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A new Companies Act - Standards of Conduct (the Scary Stuff)

Posted Tue, 09/03/2010 - 10:26 by shirley

This is part 4 of a series of posts about the new Companies Act. You can read the first three parts and other posts about South African corporate law right here.

One of the most fundamental changes introduced by the New Act relates to the standard of conduct expected from directors, prescribed officers and any member of a board committee (including the audit committee) even if certain committee members are not board members, and the liability that they may attract if they fail to adhere to these standards. The word “hectic” has frequently been associated with sections 75 to 77 (inclusive) by clients and fellow practitioners.

The need for the new, more stringent liability provisions are necessitated by the fact that in the past directors (in particular) have frequently treated companies as their personal fiefdoms while paying little heed to the potential consequences. After all, that is what the corporate veil was created for- to protect inter alia the directors from prying eyes.

The corporate veil was briefly referred to in part 1 of this series. The fiction of juristic personality means that the juristic person is viewed separately from the persons who comprise it. Even though a company cannot act or enter into agreements or sue and be sued, without the aid of individuals, the people who perform these actions are effectively acting as agents of the juristic person, and all rights and liabilities adhere to the juristic person and not the individual concerned. The courts, as a result of cases like Salamon v Salamon & Co Ltd 1897 AC 22 and Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530 have historically been loathe to look behind the corporate veil, unless some form of abuse of the juristic personality has been perpetrated. Unfortunately, the law in this area developed along very haphazard lines. However, ultimately in the matter of Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd [1995] ZASCA 53 (also 1995 4 SA 790 (A)) the Appellate Division laid down that each inquiry as to whether or not the corporate veil should be lifted necessitates an enquiry into the facts, with emphasis being placed on the substance rather than the form of any corporate action taken. The court was additionally of the view that there is no general discretion to pierce the corporate veil, however where fraud, dishonesty or any other form of improper conduct is alleged, or by virtue of any policy consideration there are good grounds for piercing the corporate veil. This includes:

  • giving effect to the legislature: we are all permitted to arrange our affairs in the most effective way – however we cannot create a structure purely for avoiding a particular provision of the legislature – for example no matter how one attempts to paint it, tax evasion will be just that regardless of the clothes in which it is dressed. Tax avoidance on the other hand is a legitimate, for example, if a tax neutral amalgamation transaction is available to you, why would you select a structure that triggers capital gains tax?
  • to prevent fraud;
  • to prevent breaches of fiduciary duty;
  • to prevent improper evasion of any obligation, for example in the matter of Cattle Breeders Farm (Pvt) Ltd v Veldman 1974 1 SA 169 (RA), a matrimonial spat was brought before the court under the guise of a commercial ejectment. The immovable property in question happened to be the matrimonial home which the applicant had left after he had committed adultery, and the “squatter” was the applicant’s estranged wife. In the circumstances the applicant was the sole shareholder and director of the company from whom the immovable property was leased. The court held that the company was nothing other than the applicant’s alter ego and refused to allow him to use the corporate structure to avoid his obligations in terms of family law; and
  • when the court sees piercing the corporate veil as being in the public interest. For example in times of war, payments to enemy states are frequently forgiven as it would be seen as sleeping with the enemy. This was the case in Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd 1916 2 AC 307.

This is where the New Act steps in, as it is also legislatively possible to pierce the corporate veil, and to a greater and lesser extent, this is precisely what the New Act is aiming at: making it easier to prevent and prosecute abuses of the corporate structure.

The three sections that we are predominantly concerned with are section 75 (director’s personal financial interests), section 76 (standards of conduct) and section 77 (liability of directors and prescribed officers). It must be borne in mind however, that:

  • these sections apply equally to directors, prescribed officers and board committee members (including the audit committee) and whether or not the committee members are themselves directors (for ease of reference, these will be collectively referred to as “directors”); and
  • breaches of many of the clauses in the New Act will constitute breaches of these sections.

So what do these sections actually say in plain English?

Section 75 is concerned with personal financial interests. This section links quite closely with the common law concept of fiduciary duties. One of the fiduciary duties of a director is to prevent his personal interests from clashing with those of the company. The company’s interests must in all circumstances come first, and where there is a direct or indirect collision between the company and the director’s interests, the director is obliged to disclose this fact to the company (i.e. the remaining directors and the shareholders). This is what is commonly known as a conflict of interests.

Section 75 of the New Act goes further, the director who has a personal financial interest (read = conflict of interests) must disclose same in writing (at any time) setting out the details and importantly the extent of the conflict. Where a director realises he has a conflict of interests (or knows that a related party has a conflict of interests) in any matter to be raised at a board meeting then in terms of section 75(3) he/she is obliged to:

  • disclose the interest and its general nature before the matter is considered by the meeting;
  • disclose any material information relating to the matter and may disclose any relevant insights or observations;
  • leave the meeting immediately after making his disclosure and not take part in any consideration of the matter by the rest of the board;
  • not sign any document in relation to the matter unless specifically authorised to do so by the remainder of the board.

