Where To Begin With A New Business?

You might have decided that it is time to start your own business, you have identified the perfect premises from where the business will operate and you may have also contemplated to approach a potential partner or two. The finances are in place, but you are still brainstorming on what needs to be done and what business entity will best suit your particular business desires.

Let us highlight your basic principal obligations.

First and foremost it is important to understand that to run a business requires a lot of time, commitment and dedication and that you need a proper business plan from which you will operate. A business plan will also be very important in the event of applying for finance and even to approach a business partner. It further entails that you should be conversant with the content of the lease agreement of the premises and whether there are options available for renewal of the lease.

It must further be established whether any licences or permits are required for the operation of the business. Some types of businesses that relates to health care, food, liquor, gambling etc. requires a licence to lawfully trade. It is therefore important to timeously identify these requirements in order to lodge the necessary applications since any trade in respect of these type of businesses will not be allowed.

When all the steps above, amongst others, have been disposed of, you will have to decide from which business entity you will operate. There are a few options available and the choice will have important consequences for yourself and your business. The most prominent business options to consider are the following:

Sole Proprietor

This option entails one owner where you will operate your business in your own name. You are allowed to make use of a business name, but the business as such will vest in you personally and does not consist of a separate legal entity. This is the most basic form of business and requires little, in comparison to other entities, to get off the ground. The biggest risk factor in this type of business is that, in the event that the business will fail, the business owner shall be personally liable for all the business’s debts and can the creditors seize upon your personal assets. Furthermore, this business form does not allow for partners, but further employees may be employed. Options for finance will also depend on the size of the business for which the owner will personally qualify.

Partnership

A partnership is established where two or more (to a maximum of 20) partners takes hands to trade or to operate a business or profession. A partnership does not have a separate legal entity from its partners and thus all partners will be personally liable for losses and share in the profits. This business form is relatively easy to establish by preparing the necessary partnership agreement that will regulate the feature relationship of all the partners and each partner’s contribution (whether by money, labour or expertise) towards the partnership. Due to the fact that there are two or more (to a maximum of 20) partners, this type of business entity is normally in a stronger financial position than the sole proprietor and the partners can combine their respective power to make a success of the business. Partners are all liable though for the business’s obligations and any thoughtless action can have devastating consequences for each partner and even the survival of the partnership. This form of business is usually found by professionals such as attorneys, doctors etc.

Close Corporation

As from 1 May 2011, no further registration of close corporations will be possible, but existing close corporations may convert to companies by filing, amongst other required documentation, a notice of conversion. Conversion is, however, not compulsory and close corporations will continue to exist until deregistration or dissolution in terms of the Close Corporations Act, 1984. Close corporations will be treated as private companies and are subject to the same audit requirements as private companies.

Private Company

A private company is considered to be a separate legal entity independent from its members and thus it has its own rights and obligations. This business entity is also dealt with as a separate taxpayer. The owners of a private company exists out of its shareholders and is managed by its directors. A shareholder can also be a director of the company, but this need not necessarily be the case. The benefits of a private company includes, amongst others, the limited liability of its shareholders with regard to the company’s obligations as well as the continuity and transfer of the business due to the fact that it is not linked to the owners but to the entity itself. The establishment, management and functioning of the company is dictated by the provisions of the Companies Act of 2008 which can make this type of business more complex and expensive.

The decision regarding the most relevant type of business structure is one which cannot be taken without legal- and even tax advice. Further implications surrounding the number of members, financing, administration costs, business continuity and insolvency issues are also aspects that needs consideration in the run-up to your business decision. When the applicable business entity has been identified, the following tax obligations needs mentioning:

– Register at the Receiver of Revenue for paying income tax, employee tax and skills development levies in respect of employees.

– In the event that you suspect that your turnover might exceed R1 million per year, you are obliged to register for VAT (Value Added Tax). You may also apply for voluntary VAT in the event that you suspect that your turnover will be more than R50 000 but less than R1 million per month.

Your business might even qualify for certain tax benefits created by the Receiver of Revenue for small business enterprises.

Employees are an important asset for any business. Consequently, it is paramount for you as an employer to make provision for a safe working environment and also to register with the occupational injuries and compensation Fund to ensure employee protection against injury on duty. The business owner is lawfully obliged to register with the Fund for yearly contributions, irrespective of the size of the business.

