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Current South African Business Law Developments

Intellectual Property Law

In January, 2009, it was announced by South Africa's Department of Science and Technology that the Intellectual Property Rights Bill has officially been signed into law. The new law sets out clear obligations regarding the ownership of intellectual property rights in South Africa.

Published in the Government Gazette on December 22, 2008, the Intellectual Property Rights from Publicly Financed Research (IPR) Act has been developed to ensure the effective use of intellectual property resulting from publicly financed research and development – which has been considered a grey area.

The specific object of the legislation is that intellectual property resulting from publicly financed research and development should be commercialized for the benefit of all South Africans, and protected from appropriation.

For this reason, the law provides for an enabling environment for intellectual property creation, protection, management and commercialization.

Support will be provided by the National Intellectual Property Management Office and the Intellectual Property Fund, as well as offices of technology transfer at the institutions.

Closely linked to the IPR Act is the Technology Innovation Agency Act, which provides for the establishment of a public entity to finance individuals and entities commercializing their technological innovations and inventions.

The Department of Science and Technology has expressed the hope of establishing the agency this year in order to integrate the management of disparate technological innovation initiatives that are still at a developmental stage.

All these initiatives are part of the Department's larger Ten-Year Innovation Plan, aimed at driving South Africa towards a knowledge-based economy in which the production and dissemination of knowledge leads to economic benefits.

In June 2007, the European Court of First Instance (CFI) ruled against Ireland's Waterford Wedgewood in its trademark dispute with a South African wine producer.

Waterford, which makes Waterford Crystal, had opposed the bid by Stellenbosch to register in the EU a fountain logo incorporating the words 'Waterford Stellenbosch', arguing that the common conjunction of wine and crystal glasses could create confusion in the minds of consumers.

Following a series of decisions and reversals on the matter in various European fora over recent years, the CFI on Tuesday found against Waterford, arguing that: wine and glasses "are distinct by nature and by their use" and that they are "neither in competition with one another nor substitutable".

Although the panel of three judges at the European court acknowledged a "degree of complementarity" between the two products, they went on to argue: "that complementarity is not sufficiently pronounced for it to be accepted that, from the consumer`s point of view, the goods in question are similar".

Waterford, meanwhile, pledged to pursue the matter through various national and European courts. It was also reportedly considering lodging an appeal against the CFI decision.

In July, 2005, a newly reinstated requirement to submit annual returns and fees to the Companies and Intellectual Property Registration Office (CIPRO) had South Africa's small and medium-sized enterprises up in arms.

The requirement to submit documents detailing companies' directors, registered address, auditors and other information to the Office was dropped by the South African authorities in 1986, but was reinstated "for purposes of data integrity and information reliability", according to CIPRO.

In addition to the increased administrative burden being placed on the country's businesses, industry groups argued that the R450 fee and the need for online submission of the return may present a sticking point for many small businesses.

In a letter to Mandisi Mpahlwa, the South African Trade and Industry Minister, the Cape Town Regional Chamber of Commerce and Industry explained that:

"The payment of the prescribed fees is viewed by business as nothing short of a tax. R450 might not seem a large amount for some companies, but there are hundreds of small and dormant companies and close corporations for whom R450 a year is a considerable amount."

Suggesting that the fees are likely to cost the business sector in the region of R619 million per year, the letter continued:

"Why would government, via Cipro, need to drain 600m a year out of the economy to keep a record system up to date? Surely basic statistical information for record-keeping purposes can be obtained via the South African Revenue Service with the approval of the finance minister."

In May, 2005, following the release of a report on counterfeiting and piracy world-wide by Canada's Gieschen Consultancy, South African intellectual property (IP) experts warned that such activities are on the increase nationally.

The consultancy, which provides counterfeit intelligence analysis and security research relating to documents, products and intellectual property, revealed that in the first quarter of 2005, 279 incidents of intellectual property theft (brands, trademarks and copyrights) took place internationally, accounting for 33% of global counterfeiting and piracy, and valued at US$396m.

The report went on to reveal that more than 141 million counterfeit items were seized by customs, law enforcement and brand enforcement agents, which led to the discovery of an additional $255 Million in losses related to IP theft.

Internet law expert, Reinhardt Buys suggested that IP theft was becoming increasingly prevalent in South Africa, observing that:

"The problem in SA is not so much counterfeit software, music and DVDs, but the rapid increase in the use of peer-to-peer networks to download illegal content."

