In a virtual meeting held late afternoon into the evening, the Portfolio Committee on Small Business Development continued its deliberations on the National Small Enterprise Amendment Bill [B16-2023].
The Committee considered the suggestions raised by the public and flagged the clauses where concerns were raised. There were some vague, ambiguous and controversial matters that prevented the Committee from taking a decision on certain clauses. A big concern in the public submissions was the Bill gives too much power to the Minister to declare certain trading practices as unfair and prohibited. It was also recommended that the Ombud be accountable to Parliament and not to the Minister. There was confusion about the meaning of advocacy as used in the Bill.
It was decided that Parliament's Constitutional and Legal Services Office (CLSO) engage with the Department of Small Business Development (DSBD) on these clauses to achieve clarity. Thereafter, the Committee will take resolutions on these before the formal list of Committee proposed amendments (A-List) is drafted.
Once there was a meeting quorum, the Chairperson said that the purpose of the meeting was for the deliberations on the Small Enterprise Amendment Bill [B16-2023] for the compilation of the A-List of the Bill. There had been an engagement that morning and the Committee prepared itself for this. Some of the clauses had been sent to the Committee and the Committee is ready to deliberate clause-by-clause. She asked the Content Advisor to lead the deliberations.
Small Enterprise Amendment Bill [B16-2023]: deliberations
Mr Sibusiso Gumede, Committee Content Advisor, asked if he should lead the discussion or the Parliamentary Legal Advisor. He was happy to lead the discussion but sought guidance.
Ms Telana Halley-Starkey, Parliamentary Legal Advisor, said that normally the Committee Content Advisor leads the discussion in the clause-by-clause deliberations.
The Chairperson agreed to Mr Gumede's suggestion that the Committee do one clause at a time. If there are changes that Members want to incorporate, it can be done at that time.
Mr Gumede read the Long Title and asked for inputs from the Committee.
Mr H Kruger (DA) said that there was a discussion about the unhappiness of the sentence that states ‘to empower the Minister to declare certain practices in relation to small enterprises to be prohibited as unfair trading practices.’ He suggested that this sentence be removed.
The Chairperson asked if there was any other input.
Mr F Jacobs (ANC) said that it was agreed to use the Ombudsman to assist the Minister in identifying and declaring unfair trading practices. He suggested that the correct wording be drafted for this. The Committee should look at this again when the specific clause on this point is reached. This concern should be flagged for now.
The Chairperson thanked Mr Jacobs and said that she was looking for assistance from Members for this concern. She asked if Mr Kruger was present in the meeting when the legal advisors gave a response to this. She agreed that the Committee flag this concern and deal with it later.
Mr J De Villiers (DA) supported the proposal by the Chairperson and Mr Jacobs. The Committee will decide on the clause and then effect the changes to the preamble to the Bill.
The Chairperson said that in the meeting earlier, the Committee was assisted by the legal gurus on this worrying factor. There was agreement that the sentence should be removed. A response was outlined but unfortunately not all Members heard the response due to rushing to the House. Members can express themselves when the Committee deals with the specific clause.
Clause 1 Definitions
This clause dealt with the definitions of agency; Auditor-General; board; Companies Act; complainant; complaint; co-operative enterprises; development support; director; Director-General; Minister; office; Ombud; Public Finance Management Act; small enterprise and unfair trading practice.
The Chairperson said that the Committee Secretary, Mr King Kunene, should be on the lookout for hands. If Members had any inputs or contributions, Members should raise their hands.
Mr Kruger referred to the definition of "Companies Act". Parliament was in the process of amending that Act. This will mean that the reference to "Companies Act, 2008 (Act No. 71 of 2008)" will change. He asked for clarity on this.
Mr Gumede asked if there were any other inputs.
Ms Nwabisa Mbelekane, Committee Researcher, wanted to say something but she could not unmute.
Mr Gumede pointed to the reference to ' Financial Sector Regulation Act' in the final sentence of the definition: ‘complaint’ lodged by a small enterprise against— ‘an organ of state as defined in section 239 of the Constitution, in relation to the interpretation of the terms of an agreement for the procurement of goods or services or the late or non-payment of amounts due and payable to the small enterprise, where the complaint is not a complaint that falls under the jurisdiction of an ombud, as defined in section 1(1) of the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017)’.
Mr Gumede said that the legal advisor raised an issue on the Financial Sector Regulation Act in the meeting earlier. He asked if this should be flagged.
Ms Halley-Starkey replied that usually during clause-by-clause deliberations, a brief summary of each clause is given. So Mr Gumede should highlight to Members what the various positions on the clause was and the responses to those positions. Members should then decide either through agreement or vote, which clauses it want to change. For example, in the definitions, Mr Kruger already indicated the reference to the Companies Act, and this should be flagged. A resolution on this should then be taken.
