Corporate & Commercial Update, How the Consumer Protection Act favours the buyer, reported in th Witness
How the Consumer Protection Act favours the buyer
The Consumer Protection Act (CPA) introduces many changes that will benefit consumers (natural persons or small businesses with an asset value or turnover of less than R3 million). Some of them are:
You can cancel any agreement which you conclude after receiving marketing that promotes or offers goods or services, provided that you do so within five business day after concluding that contract or taking delivery of the goods. If you do so, you must return the goods and the supplier must give you a refund.
It is illegal for a supplier to charge you for any goods, repairs or maintenance services unless the supplier had first given an estimate that you accepted or you pre-authorised the work up to a maximum value and the cost does not exceed that amount, or you turned down the estimate. Nor can the supplier charge a fee for preparing that estimate unless that cost was also first disclosed and accepted by the consumer.
Genetically modified organisms
It is illegal to produce, supply, import, export, package, sell, distribute or market maize, soya beans and imported canola oil that contains more than five percent genetically modified organisms without a label that specifically says so. If those goods are intentionally and directly produced using genetic modification processes, then they must be labelled, "Produced using genetic modification".
If it is impossible or not feasible to test those goods for the presence of genetically modified organisms, then they must be labelled, "May contain genetically modified ingredients". These labels must be conspicuous, written in plain language and easily legible.
Unfair or unjust contract terms
The act requires that agreements with, and notices to, consumers are written in plain language. The act also requires prices and terms which are fair, reasonable and just. Provisions that limit the supplier's risk or liability or which result in the consumer accepting additional risk or liability or acknowledging any fact, must be specifically brought to the consumer's attention in a conspicuous manner in a notice, which is written in plain language, at the time that the consumer concludes the agreement or makes payment.
You have a right to receive goods which are reasonably suitable for their intended purpose, which are of good quality, in good working order, free of defects, usable and durable for a reasonable period of time. These provisions will not apply if you are informed that the goods are offered in a specific condition and you expressly agree to accept them in that condition, or act in manner consistent with doing so. Suppliers will have to specifically inform you of all defects, whether latent or patent.
These are just some of the rights available today to consumers in terms of the act. It is important that consumers learn as much as possible about their rights so that they can rely on the protections offered.
Cathryn Bode, Partner
Contact: 031 575 7407 and firstname.lastname@example.org
Corporate & Commercial Law, Tax Law Update Gordhan remodels retirement landscape, reported in Business Day Law & Tax Review
Gordhan remodels retirement landscape
Written by Anton Lockem, Shepstone & Wylie
The proposed changes to the taxation of retirement fund contributions announced by Finance Minister Pravin Gordhan in his February budget speech could change the retirement landscape. These changes, if the proposals are accepted, are expected to come into operation on March 1 2012.
At present employer contributions to pension and provident funds are not subject to fringe benefit tax in the hands of participating employees. On the other hand, employee contributions toward a pension fund qualify as a tax deduction provided the contribution does not exceed 7,5% of pensionable earnings, while employee contributions to a provident fund do not qualify for any tax relief.
Therefore many employer provident funds are structured on a non-contributory basis, that is only the employer contributes to the fund, while pension funds are structured on a contributory basis, that is both the employer and employee contribute to the fund. This is done in order to optimise the tax efficiency of the current retirement contribution regime.
The minister now proposes that all employer contributions should attract fringe benefit tax, and that employees will be allowed to deduct up to 22,5% of their taxable income for contributions to a retirement fund, with a cap of R200 000.
Should the proposed changes come into effect, most employer funds, including umbrella funds, would have to change their existing contribution design should they wish to optimise the tax benefits available.
From a legal perspective, the implementation of such changes could prove to be more challenging than meets the eye. Not only will the fund rules have to be amended to reflect the changes, the consensual framework that governs the relationship between the employer and employee would also have to reflect the changes.
From a practical perspective, employers would have to ensure that their payroll parameters and remuneration frameworks are adjusted to accommodate a new contribution regime, all of which will add further to the increasing cost of administration and compliance for business. It is proposed further that lump sum withdrawals from provident funds be subject to the same one third limitation that currently applies to retirement annuity and pension funds.
