Nature of Law 2005 Edition 4

Johannesburg 165 West Street, Sandton, Johannesburg PO Box 785812, Sandton 2146 South Africa Telephone +27 11 669 9000 Fax +27 11 669 9001
Cape Town SA Reserve Bank Building, 60 St George’s Mall, Cape Town PO Box 248, Cape Town 8000, South Africa Telephone + 27 21 480 7800 Fax +27 21 424 1688
London 35 John Street, London, WC1N2AT Telephone +44 (0) 207 430 0888 Fax +44 (0) 207 430 2030
Web www.bowman.co.za
4th Edition 2005
N
THE NATURE OF LAW
ONTENT
CONTENTS
Chairman’s letter
ifc
Recent activities
1
New appointments
2
Achievers
3
Rights & disability in the workplace
4
Department focus: intellectual property
5
Protecting the shape of vehicles
6
Phishing for data
8
The getaway case
10
Can my product stay on the shelf?
12
The new draft bee charter
14
Holding the father liable
16
Mergers in the true sense of the word
18
Converting your employees’ compensation
packages
20
Africa group
22
Department focus: Cape Town corporate
department
22
Be careful of what you endeavour to do ...
24
CHAIRMAN’S
LETTER
We have had some excellent feed-back about previous editions of the Nature of
Law. I am sure that you will find that this edition equals our previous standard.
If you want to discuss or would like any further information on any of the issues
which are dealt with in this edition, please do not hesitate to contact the writer
of the article, myself or any of our other partners.
Since our last edition, we continued to advise on many of the significant corporate
transactions which have taken place both domestically and cross-border. In
addition, our other departments have been involved in various matters of interest
including:
Our employment law department advised the South African Police Service in a
dispute with certain trade unions relating to the restructuring of the police service
in the Eastern Cape which resulted in an arbitration award in favour of SAPS.
According to Director Mncedisi Magwentshu of SAPS, the award is significant
because “not only does it deepen transformation within SAPS, it also creates
certainty in the administration of SAPS”.
Our intellectual property department advised Microsoft in obtaining the first
criminal conviction in South Africa in a counterfeiting matter.
Our litigation department is acting for DRDGOLD against a number of other mines
to decide who must pay over R1 billion over 20 years to pump water out of mines
at Klerksdorp.
Memoranda of understanding: binding
or not-binding
26
The securities services act
28
Green scorpions speak
30
Pro bono
32
We look forward to being able to continue to service our clients with the highest
degree of excellence, professionalism and efficiency.
Social responsibility
33
Jon Schlosberg
Price discrimination
34
Partner profile
36
We take great pride and pleasure in the achievements of our personnel. In this
regard I refer you to our achievers’ section in this edition.
news
RECENT ACTIVITIES
• Bowman Gilfillan recently advised its longstanding junior mining
client, Metorex Limited, in relation to a special issue of shares
for cash, the results of which were announced on 19 April 2005.
In terms of this transaction, Metorex raised an amount of US
$40 million (approximately R240 million). These funds are to be
used for a significant new mining investment at Ruashi, near
Lubumbashi, in the Democratic Republic of Congo (“DRC”). The
project is in two phases, the first of which is the exploitation
of existing surface ore bodies at Ruashi. The second phase is
the development of a substantial new copper mine at the same
site. The material will be transported to a Metorex subsidiary
in Zambia, Kabwe Zinc Limited, which will be responsible for
processing and smelting the mine material. This transaction
represents a number of firsts. Firstly, it is the first major direct
capital investment by a South African firm in the DRC in recent
times. Secondly, it is the first time that money has been raised
by a listed South African company on the JSE to fund new mining
operations in the DRC. The new shares were fully subscribed by
a number of institutional investors, both foreign and South
African. Related to this, Metorex’s shares listed on the London
Stock Exchange now also participate in a depository receipt
arrangement using the UK based CREST system. The Bowman
Gilfillan lawyers who worked on the transaction were Robert
Legh, Charles Douglas and David Yuill.
• The successful acquisition of a 50% interest in the Nkomati
Nickel Mine in South Africa by LionOre Mining, through its
wholly owned subsidiary LionOre South Africa (Pty) Ltd;
• Bowman Gilfillan, acted for Microsoft South Africa in the
successful prosecution of Craig Marnoch under the charges of
selling counterfeit software. This is a legal first for South African
courts.
• In an on-going dispute in which we represent DRDGold Limited
in a matter involving Harmony Gold Mining Company Limited,
Anglogold Ashanti Limited and the government. The question
is who ought to be responsible for pumping underground water
out of various mineshafts in the Klerksdorp area. The matter is
in and out of court and likely to be heard in substance during
June 2005. At stake is a cost of pumping over 18 years in excess
of R1 billion.
• Advising two lenders in their financing the Department of
Education Public Private Partnership for the Department’s
new head office.
• Acquisition of approximately 6,5% of FirstRand Limited by the
FirstRand Empowerment Trust established for the benefit of
certain BEE Participants, being Kagiso Charitable Trust, Womens
Development Bank, WDB Investment Holdings, Mineworkers
Investment Trust and MIC Financial Holdings. The FirstRand
Empowerment Trust acquired 4,4% of FirstRand by way of a
Scheme of Arrangement between FirstRand and its existing
shareholders and a further 2,1% by subscribing for shares in
FirstRand. The BEE Participants as beneficiaries of the Trust hold
a vested right to the shares. Funding for the transaction was
provided by Senior Funders, Mezzanine Funders and the BEE
Participants themselves. Bowman Gilfillan acted as advisor to
the nine Mezzanine Funders, which included both local and
foreign funders.
• Advising IDC in the provision of finance for a project in the
Republic of Gabon.
• Advising Afrox in the disposal of its listed subsidiary, Afrox
Healthcare Limited - transaction value - R3,7 billion.
• The firm respresented the shareholders of PI Products
(Proprietar) Limited in the sale of all the shares in that company
to a consortium named Tollmane Investments (Proprietary)
Limited. This was a private equity transaction.
• Public Private Partnership Concession – South African
Revenue Services: Advising a consortium in its bid for a public
private partnership with the South African Revenue Services
for the procurement and operation of X-ray and other container
scanners.
• Public Private Partnership Concession – Eastern Cape
Department of Health: Advising Kalafo Logistics (Proprietary)
Limited in its bid for a project financed public private partnership
with the Eastern Cape Department of Health for the provision
of pharmaceutical supply chain management services,
warehousing and distribution of pharmaceuticals in the Eastern
Cape Province.
• Public Private Partnership Concession – South African
Department of Trade and Industry: Advising Rainprop (Pty)
Limited, the consortium awarded the R870 million public private
partnership for construction and operation of the new head
office for the Department of Trade and Industry, the first PPP
of its kind in South Africa.
• Acquisition by Mvelaphanda Gold (Pty) Ltd (a wholly owned
subsidiary of Mvelaphanda Resources Limited) of a 15% equity
stake in GFI Mining South Africa Limited (a wholly owned
subsidiary of Gold Fields Limited) to vest in the hands of
historically disadvantaged South Africans (HDSAs) within five
years. This acquisition represents Goldfields compliance with
the requirements of the Broad Based Socio Economic
Empowerment Charter for the South African Mining Industry
(“the Mining Charter”)’s transformation objectives. Mvelaphanda
Gold will acquire the 15% interest by subscribing for shares in
GFI Mining on GFI Mining’s fulfillment of certain financial
obligations to Mvela Gold. Funding for the transaction was
provided by Senior Funders and Mezzanine Funders. Bowman
Gilfillan acted as advisor to the five Mezzanine Funders, which
included both local and foreign funders.
• The firm represented Merafe Resources on the acquistion by
Merafe of a:
-
-
50% participation interest in the Wonderkop Joint Venture
50% interest in the Kroonstad Resources; and
26% interest in the Marikana Resources, from Samancor
Holdings (Proprietary) Limited (Samancor) and subsequent
incorporation into the existing Xstrata-Merafe Chrome
Venture, resulting in:
The increase of Merafe’s participation interest in an enlarged
Xstrata-Merafe Chrome Venture from 17.5% to 20.5%.
1
PARTNERS
mover
NEW APPOINTMENTS
SENIOR ASSOCIATES
David Yuill
Kelebogile Modise
Francisco Khoza
Sally D'Arcy-Donnelly
Taryn Hinton
Mendel Sass
Nicola Malan
Anne McAllister
Lloyd Chater
Jabu Mtshali
Richard Shein
Louise Strydom
7. Voted Ideal Employer
Mogola Makola
Tammy Beira
Nonhlanhla Zwane
2. Michael Adcock
Stephan Spamer
2
David Josselsohn
Jason Smit
3. Kim Hawkey
ACHIEVERS
Daryl Dingley
Tembeka Ngcukaitobi
4. Diana Riley
1. At the Chambers Global Legal Awards Dinner
held in London in June BG was placed runnerup in the category Best Africa Law Firm. The
winner was an American firm called LeBoeuf,
Lamb, Green and MacRae. Cliffe Dekker were
third. Here are the firms that were on the
short-list:
AFRICA: Bowman Gilfillan (runner-up), Cliffe
Dekker Inc, Denton Wilde Sapte, Gide
Loyrette Nouel, LeBoeuf, Lamb, Green &
MacRae (winner), Webber Wentzel Bowens,
Werksmans.
2. Michael Adcock won the Seniors Golf Event
at Pearl Valley, Western Cape in March 2004.
3. Kim Hawkey has been elected as a member
of the Cape Town Candidate Attorneys
Association.
5. Mike Wagener
6. Tamara Dini
4. Diana Riley, the librarian in our Cape Town
office, has been awarded the MBibl degree.
5. Mike Wagener is a prize winner of the Charles
Taylor Consulting PLC Essay in October 2004.
6. Tamara Dini is a Committee Member to the
Competition Law Committee of the Cape
Law Society. She joined the Committee in
February 2005.
7. Bowman Gilfillan was also voted an “Ideal
Employer to work for” in the legal category
by the Magnet Communications Graduate
Survey of 2005. (Khulile Ngombane from our
Human Resources department is receiving
the award)
8. Bowman Gilfillan was voted: “Top Company
of the year in the Support Services category”
for 2005 at the National Business Awards.
3
RIGHT
“RIGHTS & DISABILITY IN
THE WORKPLACE”
By Tembeka Ngcukaitobi
DEPARTMENT FOCUS
INTELLECTUAL PROPERTY
H
Recently I had the privilege of being invited to provide
expert commentary in an SABC programme known as
“3 Talk with Noleen”. The discussion was on challenges
confronting people with disabilities in the workplace.
As I listened to the disabled people speak about the challenges they
must overcome in their workplaces, I started thinking about whether
I had either by design or omission perpetuated the stereotypes and
the resultant discrimination experienced by disabled people. As I
write this piece, I have not found an answer to these questions,
but hope that perhaps through debate, I could increase the focus
on disability in the workplace.
The Constitution of the Republic of South Africa Act, 108 of 1996
represents the most decisive break from our racist history.
Simultaneously, the Constitution represents a commitment to a
future based on a set of values, at the core of which, lies human
dignity. Unfair discrimination on the basis of disability infringes
not only the right to equality but also the right to dignity. The
primary legislation which protects people with disabilities in the
work-place is the Employment Equity Act 55 of 1998. (“the
Employment Equity Act”). The Employment Equity Act is accompanied
by a Code of Good Practice on Disabilities (“the Code”). The Code
spells out various ways in which workplace discrimination is
perpetuated. These include:
• Unfounded assumptions about the abilities and performance
of employees with disabilities;
• Recruitment policies and practices whose effect excludes people
with disabilities;
• Selection tests and criteria;
• Infrastructural inaccessibility to the workplace; and
• Inappropriate training for people with disabilities.
The Employment Equity Act does not define disability of functional
definition contained in the Code relating effect of a disability on
the person “in relation to the working environment” and not to
the actual physical impairment. However, a person with disability
may suffer from a physical or mental impairment which is long
term or recurring and which substantially limits their prospects of
entry or advancement in relation to their employment. Certain
impairments which offend public policy are excluded from the
definition of disability.
Employers are required to “reasonably accommodate” the needs of
people with disabilities. Reasonable accommodation includes
measures such as adapting existing facilities to make them accessible.
