Article courtesy of Law Dot News | Business | Criminal Law | Crime

Don’t Let Cybercriminals Haunt You – Verify…

“If you suspect deceit, hit delete!” (Online cybersecurity slogan)

October is Cybersecurity Awareness Month, a good time to note that as cybercrime continues to grow, more and more businesses and individuals are falling victim to the dreaded “BEC” or “Business Email Compromise” fraud.

The million-dollar question: Who takes the hit?

Typically in a BEC fraud, email or other electronic communications between a creditor and debtor (often a seller and buyer, or service provider and client) are hacked by criminals, who con the debtor into paying what they owe into the fraudster’s bank account. By the time the parties realise they’ve been had, the criminals are long gone, and all that remains is the million-dollar (sometimes quite literally!) question: “Which one of us takes the hit?”

Until now we have been faced with conflicting High Court decisions on this point, but now the SCA (Supreme Court of Appeal) has settled it: The risk is the debtor’s.

A car dealership must pay twice over

It was a classic case of BEC: A dealership bought two Hyundai Nissan NP200 vehicles from another dealership for R145,000 each. The seller issued invoices showing its banking details. The buyer paid by EFT and sent proof of payment to the seller, which happily (without checking that the funds had actually landed in its account) delivered the vehicles to the buyer.

As always with these cases, one can imagine the sinking feeling that greeted the parties’ realisation that the seller’s emails and the attached invoices had been intercepted, and the banking details subtly altered. As a result, the buyer had paid the full R290,000 to the criminals’ bank account.

Long story short, a real seesaw of a legal battle ensued. The buyer said, “I’ve already paid you”. The seller retorted, “No you haven’t, you paid the criminals,” and sued the buyer for the R290k. The seller won in the Regional Court, lost on appeal to the High Court, but then turned the tables again and celebrated victory in a further appeal to the SCA.

Verify, verify, verify

The SCA’s findings amount to this:

• The onus is always on you as buyer to prove, on a balance of probabilities (i.e. more likely than not), that you have paid the seller.
• When you pay by EFT, you must show that the seller actually got the money. In other words, that you paid into the correct bank account.
• Creditors (recipients) have no legal duty to protect debtors (payers) from the possibility of their accounts being hacked where the debtor could have taken steps to protect itself but failed to do so.
• The obligation therefore is on you as debtor to ensure that the bank account details in the invoice are in fact correct and verified because “it is the debtor’s duty to seek out his creditor”. Fail to follow basic verification steps, and your payment to the wrong account does not remove your liability to pay the debt — you still have to pay your creditor.

Bottom line, the buyer in this case should have verified the banking details given in the emailed invoices before paying. It didn’t, so it couldn’t prove that it had paid into an account authorised by the seller.

It must pay the seller the R290k, with interest and doubtless substantial legal costs.

Don’t make the same mistake

These scams grow more sophisticated by the day, fuelled now by AI-perfected deep fakes, cloned websites and social engineering. Treat all emails, all electronic messages, and all electronic invoices with great suspicion — even if they appear to come from businesses you have known and trusted for decades. Verify bank account details (preferably by speaking to the creditor directly on a number you know to be correct) before paying a cent.

Property sales are particularly vulnerable

Be especially vigilant when buying or selling property because these high-value sales are a particular focus for cybercriminals worldwide. There are rich pickings in the offing, and the opportunities for baddies to intercept and falsify emails is multiplied by the range of trusted role players involved — typically several sets of attorneys, estate agents, and banks as well as the buyers and sellers themselves.

A final note on online security

Let’s end off with a note to everyone: Keep reminding your whole team (not just your accounts department) that securing your computer and email systems against bad-actor compromise is no longer a nice-to-have, it’s essential. This whole unhappy saga could all have been avoided if everyone involved had followed basic security protocols. Prevention is always better than cure.

Give us a call if you need any help.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News – Business Law

Companies: Are Restraints of Trade Valid in a Time of Covid?

“For him to be forced out of a career of choice to start working in a different field at a time when many businesses are closing down, retrenchments and lay-offs being commonplace and individual[s] doing everything possible to survive and cope with the health and economic devastating effects of the covid 19 pandemic, is plainly unreasonable and contrary to public policy and constitutional values” (extract from judgment below)

Consider this unhappy (but not unlikely) scenario: For whatever reason, you part ways with your fellow director/shareholder (or perhaps a key employee), who goes off immediately to join (or found) the opposition.

Now you have a major problem – he/she was privy to all your trade secrets and confidential information and they are now being used to compete against you. Your business could be crippled.

