Co-operatives Amendment Bill: Intellectual Property Laws Amendment Bill: referral of Bill by President to Parliament; Budgetary Review and Recommendation Report

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Trade, Industry and Competition

18 October 2012
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Meeting Summary

The Parliamentary Legal Adviser presented the changes made to the provisions in the Co-operatives Amendment Bill as discussed during the deliberations on 17 October 2012.  The amended provisions included protection for minorities; the establishment of the National Apex Co-operative; the substitution of the definition of “tertiary co-operative”; the pre-incorporation contract; the prohibition on including “national Apex” in the name of a co-operative; the fiduciary duty of directors and employees and the re-appointment of the chairperson and members of the Tribunal for a second consecutive term.

Members asked questions to obtain clarity on the changed provisions.  The Committee would resume clause-by-clause deliberations on the Bill during the following week.

The Committee considered the referral of the Intellectual Property Laws Amendment Bill by the President to the National Assembly.  The letter from the President to the Speaker was not clear on what needed to be reconsidered.  The Committee had requested legal opinion from Senior Council on the matter and awaited further comment from the Speaker.

The Committee considered the draft Budget Review and Recommendation Report.  Members made several suggestions on how the draft report could be improved.  The Committee would considere the final report for adoption on 23 October 2012.

Meeting report

Deliberations on the Co-operatives Amendment Bill
Adv Charmaine van der Merwe, Parliamentary Law Adviser took the Committee through the changes discussed during the deliberations on the Bill on 17 October 2012 (see attached document).

Provision for Minority Protection:
The provisions in the Companies Act could be applied to allow relief from oppressive or prejudicial conduct to members or directors of a co-operative.

Prof Kathy Idensohn, Legal Adviser explained that the proposed provision gave effect to the general principle of fairness that applied in law whenever decisions were made by majority vote.  There must be some restraint on the power of the majority to prevent any abuse of power and protective remedy for the minority must be allowed.  There had to be a legitimate reason for exercising the protective remedy.  The minority could not abuse the provision whenever they were dissatisfied with the majority decision and assistance could only be provided when there was a genuine need for protection.  There was lots of established case law whenever majority rule was used in decision-making.

Mr X Mabasa (ANC) asked for typical examples of what was regarded as a minority and a majority.  He asked if the provision would not result in the organisation suffering while the parties resolved their dispute.

Ms S van der Merwe (ANC) said that the suggested clause did not make it clear that the majority could not usurp, suppress or interfere with the legal rights of the minority.  She asked if the proposed provision replicated the provision in the Companies Act.

Mr N Gcwabaza (ANC) remarked that the concept of cooperation was the basis for the establishment of a co-operative.  The intention was that the members worked together for the benefit of the co-operative.  He agreed that an infringement of the legal rights of the minority should not be allowed.  Democracy was the rule of the majority.  He asked if the provision should be included in the memorandum or articles of incorporation and if the legal provision would override any arrangement in the memorandum of incorporation.

Mr G Selau (ANC) asked why the provision was applicable to a member or a director rather than to the minority group.  There were different types of co-operatives.  In certain cases, the members were also employees.  In other cases the co-operative could employ persons who were not members.  He pointed out that the Labour Relations Act (LRA) and the Constitution included provisions to protect minorities.

Mr Mabasa asked if provision should be made for the protection of the majority.

Prof Idensohn explained that the proposed provision did not negate the principle of majority rule but qualified it in the interest of fairness and justice.  A person could be a member, a director or an employee or all three capacities.  The LRA and the Basic Conditions of Employment Act (BCEA) provided protection for members or directors of co-operatives in their capacity as employees of the co-operative.  The provisions in the Constitution regarding the protection of minorities applied primarily between the State and citizens and were not applicable in an employee/business context.  The proposed provision specifically included the words “oppressive or unfairly prejudicial”.  An act of unfair prejudice or oppression could be an actual infringement of legal rights.