The director in question will still be considered as being present for purposes of a quorum, but will not be considered as being present for purposes of any decision or vote that must be taken in relation to the matter.

Where a conflict arises (either for the director or a related person) after an agreement has been entered into by the company, the director in question must likewise disclose such conflict of interests to the company detailing the nature and material circumstances of how that conflict arose.

Even if a director has a conflict of interest at the time any decision is taken or agreement is entered into, this conflict of interest will not invalidate the decision if it was approved as set out above, or if the shareholders have ratified it and the court may declare the decision or agreement valid on application of any interested party despite the failure of the conflicted director to comply with the provisions of section 75. Of course, in the latter instance good grounds shall have to be shown, and if the interested party and the conflicted director were acting collusively, it is unlikely that the order sought will be granted.

Section 76 sets out those standards of conduct to which all directors must adhere.

The things a director must do when exercising the powers and functions of a director are:

  • to act in good faith and for proper purpose;
  • to act in the best interests of the company;
  • to act with the degree of care, skill and diligence that may be expected of a person carrying out the same functions as those carried out by the particular director, having a comparable general knowledge and experience of that director;
  • to communicate to the board at the first possible opportunity of any information that comes to his/her attention that is material to the company or generally not available to the company, unless the director is bound not to disclose the information by virtue of legal or ethical obligations of confidentiality.

The things a director must not do when exercising the powers and functions of a director are:

  • to make use of any information while acting as a director;
  • to gain some personal advantage;
  • or an advantage for any other person than the company itself, or any of the company’s subsidiaries.

A director will be considered to have adhered to the above obligations if:

  • he/she has been reasonably diligent in becoming informed about any matter;
  • he/she has no personal interests in the outcome of the matter;
  • he/she has complied with the requirements of section 75;
  • the decision was taken and supported by a decision of a board committee and in taking the decision the director believed on a rational basis that the decision was in the best interests of the company and in so doing, the director is entitled to rely on any function that may have been reasonably delegated and any information, opinions, reports or statements (including financial statements) presented by the company’s employees, legal counsel, accountants or other professionals where the information is within that person’s professional expertise, or any board committee of which the director is not a member, in all circumstances if the information merits confidence. Red Bull may give you wings – but I have never seen a flying cow.

Where a director has not complied with these standards of conduct, which are really a codification of the common law position, and as such are nothing new, the director will attract liability in terms of section 77.

A director will be held personally liable for any loss, damages or costs (including costs of court proceedings) sustained by the company:

  • in accordance with the principles of common law relating to a breach of a director’s fiduciary duties or any other breach of a director’s duty contemplated in section 75 and section 76;
  • in accordance with the principles of the common law relating to delict as a result of a breach of section 75 and section 76, any other provision of the New Act or any provision contained in the company’s Memorandum of Incorporation;
  • if the director has signed any document on behalf of the company, or otherwise acted in its name in circumstances where the director knew he did not have the authority to act;
  • agreed to carry on the company’s business in a manner that is prohibited by section 22 (section 22 determines what constitutes reckless trading by a company);
  • if the director is party to any act or omission, the purpose of which is to defraud a creditor, employee or shareholder of the company, or for any other fraudulent purpose;
  • signed or consented to the publication of any financial statements, prospectus or other statement that contains information that is false or misleading in a material respect;
  • was present at a meeting, or participated in the taking of any decision in terms of section 74 (this is where a director takes a decision other than at a meeting of directors) and failed to vote against
    • the issuing of any unissued shares, which issue had not been authorised in terms of section 36 (in order to issue shares in terms of section 36(1)(d)(ii) require the board of the company to determine any rights, preferences or limitations associated with the shares, prior to their issue);
    • the issue of any authorised securities where this was contrary to the provisions of section 41 (this is where shareholder approval for the issuance is necessary);
    • the granting of options, where such options have not been authorised in terms of section 36;
    • the provision of financial assistance to any person for the purchase of shares in the company despite knowing that the provision of financial assistance in the circumstances is inconsistent with the provisions of section 44 or the company’s Memorandum of Association;
    • the provision of financial assistance to a director contrary to the provisions of section 45 or the company’s Memorandum of association;
    • a resolution approving a distribution, where the company has not passed the solvency and liquidity test;
    • any allotment by the company where such allotment is contrary to any provision of chapter 4, where the allotment is declared void.