Adapting existing equipment or acquiring new equipment including
computer hardware or software, reorganize work stations, changing
4
training in assessment materials, restructuring jobs, adjusting
working time and leave, providing specialized supervision, training
and support in the workplace. It may also be necessary for an
employer to adapt the way performance of disabled employees is
measured. However, if the accommodation of the disabled employee
imposes an “unjustifiable hardships on the business of the employer,
such employer has no obligation to accommodate such employee.
Whether or not the reasonable accommodation of an employee
results in unjustifiable hardship depends on the facts of each case.
1.
7.
3.
6.
5.
8.
4.
2.
Further, employers are required to identify the “inherent
requirements” of a job during the recruitment and selection process.
Inherent requirements of the job are typically those requirements
that an employer stipulates as necessary for a person to be appointed
to the job and to enable the person to perform the essential functions
of the job. This may mean for instance that in an appropriate case,
there could be no justification for an audit firm to refuse to employ
a qualified accountant simply because they were blind or used a
wheelchair. The test, appears ultimately to be whether a certain
requirement is necessarily required to perform the essential functions
of the office. Where an employee becomes disabled during
employment, an employer is required, where reasonable, to attempt
to reintegrate such an employee into the workplace. In deciding
whether to reintegrate or terminate the employment of an employee,
the employer has a duty to consult with the employee. If it is not
reasonable to retain an employee who has become disabled during
employment, such an employee may be dismissed on account of
their disability. Those employers which provide disability benefits
should provide their employees with benefits they are entitled to
in the event of termination of employment.
Not only does the Employment Equity Act prevent the unfair
discrimination of employees with disabilities, it also requires
employers to seek to employ people with disabilities. This may
require that designated employers should include specific targets
for employment of people with disabilities in their employment
equity plans.
As it is apparent from the brief discussion above, our legislative
environment comprehensively protects people with disabilities.
Whether or not these legal protections are a reality to many disabled
people, depends not only on the employers but also on the disabled
people themselves.
11.
13.
9.
10.
12.
BACK ROW (from left to right)
FRONT ROW (from left to right)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Reinhold Gregorowski
Mike du Toit
Llewellyn Parker
Marius Gerber
Frank Joffe
Eugene Honey
Neil Dundas
Gaelyn Scott
Quentin Boshoff
Natalia Pereira
Wim Alberts
Paola Cirone
Faan Wolvaardt
5
PROTECTING THE SHAPE
OF VEHICLES
hap
By Wim Alberts
6
as a functional design will have elements of aesthetic appeal and
can be registered both as aesthetic and as functional designs.
Functional designs remain in force for a maximum of 10 years.
While the limited period of protection may appear to be a negative
aspect, because cars are “fashion” type items, the time frame in
which other manufacturers would want to copy the shape of a car
would often also be limited to the period in which consumers would
want to buy that car.
pro
otection
There has recently been much media attention in the car industry
surrounding the manufacture of look-alike cars. In China, for example,
manufacturers are producing look-alike models of the Mercedes S-class
and the Rolls Royce Phantom. From a South African perspective, three
bases of relief would be relevant, namely passing-off and unlawful
competition (discussed together), copyright and design law.
Before discussing the different types of relief available, it is important
to note that there are two different situations relating to the
importation or production of look-alike cars. Firstly, the whole car
can be copied, so the shape of the copy looks very similar to the
shape of the original car. Secondly, only certain parts of a car could
be copied, like the distinctive shape of the headlights, or a particular
grille.
A second remedy that is available is copyright infringement.
There are certain kind of works, or objects and articles, which
enjoy copyright protection, provided that certain criteria are
met. The Copyright Act’s definition of “artistic works” includes
drawings of the shape of a car, or certain parts of a car. The
definition of artistic works specifically includes drawings of
a technical nature and engineering drawings.
Firstly, with respect to passing-off and unlawful competition. In
South Africa, DaimlerChrysler tried to obtain an urgent interdict
to prevent the Afinta Motor Corporation from manufacturing or
distributing a bus which looked confusingly similar to the
DaimlerChrysler Mercedes-Benz “Sprinter” bus. The court ruled in
favour of DaimlerChrysler. The decision in this case made it clear
that the general principles of passing-off and unlawful competition
do apply to the overall shape of a motor vehicle. In cases where
merely a certain part of a car is copied, unless the copied part is
particularly distinctive, it is unlikely that one would succeed on
the basis of passing-off.
A relevant section of the Copyright Act for the purposes of
this discussion is section 15(3A). This section deals with the
situation in which three-dimensional reproductions of an
artistic work are made available to the public by or with the
consent of the copyright owner. The section provides that
the copyright in an artistic work shall then not be infringed
if any person, without the consent of the owner, makes or
makes available to the public three-dimensional reproductions
of the original three-dimensional reproduction if the original
authorised reproductions have a primarily utilitarian purpose
and were made by an industrial process. Note, however,
that copying the drawings would amount to copyright
infringement.
It is important to note that in the DaimlerChrysler case a different
trade mark (i.e. not the Mercedes-Benz trade mark) was applied to
the bus with a similar shape to the “Sprinter” bus. The MercedesBenz trade mark is a well-known trade mark and the court said that
because the imitation vehicle bore a different trade mark (“AMC”)
which was not well-known, the public may think that the imitation
vehicle was “another horse from the same stable,” According to
the DaimlerChrysler case the use of a different trade mark on the
copied vehicle would not necessarily avoid liability under passingoff principles. However, the vast majority of purchasers of cars
would buy a car because of a particular brand name and would
not be confused by cars with similar shapes bearing other brand
names. It is therefore not likely that purchasers of vehicles would
be persuaded to buy a car with a similar shape if a different trade
mark was applied to the car. In other words, a loyal BMW buyer
would not buy a car that looks like a BMW but is actually called
a CNX. A car is simply too expensive to think that a shape alone
would confuse buyers. The outcome of the DaimlerChrysler case
would not necessarily apply in all cases of copying.
What this essentially means is that if a manufacturer has produced
three-dimensional reproductions from drawings and another
manufacturer then reproduces those authorised reproductions, the
second manufacturer’s conduct will not amount to infringement.
It is important to note that this is only the case if the original
authorised reproductions have a primarily utilitarian purpose and
were made by an industrial process.
There can be little doubt that cars are made by an industrial process,
but whether or not they primarily have a utilitarian purpose will
depend on the mindset of the average buyer. Millionaires might see
cars as the ultimate toy or luxury item, while the rest of us will see
cars simply as modes of transport. Despite the very relevant aesthetic
considerations that so often come into play when purchasing a
luxury car, the primary object when buying a car is for transportation
purposes and it is suggested that a car therefore has a primarily
utilitarian purpose. This means that reproducing these cars would
not amount to copyright infringement. Certain car parts can,
however, qualify for copyright protection.
Of relevance, thirdly, are the provisions of the Designs Act of 1993.
This Act grants a statutory monopoly to the proprietor of a design
in the shape, pattern, configuration or ornamentation of the article.
An application to register a design is based on drawings, photographs,
or diagrams which illustrate the shape or appearance of an article.
There are two kinds of registered designs, namely aesthetic and
functional designs. Aesthetic designs are granted for the appearance
of articles and are judged solely by the eye. Protection in the case
of aesthetic designs lasts for a maximum period of 15 years.
Functional designs are registered for the appearance of articles of
which the shape is necessitated by the function the article has to
perform. It often happens that an article eligible to be registered
The essential requirement for registration of a new design is that
the article in question must be new at the date at which application
is made for registration.
“New” means that the design has never been made available to the
public anywhere in the world. The Designs Act provides, however,
for a grace period of six months for registering the design from the
date on which the design was first released or made available to
the public. If the design applications is filed at most six months
from the release date, it is still considered new.
Once a design is registered, the proprietor of that design is entitled
to prevent anybody from making unauthorised use of the design
or something which is not substantially different from the registered
design.
Instead of registering a design for the shape of an entire car, a
manufacturer may also decide to register only a certain distinctive
part or parts of that vehicle. On a certain car the lights may be the
distinctive feature that would be susceptible to copying and then
one could choose to register a design for only the shape of the
lights. Another example is the distinctive shape of a grille, which
has already been the subject of design registrations. One must bear
in mind, however, that in terms of the Designs Act, spare parts for
cars, amongst other things, cannot be registered as functional
designs. This provision does not affect the protection afforded to
the aesthetic features of spare parts. There is, however, a lack of
clarity in our law as to what constitutes a spare part.
Copying is said to be the most sincere form of flattery, but should
a manufacturer of cars decide he would not like to be flattered in
this way, various Intellectual Property laws could be of assistance
to him.
7
PHISHING FOR DATA - DATA THEFT IN SOUTH AFRICA
By Warren Weertman
You can imagine my astonishment when I called a local
pizzeria to order dinner one
evening, when I was asked
whether I would like to pay for
the transaction by credit card.
I said I would and the person at the other end of the line proceeded
to read out a credit card number and asked if this was the correct
credit card number. It was. What astonished me was the fact that
the pizzeria had collected and kept a record of my credit card
details without my permission.
This scenario raises two immediate and inter-related concerns: why
did they keep a record of my credit card details and what if an
employee had stolen my credit card details and gone on a spending
spree?
What if this scenario had played out on the Internet? Data theft
on the Internet is increasingly becoming a problem. In May this
year a number of South Africans who bank on the Internet received
e-mails purporting to originate from their banks requesting that
users “confirm” their Internet banking login details. This practice
is known as “phishing”. Fortunately word of the hoax spread quickly
and the majority of Internet users did not “confirm” their Internet
banking details with the fraudsters. For those users who did “confirm”
their Internet banking login details, the banks in question obliged
by refunding the users the money that was removed from their
accounts.
The problem with data theft is that in the majority
of instances where data theft has occurred, the
criminals have been more subtle in their approach.
The most common method of obtaining a user’s
personal data is by “spyware”. Spyware is a malicious
computer program that covertly gathers user
information through the user's Internet connection
without his or her knowledge, usually for advertising
purposes. The most common methods of distributing
spyware are by spam and Internet downloads, such
as freeware and shareware. Spyware is typically a
hidden component of freeware or shareware
programs that can be downloaded from the Internet.
This does not mean though that all downloadable
computer programs have a spyware component.
Once installed, the spyware monitors user activity
on the Internet and transmits that information in
the background to someone else. Spyware can also
gather information about e-mail addresses and even
passwords and credit card numbers.
WHAT IS THE SCALE OF THE PROBLEM?
In the United States alone in 2004 over 635,173 instances of Internet
fraud were reported to Federal Trade Commission. Data theft
accounted for 39% of the instances of computer fraud. The total
loss to consumers was in excess of US$500 million. In the United
Kingdom over 100 000 cases of data theft were recorded in 2003.
According to the British Government, identity theft costs the British
tax payers in excess of £1.3 billion per annum.
WHAT IS THE SOLUTION?
In November 2004 the Law Reform Commission released a report
on possible data protection and data privacy legislation for South
Africa. This is a positive first step as South Africa is in desperate
need of a comprehensive piece of legislation that deals with data
protection and data privacy. This is due to the fact that there are
a number of pieces of legislation that deal with data protection
and data privacy but often these pieces of legislation are specific
to the industry that the legislation is regulating. In the case of the
Electronic Communications and Transactions (ECT) Act 25 of 2002,
Chapter 9 of the Act which deals with the protection of personal
information is purely voluntary in its application!
We anticipate that comprehensive legislation dealing with data
protection and data privacy could be enacted during the course of
2006. Based on the Law Reform Commission’s report it would appear
that the Commission is considering a data protection and data
privacy regime similar to the model adopted by the European Union
in 1995 in terms of Directive 95/46/EC. The problem with legislation
is that technology develops faster than the legislature is able to
keep up with suitable amendments to deal with new technological
developments and threats. This means that any proposed data
protection and data privacy legislation will need to remain
technologically neutral to enable the Courts to interpret the
legislation to suit the cases that come before them.
The major problem with Internet-based crimes is: how do you bring
the perpetrators to book? In the case of the hoax bank e-mails the
perpetrators appear to have been based in Russia. It would thus be
near impossible to have the perpetrators brought to book in a South
African Court. This does not mean that the Legislature cannot enact
legislation that will outlaw data theft in South Africa committed
by South African residents.