Adv Van der Merwe added that democratic voting was a fundamental co-operative principle.  The majority had adequate protection through the voting system.  It was not necessary to include further protection of the majority.  The proposed clause was based on the provisions in Section 163 of the Companies Act but had been shortened and simplified.  An example of a minority and a majority was a co-operative comprising two households.  One household had two members and the other four.  The four-member household was the majority.  The provision would be applied in rare circumstances.  She would consider if it was necessary to made reference to Section 3 of the Act, which explained the principle of cooperation.  The provision providing minority protection in the Act would not negate a clause in the constitution of the co-operative that stated that decisions would be taken by majority vote.  Workers and employees were adequately protected by labour law.  Legislation changed how the Court applied common law.  If a statute did not include provision for a specific occurrence a person might approach the Court for a decision.  However, the Court was reluctant to change legislation by way of a decision.

Mr Jeffrey Ndomo, Chief Director: Co-operatives, Department of Trade and Industry pointed out that the interest of the co-operative and the interest of the members needed to be aligned in the constitution of the co-operative.  The proposed provision to protect the interest of the minority assumed that the minority interest was outside the interest of the co-operative.  The term “unfairly prejudicial” was vague and needed to be defined unambiguously in relation to the concept of a co-operative.  The proposed provision would entrench and encourage any existing conflict within a co-operative.  The principles of cooperation, voluntary participation and democracy needed to be upheld.  South Africa would be the only country in the world to include minority protection provisions in legislation governing co-operatives.  Although the intention was good, there would be unintended negative consequences.  He had no doubt that the provision would result in an increase in the number of applications brought before the Tribunal and that it would be used by the minority to negate the rights of the majority.  It was necessary to clarify what the exceptional issues were and how exceptions were to be dealt with rather than turning exceptions into the norm.

The Chairperson observed that the proposed legislation needed careful consideration.  She suggested that Members of the Committee considered the various issues before the deliberations on the Bill were resumed in the following week.

Establishment of the National Apex Co-operative:
Advocate Van der Merwe took the Committee through the changes to Clause 6 of the Bill.  The provision dealt with the representation in the National Apex Co-operative of sectoral and multi-sectoral tertiary co-operatives at the national, provincial and local levels.  Sub-clause (c) required that annual general meetings were held.

Mr Ndomo said that the proposed provision described the desired composition rather than the character of the National Apex Co-operative.  The National Apex Co-operative could have provincial branches but these branches should retain the national character.

The Chairperson and Mr Mabasa found the changed provision to be less confusing.  Mr Ndomo’s suggestion could be referred to the sub-committee dealing with the Bill.

Ms Van der Merwe asked for clarity on the term “three operational sectoral tertiary co-operatives that represents co-operatives on a national level”.

Mr Ndomo explained that the proposed provision required the National Apex Co-operative to include three operational sectoral tertiary co-operatives with national members in its composition.

Adv Johan Strydom, Legal Adviser to the DTI referred Members to page 18 of the original Document F2.  The character of the co-operative was national rather than that the members were national.

Advocate Van der Merwe advised that there was no definition in the Bill for “national sectoral tertiary co-operatives”.  She suggested that the provision was changed to refer to “co-operatives that operated on a national basis”.

The Chairperson agreed that the suggested change would clarify the issue.

Consequential amendment arising from the substitution of the definition of “tertiary co-operative”:
Advocate Van der Merwe explained the amended definition of “tertiary co-operative”.

Pre-incorporation contract:
The amended clause made provision for a co-operative to be deemed to be incorporated if the co-operative had not specifically ratified the incorporation within three months of receipt of the notification.

“National Apex” not allowed in the name of any other co-operative:
The amended provision allowed for the name of a co-operative to be automatically changed if the name included the words “National Apex”.

Mr Ndomo said that the Registrar should first inform the co-operative of the name change.

Advocate Van der Merwe added that the change of name was not negotiable.  The provision would be changed to allow for formal notification and for the fact that the name change was not negotiable.

Fiduciary duty:
The wording of Clause 29 was changed.  The clause substituted Section 38 in the principal Act and prohibited the acceptance of commission, remuneration or reward by a director or an employee of a co-operative in certain circumstances.

The Chairperson asked what the nature of the offence was if a person contravened the provision.

