Laws Affecting Small Business: Justice was launched by Advocate Langa Bodlani on 15 November 2022. Scroll down for the full text or PDF of the booklet. View the launch here:
SYNOPSIS
Problems
Justice for small business is essentially inaccessible, costly and prohibitively time-consuming. There is too much red tape in the magistrates’ and high courts. Litigants may not (or are not encouraged to) forego prolix procedures, pleadings, interlocutory procedures, delays, reviews and appeals. Incorporated small businesses may not sue in small claims courts. Small claims court jurisdiction is still too limited. Professional job reservation means that litigants are forced to use costly lawyers to assist or represent them. The courts, especially small claims courts, are under-funded. Court services are not user-charged, even when used by affluent people.
Recommendations
SMALL CLAIMS COURT
Companies (and other juristic or artificial persona) should have access to small claims courts.
The monetary jurisdiction of the small claims court should be increased from R20,000 to R150,000, or such greater amount as might be agreed by the parties.
The small claims court monetary jurisdiction should be subject to a mandatory annual review by the Minister.
Litigants should be free to consent to small claims court jurisdiction beyond the prescribed limit.
To provide sufficient funds for an expanded role for small claims courts, and to ensure adequate funding for courts in general, the principle of user-charging should be introduced.
Small claims court jurisdiction should be extended to include–—
• claims based on a cession or assignment of rights;
• matters in which an interdict is sought;
• claims for damages for defamation;
• claims for damages for malicious prosecution;
• claims for damages for wrongful imprisonment;
• claims for damages for wrongful arrest.
Provision for mediation should be introduced with a view to the settling of disputes between litigants in small claims courts.
MAGISTRATES’ COURTS
The Minister should establish short-process courts, and make rules of procedure and appoint adjudicators for such courts.
The short-process court option should then be publicised, and lawyers and judicial officers should be encouraged to draw it to the attention of litigants.
ALL COURTS
Litigants in any court should have the right to assistance of their choice.
The requirement of security by close corporations for costs should be scrapped.
JUDICIAL REVIEW
Legislation along the lines of the Regulatory Flexibility Act 1980 combined with the Small Business Regulatory Enforcement Fairness Act 1996 and Small Business Paperwork Relief Act 2002 of the United States should be adopted in South Africa in order to minimise the economic impact of legislation on small business by subjecting the law-making process to judicial review.
Considerations
Such reforms will increase the volume of work in the small claims court substantially. Proceedings before the higher courts (and special courts) might be frustrated by an absence of formalities. Funding for lawyers working as judicial officers in small claims courts will have to be diverted from elsewhere. Less formal procedures may result in injudicious judgments. Vested interests (such as lawyers, officials, and big business) may resist reforms that reduce privilege, income, status, and power. Reform of tried and tested institutions often causes unexpected counter-productive effects.
THE NEED FOR REFORM
One of the few issues on which there is virtual unanimity is that there is inadequate access to justice for small business.
The problem is essentially that prescribed formalities are needlessly cumbersome, time-consuming and costly. What small businesses (and, for that matter, all people) should enjoy is affordable and expeditious access to justice. Indeed, “justice” implies that cases are dispensed with expeditiously and affordably in readily accessible courts.
Small businesses may, for instance, use small claims courts (SCCs) only if they are unincorporated. This creates a disincentive to the registration and incorporation of small businesses and discriminates against those small businesses that have incorporated. Typically, the cost of having claims adjudicated in a magistrate’s or high court is so high that it is not worth using the courts. The result is that small businesses often write off debts and settle phony demands. In the absence of effective access to justice, some small businesses resort to illegitimate or underground means of dispute resolution.
If all the procedures and interlocutories allowed for are resorted to by either or both parties (in order to defeat adversaries on technicalities, or by exhaustion and spiralling costs), proceedings could take many months. This might cost an entrepreneur (with a legitimate claim) over R50,000 in the magistrate’s court, or many more tens of thousands of rands in the high court.
Even after a favourable judgment and an order against the debtor for payment of the small business’s “party and party costs”, the small business might not be able to recover its judgment amount or its costs from the loser. Successful parties may also be faced with appeals or reviews that often cost more and take longer than hearings of first instance. A judgment against a debtor – after incurring the disproportionate cost in money and time that might be involved in obtaining it – may be of little value since there is no longer a risk of imprisonment for failure to honour a court order to settle civil obligations.
Procedures for attachment of or execution against debtors’ assets are time-consuming and costly. In practice, many debtors can ignore judgments with little risk of penalty or punishment, especially if they are not salary- or wage-earning employees, almost regardless of whether they own sufficient net wealth to settle their debts. For these reasons, it is probably not worth instituting proceedings in magistrate’s courts for less than R150,000.