Where the board of a company has taken any decision, which contravenes the New Act then the company or any director who has been held liable in terms thereof may apply to a court for an order setting aside that decision and the court may make any order which is equitable in the circumstances including rectifying the decision or reversing the transaction and requiring the company to indemnify any director who may have been held liable in terms of section 77, which would otherwise be joint and several with any other person who may be held liable in terms of the Act.

So for all the conduct and liability provisions appear to be daunting in their scope, they really are nothing other than a codification of the common law position on fiduciary duties and a more effective means of prosecuting those who offend against these duties, by creating a statutory mechanism for piercing the corporate veil. Thereby increasing the transparency and accountability of a company in accordance with the suggestions put forward by King Code on Corporate Governance. A responsible corporate citizen should have nothing to worry about.

Best Jobs: stealing your personal information?

Posted Fri, 13/02/2009 - 11:25 by Paul

Stii posted a warning to his blog about an apparent practice of misappropriating personal information submitted to a job seeker website, Best Jobs, and disseminating that personal information to scam employment agencies. The warning begs the question whether Best Jobs is allowing the misuse of its users' personal information and answering that question requires taking a closer look at privacy law in South Africa.

Privacy law in a nutshell

The primary law governing privacy law is the Bill of Rights and article 14 in particular:

14 Privacy

Everyone has the right to privacy, which includes the right not to have-

(a) their person or home searched;

(b) their property searched;

(c) their possessions seized; or

(d) the privacy of their communications infringed.

The right to privacy is a general right to privacy first. The individual rights are subsets of the more general right itself. There is a two step test used to determine whether conduct constitutes a violation of the right to privacy in the Bill of Rights:

  • Has a law or a party's conduct infringed the right, taking into account the right's scope; and
  • If there is an infringment, is it justified under the Limitations clause in the Bill of Rights?

The Limitations clause is article 36:

36 Limitation of rights
(1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including-
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision of the Constitution, no law may limit any right entrenched in the Bill of Rights.

So what does this all mean so far? It means there is a general right to privacy which can be limited by a law that applies generally.

The seminal case on the right to privacy is Bernstein and Others v Bester NO and Others. The Constitutional Court said that the right to privacy is informed largely by a legitimate expectation of privacy which, in turn, means that a person must establish that:

he or she has a subjective expectation of privacy and that the society has recognized that expectation as objectively reasonable.

The subjective component means that a person can't have an expectation of privacy where that person has consented to have his or her privacy invaded. The objective component introduces a requirement for reasonableness when assessing an apparent privacy violation. There is a notion of a "continuum of privacy interests" which is a helpful application of this idea of a legitimate expectation of privacy. The Court in the Bernstein case said the following:

The truism that no right is to be considered absolute, implies that from the outset of interpretation each right is always already limited by every other right accruing to another citizen. In the context of privacy this would mean that it is only the inner sanctum of a person, such as his/her family life, sexual preference and home environment, which is shielded from erosion by conflicting rights of the community. This implies that community rights and the rights of fellow members place a corresponding obligation on a citizen, thereby shaping the abstract notion of individualism towards identifying a concrete member of civil society. Privacy is acknowledged in the truly personal realm, but as a person moves into communal relations and activities such as business and social interaction, the scope of personal space shrinks accordingly.

This is an explanation for why people in the public eye have a different legitimate expectation of privacy than people who are deeply private and secretive. A person's legitimate expectation of privacy is determined by their level of publicity and the consents they have given to invasions of their privacy.

Without delving into the law further we can already see that an aspect of the legitimate expectation of privacy is this subjective expectation of privacy which is determined by factors like consent and so on. Bottom line here is that if you grant your consent to a company to collect and process your personal information in some way, you don't have a legitimate expectation of privacy when it comes to the authorised use of that personal information.

The general right to privacy should protect another important interest called "informational self-determination". This interest includes the ability to control what information is collected, how and and when it is used. It also includes the ability to access information which is held by another party and be able to determine what personal information has been collected and correct it if it is inaccurate (the Promotion of Access to Information Act was passed to protect and give effect to this aspect of informational self-determination).

So what does all this mean? It means that not only would your consent be required to enable someone to collect your personal information where it isn't otherwise permissible but you have a say over what that information can be used for, not to mention the ability to find out what personal information authorised parties have collected and correct it if need be.

Chapter 8 of the Electronic Communications and Transactions Act contains a voluntary set of principles which go some way towards codifying this aspect of privacy law but it is limited to "electronic transactions" and, as we pointed out above, is voluntary. Notwithstanding these limitations, it is helpful in formulating a privacy policy which contains the necessary consents which a service may require from its users.

The proposed Protection of Personal Information Bill will take this process further and introduce a far more structured and mandatory regime to protect collection and processing of personal information but we are still some way away from that proposed law being passed. That being said, we recommend to our clients that they develop privacy policies in line with this proposed legislation because it is the likely shape of things to come (which is important when incorporating privacy considerations into a medium to long term project) and it provides sound principles for the collection and processing of personal information.

