About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2011
>>
[2011] ZAGPJHC 200
|
|
Sylla and Others v Minister of the Department of Finance and Another (08/38696) [2011] ZAGPJHC 200 (13 December 2011)
Links to summary
REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
08/38696
DATE:13/12/2011
In the matter between-
MOUSSA
SYLLA
...........................................................................
1
ST
APPLICANT
SYLLA
DIAMOND INTERNATIONAL (PTY) LTD
...................
2
ND
APPLICANT
AL
SYLLA PROPERTIES
CC
.....................................................
3
RD
APPLICANT
and
THE
MINISTER OF THE DEPARTMENT OF
FINANCE
....................................................................................
1
ST
RESPONDENT
THE
SOUTH AFRICAN RESERVE BANK
.........................
2
ND
RESPONDENT
JU
DGMENT
BORUCHOWITZ
J
[1] The applicants seek to
review the decision of an official of the second respondent (the
South African Reserve Bank (the “Reserve
Bank”)) in terms
of which funds belonging to the applicants were made subject to a
blocking order prohibiting the withdrawal
of the funds from the
accounts in which they were held. The blocking orders were issued in
terms of Regulation 22A(1)(b) and Regulation
22C(2)(a) of the
Exchange Control Regulations (“the regulations”)
promulgated in terms of s 9 of the Currency and Exchanges
Act of 1933
(the Act). The applicants also sought an order to declare these and
other regulations unconstitutional. The constitutional
challenge has
been abandoned and the only live issue that remains is the question
of costs, an aspect that will be addressed later
in the judgment.
[2] The first applicant, Mr
Moussa Sylla, is the sole shareholder and director of the second
applicant and the only member of the
third applicant. He is also the
sole member of Sylla Trading International CC (In Liquidation)
(“Sylla Trading”) and
was at all material times the sole
shareholder and director of Kilimanjaro Diamond Mining (Pty) Limited
(In Liquidation) (“Kilimanjaro”).
[3] The first respondent is the
Minister of Finance, in his capacity as the executive head of the
Department of Finance. The first
respondent is also the relevant
minister in control of the Treasury, being the authorised division of
the Department of Finance
referred to in the Exchange Control
Regulations. The second respondent is the South African Reserve Bank,
Exchange Control Department
(“the Department”), being the
party which effected the attachment of the funds forming the subject
matter of the review
application.
[4] The Exchange Control
Regulations permit the attachment and forfeiture of money and goods
involved in exchange control contraventions
and provide a mechanism
for the recovery of certain shortfalls upon forfeiture. Regulation
22A(1)(a) makes provision for the attachment
of money or goods with a
view to their eventual forfeiture in terms of Regulation 22B.
[5] Regulation 22A(1)(b) permits
the issuing by the Treasury of what are termed ‘blocking
orders’ in terms of which
persons are prohibited from
withdrawing, or causing to be withdrawn, any money standing to the
credit of the bank account of a
person under investigation.
Regulation 22A, in its relevant parts, reads as follows:
“
22A
Attachment of certain money and goods, and blocking of certain
accounts
(1)
Subject to the provisions of the proviso to sub-paragraph (i) of
paragraph (b) of
section
9
(2)
of the Act, the Treasury may in such manner as it may deem fit -
(a)
attach -
(i) any
money or goods, notwithstanding the person in whose possession it is,
in respect of which a contravention of any provision
of these
regulations has been committed or in respect of which an act or
omission has been committed which the Treasury on reasonable
grounds
suspects to constitute any such contravention, or
…
(b) if
the Treasury on reasonable grounds suspects-that money referred to in
paragraph (a) has been deposited in any account and
if it has not
been attached under the said paragraph (a), issue or make an order in
such manner as it may deem fit in or by which
any person is
prohibited to withdraw or cause to be withdrawn, without the
permission of the Treasury and in accordance with such
conditions (if
any) as may be imposed by the Treasury, any money in that account or
not more than an amount determined by the Treasury,
or to appropriate
in any manner any credit or balance in that account, notwithstanding
who may be the holder thereof
”
[6] As is evident from the
above-quoted extract, Regulation 22A(1)(b) permits the Treasury to
issue or make an order prohibiting
any person from withdrawing, or
causing to be withdrawn, any moneys standing to the credit of a bank
account under observation,
where such functionary on reasonable
grounds suspects that a contravention of the regulations has been
committed.