For many years, experts in the legal profession and judiciary, and the business community, have been calling for reforms that would make access to justice a reality. Important progressive steps have been taken to benefit consumers and private citizens, but to date nothing significant has been done to ameliorate the plight of small businesses.
SMALL CLAIMS COURT (SCC)
RECOMMENDATION 1
Companies (and other juristic or artificial persona) should have access to small claims courts.
The fact that only natural persons may institute claims in SCCs compromises and undermines any government policy to promote small business.
If South Africa is to achieve the culture of entrepreneurship envisaged in, for instance, the 1996 National Small Enterprise Act, such discrimination against SMMEs is unacceptable. Entrepreneurs should be encouraged to register close corporations (CCs) or companies, not penalised for doing so.
One of the perverse unintended consequences of this anti-business provision that only natural persons may institute claims in SCCs is that natural persons (whether small businesses or consumers) cannot use SCCs to defend themselves where plaintiffs happen to be companies. As so frequently happens in such matters, intended beneficiaries become victims. This conspicuous anomaly should be rectified by means of a provision under which the sole criterion for jurisdiction is that (as the court’s name implies) the claim is “small”.
The Act permits parties to SCC proceedings to consent to appear in the SCC which they agree is most conveniently located. However, where the defendant is a company and the plaintiff a natural person or CC, the plaintiff should have the choice of location.
If government continues with its policy that companies should not be permitted as plaintiffs in SCCs, the Act should, at the very least, be amended to allow CCs to institute SCC actions. Ownership of CCs is limited to no more than ten natural persons who bear greater personal responsibility than shareholders in private or public companies.
RECOMMENDATION 2
The monetary jurisdiction of the small claims court should be increased from R20,000 to R150,000, or such greater amount as might be agreed by the parties.
Debts of up to R150,000 are commonplace between small businesses, between individuals and small businesses, and between small and big businesses. The SCC’s jurisdiction should cover all such debts. Only abnormally large debts, such as those for a house or car, should fall beyond the SCC’s jurisdiction, although a number of small business organisations would believe that even these should fall within the SCC’s jurisdiction if the parties involved agree.
At present, all claims for more than R20,000 must be instituted in magistrate’s and high courts, where they are subjected to the red tape, costs and delays that created the need for SCCs in the first place.
In practice, many small businesses and private citizens sacrifice substantial parts of their rightful claims in order to bring cases within the SCC’s jurisdiction. The propensity to do so shows to what extent the laws of procedure and evidence in the higher courts are excessively burdensome.
RECOMMENDATION 3
The small claims court monetary jurisdiction should be subject to a mandatory annual review by the Minister.
When the Act providing for the establishment of SCCs took effect in August 1985, the jurisdiction of SCCs was limited in the Act to R1,000. In 1986, the Act was amended to state that the amount of jurisdiction would be fixed by the Minister of Justice from time to time.
The 1995 White Paper on National Strategy for the Development and Promotion of Small Business declared that the government would support steps to raise the level of claims falling within the jurisdiction of small-claims courts to “about R30,000” which, having regard to changes in consumer prices since 1995, would now be some R127,000. Today, however, 26 years later, the courts’ monetary jurisdiction stands at a mere R20,000 (an amount which was set in March 2019).
The formal maximum monetary jurisdiction of the SCC may well not have fallen in real terms. It would certainly not fall if it were subject to mandatory annual ministerial review. Apart from that, the jurisdiction should be materially increased as recommended here.
RECOMMENDATION 4
Litigants should be free to consent to small claims court jurisdiction beyond the prescribed limit.
Since the SCC exists for the benefit of litigants whose claims do not, in their view, warrant the red tape, delays and costs of higher courts, the parties should be free to agree, either by contract in advance or at the time of an action, to submit their claims to the SCC, regardless of the amount in dispute. This would save a great deal of court and private time and cost.
Considerations (regarding recommendations 1 to 4)
The main problem that would arise with the implementation of recommendations 1 to 4 is that the SCC might not be able to cope with the increased volume of actions before it.
Whilst this is a legitimate concern, it clearly cannot be regarded as a basis for resisting reform. Presumably, no one would argue that courts should be made inaccessible deliberately, as this would amount to saying that access to justice should be available only for a privileged few. The real question is how best to finance effective access to justice rather than whether it should exist.
Whether the recommended reform would result in the need for additional funds is unclear. The combined effect of the increased number of cases, on the one hand, and the diversion of the existing case load from more costly and time-consuming higher courts on the other hand, might well result in a net saving. In any event, the effect of the set-off between these two factors would probably mean that the net difference is not significant.