Best Jobs: friends or fiends?

Stii's post highlights a worrying practice of scammers using Best Jobs as a platform to steal personal information or other wise misuse it. Assuming, for the purposes of the this post, that the scammers Stii identified are, in fact, scammers, their conduct places Best Jobs in a difficult position. Its privacy policy contains some of the things users consent to when they sign up with the service. The policy includes the following provisions:

General privacy statement

We may only use your email address or personal details to contact you from time to time about matters directly related to our website, such as sending you a password reminder, or changes in our website that may affect you. Your email address or any other part of your personal information will never be used for marketing purposes or be disclosed to third parties. You will be able to remove any of your personal information stored in our systems at any time, by using the on-line forms in our website.

...

This site contains links to other sites. We are not responsible for the privacy practices or the content of such web sites.

...

The privacy of your CV

We consider your CV as a personal document and we wish you to have full control over it, and whether or not you wish to have your contact details (name, address, telephone number) visible to employers.

...

When registering your CV, we will ask you to give us your email address. This email address will be disclosed to potential employers and recruiters looking for employees in our online database, and apart from that, we will only use it to send you CV update reminders and to contact you about matters directly related to this website.

...

We make an effort to limit access to our CV services only to employers or recruiters wishing to find employees. If any business is found to be using our CV services for something different to this, then we will immediately terminate their use of our services.

Although you may remove your CV from our searchable database at any time, companies who have had access to the database may have retained a copy of your CV in their own files or databases. We are not responsible for the retention, use, or privacy of your CV by companies in these instances.

...

Security

We have implemented reasonable technical and organisational measures designed to secure your personal information from accidental loss and from unauthorised access, use, alteration or disclosure. However, we cannot guarantee that unauthorised third parties will never be able to defeat those measures or use your personal information for improper purposes.

...

Contact

The Best Jobs South Africa website is property of DGnet Ltd., private limited company incorporated in Scotland(UK), number 189977, and with registerd office in 12 South Bridge, Edinburgh EH1 1DD (United Kingdom). If you have any questions about this privacy policy, the practices of this site, or your dealings with this site, you can contact us here (click here). We welcome your comments concerning this privacy policy. If you believe that we have not adhered to this policy, please let us know and we will make reasonable efforts to promptly determine and solve the problem.

There are a number of provisions in these quotes sections that should concern users, especially in the context of this scam warning. For one thing Best Jobs points out that it is not responsible for other services misusing either its own service or your personal information. Once you release it, Best Jobs will try keep your personal information safe but you take your chances.

Best Jobs does promise to terminate scammers' access to its services once their misuse of the service comes to Best Jobs' attention so the implication of the scammers' continued access to the service despite being warned about the scams is that Best Jobs at least tacitly consents to this practice. This makes the Best Jobs service a platform for these scams. To make matters worse, Best Jobs tells users, on one hand, that it will not make their email addresses available to third parties (although this seems to be precisely what it is doing) and, on the other hand, that it will disclose users' email address to agencies and recruiters. It begs the question what its users are consenting to here - disclosure of their email addresses or not? Why the emphasis on email addresses? Because email addresses are the mechanism used to carry out these apparent scams and support further illegal activity.

To make matters even worse for South Africans, Best Jobs is a Scottish company and that means taking action against Best Jobs means doing so in Scotland and in terms of a foreign legal system. The only thing users can do if they are concerned about their privacy is to remove their information from the service and hope it either isn't being retained or hasn't been passed along to an unscrupulous third party.

Lessons from Best Jobs' privacy policy

As we pointed out above, a service requires a person's consent to invade that person's privacy. This includes collecting and processing that person's personal information. It also means that the consent should be for specific uses of specific information given people's rights to determine what information may be collected and what it may be used for.

Privacy policies are one of the best tools to obtain informed consents from users and it is foolish not to publish a comprehensive privacy policy given the growing emphasis on the protection of personal information. In some ways operating a service in the absence of a privacy policy or in the context of an inadequate privacy policy is like building a house without plans. The structure may hold, then again it may not. Are you prepared to take the risk as a provider?

The question for users is whether they are prepared to use a service which is casual about their personal information? This Best Jobs issue is an excellent reminder of the risks associated with loose practices and poor protection of personal information. As we pointed out in previous posts, the implications of an unauthorised disclosure of personal information can be severe.

Image credit: Privacy 13 - A Snapshot by Malagent licensed under a Creative Commons BY-ND 2.0 license

Using Facebook isn't a prison sentence

Posted Mon, 26/01/2009 - 08:53 by Paul

This post was originally published on BizCommunity here. This is a slightly different version and is also published under a Creative Commons license (like all my articles on this site - for more information scroll down to the this site's footer) which means you can quote from it and share it as long as you comply with the terms of the license.