He went on to add: "In terms of the 2003 survey by the Business Software Alliance, SA was one of the bottom 20 pirating countries. I'm sure we're now moving closer to the top of the list."


Media Law

In April, 2008, South African Trade and Industry Minister Mandisi Mpahlwa officially launched a revised film and television production incentive regime, which aims to increase local content generation and improve location competitiveness for foreign film productions in South Africa.

The new package comprises the Location Film and Television Production Scheme, and the South African Film and Television Production and Co-Production Scheme. The incentives are intended to increase local content generation and improve location competitiveness for filming in South Africa.

The Location Film and Television Production scheme will replace the Large Budget Film and Television Production Rebate, which the Department of Trade and Industry (DTI) implemented in 2004. This component is only available to foreign-owned productions with Qualifying South African Production Expenditure (QSAPE) of R12mn (USD1.5mn) and above.

It provides a rebate of 15% of the QSAPE to qualifying productions in the following formats: feature films, telemovies, television drama series, documentaries, animation and short form animations. Its aim is to attract large-budget overseas film and television productions to South Africa.

The South African Film and Television Production Incentive is being introduced in order to provide more financial support for locally-owned productions and co-productions. This component is available to both South African productions and official treaty co-productions with a total production budget of R2.5mn and above.

It provides a rebate of 35% for the first R6 million, and 25% for the remainder of the qualifying production expenditure. The following formats are eligible: feature films, telemovies, television drama series, documentaries, animation and short form animations.

The value of the rebate for any qualifying production is capped at a maximum of R10mn.

Effectively, the following key changes are being introduced:

  • The reduction of the threshold from R25mn QSAPE for foreign-owned productions to R12mn;
  • A differential requirement that local-owned productions and co-productions must have at least R2.5mn of total production budget;
  • An increase of the rebate from 25% up to 35% for local productions in order to ensure higher financial support for local productions;
  • The reduction of the threshold will make the bundling of productions unnecessary for producers;
  • The provisions of the incentive will encourage production companies to advance industry transformation through adherence to the requirements of Broad-Based Black Economic Empowerment.
  • All productions approved under the Large Budget Film and Television Production Rebate would still be treated under the rules of that scheme, and would not be able to convert to the new incentive, according to the government.

Censorship is increasing in South Africa, says The Freedom of Expression Institute in a report on its Anti-Censorship Programme (ACP), which has been in existence since June 2002. A decision was taken to establish the ACP after the FXI experienced a sharp rise in the number of censorship cases it was being called on to handle.

The ACP says that popular forms of expression are under threat, such as mass meetings, assembly and demonstrations, and the use of popular media, like graffiti and pamphlets. Its cases relate especially to the overly restrictive regulation of assembly and demonstrations, through the Regulation of Gatherings Act. Very few of the ACP's cases relate to more 'traditional' forms of media freedom violations, such as the censorship of journalists.

The ACP has also been campaigning against the Anti-Terrorism Bill and other new pieces of censorship legislation coming into the statute books, and has also been developing legal strategies to remove old apartheid legislation from the books.

The government will fulfil its pledge on multi-lingual broadcasting by launching two new state-owned regional television stations to ensure that all of the country's 11 official languages are represented in the broadcasting media. Communications Minister Ivy Matsepe-Casaburri, says that Bop Broadcasting will be closed and its assets used to launch a new regional service broadcasting Tswana, Sotho, Pedi, Tsonga and Venda.

A second channel will also be launched that will broadcast in Afrikaans, Ndebele, Tswana, Swati, Xhosa and Zulu. The launches are expected to take place next year.


Financial Law

It was announced in May, 2008, that the Dubai Financial Services Authority (DFSA) has entered into a Memorandum of Understanding (MoU) with the Financial Services Board of South Africa (FSB).

The signing took place between David Knott, Chief Executive of the DFSA, and Rob Barrow, the Executive Officer of the FSB, during the Annual Conference of the International Organisation of Securities Commissions (IOSCO) being held in Paris.

The FSB supervises the activities of non-bank financial institutions and other financial services in South Africa, including licensed exchanges, clearing houses, collective investment schemes and all types of insurance and retirement fund activities.

Speaking with regard to the MoU, David Knott commented that: “The Financial Services Board of South Africa is a valued member of IOSCO and a leading participant in the African and Middle East Region, of which the DFSA is also a member."