However, legislation is not enough. South African companies need
to be aware of what their employees are doing with company
information (such as employees’ personal information, customer
information, and company banking details) since the majority of
Internet-based crimes are committed by company employees. This
means that companies should put suitable policies in place that
regulate how company-related information must be gathered,
processed and stored. Individuals should also take appropriate steps
to protect their personal information. All too frequently South
Africans divulge their identity numbers and copies of their identity
documents (both online and offline) with sometimes disastrous
results. Internet users should also take appropriate action to protect
themselves on the Internet. This means deleting junk mail without
opening it and installing an anti-spyware program from a reputable
computer software manufacturer.
Quentin Boshoff and Tonia Papanikolaou obtained the first criminal
conviction in a counterfeiting matter (for Microsoft).
Neil Dundas drafted the .ZA Dispute Resolution Regulations for the
Department of Communications. This has received widespread media
coverage.
8
9
case
ETAWA
THE GETAWAY CASE
By Vicky Plumpton
The Applicant in this matter, which attracted considerable attention
in the media, was the owner of registrations for the GETAWAY trade
mark in classes 16, 39 and 42 and is the publisher of “Getaway”
magazine, the contents of which relates to outdoor leisure activities,
holidays and related topics. They alleged that the respondents were
infringing their registered trade mark and were passing off their
“Wegbreek” magazine as emanating from the applicant or as being
associated with “Getaway” magazine.
The facts behind the case are briefly as follows. “Getaway” was first
published in April 1989 and still appears monthly. All articles and
advertisements in the magazine are in English but evidence was
adduced by the Applicant showing that more than 40% of its readers
in one year were Afrikaans.
In 1992 the Applicant launched an annual show called the “Getaway
Show”, which is an outdoor and leisure product exhibition.
Subsequent to that they also started publishing Getaway books and
making clothing under the trade mark and also launched a website,
www.getaway.co.za
In 2002 the Respondents launched a magazine similar in content to
“Getaway” but under the name “Veld Toe”. In 2003 they announced
that the publication’s name was going to change to “Wegbreek”.
They informed the Applicant of the intended change and assured
them that their publication would not compete with “Getaway”.
The Applicant alleged that based on this assurance they did not
raise any objection to the proposed change.
The first issue of “Wegbreek” was published in April 2004, and led
to the institution of this action.
For the purposes of proving infringement of their GETAWAY trade
mark, the Applicant sought to rely on section 34(1)(a) or alternatively
section 34(1)(c) of the Trade Marks Act 194 of 1993. Section 34(1)(a)
provides that a registered trade mark shall be infringed by the
unauthorised use in the course of trade of an identical or confusingly
similar mark in relation to the same goods or services in respect of
which the trade mark is registered. Section 34(1)(c) provides that
a registered trade mark shall be infringed by the unauthorised use
in the course of trade of an identical or confusingly similar mark
in relation to any goods or services, if the registered trade mark is
well known in South Africa and the use of the said mark is likely
to take unfair advantage of or be detrimental to the distinctive
character or repute of the registered mark, notwithstanding the
absence of confusion or deception in the minds of the public.
TRADE MARK INFRINGEMENT
With regard to section 34(1)(a) it was common cause that the
respondents were using the name WEGBREEK in the course of trade
in relation to the same goods as those in respect of which the
Applicant’s trade mark is registered and that they had not been
authorised to do so (although the Respondents unsuccessfully
contended that by failing to object to the change of name from
“Veld Toe” to “Wegbreek” the Applicant had acquiesced to their
10
use of the latter name). The question was therefore whether
WEGBREEK so nearly resembled GETAWAY as to be likely to deceive
or cause confusion in the minds of the relevant sector of the public.
The court held that when making a comparison between the
WEGBREEK and GETAWAY trade marks, it is clear that they are not
phonetically or visually similar. It was the Applicant’s contention
that the marks are confusingly similar as the word “wegbreek” is
a direct translation into Afrikaans of the word “getaway”
(notwithstanding the fact that there is no actual direct translation
of the word “getaway” in any of the Afrikaans dictionaries consulted
by the Applicant’s counsel) and it conveys the same idea or concept,
which, it was argued, is of considerable significance especially in
a multi-lingual country like South Africa.
The court held that the question of whether or not Wegbreek is a
direct translation of Getaway must be determined with reference
to how the average South African who understands and uses both
English and Afrikaans would answer the question.
The Applicant was also able to adduce evidence of actual confusion
in the form of a letter published in “Wegbreek” in which the writer
stated that he thought that “Wegbreek” was “stomp en sommer
net ’n vertaling van ‘Getaway’”. The editor replied that even though
they mean the same the magazines would not cause confusion.
Furthermore, representatives of “Getaway” magazine attended a
South African arts and culture festival, which is held annually, with
the purpose of promoting the magazine. They came across a number
of visitors who referred to “Wegbreek” as “the new Afrikaans version
of ‘Getaway’”.
The court held that a substantial number of persons of average
intelligence, having proper eyesight and buying with ordinary
caution would probably be confused into believing that “Wegbreek”
is an Afrikaans version of “Getaway”.
The court ultimately found in favour of the Applicant in this matter
on the basis of the conceptual similarity between the marks and
the Respondents were ordered to cease publishing their magazine
under the name WEGBREEK.
PASSING OFF
In assessing the question of passing-off, the test employed by the
court was whether the get-up, name or other features of “Wegbreek”
were such that there was a reasonable likelihood that members of
the public would be confused into believing that “Wegbreek” was
associated with “Getaway” or that it is the Afrikaans
version thereof. In assessing the question of passingoff, the court is not confined to a comparison of the
marks themselves, and other factors should also be
taken into account. In this case these factors included
the get-up, layout and general contents of the two
magazines.
The court found that the two publications shared many
features and although some of these, such as letters to
the editor, were common to most magazines, at least
one feature in “Wegbreek”, entitled “Moegoe van die
Maand” was a blatant copy of “Getaway’s” “Mug of the
Month”. It found further that apart from the title and
the language used, there was nothing to distinguish
“Wegbreek” from “Getaway”.
On this basis the court found that the Respondents
were in fact passing-off.
COMMENTS
When making a comparison between trade marks for the purposes
of assessing confusing similarity it is trite that regard should be
had to the phonetic, visual and conceptual similarity between the
marks. It has, however, been generally accepted by our courts that
the likelihood of confusion must be “appreciated globally” and that
the assessment should be based on the “overall impression” given
by the marks. Our courts have, in the past, been reluctant to place
too much weight on a single factor such as conceptual, visual or
phonetic similarity and the approach has been to reach a decision
based on an assessment of each of these factors in conjunction
with extraneous factors such as similarity of the goods and/or
services in question and the likely perceptions relevant sector of
the public in question. With regard to word marks especially, more
emphasis seems to have been placed on the appearance and sound
of the marks concerned, and there are few instances in which
conceptual similarity has been found to outweigh the importance
of the presence of phonetic and/or visual similarity.
In the WEGBREEK case the court rightly pointed out that there is
absolutely no visual or phonetic similarity between the trade marks
WEGBREEK and GETAWAY. Furthermore, as was admitted by
Applicant’s counsel, most Afrikaans dictionaries, contain no direct
translation for the English word “getaway”, and by the same token
the Afrikaans word “wegbreek” does not translate to “getaway”.
Nonetheless, the idea conveyed by the mark is the same. As the
court observed, it is also likely that many South Africans, including
those with a limited understanding of Afrikaans, would reach the
same conclusion.
The importance of this decision is that it shows that marks can be
found to be confusingly similar on the basis of the fact that their
only common feature is their conceptual meaning. Obviously, the
extraneous factors such as the prevalence of English and Afrikaans
speakers in South Africa were also taken into account, and were
of vital importance in this case, and it is doubtful whether the
court would have reached the same decision if the name of the
Respondent’s magazine was the direct translation of the word
“getaway” in a language that less is prevalent in South Africa.
The principles laid down in this case are likely to have considerable
implications when it comes to future actions for trade mark
infringement where the trade marks concerned are conceptually
similar. Furthermore, the fact that the court has placed such
substantial weight on conceptual similarity must also be borne in
mind when selecting a trade mark or brand name and comparing
proposed trade marks to prior existing marks in the market place
or on the Trade Marks Register.
Tonia Papanikolaou has completed nation-wide training as a member
of IPACT. She was involved in the training of Public Prosecutors
around South Africa. The training was approved by the NPA (National
Prosecuting Authority) after they had conducted a pilot project at
Justice College. Training focused on Intellectual Property rights and
prosecuting offenders under relating Acts.
11
CAN MY PRODUCT STAY ON THE SHELF?
STA
By Beatriz Padilha
T
Health products, such as green tea, wheat grass, barley green as well as
conventional vitamins seem more popular and widely available than ever
before. Usually they are sold in packages extolling their extensive and
almost miraculous health benefits. Even cancer and AIDS are purportedly
cured by such over-the-counter products. Compared to conventional
medication which is sold with a grimly worded package insert, they seem
especially attractive to consumers.
The question of whether such miracle drugs and substances should
be registered in terms of the Medicine and Related Substances Act,
101 of 1965 (“the Act”) was recently examined in the case of
Ingelheim Pharmaceuticals (Pty) Ltd v Novartis South Africa (Pty)
Ltd and another (2003/11800 WLD).
This case dealt with Dynamisan, a multivitamin made by Novartis,
and a competing product called Pharmaton, manufactured and
distributed by Ingelheim. Pharmaton was registered as a tonic under
the Act while Dynamisan was not. Ingelheim accordingly sued
Novartis arguing that it had contravened the Act and that, by
doing so, it was competing unlawfully.
The court accordingly had to consider the following questions:
1. Should Dynamisan have been registered?
2. Did failure to register amount to unlawful competition?
SHOULD DYNAMISAN HAVE BEEN REGISTERED?
Not all medicines need to be registered. The Act provides that only
certain medicines belonging to “a class or category of medicine
or part of any class or category of medicine” are called up for
registration.
In determining whether Dynamisan fell within the scope of the
definition of “medicine” under the Act, the court first looked at
the purpose of the Act. It quoted Kriegler AJA who said in the case
of Administrator, Cape v Raats Röegen and another (1992 (1) SA
245 (A):
“The man in the street – and indeed many medical practitioners –
could not cope with the cornucopian outpourings of the worldwide network of inventors and manufacturers of medicines.
Moreover, the marvels of advertising, marketing and distribution
brought such fruits within the grasp of the general public… [The
Act] created a tightly meshed screening mechanism whereby the
public was to be safeguarded.”
In terms of the Act, “medicine” means any substance or mixture of
substances used or purporting to be suitable for use or manufactured
or sold for use in –
12
(a) the diagnosis, treatment, mitigation, modification or prevention
of disease, modification or prevention of disease, abnormal
physical or mental state or the symptoms thereof in man; or
(b) restoring, correcting or modifying any somatic or psychic or
organic function in man, and includes any veterinary medicine.
The court highlighted various claims made on Dynamisan’s packaging
and advertisements, for example:
• “Dynamisan is a complete multivitamin, amino acid and mineral
supplement plus Ginseng for optimal physical and mental wellbeing
• … with Ginseng for mental performance
The court’s view was that such claims indicate that Dynamisan
purports to be suitable for use in “correcting or modifying psychic
or organic functions in man” and that, in doing so, it is a medicine
in terms of the Act.
The next question was whether Dynamisan fell into one of the
classes of medicine which are called up for registration.
Since vitamins and tonics are a class which are subject to registration
in terms of government regulations, the court had to consider
whether Dynamisan constitutes a “tonic”.
“Tonic” was not defined in the regulations so that the court had
to consider its ordinary, dictionary meaning, which includes “having
the property of increasing or restoring the tone or healthy condition
and activity of the organs of the body as a whole, strengthening,
invigorating, bracing.”
Due to the claim that Dynamisan helps to improve physical and
mental functions, it purports to be a tonic within the ordinary
definition of the word. The court held that Dynamisan should been
registered and that Novartis was not entitled to sell it as long as
it remained unregistered.
Novartis was accordingly interdicted from selling, importing,
advertising, delivering or distributing Dynamisan until it was
registered.
DID FAILURE TO REGISTER AMOUNT TO UNLAWFUL
COMPETITION?
All the elements of a delict have to be present for there to be
unlawful competition. One such element is a wrongful act. While
competition in itself is legal and should not be discouraged, it must
remain within lawful bounds. Under the common law, when a
competitor trades in contravention of an express statutory
prohibition, it is guilty of unlawful competition.