Adv Van der Merwe advised that it would be a statutory offence.  She had noted that it was necessary to include a sanction in the clause.

Mr Ndomo found the re-drafted clause satisfactory.  The only concern was that a director could obtain approval to receive payment for a contract that had not yet been entered into by the co-operative if he had prior knowledge.

Prof Idensohn explained that the provision was based on Section 75 of the Companies Act, which was a statement of the fiduciary principles in common law.  Directors were required to disclose prior knowledge but it was difficult in law to define all the possibilities.  The provision worked well in the application of company law and there were a number of judicial precedents in place.

Prof Idensohn explained that the law did not operate retrospectively.  The provision prohibited the use of information obtained by virtue of the position occupied by the person to gain financial reward and catered for any future contract that might be entered into by the co-operative.

Succession clause:
The clause made provision for the appointment of the chairperson or member of the Tribunal for a second consecutive term.

Ms Van der Merwe suggested that the provision should refer to “a second consecutive term” rather than “one consecutive term”.  She suggested that other legislation dealing with the re-appointment of Boards was consulted for guidance on the phrasing of the provision.

Mr Selau suggested that the word “may” was included as re-appointment was not automatic.

The Chairperson suggested that the phrasing of the clause was reviewed by the drafting team.  The intention was to make provision for continuity and it was necessary to clarify the period of tenure.  She thanked all involved for the work that had been done to date on the Bill.  The Committee would commence clause-by clause deliberations the following week.

Briefing on the referral of the Intellectual Property Laws Amendment Bill [B8B-2010]
Adv Van der Merwe advised that the Intellectual Property Laws Amendment Bill was referred back to the National Assembly by the President.  In his letter to the Speaker dated 19 September 2012, the President expressed concern over the constitutionality of the Bill.

The President had received submissions from Mr Mario Oriani-Ambrosini (IFP Member of Parliament) and the South African Music Rights Organisation (SAMRO).  Mr Oriani-Ambrosini submitted that certain provisions in the Bill made it a Money Bill.  As such, the Bill should have been introduced by the Minister of Finance in accordance with section 73 of the Constitution.  The Bill should have been referred to the National House of Traditional Leaders for comment.  SAMRO submitted that the constitutional requirements for public participation were not followed when substantive changes were made to the Bill.

The President had requested a legal opinion from a Senior Council.  The legal opinion concluded that the Bill was not a Money Bill; the Bill should have been referred to the National House of Traditional Leaders and should have been dealt with in terms of section 76 of the Constitution.  A copy of the legal opinion was not provided by the Speaker when the matter was referred to the Committee.

The matter was discussed with colleagues in the Constitutional and Legal Services Office.  It was not clear if Parliament was required to review the processing of the Bill in terms of obtaining public opinion on the amendments that had been made.  The participation of the National House of Traditional Leaders in the legislative process was a legislative and not a constitutional requirement.  The Committee had consulted with the National House of Traditional Leaders on the Bill and the comments received were incorporated in the Bill.  It was not clear if the extent of the consultations entirely satisfied the consultation requirements.

The Committee had requested Senior Council to provide a legal opinion before the end of October 2012.

Ms Van der Merwe noted that the President referred to the submission from SAMRO but made no specific comment on the submission.  She asked for clarity on the conclusion that the Bill should have been dealt with in terms of section 76 of the Constitution as the tagging of a Bill was decided by Parliament.

Dr W James (DA) understood that the intention had been to have a sui generis Bill rather than an Amendment Bill.

Mr McIntosh observed that the referral of a Bill back to Parliament should not be regarded as a scandal.  Mr Oriani-Ambrosini was an acknowledged expert in Constitutional matters and was a great asset to Parliament.

Mr G Hill-Lewis (DA) asked why the Committee did not simply ask the Office of the President to clarify what needed to be reconsidered.  He asked why it was necessary to obtain another legal opinion from Senior Council.

The Chairperson said that the matter had been in the Office of the President for a year.  SAMRO had attended the public hearings on the Bill.  The submission made to the President objected to the lack of public consultation after changes were made to the Bill.  The Committee took the referral of the Bill seriously.  There could be a difference in the legal opinion provided to the President and to the Committee.