An employer should register with the Unemployment Insurance Fund (UIF) to make provision for, amongst others, employees on maternity leave or otherwise not able to perform their duties. The UIF serves as temporary relief for the employees aforesaid.

The employer is also obliged to draw up a service agreement for all employees which sets out all terms and conditions of their employment and supply monthly salary slips indicating all rightful deductions.

Now that you have identified the business entity, complied with your registration obligations and correctly organised your employees, you need to consider your marketing strategy. It is advisable to design and register a trademark to differentiate your business from others and also with a possible view of franchising your business in the feature.

The above is just a concise summary of the steps towards commencing your own business, which may be a complex process with all the attendant costs, but if managed correctly it can avoid a myriad of complications in feature.

Consult with your lawyer and be prepared to start your own business with the correct advice

By

Francois van Zyl
Associate
francois@dyason.co.za

Needletime royalties: Finding the needle in the haystack

Royalties are serious business for artists in the music industry. So serious that, when Taylor Swift publicly criticised Apple for not paying any royalties to artists during the three month trial period after the launch of their new music streaming service, Apple “swiftly” reversed their policy within 24 hours.

Although royalties are clearly serious business for artists, until the recent below discussed cases, it was difficult to determine an appropriate tariff to be charged in South Africa, partially due to the fact that it is very difficult to determine the value of publicly played music.

Shops, restaurants, sport stadiums, banks, malls or other public spaces and radio stations obtain their background music or playlists from a collecting society in terms of Regulation 7(1) of the Collecting Society Regulations as a repertoire of copyright protected sound recordings against payment of royalties, which the collecting society collect on behalf of the copyright owners of such music.

The South African Music Performance Rights Association (SAMPRA) is currently the only accredited collecting society in terms of the Regulations on Establishment of Collecting Societies in the Music Industry, published under GN 517 in GG 28894 of 1 June 2006, section 9A of the Copyright Act 98 of 1978 and section 5(1)(b) of the Performer’s Protection Act 11 of 1967. Further to being the only accredited representative collecting society collecting royalties on behalf of its members, SAMPRA’s only member is the Recording Industry of South Africa (RISA). RISA, in turn, represents the so-called “big four” record companies in South Africa, being Sony BMG Music Entertainment Africa (Pty) Ltd; EMI Music South Africa (Pty) Ltd; Universal Music South Africa (Pty) Ltd and Gallo Music Company (Pty) Ltd. SAMPRA accordingly represented 95-99% of record companies in South Africa.

This situation looks like a monopoly of monopolies and was this one of the points the Foschini Retail Group put forward when arguing that SAMPRA was charging unreasonable and inflated tariffs when it came to the determination of royalties. In the matter of Foschini Retail Group (Pty) Ltd and 9 others v The South African Music Performance Rights Association (0003/2009) [2013] ZAGPPHC 304 (25 October 2013) they argued that SAMPRA was not only unable to provide any economic justification for the set tariff, but that SAMPRA also unilaterally set the tariff.

At this stage it is important to note that section 9A(1)(b) of the Copyright Act specifically determines that:

“…the amount of any royalty [pertaining to the broadcasting of sound recordings] shall be determined by an agreement between the user of the sound recording, the performer and the owner of the copyright, or between their representative collecting societies.”

(My underlining)

SAMPRA and the Foschini Group were accordingly obliged in terms of the Copyright Act to mutually agree on the royalty tariff.

SAMPRA defended their tariff by explaining the complex method of determining the tariff they have applied, stating that they cloned Australian tariffs and similarly calculated tariffs per square meter, while considering International Best Practice and the tariff scales of the Sound Recording Collecting Society in the United Kingdom, as well as a Canadian model. SAMPRA concluded that the market should determine the correct tariff. If the tariff is set to high, retailers will not pay for a SAMPRA licence to play their music in stores, which will negatively affect the amount of royalties to be earned by SAMPRA’s members. SAMPRA believes that they must act in the best interest of their clients.

The Foschini Group held strong in their argument that the tariff charged by SAMPRA was set as a result of SAMPRA’s monopoly and noted that SAMPRA’s tariff was even higher than the tariffs charged in developed countries, including Australia and that SAMPRA’s tariff was overpriced relative to the wealth of South African consumers. Notwithstanding the fact that the Foschini Group took this up with SAMPRA before, SAMPRA merely followed a “take it, or leave it” approach, aggravating an already tense relationship.