Furthermore, registered products are subject to more restrictions
and prohibitions than unregistered products. The court held that,
since Dynamisan was on the market without the statutory restrictions
imposed on Pharmaton, Novartis has an unfair advantage over
Ingelheim, and was accordingly found to be competing unlawfully.
Ingelheim was entitled to the protection it sought.
CONCLUSION
The case highlights the importance of responsible and accurate
packaging and advertising of health products, since the question
of whether Dynamisan should have been registered hinged on its
purported rather than actual health benefits. There are possibly
many unregistered products in the market which may not be
effective “vitamins” or “tonics” but which purport to be so and
which are in danger of being removed from the shelves.
• Dynamisan offers the optimal combination of vitamins, minerals
and amino acids that work together to help maintain peak
physical and mental well-being
• Dynamisan… have an anti-oxidant action, helping to maintain
a healthy immune system
• Helps -improve physical and mental functions, well-being and
ability to concentrate. Anti-oxidant property.”
13
U
THE NEW DRAFT BLACK ECONOMIC EMPOWERMENT CHARTER
FOR THE ICT SECTOR
By Belinda Mapongwana
The latest draft of the Black Economic Empowerment Charter (“BEE”)
for the ICT Sector (“the draft Charter”) was published in May 2005.
The draft Charter is intended to be adopted as a Code of Good
Practice for the ICT Sector in terms of the Broad-based Black
Economic Empowerment Act, 53 of 2003 (“the BBEE Act”). Thus the
new draft Charter is drafted to be in alignment with the draft Codes
of Good Practice that were issued by the Department of Trade and
Industry (“the DTI”) in December 2004 (“the Codes”). Most of the
definitions, principles and scorecard targets used in the new draft
Charter have been borrowed from the Codes although there are
minor variations. The new draft Charter still needs to be finalized
and will go to cabinet for approval. Once cabinet has approved it
the public will be given a period of sixty days to make comments.
Thereafter the draft Charter will go back to the Steering Committee
for consideration and to incorporate the public comments into the
final draft where necessary. Once this has been finalized, the final
version of the Charter will be sent to the DTI and then published
in the Government Gazette. As the draft Charter is intended to be
adopted as a Code of Good Practice and the Codes are still in draft
form, the Charter will be amended should there be further
amendments to the Codes.
EXEMPTIONS
There are still no blanket exemptions for any entity
from compliance with the provisions of the Charter.
However, the new draft Charter no longer requires
entities to propose alternative equity models. Instead,
companies are given a wider array of approved
“replacement offerings” to substitute for the sale of
equity. Any entity may apply for a certificate of
approval (“the Certificate”) if that entity can prove
that it could suffer inherent commercial harm to its
business due to legal, technological or policy barriers
which are incompatible with the sale of equity. The
entity that has applied for the Certificate will be
required to satisfy certain prerequisites that include
among other things, disclosing its total revenues
accrued directly or indirectly from South Africa.
Once an entity has been granted the Certificate, it will
be required to substitute the exemption with approved
replacement offerings such as establishing partnerships
with black owned, black empowered or black
engendered entities or Small Medium and Micro
Enterprises (“SMMEs”) on research and development,
14
expansion of manufacturing or assembling plants and location of
substantial new investments in South Africa and in global markets.
Points will be allocated for each approved replacement offering.
The allocation of the points will be the ratio of the cost of investment
to the total revenue generated in South Africa. The government
will issue policy directives to the BEE ICT Charter Council (“the
Council”) to determine what grounds need to be satisfied for an
entity to get the Certificate, the approved replacement offerings
and the ratio of cost of investment to total revenue generated in
South Africa. The new draft Charter does not isolate foreign-based
ICT companies as the only enterprises that need to apply for the
Certificate, the Charter simply provides that “any interested party”
may apply for an exemption. Although the Charter is not explicit
in this regard, it seems that an entity will only be exempt from
complying with the equity provisions of the Charter if it receives
the Certificate. It seems therefore that it would not be possible to
over score through bonus points unless the Certificate is granted
to an entity. If it is granted the Certificate, it may be possible to
obtain bonus points but not sufficient bonus points to get to 100,
as discussed below.
STATE OWNED ENTERPRISES, SMMES AND
COMMUNITY ENTITIES NOT FOR PROFIT
The new draft Charter extends the application for the Certificate
to State Owned Enterprises (“SOEs”), SMMEs and to non-profit
community entities. With regard to SOEs, there is no longer a
requirement that those SOEs which conduct business in competition
with other commercial enterprises cannot apply for an exemption.
If an SOE wishes to apply for the Certificate, a differential approach
will be used in line with the Codes and the exemption of any SOE
will be tailored for the specific circumstances of the SOE in question.
In determining the manner in which equity points will be made up
by the SOE, the Council will take into account the public and
commercial nature of the mandate of that SOE. In the case of SMMEs
and non-profit community entities, the Council will publish the
criteria which must be met before a specific category of enterprises
is exempted from compliance with the sale of equity and the extent
of that exemption.
EQUITY OWNERSHIP
The parties to the Charter have agreed to a target of 30% for equity
ownership and an entity can get a maximum of four bonus points
for complying with the equity provisions. One bonus point will be
awarded for involvement of new black entrants in ownership of
enterprises, one bonus point will be awarded for performing in
excess of the requisite target for unrestricted voting rights and
unrestricted economic interest and two points for extension of
favourable terms and financing. Funding for the SMMEs and the
SOEs has been provided for extensively with the ICT sector
undertaking to form partnerships with Development Finance
Institutions (“DFIs”) to ensure that the DFIs fund the development
of BEE enterprises. The Council will also establish a special BEE fund
to finance the acquisition of equity ownership in ICT companies.
In respect of SOEs, only that section of the SOEs non-government
shareholding would have to reach the equity scorecard target in
order for the SOE to qualify under the equity provisions of the
Charter.
The new draft charter simply provides that the inclusion of black
people in the equity ownership of a company should be considered
as value enhancing to the company but the Charter does not explain
the significance of this statement. Bonus points will be awarded
for the extension of favourable terms and financing in equity
transactions and the Council shall prepare guidelines on the
calculation of the bonus points. It is also provided that any enterprise
which looses its BEE equity shareholder through no fault of its own
shall retain its BEE status for a period of 18 months from the date
of the loss. It is unclear how it will be determined that the company
lost its BEE partner through no fault of its own. The computation
of black ownership will be determined by taking into account the
flow through principle as stipulated in the Codes.
THE BEE ELEMENTS
There is no longer a requirement that enterprises should meet subminimum targets. The target and weighting for management and
control remains at 10%. The target for eligible procurement is now
at 70% and no longer at 80% as was the case with the April draft
Charter. This is a departure from the Codes which has set the target
for procurement at 60%. There is also a requirement that a minimum
of 30% of the 70% procurement spend should come from black
enterprises including black owned, black empowered and black
engendered SMMEs that are excellent contributors to BEE.
BONUS POINTS
Bonus points are awarded to enterprises in order to incentivise
them for broadening their transformation targets. Bonus points
are awarded for provision of ICT services in rural areas, inclusion
of designated groups and involvement of new black entrants in the
ownership of enterprises. The term new entrants who are black
people is not defined in the new draft Charter but it is defined in
the Codes as “any black person who acquires voting rights and
economic interest in any enterprise that is in excess of 5% of the
total entitlement of all members of that enterprise to economic
interest and voting rights where the acquiring new entrant has not
prior to the said acquisition become entitled to voting rights and
economic interest in any other enterprise with a fair market value
which exceeds twenty million Rand”. It is not clear whether the
definition in the Codes will apply to the new draft Charter.
There is still some discrepancy with regard to the number of bonus
points that are awarded to enterprises. If you calculate the total
number of bonus points that an enterprise that has been given the
Certificate will get, the total score will be less the 30% allocated
equity ownership. If that enterprise implements all the transformation
programmes in order to reach the maximum points out of a 100,
and qualifies for the 16 bonus points allocated in respect of each
transformation programme, that enterprise’s total score will be 86
and not 100. The Council must take this into account in its guidelines
so that an entity that has implemented the replacement offerings
gets all 100 points.
15
SINS
HOLDING THE FATHER LIABLE FOR THE SINS OF HIS CHILDREN
By Lunga Mani
A police officer, while on duty and without a siren on, drives
through a red traffic light at an intersection and collides with a
vehicle legally driving through the intersection. The police officer
is sued for the damages suffered by the other driver. The legal driver
investigates the financial affairs of the police officer and discovers
that he would not be in a position to satisfy the judgment debt if
he, alone, was to be sued. What does the legal driver do to make
sure that he will be fully compensated for the damaged he suffered?
The law through the principle of vicarious liability seeks to hold
the employers of offenders liable for wrongful acts committed
during the course and scope of their duties. Vicarious liability has
its origins in English law, where the head of the household was held
liable for the behaviour of his family and employees. This rule was
adapted from time to time to conform to changing circumstances.
The employee acts within the course and scope of his duties if he
acts in the execution or fulfilment of his duties in terms of the
employments contract. He acts outside the course and scope of his
duties if he disengages himself completely from his employment
and promotes his own interests. The question that flows from the
above is whether the employer would be liable for the acts which
the employee committed during the working hours but which did
not have anything to do with the services he was employed to
perform.
In Kern v Minister of Safety and Security three policemen had
offered a lift to the Plaintiff who was stranded because her boyfriend
did not want to give her a lift home. The time was about 03h00 and
all three policemen were on duty. They drove the Plaintiff towards
the directions of her home and they reached a stop street. Instead
of proceeding straight, they turned left and ignored the calls from
her that they were on the wrong road. They pulled a jacket over
her head and assaulted her. She was then raped by all three policemen
and left there to find her way home.
All three policemen were found guilty of rape and sentenced to life
imprisonment and 10 years for kidnap.
The Plaintiff then sued the Minister of Safety and Security for
damages she suffered as a result of the actions of the policemen.
The court pointed out that the legal principles underlying vicarious
liability are well established. “An employer will be vicariously liable
for the delict of an employee if the delict is committed by the
employee in the course and scope of his or her employment”. This
test is not easily applied where there is a deviation from the duties
normal performed by the employee. When there is a deviation the
inquiry is whether the deviation was of such a degree that it can
be said that in doing what he did the employee was still exercising
the functions to which he or she was appointed, or was still carrying
out some instruction of his employer. If the answer is yes, the
employer will be liable, no matter how badly or dishonestly or
negligently those functions and instructions were exercised by the
employee.
In Kern v Minister of Safety and Security it was held that the three
policemen were motivated by nothing more and self gratification
and that they deviated from their functions and duties as policemen
in such a degree that it cannot be said that in committing the crime
of rape they were in any way exercising those functions. The Minister
of Safety and Security was accordingly found not vicariously liable
for the actions of the three policemen.
In Minister of Safety and Security v Jordaan t/a Andre Jordaan
Transport, one Detective Sergeant Madden had to travel from Fish
Hoek to Franschhoek to take a statement from a witness. He decided
to drive to Fraschhoek via Paarl to drop off a constable who was
attending a training course. After dropping the Constable off he
was involved in a motor vehicle accident with the vehicle in which
Andre Jordaan’s Transport (“Jordaan”) had an interest. Jordaan sued
the Minister for the damages suffered. During the trial it transpired
that it was not Madden duty to deliver the constable and that he
had been denied permission to drive the constable to Paarl. He,
however, had gone on to deliver the constable to Paarl without
the necessary permission. It was sometime after dropping off the
Constable that he got involved in an accident which took his life.
The Minister claimed that Madden, when he got involved in the
motor vehicle accident was not within the course and scope of his
duties as he was not allowed to drop off the constable. The court
looked at the proximity of the distance between Paarl and
Franchhoek and also the fact that the accident had occurred after
he had been to Paarl and held that Madden was, at the time of the
accident, acting within the course and scope of his duties. He had
16
been instructed to get a statement from the witness. He had tried
on a number of occasions to get the witness to go to his nearest
police station and write his statement there and fax it to him, but
without success. He had pressure from his superiors to get the
statement and close the case. He went there under instructions
from his superiors. The Minister was held vicariously liable for the
actions of Madden.
