PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

PROMOTIONAL COMPETITIONS: WHEN IS A PROMOTIONAL COMPETITION REGULATED BY THE CONSUMER PROTECTION ACT, 68 OF 2008 (“THE CPA”)

If you are a promoter of a competition, then chances are that the CPA is likely to apply to that competition. It is important for the promotor to know when a promotional competition is regulated by the CPA and to comply with its requirements in order to avoid the risk of incurring penalties. This article will examine the relevant provisions in the CPA relating to promotional competitions and highlight the most important obligations placed on a promoter when running a promotional competition.

PROMOTIONAL COMPETITIONS IN TERMS OF THE CPA:

Section 36 of the CPA governs promotional competitions and defines a promoter as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted.”

A promotional competition is further defined in the CPA as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:

  • it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
  • any prize offered exceeds the threshold prescribed in terms of subsection (11) (currently R1.00),

irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

Given the rather wide definitions in the CPA and the low value threshold, it is safe to say that the vast majority of competitions conducted in South Africa will be governed by the CPA.

HOW A PROMOTOR CAN COMPLY WITH THE CPA:

Very importantly, a promoter of a promotional competition must not require any consideration to be paid by the participant (e.g. the participant should not be asked to pay for the opportunity to participate in the competition or participation in the competition should not require the purchase of goods and services at a price that is more than what is ordinarily charged without the opportunity of taking part in the competition) other than the reasonable costs for posting  or transmitting an entry form.

For the purposes of ensuring fairness, the CPA also requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of that competition.

Before each competition, the promotor must prepare a set of competition rules which should be made available to any participant upon request. Regulation 11(6) of the CPA also requires that a copy of the competition rules (together with certain important information) be retained for a period of at least three years.

A promotor must ensure that an offer to participate in a promotional competition must clearly state the following:

  • the competition or benefit to which the offer relates;
  • the steps required to participate in the competition or accept the offer;
  • the basis on which the results of the competition will be determined;
  • the closing date for the competition;
  • the medium through which the results of the competition will be made known; and
  • the person from whom, the place where and the date / time on which a successful participant may receive the prize.

The promoter must further ensure that an independent accountant, registered auditor, attorney or advocate oversees and certifies the conducting of the competition and must report this through the promoter’s internal audit reporting or other appropriate validation or verification procedures.

The CPA imposes a significant burden on promotors who wish to run a promotional competition, both from an administrative and financial perspective. It is therefore important for a promoter to be aware of and adhere to these requirements as far as possible to prevent non-compliance and possible punitive measures being taken against the promoter.

Let us know if you require any assistance in drafting promotional competition rules or overseeing and certifying the running of the competition.

UNDERSTANDING ELECTRONIC SIGNATURES IN SOUTH AFRICA

UNDERSTANDING ELECTRONIC SIGNATURES IN SOUTH AFRICA

As the commercial world moves towards greater levels of digitization, various organizations are starting to implement electronic and automated solutions with an attempt to catch up and reduce paper-based agreements. However, many organizations have expressed their concerns about the legality of electronic signatures and have remained sceptical in embracing a truly paperless solution. This article seeks to highlight the legal aspects of electronic signatures, examine what constitutes an electronic signature and whether documents signed in this manner are legally binding and enforceable.

The function of a signature

First and foremost, we need to understand that in commercial practice, the function of a signature is to provide evidence of (1) the identity of the signatory, (2) that the signatory intended the signature to be his signature, and (3) that the writing or text to which the signature is associated is adopted or approved by the signatory. Against this background a signature must, without evidence to the contrary, be capable of fulfilling all of its functional requirements in order to be considered valid. An electronic signature is no exception, as will be further explained below.

What is an electronic signature

Currently in South Africa, electronic signatures are regulated by both the common law and the Electronic Communications and Transactions Act, 25 of 2002 (“ECTA“). According to the South African common law, for a signature to be valid (1) the name or mark of the person signing must appear on the document, (2) the person signing must have applied it themselves, and (3) the person signing must have intended to sign the document. This premise has been carried over to electronic signatures and with the introduction of ECTA, South Africa followed a global trend in recognising the legality of electronic signatures, rendering the status of electronic signatures as a functional equivalent to traditional “wet” signatures. ECTA specifically states that an electronic signature is not without legal force and effect merely because it is in electronic form, clearly indicating that electronic signatures are legally recognised in South Africa.