In circumstances where parties cannot reach an agreement relating to royalties, section 9A(1)(c) of the Copyright Act provides for the referral of a dispute of this nature to the Copyright Tribunal or arbitration. Regulation 7(5) of the Copyright Regulations determines that:

“…should a tariff proposed by a collecting society not be accepted by the trade associations and representative bodies or any potential user, user groups, or individual users, such potential users and user groups shall have the option to pay the amount demanded by the collecting society into an escrow account [similar to a trust account], pending the outcome of a referral to the Copyright Tribunal…”

The Foschini Group duly paid the set tariffs into an escrow account and referred their so-called needletime royalty dispute to the Copyright Tribunal. The tribunal held that SAMPRA contravened the provisions of section 9A(1)(b) of the Copyright Act by unilaterally determining the tariffs on the basis that the said act obliges SAMPRA to enter into negotiations with the retailers as users before determining the amount for the royalty. Accordingly SAMPRA’s “take it, or leave it” approach was also procedurally unfair.

The tribunal further found the current tariff, as set by SAMPRA, to be invalid on the basis that the tariff was not set in accordance with an agreement between the users and the owners or their representatives collecting societies, nor by a Copyright Tribunal where it was clear that the tariff was disputed and an agreement between the said parties were unlikely, as stipulated in the Copyright Act.

The tribunal also held that international practices could not be “cut and pasted” on a South African market. In the matter of National Association of Broadcasters v South African Music Performance Rights Association and Southern African Music Rights Organisation 2014 (3) SA 525 (SCA) (14 March 2014) the court explored this issue further and noted that there was no statutory prescribed rate of royalties to be paid by radio stations to record companies. Although the Copyright Review Commission recognised in their 2011 report the various lacunae in the legislation about the Collecting Society’s model for distribution of royalties to musicians and composers, no guidelines have emerged ever since. However, a universal principle applies in terms of which royalties are paid in relation to the time music played on the radio station, translated into layman’s terms: “pay for play”. The Court was struck by the complexity of regulation in this regard in the radio industry and is it clear from its judgment that our courts favour a much simpler approach. As in the Foschini Group-matter, the court also refused to let international practices dictate the determination of local royalties. In determining an appropriate royalty tariff, the Supreme Court of Appeal (SCA) tried to strike a balance between a tariff that allows for fair remuneration of the copyright owner and a tariff that is also in the best interest of the users of their work, thus emphasising public welfare as policy.

The SCA subsequently reduced the existing royalty of 10%, which was lowered by the court a quo to 7%, to 3% to bring the royalties earned by recording artists in line with the royalties earned by music composers, being 3% of the revenue reflected in a radio station’s financial statements. In this regard Navsa AJ said that:

“It does not appear that royalty rates for sound recordings internationally exceed composer royalty rates. It is arguable, though not definitive, that composers are the key component in relation to the production of music.”

Much of the royalty money collected by SAMPRA will in any event find its way to the United States of America or other countries which results in a negative revenue flow for South Africa.

 

By
Marietjie Botes
Senior Associate
marietjie@dyason.co.za

Doping in sport and the principle of strict liability

Doping is a term which is used to describe the use of prohibited substances within sport relating to methods and substances used in a sporting context with the objective of enhancing one’s athletic performance.

This term has been developed to distinguish between the use of performance enhancing drugs during sport related activity and what is referred to as recreational drug use. This includes the use of prohibited substances to include certain methods and manipulations.

For century’s stories and legends about Athletes who lived on special diets, taken certain drugs and remedies including substances have existed. During the mid-twentieth century serious attention was afforded to what was recognised as the increasing use of performance enhancing substances in sport. Initially the focus grew out of health concerns for the athletes who ingested these substances and sports federations started to adopt rules to prevent or discourage the use of certain substances during participation in sport.

A few years later the International Olympic Committee (IOC) became increasingly concerned and although it did not have an administrative roll in the governance of international sport the Olympics eventually adopted anti-doping rules generally using the IOC “list”, which later became a reference list for doping. These rules generally included testing at competitions where one could detect the so called “race-day” stimulants. At this stage the rules did not yet make provision for the use of prohibited substances during the training season and although not found in the Athletes system, it did create residual advantage at the time of competition. This initial lack of focus on Out-of-Competition substance use resulted from the fact that the IOC did not have jurisdiction in this area until the rules of prohibiting the use of certain substances was developed.