Apart from the case load, there are other cost considerations. At present, SCC presiding officers are exclusively practising lawyers who volunteer their time at no cost. This was regarded initially as provisional and subject to review. The time for review is overdue.
Whether or not lawyers should be expected to continue to volunteer their time at the present level without reward, everyone should agree that significantly increased demands on their time without compensation are not justified. To secure whatever additional time might be required, remuneration for presiding officers should be introduced.
Additionally, consideration should be given to using other people as presiding officers, such as serving magistrates, respected laypeople (which is commonplace in some other countries), corporate and other non-practising lawyers, advocates serving their pupillage), senior officials in the Department of Justice, and the like.
If a significant volume of work is transferred to SCCs from magistrates’ courts as a result of the increased jurisdiction recommended here, lawyers can be expected to object to the loss of work in respect of cases that would otherwise have required their professional services in the magistrates’ and high courts.
Whatever problems may arise, it should be borne in mind that, apart from the provision of a police service, the provision of access to justice is probably the single most important function that legitimises the existence of government. Government should therefore divert whatever funds are necessary from other budgets. If it is unwilling or unable to do so, necessary funding should be provided through the introduction of user-charges (see recommendation 5).
RECOMMENDATION 5
To provide sufficient funds for an expanded role for small claims courts, and to ensure adequate funding for courts in general, the principle of user-charging should be introduced.
The assumption that court services should be provided at little or no cost regardless of the litigants’ propensity to pay should be reviewed. In South Africa, as in other countries, there is a settled trend towards “user-charging” for state-provided goods and services. User-charging (for those who can afford it) would overcome the concerns (a) that the SCC will be overburdened if pro-small-business reforms are instituted, and (b) that lawyers would be unwilling to devote more time to acting as presiding officers (since they could then be remunerated). A compromise might be to require those who want to use the SCC’s increased jurisdiction to pay for the service. Ideally, the SCC could become self-funding.
Impecunious recipients of justice services would not be required to pay (this could be subject to a means test at the presiding officer’s discretion).
RECOMMENDATIONS 6 TO 11
Small claims court jurisdiction should be extended to include:
• claims based on a cession or assignment of rights;
• matters in which an interdict is sought;
• claims for damages for defamation;
• claims for damages for malicious prosecution;
• claims for damages for wrongful imprisonment;
• claims for damages for wrongful arrest.
At present the SCC may not entertain claims based on a cession or assignment of rights or grant interdicts, nor may it award damages for defamation, malicious prosecution, wrongful imprisonment or wrongful arrest. In all these cases, however, the claim might be “small” and might arise in the ordinary course of business.
The exclusion of claims based on a cession or assignment of rights in the present Act is primarily to prevent juristic persons from indirectly gaining access to the jurisdiction of the SCC by cession or assignment of its claim to a director or a member of the company or close corporation concerned. But for this limitation, a company’s claim could be brought before the SCC merely by ceding it to a natural person.
If the monetary limit is raised to a realistic amount and if juristic persons are allowed to bring actions in the SCC, there will be no reason to retain this exclusion.
Matters in which an interdict is sought were included in the original draft of the Act and then subsequently excluded because they sometimes entail extreme measures (such as preventing people from travelling freely). However, the need for an interdict (or mandamus) is frequently in respect of a claim falling within the SCC’s jurisdiction.
Since the purpose of interdicts is to protect a party against unlawful actual or potential interference with his rights, there should be no anti-interdict bias in the law. On the contrary, interdicts in respect of claims or potential claims falling within the SCC’s jurisdiction should be allowed — though they might be confined to disputes that are already before or about to be brought before the SCC.
There is no good reason for excluding claims for defamation from SCC jurisdiction. Causes of actions are of little consequence to litigants: what concerns them is that justice should be dispensed expeditiously and affordably in disputes arising from whatever cause.
Claims for malicious prosecution, wrongful imprisonment and wrongful arrest may have been excluded because they are usually against the state, but the Act already provides that the state cannot be sued in the SCC.
A claim for wrongful arrest might also arise against a private person carrying out a “citizen’s arrest”. To the parties involved (and to society at large) such claims are like any other, and they should, therefore, fall within the SCC’s jurisdiction.
The exclusion of such claims from the court’s jurisdiction curtails access to justice in that, ironically, it makes it more difficult for people to defend themselves where their most fundamental and cherished rights—their rights to freedom and security of the person and to freedom of movement—are violated.
