The new Memorandum of Agreement between Competition Commission and ICASA explained

On 29 August 2019, at the 13th Annual Competition Law, Economics and Policy Conference a signing ceremony was held a new MoA between the Commission and the Independent Communications Authority of South Africa (“ICASA”).

The Competition Act 89 of 1998, as amended, provides that where a sector regulator is empowered with jurisdiction in relation to prohibited practices and merger control, concurrent jurisdiction is established. The Commission can conclude a MoA with the sector regulatory authority in order to facilitate cooperation between the sector regulator and competition authorities where competition matters overlap with sector-specific regulatory responsibilities.

ICASA, the sector regulator for communications, is responsible for regulating and developing the telecommunications, broadcasting and postal industries in the public interest. It also issues licences to telecommunications and broadcasting service providers, hears and decides on disputes and complaints brought against licensees, and controls and manages the effective use of radio frequency spectrum. In carrying out its mandate, ICASA is required to promote competition in the ICT sector.

The new MoA replaces the MoA previously concluded between the two regulators in 2002 which was criticised for its failure to create a coherent regulatory framework in relation to merger appraisals, market inquiries and the regulators’ respective roles. Some of the issues which arose as a result of the lack of certainty as to concurrent jurisdiction include:

  • Confusion in relation to the deliberation of competition concerns in mergers and acquisitions:

In Telkom SA Soc Limited v Mncube NO and Others,[1] ICASA approved an application for the transfer of a spectrum license (a critical constraint in the telecommunications sector) from Neotel to Vodacom and deferred the consideration of competition concerns to the Commission. The court found that ICASA had a statutory obligation to promote competition and its failure to take the competition concerns into consideration was materially influenced by an error of law.

  • Forum shopping:

In Competition Commission of South Africa v Telkom SA LTD and Others,[2] Telkom sought an order confirming that ICASA had exclusive jurisdiction in relation to allegations of anti-competitive conduct levelled against it. The court found that the Commission and ICASA share jurisdiction and that the competition authorities not only have the required jurisdiction but are also the appropriate authorities to deal with the complaint.

  • Duplication of market review efforts:

ICASA undertook an inquiry into mobile broadband services to determine whether there any segments of the value chain which are susceptible to regulation while the Data Market Inquiry was well underway.

 

The new MoA aims to:

  • Facilitate effective coordination for market definition for electronic communications, broadcasting and postal services;
  • Define collaborative roles for each institution in areas of co-jurisdiction; and
  • Facilitate information sharing and research between the regulators on matters of mutual interest.

The revised MoA introduces co-operation principles which  the Commission’s primary authority in respect of the review of mergers as well as the detection and investigation of prohibited practices. The MoA further establishes ICASA’s primary authority to set conditions within the sector as required, and to promote competition in terms of its governing legislation (e.g. the ICASA Act,2000, the Electronic Communication Act, 2005 and the Postal Services Act, 1998).  It further expressly provides for the jurisdiction of the Competition Tribunal in respect complaints where the Commission is the recipient authority and designates officials within the respective authorities as contact persons for purposes of the agreement.

The MoA may go some way towards leveraging the complementary functions between the two authorities (i.e. the specialist knowledge of the sector regulator on the one hand and the competition expertise of the competition authority on the other) and ensuring optimal regulatory outcomes.

We invite you to contact our Competition Law and Telecommunications Team if you have any questions in relation to the MoU or any related matter.

by

Jac Marais | Partner

Nalo Gungubele | Associate

Mia de Jager | Associate


[1]              Telkom SA Soc Limited v Mncube NO and Others Mobile Telephone Networks (Pty) Ltd v Pillay NO and Others; Cell C

(Pty) Limited v The Chairperson of ICASA and Others; Dimension Data Middle East & Africa (Pty) Ltd t.a Internet Solutions v ICASA and Others (55311/2015; 77029/2015; 82287/2015) [2016] ZAGPPHC 93 

[2]              Competition Commission of South Africa v Telkom SA LTD and Others (623/2009) [2009] ZASCA 155

JAC MARAIS

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NALO GUNGUBELE

Associate
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MIA DE JAGER

Associate
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The Grocery Retail Sector Market Inquiry preliminary report on Exclusive Lease Agreements

On 30 October 2015 the Competition Commission established the Grocery Retail Sector Market Inquiry (the “Inquiry”) with the purpose to assess amongst others, the impact of long-term lease agreements entered between property developers and national supermarket chains. 4 years on, the Inquiry has published preliminary findings and recommendations.