It is clear that for a person to be vicariously liable for the actions
of the employee, that employee should have been acting within
the course and scope of his duties. This, taken in light of the
judgments we have had, there must be no deviation from such
duties. A person can perform a delictual act during his working
hours, but not within the course and scope of his duties. The
employer can escape liability if the employee has not only promoted
his own interests but has also disengaged himself completely from
the duties of his contract of employment. An example is the case
of Kern v Minister of Safety and Security. The Judgment of Kern
has just been appealed to the Constitutional Court.
In the recent judgment of Grobler v Naspers Bpk en Ander the
employer was sued for failure to protect the Plaintiff from sexual
harassment by an employee with whom he had a special relationship.
The Plaintiff had been appointed as a secretary to this employee.
The employee, subsequent to a disciplinary hearing, was dismissed
for sexual harassment.
The court held that the basic question was whether the unlawful
act was sufficiently connected to the conduct authorised by the
employer to justify the imposition of vicarious liability. The court
held further that the existence of a relationship between the creation
or increase in the risk of the commission of the unlawful act and
resultant wrong indicated a sufficient relationship for imposition
of vicarious liability. Relevant factors were the opportunity presented
to the harasser to abuse his authority, the ambit of his authority,
and the vulnerability of a potential victim to the abuse thereof.
The employer was held vicariously liable for the actions of the
employee.
The decision of Grobler points out that the employers must take
positive steps to minimise the possibility of sexual harassment taking
place in the workplace. By proving that the employee was not
acting within the course and scope of his duties and that they
(employer) had taken reasonable care to prevent sexual harassments
from taking place, and dealt with such occurrences immediately,
then they could not be said to be vicariously liable for the actions
of the employee.
17
E
MERGERS IN THE TRUE SENSE
OF THE WORD
In May 2004 the Department of Trade & Industry issued
“Guidelines for Corporate Law Reform” (entitled “South
African Company Law for the 21st Century”) which set out
the framework and guidelines for more detailed technical
consultation, which will provide the foundation for the
drafting of a new Companies Act.
One of the areas of company law which is highlighted in this
document is mergers and takeovers. The document states that “it
will be necessary to make [provision] in company law for mergers
in the true sense of the word, namely, the absorption of one
company into another, with the assets and liabilities of the former
becoming the assets and liabilities of the latter and with the former
ceasing to exist”. What are the benefits of mergers “in the true
sense of the word” and would they add value in a South African
law context? This question could be answered by considering the
position in Canada.
In Canada an amalgamation (i.e. a merger) is a procedure provided
for under corporate statute whereby two or more corporations are
combined into one corporation. Where the amalgamating
corporations have different shareholders, a “long-form”
amalgamation is required, and where they are affiliated (i.e. one
corporation is a subsidiary of the other or they are controlled by
the same person), a “short-form” amalgamation is required. The
board of directors of each amalgamating corporation must approve
the amalgamation and, in the case of the “long-form” amalgamation,
the shareholders of the amalgamating corporations must also
approve the amalgamation. The effect is that the amalgamated
corporation assumes the liabilities, owns the property, and has all
the rights of the amalgamating corporations.
Amalgamation is an effective method to acquire a business of, or
the shares in, another corporation. For example, if X owns all the
shares in Company A and Z owns all the shares in Company B, and
Company A and Company B amalgamate, the effect of which is
that X gets all the shares in the amalgamated company and Z gets
cash, the amalgamation is no different to a sale of shares or business
under South African law. Why then is it necessary to make provision
18
for amalgamations or mergers in the South African Companies Act?
Clearly numerous issues have to be considered to answer this
question. For example: Do assets have to be transferred formally?
What are the tax consequences? Is it necessary to obtain creditors’
consents? Is the approval of shareholders required and do they
have any remedies if they object to the merger? This last question
is of particular interest and will be briefly considered.
Under South African law, if the whole or the greater part of the
assets, or the whole or substantially the whole of the undertaking,
of a company is sold to a third party, an ordinary resolution must
be passed at a general meeting of shareholders of the company to
approve the sale. Under Canadian law, shareholders also have to
approve an amalgamation but only if the amalgamating corporations
have different shareholders and not if the shareholders are affiliated
(for example they have the same holding company). Those
shareholders who vote against an amalgamation, but the
amalgamation is nevertheless approved, have “dissent and appraisal
rights”. These rights give a dissenting shareholder the right to be
paid by the corporation the fair value of the shares in respect of
which the shareholder dissents. For example, if A, B and C own the
shares in Company X and D, E and F own all the shares in Company
Z, and Company X and Company Z amalgamate, the effect of which
is that A, B and C get all the shares in the amalgamated company
and D, E and F get cash, A is entitled to enforce its “dissent and
appraisal rights” (if A voted against the amalgamation) which will
ultimately entitle him to receive cash for his shares instead of
holding the shares in the amalgamated entity.
Although it may be easy to obtain shareholders’ approval under
the South African Companies Act, and especially where the
shareholder of the seller and the purchaser is the same holding
company, it may nevertheless be useful if no shareholder approval
is required in the circumstances provided for under Canadian law
as referred to opposite.
It may also be useful if shareholders have “dissent and appraisal
rights”. Currently shareholders do not have these rights under
South African company law. If a minority shareholder believes that
he has been oppressed by the majority votes in favour of a sale of
assets, business or shares transaction at a general meeting, he has
the right to bring an application to court in terms of section 252
of the South African Companies Act on the basis that the transaction
is unfairly prejudicial, unjust or inequitable. If the court considers
it just and equitable, the court may make such order as it thinks
fit. However, “mergers” implemented by way of other methods in
South Africa, for example a scheme of arrangement or a takeover
offer, do provide for other remedies for shareholders.
From the brief analysis above, it seems that there may be certain
advantages if mergers (amalgamations) as understood in Canada
are accepted in South Africa. However, the current methods of
implementing “mergers” (and their shortcomings) under South
African law compared to mergers in foreign jurisdictions must first
be carefully considered before any amendments are made to the
Companies Act in that regard.
ergers
By Nicola Malan
19
compen
nsation
CONVERTING YOUR EMPLOYEES’ COMPENSATION PACKAGES
By Priyesh Modi
INTRODUCTION
There is a growing trend amongst employers to move away from
compensating their employees’ on a “basic plus benefits” basis to
a “total cost to company” basis.
A basic plus benefits basis of remuneration refers to when an
employer has contractually agreed to remunerate an employee a
basic salary and in addition makes certain contributions for the
employee’s benefit such as pension/provident fund and medical aid
contributions, car insurance, fuel and maintenance allowance. On
the other hand, where an employee is employed on a total cost to
company package this figure represents the total employment cost
for that employee and the employee is responsible for any
contributions towards his benefits from his package. By employing
persons on a total cost to company basis an employer is able to
manage its exposure to rising medical aid costs, employers are able
to cap their total employment cost and it makes it easier for
employers to prepare for wage negotiations, amongst others.
This begs the question whether it is necessary for an employer to
obtain its employees’ consent to the conversion. Assuming the
employees’ consent is required but the employees refuse, can the
employer unilaterally implement its proposal and what recourse is
available for the employees?
MATERIAL TERM
A contract of employment embodies reciprocal contractual rights
and duties between an employer and employee. Should one party
attempt to unilaterally change, i.e. without the other party’s
consent, a material term or condition of such a contract, they
would be in breach and the other party would be entitled to its
normal contractual remedies for breach, namely, to sue for specific
performance or for damages. In the employment context, employees
could also institute a claim for unfair dismissal, constructive dismissal
or unfair labour practice. Alternatively, employees could embark
on a strike.
20
Remuneration constitutes an essential term of an employment
contract and arguably any change to the employees’ remuneration
and benefits as provided in the employees’ contracts of employment
must be agreed between the parties. Having said that, the Industrial
Court previously held that an employee’s terms and conditions of
employment are not cast in stone and that where there is a genuine
business rationale for the change and the employer has consulted
in good faith with its employees in connection with the proposed
changes, the employer may implement the changes when deadlock
is reached.
OPTIONS AVAILABLE TO THE EMPLOYER
An employer must consult with its employees in good faith in
connection with its proposal. Where the employees agree to the
proposed changes, this would be the end of the matter. An employer
will generally not be able to secure its employees’ consent to the
proposed changes where the employees are not convinced that
they will receive the same nett salary (or a more favourable one)
pursuant to the change or where they are suspicious of the
employer’s motivations for the change.
Where the employees reject the employer’s proposal, there are
several options available to the employer:1. An employer may opt to implement its proposal unilaterally,
i.e. without the employees’ consent;
2. An employer may lock out its employees until such time as they
accept the proposed change to their contracts of employment.
The risk attendant with locking out employees is that where
the employer initiates the lock out, the employer may not
employ replacement labour during the lock out;
3. In light of the recent NUMSA v Fry Metal’s decision, it may be
possible for the employer to dismiss its employees based on its
operational requirements and to employ employees who are
willing to be engaged on the terms and conditions of the
employer.
RECOURSE AVAILABLE TO THE
EMPLOYEES
There are several options available to the employees
where the employer implements or threatens to
implement its proposals:1. Where the employer unilaterally implements
the proposed changes the employees can lodge
a dispute and refer it to the CCMA. The
employer could also be required to restore the
status quo for a period of 30 days pending the
conciliation meeting. Thereafter, the employees
may embark on a strike in an endeavour to get
the employer to reverse its decision.
2. Another alternative remedy for the employees would be to
approach the Labour Court for an urgent interdict to prevent
the employer from implementing the proposed changes.
3. It is possible that the employees may refer an unfair labour
practice dispute to the CCMA on the basis that the employer’s
actions constitute unfair conduct relating to the provision of
a benefit. It is debatable whether the legislature contemplated
the provision of a benefit to include the conversion of the
employees’ remuneration packages.
4. It is also possible that the employees may claim that their
employer’s actions constitute an unfair dismissal or constructive
dismissal and may seek relief against the employer on these
grounds.
CONCLUSION
Where the employees reject the employer’s proposal, the employer’s
response will generally be dictated by the action adopted by the
employees. It will, however, be necessary for the employer to
carefully strategise how it intends obtaining its employees’ consent
to the proposed change and to put in place contingency plans in
the event of a refusal. Moreover, in order to be able to effectively
resist any legal proceedings, it will be imperative for the employer
to have proper documentation, minutes of meetings,
communications, employee briefs and the like which support its
case. Preferably, an employer should deal with the conversion and
any matters related to remuneration and/or changes in terms and
conditions of employment in a holistic manner rather than dealing
with these changes on a piecemeal basis. Finally, it is recommended
that a task team be established made up of various specialists
including an employment law specialist to oversee the entire process.
A special thank you goes out to Dave Loxton for his assistance with
this article.
In March 2005, John Brand went to Indonesia under the auspices
of the International Labour Organisation (ILO) to train Labour Court
Judges in pre-trial consiliation. In May 2005, John went to Trinidad
& Tobago under the auspices of the ILO to train new conciliators
and trainers of conciliators in conciliation and training skills. In
July and September John will be going to Turin, Italy to the ILO
Training Centre to train social partners from across the world in
mutual gains negotiation skills. In May and June John and Clive
Thompson from Australia, are also conducting ten workshops on
mutual gains negotiation for the Provincial and National negotiation
teams of the Education Labour Relation Council.
21
AFRICA GROUP
• Uniform Act Organising Simplified Recovery Procedures and
Measures of Execution
FOCUS ON WEST AFRICA: OHADA
F
Benin, Burkina Faso, Cameroon, Central African Republic, Chad,
Comoros, Congo, Equatorial Guinea, Gabon, Guinea, Guinea Bissau,
Ivory Coast, Mali, Niger, Senegal and Togo.
THE DEMOCRATIC REPUBLIC OF CONGO IS EXPECTED
TO JOIN IN THE NEAR FUTURE.
In November 1997 the OHADA contracting states signed the Treaty
on the Harmonisation of Business Law in Africa with the objective
of harmonising business law in each of their countries by the
adoption of common rules (Uniform Acts), the establishment of
judicial procedures in respect of these rules and encouraging
arbitration for the settlement of contractual disputes. Business law
for these purposes includes laws relating to companies, trade and
commerce, security and the enforcement of debts, insolvency and
bankruptcy, commercial arbitration as well as employment,
accounting principles and policies, transportation and sales.