These are not, on the face of it, issues of a small business nature. However, they are crucial to small businesses. Rightly or wrongly, there is a widespread view, especially amongst businesspeople in disadvantaged communities, that small businesses are frequently targeted for harassment (including wrongful arrest and imprisonment, and malicious prosecution) by police, inspectors, and officials. Bringing such actions within the purview of the SCC will reduce real and suspected corruption and abuse.
Considerations (regarding recommendations 6 to 11)
It might be protested that bringing such actions before SCCs would, apart from increasing the workload, mean that presiding officers would be expected to have additional jurisprudential skills.
However, actions of a wide variety and complexity can be brought before SCCs. Claims within their existing jurisdiction can involve rectification of contracts, damages for negligent misstatements causing financial loss, the measure of damages payable by a builder to rectify defects due to his alleged negligence, the question of whether a particular contract should be enforced on the grounds of public policy, compensation for necessary or useful improvements to property, and so on.
There is therefore no good reason to exclude defamation, malicious prosecution, and wrongful imprisonment or arrest. If, in the presiding officer’s opinion, the case contains difficult or complex questions of law or fact which cannot adequately or fairly or should not be decided by it, the presiding officer can exercise his or her existing power to stop the proceedings.
RECOMMENDATION 12
Provision for mediation should be introduced with a view to the settling of disputes between litigants in small claims courts.
At present the Small Claims Courts Act does not make provision for mediation with a view to settlement or narrowing the dispute between the parties.
The resolution of the Access to Justice Conference held in July 2011 under the leadership of the Chief Justice decided that steps be taken to introduce mediation or other alternative dispute resolution mechanism into the court system.
Mediation plays a useful role in encouraging the settlement or narrowing of court disputes with consequent saving of court time. Mediation has been introduced for the high courts and many magistrates’ courts. Mediation is even contemplated for short-process courts (which are discussed below).
Considerations (regarding recommendation 12)
It might be argued that mediation is not suitable for settling disputes in small claims courts because, supposedly, small claims courts are not true courts but merely a kind of tribunal since small claims court commissioners (presiding officers) are not independent but are appointed by the Minister, proceedings are informal and rules of evidence do not apply, and cross-examination and legal representation are not allowed.
Yet those factors are appropriate for courts that hear small claims, and do not render mediation unsuitable for settling disputes in small claims courts. The Department of Justice includes small claims courts in its list of courts, and small claims court commissioners when appointed must swear to administer justice in accordance with the law, like judicial officers in any court. Provision for mediation should be made in the Small Claims Courts Act.
MAGISTRATES’ COURTS
The rules of procedure and evidence for magistrates’ and high courts cause enormous delays, costs and red tape. If a single case is subjected to all the pleadings, interlocutory procedures, witnesses, postponements, cross-examination and argument allowed for by the rules, it may take months or years, and many thousands of rands, to reach finality. And then the case could go on appeal.
For the average small business, this is simply prohibitive. Anyone with sufficient resources can defeat the ends of justice by utilising and abusing the laws of procedure and evidence to the point where a small business or private individual suffers defeat by exhaustion, exasperation, or impoverishment.
These observations are not new. Provision was made in 1991 for short-process courts, which have never been established.
On the face of it, short-process courts should solve much of the problem. The Act authorises the Minister to establish short-process courts, make rules for short-process courts, and appoint adjudicators to preside at short-process courts. The Act provides that the adjudicator presiding at a short-process court may, on the request of one party to the action and in consultation with both parties, take any steps in relation to the hearing of the action which may lead to the expeditious and cost-saving disposal of the case, including dispensing with any rule of evidence.
Having the matter dealt with in this way by “short process” with most formalities dispensed with should, in theory, result in substantial savings of costs and time to litigants and the court system. If the other party to the action opposes such a request to the adjudicator presiding at a short-process court to dispense with normal procedure and rules of evidence, and it later appears to the adjudicator that such opposition delayed disposal of the proceedings unnecessarily, the adjudicator may make an appropriate costs order against the opposing party.
One of the most conspicuous victims of unduly prolix laws of procedure and evidence is, of course, the state itself. With improved access to justice via short-process courts, the state would also save money, which could then either be left in the taxpayers’ hands or diverted to wherever there are greater real needs.
The main reason short-process courts are not being used is that, although the Act was passed 30 years ago, the Minister has not established any short-process courts or made rules pursuant to the Act regulating the practice and procedure of such courts. Although the Department’s website lists a dozen or more types of court which exist in South Africa, short-process courts are not among them.
RECOMMENDATIONS 13 AND 14
The Minister should establish short-process courts, and make rules of procedure and appoint adjudicators for such courts.