The proposed one third limitation on the commutation of provident fund lump sum benefits will not only undermine the reason why these funds were chosen as retirement vehicles in the first place, but ignores the reality that pensioners may have budgeted capital requirements at retirement.
Anton Lockem, Partner
Contact: 031 575 7413
Litigation Update, Brilliant and hard-working KZN Judge President dies, reported in the Witness
INGRID OELLERMANN and BONGANI HANS
Kwazulu-Natal Judge President, Herbert Msimang, died yesterday evening in the intensive care unit (ICU) at Midlands Medical Centre in Pietermaritzburg where he had been receiving treatment for a heart ailment.
The Witness was able to confirm Msimang's death with a close family friend and colleagues last night. He had been in the ICU since early February after reportedly suffering a second stroke. Msimang was appointed to the Bench in KwaZulu-Natal in January 2002, and was appointed Judge President of the High Court on April 29, 2010.
He came under intense public scrutiny during 2005 and 2006 when he presided over now-President Jacob Zuma's corruption trial in Pietermaritzburg. In September 2006 he struck the case off the court roll after refusing a request by the prosecution for a postponement. Msimang has been described by colleagues and former teachers as having a "brilliant legal mind" and an impressive memory. Msimang practised law in Pietermaritzburg for many years from about 1981 in the practice Rutsch and Msimang. The firm later amalgamated with Shepstone, Wylie &Tomlinson to become Tomlinson, Mnguni & James. Last year one of Msimang's four daughters, Ayanda, was admitted as an attorney. She is the only member of the family to follow in her father's footsteps. While Msimang's family was still too traumatised to comment last night, retired KwaZulu-Natal Judge President, Vuka Tshabalala, who preceded Msimang, last night paid tribute to him and described him as "brilliant and hard working". Tshabalala said Msimang's death was a sad loss to the province. "He introduced a number of changes into the court system, which seem to be working well." The office of KwaZulu-Natal Premier, Dr Zweli Mkhize, also sent astatement of condolence. "We have put in place laws, which protect the weak and vulnerable members of society — children, orphans, women, and people living with disabilities, ill-health and others. "Judge Msimang played a tremendous role during the creation of such laws," said the statement.
Msimang was a commissioner for the Independent Electoral Commission (IEC) in the province for the last five years. Head of IEC in KZN, Mawethu Mosery, said: "As the IEC commissioner, the judge was a strict person who made us respect the law especially when it comes to very contested matters. "He left us when we are closer to the elections, and we don't have time to find a person with his wisdom to replace him."
Also shocked by the death was Pietermaritzburg Judge David Ntshangase. "I did not know about his death. I'm shocked and out of words. "He had a vision of where to take our courts to," said Ntshangase.
According to the IEC's website, Msimang obtained law degrees at the University of Zululand (B. Juris), the Tulane University of Louisiana (LLM) and the University of South Africa (LLB). After lecturing in private law at the University of Zululand for a number of years, Msimang practised as an advocate at the Lesotho Bar in Maseru and as an attorney in what is now Mpumalanga and KwaZulu-Natal, prior to his appointment as judge of the High Court in the province.
Litigation Update, Baker throws counterpunch, reported in the Zululand Observer
The string of legal suits against the City of uMhlathuze continues to mount despite vigorous attempts by the leadership to extricate itself from its financial woes.
City Electrical Engineer Dwayne Baker brought an urgent interdict against the municipality in the Durban Labour Court on Wednesday.
Baker was supposed to appear before an internal disciplinary hearing on the same day, which was subsequently postponed after the pending application was served on the municipality.
Baker, through his attorneys Botha Incorporated, challenged the jurisdiction of the municipality to convene a disciplinary hearing against him without permission from the Bargaining Council as per the collective agreement.
In addition, the appointment of Senior Manager: Corporate Services Mbali Ndlovu as Presiding Officer was challenged which, according to Baker, constituted a clear breach of the express terms of the collective agreement that the presiding officer must be impartial.
Ndlovu had reportedly been involved in the formulating, signing and pursuit of previous charges against Baker on behalf of the municipality.