Uniform Acts are adopted by the Council of Ministers (representing
each of the contracting states) in consultation with the Common
Court of Justice and Arbitration (CCJA). Uniform Acts are directly
applicable in contracting states and do not require ratification by
the legislature of each contracting state (in much the same way
that regulations applying in the European Union).
TO DATE SIX UNIFORM ACTS HAVE BEEN ADOPTED:
• Uniform Act relating to the General Commercial Law
FROM LEFT TO RIGHT
Tamara Dini
Roy Anderson
Jonathan Lang
Anne McAllister
David Anderson
Paul Hart-Davies
• Uniform Act on Arbitration
Rules of arbitration and procedure of the CCJA have also been
adopted. Other uniform acts on employment and sales to consumers
are expected to follow.
Of particular interest to foreign investors, lenders and exporters
are laws governing the establishment, maintenance and windingup of corporations and the raising of capital. A centralised
commercial registry has also been established facilitating access to
information about companies incorporated in OHADA contracting
states. Laws governing the granting and enforceability of guarantees
and security have been modernised. In addition to mortgages over
real property, security may also be granted over immovable assets,
receivables and bank accounts.
The Uniform Act on Arbitration enables arbitration awards to be
enforceable in each contracting state. If parties to a contract elect
for arbitration in respect of disputes, national courts of contracting
states may not exercise jurisdiction over any dispute. The CCJA
confirms or, failing agreement between the parties to a dispute,
appoints the arbitrators. Before granting a final award, an arbitration
tribunal must submit its proposed decision to the CCJA for approval.
The principal benefits of the harmonisation process is the
modernisation and standardisation of business law across 16
countries to create a legal and judicial system more conducive to
foreign investment and trade.
We are proposing to host a seminar on OHADA laws for foreign
investors, lenders and exporters later this year.
• Uniform Act relating to Commercial Companies and Economic
Interest Groups
DEPARTMENT FOCUS
CAPE TOWN
CORPORATE DEPARTMENT
• Uniform Act Organising Collective Proceedings for Wiping Off
Debts
Where the Uniform Acts apply, litigation is settled at first instance
in local courts. The CCJA (comprising seven judges appointed by
contracting states) acts as a court of final appeal and judgments
are final and binding. Proceedings are adversarial and public and
conducted in the French language. To date there have been over
1 200 reported cases in respect of the Uniform Acts.
group
The Organisation for the Harmonisation of Business Law in Africa
(OHADA) comprises 16 contracting states:
22
AFRICA
AFRICA
• Uniform Act Organising Security
23
BE CAREFUL OF WHAT YOU ENDEAVOUR TO DO…
By Neetesh Ramjee
Contracts concern rights and obligations and the precise definition
and drafting of these rights and obligations should be of paramount
importance to the contracting parties. Too often parties to a
contract undertake to use their “best endeavours” or their
“reasonable endeavours” to fulfill their obligations in terms of
a contract without knowing exactly what will be expected of
them if called upon to do so. These commonly used terms have
not been interpreted by the South African courts and there is no
easy way to measure their performance.
A contractual provision containing an absolute obligation or a
guarantee, often denoted by the use of the word “shall”, remains
first prize. Failure by a contracting party to carry out an absolute
obligation or guarantee will result in a breach of contract and give
rise to the normal remedies for breach of contract such as
cancellation or a claim for damages. An undertaking to use one’s
best endeavours should not be regarded as the next best thing to
an absolute obligation or guarantee as the party seeking to enforce
such an obligation will not be allowed to go beyond the realm of
the objective test for reasonableness in arguing their case.
A third term that is often used is “all reasonable endeavours” which
some lawyers view as an obligation that is midway between best
endeavours and reasonable endeavours but it is likely that the
addition of the word “all” adds little to the meaning of reasonable
endeavours.
Simple and comprehensive definitions of the terms best endeavours
and reasonable endeavours have not been handed down by the
courts in South Africa. English case law may provide much guidance
as to the possible interpretations but the parties to any dispute
over the interpretation of these often used terms would have to
look at the particular facts and circumstances of the dispute to
establish what would satisfy performance of the obligation in
question. It is submitted that an obligation to use one’s reasonable
endeavours would permit an obliged party to weigh up the
commercial considerations and practicalities of performance against
the likelihood of success in dispensing with the obligation, whereas
an obligation to use one’s best endeavours would potentially have
to be dispensed with to the commercial disadvantage of the obliged
party, if necessary.
endeavours somewhat and held that an obliged party should take
“all those steps in their power… which a prudent, determined and
reasonable owner, acting in his own interests and desiring to achieve
that result would take” to dispense with the obligation.
There is much less English case law on the meaning of reasonable
endeavours, and again South African case law is silent on this often
used phrase. It can be seen from English case law that an undertaking
to use reasonable endeavours is appreciably less onerous than an
undertaking to use best endeavours.
In the English case of Sheffield District Railway v Great Central
Railway 1911 it was held that best endeavours did not mean “secondbest endeavours” and that an obliged party should “broadly speaking,
leave no stone unturned” in fulfilling their obligation in terms of
the contract. The later English case of IBM United Kingdom Ltd v
Rockware Glass Ltd 1980 diluted the earlier interpretation of best
24
25
binding
MEMORANDA OF UNDERSTANDING:
BINDING OR NOT-BINDING
By David Anderson
Picture this, you’ve found that joint venture partner that you’ve been
looking for to take your business to the next level, or that black economic
empowerment partner with all the right credentials. You’ve had a few
meetings with your new potential partner and you’ve started planning
the way forward in your head. You realise that the proposed joint venture
is going to involve a number of complex agreements that will take a long
time to negotiate and finalise, but you don’t want to lose the momentum
that you’ve got going at the moment.
So you decide late one night to prepare a memorandum of
understanding (“MOU”) to encapsulate the salient points of your
understanding with your potential partner and a proposed timeline
for the signing of the substantive agreements. You also believe that
the signing of a MOU will be a signal of good faith and will illustrate
a level of commitment to the deal and the negotiating process on
the part of both parties. Additionally, you may have the view that
a signed MOU will help facilitate the raising of finance and the
obtaining of various regulatory approvals.
Your potential partner promptly signs the MOU that you have
drafted and you in due course make an appointment with your
lawyer to instruct him or her to draft the necessary agreements to
give effect to the intentions of the parties as set out in the MOU.
Stop. Rewind. In this article we will explain that the more prudent
approach is to see your lawyer before your commit to an MOU.
It is a common misconception that MOUs (which are also referred
to as letters of intent and heads of agreement) are always nonbinding or that if you take a document that reads like a binding
contract and add the heading “Memorandum of Understanding” it
becomes non-binding. MOUs can be binding, non-binding or partly
binding and partly non-binding. It all depends on the intention of
the parties and the drafting. Uncertainty is rarely a good thing in
the context of legal documentation and what you don’t want is
your counterparty bobbing up in a couple of weeks’ time and
strongly arguing that what you believed was a non-binding MOU
is actually, in the view of your counterparty, binding. The resulting
uncertainty could have adverse consequences for you. Even later
on down the line a poorly drafted MOU containing binding provisions
has the potential to haunt the signatories in court if the envisaged
substantive agreements are never signed. Further a poorly drafted
MOU might make it difficult for you to raise and negotiate new
points which were not included in the MOU.
26
It will be a question of the law of contract as to whether a MOU
is binding. For example, if there is an offer, acceptance, a
determinable price or consideration and an objectively determined
intention to be bound on the part of the signatories then there will
be a strong presumption that a binding contract exists. Conversely
if the essential terms are not all present a MOU will be held to be
void for vagueness.
You may ask why, if it is the intention of the parties for a MOU to
be totally non-binding, bother expending the time and effort on it
in the first place when you could better spend time and effort
drafting the substantive agreements. A MOU is never a pre-requisite
and can often serve to delay the drafting and negotiation of the
substantive agreements.
Practically speaking, a MOU cannot always be avoided. For example,
on particularly complex deals or where a negotiating party treats
a MOU as a deal breaker and insists that one be drafted. A well
drafted MOU will be partly binding and partly non-binding and will
expressly state at the outset which clauses are binding and which
clauses are non-binding. The following are examples of the binding
clauses that, depending of course on the circumstances of the
particular deal, we would expect to see included in a MOU:
• confidentiality/non-disclosure clause (if not incorporated in a
separate agreement);
unfamiliar. Civil law systems (such as in
Holland and France) often have a very
different approach to MOUs and the courts
in Holland in our experience will more readily
find that a contract exists or compel the
parties to negotiate any outstanding points.
Where parties are negotiating a mutually
beneficial deal then trust may be enough to
get the deal through but where this is not
the case a MOU may provide some certainty
for the parties in relation to the negotiating
process. A well drafted MOU which clearly
sets out which clauses are binding and which
are non-binding can set the tone for the
negotiation of the substantive agreements
to be drafted at a later stage and makes it
difficult (but not impossible) for your
counterparty to raise fresh issues. If it looks
like a MOU is unavoidable then it should be
taken seriously. Almost inevitably it will be
a document which creates rights and
obligations and you need to be sure that the
MOU properly reflects your understanding
of the arrangements.
• lock in/no negotiating with third parties clause;
• costs clause;
• governing law and jurisdiction clauses.
Bear in mind that if you are contracting with an overseas
counterparty you should take particular care to ensure that the
MOU is not governed by the law of a country with which you are
27
securitie
es
THE SECURITIES SERVICES ACT
By Rudolph Du Plessis and Rehana Cassim
W
The Securities Services Act 36 of 2004 (“the SSA”) came into effect on 1
February 2005. The SSA repeals the Stock Exchanges Control Act, 1985
(“the SECA”), the Financial Markets Control Act, 1989 (“the FMCA”), the
Custody and Administration of Securities Act, 1992 (“the CASA”) and the
Insider Trading Act, 1998 (“the ITA”) and usefully consolidates them into
one Act. It is, however, not merely a consolidation of the legislation which
it repeals – it also amends these Acts and at the same time, introduces
new and more effective provisions into our law.
The SSA also amends section 91A of the Companies Act, 1973 (“the
Companies Act”); section 1 of the Financial Services Board Act,
1990 and section 35A of the Insolvency Act, 1936. These amendments
are merely consequential, arising from references in these Acts to
the CASA, the SECA and the FMCA, which are now repealed by the
SSA. However, some confusion has now been created because
certain other sections of the Companies Act (such as sections 134,
135 and 140A) as well as the Insolvency Act, 1936 (such as sections
35B and 83) still contain references to the SECA and the FMCA. The
same applies to several other pieces of legislation, such as the Banks
Act, 1990, the Financial Intelligence Centre Act, 2001, the Collective
Investment Schemes Control Act, 2002 (“the CISCA”) and the Income
Tax Act, 1962, to name a few. These Acts ought to have been
amended as well.
OBJECTS OF THE SSA
One of the objects of the SSA is to enhance confidence in the South
African financial markets. The SSA also aims to promote the
protection of regulated persons (being exchanges, central securities
depositories (“CSD”) or any other persons who provide securities
services) and clients. In addition, the SSA purports to reduce systemic
risk and to promote the international competitiveness of securities
services in South Africa (section 2 of the SSA). The SSA does not
apply to collective investment schemes in terms of the CISCA or to
the activities regulated by the Financial Advisory and Intermediary
Services Act, 2002.
DEFINITIONS
“SECURITIES” COMPRISE:
• shares, stocks and depository receipts in public companies and
other equivalent equities (other than shares in a share block
company as defined in the Share Blocks Control Act, 1980);
notes;
derivative instruments;
bonds;
debentures;
• the securities contemplated in all of the above which are listed
on an external exchange;
• an instrument similar to one or more of the securities listed
above which is declared by the Registrar or Deputy Registrar
of Securities Services (“the Registrar”) by notice in the
Government Gazette to be a “security” for purposes of the SSA;
and
• rights in the securities listed above.
This definition excludes a money market instrument (except for the
purposes of dealing with the custody and administration of
securities).
AMENDMENTS TO THE SECA AND THE FMCA
While the SECA had previously regulated the buying and selling of
listed securities only, the SSA places a restriction on the buying
and selling of unlisted securities as well.
The SSA requires the Registrar to prescribe a code of conduct for
authorised users, their officers, employees and clients. It also
prescribes the principles on which the code must be based, one of
which is the fundamental principle that an authorised user must
act honestly and fairly, with due skill, care and diligence and in
the interests of clients (section 71 of the SSA).