The Inquiry found that the existing features in the grocery retail sector distort competition between national supermarket chains, wholesalers and independent retailers. In particular, the significant buying power that national supermarket chains have over property developers and suppliers places them in strong positions to influence the terms of agreements, such as demanding exclusive leases, low rentals, and rebates which only they qualify for. Furthermore, it was established by the Inquiry that the level of concentration in the formal retail sector that national supermarket chains have is reinforced by the high levels of barriers to entry that appear to exist in the value chain, such as the access to property for business purposes. According to the Inquiry it is common cause that entry into this sector requires access to property in order to operate a successful and profitable business, and that the current structure of the broader retail market involving all its stakeholders is not competitive, dynamic and fair.

In response to its findings, the Inquiry formulated several prohibitions and recommendations that according to the Inquiry, would facilitate the entry and expansion of specialist and emerging retail chains in shopping malls nationwide. The remedial action set out by the Inquiry would be reflected in a voluntary industry code of conduct that would apply to the national supermarket chains, their subsidiaries and successors in title immediately and in future. Although the dominant supermarket chains; Shoprite, Pick n Pay, Woolworths and Spar, were specifically named, the application of the remedial action should be understood to apply generally. You can read our summary of the Inquiry recommendations and their effects here.

There exist several concerns with the approach which the Inquiry has opted for and the direction which the recommendations appear to be geared towards, least of which is the significance of the complexities in analysing exclusive lease agreements and the blanket approach the Inquiry seems to have adopted. The above slant is challenging particularly because exclusivity clauses fall within the ambit of Section 5 and 8 of the Competition Act, 89 of 1998 (“the Act”), which provide that an agreement will only be prohibited if its net effect is anticompetitive. Thus, exclusivity clauses will only be problematic from a competition law perspective if any anti-competitive effects are not outweighed by pro-competitive gains.

We had hoped that during the preparation of the final report, the consultations that were scheduled to take place in the preliminary stages would be accommodating enough to consider all perspectives before the report is finalised. This hope has since become a reality. On Friday, 5 July, the Inquiry rolled back on their hard-line position to force the dominant supermarket chains to cease entering into exclusive lease agreements, on the foot of submissions received following the release of the preliminary report. The extent of the representations given was substantial enough to cause the Inquiry to also extend the deadline for the final report to November this year.

Now that we have an indication of the receptive nature of the Inquiry, it would be reasonable to expect a final report that is considered and sensible. To the extent that the report is concluded in a less favourable manner, we remain hopeful that an ombudsperson as well as a new regulatory framework will foster an environment where legitimate concerns are considered and addressed with the level of fairness we have come to expect from our competition authorities. For everything in between, we invite you to contact us for any competition law related matters in general or for advice on the specific impact that the Grocery Retail Market Inquiry could have on your business.

by

Njabulo Mazibuko | Candidate Attorney

JAC MARAIS

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MISHA VAN NIEKERK

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MIA DE JAGER

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Assigning High Demand Spectrum in the ICT Sector – A possible hybrid method

The telecommunications sector is the backbone of the of the digital economy. Access to spectrum is essential for speedy, reliable and affordable access to world class networks and communications which form the basis for online activities and more broadly, participation in the Fourth Industrial Revolution. The recent withdrawal of the Electronic Communications Amendment Bill (“EC Amendment Bill) has added to policy uncertainty in relation to the assignment of spectrum.

Last year the Department of Telecommunications and Postal Services (now the Department of Communications) issued a Draft Policy Direction to Independent Communications Authority of South Africa (“ICASA”) on the licensing of unassigned high demand spectrum (“HDS”) for public comment which gave some insight into how spectrum might be assigned.   In terms of the Draft Policy Direction, the assignment of spectrum to licensees would have been subject to conditions related to the controversial Wireless Open Access Network (“the WOAN”), a policy proposal in terms of which spectrum would be assigned to a wholesale network operator and made available to operators on the basis of open access principles. Following the withdrawal of the EC Amendment Bill, the WOAN as well as other policy interventions that were introduced in the Bill, are unlikely to materialise in the near future.

In his 2019 budget speech, Minister of Finance Tito Mboweni indicated that the Minister of Communications, Ms Stella Ndabeni-Abrahams, would be issuing another policy direction which is likely to propose new conditions for the issuing of spectrum licenses. At this stage, the method of assignment (i.e. market-based or administrative) is yet to be confirmed. The various policy decisions available to ICASA in relation to the assignment of HDS are unpacked below.

Why We Should Care About How Spectrum Is Assigned?

Spectrum is an essential, finite, sovereign resource which makes wireless communication possible.

Spectrum, in different radio frequency bands have different quality propagation characteristics which determine the level of investment required to achieve certain levels of coverage. The quality and cost of data network services are a function of, amongst other factors, how much spectrum an operator has. Making more spectrum available to operators is expected to result in cheaper data and lower network roll out costs, which may encourage price competition in the retail market.