Demonstrating Mbali's involvement in the matter, Baker's legal team asked the court to disqualify her from being appointed to act as an impartial chair.
Interim – Baker requested the Labour Court to grant an interim relief pending the appropriate resolution of the dispute before the Bargaining Council.
The matter was then postponed to 29 April and the municipality has given an undertaking that they will not continue with disciplinary proceedings in the interim, conceding that Mbali would indeed be disqualified from acting as the presiding officer.
The municipality, represented by Shepstone and Wylie in Durban, are to file opposing papers by 15 April followed by a response from Baker's legal team by 26 April.
If the interim relief is granted, the City will also be ordered to pay legal costs.
The City Council had authorised the appointment of a Disciplinary Committee and a Prosecutor in December to deal with internal disciplinary proceedings against Baker.
This followed his sudden suspension along with four other senior officials at the City's Electrical Department late last year.
It is the contention of Baker that the municipality has failed to comply with the provisions of the Collective Bargaining Council Agreement and the matter has been referred to the Bargaining Council for dispute resolution.
Ratepayers have consistently questioned the City's exorbitant legal costs at the expense of citizens and latest proceedings will undoubtedly add to rising concerns.
Corporate & Commercial Law Update, Jitters over new law for consumers, reported in Business Report
THE CONSUMER Protection Act, which came into effect yesterday, presents substantial risk to business and although many retailers and suppliers have worked hard to comply, the broad scope of the act and the late publication of the regulations has made it difficult to manage this risk.
Added to this is that despite managements' best efforts to train staff, incorrect information from a frontline staff member to a customer could land a company in hot Water. Penalties for non-compliance can be up to 10 percent of turnover. or R1 million, whichever is higher.
Rosalind Lake, a director at law firm Deneys Reitz, said the Consumer Protection Act had increased risk for business and presented massive challenges in terms of implementation in some areas as the final regulations were only published on Friday.
Although given the late publication of the regulations the National Consumer Commission is expected to show some leniency initially.
"After all the act is about compliance not punishment," she said. But even with a period of grace in terms of implementing some of the regulations, many aspects of the act stand alone and are effective from April 1.
Lake said the new legislation put a lot of pressure on suppliers, as its scope was very broad, covering the promotion of products, contracts, warranties and liability.
The National Consumer Commission will act on behalf of consumers, so making a complaint will be a lot easier than previously when consumers had to go to court themselves.
A lot of the uncertainty relates to product liability, which gives consumers far more scope to claim damages against suppliers. Previously a consumer had to prove injury was caused by a factory defect, which was difficult given how hard it was to get that kind of information.
Now in terms of the new act it is up to the retailer, supplier or importer to prove why they are not accountable for the harm caused given their role in the supply chain.
"The liability section of the act is extremely broad and it will be interesting how it pans out," Lake said.
The ambit of this section will be determined by the courts, which are reluctant, unlike courts in the US, to award huge claims.
For businesses to manage their risk in terms of liability they will need to review their insurance policies, taking note of the wording of their insurance contracts, which usually have several exclusions.
They would also need to ensure they had indemnities protecting them from the actions of other businesses in their supply chain, Lake said. "There will be indemnities up and down the supply chain, but we will have to see how well they hold up in court," she said.
Tamra Veley, a Pick n Pay spokeswoman, said: "Our suppliers have always been responsible for the quality of goods supplied and this is reflected in the agreement they have entered into with Pick n Pay. This principle has not been changed by the Consumer Protection Act."
Graham Rebello, the channel executive for Massmart, said quality management systems within manufacturing facilities and through to retail stores were crucial to ensure product safety, quality and durability meet the requirements of the act.
"Buyers and sellers will be scrutinising product packaging, labelling, instruction manuals and warnings to ensure customers have the information required to make informed decisions," Rebello said.
Patricia Pillay, the head of retail council and legislative affairs at the Consumer Goods Council of South Africa, said one of the biggest risks for retailers was the high turnover of staff in this industry. A new a staff member, who had not yet been trained on the act, could give incorrect information to a customer that might have huge implications for the company.
Massmart, the owner of Game, Makro and Builders Warehouse, has spent over R1.5 million directly in implementing the act, excluding travel and training hours.