"Both the FSB and the DFSA are signatories to the IOSCO Multilateral MoU, having satisfied the highest standards of co-operation and assistance among IOSCO members. It is enhanced by today’s bi-lateral agreement which reflects each agency’s responsibilities in the regulation of securities and insurance.”

As more South African financial services firms join the Dubai International Financial Centre (DIFC), this relationship will assume increasing importance, as regulators rely on the quality of regulatory standards administered in the other’s jurisdiction.

In Finance Minister Trevor Manuel's 2007 budget address in February, reforms to dividend taxes were announced.

The proposals aim to reform the 12.5% secondary tax on companies and replace it with a 10% tax on shareholders’ dividends withheld by companies over the next two years. This will apply to all distributions regardless of profits and the base of taxable dividends will broaden beyond the current narrow interpretation of profits.

Long-term equity investment tax reforms will see all shares disposed of after three years triggering a capital gains tax event. Currently, gains realised on the sale of shares can be taxed either as ordinary income or capital gains, depending on facts and circumstances, but the government says that this 'facts and circumstances' test has become "problematic" and results in some large institutions receiving capital gains tax treatment on the sale of shares, and many other individuals paying ordinary income tax.

In a bid to encourage long-term savings, including higher levels of domestic savings and provision for retirement, Manuel also proposed to abolish the tax on retirement funds and increase certain monetary thresholds with respect to retirement funds and estate duties. Retirement Fund Tax (RFT) on interest and rental income will be abolished with effect from 1 March 2007.

The government also announced its intention to simplify tax rules permitting lump sum withdrawals upon retirement which have become overly complex.

Changes were additionally announced to the taxation of foreign collective investment schemes which would alleviate the higher tax and compliance burden on such schemes in the hands of long-term insurers.

Speaking in February, 2005, at the Raging Bull Awards, co-hosted by the Personal Finance news service and the Association of Collective Investments, chairman of the South African Financial Services Board, Dr Cyrus Rustomjee revealed that the FSB planned to license hedge fund products within a year.

Although hedge funds were permitted to locate in South Africa, they were not regulated by the authorities, and therefore not marketed to the country's investors.

However, under the guidelines formulated by the financial regulator following extensive consultation with the unit trust industry, such products were to make their debut on the wider market in early 2006.

South African Finance Minister, Trevor Manuel announced in June, 2004, that the deadline for banks to re-identify their customers for 'Know Your Customer' (KYC) purposes had been extended.

Under the 2001 Financial Intelligence Centre Act 38, banks and other "accountable" institutions, such as casinos, law firms, and estate agencies, were, from June 30 2003, obliged to verify the identity and residence of new clients before proceeding with transactions.

The affected institutions were also obliged to provide such data for their existing clients, but were initially given until the end of June to do so. The law stipulates that should the banks not receive the necessary information from their customers, they must freeze the 'questionable' accounts until such time as verification of the account holder's identity is obtained.

Responding to protests from many of the country's banks, which argued that they were likely to miss the deadline due to difficulties in obtaining the necessary proofs of identification and residence from their poorest clients, Mr Manuel last week unveiled three new deadlines.

The Finance Minister explained that customers designated as high risk were to be identified by December 31, 2004, medium risk customers by September 30, 2005, and low risk customers by September 30, 2006.

According to reports in the South African media, Mr Manuel was careful to stress that the extension of the deadline was "no admission" that the original demands made by the government were too strict.

The South African investment industry was thrown into confusion in March after the Financial Services Board ordered all fund managers to stop selling hedge funds and alternative investment products, forcing the authorities to issue a clarification.

The controversy arose after the FSB sent a letter to approved fund managers, intended to clarify certain limitations relating to the Stock Exchanges Control Act, 1985 and The Financial Markets Control Act, 1989. Specifically, the letter stated that fund managers could not sell hedge fund products or alternative investment schemes to individuals and pension fund organisations until the FSB had determined the requirements under which these could be marketed and managed.

Reports indicate that the letter induced a certain amount of panic amongst investment managers, and the FSB, in tandem with the Alternative Investment Managers Association (South African Chapter) were forced to word an additional clarification in response.

"The approval granted to investment managers relates to their being approved to buy and sell securities on behalf of their clients. It does not provide them with any form of approval, tacit or implied, either to manage hedge funds or to sell hedge funds to individuals or pension fund investors," read the joint FSB/AIMA release.