In the definition of 'complaint', references were made to the Financial Sector Regulation Act and the procurement of goods or services or the late or non-payment of amounts due and payable to the small enterprise. This is something that has to be flagged. For the purposes of time, she suggested that Mr Gumede create a summary for each clause instead of reading every single line. There are 32 pages, and the Committee might be here until 03h00 if he reads every line.
The Chairperson said that there should be a caucus on these matters. This will give a background to the Committee on what it needs to entertain. This will help save time but does not mean that the Committee will not do justice to the process. It is just to remind Members of the concerns raised.
Mr Gumede said that there was an issue with this definition. "Small enterprise" means a separate and distinct business entity, together with its branches or subsidiaries, if any, including a co-operative, co-operative financial institution, or a co-operative bank, carried on in any sector or sub-sector of the economy classified as a micro, small or medium enterprise which satisfies the prescribed criteria".
It was earlier indicated that neither the Co-operatives Act nor the Co-operative Banks Act has a definition for co-operative financial institution. It was agreed that this definition would require some form of amendment.There is a contestation on how a small enterprise is being defined in the Bill. Are there any other views from Members?
There were no other views.
"Unfair Trading Practice"
Mr Gumede said that this means a practice contemplated in section 17Y’’.
Mr Gumede read out the final subclause in Clause 1 and noted that all the Acts indicate their Act number and year but the same is not done for the Companies Act:
(n) by the addition of the following subsection:‘‘(2) Unless the context indicates otherwise, a word or phrase defined in the Companies Act, the Co-operatives Act, 2005 (Act No. 14 of 2005),the Co-operative Banks Act, 2007 (Act No. 40 of 2007), or the Public Finance Management Act, has the same meaning in this Act.’’.
Clause 2 Insertion of 1A Application of the Act
It states the following: “1A (1) In the event of a conflict between the provisions of this Act and the Public Finance Management Act, the provisions of the latter Act prevail. (2) In the event of a conflict between the provisions of this Act and the Companies Act, the Co-operatives Act, 2005 or the Co-operative Banks Act, 2007, the provisions of this Act prevail’’.
Mr Gumede said that the Committee was told earlier that the Public Finance Management Act prevails over all other legislation. There was a contestation about 1A(2) stating that the Small Enterprise Amendment Bill prevailing over the other three Acts.
Mr Gumede asked the Parliamentary Legal Advisor to explain which Act is superior for better understanding.
Ms Halley-Starkey replied that it is not that much about one Act being superior to another Act. Certain Acts such as the Public Finance Management Act will trump other legislation. This is the reason that 1A(1) is correct in its reading that if there is a conflict the PFMA will take precedence. If there is a change, the Treasury should be informed. She said that 1A(2) states that this Act will prevail over the Companies Act, Co-operatives Act, and the Co-operative Banks Act as it is referenced throughout. The explanation provided by the Department was enough to explain why this provision is correct in its drafting.
Mr Kruger said that the Companies Act has already been flagged. He suggested that this be noted wherever reference is made to the Companies Act.
Clause 3 Insertion of section 4 Report of Advisory Body
There is no contestation. There were no submissions made to this clause.
Clause 4 Substitution of Chapter 3 Small Enterprise Development Finance Agency
There were no issues with section 9 Establishment and shareholder of the Small Enterprise Development Finance Agency.
- Section 10 Objectives of Agency
Mr Gumede said that there was a view that co-operatives were excluded. The suggestion was to include ‘and co-operatives’ after ‘small enterprises’ in section 10(a). Likewise this should be repeated in section 10(b) where ‘small enterprises’ is mentioned again. This should be flagged.
Ms Halley-Starkey said that the Department explained that small enterprises included co-operatives.
The Chairperson agreed that she remembered this.
Mr Gumede suggested that there is no reason to flag it if this is the case.
Mr Kruger suggested that it still be flagged. The Committee needs to ensure that the definition of small enterprise includes co-operatives. This will help to ensure that the definition is broader and there are no misunderstandings within the small business community.
Mr E Myeni (ANC) suggested that the Parliamentary Legal Advisor explain the definition. If co-operatives are included, there is no need to flag it.
Ms Halley-Starkey read through the definition of small enterprise which states that a "small enterprise means a separate and distinct business entity, together with its branches or subsidiaries, if any, including a co-operative, co-operative financial institution, or a co-operative bank, carried on in any sector or sub-sector of the economy classified as a micro, small or medium enterprise which satisfies the prescribed criteria".
The Committee was happy with the definition.
Mr Gumede said Section 10(c) states support, promote and develop co-operative banks and co-operative financial institutions. The term co-operative financial institutions does not find expression in the Co-operatives Act or the Co-operative Banks Act. Rather, the Co-operatives Act uses the term financial services co-operative. There was a view that there is only the inclusion of co-operative banks, which is a special type of co-operative that operates in the financial sector. What about other co-operatives? What about housing, consumer or social co-operatives? Does this mean that co-operative banks are being prioritised? He said that the Parliamentary Legal Advisor should give guidance if this should be rephrased.