This was money well invested as companies did not want to face the penalties that could be imposed in terms of the act for non-compliance, Rebello said. Spending included developing training material and the hosting of five vendor conferences in South Africa and one in Asia.
The likes of Unilever, Pick n Pay, Shoprite Checkers, Clicks and others have also trained staff.
But Lake said for smaller businesses implementing the act was hugely problematic with training, the rewriting of contracts and reproducing labels being costly.
Big companies had had teams of attorneys advising them on the new act, but for small enterprises there was not enough information available on how to implement their provisions, Lake said.
Beware product liability under CPA – Section 61 of the Consumer Protection Act, 2008 introduces drastic remedies for consumers who suffer death, injury or illness, or the loss of, or physical damage to, movable or immovable property as a result of having been supplied unsafe or defective goods, or if they are given inadequate warnings or instructions regarding hazards which may arise from using the goods supplied. A consumer will be entitled to claim compensation for harm suffered in respect of any defective goods supplied to that consumer since April 24, 2010. In terms of section 61, all manufacturers and suppliers of the goods which have caused harm to consumers in the manner specified in the section, are jointly and severally liable for that harm, as well as for any economic loss which a consumer may suffer indirectly as a result of that harm. Section 61 applies to all goods which are supplied to a consumer.
Impact on retirement funds – The Consumer Protection Act is likely to have a major impact on retirement funds. The CPA aims to promote and advance the social and economic welfare of consumers, defined as any user of goods or services, or a person who has entered into a transaction with a supplier of goods and services. This will include all retirement fund members, pensioners and beneficiaries, such as those to whom a death benefit is paid, as well as small funds. Entities with assets or turnover in excess of R3 million have been excluded from the definition of consumer, so most retirement funds will fall into the category of "suppliers". Boards of trustees need to ensure compliance with the obligations imposed on suppliers except insofar as they relate to the provision of services under the Long-term Insurance Act.
The Consumer Protection Act has introduced a new set of considerations and requirements for franchisors and franchisees. Most importantly, the definition of "consumer" in the act includes a franchisee and, accordingly, the multiplicity of consumer protections and rights embodied in the act apply equally to franchisees in their dealings with their franchisor. The ones which may require many existing franchisors to amend their current business practices include:
- The consumer's right to select their own suppliers
- The consumer's right to return goods
- Cooling off
Future of fixed-term agreements – According to the draft regulations to the Consumer Protection Act, 2008 from March 31, 2011, suppliers of goods and services will not be permitted to conclude a fixed-term agreement to supply goods and/or services to a consumer for a period exceeding 24 months from the date on which the consumer signs the agreement. The act also provides that a consumer may cancel a fixed-term agreement at any time on 20 business days' notice to the supplier. This spells the end of the common practice of locking consumers into one-sided agreements from which they are unable to escape. Suppliers will have to constantly monitor the expiry dates of each of their fixed-term agreements. – Reports by Shepstone & Wylie
Employment & Pension Law Update, Social media comments can be a minefield, reported in Business Day Law & Tax Review
Social media comments can be a minefield
RUDE ONLINE REMARKS- Employees should beware of whinging about employers on the internet
By VERLIE OOSTHUIZEN Shepstone & Wylie Attorneys
Most employers and workplaces have strict rules and policies regarding intemet and computer resources. More often than not, social networking sites such as Twitter and Facebook are blocked on the company network to prevent employees wasting valuable work hours "tweeting" and connecting with "friends" in cyberspace. However, with the advent of smart phones it has become very easy for employees to surreptitiously log on to these sites and "update" their profiles from their mobile phones without their employer's knowledge. While it is difficult to discipline these employees unless their work is suffering, they may easily be charged with misconduct if they make derogatory comments about their employers. It was recently reported that a senior employee was dismissed from a theatre company for making slanderous and bigoted remarks about his superiors on his Facebook profile. It is our opinion that this type of misconduct is going to be a regular feature in workplaces. Many employees do not realise the sheer number of people who are witness to the complaints that they may post about their employers on social networking sites. It is very easy for their superiors to obtain this information and it provides ample evidence of a breakdown in the trust relationship. Employees may not be aware of the duty of good faith that they owe to their employer and that the very act of denigrating that employer, be it in frustration or in an attempt to be humorous, will be a breach of that duty or may amount to defamation. There will be very little that an employee will be able to do to defend themselves if it has been discovered that they are writing rude remarks about their company, superiors or even colleagues on a social networking site. Further, employees must remember that anything that is contained on those sites is very difficult, or even impossible, to permanently erase and a canny IT specialist may be able to find the offending comments long after they have been forgotten by their author. Employers are advised to take these types of incidents seriously in the workplace as the social media has been exhibited as an extremely powerful tool. If the company's name is being blackened by disgruntled employees disciplinary action can and should be taken against offenders.