"In terms of the current regulatory regime, hedge funds fall outside the scope of existing regulation and there is nothing preventing investment managers from conducting the business of a hedge fund provided that they do not represent to have been approved by the FSB to manage and/or solicit for investment into hedge funds," the statement continued, adding:

"It is therefore suggested that any hedge fund material should state such restrictions clearly on the face of such documentation and all participants in the hedge fund industry must ensure that they act responsibly in their conduct.


Law For Lawyers

In September, 2006, the UK government last week urged its South African counterpart to liberalise the country's legal services market by removing restrictions on foreign lawyers.

International Legal Services Minister, Baroness Cathy Ashton met with members of the South African Government to discuss opening up the market to UK legal firms.

Although South Africa is an attractive market for foreign lawyers, there are many difficulties facing them. They cannot enter into partnership with South African lawyers, are subject to onerous re-qualification requirements, and are required to be citizens or residents of South Africa in order to practise in the country.

Baroness Ashton explained last week that: "There are great opportunities for British legal firms overseas. South Africa is fast moving away from being an inward-looking protectionist economy and becoming an internationally competitive one."

"Further liberalisation of South Africa's legal services market would greatly help this process. A liberal legal services market helps to attract foreign direct investment; brings more work into the country for both local and international lawyers and helps local lawyers raise the level of the services they provide, so increasing their competitiveness on the international stage."

The Bar Council and Law Society have edged forward towards a unified profession, but not fusion, in a meeting in January, 2012.

The Justice Ministry had issued a consultation paper on the subject four years ago, saying: 'The legal profession has to be transformed in order to be able to respond properly to the needs of all the people of South Africa', and proposing to create a single profession of 'legal practitioners' via the standardisation of entrance exams, and to address the low representation of black lawyers and women in the legal hierarchy.

The Bar Council agreed to form a liaison committee with the Law Society to start talks - but despite some progress, a final agreement is still a long way off. Even the government seems to be sitting on its hands over the issue. As with all governments, the high proportion of lawyers in its ranks means that legal reform is an agonising and unsatisfactory process. Quis custodies custodiet?

Company Law

In April, 2009, a new Companies Bill was signed into law, which promises to reduce the regulatory burden on companies, particularly small- and medium-sized enterprises (SMEs).

The Companies Act, No. 71 of 2008, was published in the Government Gazette as of April 9, 2009. Commenting on the new legislation, Zodwa Ntuli, Deputy Director-General of the Consumer and Corporate Regulation Division (CCRD) of the Department of Trade and Industry said: “The new Act brings about a lasting mechanism to facilitate the rescuing of businesses that are in financial distress. It is aimed at ensuring that companies are saved before they reach a stage of insolvency and ultimate liquidation."

Ntuli added: "Both companies and workers will be empowered to initiate business rescue plans, where there are apparent signs of distress. This will ensure the efficient running of companies, while strengthening means of sustaining jobs in the economy. We want to promote efficiency and economic growth, retain efficient resources and save jobs."

The government claims that the 2008 Companies Act lends a helping hand to SMEs by reducing the regulatory burden placed on them. While all companies will be required to prepare annual financial statements under the legislation, this is largely intended to encourage sound financial management. However, some enterprises will be exempted from having their financial statements audited or reviewed, depending on their size, workforce and nature of their activities.

The legislation also simplifies the framework on compliance issues, in respect of the structure, registration and maintenance of companies, so as to reduce the need for intermediaries, and save businesses time and money in the process.

In addition, the 2008 Act promotes shareholder activism, especially in relation to minority shareholders and foreign investors. In this regard, the required support for the calling of a shareholders meeting has now been reduced to 10%. The new Act also makes provision for an audit committee to be appointed by shareholders of a company, which entrenches the role of shareholders and the level of independence that should be maintained between audit committees and boards of companies. Further, more comprehensive corporate governance principles, to promote the effective functioning of companies, will be compulsory under the new Act.

“This Act will go a long way in promoting sound corporate governance, transparency, and access to information, amongst other regulatory oversight improvements," argued Ntuli.

"The country will also see a more effective and robust investigative approach to company complaints and the resolution thereof," he concluded.

In July, 2008, South African Trade and Industry Minister, Mandisi Mpahlwa, announced details of new investment incentives at the launch of the Enterprise Investment Programme (EIP) in Pretoria. The new incentives are targeted at stimulating growth, employment and broadening participation, and were introduced later that month.

The EIP currently comprises of the Manufacturing Investment Programme and the Tourism Support Programme. The programme is accessible to both local and foreign owned entities wishing to locate their operations in South Africa.