Mr De Villiers said that he was in support of taking out co-operative banks and co-operative financial institutions. The sentence could read ‘support, promote and develop co-operatives'. There should be no reason why the objectives cannot include co-operatives in general.
The Chairperson asked the Parliamentary Legal Advisor to expand on this.
Ms Halley-Starkey said that one of the public submissions stated that the definition of co-operative enterprises be amended because it refers to the Co-operatives Act and Co-operative Banks Act that does not refer to the term co-operative financial institution. There were two suggestions – either to use the term 'co-operative financial institution' or 'co-operative enterprise'. A reference should then be made to Exemption Notice 3536H, which does mention co-operative enterprise. Those two Co-operative Acts coined the two terms together in an exemption notice. The Department is present and can indicate the reasoning for this.
The Chairperson thanked the Parliamentary Legal Advisor for assisting the Committee.
Mr Gumede said that section 10(d) states that the objective of the Small Enterprise Development Finance Agency is generally to strengthen the capacity of service providers to support small enterprises. There was an issue with the term 'service providers'. The colloquial term for service provider is consultant. Is this not the mandate of the Department? This sounds like the delegation of responsibility to service providers.
Mr De Villiers agreed. The Small Enterprise Development Finance Agency, the Bill and the Department’s mandate is to support small enterprises and not service providers. A service provider to a small enterprise can be a big corporation. It can be a lot of things. He agreed that the mandate was not to support service providers. He suggested that it be removed from the Bill.
The Chairperson said that it should be taken out.
Mr Kruger said that he thought service providers referred to municipalities in terms of service delivery. The intention was to ensure that small businesses get service delivery from local, provincial and national governments.
The Chairperson said that Mr Kruger was right. The Committee and the Department are trying to find one another. She suggested that this be flagged for the Department to come and explain this.
Ms Halley-Starkey said that these two issues had been flagged in her presentation. A definition can either limit, expand or narrow a word. Everyone understands the colloquial terms 'service provider' and 'service delivery networks'. There could be various interpretations of these terms. She suggested that at the start of the section, it should include ‘the term service shall mean the following’ and ‘the term service deliver network shall mean the following’. Networks could be internet cables or networking. The Department has to clearly state the intention behind 'service delivery networks' and 'service providers'.
The Chairperson thanked the Parliamentary Legal Advisor.
Ms Halley-Starkey said that Mr Gumede should not forget to flag section 10(b).
Mr Gumede said that in the interest of time, Members should indicate issues that need to be amended or remedied. He previously missed section 10(b) as the Legal Advisor pointed out.
- Section 11 Shareholder powers and duties.
Mr Gumede noted the reference to the Companies Act and asked if it would be okay not to raise that issue again.
The Chairperson agreed and said that Members should only raise issues where there has been contestation. This will help the Committee to come up with recommendations or resolutions.
Mr Sisa Makabeni, State Law Advisor, said that Parliament is currently dealing with the Companies Amendment Bill [B27-2023]. These amendments will not affect the Companies Act 2008. The Companies Act will remain the Companies Act 2008 as the year and act number of the Companies Act will not change. Likewise, the National Small Enterprise Act 1996 will remain the same after the Amendment Bill is passed.
Mr Kruger said that it is not the name that is worrying him but more the context. There might be a clause that is deleted or changed that is applicable here. One must ensure that the intention being address is still in the Companies Act.
The Chairperson said that she did not understand as the Act name would remain the same.
Mr Kunene explained that Mr Kruger is not against the name but was referring to the content if some of the clauses may be amended.
Ms Halley-Starkey said that she would double-check with Mr Makabeni on the Companies Act. The reference to the Companies Act relates to the shareholder structure of the Small Enterprise Development Finance Agency. The Small Enterprise Development Finance Agency is a state-owned company, where the state is the shareholder and reference was made to the Companies Act. The Minister will have similar rights to what the shareholder has in a company when it comes to appointing the board and that sort of thing. All the references to the Companies Act refer to this; however, she will double-check this.
Mr Gumede said for the purposes of speed, he would no longer be referring to this issue with the understanding that CLSO would look at this again. There has to be an alignment.
Section 11(3) states that ‘notwithstanding subsection (2)(a), the Minister may, on good grounds, apply to the High Court for an order to appoint a director notrecommended by the board in terms of that subsection’. The written submissions argued that this is taking away the powers of the board. He asked the Parliamentary Legal Advisor if this should be flagged.
Ms Halley-Starkey said section 9(2)(a) states that the Companies and Intellectual Property Commission must register the Memorandum of Incorporation and incorporate it under the name ‘‘Small Enterprise Development FinanceAgency SOC Limited’’ with the state as the shareholder. Section 11(1) refers to the Minister exercising all the state's rights and duties as the shareholder under the Companies Act. She referred to sections 161 and 165 of the Companies Act. Section 161 states that a shareholder, the Minister, may apply to a court for an order determining any rights of a shareholder, including any appropriate order necessary to protect the rights of a shareholder and to rectify any harm done to the shareholder by the board. If the Minister feels that the board is suggesting a member that is not appropriate, the Minister can seek a resolution or seek some sort of solution from the courts to make a decision on that appointment. Section 165 provides that any shareholder can serve a demand on the board to bring legal proceedings on behalf of the company. This means that the Minister as a shareholder may approach a court for relief on good grounds.