Employment & Pension Law Update, Part-time employees pose pension problem, reported in Business Day Law & Tax Review
Part-time employees pose pension problem
Written by MAX ROWLEY Shepstone & Wylie
If the proposed amendment to the Basic Conditions of Employment Act relating to benefits offered to fixed-term employees is passed, employers will have to provide benefits similar to, or of equal value, as those for permanent employees. This will result in additional cost to employers, who may be required to offer similar contractual terms such as access to occupational pension funds. When employers contribute to pension funds on behalf of their permanent employees they may be required to offer fixed-term employees access to the pension fund and make similar contributions. In relation to pension-fund benefits, and particularly where an employee is on a short-term contract, that is three months, the administrative cost and burden involved in arranging for an employee to be admitted to a pension fund may not make business sense. Similarly, when the contract comes to an end and an employee withdraws from the fund a further administrative burden will be imposed. Employers will want to consider ways of avoiding having to arrange for these employees becoming members of the fend. In the UK, similar legislation is in place to protect fixed-term employees. Employers are required to treat these employees no less favourably than their comparable permanent employees unless there is an objective justification for doing so. The employer may be able to justify not allowing access to the fund to fixed-term employees based on cost and administrative concerns. This "objective justification" provision is excluded in the South African proposed amendment. In principle, however, while it is necessary to offer the same rights of access to the pension fund and the same benefits, it may be possible to offer access on different tents, providing the overall package of rights is comparable. From a South African perspective, the proposed amendments say that the benefits offered must be "similar or equal value". If for some reason it is not possible to offer fixed-term employees access to the pension fund it may be possible to offer equivalent contributions to a private arrangement such as a retirement annuity. Another alternative would be to pay fixed-term employees an additional amount on top of their salary equivalent to the value of the pension fund contributions made in respect of permanent employees, or to provide them with a total cost-to-company package that would include the value of the employer pension contribution. The employer may also wish to introduce a waiting period for access to the pension fund. This is where both permanent and fixed-term employees would only be allowed access to the pension fund and the employer obliged to make contributions after being in service for a certain period, for example a year. Therefore, although employers will have to provide similar benefits to fixed-term employees as that of permanent employees, from a pension benefit perspective they may not have to provide them access to the pension fund as long as they provide a benefit of equal value. Although the proposed amendment will be an employment issue and no claim would lie against the trustees of a pension fund if fund membership was not offered, it would be an issue that trustees of funds excluding fixed-term employees may wish to raise with the employer.
Carlyle Field, Associate
Contact: 031 575 7208 and email@example.com
Employment & Pension Law, To whose benefit, reported in De Rebus
To whose benefit?