The Definition of Doping

Many attempts have been made to define doping however it has proved to be nearly impossible to define or to arrive at a legally satisfactory definition of doping. According to the World Anti-Doping Agency’s code (WADA) doping can be defined as the occurrence of one or more of the anti-doping rule violations set forth in Article 2.1 to Article 2.10 of the WADA Code, namely:

  1. Presence of a Prohibited Substance or its Metabolites or Markers in an Athletes Sample
  2. The use or attempted use by an Athlete of a Prohibited Substance or a Prohibited Method
  3. Evading, Refusing or Failing to Submit to Sample collection
  4. Whereabouts Failures
  5. Tampering or Attempted Tampering with any part of Doping Control
  6. Possession of a Prohibited Substance or a Prohibited Method
  7. Possession by an Athlete Support Person
  8. Trafficking or Attempted Trafficking in any Prohibited Substance or Prohibited Method
  9. Complicity
  10. Prohibited AssociationThe strict liability system in South African law

The astonishing development of technology and the industrial sector in the last century has brought about radical changes in socio-economic environments increasing the need to re-examine the traditional principle of liability. The law has found itself in a position where certain principles need to be adjusted and amended in order for new principles to be created to meet the needs of modern day society. In a South African context one will notice distinct traces of the development of a field of liability without fault, the principle of strict liability has been imposed by legislation, while the judiciary has started to stress the increased need for the development of a legal principle of liability without fault over and above the existing principles of liability based purely on fault.

Strict liability can be characterised as fault that is not required for liability claims for compensation. Vis Major (act of God) and fault on behalf of the prejudiced person are generally recognised as valid defences. Strict liability is usually imposed either by way of legislation or judicial intervention usually in circumstances which involve activities that by way of general rule create extraordinary increases in the risk of harm to the community. On the other hand when strict liability has been enforced by legislation the extent of the liability is usually reduced by fixing the maximum amounts of compensation. Lastly strict liability is restricted in most cases to damage of life, limb and property.

The existence of statutory cases of liability which is based on risk and the retention of several cases of strict liability is recognised by South African common law and indications of the insufficiency of fault as the general principle and only existing ground for delictual liability. Inspection into our case law and jurisprudence compels one to take notice of the appearance of liability without fault which can now be seen as an independent ground for delictual liability.

Strict Liability in a sporting context

In a sporting context the principle of strict liability is applied in situations and circumstances where urine and/or blood samples, but not limited thereto, are collected from athletes and may produce adverse analytical results. Thus as applied in practise this means that each athlete is strictly liable for the substance found in his or her bodily specimen and should a prohibited substance be found in the sample, whether it was the intentional or unintentional use of a prohibited substance, negligence, or otherwise at fault.

The before mentioned indicates the origin of strict liability in the South African Law system however the origin of the principle of strict liability in a sporting context was developed in order to combat the international war against doping and the World Anti-Doping Code was implemented prior to 1 January 2004. The principle of strict liability had been applied by the IOC in its own Anti-Doping code.

Strict Liability is put into practice by way of a sample that is taken from an Athlete during an In-Competition test, should the results of the sample contain traces of prohibited substances or prohibited methods, the results of the Athletes participation in a sport or contest will be automatically invalidated. Thus disqualification does not depend on guilty intent of the Athlete in taking the substance or having traces thereof in their body, disqualification will be automatic once a sample has proven to contain prohibited substances.

Although strict liability constitutes a legal principle, it is intricately related to more complicated scientific and procedural issues that are confronted by anti-doping enforcement. The rationale behind an effective anti-doping system is that there should be a legal principle that governs this system to ensure that there is efficient operation and fair punishment of Athletes that participate in prohibited use of substances or methods. If the law did not recognise such a legal principle it would become extremely difficult for anti-doping officials to implement and regulate the use of prohibited substances and methods as well as proving negligence on behalf of the Athlete in question.

For example commentary written on Article 2.2 indicates that, should an Athlete demonstrate the “attempted use” of prohibited substances or a prohibited method, proof is required of the Athletes intent. However the fact that intent is required to prove this particular anti-doping rule violation, does not undermine the principle of strict liability established for Article 2.1 and violations of Article 2.2 in respect of use of a prohibited substance or prohibited method. Therefore as per the code, an Athlete’s use of a prohibited substance constitutes an anti-doping rule violation unless substance is not prohibited Out-of-Competition and the Athlete’s use takes place Out-of-Competition. The presence of a prohibited substance or its metabolites or markers in a sample collected In-Competition is a violation of Article 2.1 regardless of when the substance might have been administered.