Operators are clamouring over the release of HDS because of its propensity to deliver next-generation mobile broadband services (5G) as well as enable technologies which are dependent on high-speed internet (e.g. AI, Internet of Things (“IoT”)). The amount of harmonised frequency bands is limited, and the “scarcity” is aggravated by delays in the assignment of existing HDS and increasing growth in data traffic.

The availability of spectrum does not only promise significant commercial gains but can also aid in the realisation of social goods, such as increased access to ICT infrastructure to underserved areas, e-commerce, lower the cost of online activity, promote the digitisation of local content as well as the development of digital skills necessary to bridge the digital divide and ensure inclusive participation in the Fourth Industrial Revolution.

An Auction Is Not The Only Way To Assign Spectrum

Since the President’s announcement that the licensing of spectrum should be expedited, many have waited in anticipation of an auction of the unassigned HDS. An auction, however, is not the only way for spectrum to be assigned. Other methods include Comparative Evaluations, also known as a Beauty Contest, Lotteries, First-Come-First-Serve (“FCFS”) as well as Secondary Assignment Methods. In terms of the Electronic Communications Act 36 of 2005 (“the ECA”), ICASA has a dual mandate to ensure both economic (e.g. competition, innovation, investment) and developmental outcomes (e.g. affordability, availability and accessibility to electronic communications). Spectrum is a public resource and the public interest needs to be at the forefront of any spectrum management strategies. The method which ICASA uses in issuing spectrum licenses could impact how effectively it is able to realise both economic and social objectives and address the issues in a sector characterised by few competitors, high barriers to entry, and a lack of countervailing buyer power.

  1. Auctions

Auctions are the most popular/dominant method for the assignment of spectrum given the associated potential for revenue generation for the fiscus and efficiencies. An Auction will provide ICASA with an opportunity to determine how much operators value spectrum. An underlying assumption of an auction is that the operator who places the highest value on spectrum is most likely to create the highest social as well as economic value with the scarce resource to ensure a return on investment. This assumption has been questioned in light of recent studies by the European Commission which have shown that operators paying high auction prices have not necessarily translated into higher investment or superior network availability.

In 2016, ICASA issued and Invitation to Apply (” ITA”) in terms which it intended to conduct an auction of HDS. The Minister of the then Department of Telecommunications and Postal Services challenged ICASA’s decision to issue the ITA for its failure to follow process and make the necessary policy considerations, and successfully interdicted the proposed auction pending the finalisation of the review. The dispute has since been settled between the Minister and ICASA in an effort to heed the President’s call to expedite the licensing of HDS.

Some clues could be drawn from the 2016 ITA on how ICASA could go about auctioning spectrum. ICASA could adopt a three-stage process. The first stage would be the qualification stage, where the applications are assessed against certain criteria (e.g. technical or financial capability). The auction would occur in the second stage where applicants submit bids for the radio frequency bands that they want. At this stage, a widely adopted form of auction is the Simultaneous Multiple Rounds Auction (“SMRA”). In terms of this process, bids are placed on a variety of frequency bands (simultaneously) and the different categories or lots of spectrum remain for sale until bidding activity comes to end. Once bidding activity comes to an end, the bid enters the third and final stage where the winning bidder is issued with a license subject to a license fee and licensing conditions. The conditions could relate to, among others, technical restrictions of use, obligations to meet certain coverage targets as well as providing open access to mobile virtual network operators with a specified ownership level for Historically Disadvantaged Individuals.

Other forms of auction include Spectrum Reserve Auctions and Combinatorial Clock Auctions (“CCA”). In a spectrum reserve auction, a reserve or minimum opening bid price is set for participation in the auction. The 2016 ITA set a reserve price of R3 billion per lot of spectrum which was argued to be prohibitive by some operators. Many countries, such as Canada and some European regulators, are adopting the CCA due to its ability to encourage truthful bidding and maximize value. The auction is conducted in two rounds known as the clock phase and final bid round. In the clock phase, bids are made on various generic lots of spectrum with individual price clocks that increase continually depending on the level of interest for each lot until bidding activity comes to an end. In the supplementary round, bidders are allowed to make sealed bids of their best and final offers. In the clock phase bidders are believed to reveal their preferences through their bids and cannot make bids inconsistent with their initial offering in the supplementary round. In the final round, the winning bidders are determined based on the highest value combination of bids. The final price that the winning bidders pay is based on the value of the other bids submitted and / or a set reserve price to ensure that the spectrum is not undervalued and is set at a competitive price.