Advocate Van der Merwe had studied the legal opinion provided to the President.  A copy of the opinion could be made available to the Committee.  The letter from the President did not specify which section of the Bill needed to be reconsidered and it was possible that the direction was intentionally broad.  A study of other referrals from the Office of the President revealed that a template document was used to refer Bills back to the National Assembly.  The Committee did not deal with Money Bills.  She agreed that amendments to Bills could not be referred back for public participation ad infinitum.  The Committee had conducted public hearings on the Bill and any lapse in the public participation process was more likely to have been in the National Council of Provinces (NCOP) process.  SAMRO had requested for rights to be granted in perpetuity and the basis for their submission could be that the request was not granted to the extent they would have wished.

Mr Gcwabaza asked how other Bills with financial benefit consequences were dealt with.

Advocate Strydom said that there was consensus that the Bill was not a Money Bill.  Advocate Gilbert Marcus had provided the legal opinion to the President at his request.  The conclusion that the Bill should have been dealt with in terms of Section 76 was of concern as that meant that the Bill would have to be re-introduced.

The Chairperson observed that the Speaker was also considering the matter.  The Committee awaited the legal opinion requested and further information from the Office of the Speaker.  Mr Oriani-Ambrosini had asked to be kept informed of the progress being made.

Consideration of the draft Budget Review and Recommendation Report (BRRR)
The Chairperson advised that a draft of the Committee’s BRRR report had been circulated to Members.  Members had not had sufficient time to study the draft report in depth but comments were welcomed.  A template had to be used in the compilation of the report, which imposed certain restrictions.  The report would be made available to the public and needed to be readable.

Mr Mabasa suggested that a list of the acronyms used in the report was attached.

Ms Van der Merwe suggested that the dates included in the report were clear and that there was no confusion about what period was referred to.
Need to clarify which year we are dealing with – suggested the drafter carefully look at the dates and avoid confusion

Mr McIntosh said that the DTI needed to obtain expert opinion from time to time.  He suggested that the terminology was changed to avoid any negative connotation to the word ‘consultant’.

Mr Gcwabaza suggested that reference to increasing and decreasing amounts or trends were clarified.

The Chairperson said that co-operatives were different from small, micro and medium-sized entities and the two types of organisations should not be lumped together.

Mr Mabasa suggested that mention was made that 2012 was the international Year of the Co-operative.

Mr Lionel October, Director-General, DTI confirmed that the Minister had approached the clothing retail sector to promote the local textile industry.  Foschini, Truworths and Woolworths were already on board.

Ms Van der Merwe noted that the Intellectual Property Laws Amendment Bill had not been finalised.  She suggested that different headings and fonts were used to indicate different sections and subjects in the report.  The National Consumer Commission and the National Credit Regulator were dealt with in depth but the engagement with other entities was reported in less detail.

The Chairperson noted that the Lotteries Bill had been introduced after the period covered by the report.  The issue of better forward planning to promote local procurement applied to all three spheres of Government.  The Minister of Finance had urged Parliament to consider the budgets of entities more seriously.  The Committee needed to reconsider its approach to funding for certain programmes and projects.  The report should concentrate on areas of concern.  The Committee had requested the Auditor-General of South Africa to consider amending the regulations to cater for instances where there were no alternatives available, without compromising the measures in place to prevent irregular expenditure.  The audit outcome “financially unqualified, with findings” was not clear and entities could achieve an unqualified opinion if irregular expenditure was disclosed.

Mr McIntosh explained that a clean audit outcome was a financially unqualified outcome with no findings.  He agreed that the standard template used to compile the BRRR report should be adapted.  The report dealt with the National Empowerment Fund at length but if all the entities were reported on in detail, the report would be very long.

The Chairperson observed that the engagement with the Auditor-General had been constructive.  The terminology used by auditors was not always understood by everyone.  The final BRRR report would be considered for adoption by the Committee on Tuesday, 23 October 2012.

he meeting was adjourned.


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