Making An Eft Payment? Know Where Your Responsibility Lies In The Event Of Cybercrime

Making An Eft Payment? Know Where Your Responsibility Lies In The Event Of Cybercrime

Intengo Imoto (Pty) Ltd v Zoutpansberg Motor Wholesalers CC 2025 JDR 2671 (SCA)

In June 2025, judgment was handed down by the Supreme Court of Appeal (SCA) in the case of Intengo Imoto (Pty) Ltd v Zoutpansberg Motor Wholesalers CC2025 JDR 2671 (SCA). This case offers a welcome clarification of the legal position regarding internet banking, particularly on where liability lies when a third party introduces fraud or cybercrime into a transaction.

The facts of the case were relatively straightforward. The terms of the written agreement, in which Intengo sold two vehicles to Hyuandai, contained the vehicle particulars, purchase price and, crucially, Intengo’s banking details. Both parties had agreed that Hyundai would make payment via Electronic Fund Transfer (EFT), upon receiving invoices by email, which would contain Intengos banking details. Once payment was received, Hyundai could accept delivery of the vehicles.

On the same day that the contract was concluded, Intengo emailed the invoices to Hyundai. The bank account number reflected in these invoices ended with the digit 3.

A day later, Hyundai’s representative emailed proof of payment for the first vehicle. Intengo then delivered the vehicle. However, the proof of payment reflected an account number ending in 9, not 3.

This exact process repeated itself with regard to the second vehicle. Once again, proof of payment reflected the incorrect account, but nevertheless, the vehicle was delivered by Intengo.

A week later, Intengo realized that they had not received either payment. Upon investigation, it became clear that the funds had been fraudulently transferred to an incorrect bank account. Intengo subsequently demanded payment from Hyundai, who in turn insisted they had paid, and that delivery was made in accordance with the receipt of proof of such payments.

Litigation in the Regional and High Court

Intengo instituted legal action in the Regional Court. That Court held that it was evident that Intengo had never received payment, and Hyundai was therefore still liable to pay.

Hyundai then appealed to the High Court. There, the Court found that the Regional Court had erred in finding that the Hyundai bore the onus to prove that payment was made to the correct bank account. Intengo based its claim on contract law but failed to properly prove the contractual term it alleged had been breached. Instead, it based its claim on negligent payment to the wrong account, which didn’t fit into Intengo’s case as pleaded. The High Court thus dismissed Intengo’s claim.

The matter was taken to the SCA, which provided much-needed clarity.

The SCA’s findings were manifold:

It found that Intengo did indeed send invoices containing the correct banking details. However, somewhere after leaving Intengo’s email server, the invoices were intercepted by cybercriminals. The banking details were fraudulently altered and Hyundai, unaware of the tampering, paid the funds into an account not belonging to Intengo, but as correctly referenced in the altered invoice received by Hyundai.

The SCA confirmed that for payment to occur the payee must acquire the unrestricted right to the immediate use of the funds, which must register in the payee’s account.

The SCA held that, even though Hyundai had not acted fraudulently or for personal gain, the legal duty remains with the debtor (i.e., Hyundai) to ensure payment is made to the correct account. This obligation is not extinguished simply because an EFT was made. The risk in EFT transactions lies therefore with the payer, not the recipient.

The court referenced the well-known judgment of Edward Nathan Sonnenberg Inc v Judith Mary Hawarden 2025 (5) SA 9 (SCA), which had overturned the previous position that the creditor bore a legal duty to protect debtors from cybercrime. The SCA reiterated that it is now settled law, and consumers must take note: a responsible debtor must verify bank details, whether by phoning the recipient or through other means, before transferring funds. A failure to do so, even where cybercrime is involved, will not absolve the debtor of liability.

Written by: Frances Barrow – Candidate Attorney

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E & OE).

Can An Offer To Purchase Be Revived?

CAN AN OFFER TO PURCHASE BE REVIVED?

Maria Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO and Others (494/2023) [2024] ZASCA 136

In the abovementioned case, the Supreme Court of Appeal (hereinafter ‘SCA’) considered whether an addendum to an offer to purchase (‘OTP’), which had previously lapsed, could amount to a revival of that offer to purchase.