Although popular, auctions do present challenges such as:

  • “The Winners Curse”: Operators could overvalue spectrum and bid more than is necessary to win a specific lot of spectrum. A counter argument to this would be that this loss is calculated beforehand and accounted for accordingly.
  • The potential for collusive bidding: Auctions are also conducive for collusive bidding between the bidders in order to manipulate auction outcomes and what would have been the bidding prices, in the absence of collusion, resulting in a loss of revenue.
  • Compromised policy objectives: Auctions are often criticised for placing revenue generation over the realization of policy objectives. ICASA could provide for this by making the assignment of spectrum subject to policy related conditions (e.g. the level of HDI ownership and or universal service obligations).
  • Low bidder participation: Auctions often attract incumbent operators with deeper pockets submitting bids. This could pose a threat to ICASA’s intention to increase market participation in the sector and entrench the current market structure.

These unintended consequences can, however, be curbed through activity rules to manage the behaviour of bidders throughout the auction, placing caps on spectrum ownership and setting aside spectrum to facilitate the entrants of new players.

  1. Comparative Evaluation – “The Beauty Contest”

As an alternative to an auction, ICASA could also allocate spectrum licenses by way of comparative analysis or so-called beauty contests. Applications would be considered against weighted criteria which could include socio-economic imperatives. Licenses would then be allocated to applicants based on their ability to meet the criteria. In the past, Sweden’s telecommunications authority allocated 3G spectrum licenses by way of a two-stage beauty contest. The first stage served to ensure that the applicants were technically and financially competent to fulfil the obligations set out in their applications and roll-out their network. The comparative evaluation of the submissions would happen in the second stage and the license awarded based on the applicant’s suitability considering the pre-weighted criteria.

The disadvantages associated with beauty contests include:

  • A long and drawn-out and costly process of assignment.
  • The decision process is not the most transparent given the complexity of the criteria being assessed and depends highly on the good judgment of the regulator. This is particularly problematic given that operators may have asymmetric information over the regulator as to what the most efficient use of spectrum would be.
  • The regulator is vulnerable to lobbying and being accused of corruption or favouritism.
  • The absence of a price discovery mechanism, as in the case of an auction, may lead to spectrum being undervalued.
    1. Lottery

Anotssignment method for spectrum licenses is a lottery, whereby spectrum licences are issued through random selection. Even though this method offers a relatively speedy and inexpensive process for the assignment of licenses, it could lead to spectrum being allocated to operators who do not have the competencies to ensure optimal use of the resource and roll out their networks. In 1982, the United States issued spectrum by way of a lottery in an effort to expedite access to spectrum and lower the costs for entry into the market. This method of assignment was quickly abandoned as the lottery attracted speculative bidders who had no intention to provide services and who went on to sell their rights in secondary auctions at exorbitant prices. Its worthy to note that the ECA does not permit the transfer, cession and assignment of spectrum licenses without regulatory oversight.

  1. First Come, First Served

This method of assignment is best suited for circumstances where there is an abundance of spectrum and often results in incumbents acquiring spectrum. In this case, the regulator can accept applications for a predetermined number of assignments. Where the demand exceeds the amount of assignments available it is likely to use other methods (auction or beauty contest) to ensure a more efficient outcome.  However, should the assignments available be sufficient to meet the level of demand or applications submitted the regulator will proceed to issue licenses.

Secondary Assignment Mechanism: Spectrum Trading and Sharing

The withdrawal of the EC Amendment Bill also saw the withdrawal of provisions relating to spectrum trading and sharing. Spectrum trading refers to the trade of spectrum licenses along with the attached rights (e.g. the bands available for use, the geographical area, the use to which it can be put) and obligations. Spectrum sharing enables multiple entities to make use of a radio frequency band in a specific geographic area simultaneously. Introducing secondary markets is particularly useful in assisting new and smaller players to gain access to a scarce resource and enter the market without incurring the costs of setting up their own networks and thus lowering the barriers to entry. Oversight by the regulator is however required to ensure that these transactions to not distort competition in the sector.

Could a hybrid process be the answer?

Given various economic and developmental interests that ICASA and the Minister need to balance, it may be necessary to adopt a hybrid method of assignment. For instance, where the objective is to facilitate the entry of a new market participant, a market-based approach or auction could pose a significant barrier to entry and entrench the already existing market structures.

Conversely, a method which is heavily reliant on a subjective assessment (e.g. beauty contests) may result in an allocation of spectrum to operators who are technically inefficient and unable to extract the optimal economic value from the assignment. Ultimately whatever method is used to assign spectrum licenses, socio-economic imperatives should be prioritised without stifling innovation and investment in the sector to ensure that South Africa can fully capitalise on the opportunities presented by spectrum availability.