Thus an Athlete is strictly liable and an anti-doping rule violation occurs, whenever a prohibited substance is found in an Athletes sample, the Athlete may have the possibility to avoid or reduce sanctions if the Athlete can demonstrate that he/she was not at fault or significant fault.

One can assume that an anti-doping framework is needed and therefore a border principle must exist relating to competition and participation in sport in order to ensure the equality of players within the game or competition. Although the World Anti-Doping Code and the Court of Arbitration in Sport still currently use a strict liability regime, the fault of the athlete is still considered when determining sanctions. Currently the rules make provision for an automatic suspension, as mentioned in Article 2 of the Code, from the competition or the event when a positive sample is found.

Strict liability and the Human Rights of Athletes in doping

In terms of Section 9 of the Human Rights Bill everyone is equal before the law and has the right to equal protection and benefit of the law. Equality in this context includes the full and equal enjoyment of rights and freedoms, to promote this equality; legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.

Further in terms of Section 33, everyone has the right to administrative action that is lawful, reasonable and procedurally fair. Article 8 of the WADA Code provides that every Athlete has the right to a fair hearing and notice of the hearing decision. According to the provisions of Article 8.1, any person who is asserted to have committed an anti-doping rule violation, each anti-doping organisation with responsibility for the management of results shall provide, at a minimum, a fair hearing within a reasonable time by a fair and impartial hearing panel. A timely reasoned decision which specifically includes an explanation of the reason/s for any period of ineligibility shall be publicly disclosed as provided for in Article 14.3 of WADA. Therefore it is a requirement that at some point during the results management process, the Athlete shall be provided the opportunity for a timely fair and impartial hearing, these principles can also be found in Article 6.1 of the convention for the protection of Human Rights and Fundamental freedoms and are principles generally accepted in international law.

Any athlete charged with an anti-doping rule violation has the right to a fair hearing, anti-doping organisations are required (as mentioned in the above) to provide a hearing process to address whether an anti-doping rule violation was committed and if so, what are the appropriate consequences. Such process is required to respect the principles such as a fair and impartial hearing, the right to be represented by counsel, the right to be informed in a fair and timely manner of the asserted violation, the right to respond to the asserted violation and resulting consequences as well as the right to present evidence including the right to call witnesses. The Athlete also has the right which is in accordance with Section 33 of the Constitution of South Africa to receive a timeous, written, reasoned decision specifically including an explanation of the reasons for any period of ineligibility.

Should the Athlete waive the right to a hearing, expressly or by way of failure to challenge the ascertain of an anti-doping rule violation in a timeous manner, the responsible anti-doping organisation must submit a reasoned decision, explaining the reasons to the athlete or person liable or who is subject to the decision, if the outcome of the decision may have an effect.

In Article 4 of the WADA code, provision is made for a reasoned hearing decision or in cases where the hearing has been waived a reasoned decision explaining the action taken, shall be provided by the anti-doping organisation with a right to appeal the decision as provided for in Article 13.2.3 and Article 14.2.1 in the WADA Code.

The Bill of Rights in the Constitution of South Africa in Section 33(2) provides that, everyone whose rights have been adversely affected by administrative action has the right to be given written reasons. Thus when the principles of strict liability are applied in a South African context it is important that all disciplinary procedures be in alignment with the principles of basic Human Rights as codified in the Bill of Rights to ensure that the rights of the Athlete are not infringed upon.

According to Section 34 of the Constitution, everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum. In 1984 the Court of Arbitration for Sport as a Swiss-based forum was established for the resolution of sport related disputes. The governance rests with the International Council for Arbitration for sport, which consists of numerous representatives of the IOC, athletes and some senior appointed judges. Usually a panel of potential arbitrators are established from names recommended by all stakeholders, the IOC and other components of the Olympic Movement generally agree that the resolution of any disputes will be referred to the Court of Arbitration for Sport, such as all decisions taken by the IOC during the Olympic games are referred to an ad hoc division of the Court of Arbitration for Sport which is specifically designed to deal with matters relating from the game. The decisions made under the Code may be appealed, however the decisions against which appeal is taken remain in effect while under appeal unless otherwise ordered by the appellate body.