The purchasers (third and fourth respondents) concluded a sale agreement for immovable property on 4 February 2020. The agreement was subject to a suspensive condition being the approval, in writing, of a mortgage bond for the amount of R4 950 000 (Four million nine hundred and fifty thousand Rand). The Purchasers were required to obtain such approval by 14 February 2020. The first addendum to the OTP was concluded on 11 February 2020 which extended the period to 19 February 2020.

Due to Covid-19, the Purchasers were unable to obtain finance to which the Appellant agreed to furnish the funds on behalf of the Purchaser. The Appellant was unable to provide the funds by 20 February 2020, so the Purchasers and the Seller concluded a second addendum on 21 February 2021, after the lapse of the suspensive condition.

The court had to consider whether the second addendum, having been concluded after the lapse of the OTP, amounts to a revival of that OTP. The court relied heavily on McPherson v Khanyise Capital (2009) where the respective court highlighted that:

A suspensive condition cannot be waived or extended after the time fulfilment of the condition has passed;
That an agreement which has lapsed because of the non-fulfilment of the condition cannot be revived; and
That the parties are required to enter into an entirely new agreement, which can be on the same terms and conditions of the old one

The court further relied on the principle in Pangbourne Properties Ltd v Basinview Properties (Pty) Ltd (2011) which has previously been affirmed by the constitutional court, that a contract which has lapsed due to non-fulfilment of a suspensive condition cannot be revived, because there is no longer a right that can be waived. On this basis, the court decided that the second addendum did not amount to a revival of the OTP because there was no right to be waived as the OTP had lapsed and was unenforceable.

Written by: Marc van der Merwe – Associate Conveyancer

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Shareholder Protection under the Companies Act 71 of 2008

SHAREHOLDER PROTECTION UNDER THE COMPANIES ACT 71 OF 2008

The Companies Act 71 of 2008 (“the Act”) introduced significant reforms aimed at enhancing shareholder protection in South Africa. These protections are crucial for maintaining investor confidence and fostering a stable economic environment. This article examines the key provisions of the Act that safeguard shareholder rights and evaluates their effectiveness.

Minority Shareholder Protection

Minority shareholders often find themselves at a disadvantage due to the majority rule principle. To address this imbalance, the Act includes several measures designed to protect minority interests. Section 163 provides a remedy for shareholders who experience oppressive or unfairly prejudicial conduct by the company or its directors. This section allows shareholders to apply to court for relief if they can demonstrate that the company’s actions are detrimental to their interests. The court may grant various forms of relief, including restraining the conduct in question or ordering the company to amend its memorandum of incorporation (“MOI”).

A significant provision is Section 164, which introduces the appraisal rights remedy. This remedy, in certain instances, allows dissenting shareholders to demand that the company buys back their shares at fair value if they object to certain fundamental transactions, such as mergers or asset disposals. This ensures that shareholders are not forced to remain part of a company undergoing major changes they do not agree with.

Judicial Oversight and Remedies

The Act also empowers courts to play a crucial role in protecting shareholder rights. Section 162 permits the court to declare a director delinquent or place them on probation if they are found to have acted in a manner that is grossly negligent, wilfully misconducted, or breached their duties. This provision aims to hold directors accountable for their actions and prevent them from engaging in harmful conduct.

Additionally, Section 161 allows shareholders to apply to the court for relief if they believe that a company’s actions are illegal, fraudulent, or otherwise harmful. This section underscores the importance of judicial oversight in ensuring that companies adhere to legal and ethical standards.

Shareholder Agreements and Memoranda of Incorporation

The Act recognizes the importance of shareholder agreements and memorandums of incorporation in regulating the relationships between shareholders and the company. These documents can include provisions that offer additional protections to shareholders, such as pre-emptive rights, which allow existing shareholders to maintain their proportional ownership in the event of new share issuances. By enabling shareholders to customize their agreements and MOI’s, the Act provides a flexible framework that can accommodate the specific needs and preferences of different companies and their shareholders.