An electronic signature is defined in ECTA as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. From this definition, it can be seen that for a signature to be recognised as a valid electronic signature, the signature must comply with the criteria of “intention” and “relationship” – there must be a relationship between the document and the signature and the person must have intended it to be his signature. Put differently, an electronic signature, being a piece of data attached to an electronically transmitted document, must be able to serve as verification of the sender’s identity and his/her intent to sign the document. In many instances, an electronic signature is capable of fulfilling these requirements perhaps better than paper-based solutions, as the electronic signature process creates an audit trail that clearly identifies any tampering with the signatures.

The different types of electronic signatures

According to ECTA, there are two categories of electronic signatures: (1) standard electronic signatures and (2) advanced electronic signatures.

Standard Electronic Signature:

These signatures include any digital or scanned signatures and are often referred to as non-secure signatures. A standard electronic signature suffices where a signature is required by the parties to an agreement and they do not specify the type of electronic signature to be used.  In this instance, ECTA provides that the electronic signature will be deemed to be valid where:

  • a method is used to identify the sender and to indicate the sender’s approval of the information communicated; and
  • having regard to all the relevant circumstances at the time, the method was reliable and appropriate for the purposes for which the communication was intended.

For most purposes, standard electronic signatures will suffice when signing a document electronically.

Advanced Electronic Signature:

According to ECTA, there are some instances where an electronic signature other than a standard electronic signature may be required and include circumstances where the law requires that an agreement or document must be in writing and signed. In such instances, the document can only be signed with an advanced electronic signature as defined by ECTA. In South Africa, an advanced electronic signature is required for: (1) a suretyship agreement and (2) signing as a Commissioner of Oaths.

Exceptions

There are some documents that are excluded entirely by ECTA. For example, ECTA excludes the following from being concluded electronically, whether or not an advanced electronic signature is used by the parties to sign:

  • agreements for the sale of immovable property;
  • long-term leases of land exceeding 20 years;
  • signing of a will; and
  • bills of exchange.

Conclusion

With the growth of e-commerce, the ability to be able to conclude agreements electronically becomes ever more important. The sooner organisations understand and begin to use electronic signatures correctly, the more likely they will be able to unlock the potential electronic solutions can offer in terms of improved efficiency and cost savings. ECTA can be seen as having opened the way for organisations to leverage the significant benefits associated with a paperless environment by granting legal status to electronic signatures thereby significantly reducing the legal risk.

WHEN DOES A COMPANY NEED AN AUDITOR AS OPPOSED TO AN ACCOUNTANT?

WHEN DOES A COMPANY NEED AN AUDITOR AS OPPOSED TO AN ACCOUNTANT?

The Companies Act, 71 of 2008 (“the Act“) contains a number of provisions relating to auditing and accounting requirements. However, unlike the old Companies Act of 1973 which required all companies to be audited, the Act is less onerous in the sense that only certain categories of companies will need to be audited and this also depends on whether the audit would be in the public interest to do so.

In terms of the Act, there are two main categories of companies, namely a profit company and a non-profit company. A profit company is further divided into four sub-categories, being a (i) private company, (ii) personal liability company, (iii) state-owned company and (iv) public company. In order to establish whether a company must comply with the requirement to be audited (by an auditor) or simply independently reviewed (by an accountant), will depend on the type of company concerned.

When will a company need to appoint an auditor

Not all companies require an auditor to be appointed and in terms of section 90 of the Act, only a public company or a state-owned company must appoint an auditor upon its incorporation and each year after that at the company’s annual general meeting.

In addition, the regulations to the Act (“the Regulations“) provide that companies which are not public or state-owned companies must have their financial statements audited if it is in the public interest to do so and if the company meets the criteria prescribed in the Regulations. In particular, Regulation 28 states that any company that falls within any of the following categories in any particular financial year, must have its annual financial statements audited by an auditor:

  • any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  • any non-profit company which was incorporated:
    • directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or
    • primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; and
  • any other company whose public interest score in that financial year is 350 or more or is at least 100 (but less than 350) and whose annual financial statements for that year were internally compiled.

Any “non-public” company (in this case a private, personal liability or non-profit company) may also voluntarily elect, either by board / shareholder resolution, to have its annual financial statements audited or to include an audit requirement in the company’s memorandum of incorporation (“MOI“). In the event that the company voluntarily elects, by resolution, to have its annual financial statements audited, such company will not automatically be required to comply with the enhanced accountability requirements contained in Chapter 3 of the Act dealing with auditors, audit committees and company secretaries, unless the MOI of the company provides otherwise by specifically requiring Chapter 3 compliance.

It is important to note that if the MOI of any company requires compliance with certain or all of the provisions in Chapter 3 of the Act, then that company will be required to comply with the enhanced accountability requirements to the extent that the company’s MOI so requires.