Should fixed term contract employees receive the same benefits as permanent employees ? Written by Yonela Mbana
One of the amendments in the proposed Basic Conditions of Employment Amendment Bill inserts a further subsection to s 32 of the Basic Conditions of Employment Act 75 of 1997. This addition reads: 'Employers must contribute benefits of similar or equal value to employees employed on a fixed term contract as the benefits afforded to permanent employees.' A fixed term contract can be for any 'fixed' period. The duration of the contract is specified between the employer and the employee. The position for a fixed term employee usually avails itself either for the completion of a certain task or to fill in for an absent employee. The contract may either state the period of its duration, for example three months, or describe the task to which the period relates. A fixed term contract automatically expires when the period contracted for comes to an end. The disadvantage for an employee who is employed on a fixed term contract is that the employee is not usually awarded the same benefits that other employees are entitled to. In the converse, the employer is usually at an advantage, in that it saves costs on contributions to the employee's pension, medical aid obligations and severance pay, and it need not go through the time-consuming dismissal procedures when the contract expires. The use of the word 'must' in the proposed amendment illustrates that there is an obligation on employers to comply with this provision. But what constitutes a benefit? What is common to cases such as Sithole v Nogwaza NO and Others (1999) 20 ILJ 2710 (LC) and Schoeman and Another v Samsung Electronics SA (Pty) Ltd(1991) 18 ILJ 1098 (LC) is that a benefit is defined as something that arises out of a contract of employment, something extra apart from remuneration and that has some monetary value to the employee and a cost to the employer. This includes pensions, medical aid and housing subsidies. Thus the amendment proposes that fixed term contract employees must receive benefits of similar or equal value to the medical aid, pension, housing subsidies and other benefits that are awarded to permanent employees. Industries that have ranging peak and slow periods, such as the hospitality, retail, agriculture and construction industries, will be the most affected by the enactment of this subsection. During the festive season students take up employment in retail and hospitality from November to February. Their employers will now have to contribute equivalent contributions towards their medical aid, pension and any other benefits that other permanent employees receive. Not only is this going to be financially costly to employers, it will probably also create an administrative nightmare. Hotel staff, waitrons and retail sales assistants, will have to be placed in the same monetary position as their permanent colleagues for the two months that they hold their jobs. Employers will have to call for a thorough forecast for every new appointment to a fixed term contract position, failing which the fixed term contract employee may bring any breach to the Labour Court's attention in terms of s 77(3) of the Basic Conditions of Employment Act. The proposed amendment seeks to introduce a concept already in place in the European Union (EU) in the form of the European Union Council Directive 99/70/EC. This instrument forbids employers from treating fixed term workers in a less favourable manner than permanent workers, unless the differential treatment can be 'justified on objective grounds'. The European Court of Justice in Del Cerro Alonso v Osakidetza (Servicio Vasco de Salud)  1CR 145 interpreted objective grounds to mean that less favourable treatment must be objective, must show that a genuine need of the business is met by this unfavourable treatment of a fixed term worker and that the discriminatory means are necessary and suitable to achieving this need. The United Kingdom has internalised the directive with the enactment of The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2034 of 2002. Similarly, these regulations give employees on fixed term contracts the right not to be treated less favourably than comparable permanent employees in the same establishment as regards any term of the contract, unless the different treatment is 'objectively justified'. The regulations allow for employers to offer benefits on a pro rata basis in proportion to the duration of the fixed term contract. In circumstances where it is inappropriate to offer the benefit proportionally, employers are able to 'objectively justify' not affording the benefit to fixed term contract employees if the cost of doing so would not make genuine business sense. One of the motivating factors behind the EU directive is that more than half of the fixed term contract workers in the EU are women and the directive would improve the equality of opportunities between women and men. In South Africa, the majority of fixed term contract workers in the construction, mining, hospitality and retail industries are black people. Perhaps the labour department is of the view that the proposed amendment would similarly improve the equality of opportunities between white and black South Africans. However, excluding a provision that enables employers to 'objectively justify' why they are not contributing benefits of equal or similar value to fixed term employees poses a potential for widespread collapse of business. This would not be to the benefit of anyone.
Employment & Pension Law, It is the function of the court to interpret and not to make law, reported in De Rebus
Iudicis est ius dicere sed non dare: It is the function of the court to interpret and not to make law
Written by Vuyo Mkwibiso
South African Airways (Pty) Ltd v Aviation Union of South Africa and Others  2 BLLR 112 (SCA).