Comparative Perspectives

South Africa’s approach to shareholder protection aligns with international standards. For instance, the appraisal rights remedy under Section 164 is comparable to similar provisions in the USA, Canada, and New Zealand. This international benchmarking ensures that South African corporate law remains competitive and attractive to investors.

In the case of Cilliers v La Concorde Holdings Limited (“Cilliers”), the court extended the ambit of Section 164 to the shareholders of the holding company, demonstrating the judiciary’s willingness to interpret the Act broadly to protect shareholder interests. This case underscores the dynamic nature of South African corporate law and its ability to adapt to evolving business environments.

Challenges and Criticisms

Despite these robust protections, there are challenges in effectively enforcing shareholder rights. One significant issue is the difficulty minority shareholders face in proving that the conduct in question is unfair. The requirement that the conduct must be not only prejudicial but also unfair, as highlighted in Vryenhoek and Others v Powell NO and Others, raises the bar for successful claims under Section 163. This high threshold can deter shareholders from seeking redress, particularly in cases where the unfairness is subtle or indirect.

Moreover, the effectiveness of the appraisal rights remedy has been questioned. In Cilliers the court had to determine the fair value of shares, a process that can be complex and contentious. The determination of fair value often involves intricate financial assessments and may require expert testimony, which can be costly and time-consuming for shareholders.

Additionally, the requirement for shareholders to provide written notice to the company under Section 164(3) has been criticized as a procedural hurdle that can impede the exercise of appraisal rights. If the company does not receive a written notice, the subsequent steps in the appraisal process cannot proceed, effectively nullifying the shareholder’s rights.

Conclusion

The Act represents a significant step forward in protecting shareholder rights in South Africa. Its provisions for minority protection, judicial oversight, and flexible shareholder agreements provide a comprehensive framework for safeguarding investor interests. However, the practical challenges in enforcing these rights highlight the need for ongoing refinement and judicial interpretation to ensure that the Act fulfils its intended purpose.

As South Africa continues to develop its corporate governance landscape, it is crucial to balance the need for robust shareholder protections with the flexibility required for effective company management. By doing so, the country can maintain its attractiveness as an investment destination and foster a thriving, equitable business environment.

Should you require more information please contact Sarah Marx on smarx@bissets.com or via the relevant contact details below.

Written by – Rufus Dercksen (Candidate Attorney)

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Enforcement of company beneficial ownership filings and securities registers by CIPC

ENFORCEMENT OF COMPANY BENEFICIAL OWNERSHIP FILINGS AND SECURITIES REGISTERS BY CIPC

The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (the “Act”) has made several changes to the beneficial ownership framework of companies and trusts. The intention of these changes is to aid in preventing fraud and corruption in South Africa.

In May 2023, the Companies and Intellectual Property Commission (CIPC) implemented a beneficial ownership register and it became mandatory for all entities to disclose the ownership and securities register of the entity. Entities incorporated after May 2023 have to file their beneficial ownership information within 10 business days after the date of incorporation. The same timeline applies regarding the updating of beneficial ownership information where there have been changes in the entity.

Entities incorporated before May 2023 are also required to file their beneficial ownership information and securities register and are now prevented from filing their CIPC annual returns if the beneficial ownership register has not been filed with CIPC. CIPC have stated that all entities need to have filed their beneficial ownership information by 24 May 2024.

Non compliance with the filing of the beneficial ownership and securities register may result in administrative fines and the inability to file the CIPC annual returns (which may eventually lead to the deregistration of the entity by CIPC). Clients should seek to understand more about these changes to ensure that they never fall foul of their legal obligations.

Should you require more information please contact Sarah Marx on smarx@bissets.com or via the relevant contact details below.

Written by – Sarah Marx (Associate)

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When Does The National Credit Act Apply

WHEN DOES THE NATIONAL CREDIT ACT APPLY?

The National Credit Act No. 34 of 2005 (“NCA” or the “Act”) is a piece of legislation that provides for consumer protection. This means that where credit transactions take place between parties, it is important for the credit provider to act in accordance with the NCA to ensure it does not prejudice the consumer. The intention of the NCA is to level the playing fields to allow consumers to feel empowered and not to be taken advantage of by large corporate entities.