AMENDMENTS TO THE CASA
A CSD is required to have rules which are consistent with the SSA.
The rules are required to deal with particular issues as set out in
the SSA (section 39) and they are in some respects more stringent
than those under CASA. For instance, a new issue which the rules
are required to deal with, in terms of section 39(2)(k), is that they
must provide for the duty of a client to disclose to a participant
(being a person authorized by the Registrar to hold and administer
securities or an interest in securities, which has been accepted by
a CSD as a participant in terms of the rules of the CSD), and the
duty of a participant to disclose to a CSD, information concerning
a beneficial, limited or other interest in securities deposited by a
client with a participant or by a participant with a CSD, as the case
• participatory interests in a collective investment scheme as
defined in the CISCA and units or any other form of participation
in a foreign collective investment scheme approved by the
Registrar of Collective Investment Schemes in terms of the
CISCA;
• units or any other form of participation in a collective investment
scheme licensed or registered in a foreign country;
• instruments based on an index;
“Securities services” is defined in the SSA as services provided in
respect of the buying and selling of securities, the custody and
administration of securities, the management of securities by an
authorised user (that is, a person authorised by an exchange in
terms of the exchange rules to perform the securities services as
the exchange rules permit) and the clearing and settlement of
transactions in listed securities (section 1 of the SSA).
28
29
act
may be, and also the manner, form and frequency of the disclosure.
The rules prescribed by the SSA are binding on a much wider group
of persons than the CASA.
The SSA introduces a new requirement into our law regarding the
approval of a nominee. A “nominee” is defined as a person who
acts as the registered holder of securities or who holds an interest
in securities on behalf of other persons. Section 36 of the SSA
provides that a nominee of an authorised user must be approved
by the exchange in terms of exchange rules, and a nominee of a
participant or any other nominee who has an account with a
participant, must be approved by the CSD in terms of the depository
rules. A nominee that is not approved in this manner is required to
be approved by the Registrar and furthermore must comply with
the requirements which the Registrar may prescribe for nominees
before it may function as a nominee.
MARKET ABUSE
The SSA introduces detailed market abuse rules into our law (see
chapter VIII of the SSA.) According to the leading English academic
Paul L. Davies (in Gower and Davies’ Principles of Modern Company
Law), one reason why it has become necessary to regulate market
abuse by means of detailed rules, is not because of a deterioration
in standards of market conduct, but because of the growth in
shareholder and investor power since financial markets have come
to play a more significant role in national and international business.
By regulating market abuse, investors are protected against
opportunistic behaviour by corporate and market insiders with the
result that this would have the effect of making markets more
attractive places to carry on business.
Four offences constitute “market abuse” in terms of the SSA. These
are insider trading, the publication of inside information, engaging
in a prohibited trading practice, and the making or publishing of
false, misleading or deceptive statements, promises or forecasts.
The SSA introduces a significant change to the law as it applied
under the ITA. The SSA widens the scope of who constitutes an
“insider”. In terms of the ITA an “insider” was defined as an “individual
who has inside information”, but under the SSA, an insider is defined
as “a person who has inside information”. A “person” would include
an individual as well as a juristic person. The SSA goes further in
that it defines a “person” as including a partnership and any trust
for the purposes of the Market Abuse prohibitions.
The prohibition of market and price manipulation is not an entirely
new concept in our law as the SECA and the FMCA had prohibited
these practices, but the SSA goes much further in prohibiting market
green
GREEN SCORPIONS SPEAK!
By Claire Tucker
Environmental offences from air and soil pollution, operation of an
illegal landfill site, breach of environmental permit conditions and
not performing an EIA when required are set to be policed and
prosecuted in a more rigorous fashion in the future. This follows
amendments to the National Environmental Management Act, 1998
(NEMA) to create additional offences and to provide for coordinated
enforcement of environmental crimes through what has become
known as the “Green Scorpions”.
The Bowman Gilfillan Environment, Mining and Natural Resources
practice area recently hosted Melissa Fourie from Green Scorpions
who spoke about the new Enforcement Directorate in the Department
of Environment Affairs and Tourism (DEAT). This was an opportunity
for our clients to learn about the Directorate and address questions
and concerns directly to those in charge. Melissa, who is acting
Director of the new Directorate, also discussed the Green Scorpions
recent success in initiating and running the first prosecution by the
Directorate of an environmental offender in East London.
This case was concluded on 19 May 2005. A company had been
operating an illegal and unpermitted waste disposal site on rural
property. The accused was receiving drums containing paint sludge
and thinners from industrial clients on the basis that a recycling
operation was conducted by the company. In fact, most of the paint
sludge ended up being buried on the property.
30
The accused pleaded guilty to contravening section 20 of the
Environment Conservation Act, 1989 (the ECA) which requires the
permitting of disposal sites and was fined R100 000 and given a five
year suspended sentence. The sentence is suspended provided the
defendant is not convicted of an environmental crime in the five
year period and provided the defendant rehabilitates the property
to the satisfaction of DEAT within a year of the imposition of the
sentence. An amount of R1 million must be deposited to fund the
clean up operations on the properties if these properties are disposed
of by the accused.
It is interesting to see that the suppliers of the paint sludge were
not joined in the prosecution, this certainly was a possibility as
providing waste to an unlicensed operator is also a contravention
of section 20 of the ECA.
WHAT ARE THE “GREEN SCORPIONS?
The so-called “Green Scorpions” are in fact the Enforcement
Directorate of DEAT and this directorate has been established to
establish and coordinate the activities of the Environmental
Management Inspectors which are established in terms of the
amendments to Chapter 7 of NEMA. The following officials can be
appointed as Environmental Management Inspectors:
2
and price manipulation, even to the extent that certain acts are
deemed to constitute a manipulative practice, on which the SSA
contains detailed provisions.
Section 75(1) of the SSA prohibits a person from using or knowingly
participating, directly or indirectly, for his own account or on
behalf of another person, in the use of any manipulative, improper,
false or deceptive practice of trading in a listed security on a
regulated market, which practice creates or might create a false
or deceptive appearance of the trading activity in connection with
that security or an artificial price for that security. Placing an order
to buy or sell listed securities which to a person’s knowledge will,
if executed, have such an effect is also prohibited.
The SSA also makes it an offence to make or publish, directly or
indirectly, in respect of listed securities or in respect of the past or
future performance of a public company, any statement, promise
or forecast which is, at the time and in the light of the circumstances
in which it is made, false or misleading or deceptive in respect of
any material fact, or omission of any material fact, which the
person knows, or ought reasonably to know, is false, misleading or
deceptive (section 76 of the SSA). Neither the SECA nor the FMCA
went as far as this provision.
Officials in DEAT; other national organs of state; provincial
environment departments; other provincial organs of state;
municipalities.
Their functions are to monitor compliance with, and enforce
legislation within their mandate (including authorisations issued
under legislation within their mandate).
The legislation that Environmental Management Inspectors can
monitor and enforce includes:
• NEMA;
• National Environmental Management: Biodiversity Act, 2004;
• National Environmental Management: Protected Areas Act,
2003;
• National Environmental Management: Air Quality Act, 2004;
• And possibly other national environmental legislation and
provincial and municipal by-laws.
Environmental management inspectors have the power to:
• Conduct routine inspections;
• Conduct investigations, including undertake questioning;
• Search, seize, erect roadblocks and arrest.
They also have certain administrative powers and can issue
compliance notices.
The Environmental Management Inspectors will have distinctive
clothing and identification cards and will have a code of conduct
with which they are required to comply. There are specialised
Under the SSA, the penalty for committing an offence of insider
trading or price or market manipulation could be a maximum fine
of R50 million and/or imprisonment for a maximum period of 10
years. The SSA further establishes an enforcement committee which
is empowered to impose an administrative penalty, payable to the
Financial Services Board established by the Financial Services Board
Act, 1990, on a person who has contravened the SSA or who has
failed to comply with the SSA.
CONCLUSION
The SSA consolidates existing legislation but also amends and
introduces a number of important new provisions into our law.
There are, however, some consequential amendments to legislation
which the SSA would impact on that have not been properly
considered.
It remains to be seen whether these new provisions will indeed fulfil
the objects of the SSA, namely to enhance confidence in the South
African financial markets, protect regulated persons and clients,
reduce systemic risk and promote the international competitiveness
of securities services in South Africa, but they certainly are a step
in the right direction.
training courses underway for the Environmental Management
Inspectors and it is expected that the relevant sections of NEMA
establishing the Environmental Management Inspectors will
commence shortly.
HOW CAN BOWMAN GILFILLAN ASSIST?
The Bowman Gilfillan environmental practice area is able to assist
in defending administrative orders and court actions which may
be launched in terms of environmental legislation and is also
experienced in prosecuting and resisting environmental interdicts,
abatement orders and criminal proceedings in the environmental
arena. Our experience includes, actions regarding waste disposal
and landfill site operation, water pollution actions and water
tribunal appeals, orders in terms of NEMA, EIA appeals and protected
species litigation.
On another note, John Brand from the Employment law department
will be presenting a Joint Union Management Negotiation Skills
course in Turin, Italy from the 4th to the 8th of July 2005 under the
auspices of the International Training Centre of the ILO Social
Dialogue Programme. The course will be presented to employer,
trade union and government representatives from Zambia, Trinidad
& Tobago, Thailand, Sri Lanka, Kenya, Italy, Ghana, El Salvador,
Barbados, Canada and Nigeria.
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pro
PRO BONO
SOCIAL RESPONSIBILITY
Many of Bowman Gilfillan staff members are involved
in causes dear to their hearts.
O
Bowman Gilfillan’s goal is for every attorney to do a minimum
of 50 hours per year of pro bono work.
(The Cape Law Society’s requirement is for each Cape attorney to
do a minimum of 26 hours per year).
The target of 50 hours would put the firm on a par with the American
Bar Association whose goal for its members is the same.
ACHIEVEMENT (as at the end of July 2005)
Total Hours - 9 030
Total Value - R6,813 million
248 Lawyers at an average of 36 hours
per lawyer
BOC
Bowman Gilfillan Attorneys and the Business Opportunity Centre
have been working together on an exciting initiative aimed at
empowering small and start-up enterprises. We have been operating
a weekly pro bono Commercial Clinic from the BOC Offices.
The mission of the BOC is to act as “the catalyst in infusing big
businesses to link with small businesses and to nurture disadvantaged
entrepreneurs to grow and to provide a one-stop support service
culminating in a sustainable relationship”. Bowman Gilfillan provides
free legal services to assist the BOC in meeting this objective.
The services the clinic provides include:
• advising whether to operate as a partnership, close corporation,
company of other entity;
• incorporating corporations;
• advising on the duties and rights of directors, members and
shareholders;
• advising on corporate governance;
• drafting or advising on sub-contracting arrangements;
• drafting or on employment contracts;
• advising on money laundering regulations; advising on tax
issues;
• advising on employment equity;
• defence litigation;
• public/private partnerships;
• drafting or advising on franchise agreements, supply agreements,
distribution agreements, service level agreements and the like;
• drafting or advising on property transfers and leases;
• advising on trade mark, copyright and design protection and
internet domain name registration.
VUKA
Fanny Mokoena, chairperson of the Vuka uKhanye Afrika Youth &
Women Empowerment Programme, explains that the communitybased organisation was founded in order to develop long-term and
sustainable programme to address the root causes of crime, and
the impact of crime on women and the youth in Meadowlands,
Soweto (and other developing communities). Vuka has for several
years been running courses aimed at educating women and schoolgoing learners about their fundamental rights while also offering
skills training and exposure to vocational opportunities outside of
their immediate environment. It has aligned itself with national
government's policies on capacity building within the Safety and
Security sectors and has earned a close and invaluable partnership
with the South African Police Services in Soweto. Bowman Gilfillan
has offered its assistance in a number of ways on a pro bono basis,
including advice on best employment practices, negotiating contracts
with suppliers and donors, and development and protection of
intellectual property. Inspired by the project, a group of candidate
attorneys organised a tour to visit Vuka's various projects and
facilities in May. Attorneys, managers, secretaries and support
personnel from the firm went on the tour, which also took in some
of the landmarks of Soweto, and it proved a great success. Further
tours are being planned, and one idea is that return tours should
be held, on which Vuka project participants will be introduced to
the sights and sounds of Johannesburg's financial, business and
legal hub, Sandton, and to the workings of a major corporate law
firm.