In the much referenced judgment of Dadoo Ltd and Others v Krugersdorp Municipal Council 1920 AD 530 the then Appellate Division of the Supreme Court held that when the language of a statute is ambiguous, it must be interpreted by the court by first giving effect to its ordinary and grammatical meaning. When, however, that meaning brings about absurd results, it may be departed from, provided the departure upholds the policy and object contemplated by the legislature. The court in that matter did not venture into the extent to which a departure from the ordinary meaning of the language would be justified as the language in the relevant statute was plain and unambiguous. The court noted, however, that there must be a limit to such a departure. In today's legal system the question arises as to the extent to which the Constitution allows the courts to deviate from the ordinary meaning of words used by the legislature in the statutes of South Africa. In the sphere of employment law, this issue has arisen in the interpretation of s 197 of the Labour Relations Act 66 of 1995 (the Act). This section deals with the fate of employees when the business in which they are employed is transferred to a new employer. Section 197(1)(6) of the Act defines 'transfer' to mean 'the transfer of a business by one employer ("the old employer") to another employer ("the new employer") as a going concern'. Section 197(2) provides that on the transfer of a business, the new employer is automatically substituted in the place of the old employer in respect of all contracts of employment in existence immediately before the date of transfer, unless otherwise agreed by the two employers and the employees' representatives. The new employer steps into the place of the old employer and enjoys the same relationship of rights and obligations with the employees as the old employer. The definition of the term 'transfer' has been at the centre of much debate around s 197. In particular, the use of the word 'by' in the definition has caused quite a stir among lawyers, jurists and judges alike. The case of South African Airways (Pty) Ltd v Aviation Union of South Africa and Others  2 BLLR 112 (SCA) epitomises the difference in opinion regarding the correct interpretation of s 197. This was a case in which South African Airways (SAA) had outsourced the functions of its infrastructure and support service department to a company known as LGM on a fixed-term basis, subject to the retention by SAA of the right to obtain transfer of the same services and functions back from LGM. The two parties also agreed that SAA's employees would be transferred to LGM in terms of s 197. Several years later, SAA gave LGM notice of termination of the agreement and the employees who had transferred from SAA to LGM sought an undertaking that SAA would take them back. When SAA refused to give the required undertaking, the employees, through their union, approached the Labour Court for an order that the termination of the agreement gave rise to a transfer to SAA in terms of s 197. The Labour Court application was lodged before the effective date of termination of the outsourcing agreement and before SAA could outsource the same functions to another company or resume the functions itself. The employees contended that the termination of the outsourcing agreement was tantamount to a transfer from LGM to SAA and a possible transfer to a third party that would replace LGM. This latter transfer envisaged by the employees is referred to as a 'second generation transfer', while the initial transfer from SAA to LGM is referred to as a 'first generation transfer'. The Labour Court found that s 197 did not apply to this case because the section only envisaged a transfer 'by' the old employer to the new employer, not the other way round. The court also held that there was no evidence of a second generation transfer, which was brought about by the premature lodging of the application. The court therefore applied what it referred to as the literal meaning of the definition of 'transfer'; that it only included first generation transfers from the old employer to the new employer, but not second generation transfers from the new employer back to the old employer. The Labour Appeal Court was of the view that the conclusion of the court a quo would lead to an absurdity in that employees who were part of a first generation transfer would have their employment history and severance packages protected while those who were part of a second generation transfer would not be so protected. The court found that the best way to avoid this absurdity and to uphold the spirit, purport and objects of the Bill of Rights and the Act was to read the word 'by' as meaning 'from'. This, the court envisaged, would cover first and second generation transfers. The Supreme Court of Appeal (SCA) has now ruled on the matter. The majority of the court criticised the Labour Appeal Court's approach to interpreting the definition of transfer in s 197. It emphasised that courts ought not to distort the meaning of words used by the legislature in statutes. The court noted that the possibility of an abuse of legislation did not justify the distortion of the meaning of its words. The court cited the Dadoo case, in which it was held that where the words of a statute are clear and unambiguous, their ordinary meaning must not be departed from. It found that where the ordinary meaning of a statute resulted in an infringement of fundamental rights, the proper approach was to challenge its