The two-step test to determine whether the NCA applies to a credit agreement, is whether the consumer falls within the definition of a consumer under section 4 of the Act and whether the transaction would be considered a credit agreement under section 8 of the Act. If the first question is answered negatively then there is no need to continue to the second question as the NCA will not be applicable. It is important to note that the Act only applies to credit agreements within the Republic of South Africa.

Section 4(1) of the NCA states as follows:

“Subject to sections 5 and 6, this Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except a credit agreement in terms of which the consumer is-

(i) a juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds the threshold value determined by the Minister in terms of section 7( 1);
(ii) the state; or
(iii) an organ of state;
(b) a large agreement, as described in section 9(4), in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below the threshold value determined by the Minister in terms of section 7(1);”

The annual turnover or asset value for a juristic person as of today’s date is more than R1 million. This means that the NCA will apply to all individuals and juristic persons whose annual turnover or asset value is less than R1 million. While a large agreement is R250,000.00 or more in terms of Section 7(1)(b).

Section 8 of the NCA defines what credit agreements are and separates the definition into four categories – credit facilities, credit transactions, credit guarantees and any combination of a credit facility or credit transaction.

The NCA does not apply to the following credit agreements:
● Loans to family members, friends, or partners in an informal manner.
● Stokvel agreements
● Insurance policies
● Leasing of immovable property

What is important to note is that there is a misconception that only registered credit providers need to comply with the provisions of the NCA. This is false as the NCA applies to all credit providers and therefore unregistered credit providers should be familiar with the provisions of the NCA in order to be compliant.

If you are thinking of entering into a transaction where credit will be provided, it is important to understand whether you are required to register as a credit provider. Failure to do so may result in unexpected penalties.

Written by: Orissa Ramesar (Candidate Attorney)

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Force Majeure And Its Practical Implications During The Covid-19 Lockdown

What does force majeure mean?

The term force majeure refers to an extraordinary event or circumstance beyond the control of the parties in a contract, which renders either one or both parties unable to perform their contractual obligations. When this occurs, the party who is unable to perform its obligation is absolved from liability by raising impossibility of performance as a defence. Natural disasters, plagues and acts of State are all examples of circumstances which could be classified as force majeure.

In some cases, parties have a force majeure clause included in their contract. Where this is not the case, the common law of impossibility applies to the contract.

Force majeure clauses

In the event that parties have included a force majeure clause in a contract, the parties are able to regulate the consequences that will follow in the event of impossibility of performance. In this context, parties have agreed whether or not performance by the party who is unable to perform should be suspended, when the suspension should lapse and whether or not the contract will terminate automatically.

Common law of impossibility

The case of Unibank Savings & Loans Ltd (formerly Community Bank) v Absa Bank Ltd 2000 (4) SA 191 (W) outlined the common law position of impossibility of performance. The court held that when performance of a contract is impossible due to unforeseen events that are not caused by the parties to the contract, the parties are excused from performing in terms of the contract. The impossibility, however, must be absolute and objective as opposed to relative or subjective. The court highlighted that subjective impossibility to receive or to perform does not terminate the contract or extinguish the obligations in terms thereof.

The more recent case of Glencore Grain Africa (Pty) Ltd v Du Plessis NO & others [2007] JOL 21043 (O) highlighted the supervening impossibility of performance requirements mentioned above, such as the impossibility must be objective, absolute and must not be the fault of either party. The court went further, to emphasize that the impossibility must be unavoidable by a reasona ble person and that the fact that a certain disaster or event was foreseeable does not necessarily mean that it ought to have been foreseeable by a reasonable person.

In MV Snow Crystal, Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal [2008] 3 All SA 255 (SCA) the court held that establishing the existence of a force majeure alone is insufficient for successful reliance on the defence of impossibility of performance. The court outlined various factors that need to be taken into account in assessing whether a party may rely on impossibility of performance as a defence, including “the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied”. These considerations were mainly introduced as a safeguard against the abuse of this defence, such as where the impossibility is self-created by one of the parties.

Is COVID-19 a force majeure?