By

Nalo Gungubele | Associate, Adams & Adams

Jac Marais | Partner, Adams & Adams

 

JAC MARAIS

Partner
Commercial Attorney

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NALO GUNGUBELE

Associate
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Listen | The Intellectual Property information gap, the risks and opportunities for value creation, and how to get there.

There appears to be a yawning gap between good governance and the role of intellectual property disclosure and value creation. The global and local trend is toward better and increased governance, reporting, transparency and disclosure. There’s increasing spend on governance, but there is very little attention paid by boards to the intangibles on and off the balance sheet, and to the relationship between intangibles and intellectual property.

Power FM’s Iman Rapetti spoke to Darren Olivier and Adv. Annemarie van de Merwe about the recent examples of IP mismanagement, ignorance and under-reporting. How should boards dela with the opportunities, risks and governance of intellectual property?

The challenge for board members is multi-faceted. The role of the auditor and accountant in valuing and recording intangible assets on the balance sheet is far from clear. This is both an international and national debate and concern that internally generated intellectual property is not disclosed in annual accounts, leading to sometimes significant under and over valuations of business entities. This presents both risks and opportunities for businesses. With the increasing rise of the value of intangibles over tangibles in corporate value over time, the dearth of information relating to a businesses intellectual property is a real concern.

There is a desperate need for the education, accurate disclosure and scrutiny of intellectual property at a board level. So where should the education process begin? There needs to be a step-by-step approach to IP, education, identification, disclosure and governance, with a focus on self-audits, the need for IP advisors, a management plan, and an IP narrative. The message is clear: Boards have a duty to recognise the role of IP in governance and value creation.

For assistance in identifying and developing good intellectual property management plans, contact our team of IP strategists and governance experts.

Darren Olivier [darren.olivier@adams.africa]

Danie Strachan [danie.strachan@adams.africa]

DARREN OLIVIER

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DANIE STRACHAN

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Listen | The Application to set aside the resolution to liquidate Bosasa

On 14 February 2019 a resolution was taken by the board of directors to voluntarily liquidate the African Global Group of companies, better known as Bosasa. Since then liquidators were appointed by the master of the High Court and have commenced with the liquidation process. Yesterday the holding company of Bosasa brought an application to the High Court Johannesburg to set aside the resolution.

Apparently, it was argued in the papers filed by the holding company that the person who signed the resolution was not aware of the import of the document which he so signed and that it was never the intention to liquidate the company.

Allegations were apparently made that the companies in the group are, in fact, trading as solvent entities.

It was further alleged that because of the above facts, the entire process that has occurred since the master appointed liquidators is, as a result, a nullity.

Amongst others the liquidators filed opposing papers to the application to set aside, raising points in limine as well as on the merits of the application.

In limine the liquidators argued that:

  1. in terms of section 354 of the Companies act, the only persons who may bring such an application to set aside are the liquidators, a member ( shareholder) or a creditor and that the present applicant does not fall within one of those categories of persons;
  2. the application is not urgent as the resolution is more than three weeks old and, therefore, the application to set aside should have been brought far sooner; and
  3. parties with a material interest such as the employees and SARS, who were supposed to have been joined, were not joined by the applicants to the application.

On the merits of the liquidators raised various arguments indicating that the person who signed the 14 February resolution had taken further steps after that date 14th which steps all indicate that he knew full well what the import of the document was that he was signing.

The matter is being argued in the High Court today (13 Mar 2019) and we will report on the judgement as soon as it becomes available.

LEANDER OPPERMAN

Partner
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ANC’s proposed changes to the Road Accident Fund will prejudice 20 million children

The African National Congress (“ANC”), the dominant political party in South Africa, is pushing hard to prejudice approximately 20 million children, with a proposal to change the Road Accident Fund (“RAF”), prior to the upcoming elections.

The Road Accident Benefit Scheme Bill (“the Bill”) was recently revived in Parliament, after lapsing at the end of last year, due to a failure to reach a quorum in the House, following a unanimous “walk out” by opposition parties.

Opposition parties have regularly voiced their objections to certain provisions in the Bill, which among other things, sets the stage for an unaffordable ‘dual system’ of compensation. All liabilities in respect of vested rights under SA’s pre-Constitution legislation and accrued in terms of the 1996 Road Accident Fund Act must be met before the existing dispensation is terminated.

The Bill provides for a no-fault benefit scheme and a new Administrator, replacing the current RAF. The Bill intends moving away from an insurance – based system, which has been in operation in South Africa for many years, to a system of defined and structured benefits. An insurance – based system endeavors to place the victim of a motor vehicle collision in the same position he/she was before the accident.

