We think of this as the sandwich effect.The National Treasury’s Draft Green FinanceTaxonomy(drafttaxonomy) is therefore a key ingredient, but only tells a partofthestory.

It’s said that “what doesn’t get measureddoesn’t get done”,and thisgoessome wayto explainingwhythe ESGchallenge hasnotbeen adequately takenup there is a mixof perception and reality regarding challenges in defining,measuring and reportingESGobjectives.

Aregulated taxonomyisa significant steptowards standardisation, andconsequently, adoptionand implementation.

Regulatory regime: Regulatory requirements have been and willcontinue to remainadrivingforcebehind sustainability inglobal financialmarkets.Forexample,the Paris Agreement introduced a critical mandateto state actors ofreducing greenhouse gas emissions by 40% by2030

Froman SA perspective, several foundationaldocuments, includingthe Paris Agreement, informthe domestic regulatory frameworktoachievethecountry’s ESGgoals.

The Treasury’s paperon “Financing theSustainable Economy”—firstpublishedin May 2020and subsequently revised andreleased recently is a “foundational step” towards encouraging more long-term investments in sustainable economic assets, activitiesandprojectsinSA.It is aimed at increasing access to sustainablefinance and stimulating theallocation of capital to supporta development-focused and climateresilienteconomy. Investor appetite: Due to

itsrole incapitaldistribution, the financialservices sector is integral toachieving sustainable development.Generally speaking,institutional investorsandassetmanagers in SA recognise the importance ofESG andare taking stepsto improvetheintegration of ESG into their operations.

OVER THE PAST FOUR YEARS ALONE, THE VOLUME OF SUSTAINABLE FINANCE GLOBALLY HAS GROWN 15 TIMES

Consumer considerations: ESG initiativesare beingprioritised bythe youngergeneration, bothin termsof value-based investingandkeenjobsatisfaction.

The next fewdecades will seethe largestgenerational wealthtransfer inhistory, from the baby boomers to millennialsandbeyond.

With this willcome newly prioritised investmentcriteria, notablyin wherethey chooseto work,howthey investtheir funds,and who theyselect forbusiness relations.

EP:What arethe mainsectorclassifications andare there any limits?

JW: Thedraft taxonomyclassifies economicactivities accordingto twoobjectives: those making substantial contributions toclimate changeadaptation, andthose making substantialcontributions toclimate changemitigation.

The intentionis thata furtherfour objectiveswill,in time,becomepart ofthedraft taxonomy.These beingsustainable use ofwater and marine resources,pollution prevention, sustainable

resourceuse andcircular economy and ecosystem protectionandrestoration.

The draft taxonomy identifieseconomic sectorsin which identified economic activitiescan bemeasured according to internationally acceptednorms andstandards,and thenlaysdown specifictechnical limitsfor maximum emissionsand adverse impacts beyond which theactivity cannotbe regardedas“green”

On the other end of the scale, it identifies the levels atwhich theactivitycan be credited ashaving positive climateadaptive ormitigatoryeffects.

Not allsectors arelisted. For example,mining isnot mentioned inthe drafttaxonomy,while agriculture,construction,ICT, waterand waste management,energy productionandindustryare.

The draft taxonomy is just that, a draft,and the Treasury has invited commentary specificallyon “livestock and crop production” and “ productionof electricity,heating and coolingfrom gas”, which are not yetfeatured in the draft but arenoted as areas forinclusioninfuturedrafts.

EP: Will it help drive alternative powerinvestments, and do yousee growth in thatarea totakepressure off the national grid?

JW:Thedraft intends to assist andenhance criticalinvestment opportunitiesfor SA,in particular priority matters, suchasenergyandpower.

It sets out explicit criteria formeasuring andcategorising the environmental impactsof producingelectricity,heating andcooling fromsolar, wind,oceanic energy, hydropower, geothermalpower,bioenergy hydrogenand renewableand low-carbongases,andalsoin relation to thestorage and distributionofpower.

EP:Howwillthischangethe structuringof greenfinance instruments?

JW: The draft taxonomy aims to assist thefinancial sector withclarity andcertaintyin selecting green investments, in linewith internationalbest practiceand SA’s national policies and priorities.It furtheraimstolessenthecostof theseinstruments.

Weareseeingasignificant uptickin sustainablelinked loans(SLLs) andgreenbonds between corporatesand financial institutions,so hopefullythe drafttaxonomy

will further theseefforts, by establishing commonterminology and criteria to measure the performanceof parties to contracts, or the issuersof financialinstruments.

EP: How fastis the green economygrowing now?Is that fast enough?

JW:With governmentand corporate leaders embracing ESGprinciples, thelending markethas explodedwitha significantvolume ofSLLs and green bonds. Over the pastfouryearsalone,thevolumeof sustainablefinance globally hasgrown 15times. Closerto home,greenand ESGinitiativesandtherelated financings are nolonger a theoreticalaspiration, butare at the forefrontfor governments,banksandcorporates.