It is tempting to think that using Facebook will land you in prison, especially with all the media attention on the Duane Brady case in the Kliptown Magistrates Court. The simple truth is that sticking to a few simple rules should help you avoid that unpleasant experience of receiving a strongly worded letter from an attorney or, worse, an unwelcome visit from an unsympathetic police officer keen on dragging you off to a holding cell for the weekend.

Defamation is more common in our general experience and in our conversations about the risks of expression online. Some people refer to this phenomenon as libel or even slander but the correct term in South African law is defamation. For the most part defamation occurs when someone publishes (this isn't just a printed publication but really means saying something in some medium or another to two or more people) something that tends to demean another person in the estimation of her peers. We may differ as to how we define it but we know it when we experience it. Proceedings to remedy defamation are conducted in our civil courts.

The Brady case, on the other hand, is a criminal case in which he has been charged with crimen injuria. This is related to but different to defamation (other jurisdictions may refer to this as libel). Crimen injuria includes some of the elements we see in defamation as well as privacy concerns. One explanation of crimen injuria is that it is the unlawful and intention impairment of another person's dignity and privacy.

Both offences share common threads which are important to bear in mind when plotting a course through this legal landscape. Generally speaking you are heading for trouble if you publish or otherwise speak about another person in such a way that your expression offends, demeans and generally undermines that person's dignity. Now, not every form of expression which achieves this is actionable defamation or crimen injuria but it is a helpful starting point. Another thing that is important to note is that even if a statement or publication is defamatory, there are a number of justifications available for defamation (although not so much in the case of crimen injuria). These justifications include the fact that the publication was true and in the public benefit; made in jest or sudden anger or fair comment.

There is a sense that because the Brady case concerns Facebook that this is a completely new set of circumstances and requires new law to address it. The social Web has brought with it a sense that the Internet is a lawless free-for-all where anyone can do anything with impunity. Unfortunately (or fortunately, depending on your perspective), this is not the case at all and, as I pointed out in my article on the topic on my firm's website, the usual rules apply to these changing circumstances (although I do expect to see the law develop to more fully cover these new media).

So what can you do to avoid being locked up or being sued for everything? To begin with, don't click "publish" if you have just unloaded all your frustration and anger in the heat of the moment. Sleep on it, tone down the language and try stick to verifiable facts. If you are going to express your opinion (and a lot of what you see online these days is opinion), make sure people understand it is your opinion and keep it balanced and fair. Just because you can destroy someone's reputation, doesn't mean you can or should.

Remember that this doesn't just apply to Facebook Wall posts and blog posts, it also applies to comments you may leave on a website or messages you may post on services like Twitter or send by email. Although not a material factor, the size of the potential audience is also relevant because it magnifies the likely harm. It may seem gratifying to tell all 600 of your Twitter friends what a reprobate your former best friend is but the reality of a summons or a pair of handcuffs tends to put that moment of inspiration into perspective.

To quote some movie character: "Be cool"!

Eldorado Park man prosecuted for criminal defamation on Facebook

Posted Thu, 15/01/2009 - 10:48 by Paul

The Times has reported that Duane Brady, an Eldorado Park resident, has been charged with crimen injuria in the Kliptown Magistrate's Court on the basis of derogatory comments he posted on Facebook (his profile seems to have been removed or disabled). (Disclosure: Sashni Pather approached me to comment on the story and I have been quoted in the article)

As with any online publishing platform, Facebook can be used to defame people. In this particular case Brady was charged with a criminal version of defamation called crimen injuria which is basically the unlawful and intention impairment of another person's right to "freedom from insulting, degrading, offensive or humiliating treatment and to freedom from invasions of privacy" (quoting from Principles of Criminal Law, 2nd edition, by Jonathan Burchell and John Milton). Crimen injuria goes beyond defamation in civil law and incorporates a privacy violation as well. Being a criminal process, it is prosecuted by the State with the person whose rights are infringed playing the role of complainant and witness.

As Peter Grealy pointed out in the article, this offence is not new. What is new is an offence like this being prosecuted based on a publication on a social network like Facebook. At the same time this is hardly going to be the last time this occurs and we can expect to see more cases like this as more and more people join social networks and become aware of their rights. We are also likely to see cases involving defamation and invasion of privacy in civil courts too. Online publishing platforms like social networks potentially have a substantial audience and the prejudice a person can suffer when defamed or when his/her privacy is invaded can be profound.