[7] Regulation 22C(2)(a) involves
the blocking of untainted, or what is termed “clean money”,
in an account. The regulation
provides that, where money in respect
of a contravention or suspected contravention of the regulations has
been transferred abroad
and such functionary on reasonable grounds
suspects that it will in due course be necessary to recover any
shortfall in respect
of the amounts involved, such functionary may
make an order in terms of Regulation 22C(2)(a). The purpose of this
regulation is
to enable the Treasury to recoup the difference between
the amount attached under Regulation 22A and the amount actually
involved
or suspected to have been involved in the contravention or
suspected contravention of the regulations (see
Francis
George Hill Family Trust v South African Reserve Bank and Others
1990 (3) SA 704
(T) at 710I-711F and the reference therein to the
dictum of Eloff DJP in the unreported judgment dated 1 July 1987
in the
case of
Ferreira
en Andere v Staatspresident en Andere
).
[8] The relevant parts of
Regulation 22C read:
“
22C
Recovery of certain amounts by Treasury
(1)
When the Treasury has, under regulation 22B, forfeited to the State
money or goods referred to in paragraph (a), (b)
or
(c) of regulation 22A(1) and such money and the proceeds of the
realization
of
such goods, if any, are less than an amount equal to an amount -
(a) in
respect of which a contravention or failure or act or omission
referred to in sub-paragraph (i) of regulation 22A(1)(a)
has been
committed;
(b) which
was involved in a contravention or failure or act or omission
referred to in sub-paragraph (ii)(aa) of that regulation;
(c) which
has been obtained by any person or is due to him as referred to in
sub-paragraph (ii)(bb)
of
that regulation;
(d) by
which any person has been benefited or enriched as referred to in
sub-paragraph (ii)(cc) of that regulation,
or
when no money or goods have been forfeited for the State under the
said regulation 22B, the Treasury may recover an amount
equal to the
difference between the last-mentioned amount and the first-mentioned
amount of money and proceeds or an amount equal
to the last-mentioned
amount, as the case may be -
(i)
from the person who committed the contravention or failure or act or
omission in question;
(ii) from
the person who the Treasury on reasonable grounds suspects to have
committed the contravention or failure or act or
omission in
question;
(iii)
from the person benefited or enriched as a result of the
contravention or failure or act or omission in question;
(iv) if
more persons have committed the contravention or failure or act or
omission in question or if the Treasury on reasonable
grounds
suspects that more persons have committed any such contravention or
failure or act or omission or if more persons have
been benefited or
enriched as a result of the contravention or failure or act or
omission in question, separately and jointly from
those persons,
by
attaching in such manner as it may deem fit any other money,
including money in a blocked account referred to in regulation
4, or
other goods of the person or persons concerned.
(2)
The Treasury may, if it on reasonable grounds suspects that it will
be necessary in due course to recover under sub-regulation
(1) any
amount from the person or persons concerned, at any time on or after
the date on which money or goods referred to in paragraph
(a) of
regulation 22A(1) have or could have been attached, issue or make an
order in such manner as it may deem fit in or by which
any person is
prohibited -
(a) to
withdraw or cause to be withdrawn any money held in any account or
not more than an amount of it determined in its discretion
by the
Treasury, with due regard to the amount which in the opinion of the
Treasury will in due course be recovered, or to appropriate
in any
manner any credit or balance in that account;
(b) to
deal in any manner as may be determined by the Treasury with any
goods as may be determined by the Treasury of the person
or persons
concerned,
without
the permission of the Treasury and in accordance with such conditions
(if any) as may be imposed by the Treasury.
(3)
The provisions of -
(a) sub-regulations
(1) and (3) of regulation 22B shall apply
mutatis
mutandis
to any money or goods referred to in sub-regulations (1) and (2) of
this regulation as if such money or goods were money or goods
referred to in regulation 22A;
(b) sub-regulation
(3) of regulation 22A shall apply
mutatis
mutandis
to an order issued or made under sub-regulation (2) of this
regulation.
”
[9] The second respondent’s
case is that the first applicant, through Sylla Trading and
Kilimanjaro, caused vast sums of foreign
currency to be exported from
South Africa for the importation of rough diamonds in contravention
of the provisions of Regulation
3(1) of the Exchange Control
Regulations. These contraventions are said to have taken place
during the period April 2004 to May
2006.