Using the time-tested restraint of trade clause

An effective and time-tested way of protecting your business from such a risk is to insist on all directors, shareholders and key employees signing restraint of trade agreements from the start. Such restraints are usually included as clauses in employment contracts and/or (less commonly) in shareholder agreements.

However, it is vital to word the restraint clause correctly if it is to stand up to legal scrutiny.  Although our law has long recognised the right of businesses to enforce this type of contract so as to protect their “proprietary and protectable interests”, and although in general we are held by the law to the agreements that we conclude, there is always a balance struck with the employee’s constitutional rights to be economically active and to earn a living.

As the High Court put it recently: “It is settled law that restraints of trade are valid and binding and, as a matter of principle, enforceable unless, and to the extent that, they are contrary to public policy because they impose an unreasonable restriction on the former employee’s freedom to trade or to work. It is also settled that the onus of establishing that the restraint of trade is unreasonable falls on the former employee.”

A common mistake – going “too wide”

The most common mistake businesses make is to word the restraint of trade too widely (in one or more of type of activity, geographical area or time period). No matter how tempting it may be to do so, that is courting disaster. The wider the clause is, the greater the chances of a court holding it either totally invalid or only partially enforceable. Rather word your clauses tightly and defensibly.

Two recent High Court decisions illustrate both this principle, and the potential impact of the Covid-19 pandemic on our courts’ approach to the questions of reasonableness and time periods.

The impact of the pandemic on the “reasonableness” test

• A director, shareholder and employee of a company specialising in media and advertising solutions resigned as both director and employee after a breakdown in relations, the company owing him R1.2m in short-paid salary. He however retained his shareholding.
• He was subject to restraints of trade (in both his employment and shareholder agreements) which prohibited him from working for a competitor, and from sharing confidential information and trade secrets with them, for 18 months in any of 29 African countries.
• He nevertheless joined a direct competitor (active in 2 of the 29 African countries) and acted in breach of the restraint by contacting customers and business associates. When sued in the High Court for enforcement of the restraint clauses, his main defence was that they were unreasonable and prevented him from earning a living.
• The Court confirmed the need to consider all the relevant circumstances, not only at the time a restraint is entered into, but also at the time that the business tries to enforce its restraint. In this case, the company’s attempts at enforcement encompassed the period March to July 2020 – a time of strict lockdowns and economic turmoil.
• The upshot – the Court rejected the company’s suggestion that the ex-director could remain economically active in another field for which he was qualified, commenting: “For him to be forced out of a career of choice to start working in a different field at a time when many businesses are closing down, retrenchments and lay-offs being commonplace and individual[s] doing everything possible to survive and cope with the health and economic devastating effects of the Covid-19 pandemic, is plainly unreasonable and contrary to public policy and constitutional values”. The restraints were rejected as unenforceable.

The impact of the pandemic on time periods

Another recent High Court decision saw the Court reducing a 2-year restraint, on sales employees who resigned in March and April 2020 respectively, to 14 months.

In doing so the Court took what it considered to be a reasonable base period in the circumstances of 12 months and added 2 months “to compensate for the lockdown period”, also commenting that “…I am aware that our society is living in strange times. The COVID-19 pandemic has played havoc with, inter alia, our economy. Businesses have been prevented from operating and the ability of the applicants to appoint and train new salespersons will undoubtedly have been blunted by the state of the economy. This is of some relevance when considering the length of the period of restraint…”.

So – are restraints of trade valid in times of pandemic and upheaval?

Neither decision means that restraints are necessarily unenforceable or only partially enforceable during times of economic turmoil and high unemployment. Each case will be decided on its own merits, but in assessing whether your own restraint clauses will be considered reasonable and enforceable, they are clearly factors to be borne in mind.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Article courtesy of Law Dot News

Protecting Yourself and Your Business in Flu Season 2021

Flu season is upon us again, and it is not to be underestimated with between 7,000 and 12,000 flu-related deaths historically reported in South Africa every season. Whether or not this year’s lockdown precautions will reduce infection levels to the same extent that they did last year, take the time to make sure that you, your family and (if you are in business) your colleagues and employees are prepared.

Go to Medical News Now for “Evidence-based resources to help keep you and your loved ones healthy during the 2020–21 flu season” on its Flu page (its “Flu v Covid-19” section is particularly informative).