Tips:

If you find yourself a victim of defamation or an invasion of your privacy you may want to keep a record of the offending material, whether it be in the form of a printout or a digital version of the offending material. If the material is posted online, keep a record of the web page it was located on together with your records. Most browsers offer the option to print a page with the web page address and the time and date the print out was made. The same may apply to digital captures of the material concerned (Mac users can print to PDF from their print menus so use this option).

It is also very helpful to prepare a statement of your own recounting the events leading up to and including the publication of the offending material. Prepare this in your own words (plain language) as if you are writing a story. Start at the beginning and keep going until you have a full account of the history of the matter. Don't worry about using any legal terms, just the plain facts.

If you want to press charges of crimen injuria with the police, take your statement and a copy of your evidence to your local police station and lay a charge with them. On the other hand, if you would like to sue the other person for defamation, invasion of privacy or some other civil offence, take your statement and documentary evidence to your attorney. Being prepared really helps!

A presentation on new media and the law

Posted Mon, 22/12/2008 - 20:21 by Paul

I just published a video version of a presentation I prepared for the Social Media Management Conference in October 2008 at the Indaba Hotel. This is the first part of a series which I will publish over the next week or two.

This is probably the last time I will give this particular presentation. I have given this presentation or minor variations of it for the last year or so and something a little more specific will be more useful as more companies adopt social media elements into their marketing campaigns and general web presences.

Update: A PDF version of the slides is available for download from Slideshare. You can also view the slides themselves in a slideshow here too.

Update 2: I just noticed that my voice over doesn't extend throughout the slideshow. I apologise for this. There seems to have been a bug in the recording in Keynote. I'll try resolve that and repost the video.

Press subjected to a different test in defamation cases

Posted Thu, 11/12/2008 - 12:33 by Paul

Defamation is a hot topic these days with Donn Edwards' battle with Quality Vacation Club being the most talked about stories in the South African social Web. Defamation cases are strange beasts. They don't involve large monetary awards and they can be particularly complex cases to prosecute (whether you are in the firing line or the one pulling the trigger). In order to succeed in a defamation action, a plaintiff must establish that the defendant has published defamatory material that a “reasonable person of ordinary intelligence might reasonably understand the words of the article to convey a meaning defamatory of the plaintiff”. If the plaintiff is successful in proving this, the defendant must then establish the existence of a substantive ground of justification if the defendant is to escape liability. These grounds of justification, or defences, include the fact that the defamatory material is true and in the public interest, fair comment and even that the material was in jest. There isn't a closed list of defences but these are some of the more common ones.

Before 1998 the press were subjected to strict liability for defamatory material it published. This meant that owners, publishers, printers and editors were immediately liable for defamation if a plaintiff could prove that the material was defamatory. The defences available to individual defendants were simply not available to the press. It wasn't even necessary to prove that the publication was negligent or published the material intentionally, knowing it was defamatory. The state of the law at the time left the press in a difficult position.

In 1998 the Supreme Court of Appeal ruled on the case of National Media Limited v Bogoshi and changed the law. The court overturned its own earlier decisions and said that the classic defences to defamation were available to the press as well. However, the courts have also recognised that defamatory material published in the media can have a far reaching effect so the courts have said that the press will be held liable if found to be negligent in publishing defamatory content (the flip-side is that a publication can escape liability by proving that it acted reasonably in publishing the material concerned). In answering the question whether defamatory material was published negligently, the following factors will probably be taken into account:

But where publication is justifiable in the circumstances the defendant will not be held liable. Justifiability is to be determined by having regard to all relevant circumstances, including the interest of the public in being informed; the manner of publication; the tone of the material published; the extent of public concern in the information; the reliability of the source; the steps taken to verify the truth of the information (this factor would play an important role too in considering the distinct question whether there was negligence on the part of the press, assuming that the publication was found to be defamatory); and whether the person defamed has been given the opportunity to comment on the statement before publication. In cases where information is crucial to the public, and is urgent, it may be justifiable to publish without giving an opportunity to comment.

This new angle on the press' liability in defamation cases provides the press with an additional defence and, at the same time, a slightly more challenging test to meet. The freedom of the press is an important component of the freedom of expression which is entrenched in the Bill of Rights and decisions which followed have placed particular emphasis on the press' role in both protecting and promoting freedom of expression in South Africa. A decision which followed the Bogoshi case contained a particularly interesting quote which reveals the Constitutional Court's perception of the press:

The print, broadcast and electronic media have a particular role in the protection of freedom of expression in our society. Every citizen has the right to freedom of the press and the media and the right to receive information and ideas. The media are key agents in ensuring that these aspects of the right to freedom of information are respected. The ability of each citizen to be a responsible and effective member of our society depends upon the manner in which the media carry out their constitutional mandate. As Deane J stated in the High Court of Australia:

“. . . the freedom of the citizen to engage in significant political communication and discussion is largely dependent upon the freedom of the media.”