The ANC is attempting to hoodwink the public into believing the Bill is in their best interest, by proclaiming far and wide that the Bill will root out unscrupulous lawyers and doctors, who have been benefiting from the RAF at the expense of accident victims. The Bill is, however, designed to serve no other interest than that of government. The Bill will result in victims facing huge bills, whilst receiving little or no compensation.

Of great significance is that children, who are permanently injured in motor vehicle collisions, will only have limited claims for loss of income against the Administrator. The claims will be calculated based on the average national income, completely disregarding the child’s academic potential. To add insult to injury, the Bill also takes away a victim’s right to sue the common law wrongdoer. By way of analogy, a child intending to study medicine, but who is permanently injured in his/her final year of schooling, will receive compensation based on the average national income, as opposed to what he/she could have earned out of a career in medicine. The same holds true for students who have not entered the labor market.

According to Mr. GA Whittaker, a highly acclaimed actuary, there are currently approximately 20,826,633 children under the age of 18 years in South Africa.

According to figures supplied to the Road and Safety Organization, namely Stay Alert Stay Alive, which figures they believe to be relatively accurate, 810,000 people are injured in traffic collision each year in South Africa, made up as follows:

  • 742,500 requiring treatment at the scene or in a casualty department;
  • 67,500 requiring admission to hospital for a day or longer.

Section 12(1)(c) of the Constitution ensures the right to be free from all kinds of violence from either public or private sources. When a child is injured in a motor vehicle collision, this right is severely compromised. In addition thereto, the Bill limits a number of other constitutional rights, including:

  • The right to social assistance;
  • The right to dignity;
  • The right to equality.

Unfortunately, the RAF’s administration or the lack thereof, is in dire straits. This has resulted in a large percentage of the fuel levy being expended on administrative costs, resulting in it not reaching the victims of motor vehicle collisions, which it is actually intended for.

If the Bill is approved, children permanently injured will only be entitled to limited compensation, severely prejudicing their constitutional rights.

 

Commentary by Jean-Paul Rudd | Partner

JEAN-PAUL RUDD

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Suspending your employee. The Long and the short of it

The Constitutional Court in Long v South African Breweries (Pty) Ltd and Others [2018] ZACC 7, recently held that ‘there is no requirement’ for an employer to afford an employee an opportunity to make representations why the employee should not be suspended (in the case of precautionary suspensions), prior to suspending the employee.

An employee usually suspected of having committed serious acts of misconduct is placed on what is termed a ‘precautionary suspension’, either before, during and/or pending the finalisation of the investigation and/or resultant disciplinary hearing.  A punitive suspension on the other hand, is meted out to an employee as a sanction, usually following a disciplinary hearing.

The Long Story

On 19 February 2019 the Constitutional Court handed down judgment in an application seeking leave to appeal against a judgment of the Labour Court relating to two review applications, one concerning Mr Allan Long’s dismissal and the other his suspension prior to dismissal.

Mr Long was previously employed by South African Breweries (SAB) as, district manager for the Border District. His duties required him to maintain the legal compliance requirements pertaining to a fleet of vehicles. In May 2013, a trailer owned by SAB was involved in a fatal accident, and it was alleged that the was in a state of disrepair and unlicensed before the accident. The company suspended Mr Long to ensure that an investigation into allegations of misconduct against him was unhindered. SAB subsequently charged Mr Long, convened a disciplinary hearing against him and dismissed him.

Mr Long challenged his suspension as unfair labour practice in terms of the Labour Relations Act (“LRA”).  He also challenged the fairness of his dismissal.  The CCMA held that his suspension was unfair inter alia, because he was not afforded an opportunity to make representations to show why he should not be suspended.  The CCMA also found that his dismissal was procedurally fair but substantively unfair and ordered his reinstatement (it did not find him guilty of any acts of misconduct).

The company subsequently challenged the CCMA’s findings on review to the Labour Court. The Labour Court was of the view that:

(a) Mr Long’s suspension was not an unfair labour practice, and

(b) he was guilty of one of the charges, a ‘dereliction of duties and, as a result, the arbitrator’s award was unreasonable’.  The Labour Court, accordingly, reviewed and set aside the arbitration award in the dismissal dispute and substituted the CCMA’s finding in the unfair labour practice dispute.

Dissatisfied, Mr Long ultimately applied for leave to appeal against the Labour Court’s judgment to the Constitutional Court.  He argued inter alia that the Labour Court’s finding that employees are not entitled to a pre-suspension hearing does not pass constitutional muster. He also took issue with the length of the suspension (some 3 months) and with various aspects of the dismissal dispute.