In determining whether the COVID-19 pandemic and the subsequent lockdown regulations operate as a force majeure and suspend a party’s contractual obligations, an assessment of the specific context of the parties involved needs to be made (as described above).

In the context of South Africa, President Cyril Ramaphosa declared a “national state of disaster” as a result of COVID-19, in an address to the nation on 15 March 2020. Most recently, the Alert Level 4 Regulations released on 29 April 2020 (“the Regulations”) outlined the new restrictions in place to combat this epidemic. This declaration and the Regulations made in terms of this declaration have imposed significant, nationwide restrictions. In order to rely on a force majeure clause to avoid contractual performance, a party would need to show that the impossibility of performance is linked to these events. If the prohibitions imposed by the Regulations do not render contractual performance impossible, then a party to a contract will not yet be able to invoke a force majeure clause, unless such a clause is included in their contract.

What steps need to be taken by the parties?

Where a party seeks to rely on a force majeure clause or where the party anticipates that a force majeure clause will be relied upon, one must start by thoroughly going through the provisions of their agreement. This would be to determine whether the clause covers the occurrence of the circumstances that result from the spread of the coronavirus. In this regard, you have widely or narrowly drafted force majeure provisions. A narrow provision is one that specifically lists the events which may occur and therefore excludes any other event outside of those listed which may be relied on to invoke a force majeure clause. On the other hand, a widely drafted provision will normally include, in addition to the listed events, what is termed a “catch-all phrase” such as “any event arising beyond the control of the parties, rendering the performance impossible”. Therefore, as a party that seeks to rely on a force majeure clause as a result of the virus outbreak, it is essential that they ensure that agreement concerned between the parties is wide enough to include the said outbreak.

Material adverse change clauses (“MAC clauses”)

Another type of clause which is relevant to a force majeure event is a material adverse change clause. This clause allocates the risks that may materialise as a result of a force majeure. These clauses operate where an unforeseen state of affairs results in a material adverse change to one or more parties to a contract (financially or in their capacity to perform) or hinders the achievement of a contractual objective. Although similar to force majeure clauses in that both function in the context of impossibility of performance arising from unforeseen events, MAC clauses are distinguishable in their emphasis on the impact of the unforeseen events on parties rather than the unforeseen event itself.

Whether or not a MAC clause in a contract will be enforceable during the COVID-19 pandemic will depend on a case-by-case analysis. Factors to consider include how the clause is constructed, what circumstances / events are referred to, what the impact is on the parties or the object(s) of the agreements (and degree thereof).

During the pandemic, those wishing to rely on such a clause in their contract should do so with care as the consequence of the argument failing in court could result in claims for damages being raised, damage to a business’s reputation or, more likely, a claim raised that the applicant party has shown reluctance to perform their obligations under the contract (repudiation). The best way forward in these times would be for each party to assess the situation going forward and take every measure reasonably possible to mitigate against the financial hardships a particular business (or party to a contract) may experience as a result, before relying on the MAC clause.

Practical implications: Protection afforded by the Consumer Protection Act 68 of 2008 (“CPA”)

The following provisions of the CPA provide protection in circumstances which may arise during the COVID-19 lockdown. The protection of the CPA is only available to parties who meet the following requirements:

The provisions of the Act are only applicable to (a) individuals or (b) companies with a turnover of less than R1 million
The provisions do not apply to franchises or special-order goods
The provisions only apply to agreements concluded within South Africa

Section 17 of the CPA gives consumers who concluded a contractual agreement without reducing the agreement to writing a right to cancel such agreements. This may be particularly prevalent where an airline or hotel booking has been made. Whilst the consumer is given a right to cancel their booking under the CPA, the Act does also provide some relief to suppliers by allowing them to charge a deposit or ‘reasonable’ cancellation fee. The word ‘reasonable’ imposes a rather broad and subjective standard on suppliers – and it is often difficult to lay down hard and fast rules as to what exactly constitutes ‘reasonableness’. Our courts have, however, suggested a common sense approach as to what would constitute a ‘reasonable’ cancellation fee, based on the particular circumstances of each individual case.