When will companies require an independent review

Certain categories of private, personal liability and non-profit companies that are not subject to the audit requirements may rather be required to have their annual financial statements independently reviewed. The following companies will need to be independently reviewed (unless the exemptions apply):

  • private, personal liability and non-profit companies whose public interest score in that financial year is at least 100 (but less than 350) and its annual financial statements for that year were independently compiled; and
  • private, personal liability and non-profit companies whose public interest score in that financial year is less than 100.

It’s worth noting that in terms of section 30(2A) of the Act, if with respect to any particular company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a director of that company, then that company is exempt from the requirements to have its annual financial statements audited. Thus, if a company meets the requirements of this section and whose public interest score is less than the target, then the company need not be audited, but can be independently reviewed.

Conclusion

Many people are under the impression that their companies have to be audited but this is not always the case. If you are uncertain whether you need to have your company audited or reviewed or whether you need to comply with Chapter 3 of the Act, get in touch and we can assist with these concerns.

OBSERVATIONS ON COMPANY NAMES

OBSERVATIONS ON COMPANY NAMES

Choosing a name for your new company may seem simple, but what may not be clear is that you cannot call your company whatever you want, as South African law regulates what a company name can and cannot be. Section 11 of the Companies Act, 71 of 2008 (“the Companies Act“) sets out the criteria for company names. In essence, the name of your company may comprise of words in any language together with any words or letters / numbers / symbols and / or punctuation marks. However, the name of your company may not be the same (or similar to) the name of another company or close corporation, someone else’s defensive name (a name registered up to two years which is aimed at preventing trade marks from being included in the new company name), business name or registered trademark or a mark on any merchandise. Your company name must not falsely imply that the company is part of any other person / entity, is an organ of state, is owned by a person having any particular educational designation, who is a regulated person or is owned by any government or international organisation. Importantly, your company name must not include anything that may constitute propaganda for war, incitement of imminent violence or advocacy of hatred against any right entrenched in the Bill of Rights.

Registered vs trading names:

The registered name of a company is the name which has been reserved, approved and then registered with the Companies and Intellectual Property Commission (“the CIPC“). In terms of the Companies Act, a company is required to display its registered name (and registration number) on all forms, notices and correspondence with others and failure to do so constitutes an offence.

Despite that, it is common practice for entrepreneurs to acquire shelf companies or to register a company with a non-distinctive name and to simply trade under a different name. Although a trade name does not need to be registered, the assumption is that a reasonable level of investigation would have been conducted to ensure that a trade name is not already in use. In reality, this often leads to the infringement of third party trademarks or causes confusingly similar names to exist.

For the above reason, the Consumer Protection Act 68 of 2008 (“the CPA“) has introduced changes to the way in which “trading as” names (which the CPA calls “business names“) may be used. The provisions relating to business names are contained in sections 79 to 80 of the CPA, and will only come into effect upon a date to be determined by the Minister of Trade and Industry (“the Minister“) and published in the Gazette. This has not happened yet, but it is likely that when it does, the Minister will allow a certain amount of time after the published date for companies to comply with these new provisions.

The intention of the legislature in this regard, is to seek to enforce the consumer’s right to information concerning suppliers. The aim is to prevent a situation where a business would trade under one name but fail to disclose the identity of the actual entity behind the transactions, thereby frustrating the attempts by the consumers to seek redress in pursuing the correct entity.

What you need to know and the CPA’S requirements

In terms of section 79 of the CPA:

A person must not carry on business, advertise, promote, offer to supply or supply any goods or services, or enter into a transaction or agreement with a consumer under any name except:

  • the person’s full name as:
  • recorded in an identity document or any other recognised identification document, in the case of an individual; or
  • registered in terms of a public regulation, in the case of a juristic person; or
  • a business name registered to, and for the use of, that person in terms ofsection 80, or any other public regulation.

What the above means is that an individual or company (as the case may be) may not operate / carry on business with a business name unless it is registered in terms of the CPA. This information will then be publicly available on the business names register as maintained by the CIPC. The implication is that, should any business operate with any other name other than those as set out in section 79, the National Consumer Commission (“the NCC“) can issue a compliance notice and failure to comply will result in a fine or prosecution as a criminal offence.

As some assurance, however, the CPA provides a certain degree of relief for businesses which have been in trade before the business name provisions come into force – the NCC may not enforce the business name requirements against a business if it has been trading under the business name for a period of at least one year.

Procedure

Section 80 of the CPA provides for the procedure in registering the business name of a company. As mentioned before, these provisions are not yet in force since the business names registry and the registration process have not yet been established.