The court highlighted the different implications between precautionary and punitive suspensions.  The court reasoned that because Mr Long’s suspension was ‘precautionary’ and not ‘punitive’, requirements relating to fair disciplinary action (such as the right to be heard prior imposing any disciplinary sanction in relation to allegations of misconduct) in terms of the LRA cannot find application.  Accordingly, the court held that there was no requirement to have afforded Mr Long an opportunity to make representations prior to his suspension.

In assessing the requirements of a fair suspension, the court held that the suspension ought to be for a fair reason and the question whether the employee is prejudiced as a result, must be asked.  The court held that the Labour Court’s finding, that it was for a fair reason (for an investigation to take place), cannot be faulted. The court also mentioned that a suspended employee on full pay, will generally ameliorate prejudice suffered by the employee. In relation to the dismissal dispute, the court was equally of the view that the challenge lacked merit.  In the circumstances, the court refused to grant leave to appeal.

The Short Story

What are possible implications of the judgment in respect of precautionary suspensions?

  1. The judgment is ground-breaking in the sense that it is no longer a procedural requirement, for purposes of the Labour Relations Act, for an employer to at least afford an employee to make representations why the employee should not be suspended prior to deciding whether to suspend the employee.
  2. An employee may however nonetheless challenge a suspension as an unfair labour practice if:
  • a disciplinary code and/or an employment contract and/or collective agreement requires an employer to afford the employee an opportunity to be heard (or make representations) prior to being suspending but denies the employee this opportunity;
  • it was not linked to protecting the integrity of the pending or ongoing investigation (into possible allegations of misconduct) and/or disciplinary hearing;
  • it is without pay or in the absence of a pending or ongoing-investigation;
  • it is for an unreasonably long period (although it remains to be seen whether our courts will accept that a suspension with pay will always remedy any prejudice an employee may suffer as a result).
  1. Public sector employees may argue that in terms of administrative law they are entitled to be heard or to make representations why they should not be suspended, prior to possibly being suspended.
  2. An Employer may nevertheless afford an employee an opportunity to be heard and/or make representations why the employee should not be suspended prior to deciding whether to suspend the employee.

In light of the Constitutional Court judgment, it is vital that employers review the applicable policies regulating suspensions.

by

Irshaad Savant | Senior Associate

Aslam Patel | Associate

Thandeka Mhlongo | Associate

IRSHAAD SAVANT

Senior Associate
Attorney

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Bosasa has announced their voluntary liquidation. What is the legal process?

On 19 February 2019, the African Global Group of companies (better known by its trading name, Bosasa) reported that it intends applying for its voluntary liquidation.

It reported that this decision was taken by the board of directors of Bosasa after being notified by its bankers that the groups’ bank accounts would be closed, with effect from the 1st of March 2019.

The following information will to help understand the steps that the board must take going forward, the estimated duration of the process and how this decision will affect Bosasa employees and suppliers.

What steps must the board of Bosasa take?

In terms of South African Company Law, a solvent company may be wound up voluntarily if the company has decided to do so. This decision is taken by the board of directors at a meeting called for this purpose. The board must pass a resolution providing for the voluntary winding up which resolution must be filed with the Companies office also known as CIPC.

Once the resolution is so lodged, CIPC will communicate with the Master of the High Court who will, in turn, appoint joint-liquidators to attend to the administration of the liquidation of the business of Bosasa.

The liquidators will then call for a meeting with the board in order to gain an understanding as to amongst others the reasons for the voluntary liquidation and the financial position of the company and will then prepare a report to creditors and employees dealing with the assets and liabilities of the company and ancillary matters.

The liquidators will then proceed with the administration process which includes collecting of debts due to the company, valuing and realizing assets of the company, receiving claims by creditors and employees of the company etc

Liquidators will also be responsible for the convening of creditors’ meetings at which the liquidators will seek directions from the body of creditors, ask creditors to vote on resolutions and to accept proof of claims by creditors and employees.

How long does the process take?

There is no prescribed period in the legislation. This entire process could be completed in as little as as three months. However, in a complex liquidation, it may become necessary for the liquidators to call for interrogations of directors and other parties who conducted business with the company, especially if the liquidators or creditors are of the view that certain transactions by directors need to be investigated and monies paid to others (in dubious circumstances) need to be recovered to be utilised to pay creditors. In such a case the liquidation may take some years to finalise.

What will happen to the employees and suppliers?

As far as employees are concerned, the effect of a voluntary liquidation is to suspend the contracts with employees. Employees are not obliged to continue rendering services but are also not entitled to remuneration.

It is improbable in our view that the liquidators will sell the business of the company as a going concern. However, if this should occur, then the labour legislation provides for the transfer of employees/ their service contracts to the purchaser of the company’s business. If this cannot be achieved, then employees are regarded as preferential creditors for up to 3 months’ worth of arrear wages, with the balance to be claimed as unsecured creditors.