EP: Isthis a fillipfor investment?

JW: That certainlyis the intention! Companies are increasingly devisinggreen and sustainable strategies, incorporatingthem intotheir businessstrategiesandaligningtheir fundingmechanisms to their green and sustainable development commitments.

Entering into agreen loan or SLLin this contexthas a number ofwide-ranging advantages forborrowers and lenders,such asbuilding stronger, values-based relationships withshareholders; having apositive impacton reputation and credibility; showing commitmentto achieve sustainabilitygoals witha correlatedeconomic impact; promotingsustainablelong-term growthand profitability; andincreasing abilityto attractandretain staffwho seecontribution towardsachieving theUN Sustainable Development Goals as an important part of theirlives.

EP:Isit afinishedproduct, or canwe expectmore to come?

JW:The taxonomyworking groupintendsoncarryingout further work to expand the draft taxonomyand itsuse, includingdeveloping atransitiontaxonomy, whichreferences “transition activities” that is, activities that support a transition toa green economy). This workshould be completed byFebruary 2022.

Oneareawe feelneedsto be addressed isthe source andcostingof thefundsprovided for these ventures by ourfinancial institutions;in particular at a time when margins are alreadythin. A furtherincentive that could beconsidered isoffering preferential treatmentof SLLs or greenbonds from a capital adequacy perspective orfromataxperspective.

EP: Is Africa behind the curve in greenfinance and howdoes thistranslateto Africantradedealsnowthat theAfricanContinentalFree TradeArea (AfCFTA)has been launched?

JW:With governmentsand corporates embracing and adoptingESG principles,the bankingmarket hasrecently seen a significant number of green loans andSLLs whichwe anticipatewill increase steadily across Africa.

In pursuing growth in green finance,African economieshave anadded

CLIMATE CHANGE IS THE KEY ESG CHALLENGE OF THE COMING DECADES, WHICH WE EXPECT WILL BE A DOMINANT THEME

challengeof needingtotransition economies to being green while still pursuing industrialisation. Thischallenge willimpact onhow greenfinanceisimplemented acrossAfrica.

The need for funding from developed countries to assist African economies in achieving climate resilience and greenstatus isanimportant issueatCOP26.

AfCFTAwill haveasignificant impact ontrade agreements, butwe donot seethis affecting the green finance industryatthisstage.

EP: Interesting trends to watch in this space?

JW: Our expectation is that

incorporating ESG-linked financing terms will become part of mainstream financing transactions in the near future. Developments in other markets certainly point inthatdirection.

The main issue of concern for proponents ofESG is to move beyond the virtue signalling and bare-minimum compliance of “green washing” toa moreproactive approach to ESG. Different approaches to ESG, make it difficult to compare performance. Added to this is a lack of capacity and expertise in ESG, requiring training on ESGintegration.

However, ESG will become a corestrategic concernforcorporates,drivenby exogenous and endogenous factors and pressures, including ashift towardsa more stakeholder-inclusive capitalism.

Climate change isthe key ESGchallenge ofthecoming decades, which we expect will be adominant theme as governments, investors,regulators and pressure groups increase engagements aroundclimatechange.

The trendof increasing pressure on companies and institutional investorsto tackle ESG issues is likely to continue. Weare hopeful the drafttaxonomycanhelpcodify andunlock someof these concerns.

Understandably, the “E” (environmental) aspectof ESG is receivingthe bulk of investors’ attention. However, an interestingspace to watch is the development of financing arrangementsthat addressthe “S” and “G” componentsofESG

Once thebasic structures for financiallyincentivising certain environmentally positive behaviours, and financially disincentivising environmentally negative behaviours, becomesmore commonplace and more refined, suchincentivisation andsanction ofothersocially positive or negative conduct by capital markets is inevitable.

One interesting question thatarisesis towhatextent SA can,through thedevelopmentof itsowndomestic taxonomy, driveinvestment activity that furthers its domestic and regional policy aspirations, or to what extent itandotherAfricancountries’ ESG agendas are dominated by more powerful markets viatheglobalsupplychain.

Can a BRP cancel entire agreements?

• High court case reveals some potential limits on a business rescue practitioner’s room to manoeuvre

Lara Kahn, Ryan Smith & Sikelelwa Ndaliso Webber Wentzel

Under section 136(2)(b) ofthe Companies Act, business rescue practitionerscan only cancelobligations under agreements thatmeet certain criteria, andnot agreements intheirentirety.

Section136(2)(b) ofthe CompaniesAct, 71of 2008 is akey toolfora businessrescue practitioner(BRP) when engaging withcreditors and onerous agreementsthat the company has concluded beforethecommencementof businessrescue.