When the provisions come into force, a person may file a notice with the CIPC to register any number of business names currently used by your entities. If the business, under which the business name has been registered does not carry on business for a period exceeding 6 (six) months, the CIPC reserves the right to cancel such business name.

Possible difficulties

These provisions may cause difficulties for franchises because there are normally multiple franchisees trading under the same name as the franchisor. However, the registered name for each franchisee, may be completely different. The new requirements therefore force each separate franchisee to register the same business name leading to multiple entries of the same name being reflected on the records of the CIPC. This could be somewhat counter-intuitive since the confusion that it creates may defeat the purpose of the consumers’ right to information in the first place. Furthermore, franchisors may not be happy allowing each and every franchisee incorporating what is effectively their “trade mark” as the franchisees business names.

Going forward

Although these provisions have not come into effect yet, in the interests of avoiding the rush of changing branding and registering new names at the CIPC, the provisions above should be duly considered when choosing a business name as the criteria will most likely need to be adhered to in the near future.

Are directors also employees?

Are directors also employees?

INTRODUCTION:

If you have a business of your own, then you will know that the role of a business owner is multi-faceted and often requires the wearing of many different hats. These relate to the roles of a shareholder, a director and an employee. Many business owners wear all three of these hats at once which can be quite challenging if they are not kept distinct and separate. As a shareholder, your attention should be focused on the return you are receiving from your business. As a director, your responsibility is to govern the business in a way that substantially delivers the return that shareholders expect. As an employee, your main obligation will be the tendering of personal services and to further the business interests of the employer. However, outside of the owner-managed scenario, the question arises as to whether a director can generally also be an employee? Let us examine this question in more detail below.

EMPLOYEE VS DIRECTOR AND REMUNERATION:

Generally speaking, there are usually two sources of a director’s remuneration: the one source flows from the fees that he receives for his services as director (example, fees for attending board meetings) and the other source flows from such director’s employment contract (if any) which would provide for the payment of a salary.

A director in his capacity as director is not necessarily an employee of the company and will not always be entitled to the standard rights flowing from an employment contract. It therefore follows that a director is not entitled to be remunerated for his services as a director simply because he has been appointed as a director. Granted, if such director enters into a contract of employment with the company, then he or she will be entitled to those rights that flow from an employment relationship and he would then stand in a position of both an employee and a director.

As a director only, he is not automatically entitled to be remunerated for his services as director. Under the Companies Act, 71 of 2008 (“the Companies Act“), a company may pay remuneration to a director for his services as director, unless it is prohibited by the company’s memorandum of incorporation (“MOI“). Should the MOI prohibit the payment of remuneration to a director, he will not be entitled to remuneration for his services, which is thought to stem from the rule that people in a fiduciary position are not entitled to use their office to profit themselves, unless they have the consent of the majority of the shareholders.

In terms of section 66(9) of the Companies Act, remuneration paid to directors for their service as director may only be paid in accordance with a special resolution approved by the shareholders within the previous two years. However, the words “service as directors” are ambiguous because it is not clear if approval is required only for directors’ services as directors or whether the words are broad enough to include remuneration paid to executive directors in terms of their employment contract.

CORPORATE GOVERNANCE:

The King IV offers some guidance. It embraces the underlying philosophy of ethical leadership, sustainability and corporate citizenship. On the issue of leadership, the board should ensure that all decisions and actions are based on the four values underpinning good corporate governance: responsibility, accountability, fairness and transparency.

As such, King IV differentiates between executive and non-executive directors. An executive director is involved in the day-to-day management of the company. He or she is normally in the full time salaried employ of the company and is generally under a contract of service with the company. A non-executive director, on the other hand, is a part time director who is not considered an employee of the company. Such non-executive director does not manage the company, but rather plays an important role in providing objective, independent judgement on various issues relating to the company. An executive director can therefore be an employee and a director at the same time.

TERMINATION OF SERVICES:

Flowing from the above, there are obvious complications that present itself when a company wants to terminate an executive director’s services. Where the company wishes to remove a director from his office as director and as an employee of the company, the procedure is twofold and reference must be given to both the Companies Act as well as the Labour Relations Act, 66 of 1995 (“the LRA“)

In some instances, the employment contract with the director as employee contains an automatic termination clause which provides that if the director is removed from his office as director, his employment with the company will be automatically terminated or vice versa. In other instances, the MOI of the company will have an automatic termination clause.