[10] Regulation 3(1)(a) and (c)
provides as follows:
“
3
Restriction on the export of currency, gold, securities, etc, and
the import of South African bank-notes
(1) Subject to any exemption
which may be granted by the Treasury or a person authorised by the
Treasury, no person shall, without
permission granted by the Treasury
or a person authorised by the Treasury and in accordance with such
conditions as the Treasury
or such authorised person may impose -
(a) take or send out of the
Republic any bank-notes, gold, securities or foreign currency, or
transfer any securities from the Republic
elsewhere; or
…
make
any payment to, or in favour, or on behalf of a person resident
outside the Republic, or place any sum to the credit of such
person;
…
”
[11] The blocking orders were
issued by Mr MMJ Basson, a senior manager in the Exchange Control
Department of the second respondent,
who acted in terms of powers
vesting in the Treasury delegated to him in this capacity. On 30
April 2008 Basson took a decision
and instructed First Rand Bank
Limited to block the accounts of the second applicant with Account No
621 3092 9469, the account
of the third applicant with Account No 621
3092 7877, and the account of the first applicant with account number
621 3093 4260.
At the date of the issue of the blocking orders the
aggregate amount standing to the credit of the three accounts was
approximately
R10.3 million, whereas the amounts involved in the
alleged contraventions are substantially more; on the second
respondent’s
version at least tenfold more than the amounts
standing to the credit of the blocked accounts.
[12] Basson issued the blocking
orders on the basis of information contained in a report of
investigations conducted by an Exchange
Control officer,
Hettie-Annette Nel (Nel) (Annexure MB2 to the Answering Affidavit);
as also information recorded on the Department’s
database.
Based on that information, he concluded that it would be necessary in
due course to recover under Regulation 22C(1)
from the applicants at
least the amounts standing to the credit of the three accounts.
[13] The facts deposed to by Nel
are not seriously disputed by the applicants. What is in contention
are the legal conclusions
to be drawn therefrom, and whether such
facts give rise to the conclusion, or at least a reasonable
suspicion, that contraventions
of Regulation 3(1) had occurred.
[14] The following is, in broad
terms, a summary of the information contained in Nel’s
supporting affidavit. During the period
2004 to 2006, Sylla Trading
applied to the Treasury Department through an authorised dealer
(Standard Bank of South Africa Limited)
for permission to make
advance payments for the importation of diamonds. The Department
granted various permissions to Sylla Trading.
On 5 May 2004, it
granted permission to Sylla Trading for a period of one year,
expiring on 4 May 2005, to import diamonds in
an aggregate amount of
US$6 million. On 24 May 2005, the Department granted another
application to make further advance payments
at an increased level of
R50 million for a further twelve-month period, which expired on
23 May 2006. Sylla Trading had no
permission to make advance
payments in the period 5 May 2005 to 23 May 2005. On 6 October 2005,
the Department again granted permission
to make advance payments in
an amount not exceeding $100 million. This permission was for
the period 6 October 2005 to 23
May 2006.
[15] On 26 October 2005 Standard
Bank sent a report to the Department in regard to apparent
contraventions of the regulations and
irregular foreign exchange
transactions conducted by Sylla Trading. Among the facts which
emerge from the reports are the following.
In the period 7 April
2004 to 7 April 2005, Standard Bank provided foreign exchange to
Sylla Trading, exceeding the limit of the
US$6 million
permission granted by an amount of US$6 533 400.00. In the
period 8 June to 7 April 2005 funds were
remitted abroad via
telegraphic transfer in respect of advance payments for imports,
which resulted in Sylla Trading exceeding
the approved limit by
US$45 999 068.67 (the US$6 million limit already
having been taken up). In the period 18
April 2005 to 21 April 2005,
advance payments for imports were remitted abroad in an aggregate
amount of US$5 384 470.00,
which was in excess of the
US$6 million limit which had been granted and already utilised.
[16] It also appears from the
Standard Bank report that the seller of the diamonds was Sylla
Trading International (Guinea), an
entity 100% owned by the first
applicant. Although invoices were issued to Sylla Trading, all
payments which Standard Bank made
in respect of the invoices were
effected from the account of Kilimanjaro Diamond Mining (Pty) Limited
and not from funds held on
behalf of Sylla Trading. Kilimanjaro at
no time sought or obtained permission from the Department to engage
in any foreign exchange
transaction and did not seek or obtain
permission to make advance payments for the importation of diamonds.