Section 11(5) states that the Minister must commission an independent assessment of the board’s performance every three years. There was an argument that 36 months is too long. It should be 12 months or at least 24 months, especially in a case where the board is only appointed for a period of 36 months. Should it stay three years, or should it be moved down to 12-24 months?
Ms Halley-Starkey said that the King IV is voluntary and provides for best practice in corporate governance. King IV states that there have to be assessments every year. Often courts asked why King IV was ignored when it came to governance duties. One of the Members had suggested that it be one or two years. She believed it was Mr Jacobs.
The Chairperson asked if Mr Jacobs still remembers his input.
Mr De Villiers said that he agreed. If anyone needs to set a good example for good corporate governance, it is government. He supported that the board’s performance must be assessed on an annual basis for good corporate governance standards.
- Section 12 Material or persistent failure to meet objectives and targets
Mr Gumede noted that there was no contestation about this section. There was a public submission on section 12(2)(a) on the commission of an independent investigation, but this was cleared up by the Department to the satisfaction of the Committee.
- Section 13 Agency powers and functions
There were contestations around sections 13(a) and (b) but this was already cleared up. It referred to the definition of small enterprise including co-operatives and the Department having to explain the national delivery network. He asked the Parliamentary Legal Advisor if this should be flagged.
Ms Halley-Starkey agreed as it will help to have understanding of the meanings of it.
Mr Gumede said that for section 13(d) which provides for the board to establish provincial structures to ensure the effective implementation of its functions, there was a recommendation that it should be extended to local municipalities as well. This will also have to be flagged and the provincial structures might have to change to local structures.
Ms Mbelekane said that section 13(c)(xiii) states "improve the understanding of the public on the contribution of small enterprises to domestic economic growth, job creation and general welfare". She suggested that the wording read 'inclusive economic growth'. There is a tendency with inequality where the rich get richer, and the poor get poorer. So, in terms of the national development plan, inclusive economic growth should be used so that the previously disadvantaged in all sectors and people with disabilities are included.
On section 13(d), Ms Halley-Starkey said that she went back to the Department's presentation on the Bill about provincial representativity. One may not always have the requisite skills from provincial representativity.
Mr Gumede said that there should be provincial representativity from all nine provinces. For the offices, there is usually a call location of some sort. The public was very overwhelmed with this. There are different terms used such as decentralisation and geographic spread.
Ms Halley-Starkey said that she did not want to turn this into a conversation. Section 13 speaks about the powers and functions of the Small Enterprise Development Finance Agency and provides for the establishment of provincial structures to ensure the effective implementation of its functions. This is where the geographical layout comes from. The Committee can also see the explanation of the Department on pages 15-16. The Department can confirm if the interpretation is correct.
The Chairperson said that the Department will be given a space to engage.
- Section 16 Composition of board
Mr Gumede said that this also presented some issues. There should be provincial representativity from all nine provinces. He asked if this should be flagged.
The Chairperson said that the Committee has to emphasise what is being said on the ground. This is an concern that came from the public and not the Committee itself. There were valid reasons given for this and so it has to be highlighted. The Committee cannot go through this process without recognising what the public has said with their valid reasons.
Mr Gumede said that there were no issues with sections 17 Board Committees, 17A Standards Of Directors’ Conduct, 17B Reporting and 17C Audit.
Clause 5 Insertion of ‘Chapter 3A Dispute Resolution Mechanism
- Section 17D Establishment of Office of Small Enterprise Ombud Service
There is an issue with section 17D which speaks to the Office of the Ombud being created as a juristic person accountable to the Minister and Parliament. The public submissions suggest that the Office of the Ombud should be accountable only to Parliament. This is what the public has said.
Mr Kruger said that the Committee should listen to the public. The public was very vocal about it. Due to the sensitivity of the Ombud being independent and it having to be fair, accountability should be to Parliament. In all the cases, concerns were written to Parliament and not the Minister. The oversight mechanism must be Parliament.
Another Member said that there is a dual accountability to the Minister and Parliament. The Minister is the executive appointed by the President. There is that jurisdiction to do that. It is fine and should stay like that.
There was an agreement that this should be flagged.
- Section 17E Objective of Office
Mr Gumede said that there was a particular issue about the Office's adjudication of complaints. The issue has to do with the Western Cape Government and Takealot. He asked if the Parliamentary Legal Advisor wanted to flag anything.
Ms Halley-Starkey asked Mr Gumede to remind her about this because it was not flagged in her presentation. This is something that the Department has already responded to.
Mr Gumede said that the issue was on the creation of an alternative dispute resolution via the adjudication.