By
Samantha Wonfor
Associate
samantha@dyason.co.za

Trust Law for the Everyday Man

Cameron (South African Law of Trust (2002) 117) et alia submits that for a valid trust to be created the founder must intend to create a trust, the founder’s intention must be expressed in a way as to create an obligation, the property subject to the trust must be defined with certainty, the trust object must be lawful. Therefore for a trust to exist, there must be intention to donate property to be controlled by a group of persons, in their individual capacities, for the benefit of someone else, the intention must be to achieve a lawful objective. Each trust therefore ought to have three parties; the founder, the trustees and the beneficiary. Our law does not bar either of the role players in a trust from wearing more than one hat.

The founder is the natural or legal person who establishes the trust, the trustees are persons who jointly hold, control and administer the trust property in trust for the benefit of another, while the beneficiary is the party who benefits from the creation and administration of a trust (Du Toit South African Trust Law; Principles and Practice (2007) 5-6). A trust may come into existence by way of a written agreement (trust deed), a will, a court order or by way of legislation.

The Trust Property Control Act 57 of 1988 is legislation which governs our trust law in conjunction with common law and case law. The act does not over regulate this area of the law and leaves enough room for the law to develop through the courts. This is important when dealing with an area of the law which is growing and developments are continuous. In simple terms: the act is the skeleton, partly reflecting the position of the common law, while the courts, through their decisions and interpretation of trust law continuously put flesh onto the skeleton, and common law is the foundation on which all develops.

Trustees

The definition of a trustee in section 1 of the Trust Property Control Act 57 of 1988 does not define what a trustee is, save to indicate that a trustee is someone who acts as such by virtue of an authorisation under section 6 and includes any person already appointed as a trustee at the commencement of the act. A trustee may be appointed by the founder through the trust instrument (section 6) and/or by the Master in terms of section 7 of the Trust Property Control Act. An appointed and authorised trustee assumes the office of a trusteeship, and accordingly holds an official position and acts in an official capacity (Du Toit 80).

Cameron et alia stated that for the full accession to the office of the trustee the person ought to have been appointed in a lawful manner, be properly qualified, accept the office of trustee and must have received authorization from the Master. When read in line with the Trust Property Control Act, the person does not become a trustee even if he may meet the other essentials of trusteeship if he has not received a letter of authority from the Master.

In Simplex (Pty) Ltd v Van Der Merwe 1996 (1) SA 111 (W) the court indicated that it was evident from the legislation that an act by a person without the required authority had no force, though not explicitly stated in the act. The judge proceeded to indicate that these actions by a person appointed as a trustee who acted without a letter of authority cannot be ratified. This view was however challenged in Kropman NNO v Nysschen 1999 (2) SA 567 (T) wherein the court disregarded the provisions of section 6 (1) of the Act and allowed for the ratification of an act which was otherwise invalid. However in Van de Merwe v Van De Merwe 2000 (2) SA 519 (C) went against the decision in Kropman and followed Simplex on the interpretation of section 6 (1) of the Act and the contract in question in the matter was found to be void and could not be ratified. Therefore according to these decisions the position followed is that if the appointed trustee has not been authorised he cannot bind the trust and further cannot act as a trustee of that trust.

by Gastavus Chabalala
gastavus@dyason.co.za

No more sweating actuaries after the Sweatman-judgement

One of the attempts to solve the Road Accident Fund’s cash flow problems was the introduction by the Road Accident Fund Amendment Act 19 of 2005 of various limitations on the Fund’s liabilities, one of which was introduced by subsection 17(4) and do the relevant provisions read as follows:

17      Liability of Fund and agents

                        (1) The Fund or an agent shall-

… be obliged to compensate any person (the third party) for any loss or damage which the third party has suffered as a result of any bodily injury to himself or herself or the death of or any bodily injury to any other person, caused by or arising from the driving of a motor vehicle by any person at any place within the Republic, if the injury or death is due to the negligence or other wrongful act of the driver…

(4)Where a claim for compensation under section (1)-

(b) includes a claim for future loss of income or support, the amount payable by the Fund or the agent shall be paid by way of a lump sum or in instalments as agreed upon;

(c) includes a claim for loss of income or support, the annual loss, irrespective of the actual loss, shall be proportionately calculated to an amount not exceeding-

i [Rx] per year in the case of a claim for loss of income; and

ii [Rx] per year, in respect of each deceased breadwinner, in the case of a claim for loss of support.”