[17] On 24 January 2006, another
authorised dealer, Rennies Bank Limited, furnished a report to the
Department in regard to suspected
irregularities. In this report
Rennies expressed a concern that Sylla Trading had been making
payments for diamond imports to
third parties instead of to the
actual suppliers by whom the invoices had been issued.
[18] Investigations by Nel also
revealed that on 30 September 2006, foreign exchange in the sum of
US$15 000.00 was provided to
the first applicant by an authorised
dealer and that during the 2006 calendar year the total of foreign
exchange transactions conducted
by the first applicant on his credit
card amounted to R959 848.82. The total amount of foreign exchange
received and expended by
the first applicant therefore amounted to R1
078 145.35. The foreign travel allowance which individuals were, in
terms of the
foreign exchange rulings, entitled to utilise without
specific authority from the Department was only R160 000 in 2006, and
the
first applicant had therefore exceeded his foreign travel
allowance by a sum of R918 145.35.
[19] The applications made to
Standard Bank and Rennies bank for foreign currency for advance
payments in the names of Sylla Trading
and Kilimanjaro were made by
the first applicant and were in most, if not all instances, signed by
the first applicant. The first
applicant was at all relevant times
the sole director and shareholder of Kilimanjaro and the sole member
and manager of Sylla Trading’
accordingly, it is contended
that the exchange control contraventions by one or both of these
entities were contraventions perpetrated
by the first applicant.
[20] Nel also states that the
first applicant has, despite repeated requests from the Department,
been unable to furnish a reconciliation
between the advance payments
made and the diamonds actually received into South Africa. The
reasonable and probable inference
under the circumstances is that
funds were exported from South Africa ostensibly as payment for
diamonds to be imported, but that
diamonds with a value commensurate
with the payments made were never received into South Africa.
[21] The principal ground of
review is that Basson allegedly made an error of law in issuing the
blocking orders in that he failed
to appreciate that Standard Bank
was a person authorised to give permission to Kilimanjaro to export
foreign currency, and had
in fact given such permission. It is
argued that the reference in Regulation 3(1) to “
a
person authorised by the Treasury
”
is a reference to an authorised dealer (in this instance, Standard
Bank) and that permission for the making of advance payments
abroad
in foreign currency can thus be made either with the permission of
the Reserve Bank or the authorised dealer. Accordingly,
it is
submitted that any advance payments in foreign currency consequent to
the permission of the authorised dealer would have
been legally made.
These contentions are disputed by the second respondent.
[22] A further argument advanced
on behalf of the applicants is that the fault is entirely that of
Standard Bank, the authorised
dealer. It is contended that
Kilimanjaro’s actions in remitting payments abroad without
authority must be seen in the context
of the following facts. On
each occasion when diamonds were bought by Sylla Trading, it applied
to Standard Bank, as the authorised
dealer for the necessary advance
payment for that transaction. Sylla Trading and Kilimanjaro each had
a banking account with Standard
Bank. To pay for the foreign
currency in question the funds standing to the credit of Sylla
Trading and Kilimanjaro were utilised.
In each instance when
remittances were made from the bank account of Kilimanjaro, Standard
Bank relied on the overall authorisations
that had been obtained on
behalf of Sylla for the furnishing of advance payments.
[23] The applicants argue that
Standard Bank committed a cardinal mistake; instead of debiting the
amounts in question to the banking
account of Kilimanjaro, it
required Kilimanjaro to apply for the sale of foreign currency but
under cover of the authorisation
granted in respect of Sylla Trading.
In support of this contention the applicants refer to two
applications purportedly made by
Kilimanjaro to purchase foreign
currency (Application Numbers 6798 and 17497). Attached to each
application is an invoice issued
by the supplier in the name of Sylla
Trading. The applicants contend that the true factual position is
that applications were
made by Kilimanjaro to fund on behalf of Sylla
Trading the payments to the beneficiaries listed in the pro-forma
invoices in terms
of the permissions granted in favour of Sylla
Trading. The advance payments were funded by Kilimanjaro on behalf
of Sylla Trading,
which had the required permission from the second
respondent. The true beneficiary of the foreign currency was Sylla
Trading,
which was perfectly entitled to receive the benefit.
Consequently, neither Sylla Trading nor Kilimanjaro contravened the
Exchange
Control Regulations.