Ms Halley-Starkey said that this had to do with a proposal for an appeal tribunal and the Department had responded to it. She cannot remember the reason but will look it up now.
Mr Gumede said section 17E(2) states that the Ombud and any deputy Ombud must act independently and impartially. An issue was raised with the wording as it suggests that there would be more than two deputy Ombudsman. He asked if this should be flagged.
Ms Halley-Starkey replied that this can be flagged and looked at when dealing with the A-List.
State Law Advisor, Mr Makabeni, said that the Bill provides for more than one deputy Ombud. So, there is a possibility of more than one being appointed.
Mr Gumede said that section 17E(3) states that the Office of Ombud must fulfil advocacy functions. He remembered Mr Kruger saying something about advocacy.
Ms Halley-Starkey referred to the Committee to the Department's presentation on why the alternative dispute resolution method had been chosen. On page 24, there is an explanation that the call for the establishment of an appeal tribunal is a lengthy process and there are significant indirect costs involved in such an appeal process. Hence, the alternative dispute resolution.
Mr De Villiers said that an appeal tribunal would incur extra costs for the Department. An appeal tribunal is still a much cheaper alternative for small business to appeal the Ombud's decision. The alternative would be to go to court if it is not satisfied with the Ombud's decision. There is a case to be made for a small business to go the way of an appeal tribunal instead of having to take a longer court decision, which very few small businesses can afford. This was his understanding.
The Chairperson said that there were items dealt with early, especially the responses of the Department. Members who are doing oversight have a responsibility to ensure whatever determination is made will have a positive impact throughout. This is not going to be a lifetime Bill but these arguments from the ground have to be dealt with.
Mr Kruger said that it could just his language ability but there are so many meanings for "advocacy" in section 17E(3). There might be misunderstanding by a lot of people that do not understand English. It should be more described or be more specific.
The Chairperson said that Mr Kruger will be assisted by the legal gurus who have that wisdom.
Ms Halley-Starkey said that the Department's response to the tribunal was twofold. Firstly, it was costly. Secondly, section 17M(6) states that any decision can be taken on review specifically on the grounds of illegality, procedural unfairness, or irrationality. It is the prerogative of the Committee to decide if there should be a tribunal procedure. If this is going to be a discussion with the Department, there will be a further justification on why it is not included. It is not the Ombud that should provide the advocacy function, it is the opposite of the Ombud. The standard dictionary definition of advocacy will be used unless there is a different intention. If the Department intends to narrow or expand the term "advocacy", that is at the discretion of the Department to explain to the Committee. The Department are the policymakers and should explain its intention.
Ms Mbelekane said that she was looking at the Australian Small Business and Family Enterprise Ombudsman. This may help phrase the clause. The functions of that Ombudsman are to advocate for small businesses and family enterprises in relation to relevant legislation, policies, and practices. The advocacy function includes identifying concerns of the operating small businesses, conduct research, and conduct inquiries. Section 17E(3) can be flagged and then perhaps we look at something like this definition to beef up the definition of advocacy.
The Chairperson said that this would help. The Department is here to listen about the definition of advocacy.
- Section 17F Appointment of Ombud and deputy Ombud
Mr Makabeni again indicated that there is a possibility that there will be more than one deputy Ombud. This is important for Members to understand before moving forward. Section 17F(1)(b) states that the Ombud must be a resident or ordinarily resident in South Africa. This person may be appointed for a term of seven years which may be renewed for one more term, according to section 17F(2).This will result in serving 14 years. He asked if Members were comfortable with this and if it was a good practice. A Public Protector only serves for a period of seven years, which is not renewable.Ordinarily, such appointments are for a duration of five years.
Mr Jacobs said that this should be in line with other practices. This must be in line with the Public Protector. He suggested that it be for five years and not more than two terms.
Ms Mbelekane said that section 17F(3) states that the Minister must within 90 days of a vacancy appoint a deputy Ombud with legal training, appropriate experience and who must possess knowledge of small enterprise. It was suggested that before the person has legal experience, they must have small business experience. A person may have legal experience and not understand. The two must be swapped around. She did not know if this was acceptable but wanted to highlight this because this is what the public had said. It should start with small enterprise experience rather than prioritising legal training.
The Chairperson said that provinces were saying that there should be a knowledgeable businessperson working alongside the Ombuds who has only legal expertise and no background in business. She did not know how the two suggestions would be married together. It will not assist anyone if there is a legal person dealing with conflict but who does not know how to handle business issues. This has to be highlighted.
Mr Kruger asked if the Minister would appoint an Ombud or if the Portfolio Committee would do interviews and then forward a suitable candidate. Appointing such a person would play a huge role in small business development. This is something that should also be flagged.
The Chairperson said that the Committee will come back to this. This is something that will help.
Mr Gumede said that section 17F(4) will also be flagged on the term of the deputy Ombud.