The short-process court option should then be publicised, and lawyers and judicial officers should be encouraged to draw it to the attention of litigants.
The main reason for the existing rules is to provide litigants with access to justice. To the extent that the rules might subvert this objective, litigants should be free to forego them.
What the state can do legitimately for free citizens is to facilitate the making of informed choices. People are not using the short-process option because it has not yet been implemented. The problem can be addressed by establishing short-process courts and making rules and appointing adjudicators for them, and then publicising the option. .
Considerations (regarding recommendations 13 and 14)
One of the benefits of pleadings, pre-trial conferences, rules of evidence et al. is that less of the court’s time is wasted at the hearing. To the extent that matters are clarified in advance, extraneous issues are eliminated and evidence is kept to the point, the court’s task is facilitated. Short-process proceedings or summary hearings (especially without prior mediation) could aggravate matters for the courts.
However, the courts exist – or should exist – for the benefit of the public they serve. Their convenience should not be achieved at the expense of their raison d’être.
Fortunately, there is no need for a major trade-off. If these recommendations are implemented, the net effect will be a substantial alleviation of the judiciary’s burden. Claims will be resolved more expeditiously, there will be fewer appeals and reviews, the economy will benefit (thus providing more resources with which the state can dispense justice), the courts’ clerical infrastructure could be reduced, and so on.
ALL COURTS
RECOMMENDATION 15
Litigants in any court should have the right to assistance of their choice.
Both justice per se, and access to justice, would be enhanced (in most cases) if litigants had the right to be assisted in any court by non-professionals.
It is anomalous that people may appear in person without a lawyer in all courts (and other forums), but may not get another layperson to represent them. In such matters there is job reservation for professional lawyers who are in full-time practice. Even fully qualified lawyers may not represent people in the courts if they are no longer in formal practice. Reserved work for professional lawyers drives up the cost of litigation and, in some cases, curtails access to justice.
If the professional fees of lawyers are to be protected, then, at the very least, individuals and small businesses should be free to be assisted or represented by people of their choice without remuneration. For example, an illiterate street vendor might want her educated son or daughter to represent her against a supplier of her wares, or an entrepreneur might want to be represented by an employee such as a clerk or bookkeeper, who might be more conversant with the facts or the law, and might be more eloquent or more confident.
NGOs that promote SMMEs are frequently asked by their clients for legal assistance in court, which they would gladly provide if it were allowed.
Considerations (regarding recommendation 15)
There is a danger that incompetent laypeople will be used instead of professionals. Gullible litigants might be cheated by fly-by-night operators. Unqualified people might delay proceedings or frustrate presiding officers. They might lose cases on technicalities and waste the court’s time by presenting extraneous evidence.
However, a moment’s reflection suggests that the overwhelming majority of people will rely on what is appropriately called common sense and engage the assistance of whoever will do greater justice to their cause.
If such freedom is “going too far”, the right to assistance and representation by choice can be qualified by prescribing precisely what non-professional assistants can and cannot do and for what they might be remunerated.
If reserved work is to remain, provision should be made for eminently qualified people such as professional debt collectors, administrators of estates, accountants and para-legal staff in law firms to appear in appropriate cases for reward.
RECOMMENDATION 16
The requirement of security by close corporations for costs should be scrapped.
Section 8 of the Close Corporations Act 1984 says that, when a close corporation (CC) is a plaintiff in legal proceedings, the court has a discretion to require the CC to furnish security for the costs of the defendant if it appears that there is reason to believe that the CC will be unable to pay the defendant’s costs if the latter is successful in his defence, and may stop the proceedings till the security is given. This means that a plaintiff CC could be frustrated in its endeavour to recover legitimate debts or damages from a defendant if the CC does not have enough funds. This is discrimination against businesses that have incorporated as CCs. The corporate nature of the plaintiff should not impede its access to justice.
Section 13 of the Companies Act 1973 contained a similar provision, but the 2008 Companies Act which replaced it does not. It is incongruous, when a company is no longer subject to this stricture, that a CC can be required to furnish security for a defendant’s costs merely “if it appears that there is reason to believe” that the CC will be unable to pay.
Considerations (regarding recommendation 16)
Repealing the relevant provision in the Close Corporations Act would increase the risk that a successful defendant would not recover costs. However, since natural persons and companies are not, as a rule, liable to be required to provide security for costs, CCs should also be relieved of this statutory restriction on their access to the courts.
The ordinary common-law rule, that a court may order a natural-person or company plaintiff to furnish security for costs, but in its discretion and only if satisfied that the claim is vexatious or reckless or an abuse of court process, should apply to CCs too.