Ithas becomeapparent that,inpractice,thefullextent ofthepowers affordedtoa BRPinthis sectionareoften misunderstood.

Section 136(2)(b) provides that:“Despiteanyprovisionof anagreementtothecontrary, during businessrescue proceedings, thepractitioner may applyurgently toa court to entirely, partially or conditionallycancel, onanyterms thatarejustandreasonablein the circumstances,any obligation ofthe companycontemplated inparagraph (a)” (ouremphasisadded).

Weaddress belowcertain keyaspectsofthissection.

Inour experience,BRPs areoftenquicktosuggestthat if anamicable cancellation cannot beagreed, thecourts will be approached to terminate theagreement. This veiledthreatisoftenbasedon theassumption thatacourt willalwayscometotheaidof aBRPseekingtoimplementa restructuring forthe benefit of allstakeholders, leaving the disgruntledparty with nothingmorethanadamages claim(which is,in turn,often compromised).

While it istrue our courts generally leantowards supporting business rescue rather than liquidation,it is notagiventhataBRPcanexit anagreement intoto.The rightto approacha courtis only in respectof the cancellation ofobligations which meet certaincriteria, notin respectofentireagreements.

As a starting point, for urgent relief under this section,theBRPmustshow:

● Theapplicationisurgent;

● The contract giving rise to

CERTAIN CONTRACTUAL OBLIGATIONS MAY FALL DUE ONLY AFTER BUSINESS RESCUE HAS ENDED

theobligationthatissoughtto becancelledwasinexistence at the startof the business rescueproceedings;

● The obligations sought to becancelled falldueduring thebusinessrescueproceedings;and

● It is just and reasonable in the circumstances that the obligation becancelled, whether entirely, partially or conditionally.

These requirements could potentially be problematic for a BRP who is seeking to implementa plantoensure thecurrent legalentityin rescuecontinuestoexist.

Certain contractual obligationsmayfalldueonlyafter business rescue has ended. Examplescanincludeobligations relating to warranties, indemnities or defects. In these events, a court is not empowered to provide the relief sought bya BRP under this section inrelation to theseobligations.

This createsa fundamental issue in that the BRP may well successfully terminate mostofthe obligationsofa company under an onerous agreement,butwillbeunable to terminate other obligations which will survive business rescue.Thesetypesofobligationsoften ariseatsome unknown future point, and could promptsubstantial

THROWING A LIFELINE

claimsaftercompletionofthe businessrescueprocess.

In therecent unreported case of Du Toit and Others v Azari Wind Proprietary Limited and Others (8825/2021) [2021] ZAWCHC 168 (August 4 2021), judge Matthew Francis wasasked toconsider several issues relating tosection 136(2)(b)ofthe CompaniesAct.

The court tookthe view thatto succeeda BRPwho approachesa courtinterms of section136(2)(b) ofthe Companies Act hasto provide a legaland/or factual basisthattheelementssetout abovehavebeenmet.

The court heldthat since the cancellationof anobligation in termsof section 136(2)(b) of the Companies Act is a court-sanctioned cancellation and the obligationcannotbe revivedinthe ordinary course, if the businessrescue processdoesnot succeed, it isincumbent on an applicant to identify precisely whichobligation ought to becancelled and provide a proper explanation why such adrastic measure isnecessary.

In this case,it was held that apartfrom identifyingin

general terms the obligations tobecancelled,theapplicants failed todemonstrate thatthe obligations they soughtto be cancelled would become due during the business rescue proceedings.

The findings in this matter highlight an important aspect of the limitationof the BRP’s powers undersection 136(2)(b). A BRP cannot simply approach a court, refer to obligations that it wishes tocancel andexpect

A BRP IS NOT EXEMPT FROM FOLLOWING THE NORMAL PROCEDURE FOR GETTING URGENT APPLICATIONS INTO COURT

The secondissue of importance the court decided was the statutoryright to approach the court urgently. While it isoften assumed business rescue matters are inherently urgentdue tothe nature ofthe process,the court inthis matterfound that, despite thereference in the section to approaching court urgently, the BRP was stillrequiredto makeouta proper case forurgency. A BRPis thereforenotexempt from following the normal procedure for getting urgent applicationsintocourt.

Although Francis ultimatelyfound thatinthe context of business rescue proceedings there was no merit inthe contentionthat thematterwasnoturgent,his judgmentserves asawarning toBRPs notto assume their statutory right to approach the court urgently isassured.

Furthermore,aBRP’sright to cancel agreementsin toto is potentially limited and these limitations must be properly taken into account when preparing a business rescueplan.

relief,evenif thereliefwould assist the business rescue process. Theobligations, apart fromhaving tomeet certain other requirements, have to be obligations that would otherwise become due during the business rescue process. Ifnot, they cannot becancelled andthe companywillremainliable.