Be aware that there could be a run on the flu vaccine with articles like “Flu shots linked to fewer severe Covid-19 cases – US study” on News24 doing the rounds.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

 

The Elon Musk Tweet

As most entrepreneurs and business owners the world-over know, Elon Musk is the CEO and, until recently, chairman of the board of Tesla. In these positions, whenever Elon speaks or writes, it has a profound affect not only on the reputation but also on the share price of Tesla. Knowing this, I was stunned when Elon recently tweeted that British diver- Vern Unsworth who rescued the young boys of the Thai football team from near certain death- was a paedophile and child rapist. There was, at the time of Elon’s tweet, no evidence of the truth or veracity of such accusations. Unsworth is now suing Elon for defamation for a claim of £ 57,000.00 (approximately ZAR 1,098,960.00).

Regulated Twitter Use

The use of Twitter and other social media platforms has become part of many a business marketing and PR strategy to grow brand presence and to attract new customers. As business lawyers, we have always advocated that employing such a social media strategy must be done with the awareness of the risks that any improper tweet or post could have on the reputation of the business. One way to help mitigate such risks, from an employment point of view, is to regulate the use of social media by a business through a comprehensive social media policy.

Can an employee be fired?

But what about that employee who tweets or posts comments, views and opinions that are not necessarily that of the business and are disclaimed using that old chestnut “all views are my own” disclaimer? Can such an employee whose tweet harms or potentially harms the reputation of the business be fired?

In general, there is no reason why not, especially where the comment or views can be contextually linked to his or her employer. In today’s connected world, the “all views are my own” disclaimer by an employee (even when posted on his or her personal social media account) cannot be relied upon and it must be assumed that any posting on social media could almost always be viewed as a statement emanating from the business.

Rhiannon Cambrook, Managing Director of Zest Recruitment and Consultancy and Solicitor states: “Tweeting is seemingly an innocent way to pass the time and keep up with your network. With 74% of people using it as their primary news source, each tweet that is posted has the potential to be seen not just within the immediate network, but by hundreds, thousands or even a million people. The need to mind one’s p’s and q’s has never been greater”

When an employee uses social media, even in his or own time and on his or her personal social media account, the world is waiting to take on news of any kind. This is a death trap all of its own as frustrated or angry or rebellious or bored employees vent their feelings and beliefs on social media. The lines have become blurred between the personal space of the employee and that of the business and because of this, fairly or unfairly, thoughtless posting may lead to a business suffering unimaginable reputational damage as well as face the real risk of a civil suit for defamation. This was the case with Elon who, after posting his views about Unsworth, was not only sued for defamation but also resulted in Tesla’s share price falling by nearly 3% in a few days!

Where an employee’s tweet or post negatively impacts upon a business, especially where such causes the business a risk to reputational damage or even foreseeable risk to reputational damage, such a business has a reasonable right, in my view, to protect its interest. This may, itself, be the foundation upon which an employee could be fired.

Prevention better than a cure

So, what can employers and employees do to avoid the death trap of tweeting on Twitter? Well, its starts with applying common sense in the first instance: Realise that the whole world is now connected and it makes very little difference to readers of social media content whether you tweet or post in your own name or that of your company. Secondly, refrain from posting on debatable issues where opinion (informed or uninformed) is divided. Thirdly, never post or tweet in a state of anger or frustration as you will not be thinking clearly to objectively determine the appropriateness of your tweet.

As business lawyers, we often advise our business clients that prevention is better than looking for a cure and one way to achieve this, in the employment space, is to develop policies to train and guide employees on the use of social media. Given that the reputation of any business in a connected world is a protectable interest, any threat thereto by an employee tweeting content that undermines such reputation is one that may very well result in the employee’s dismissal.

Disclaimer to this article: This article is published for you to read and, if you so wish, share with others on the understanding that at all times the copyright herein will and is the sole and exclusive ownership of the author. The article is made available for informational purposes only and does not in any way constitute legal advice. No representations as to the accuracy, completeness, suitability or validity of this article is made. No liability will attract to the author for any losses, injury or damage you may suffer arising out of your use of this article. It is recommended to always seek professional assistance of a qualified lawyer at all material times.

By: Sean Bosse

In a recent commercial dispute, our client stared down a demand from her ex- franchisor to stop trading in her new business that was deemed to be the same or similar to the one she had operated under license from the ex-franchisor. The franchise agreement had a rather clumsily drafted restraint of trade clause incorporated therein which our client’s ex-franchisor was relying on to prevent her from trading in competition with the franchised business.

On the facts of our client’s case, the question was whether the restraint was legal and, if so, was enforceable? To our client’s delight, we were able to demonstrate that the restraint had no force of law and that she could continue with her business without fear of the threats made by her ex- franchisor.