- Section 17G Powers and functions of the Ombud
Mr Gumede said that mention is made of small enterprises and small enterprise organisations. There is a definition for small enterprise but no definition for small enterprise organisations, yet the terms are used interchangeably. An issue was also raised on the Ombud initiating an investigation. The Department did mention this in its presentation. There is a standard practice. The Competition Commission does not necessarily wait for the initiation of an investigation.
Ms Halley-Starkey said that there is a definition of small enterprise organisation in the Act although there might not be a definition in this Bill. There were concerns about section 17G(2) on the wide discretionary power, but this was explained. No legislative power was provided to the court.
Mr Gumede said that there was a clarification request about the phrase "deems fit". There was an indication that it contradicts the Promotion of Administrative Justice Act (PAJA).
Ms Halley-Starkey said that PAJA was applicable.
- Section 17H Receipt of complaints
Mr Gumede said that there was a clarification request on the reference to Prescription Act.
Ms Halley-Starkey said that it is clear that the Prescription Act applies, and that the Department did respond to that.
Mr Jacobs asked if the three-year term of the board and the annual performance assessment have been covered. It was suggested that there be a three-year term but annual assessments.
Mr Gumede replied that the Committee had covered the board term and its assessment.
- Section 17M Determinations by Ombud
Mr Gumede said there was an issue with this and asked the Parliamentary Legal Advisor to go over this for the benefit of Members who were not present in the meeting earlier.
Ms Halley-Starkey explained that there was confusion between the Ombud's discretionary powers and that of the Minister. This was around the Dawood judgment. The Constitutional Court had said that when powers are given to an Ombud or to any entity, there has to be some sort of guidance for the Ombud. Even if there is a delegation, the Ombud cannot make regulations. The Ombud can provide recommendations or amendments to regulations and provide policy guidelines. The Ombud itself is not the Minister and does not have legislative power. There were various arguments in sections 17G and 17Y indicating that the Minster had this unfettered right to decide on what was unfair labour and trading practices.
- Section 17P Funding of Office
Mr Gumede said that there were comments that the budget is way too minimal considering the number of complaints that Parliament is sitting with. When the Ombuds kick in, it is likely that there would be a lot of contestation from aggrieved parties who would want to take the decision of the Ombud to court. So there is a concern about the budget allocation for the Ombud.
- Section 17R Disestablishment and liquidation of Office
Mr Gumede said that there was a concern which was already clarified by the Department.
- Section 17S Regulations applicable to Ombud
Mr Gumede said the section makes it clear that the Minister makes all the different regulations for categories of complaints and investigations. There was no contestation on this.
- Section 17(T) Record-keeping
Mr Gumede said that there was an emphasis on the digitisation of complaints. This will help to fast-track some of these complaints.
- Section 17V Penalties
Mr Gumede asked if there was an issue in this section.
Ms Halley-Starkey replied that she cannot recall anything being raised about section 17V.
- Section 17Y Unfair trading practices
Mr Gumede said that this received the largest commentary from oral and written submissions. He asked that Mr De Villiers speak first before the Parliamentary Legal Advisor comes in.
Mr De Villiers said that section 17Y should first be discussed in the same manner the Committee did with the other clauses. Thereafter, he will give his thorough input.
Ms Halley-Starkey said that the Minister has legislative power or delegated legislative power. Through cases such as the Justice Alliance of South Africa and the Executive Council of the Western Cape Legislature, it was established that when there is delegation through creating subordinate legislation or enabling legislation it creates a plenary power or legislative power for the Minister. So in this case, in terms of case law, the Minister is within rights, in terms of the plenary power delegated to the Minister, to provide notices or regulations to declare certain practices unfair. However, because of case law surrounding this delegated legislative power, such as the Affordable Medicines Trust case, the Constitutional Court held that the delegation must not be "overbroad and therefore vague". There must be some sort of constraint.
In the Memorandum of Objects on the Bill, which sets out the intention of each section, it states that in section 17Y, the Minister responsible for small business development may, on recommendation of the Ombud, by notice in the Gazette, declare certain practices about small enterprises to be prohibited as unfair trading practices. The section gives guidance as to the practices that may be declared to be prohibited unfair trading practices by the Minister and lists the rights of small enterprises. The way that the section is drafted though does not indicate that the Minister receives a recommendation from the Ombud. It appears that the Minister can just declare certain practices unfair which would result in an unfettered power of the Minister. There would be no constraints on that power.
Section 17Y(3) lists various items that could amount to unfair trading practices. The Ombud receives details of various trade deals affecting small businesses. The Ombud would then pick up certain aspects that could be unfair and inform the Minister. The Minister can on his/her own accord ask the Ombud to investigate certain areas and make a recommendation. There are two ways in which an unfair trading practice can arise. It could be through the Ombud saying to the Minister that there are areas of concern, such as bogus trading industries or businesses. Secondly, the Minister can ask the Ombud to investigate and decide if there is an unfair trading practice. The main concern here is that it is not coming out clearly that the Ombud would make recommendations to the Minister. There is a disconnect.