The media thus rely on freedom of expression and must foster it. In this sense they are both bearers of rights and bearers of constitutional obligations in relation to freedom of expression.

Protecting your content: part 2

Posted Tue, 28/11/2006 - 14:48 by Paul

This post is the second in a series of posts on the topic of protecting your content with an emphasis on content published online. The first part of the series took a look at South African copyright law and the impact of the Electronic Communications and Transactions Act on issues such as ISP liability for copyright infringement. In this post I will take a look at Creative Commons and the licenses available under Creative Commons.

So what is Creative Commons? According to the Creative Commons site:

Creative Commons is a new system, built within current copyright law, that allows you to share your creations with others and use music, movies, images, and text online that's been marked with a Creative Commons license.

Basically Creative Commons licenses are part of an supplementary licensing scheme whereby users may grant certain rights of use of their content that fall somewhere between reserving all rights (the usual position under copyright) and opening up the content for indiscriminate use (placing that content into the public domain). You may recall from my first post in this series that content under copyright may only be used or reproduced with the author's or copyright holder's consent. Creative Commons is a way to give that consent. To put it another way:

A Creative Commons license is based on copyright. So they apply to all works that are protected by copyright law. The kinds of works that are protected by copyright law are books, websites, blogs, photographs, films, videos, songs and other audio & visual recordings, for example. Software programs are also protected by copyright but, as explained below, we do not recommend that you apply a Creative Commons license to software code.

Creative Commons licenses give you the ability to dictate how others may exercise your copyright rights—such as the right of others to copy your work, make derivative works or adaptations of your work, to distribute your work and/or make money from your work. They do not give you the ability to restrict anything that is otherwise permitted by exceptions or limitations to copyright—including, importantly, fair use or fair dealing—nor do they give you the ability to control anything that is not protected by copyright law, such as facts and ideas.

Creative Commons licenses attach to the work and authorize everyone who comes in contact with the work to use it consistent with the license. This means that if Bob has a copy of your Creative Commons-licensed work, Bob can give a copy to Carol and Carol will be authorized to use the work consistent with the Creative Commons license. You then have a license agreement separately with both Bob and Carol.

There are a number of licenses to choose from and each one grants certain rights to specific uses of the content. There are six main licenses which you can read about here. The primary elements of these six licenses are attribution (you must acknowledge the source of the content), derivative uses (whether you can modify the content when you reproduce it), commercial use (whether you may use the content in a commercial application or not) and sharing the content under the same Creative Commons license. The various licenses are made up of combinations of these elements.

It is important to note that Creative Commons licenses are not protected by specific statutes. Rather they have a contractual nature in that you publish your content under a Creative Commons license and this establishes a set of terms of use of that content. If someone makes use of your content then they can be taken to be agreeing to those terms and should their use of that content exceed the parameters of the license then that user is in breach of your terms of use. Creative Commons licenses have been tested in court at least once. According to Wikipedia:

The Creative Commons was first tested in court in early 2006, when podcaster Adam Curry sued a Dutch tabloid who published photos without permission from his Flickr page. The photos were licensed under the Creative Commons NonCommercial license. While the verdict was in favour of Curry, the tabloid avoided having to pay restitution to him as long as they did not repeat the offense. An analysis of the decision states, "The Dutch Court’s decision is especially noteworthy because it confirms that the conditions of a Creative Commons license automatically apply to the content licensed under it, and bind users of such content even without expressly agreeing to, or having knowledge of, the conditions of the license."

Take a look here and here for more information about the court case. Here is more information from the Canadian Creative Commons site:

From: P. Bernt Hugenholtz, University of Amsterdam: Institute for Information Law

Photographs made available on flickr.com under a Creative Commons Attribution-Noncommercial-Sharealike license may not be reproduced in a weekly magazine without the author’s permission.

On March 9, 2006 the District Court of Amsterdam, judging in summary proceedings, decided the first court case in the Netherlands involving the validity of a Creative Commons license. Local media celebrity Adam Curry (see http://curry.podshow.com/?p=49) had published photo’s of his family on www.flickr.com under a Creative Commons Attribution-Noncommercial-Sharealike license. The photos also carried the notice ‘This photo is public’. The Dutch weekly Weekend, a gossip magazine, had reproduced four photos in a story on Curry’s children without seeking Curry’s prior permission.

Curry sued Weekend for copyright and privacy infringement. As to the copyright claim, Weekend argued that it was misled by the notice ‘this photo is public’, and that the link to the CC license was not obvious. Audax, the publisher of Weekend, alleged that it was informed of the existence of the CC license only much later by its legal counsel. In sum, Weekend had assumed in good faith that no authorization from Curry was needed. Moreover, Curry had not incurred any damages by the publication of the photos in Weekend, since the photos were freely available to the public on flickr.