However, in the case of Chilliebush v Commissioner Johnson & Others the court held that the insertion of an automatic termination clause into a company’s MOI is in direct contravention with the LRA. The reasoning provided for the court’s decision is that an employer is not at liberty to contractually negotiate the terms of an employee’s dismissal, despite that employee also being a director. Should a company rely on an automatic termination clause as its reasoning for the automatic termination of the director/employee’s contract of employment, such termination does not constitute a fair dismissal for purposes of the LRA. The director/employee will then be well within his rights to proceed to the CCMA on the grounds of unfair dismissal.

The decision is significant because in situations where a director holds two positions (one as a director and one as an employee) his rights as an employee will not be affected by the fact that he is also a director.

Moral Rights In The Context Of Copyright Law In South Africa

INTRODUCTION

In simple terms, a “copyright” is a form of intellectual property right that grants the creator of an original work (“the author“), the legal and exclusive right to the use and distribution of the work (in return for compensation for the author’s intellectual efforts). In this sense, a copyright can be said to be an economic right.

A “moral right” in the context of copyright law, on the other hand, is rather a personal right which attaches to the author, allowing the author to receive the appropriate credit when his/her work is used and it also dictates, to an extent, the way in which an author’s work is treated by others.

In South Africa, copyright law is regulated in terms of the Copyright Act, No. 98 of 1978 (as amended) (“the Act“), and is administered by the Companies and Intellectual Property Commission, as a branch of the Department of Trade and Industry. In terms of the Act, nine classes of works are eligible for copyright protection and they include literary works, musical works, artistic works, cinematograph films, sound recordings, programme-carrying signals, broadcasts, published editions and computer programs.

 

THE CONCEPT OF MORAL RIGHTS

Section 20 of the Act creates a legal obligation to give credit to works of an author and not to treat it in a derogatory way, and further defines a moral right as a protected right that applies to literary, musical and artistic works, cinematograph films and computer programmes (but excludes sound recordings, broadcasts and published editions) (“work/s”). At its heart, a moral right consists of the right to paternity and the right to integrity of the author’s work. The right to paternity allows the author to claim authorship of the work, whereas the right to integrity allows the author to object to any distortion, mutilation or modification of the author’s work to the extent that any such distortion, mutilation or modification would be prejudicial to the author’s honour or reputation. In other words, if the author reasonably feels that making certain changes in or to his/her works would undermine his/her creative intent or “vision” embodied in those works, he/she can prevent that change from being made, regardless of any economic rights that another person may own in that same work by virtue of a license or copyright.

An author’s moral rights to his/her works are, however, qualified by the economic interests which a copyright seeks to protect, and section 20 of the Act further provides that an author may not object to modifications to his/her works which are absolutely necessary for the commercial exploitation of those works.

It is important to bear in mind that a moral right can only subsist in the above works if such works enjoy copyright in South Africa in the first place.

 

WAIVER AND TRANSFERABILITY OF MORAL RIGHTS

Just like many personal rights, moral rights can be waived by the author and the author can choose not to enforce them. No formalities are prescribed in the Act for the waiver of moral rights, although good practice dictates that any waivers of moral rights be reduced to writing.

Whereas copyrights are freely transferrable, a moral right attaches to the author throughout the author’s lifetime and terminates upon his/her death (or in the case of an author which is a corporate entity, the dissolution of that entity) and cannot be transferred. What is interesting in this regard is that an assignment of copyright leaves the author’s moral rights unaffected and in many instances, the holder of the copyright will still be required to obtain the necessary waivers from the author. In other words, no matter who gets to exploit the economic rights being the subject matter of the copyright, the author will still have the right to be named and given recognition for his/her work (unless he/she waives such right).

 

INFRINGEMENT, ENFORCEMENT AND REMEDIES

A moral right could be infringed by, for example, not properly attributing the work of the author, or treating it in such a manner so as to lower the reputation or dignity of the author. Given the closely related nature of copyright and the moral rights that subsist in the copyright, the statutory remedies which apply to an infringement of copyright would also apply to an infringement of an author’s moral rights. The Act provides for a claim for damages or the imposition of an interdict. These statutory remedies are complemented by common law remedies to the extent that any conduct that violates the dignity and reputation of the author can give rise to a similar claim for damages or an interdict to curtail the infringement.

 

CONCLUSION

Authors in South Africa enjoy a reasonable measure of protection regarding the intellectual products of their labours. South Africans have, however, been slow to enforce these rights and to date, there have been very few reported cases dealing with this area of law. Perhaps the reason why moral rights are so rarely asserted are, firstly, it is a fairly unknown concept in South Africa, and secondly, many commercial agreements governing the use of intellectual property will often include a waiver of the moral rights of the author.

Should you have any queries concerning your business and its use of its own intellectual property and that of others, please feel free to contact us – we would be glad to assist you.