(My emphasis.)

These amendments, which only came into operation on 1 August 2008, effectively capped or limited the amount to be awarded to a claimant, with reference to his or her annual loss suffered, which cap or limitation is quarterly adjusted, determined and published in the Government Gazette.

Actuaries differed in opinion regarding the interpretation of this legislative cap or limitation, and specifically the method used to actuarially calculate a claimant’s annual loss in context of this cap or limitation existed. The different calculation methods soon resulted in substantial monetary differences and eventually resulted in the adjudication thereof in the Supreme Court of Appeal matter of RAF v Sweatman (162/2014) [2015] ZASCA 22 (20 March 2015). In this matter the difference between the below explained calculation methods amounted to R2 000 000-00 and was it well worth the court’s effort to clarify which calculation method was to be used in future.

In the article The correct interpretation of s17(4)(c) of the Road Accident Fund Act 56 of 1996 (De Rebus, March 2014, p.18) well known actuaries Ian Morris, George Schwalb and Gregory Whittaker explained the different calculation methods in layman’s terms, for the numerically less blessed, as follows:

“We calculated the annual loss as the present value of the difference between the income had the accident not occurred and the income having regard to the accident for each year (after allowing for income tax, general contingencies, inflation and morality and then discounted to present day terms.) Each year’s annual loss is then compared with the cap and thereafter the lesser of the cap (at the date of the accident) and each year’s loss is used.”

This calculation method was branded by the Supreme Court of Appeal in the Sweatman- matter as the so-called conventional approach followed by actuaries over decades, which approach was similarly explained in Southern Insurance Association Ltd v Bailey NO 1984 (1) SA 98 (A).

On the other hand Mr Munro, an actuary testifying for the Fund in the Sweatman-matter rethought the whole method of calculation in view of the above amendments to the Road Accident Fund act and adopted a new approach whereby he applied the limitation or cap at a different point during the calculation process, resulting in a lesser amount than when using the conventional calculation method.

Morris, Schwalb and Whittaker in their above mentioned article explain this “new” method as follows:

The RAF’s actuaries’ methodology is to project the annual loss for each year in future monetary terms (after income tax, including general contingencies and inflation, but not morality and not discounted). This amount is then compared with the cap in each year (duly adjusted for inflation for each year in the future) and then the lesser of the actual inflated loss as calculated and the inflated cap value of each year is discounted (with the interest rate and mortality) to present day terms.”

By applying the conventional approach in the Sweatman-matter, the claimant’s claim calculated to an amount of R2 000 000-00 more than by applying the new approach followed by the actuaries acting on instruction of the Fund.

In the Law Society of South Africa & others v Minister of Transport & another 2011 (1) SA 400 (CC) the Constitutional Court confirmed that the purpose of the amendments to the Road Accident Fund Act were to make the Fund financially viable, sustainable and to render the compensation regime more transparent, predictable and equitable. In similar vein the court held in Sil & others v Road Accident Fund 2013 (3) SA 402 (GSJ) that it was not the intention of the legislature to interfere with the method used for calculation losses in terms of the Road Accident Fund Act, but to merely limit the sums to be paid, in view of the aforementioned Law Society of South Africa-matter.

Accordingly, in the Sweatman-matter the Supreme Court of Appeal still preferred the conventional calculation method, especially because it started from the text of s 17(4)(c) that provides for the annual loss to be compared with the actual loss and the lesser amount to be awarded. The court further found no reason to depart from a decades old tried and tested method which proceeds from a logical basis and which other courts have accepted time and again. The court subsequently ordered the conventional method to be correct.

Although very few claims are actually capped or limited in practice, the fact that the claimant usually recovers approximately 53,76% using the conventional method as opposed to the “new” method where the claimant usually only recovers approximately 36,84% of the award that would otherwise have applied according to Morris, Schwalb and Whittaker, is not only beneficial to the claimant, but also the legal practitioner who represents the claimant based on a contingency fees agreement.

  • A special thanks to Jackie and Rowan Haarhoff from Munro Forensic Actuaries who took the time to inform, educate and enlighten Dyason Inc about the wonders of actuarial calculations.

by Marietjie Botes
marietjie@dyason.co.za

Can children participate in litigation?