The Court rejected Weekend’s defense, and held as follows:

“All four photos that were taken from www.flickr.com were made by Curry and posted by him on that website. In principle, Curry owns the copyright in the four photos, and the photos, by posting them on that website, are subject to the [Creative Commons] License. Therefore Audax should observe the conditions that control the use by third parties of the photos as stated in the License. The Court understands that Audax was misled by the notice ‘This photo is public’ (and therefore did not take note of the conditions of the License). However, it may be expected from a professional party like Audax that it conduct a thorough and precise examination before publishing in Weekend photos originating from the internet. Had it conducted such an investigation, Audax would have clicked on the symbol accompyinying the notice ‘some rights reserved’ and encountered the (short version of) the License. In case of doubt as to the applicability and the contents of the License, it should have requested authorization for publication from the copyright holder of the photos (Curry). Audax has failed to perform such a detailed investigation, and has assumed too easily thet publication of the photos was allowed. Audax has not observed the conditions stated in the License […]. The claim […] will therefore be allowed; defendants will be enjoined from publishing all photos that [Curry] has published on www.flickr.com, unless this occurs in accordance with the conditions of the License."

The Dutch Court’s decision is especially noteworthy because it confirms that the conditions of a Creative Commons license automatically apply to the content licensed under it, and bind users of such content even without expressly agreeing to, or having knowledge of, the conditions of the license.

The full text of the decision (in Dutch) is available at http://zoeken.rechtspraak.nl/zoeken/dtluitspraak.asp?searchtype=ljn&ljn=AV4204&u_ljn=AV4204

One question you may be asking yourself is the relevance of a foreign initiative to supplement existing copyright law by introducing these licensing schemes. Legal systems develop in their own way and the law in one country or jurisdiction may not be applicable in another jurisdiction. To deal with these variations, local versions of the Creative Commons licenses have been developed in a number of countries, including South Africa. In fact, South Africa was one of the first countries to 'port' Creative Commons licenses into the South African legal framework from the original American licensing scheme.

As a content creator you have a range of options when it comes to choosing which Creative Commons license to use. Aside from the "standard" Creative Commons licenses described above, there are specific licenses which are tailored to music, software code, wikis and even video sampling. This really adds to the flexibility of the Creative Commons scheme and still gives content creators a degree of protection against unauthorised use of their content.

I don't think that it is really possible to discuss Creative Commons without mentioning iCommons. To quote the iCommons site:

Incubated by Creative Commons, iCommons is an organisation with a broad vision to develop a united global commons front by collaborating with open content, access to knowledge, open access publishing and free culture communities around the world.

Using the annual iCommons Summit as the main driver of this vision, iCommons will feature projects that encourage collaboration across borders and communities, and promote the tools, models and practice that facilitate universal participation in the cultural and knowledge domains. The Summit will collaborate with organisations and communities from around the world to demonstrate and share best practice and discuss strategies for continuing the positive impact that “sharing" practices are having on participation in the cultural and knowledge domains.

During the year iCommons will incubate projects that cross borders and unite commons communities, acting as a platform for international collaboration towards the growth and enlivening of a global digital commons.

The blog on the iCommons site is a veritable showcase of initiatives aimed at fulfilling the iCommons goal of open collaboration and a global culture of sharing.

Blogs to play a role in court proceedings?

Posted Thu, 13/04/2006 - 13:19 by Paul

According to Jim Downing of Smart Mobs, South Korean courts are considering whether the use of Web technology, like blogs, could be integrated into their processes to obviate the need for parties to appear in court:

Weblogs, or Internet diaries, are about to gain more than just curious readers. Korean courts are now experimenting whether they could operate court trials and hearings just through Internet postings, saving everybody the trouble of actually entering the courtroom," the Korea Times reports." The Seoul Administration Court recently designated one of its court units, which rules on labor-management relations and industrial accidents, to develop a prototype model for Internet-based trial models by the end of this month. Although the court has not yet decided on a detailed framework, it plans to allow the parties in lawsuits to submit their list of evidence,legal documents and other data on Weblogs or Internet message boards to be operated by the court. The court decisions will also be announced online. The court also plans to allow people to buy court documents and other requirements in preparing for their lawsuits through the Internet by credit card or mobile-phone payments. Korea has one of the largest Internet populations in the world, with the penetration rate reaching over 70 percent.

Now that is an interesting application of Web technology. I suppose this sort of technology could be used for court proceedings where all that is needed are filings like our application proceedings. In those proceedings the parties must file their papers and need only appear in court to address argument to the court. If there was a way to dispose of the need for oral argument through interrogatories or heads of argument then this method may work.

(via Between Lawyers)