She also suggested that section 17Y(3) state that unfair trading practice 'may include' so that these are not the only instances that would render a trading practice unfair. This is what is lacking in section 17Y. This could help the Committee in preventing this unfettered authority of the Minister declaring certain trading practices unfair.
The Chairperson said that she did want clarity on this section. In some way, it is saying that the Minister is given full power or authority. There should be an engagement with the Department so that there is clarity moving forward.
Mr De Villiers said that from the many public submissions, it is quite clear that the way the public and stakeholders, including himself, are reading this, section 17Y(3) gives the Minister an unfettered authority to declare certain practices unfair. Section 17Y(3) is very unclear and vague on what constitutes an unfair trading practice. The submission from the South African Property Owners Association said that some of the listed anti-business practices would amount to a constitutional breach of freedom and the right to contract. This Bill could then be constitutionally contested if some of these are unconstitutional. It may undermine the right of parties to enter into a contract. He was not a legal expert but this is his understanding. He said that he could not attend the earlier meeting but he had read the presentation. It sounds as if there was a suggestion that CLSO and the Department should meet again.
Mr De Villiers said that the Bill was never about giving the Minister powers, it was about the amalgamation of the existing three agencies into the Small Enterprise Development Finance Agency (SEDFA) and the establishment of the Office of the Small Enterprise Ombud Service. His submission was that section 17Y should be deleted in its entirety. This is based on the fact that it might be unconstitutional and that Legal Services wants to meet with the Department again. It was clear that there was no practical example that could be given to explain why these powers exist. There could be a lot of consequences, especially unintended consequences. There has been no good practical reason given why this is important and why the Minister should have these wide discretionary powers. Considering the incredible number of submissions that are against section 17Y, it should be removed.
The Chairperson said that the legal team is here to assist and the Department can also respond.
Mr Jacobs said that the advice given by the Parliamentary Legal Advisor was helpful. He agreed that the word 'may' should be included in section 17Y(3). He did not agree to remove section 17Y in its entirety. It is important to define unfair trading practice. There are a lot of unfair trading practices happening. Small businesses and informal traders are at the receiving end. For this reason, unfair trading practices should stay in the Bill.
It is the ambiguity in the Bill that should be removed. It stated that the Ombud can make recommendations to the Minister and that the Minister can also initiate an investigation. It does not have to start from scratch, it just has to be aligned. It must state that the Ombud will come to the Minister to remove the fear of unfettered power. He did not understand why people were fearful of the unfettered powers. The Minister has the jurisdiction and there is the legislative framework to deal with small business matters. The big problem is trust – one needs to allow the executive to implement the legislative framework and the mandate. The clauses that are vague and ambiguous should be dealt with. The Bill should state that the Ombud will recommend to the Minister. The Minister can also say to the Ombud that there needs to be an investigation, along with recommendations.
State Law Advisor, Mr Makabeni, said that section 17Y(5) lays out the process that the Minister has to follow before declaring a prohibited business practice in a final notice in the Gazette. First it provides for a notice and comment process on the draft declaration. It requires that the Minister must indicate reasons for making the declaration, indicate where a copy of the draft declaration can be obtained and must invite interested parties to make written representations. There is this whole process that the Minister has to follow. It is not a novel idea in trade, that trade is regulated. There are areas of trade or areas of contracting that are regulated in South Africa. In the area of competition, there are regulations that relate to buying power and price discrimination. It is not a novel idea, but Mr Makabeni said that it was not his duty to defend the policy; it is the Department that has to do that. From a constitutional perspective, it is just not a novel idea. Some things are already in legislation. The issues of abusing one's position and powers and getting people to provide services are already in the Competition Act where there are regulations in place for that. There are regulations in place to deal with price discrimination.
The Chairperson said that the advice received in this meeting is helping the Committee. These explanations are now more clear considering the objectives of the Bill. The clauses are now better explained. There was the worrying factor of the Minister being given authority to declare unfair trading practices. However, the way it is outlined must be in line with what has been discussed. It should be aligned properly that the Ombud will do investigation and will recommend to the Minister and not that the Minister will just declare certain practices unfair. This Bill cannot be enacted with all those grey areas. The explanations that were received are in order.
Clause 6 Substitution of section 19 National Review of Small Enterprises
Mr Gumede said that there is only one concern as section 19(2) refers to an "Advisory Body" that does not exist. A recommendation was made to the Department to appoint the advisory body.
Clause 7 Amendment of section 20
Mr Gumede said that there were concerns around alignment with the recent Constitutional Court judgment. He asked that Mr Makabeni explain this to the Committee. People did not necessarily understand what was meant by this amendment.
Mr Makabeni did not appear to be on the platform.