JUDICIAL REVIEW
RECOMMENDATION 17
Legislation along the lines of the Regulatory Flexibility Act 1980 combined with the Small Business Regulatory Enforcement Fairness Act 1996 and Small Business Paperwork Relief Act 2002 of the United States should be adopted in South Africa in order to minimise the economic impact of legislation on small business by subjecting the law-making process to judicial review.
Improving access to justice for small business must not be confused with the process of creating a just dispensation for small business, that is, creating a legislative and regulatory framework within which small businesses can thrive. Both are necessary, as governments are discovering. Laws and regulations that have detrimental consequences for business, and particularly small business, are receiving increasing attention in many countries around the world.
In the United States, for instance, the 1980 Regulatory Flexibility Act (RFA) requires federal agencies to take steps to collect input from small entities on regulations and to determine whether a rule is expected to have a significant economic impact on a substantial number of small entities. The federal agencies are also expected to identify alternative regulatory approaches for small businesses.
The Small Business Administration’s Office of Advocacy reported in 1996, however, that many agencies were not complying with the RFA. The Small Business Regulatory Enforcement Fairness Act of 1996 was then adopted to give the Office of Advocacy greater powers and influence under the RFA, and to permit judicial review of compliance with the RFA by federal agencies.
According to the terms of the Act, any small business that is adversely affected by a law may subject the law-making procedure to judicial review. The Act also requires a 10-yearly review of every regulation as well as a final regulatory flexibility analysis, which must include a description of the steps an agency has taken to minimise the significant economic impact of regulations on small businesses.
These Acts are supported by the 2002 Small Business Paperwork Relief Act, which promotes the streamlining of paperwork requirements applicable to small businesses.
Perhaps the most important problem with laws that attempt to protect small businesses from excessive regulation is the natural resistance of legislators and civil servants to any constraint on their power. The above-mentioned laws nevertheless reflect a determination on the part of the United States government to impose constraints on the regulatory process.
Placing similar constraints on South Africa’s regulatory process will assist in bringing about the entrepreneurial small business environment the government wishes to create.
South Africa’s 1996 National Small Enterprise Act does not place constraints on the regulatory process. Even its limited aims are not being met.
The Act authorises the Minister to publish guidelines for governments on assessing the effect of legislation on small enterprise. No guidelines have been published although the Act was passed 25 years ago.
The Act states that it is administered by the trade and industry minister. But in 2014 the then-President created a Department of Small Business Development with its own director-general, appointed a Minister of Small Business Development, and transferred administration of the Act to that Minister.
The Act requires an annual review to be compiled summarising the departmental director-general’s findings or recommendations about laws and proposed laws and administrative practices which restrict the small enterprise sector. It is not clear that this is being done properly and regularly in the form required by the Act. The parliamentary committee for small business has been critical of the new Department’s performance. It was rumoured that the Department might be closed down. But in 2019, the President appointed a new Minister for the Department.
As the United States’ experience has shown, merely requiring government departments to determine whether regulations will adversely affect small business is not sufficient. Mechanisms such as judicial review need to be put in place to ensure compliance.
Legislation along the lines of the Regulatory Flexibility Act 1980 combined with the Small Business Regulatory Enforcement Fairness Act 1996 and Small Business Paperwork Relief Act 2002 of the United States should be adopted in South Africa, reinforced by robust mechanisms for judicial review of unduly-restrictive laws, as a means of bringing about a just dispensation for small business.
CONCLUSIONS
Needless to say, some of these proposals will meet with resistance, especially from those who benefit from the status quo.
How to respond to vested interests is a political problem. Often the solution is to identify alternative benefits for such interests in order to secure their support for needed reforms. In other instances, governments are forced to overrule vested interests in the interests of the public and better government.
There are, of course, also bona fide concerns about reforms. Change is always risky. We have tried to identify most of these concerns and to make the case that the probable benefits from the proposed reforms outweigh the likely disadvantages. In some cases, the probability of net benefits is overwhelming. These “soft targets” should be implemented forthwith in the interests and in the spirit of the government’s desire to promote small business and a national culture of enterprise.