Mpahlwa explained that the EIP provides an investment grant of between 15% and 30% towards qualifying investment in plant, machinery and equipment and customised vehicles required for establishing new or expanding existing production facilities or upgrading production capability in existing clothing and textiles operations.

According to the minister, a separate selection criterion has been developed to ensure that support for tourism projects achieves objectives for employment creation and promotes tourism enterprise activities in new areas outside the areas that already have an established tourism industry.

Cape Town, Johannesburg and Ethekwini metropolitan areas for example, are not prioritised for tourism incentive support, as they already have a critical mass of tourism product. However, projects locating in marginalised areas within these metropolitan areas are eligible to apply.

The introduction of the Enterprise Investment Programme (EIP) was part of an implementation plan arising from the broader incentives review process, which includes modifying certain incentives, benchmarking the incentive practices in other economies, as well as the introduction of new incentives to promote investment, growth and employment creation.

The EIP is aligned to the National Industrial Policy Framework (NIPF), which was approved by Cabinet in 2007.

Speaking before the South African Parliament's Trade and Industry Committee in June, 2005, the T&I Department's director of institution management, Magauta Mphahlele revealed that the government had decided not to continue allowing the business community to self-regulate on consumer protection issues.

She claimed that existing voluntary schemes had allowed some firms to shirk their responsibilities, leading the authorities to propose the introduction of a new law to protect consumers' rights.

The proposed legislation is set to make unfair or discriminatory practices in the areas of marketing and selling illegal, in addition to regulating pricing and availiability, and setting service standards for the public sector.

Speaking to the South African media in February, 2005, Jacques Marnewicke, head of forensic investigations at financial services group, Sanlam revealed that institutions affected by the new Financial Intelligence Centre Act are concerned that there are no official guidelines regarding required levels of compliance with the legislation.

According to the Business Report news service, representatives of the affected industries (which include the legal services, finance, brokerage and real estate sectors) are holding talks to try to find a mutually-agreeable compliance standard.

"Everyone is worried that if they are too strict in their interpretation of the act they will lose market share to competitors who comply with the letter but not the spirit of the law," Business Report quoted Mr Marnewicke as observing.

SAA denies that it has contravened the Competition Act, after four freight forwarding companies alleged that the airline charges them excessive fees, amounting to an abuse of SAA's dominant position in the market.

After the Competition Commission refused to make a referral of the complaint, the firms took their case to the Competition Tribunal. Now, however, three of the firms have dropped out, leaving only Freitran to continue at the Tribunal.


Compliance Law

The February, 2005, deadline for the freezing of bank accounts held in South Africa by 'high risk' customers who had not presented their banks with adequate identification was rigidly enforced across the board.

In an effort to combat money laundering under the auspices of the Financial Intelligence Centre Act, bank customers had been given until June 30, 2004, to re-identify themselves. However, Finance Minister Trevor Manuel extended the deadline, introducing staggered limits for the various types of business and individual bank customers.

The Financial Intelligence Centre ordered banks to freeze by the beginning of February the accounts of those customers designated 'high risk' who had failed to assist in the know your customer (KYC) initiative.

ABSA (Amalgamated Banks of South Africa) revealed that more than 90% of its high priority customers had presented the required documents, leaving just a small number of accounts to be frozen.

Nedcor reported a similarly high success rate, announcing that around 97% of its high risk customers had complied with the anti-money laundering regulations.

In January, 2005, banks in South Africa began freezing the accounts of those customers designated as "high risk" who did not identify themselves by the December 31 deadline imposed by the Financial Intelligence Centre Act.

The original deadline for all customers of South African banks to provide adequate identification, in order to bring the country into compliance with international anti-money laundering standards, was June 30, 2004.

However, the banks complained that this was not realistic, leading to the introduction of staggered deadlines for trusts and partnerships, non-resident account holders, high risk account holders, and those considered low risk.

Although no exact definition of a high risk customer has been provided by the authorities, experts have suggested that businesses with monthly account turnovers of more than R50,000 and individuals with account turnovers of R25,000 are likely to come under increased scrutiny if they have thus far failed to provide the required identification documents.

ABSA (Amalgamated Banks of South Africa) said that more than 90% of its high priority customers had presented the required documents, leaving just a small number of accounts to be frozen today.

Nedcor reported a similarly high success rate, announcing that around 97% of its high risk customers had complied with the anti-money laundering regulations.





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