In this short article I will trace the idea of possible ways in which children might participate in litigation, and how the various forms of participation might affect them in a positive or negative way, considering the possible advantages and disadvantages for the child in dispute resolution. The role of children in family litigation seems rather unexplored, particularly in the decision making proses. The best interest of the child is paramount and throughout the litigation process this should continuously be considered.

It will appear that our courts have not been familiarised with the idea of the child as an autonomous being with the right to litigate and to be separately represented, the notion that children should be protected brings about concern within judges about children being directly involved in litigation. Nevertheless the Children’s Act 38 of 2005 sheds light on this predicament, recognising the autonomy of the child as well as the underlying principle of the child’s need for protection that can be found in Section 54 and 55 of the Children’s Act 38 of 2005:

“Where a child involved in a matter before the children’s court is not represented by a legal representative, and the court is of the opinion that it would be in the best interests of the child to have legal representation, the court must refer the matter to the Legal Aid Board referred to in section 2 of the Legal Aid Act, 1969 (Act 22 of 1969).”

The Constitution and child participation:

The Constitution of the Republic of South Africa 108 of 1996 in Section 28(1)(h) provides a platform for the child to be heard and directly participate in litigation. With help of a legal representative that will place the views of the child before the courts. This section is an extension of the right of every accused person to have legal representation during criminal proceedings (section 35 of the Constitution), which gives the child the right to legal representation during civil proceedings.

Chief Justice Langa made the following observation in Minister of Education v Pillay 2008 (1) SA 474 (CC):

“Legal matters involving Children often exclude the children and the matter is left to adults to argue and decide on their behalf.”

The reality is that the need for the child to be heard is acute when the decision concerns the child. Recently the Constitutional Court has developed a practice of appointing a curator ad litem for children involved in cases before the court.

In Soller NO v G & another 2003 (5) SA 430 the court illuminated the roles played by the legal representative and the Family Advocate. The court maintained that the mandate of the legal representative should be in accordance with Section 28 of the Constitution, that he or she should use their legal skills in representing the best interests of the child and thus allowing the voice of the child to be heard through legal representation. The family advocate is to provide a professional and neutral channel of communication between conflicting parents and the courts.

Therefore the need for the child to have separate legal representation in certain circumstances can be used as a tool to prevent substantial injustice. The court in the Soller-matter defines substantial injustice in the recognition that is found in Section 28(1)(h) as well as the United Nation Convention of Rights of the Child, that even though it may seem as such, the best interests of the child and the adults interests my not reconcile. Therefore separate legal representation is needed in order for constitutional and substantial justice not to be breached.

The child’s right to separate legal representation:

As a general principle in the Children’s Act there is no specific inclusion providing for separate legal representation for the child in all matters, but there is provision for legal representation for the child in different chapters of the Children’s Act. In Ex parte Van Niekerk & another [2005] JOL 14218 (T) legal representation was appointed for the first time for the children, as well as children joined as parties in the matter between their parents. In an unreported case, R v M (Durban and Coastal Division, case number: 5493/02) six years of tremendously adversarial litigation forced Legal Aid to appointed an attorney to represent the child in a disputed custody case. The child finally received a legal representative and after years of legal battles it was reported that the matter was settled.

In Legal Aid Board v R & another 2009 (2) SA 262 (D) it was decided that Legal Aid South Africa was the correct organisation to approach for legal representation of the child, a 12 year old girl who was subject to the legal battle between her parents since she was 5 years old. The Legal Aid Board approached the court on an urgent basis in order to appoint a legal representative for the child that may consult with her and represent her during the litigation proses between her parents concerning her. Counsel for the mother opposed, claiming that such an appointment was unnecessary as the mother was the guardian of the child and acting in her best interest. Furthermore it was argued that Legal Aid South Africa was not in a position to appoint legal representation for the child, and that it must either be the guardian or court who appoints the legal representation.

Presiding Judge Willis found that questions regarding where the child lives and which parent will be making the most important decisions in the child’s life are to be considered and because the child is the subject of the decisions being made it is the child that needs to live with the consequences. It is extremely important that the child’s views be heard and are taken into consideration. The appointment of a legal representative was not only helpful but it allowed the child to participate in the litigation process.

It seems that in certain circumstances it will be in the best interest of the child to be joined as a party in certain divorce matters and it is evident from case law as well as the Constitution of South Africa that it may result in a substantial injustice if a separate legal representative is not appointed for children in certain matters where it is clearly in the best interest of the child.

by Samantha Wonfor
samantha@dyason.co.za