So, what, in broad terms, does our law say about the legality and enforceability of a restraint of trade?

Firstly, it is worth remembering that under our constitution, every person has the right to choose and practice his or her trade, occupation or profession. This right is, however, not absolute and it can be limited under certain laws of general application.

It must also be remembered that our law recognises that people have the freedom to make their own contracts and to bind each other to such terms and conditions as they may wish to impose on each other but always mindful that such a contract or any of the terms of such contract is/are not unlawful or against public policy.

While a restraint of trade would appear to be a violation of a person’s rights to chose and practice his or her trade, occupation or profession, our law has not ruled that the inclusion of such a term of contract is, per se, unlawful and without force.

What is the purpose of a restraint of trade provision?

The purpose of a restraint provision in a contract must be directed at the preservation of a protectable interest such as, for example, the trade secrets of a business and not merely with the aim of stifling competition. Any restraint of trade that has, as its main feature, the aim only at preventing competition and nothing more, would, arguably, be held to be against public policy and therefore unenforceable.

Any restraint of trade that has as its aim the preservation of a protectable interest must, in addition, also be reasonable in terms both of time and geographical location. It would, arguably, be unreasonable, and therefore against public policy, for a franchisor to enforce a restraint of trade on a franchisee from operating his business (even if it is the same as the that of the franchisor) where such business is conducted in another geographical area to that of the franchisor. It would, also, be unreasonable to impose a restraint on a person where the period of such a restraint is irrational and unreasonable say, for example a restraint of trade for a period of 10 years.

The situation may, arguably, be very different and the restraint enforceable where its limitations a reasonable to, say, the same geographical area in which the Franchisor operates his business and has almost all of his customers and if the period of that restraint was effective for no more that, let’s say, 2 years.

Glancing at the case law we researched when assisting out client with her restraint issue mentioned above, it dawned on us that litigants are too quick rush to court to enforce restraint of trades without first asking the fundamental questions and objectively answering whether: (a) there is a legitimate protectable interest worthy of preserving rather than the restraint terms of the contract being used as a tool to only stifle competition, and (b) whether the time period of the restraint is reasonable;  and(c) whether the restraint is reasonable given the geographical extent and reach of the franchisor’s protectable interest is concerned.

A carefully considered and properly worded restraint of trade provision in a contract is a powerful tool to legitimately protect a person’s business interest, always mindful that such restraint not fall foul of public policy or be aimed solely at stifling competition.

Disclaimer to this article: This article is published for you to read and, if you so wish, share with others on the understanding that at all times the copyright herein will and is the sole and exclusive ownership of the author. The article is made available for informational purposes only and does not in any way constitute legal advice. No representations as to the accuracy, completeness, suitability or validity of this article is made. No liability will attract to the author for any losses, injury or damage you may suffer arising out of your use of this article. It is recommended to always seek professional assistance of a qualified lawyer at all material times.

By: Sean Bosse

Taking products to market for sale to the end consumers usually entails a supplier engaging with a distributor or an agent in the supply chain. Broadly observed, the distributor and agent would appear to be one and the same thing except for the obvious difference in the names. This broad observance has, however, caught many a supplier out and has been the subject of many disputes. But why?

Generally, a lack of understanding of the differences between the purpose, scope and function of an agent and a distributor and how, and to what extent, the engagement of the one or the other impacts the supplier’s business are the main reasons. In this article, I intend to give a broad overview of what an agent and distributor is as well as some general insight into the advantages and disadvantages a supplier should consider before concluding an agency or distribution agreement.

Agent and Agency Agreements

An agent is best described as an intermediary tasked with bringing together the supplier and the supplier’s customers. The best example of this relationship is that of an estate agent who assists a home owner to market his or her property to the general public and, through such marketing efforts, finds a willing and able purchaser. The agent brings together the home owner and the purchaser so that they can conclude the sale agreement.

An agency agreement usually sets out the extent that such agent is empowered to represent the supplier in its dealings with the public at large and the supplier’s customers in particular. So, for example, the conclusion of an exclusive agency would prevent the supplier from appointing any other agents in the territory and would also limit the rights of the supplier in marketing and selling its products directly to the customer. A sole agency, on the other hand, would likewise prevent a supplier from appointing other agents in the territory but would allow the supplier itself to seek out sales in the territory. Finally, an agency may be granted by the supplier on a non-exclusive basis allowing the supplier to appoint multiple agents in the territory while also allowing the supplier itself to seek out direct sales with customers.

