In a far-reaching decision of the Supreme Court of Appeal (SCA)
in Oilwell v Protec handed down on 18 March 2011, the
court held that an assignment of a trade mark by a South African
resident to a non-resident without obtaining prior Exchange Control
approval was not a breach of the Exchange Control Regulations.
The Financial Surveillance Department of the South African
Reserve Bank (the FSD) – the new name for the Exchange
Control Department of the Reserve Bank – has, for some
time, had the policy that no intellectual property (IP) could be
exported without its prior approval. In the Oilwell case,
arising from a dispute, Oilwell sought to have set aside
an assignment of a trade mark to a non-resident on the grounds that
it was a breach of regulation 10(1)(c). In a nutshell this
regulation provides that, without the FSD's approval, no person
may enter into a transaction whereby capital or any right to
capital is directly or indirectly exported. The court held that an
assignment of a trade mark was not an export of capital (in fact,
being a South African trade mark, and IP being territorial, the
trade mark in fact remained in South Africa and was akin to
The court found it necessary to interpret the word
"capital" and came to the conclusion that, in a financial
sense, it essentially amounted to cash for investment or money that
can be used to produce further wealth. Citing certain English
authority with approval, it concluded that it was not the thing
into which capital had been laid out, i.e. the thing on which the
money was spent. The SCA cited the example of a foreigner buying
immovable property in South Africa. That would not constitute an
export of capital. Even a purchase of goods which were then
exported would not constitute an export of capital, in the sense
that "capital" was used in regulation 10(1)(c).
It was also argued that the fact that royalties could flow meant
that, by sending royalties abroad, there would be an export of
capital or the right to capital. The SCA dismissed this argument on
a number of grounds, including the fact that royalties represent
earnings or income and not capital. The FSD could certainly block
the remittance of royalties if they had not given their prior
approval for its remittance, but this would be in terms of
regulation 3(1)(c), which prohibits anyone from making a payment to
a person resident outside South Africa, or placing any sum to that
person's credit, without approval; but it did not amount to an
unauthorised export of capital.
And finally, the SCA clarified that a breach of the Exchange
Control Regulations does not render a transaction void. The reason
for this is that a transaction in breach would be liable for harsh
penalties, and the court applied the old Roman Law principle that
something done contrary to law is not void if the law is content
with exacting a penalty for its contravention, especially where
rendering it void would have resulted in greater inconvenience than
keeping the agreement alive.
Of course, this judgment may well go wider than an export of IP,
given the fairly narrow interpretation which has been given by the
court to the word "capital" in the context of the
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