Ms Halley-Starkey said that the Smit judgment was a Constitutional Court judgment. Section 63 of the Drugs Trafficking Act had allowed the Justice Minister to amend Schedules 1 and 2 of that Act. This was done with plenary legislative power delegated by Parliament which is inconsistent with the Constitution. A Minister cannot amend the schedule of an Act. The plenary power comes through the main legislation where Parliament can delegate the minister to 'make regulations' or subordinate legislation. This Bill deletes the phrase "amend the Schedule" and replaces it with "make regulations" in section 20. This is to avoid the situation that happened in the Smit judgment which was declared unconstitutional.
Mr Gumede said that this was explained perfectly.
Clause 8 Repeal of Schedule to Act
There was no issue with clause.
Clause 9 Amendment of laws
Mr Gumede said that the South African Co-operative Banking Association raised concerns about the repealing of Chapters 5 and 6 of the Co-operative Banks Act which speaks to the representative body and support organisation. There was also the fact that the National Treasury has not yet engaged with the sector. There might be some misalignment between what the sector is trying to do, particularly about compliance with the Financial Sector Conduct Authority. He suggested that when the Department appears before the Committee, the invitation should be extended to National Treasury because it is the custodian of co-operative banks. Treasury would be able to respond to these concerns more accurately.
Mr Gumede said there were no further issues and asked the Parliamentary Legal Advisor to explain the way forward.
Ms Halley-Starkey said that it is a bit of a precarious position because no real resolutions were taken by the Committee. There are a few places of agreement, but there are still issues that are up in the air, that the Department has to clarify. She was to meet with the State Law Advisor tomorrow to finalise the A-List. The A-List can only be finalised if there is solid direction from the Committee. There are two options that can be done. Firstly, the Committee can meet with the Department to sort out these issues. This would mean that there would have to be another meeting for the Committee to make decisions and guide Legal Services to bring forward the A-List. There cannot be an A-List with various options. The A-List has to be the exact items that the Committee wants to change. This is procedurally what has to be done in terms of paperwork.
The Chairperson said that the Committee did highlight a few things while it was going through the Bill. Time is not on the Committee's side. She suggested that the Committee go back to the highlighted parts.
Ms Halley-Starkey said that there were a few things she needed the Committee to take a solid resolution on. The Long Title will change as agreed to. The issue of the Companies Act has been cleared up by Mr Makabeni.
The Chairperson said that Members should raise their hands if they have input while the Parliamentary Legal Advisor goes through the flagged clauses. The Committee has to deal with this once and for all. The Committee will go through the flagged clauses and make decisions.
Mr De Villiers said that he is getting extremely uncomfortable with the process. A lot of questions have been asked and a lot of items have been recorded. Some changes have to be made. The normal process would be that the Parliamentary Legal Advisor would go through these changes, sit with the Department legal team and State Law Advisor and bring those alternatives to the Committee. He was uncomfortable with the fact that the Committee had to do it now. The Committee is not qualified to decide what is right. Legal Services should be given one day to come back with these suggestions. It would be the rational and fair thing to do.
The Chairperson said that she would request the Parliamentary Legal Advisor and the State Law Advisor to advise the Committee. Steps need to be taken. Some issues have been raised and it has to be incorporated by the legal gurus. It is not the legal gurus duty to reflect. It is the Committee's duty to reflect. It is the Committee that is dealing with the Bill. She was not trying to make a ruling, but she was trying to direct the meeting. How will Legal Services know what the Committee wants or what should be effected/corrected? This process needs to unfold. Legal Services are here to help the Committee to draft the issues raised. The Committee cannot say that it will give Legal Services a day. It does not work like that. The Parliamentary Legal Advisor is here to assist and the Department is here to respond to issues for clarity. She expected that the Committee would go through the flagged clauses and then effect those changes.
Ms Halley-Starkey said that to find a happy medium, there could be a meeting with the Department in the morning. The Department has not had an opportunity to provide the policy directive about the vagueness of certain segments. This will allow for the opportunity to craft amendments.
The Chairperson said that she is comfortable with this. However, she did not want a situation to arise where Members disown those issues. She is not disputing the opportunity to consolidate, but she does not want Members to distance themselves from the resolution.
Mr Jacobs said that he agreed. There are a lot of controversial issues. The Committee has embraced and endorsed the advice from Legal Services. There has been consensus on most of the issues. This will now just have to be crafted. All the controversial issues have been broadly crafted. It is now almost 22h15 and the Committee wants to start again from page two until page 20. Given the inputs, the Members will not disown it. There has been too much investment in this. There should be a meeting tomorrow and then Legal Services can come back to the Committee. This will also give Mr De Villiers some comfort. There will be another opportunity to have a final input on what has been suggested.
The Chairperson said that she does not have a problem with this as long as the Members agree. She does not want a situation where this product is denied. The Committee has to speak with one voice and be on the same page.
Mr De Villiers said that it was a nice proposal to support.
The Chairperson said that the Committee can call it a day.
Mr Kunene asked what time the meeting would be because there is a plenary sitting at 10h00.
The Chairperson said that it should take place after the sitting. This will give Legal Services some time. There is not a lot that has to be done but it give them the space to do so. She thanked everyone and adjourned the meeting.
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