constitutionality, in which case an order of unconstitutionally would have to be confirmed by the Constitutional Court in terms of s 172(1 )(a) of the Constitution. The single dissenting judge of the SCA was of the view that s 39(2) of the Constitution, in giving the court the power to give effect to the spirit, purport and objects of the Bill of Rights when interpreting legislation, gave the court the power to read into a statute words that do not exist – as the Labour Appeal Court had sought to do – irrespective of the clarity and unambiguous nature of the words used in the statute. I submit that the adage principle expressed in Dadoo's case prevails in today's constitutional order, as the SCA majority observed. Section 39(2) of the Constitution does not give the courts power to alter the meaning of words used in a statute and to thereby legislate under the guise of promoting the spirit, purport and objects of the Bill of Rights. Where the wording of a statute is ambiguous, the courts may invoke s 39(2) to bring the particular provision within the spirit, purport and objects of the Bill of Rights. However, where the clear meaning of a statutory provision leads to a violation of fundamental rights, the courts' role is to declare that provision unconstitutional, which declaration must be confirmed by the Constitutional Court. This approach will, as the SCA observed, better preserve the doctrine of separation of powers, which in turn will preserve the rule of law. However, I also submit that in attempting to determine the purpose of s 197 and the meaning of the term 'transfer' as defined therein, emphasis has been placed on the wrong word. The courts ought to have dwelt on the meaning of the terms 'old employer' and 'new employer', not on the word 'by' as used in the definition of 'transfer'. The question is: Who is the old employer and who is the new employer? In a second generation transfer agreement in terms of which services and functions are returned to the original or initial employer, does the original or initial employer remain the old employer or does he become the new employer? I submit that the employer to whom the services or functions were outsourced becomes the old employer and the employer to whom the services return becomes the new employer. Indeed, s 197 refers to the 'old' and 'new' employer merely for purposes of convenience. What is of importance is that it envisages a transfer from 'one' employer to 'another' employer. Viewed in this manner, s 197 may be viewed as protecting the rights of employees who are part of a second generation transfer (in effect another first generation transfer), and the unfairness that the Labour Appeal Court attempted to avoid ceases to exist. Had the SCA regarded SAA as the new employer and LGM as the old employer, it may well have come to the conclusion that the employees of LGM would be transferred to SAA on the effective date of cancellation of the contract between the two parties. In essence, the employees sought a declaratory order to this effect. It did not matter that the effective date of termination had not come to pass at the date of the application to the Labour Court. Thus considered, the majority of the SCA would not have erred in finding that the lack of evidence of a transfer was fatal to the employees' case.
International Transport, Trade & Energy Update, Ship guns confiscated, reported in the Zululand Observer
THE captain of a cargo vessel was sentenced to R30 000 or 15 years imprisonment after the seizure of undeclared high-powered assault rifles on board his vessel. The captain of 'MV Bow BAHA' of the Nassau Port of Registry, voluntarily accompanied police to the Richards Bay police station following the discovery of four Browning 308 rifles with scopes and ammunition. The police found the weapons during a routine spot check of the tanker. The crew explained that the weapons were intended for self-defence in the event of a pirate attack, but the police say they have a duty to enforce the law without exceptions. 'Although we are all aware that pirates are a very real danger, the weapons should have been declared properly. 'Commercial vessels must declare the content of their cargo and obtain in-transit or import permits at least 21 days before entering the South African sea border. 'It is not too difficult or cumbersome to obtain permits.' Brian Morkel of Shepstone & Wylie Attorneys appeared on behalf of the captain on instruction of the Vessel Protecting and Indemnity Club. Speaking to the Zululand Observer, he said the ship owner, Star Tank Limited, is losing millions while the ship is lying in the harbour and that it was in their financial interest to finalise the matter as soon as possible. He said his client had no criminal intent. The captain proceeded to plead guilty on contravention of Section 73 of the Firearms Control Act. His sentence was wholly suspended for five years on warning that it will be put into operation if one of the company's ship crew is convicted of a similar offence within the period of suspension. The magistrate also warned that a repeat offence could lead to the ship being confiscated. According the International Maritime Bureau (IMB), 53 ships were hijacked worldwide last year, of which 49 were off Somalia's coast and 1 181 hostages were taken in 445 pirate attacks. Maritime piracy costs the global economy between $7 and $12 billion a year in ransoms, insurance premiums, rerouting ships, security equipment, naval forces, prosecutions, antipiracy organisations and cost to regional economies.