In terms of the agency relationship, the agent earns its remuneration by way of an agreed commission for the services provided to the supplier. The amount of the commission payable by the supplier is one that is agreed between the agent and the supplier. Such commission is, however, usually much lower than what a distributor earns is the sale of the products for the reasons explained below.

The advantages of an agency relationship include the following:

• The customers will be those of the supplier and not that of the agent. Maintaining direct relationships with customers is an important consideration and under an agency agreement, this will, generally, be achieved as opposed to that under a distributor relationship;
• The supplier will control the sales process right from the marketing of the products, the terms of the sale contract and the price for the products;
• The payment of commission is usually payable to an agent only on the meeting of certain agreed terms resulting in a sale contract. This frees up monthly cashflow for the supplier rather than the burden of having to pay the agent a monthly salary;
• The performance of the agent can be strictly controlled by the supplier. In the event of a non-performance or an under-performance, the agency agreement may be terminated by the supplier.

There are certain disadvantages a supplier must be aware about when concluding an agency agreement. These are:

• The agent is an extension of the supplier and, as a result, all the actions of the agent will be regarded to be the actions of the supplier. The supplier will, generally, be liable for all of the acts of the agent;
• The supplier will continue to be burdened with administrative matters and the cost of administration in dealing with customers as well as bear the full financial risks in marketing and selling the products. All after sales issues will also be the burden of the supplier and not that of the agent.

Distributor and Distribution Agreements

A distributor, unlike and agent, purchases the products from the supplier and then re-sells those self-same products to its customers in a particular territory and on its own terms. The distributor is not an intermediary and therefore enters into a sales contract direct with its customers.

An example of a distributor would be someone who obtains the rights of an overseas manufacturer or supplier to distribute the its products in South Africa. The distributor acquires the product direct from the overseas supplier and will, thereafter, conclude a sales agreement between it and its own customers. The overseas supplier does not feature in the contractual relationship with the customer at all.

Similar to an agency agreement, a distribution agreement will also set out the parameters of the rights of the distributor including whether such distributor is granted rights to distribute and sell the supplier’s products on an exclusive, sole or non-exclusive basis.

Unlike an agent, the distributor earns its revenue from the mark-up it levies on the products purchased from the supplier. The mark-up is usually at a greater percentage than what an agent would earn on commission but such difference takes into account the financial risk the distributor takes.

Some of the advantages of a distributor relationship are the following:

• The supplier has less administrative responsibility and has reduced administrative costs to contend with as its supply and sale of the products is to the distributor and not to a plethora of customers. Customer accounts and customer management are, therefore, far less in a distribution arrangement than in an agency relationship;
• The distributor bears most of the financial risk in the supply and re-sell of the products. As a result of this risk, the distributor’s earnings are normally greater than that of an agent;
• The distributor is motivated to sell products quickly given that its funds are tied up in the sale and until the payment of the sale price by the customer.
• The main disadvantages of a distribution relationship are the following:
• The supplier has very little control over the activities of the distributor, especially in the way and manner it markets the products and the after-sale service;
• The customers purchasing the products from the distributor are the customers of the distributor and not those of the supplier;
• There is limited control by the supplier on the price establishment as the distributor will usually determine the mark-up to be levied on the products to cover not only its costs but also ensure a reasonable profit margin.

Agency or Distribution?

The choice of whether to engage an agent or a distributor is one that requires careful consideration by the supplier for the many reasons summarised in this article. The decision by the supplier as to the best supply channel to market must not only be driven by profit but also upon careful consideration as to whether the agent or distributor will help to enhance the supplier brand and grow sales through their commitment to ensuring standards of safety and utility of the products sold and the brand building of the supplier and /or the products to develop meaningful trust in the mind of the customers.

Simply concluding an agency or distribution agreement without thought into the advantages and disadvantages of both is a recipe for disaster. If you do that, all we can say is “Supplier be careful!”

As retail lawyers, we can advise you on the appropriate supply chain channel partnership to engage in and to assist you in preparing your agency and distribution agreements. Contact us if we can assist.

Disclaimer to this article: This article is published for you to read and, if you so wish, share with others on the understanding that at all times the copyright herein will and is the sole and exclusive ownership of the author. The article is made available for informational purposes only and does not in any way constitute legal advice. No representations as to the accuracy, completeness, suitability or validity of this article is made. No liability will attract to the author for any losses, injury or damage you may suffer arising out of your use of this article. It is recommended to always seek professional assistance of a qualified lawyer at all material times.