South Africa current business law

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."

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.

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.

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 fused profession, against the wishes of the majority of their members.

The Justice Ministry had issued a consultation paper on the subject two 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.

Now the Bar Council has agreed to form a liaison committee with the Law Society to start talks - but don't hold your breath. 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

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.