SOURCES
Statutes and statutory instruments
Small Claims Courts Act 61 of 1984 as amended—
s 3(1) (not courts of record),
s 7 (parties):
(1) (only natural persons may institute action, and juristic persons may become parties only as defendants),
(2) (no legal representation),
s 9(6) (person appointed as commissioner of small claims court must swear to administer justice in accordance with the law),
s 13 (transfer of actions to a more convenient court by agreement or on application);
s 14 (jurisdiction i.r.o. persons):
(2) (no action to be instituted against State),
(4) (no jurisdiction i.r.o. claims based on cession or assignment of rights),
s 15(a)–(f) (court has jurisdiction i.r.o. specified causes of action where claim or value of matter does not exceed amount determined by Gazette notice),
s 16 (matters beyond jurisdiction):
(d)(ii) (specific performance, other than delivery of property in value not exceeding amount determined),
(f)(i)–(iv) (claims for damages for defamation, malicious prosecution, wrongful imprisonment or wrongful arrest),
(g) (interdicts),
s 18(1) (party may abandon part of claim in order to bring claim within court jurisdiction),
s 22 (no jurisdiction by virtue of parties’ consent to hear action beyond jurisdiction),
s 23 (court must stop proceedings if of opinion there are difficult or complex questions of law or fact which it cannot adequately or fairly or should not decide),
s 25(1)(b) (Rules Board for Courts of Law may make rules regulating practice and procedure in small claims courts),
s 26 (procedure):
(1) (rules of evidence do not apply),
(2) (evidence may be written or oral),
(3) (no cross-examination by parties, only questioning by commissioner),
s 29(1)(b) (until judgment is given in an action arising from plaintiff’s business, he may not institute another action arising from his business),
s 45 (no appeal),
s 46 (review on stipulated grounds),
amount determined for purposes of s 15 and s 16:
Govt Notice R1402 of 15 Sep 1995 (R3,000),
Govt Notice R313 of 12 Mar 2004 (R7,000),
Govt Notice R985 of 27 Oct 2010 (R12,000),
Govt Notice R185 of 18 Mar 2014 (R15,000) and
Govt Notice R296 of 5 Mar 2019 (R20,000),
Close Corporations Act 69 of 1984 as amended—
s 8 (security for costs),
s 10 (number of members),
Rules Board for Courts of Law Act 107 of 1985—
s 6 (Board may make rules for the Supreme Court of Appeal, high court divisions and magistrates courts regulating—
(m) manner of determining amount of security in any case where it is required that security shall be given),
(t) any matter which may be useful for proper despatch of functions of those courts in civil proceedings),
Govt Notice R48 of 12 Jan 1965 (rules of superior courts as amended)—
rule 41A (mediation),
rule 47 (party entitled and desiring to demand security for costs from another must deliver notice setting forth grounds on which security is claimed and amount demanded),
Govt Notice R740 of 23 Aug 2010 (rules of magistrates’ courts as amended)—
rule 62(1) (party entitled and desiring to demand security for costs from another must deliver notice setting forth grounds on which security is claimed and amount demanded),
rules 70–87 (mediation),
Short Process Courts and Mediation in Certain Civil Cases Act 103 of 1991—
ss 2, 3 (mediation),
ss 4, 6 (Minister may establish short process courts and appoint adjudicators for them),
s 10 (procedure and evidence),
s 11 (judgment or order final),
s 13 (Minister may make rules),
s 14 (advocate or attorney may appear on behalf of any party),
Public Service Act, 1994 (Proc 103 of 1994)—
s 7(1) and (2)(a) (public service shall be organised into, inter alia, national departments
mentioned in Sched 1),
s 7(5) (President may, on advice of public-service-and-administration Minister, amend Sched 1 to establish or abolish a department, designate department and head thereof, or amend designation),
Sched 1 (national departments and heads thereof),
Proc 43 of 2014 (Gazette 37814 of 8 Jul) (amendment of Sched 1 to establish Dept of Small Business Development and designate as head thereof Director-General: Small Business Development),
National Small Enterprise Act 102 of 1996 as amended—
s 18 (ministerial guidelines for assessing effect of legislation on small enterprise),
s 19(3)(b) (entities designated by Director-General must, in co-operation with Director-General, annually compile a review called the Annual Review of Small Enterprise, which must cover summaries of any findings or recommendations of the Director-General about legislation, proposed legislation and administrative practices which restrict the small enterprise sector),
Annual Review of Small Business in South Africa 2003, TIPS (Trade & Industrial Policy Strategies) for Dept of Trade & Industry,
Annual Review of Small Business in South Africa 2004 (a Qualitative Review), TIPS for Dept of Trade & Industry,
Annual Review of Small Business in South Africa 2004 (a Statistical Review), TIPS for Dept of Trade & Industry,