The situation of suppliers is somewhat different. If the liquidators decide, in the case of an essential service provider, to ask the supplier to continue rendering its services to the company, then the supplier would be paid from the so-called administration expenses. The question whether a supplier will receive payment of its pre-liquidation claim will largely depend on whether it has security for its claim.

Creditors who would have security would for example be the banks who could hold either mortgages (over immovable property owned by the company) or cessions and pledges of book debts, as security for the banking facilities and loans made to the company.

It is unlikely that a supplier of, say for example, stationery to Bosasa would have any security which it could rely on for payment of its claim and such a supplier is then regarded as a concurrent creditor. Concurrent creditors only share in the reminder of the proceeds of the sale of assets of the company after preferent and secured creditors’ claims have been settled.

by

Leander Opperman  | Team Leader, Insolvency Law Group, Adams & Adams

Vuyokazi Ndamse | Senior Associate

Michael Bullock | Candidate Attorney

LEANDER OPPERMAN

Partner
Corporate Attorney

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VUYOKAZI NDAMSE

Senior Associate
Attorney

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What the new Competition Amendment Act means for South Africa’s economy

President Cyril Ramaphosa has signed the Competition Amendment Bill (“the Amendment Act”) into law. It is a significant moment for competition law and enforcement in South Africa. The Amendment Act, while controversial on certain aspects, recognises that the economy must be open to greater ownership by a greater number of South Africans.

In a statement issued on Tuesday, the Presidency said that the amended legislation would address “concentration and economic exclusion as core challenges” to dynamic growth in the country.

The Amendment Act aims to address structural constraints in the economy through these seven key focus areas:

  • MARKET STRUCTURES

By strengthening the Competition Commission’s powers in relation to market inquiries and impact studies. As recently seen with the Health Market Enquiry, the purpose of a market enquiry is for the Competition Commission (“the Commission”) to investigate a particular market and to make recommendations to address structural concerns, high levels of economic concentration and economic transformation within a specific market or industry. Presently, the Commission has no explicit power to act on its recommendations.

The Amendment Act will empower the Commission to act to remedy, mitigate or prevent the adverse effect on competition by making recommendations to the Competition Tribunal (“the Tribunal”). The Commission is further mandated to publish a report to the Minister with recommendations, which may include, recommendations for new or amended policy, legislation or regulations; and recommendations to other regulatory authorities in respect of competition matters.

  • MERGERS

The Amendment Act will increase the role of public interest grounds in the consideration of mergers. Therefore, the promotion of a greater spread of ownership for historically disadvantaged persons and workers in the market, as well as their ability to enter into, participate and expand within a market will be central in merger analysis on public interest grounds. This will further lead to the promotion of competition and economic transformation through addressing the structural constraints, for example a greater spread of ownership, within a market.

  • DOMINANT FIRMS

A reverse onus on dominant firms to show that the price of its goods and services is reasonable, the list of prohibited conduct has been expanded and previous ‘yellow card’ offences will now result in an administrative penalty.

  • POWERS OF THE MINISTER

The Minister will be empowered to participate in merger proceedings and applications for exemptions, specifically in relation to public interest grounds. In terms of the Amendment Act, the Minister has the right of appeal against a merger decision of competition authorities if it has substantial public interest implications for a particular industrial sector.

  • NATIONAL SECURITY

The President may constitute a National Security Committee which will be responsible for considering whether the implementation of a merger involving a foreign acquiring firm may have an adverse effect on the national security interests of South Africa.

  • DEFINITIONS

The Amendment Act further clarifies provisions of the Act relating to prohibited practices, restricted horizontal and vertical practices, abuse of dominance and price discrimination through the addition of various definitions. The definitions added in the Amendment Act include margin squeeze, average avoidable and voidable cost, predatory prices etc. These additions will assist firms, as well as the competition authorities with the interpretation and assessment of various prohibited practices. Of further relevance is the substitution of ‘consumer’ to customers which allows for greater protection since all customers involved in commercial transactions would now be protected from excessive prices, as opposed to consumers only.

  • SANCTIONS

The increase in penalties for contraventions of the Act from 10% to 25% of a firm’s annual turnover if conduct constitutes a repeat offence. The Group/ Controlling firm may be held liable jointly & severally for an administrative penalty.

For more information on the Amendment Act, please contact the Adams & Adams Competition Team at competitionlaw@adams.africa.

By

Mia de Jager | Candidate Attorney – Adams & Adams

JAC MARAIS

Partner
Commercial Attorney

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MISHA VAN NIEKERK

Senior Associate
Commercial Attorney

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