Another important provision in light of the current circumstances, is section 17(5) of the CPA. This section stipulates that if a consumer is unable to fulfil his obligations due to hospitalization or death, he/she is entitled to a full refund from the supplier.

Section 14 of the CPA is of great importance, particularly in relation to commercial and rental agreements. This section deals with the renewal of fixed term agreements and provides consumers with the right to cancel a fixed term agreement by giving suppliers 20 business days written notice. Once again, caution must be given in that the CPA does allow suppliers to charge a ‘reasonable’ cancellation fee, should this provision be exercised by the consumer.

Practical implications: Obligations under lease agreements

During the COVID-19 pandemic and lockdown, there are measures that can be used by parties in a lease agreement to relieve the financial pressures caused by the pandemic:

Landlords may sign a waiver so that the lessee’s deposit can be used as rent instead of it being held in trust. To affect this change, an amendment to the rental memorandum by inserting a clause should be made. This clause should include a provision reinstating the deposit in instalments by a certain date
Parties may also agree to a reduction in rent for a temporary period

Further, these times do bring up the questions of tenants’ obligation to pay rent. The tenant’s obligation will probably depend on weighing their history of payment (if they are a good tenant who pays rent on time) against the impact of the force majeure event. It is only when a tenant’s beneficial use of the property is directly affected that they will be legally entitled to a remission of rent. In the situation where a tenant cannot earn an income, the effect is only indirect and the tenant generally won’t, therefore, be released from their obligation to pay rent.

In the context of residential rental agreements, the tenants will be enjoying full use and enjoyment of the leased property. This means that, despite the fact the tenant may not be earning their full income, their obligation to pay rental is unaffected. However, a commercial tenant who cannot use the property could be entitled to remission of rental. However, Judicial Officers will evaluate these situations on a case by case basis.

In terms of evictions, the position established by the Regulations is that Courts may grant evictions orders, but they shall be suspended until the last day of the Alert Level 4 period unless the court states otherwise.

Practical implications: The functioning of parental contact

The effects of the national COVID19 shutdown have had serious impacts on the movement of children and parental custody during the country’s 21-day lockdown period.

The current Regulations now permit the movement of children between co-holders of parental responsibilities in the same metropolitan area of district municipality, provided the parents are in possession of a court order, existing parenting plan (registered with the Family Advocate) or Form 3 of Annexure A of the Regulations (issued by a magistrate). Parents need to keep these documents on them when transporting children, in case they are stopped at a police roadblock during the lockdown period. Movement will not be allowed if one of the child’s households has recently been infected, or has reasonably suspected to be infected, by COVID-19, or if there is a reasonable suspicion that a member of his/her household has been in contact with an individual infected with the virus.

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The impact of the CPA on Franchise Agreements

With franchises becoming a common phenomenon worldwide and franchisors, traditionally, benefitting from a strong bargaining position when negotiating franchise agreements, regulation of the industry has become inevitable and has South Africa’s legislature initiated this regulation through the Consumer Protection Act No.68 of 2008 (“CPA”), which was signed into law on 24 April 2011.

The CPA has forcibly changed the way franchises operate, in that franchisees are deemed to be consumers in terms of the CPA and now have a whole variety of consumer rights. The CPA and its detailed regulations, regulate the whole franchising process, which includes the “franchisor-franchisee relationship” and more importantly, the franchise agreement itself, which must contain prescribed clauses and information in order to be CPA compliant.

A fundamental change affecting the franchise industry is that every franchise agreement must now contain a cancellation clause, failure of which the agreement may be declared void. In terms of section 7(2) of the CPA, a franschisee may cancel a franchise agreement, without costs or penalty, within 10 business days after signing such agreement. Under this provision, if the franchisee excercises his right to cancel the agreement, the franchisor has no remedy to recover from the franchisee any loss suffered as a result of the cancellation.