Annual Review of Small Business in South Africa 2004 (Definitions, Data & Methodology), TIPS for Dept of Trade & Industry,
Annual Review of Small Business in South Africa 2005–2007 (final draft Aug 2008), Dept. of Trade and Industry, 2008, pp 48, 49, 108, 168,
Annual Review of Small Business in South Africa 2007–2014, Dept of Small Business Development, 2014,
Annual Review of Small Businesses and Cooperatives in South Africa (2016-2017), Dept of Small Business Development,
Contingency Fees Act 66 of 1997
Constitution and measures thereunder
Constitution of the Republic of South Africa, 1996—
s 12 (fundamental right to freedom and security of the person),
s 21(1) (fundamental right to freedom of movement),
s 34 (fundamental right of access to courts),
s 91(2) and (3)(b) (President appoints Ministers and assigns their powers and functions, may dismiss them, and may select any number of Ministers),
s 97 (president may transfer statute’s administration, powers and functions from one Minister to another),
Proc 47 of 2014 (Gazette 37839 of 15 Jul) (transfer of National Small Enterprise Act’s administration, powers and functions to Minister of Small Business Development),
s 173 (superior courts have inherent power to regulate their process),
s 174(8) (read with Sched 2) (judicial officers must must swear to administer justice in accordance with the law),
s 197 (public service must be structured in terms of national legislation)
Court judgments
Commissioner of S A Revenue Service v Sprigg Investment 117 CC [2011] 3 All SA 18 (SCA) (purely-interlocutory applications and orders concern incidental matters which do not determine principal dispute),
Boost Sports Africa (Pty) Ltd v S A Breweries Ltd [2015] 3 All SA 255 (SCA) pars [5]–[19] (a court should order a plaintiff whether natural person or company to furnish security for costs only in its discretion and if satisfied the claim is vexatious or reckless or an abuse of court process, even if in other instances the prospects of recovering costs may be poor)
Commentaries
Law of South Africa vol 10 3 ed—
“Costs” (M Dendy), par 290 (security: limited companies and close corporations), par 407 (proceedings in magistrates’ courts: security: grounds for demanding security),
“Courts and Tribunals” (M D J Wallis), par 503 (tribunals: small claims courts: status),
Final Report: Regulatory Burdens on Small Business: Options for Improvement, TIPS (Trade & Industrial Policy Strategies), Apr 2017 (for Dept of Planning, Monitoring & Evaluation, and Dept of Small Business Development),
The Real Economy Bulletin Special Edition – The State of Small Business in South Africa 2019, TIPS
Government documents
White Paper on National Strategy for the Development and Promotion of Small Business in South Africa, par 4.2.4 (proposal to increase small claims courts’ jurisdiction to about R30000). Parliament, Cape Town. WPA/1995. Gen Notice 213 of 1995 (Gazette 16317 of 28 Mar 1995),
Small claims courts: guidelines for commissioners, Dept of Justice, May 2010, p 38 (commissioners are not remunerated),
Draft guidelines for commissioners of small claims courts, Dept of Justice, Oct 2016, p 24 (commissioners are not remunerated),
Parliamentary Monitoring Group—
“Department of Small Business Development 2016/17 Annual Report” 4 Oct 2017,
“Department of Small Business Development progress in aligning functions” 21 Feb 2018,
Parliament of the Republic of South Africa, 15 Mar 2018, “Small Business Development Committee disappointed by Department’s performance”
Statistics South Africa. Consumer Price Index. CPI History. Table B1 – CPI headline index numbers (Mar 1995 28.4 – Apr 2021 120.1; Dec 2016 = 100; substantial changes were made to CPI compilation in Jan 2009: documentation available on Stats SA website) http://www.statssa.gov.za/publications/P0141/CPIHistory.pdf (accessed 31 May 2021),
South African Government. www.gov.za. “FAQs: Justice and crime prevention: What are the different courts in South Africa?” https://www.gov.za/faq/justice-and-crime-prevention/what-are-different-courts-south-africa (accessed 31 May 2021),
Dept of Justice & Constitutional Development. “Courts in South Africa” https://www.justice.gov.za/about/sa-courts.html (accessed 31 May 2021)
Media
De Rebus, 1 Apr 2013, “Attorneys urged to serve as small claims court commissioners”, B Whittle (law society concerned at shortage of commissioners),
Small Business Insight, Stephen Timm—
“SME department’s questionable performance”, 6 Jul 2017,
“Will Ramaphosa cut South Africa’s SME ministry?” 8 Mar 2018,
Cars.co.za, 6 Apr 2021, G Lilleike, “5 Cheapest New Cars in South Africa 2021” (from R153,537 on average)
Dictionaries and calculators
Claassen, R.D., Dictionary of Legal Words and Phrases (svv “liquid document”),
South African inflation (inflation adjustment calculator) https://inflationcalc.co.za/ (R30,000.00 on 31 Mar 1995 is worth R125,540.07 on 31 May 2021)