ANNUAL EASTER EGG CHARITY COLLECTION
SPCA
Bowman Gilfillan staff collected thousands of Easter eggs which
enabled us to distribute and/or donate Easter eggs to children at
the following hospitals and institutions:
When Claire van Zuylen received a request from the Sandton and
Eastern Metro SPCA to assist with walking and socialising dogs little
did she realise that so many Bowman Gilfillan staff wanted to get
involved. Since then, Claire, Ceri von Ludwig, and a contingent of
Bowman people have arrived without fail every single Saturday
morning at the SPCA to walk and love the dogs and cats. Almost
every Saturday they have been able to carry in armloads of donations
consisting of cash, blankets, food, etc.
•
•
•
•
•
•
•
Chris Hani Baragwanath Hospital;
Johannesburg General Hospital;
Alexandria Clinic;
Sithabile Orphanage;
The Sugarbush Foundation's associated orphanages;
Shalom Ministries Orphanage; and
Christ Church Christian Care Centre.
OPERATION SNOWBALL
Bowman Gilfillan staff donated shoes, clothing, blankets and a cash
sum to Operation Snowball. This is a charity organization supporting
the homeless of Johannesburg.
WORLD SWIM FOR MALARIA
www.worldswimformalaria.com
3 DECEMBER 2005
WHY
The equivalent of 7 jumbo jets full of children die every day from
malaria (3 000 children per day, every day).
MALARIA IS PREVENTABLE
The single most effective way of preventing malaria is to have
people in affected regions sleep under a US$ 3 mosquito net.
HOW IS THE MONEY BEING RAISED
By organising a million person global fundraising swim from which
100% of the money raised buys mosquito nets.
WHAT ARE WE DOING?
Bowman Gilfillan is assisting Allan & Overy in London by setting up
a South African Legal structure on a pro bono basis for this high
profile event.
This ensures that 100% of the money raised buys millions of mosquito
nets.
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SPCA
Annual Easter Egg Charity Collection
Craig Kennedy
CRAIG KENNEDY COMRADES FOR STARFISH
Craig Kennedy, a senior associate at Bowan Gilfillan, ran the
comrades marathon in aid of Starfish this year. Starfish is a charity
that supports children in South Africa who have been orphaned or
made vulnerable by HIV/AIDS. Their mission: to mobilise individuals
to use their time, talents and resources to bring life, hope and
opportunity to children orphaned or made vulnerable by HIV/AIDS
in South Africa. Instead of being overwhelmed by the magnitude
of the HIV/AIDS pandemic, Starfish believes in helping each child,
one child at a time. Every R200 raised pays for a child’s school fees
for 1 year, every R600 would cover a child’s entire education needs
including fee's, uniforms, shoes and stationary and every R1 100
raised would provide food parcels to feed a child for 1 year.
2004 Philani Christmas Party
2004 PHILANI CHRISTMAS PARTY
Bowman Gilfillan staff collected money to fund a Christmas Party
for the HIV/Aids orphans in Ivory Park. The kids really had a ball.
Craig raised a staggering R10 000, well done!
33
discrimination
THE DIFFICULTIES FACED BY DOMINANT FIRMS IN JUSTIFYING
PRICE DISCRIMINATION
By Daryl Dingley
The Competition Tribunal recently provided its first ruling in a price
discrimination matter in the Sasol/Nationwide Poles case. Although this
matter is being taken on appeal, this decision has precipitated a scramble
by dominant firms to re-evaluate their pricing policies to determine
whether their policies infringe any of the provisions on price discrimination
contained in the Competition Act. Price discrimination practices can
however, be both pro-competitive and anti-competitive depending on
circumstances. The judgement unfortunately, does not provide much
guidance on the cost justifications of such practices.
In purchasing an airline ticket for the Johannesburg to Cape Town route it is probable that a standby
passenger, leisure traveller and business traveller would each have paid a different fare. Similarly, a
child would probably pay less than an adult to visit the aquarium in Cape Town. In determining whether
the pricing policies of the airline and the aquarium amount to price discrimination is not enough to
simply examine the price differentials, rather it is the ratios of price to cost between the respective
customers that is determinative of price discrimination.
The economic motivation for the airline and aquarium to price discriminate between customers is that
they can make more profit. By identifying demand profiles of different customer groups, they can charge
different prices to these various types of customers according to the demand conditions as opposed
to pricing purely on cost. Although this rationale appears to be pro-competitive and efficient in that
it may result in lower prices (e.g. discounts), it can also be anti-competitive. Competing customers can
be harmed by the dominant firm since the discrimination could favour one with a cost advantage over
another. Alternatively, the dominant firm could foreclose a market to competitors by providing a lower
price to those customers who purchase only from it. Price discrimination can therefore both promote
and reduce competition.
charging different prices. This could have amounted to an argument that
there were economies of scale in serving large customers as opposed to
small customers. Notwithstanding, the Competition Tribunal did concede
that if such economies were proven, these would have served as a defence
to most instances of price discrimination.
The calculation of costs however, is a problematic defence. The difficulties
arise since the costs of selling to various customers depends upon an
analysis of the dominant firms costs. Economists have found this to be
problematic for a number of reasons. Firstly, it is difficult to measure the
savings attributable to large quantity orders. Secondly, costs will fluctuate
in accordance with the dominant firm’s demand and thirdly, many firms
have joint costs of production for multiple products, which makes
apportionment of costs extremely difficult.
For many practitioners, the problems of costs and advising clients are
compounded by the fact that many dominant firms are not operating their
pricing policies by doing strict cost justification exercises. Firms focus on
profitability and do not want to get lost in the debate around cost allocation.
Moreover, many firms grow to be dominant and their pricing policies
evolve in step with their growth. Through this development, the pricing
policy becomes a general market practice, which is often not cost justified.
Finally, the stress of promptly establishing marketing terms at the end of
each year, often results in the implementation of a pricing policy without
the input of a cost justification exercise.
In view of the reality of dominant firm pricing practices, the position of
many practitioners and ultimately their clients is therefore precarious.
Many dominant firms could be contravening the Competition Act’s price
discrimination provisions. The extent of the contraventions however, is
stymied by a lack of definitive guidance on costs and the general problem
in the meaning of cost-justified. The only consolation for practitioners and
CEOs of dominant firms is that a first time price discrimination offender
is not subject to a fine, but may be subject to civil damages.
If a transaction is held to be price discrimination, a contravention of the Competition Act may be
avoided if the dominant firm can establish that the differential treatment is justifiable on a number of
grounds set out in the Act. In particular, a respondent has a defendable position if it can show that the
differentiation in question reflects cost differences that attach to the particular transaction.
In the Sasol/Nationwide Poles case, the Competition Tribunal decided in favour of a small complainant,
Nationwide Poles, in its price discrimination claim against Sasol. The complaint was lodged by Nationwide
Poles when it became aware that they were being charged a higher price for the purchase of creosote
(a wood preservative), produced by Sasol, than their competitors. Sasol’s price schedule for the sale of
creosote allowed for discounts based on purchase volumes, with its largest customers receiving the
most preferred prices while its smallest customers, of whom the complainant was one, was charged the
highest price on Sasol’s price schedule. Factually Sasol did not pursue a cost justification defence for
34
35
ARTNER
PARTNER PROFILE
Tembeka Ngcukaitobi
Claire Tucker
Natalia Pereira
36
EMPLOYMENT LAW
Tembeka’s inspiration to study law came from his father, who has always wanted to study law
but never had the opportunity. Tembeka applies his BProc and LLB from UNITA in the Transkei
and his Masters from Rhodes, Grahamstown to protect people’s rights. He has a passion for
assisting those who haven’t traditionally had access to legal services. Tembeka’s interest in law
is working with corporates and government in understanding the constitution. His passion for
law is in his fascination with the complexity of people. In a recent dismissal matter the lead
witness, on whose testimony the case was based, changed his testimony on the stand. This is a
perfect example of how complex human nature is. In his free time this ardent Kaiser Chiefs
supporter enjoys reading biographies, watching cricket and going to parties. The constant search
for knowledge, understanding the complexity of people and working with our constitution is
Tembeka’s motivation.
profile
EMPLOYMENT LAW
Bob Von Witt
CORPORATE LAW – Environment, Mining, Energy and Natural Resources
Claire holds a LLB from the University of the Witwatersrand and a Masters in law and development
from the London School of Economics. She has a keen interest in solving interesting problems
relating to natural resources and the environment. Claire successfully manages the environmental
portfolio for a number of corporate clients. Her assistance in the plight of the Brenton Blue
butterfly in Knysna, in conjunction with the Endangered Wildlife Trust, proved to be an interesting
test case using the environmental enforcement provision on fairly new environmental legislation.
Her contributions to conservation include being a legal advisor for both the Law and Policy
Working Group of the Endnagered Wildlife Trust as well as the Moloti Drakensberg Transfrontier
Project. When not enjoying the freedom of pursuing her interest and passion in environmental
law, Claire enjoys horse-riding and playing squash.
CORPORATE LAW – Competition (Anti-Trust), International Trade and Lobbying
Robert Legh
INTELLECTUAL PROPERTY – Foreign Trade Marks
Natalia is a specialist in Foreign Trade marks. She holds a BLc and LLB from the University of
Pretoria and has specialized in searching, filing, prosecution, maintenance and licensing of trade
marks outside South Africa. She is also responsible for trade mark portfolio management worldwide.
With her considerable expertise in trade mark prosecution in international jurisdictions, Natalia
protects both international brands as well as South African brands expanding into the continent.
She is currently working on a project to assist the South African design industry in protecting
their trade marks by hosting talks at S A Fashion Week and Cape Town Fashion Week. Natalia
enjoys this dynamic and creative area of law and assisting South Africans in strengthening and
promoting their brands and intellectual property. When out of the office Natalia enjoys art,
swimming, reading and travel.
5
Bob has always held a strong interest in law, especially diplomatic law. He studied law and classic
latin at the University of Stellenbosch. Bob with his expert knowledge in labour law, has specialized
in assisting companies that are in the process of restructuring. He appreciates strategic advice
from clients and true to his competitive nature, Bob really enjoys winning cases. When working
with clients, he is always excited to see the development and changing attitude of employees
in the workplace. With an avid interest in golf, skiing, hiking, bird watching and cycling, keeping
fit is one of Bob’s top priorities.
Rob enjoys debating and problem solving which led him to pursue a career in law. He holds a
BComm, LLB and MBA from the University of the Witwatersrand. Rob has considerable expertise
in the field of competition law and has been involved in many high profile matters. About four
years ago, Rob acted on behalf of Standard Bank in resisting a hostile takeover bid by Nedbank.
He is currently acting on behalf of a pharmaceutical manufacturer on the new controversial
pricing regulations; this matter is presently being heard in the constitutional court. He enjoys
the freedom, independence and variety which law offers and the thought, action and flexibility
of moving between different cases. When not practicing law he enjoys reading, travel, golf and
movies.
CORPORATE LAW – Insolvency and Re-Structuring
Claire Van Zuylen
Claire is a director in the firm’s Corporate Division and specializes in insolvency, financial services
and tax. She holds a BA and LLb from the University of Natal and post-graduate diploma in tax,
all from the University of Natal. Claire has been involved in various high profile litigation matters
including a the liquidation of one of Eskom’s joint-venture companies in 2004 to the value of
R 150 million. This liquidation matched the financial value of the CNA liquidation. She is the only
attorney in her family and is intrigued by vocabulary and words, she also enjoys the balance
of both outwitting and plotting in litigation and the intellectual challenge of corporate law. She
is an avid reader who loves animals and volunteers at the SPCA. Her hobbies include swimming,
scuba diving and wine tasting.
37
Johannesburg 165 West Street, Sandton, Johannesburg PO Box 785812, Sandton 2146 South Africa Telephone +27 11 669 9000 Fax +27 11 669 9001
Cape Town SA Reserve Bank Building, 60 St George’s Mall, Cape Town PO Box 248, Cape Town 8000, South Africa Telephone + 27 21 480 7800 Fax +27 21 424 1688
London 35 John Street, London, WC1N2AT Telephone +44 (0) 207 430 0888 Fax +44 (0) 207 430 2030
Web www.bowman.co.za
4th Edition 2005
N
THE NATURE OF LAW