In addition to the aforesaid, a franchisor must provide a potential franchisee with a disclosure document, in terms of Regulation 3 of the CPA, at least 14 days before the franchisee signs the franchise agreement. This document is aimed at giving the franchisee all the information required in order to make an informed decision. The document must, as a minimum, contain the following:

the number of individual outlets franchised by the franchisor;
the growth of the franchisor’s turover, net profit and the number of individual outlets, if any, franchised by the franchisor for the financial year prior to the date on which the prospective franchisee receives a copy of the disclosure document;
a statement confirming that there has been no significant or material changes in the company’s or franchisor’s financial position since the date of the last accounting officer, auditor’s certficate or certificate by a similar reviewer of the company or franchisor, that the company or franchisor has reasonable grounds to believe that it will be able to pay its debts as and when they fall due; and
written projections of potential sales, income, gross or net profits or other financial projections for the franchised business.

Furthermore, the CPA governs the right of a franchisee to select suppliers in terms of section 13 of the CPA. The only platform in which the franchisor can now dictate supply are those goods which are branded or related to the branded products or franchise service.

The CPA also prohibits false or misleading representations concerning the performance, characteristics and benefits of the business, which is regarded as unfair, unreasonable and unjust contract terms. Franchise agreements must also contain provisions that prevent unreasonable fees, prices or other consideration and conduct that is not reasonably necessary for the protection of the legitimate business interests to the franchisor, franchisee or franschise system.

Sections 7 and 51 read together with Regulation 2 of the CPA, very specifically mark the parameters of clauses that must be included, as well as some that may not be included, in a franchise agreement.

Current and future franchise agreements will be largely impacted by the CPA and therefore business owners must acquaint themselves well with the ambit and workings of the CPA before entering into a franchise agreement. If you are a franchisee, it will benefit you greatly to make sure that you understand your rights and that you are not coerced into entering into a franchise agreement.

The practical effects of non-compliance with the CPA when negotiating and concluding franchise agreements have become apparent in rulings and findings by the National Consumer Tribunal, Consumer Court and National Consumer Commission, which do not tolerate any non-compliance with the strict provisions of the CPA. Readers are thus advised to obtain legal counsel before entering into a franchise agreement.

Reference List:

Consumer Protection Act. No 68 of 2008
Naudé T & Eiselen S, Commentary on the Consumer Protection Act, Juta, 2014

Are restraint of trade agreements important for business?

A restraint of trade is an agreement between an employer and an employee, or a provision in an employment contract that restricts an employee from being employed by a competitor of the employer, or establishing a business in competition with the employer following termination of employment.

TIBMS (Pty) Ltd t/a Halo Underground Lighting Systems v Knight and Another

In a recent case, there was a dispute of fact about the existence of the restraint of trade and a possible hi-jacking of the employer’s business by the employees. The employee conceded setting up a new business venture in direct competition with the employer. The employer failed to produce the restraint of trade agreement and contended that the employees destroyed the restraint of trade agreement. The employer also failed to produce other staff members’ restraint of trade agreements which would have weighed in its favour. The dispute of fact could not be resolved on the paper.

On 23 December 2016, the Labour Court dismissed an application by the appellant (Halo) for an interdict against its two former employees, the respondents (Knight and Breedt), to protect its confidential information and customer connections. The application relied on the terms of alleged restraints of trade agreements between Halo and Knight and Breedt, which prohibited them from being involved in any way with competitors for 24 months.

The application was dismissed by the Labour Court on a single point: a dispute of fact about the existence of the restraint of trade agreements. At issue was whether the respondents had deliberately destroyed the agreements as part of a concerted programme of action designed to hi-jack the business of Halo, or whether no agreements had ever existed.

It was found that the Labour Court was correct in dismissing the application. A costs order was granted in favour of the respondents in the court a quo set aside due to their conduct. Therefore, the appeal was partly upheld and partly dismissed.

Conclusion

Every citizen has the right to choose a trade, occupation or profession freely. However, restraint of trade agreements are completely legal and very much enforceable against South African employees. This is there to protect a business from having its core services stolen from it. Furthermore, these agreements will only be invalid and unenforceable if they are deemed unreasonable. It will be the responsibility of an employee to prove that an agreement is unreasonable. But, for the agreement to be valid, signed copies have to be available.

Reference:

TIBMS (Pty) Ltd t/a Halo Underground Lighting Systems v Knight and Another (JA29/2017) [2017] ZALAC 62 (18 October 2017)

Raphulu, L and Mkhwanazi, N. “Restraint of trade: a guide for employers”. IOL. https://www.iol.co.za/business-report/economy/restraint-of-trade-a-guide-for-employers-2003761

Is your business legally compliant?

Compliance refers to a company obeying all of the legal laws and regulations regarding how they manage the business, their staff, and their treatment towards their consumers. The point of compliance is to make sure that corporations act responsibly.

Is compliance for every business the same?

Certain businesses may be required by law to register with an industry association. For instance, if you want to practice as a public auditor and issue an opinion on assurance engagements, you must be registered with the South African Institute of Chartered Accountants (SAICA) and the Independent Regulatory Board of Auditors (IRBA). Compliance in this regard would depend on the type of business involved.

What are general requirements for all businesses:

Tax compliance (SARS, VAT Act) – First and foremost, the business enterprise must be registered with SARS for tax purposes (to be taxed on the income that it makes), secondly, if the business is an employer it must register itself as such and as an agent of government required to deduct employees’ tax from the earnings of employees and pay the amounts deducted over to SARS on a monthly basis. Thirdly, if applicable, a business may register for VAT in terms of the VAT Act.

The Occupational Health and Safety Act – The government requires businesses that employ people to provide a work environment that is safe and without risk to the health of employees.

Skills Development Levy (SDL) – Employers must pay 1 percent of their workers’ pay to the skills development levy every month. The money goes to Sector Education and Training Authorities (SETAs) and the Skills Development Fund to pay for training.

The Compensation for Occupational Injuries and Diseases Act (COIDA) – This Act seeks to ensure that employers are duly covered to provide compensation for disablement caused by occupational injuries or diseases sustained by employees in the course of their employment, or for death resulting from such injuries or diseases.

Unemployment Insurance Fund (UIF) – Employers must register with the Department of Labour to ensure that their employees are appropriately covered when out of employment.

Auditing requirements – Depending on the type of company you register, it may be required to be audited on an annual basis.

Financial Intelligence Centre Act (FICA) – If your company will be engaged with financial services, estate agencies, insurance, etc. you are required to comply with this Act in order to combat money laundering.

References:

http://www.bonaman.co.za/business-compliance-101-for-entrepreneurs/

https://bizconnect.standardbank.co.za/manage/operations-compliance/reference-documents/legislation-business-compliance.aspx

Is your Business POPI Compliant?

POPI refers to South Africa’s Protection of Personal Information Act which seeks to regulate the Processing of Personal Information.

What is Personal Information?

Means any information relating to an identifiable, living natural person or juristic person (companies, CC’s etc.) and includes, but is not limited to:

Contact details: email, telephone, address etc.
Demographic information: age, sex, race, birth date, ethnicity etc.
History: employment, financial, educational, criminal, medical history
Biometric information: blood type etc.
Opinions of and about the person
Private correspondence etc.

What is Processing?

Processing broadly means anything done with someone’s personal Information, including collection, usage, storage, dissemination, modification or destruction (whether such processing is automated or not).

Some of the obligations under POPI:

Only collect information that you need for a specific purpose.
Apply reasonable security measures to protect it.
Ensure it is relevant and up to date.
Only hold as much as you need, and only for as long as you need it.
Allow the subject of the information to see it upon request.

Does POPI really apply to me or my business?

POPI applies to every South African based public and/or private body who, either alone, or in conjunction with others, determines the purpose of or means for processing personal information in South Africa.

There are cases where POPI does not apply. Exclusions include: Section 6:

purely household or personal activity.
sufficiently de-identified information.
some state functions including criminal prosecutions, national security etc.
journalism under a code of ethics.
judiciary functions etc.

Why should I comply with POPI?

POPI promotes transparency with regard to what information is collected and how it is to be processed. Openness increases customer trust in the organisation.

Non-compliance with the Act could expose the Responsible Party to a penalty of a fine and/or imprisonment of up to 12 months. In certain cases, the penalty for non-compliance could be a fine and/or imprisonment of up 10 years.