[24] The second respondent
contends that no reliance can be placed on the alleged error
perpetrated by Standard Bank. The fact
that Standard Bank in some
instances mistakenly debited the account of Kilimanjaro instead of
Sylla Trading offers no justification
for the transactions. The
pivotal question is not whose account was debited but who applied for
and was granted permission to
make advance payments, and by whom the
advance payments were made. Authority to make advance payments was
only granted to Sylla
Trading. Mr A Ellis, an assistant
general manager in the employ of the second respondent, in his
affidavit, makes the
point that Standard Bank at no time purported to
grant permission to any one of the applicants to make exports of
foreign currency;
it purported to do no more than to
administratively process foreign currency payments on behalf of Sylla
Trading and Kilimanjaro
on the assumption (which Standard Bank
subsequently conceded was incorrect) that the authorisations which
had been granted to Sylla
Trading covered all the foreign currency
exports, including those made by and in the name of Kilimanjaro.
[25] A further argument put
forward on behalf of the applicants relates to the question whether
or not, in the light of the provisions
of Regulation 2, specific
authority was required under Regulation 3(1) for Sylla Trading and/or
Kilimanjaro to make payment of
foreign currency to persons resident
outside of the Republic.
[26] Regulation 2(1) and (2)(a)
provide as follows:
“
(1)
Except with permission granted by the Treasury, and in accordance
with such conditions as the Treasury may impose, no person
other than
an authorised dealer shall buy or borrow any foreign currency or any
gold from, or sell or lend any foreign currency
or any gold to any
person not being an authorised dealer.
(2)
(a) An authorised dealer shall not buy, borrow or receive or
sell, lend or deliver any foreign currency or gold except
for such
purposes or on such conditions as the Treasury may determine.
”
[27] Regulation 2(1) stipulates,
in effect, that an authorised dealer may buy or sell foreign currency
to any person who is not
an authorised dealer, but that no person who
is not an authorised dealer may do so unless that person has obtained
permission from
the Treasury.
[28] The applicants argue that as
a local buyer can only acquire foreign currency by purchasing it from
an authorised dealer, the
permission in terms of Regulation 2 would
be entirely self-defeating if it were not necessarily accompanied by
permission in terms
of Regulation 3(1) to take the foreign currency
out of the country. The two permissions, so it was submitted, must
of necessity
form part of a single transaction. Accordingly, once
foreign currency was sold by an authorised dealer through a purchaser
such
as the applicants this necessarily carried with it the
authorisation provided for in Regulation 3(1).
[29] The second respondent
concedes that if a person applies in the proper way to the proper
authority to purchase foreign currency
in order to make advance
payment to import goods into the Republic, and such permission is
granted, then that permission would
entail both a permission to
purchase the foreign currency (in terms of Regulation 2) and
permission to take the foreign currency
out of the Republic
(Regulation 3(1)(a)) or to make payment to or transfer the foreign
currency for the credit of a third person
outside the Republic
(Regulation 3(1)(c)).
[30] The second respondent points
out, however, that the mere fact that an authorised dealer is
entitled to sell foreign currency
does not necessarily mean that the
person to whom the dealer sells the currency is entitled to buy same
or transfer such currency
to a third person outside the Republic.
Permission under Regulation 3(1)(c) is still required. In the
present market,
Standard Bank was
authorised by the Department to give Sylla Trading permission to make
advance payments to third parties in Guinea
in respect of the
proposed importation of diamonds into the Republic, but this did not
afford Kilimanjaro the required permission
from the Treasury to
export foreign currency as required in terms of Regulation 3(1)(c).
[31] The second respondent
contends that Standard Bank was neither entitled to sell to, and nor
was Kilimanjaro entitled to buy,
foreign currency for the purpose of
making advance imports unless the Treasury or a person authorised by
the Treasury had granted
permission; and even if the transaction
fell within the ambit of Regulation 2, the foreign currency once
purchased could only
lawfully be taken out of the Republic (or
transferred to Guinea for the credit of a third party) if permission
had been granted
to Kilimanjaro in terms of Regulation 3(1)(c).
[32] The applicants also seek to
make out a case that Nel was mistaken in regard to the aggregate of
the authorisations granted
to Sylla Trading to make advance payments
for diamonds, and that material errors were made in the calculation
of the advance payments
made.
[3
3] The
final argument advanced on behalf of t
he
applicants was that Basson’s decision to block the funds
standing to the credit of the accounts was irrational and constituted
unfair administrative action.
[34] The aforegoing is a summary
of the parties’ opposing contentions, and I turn now to
evaluate these contentions.
[35] It is expedient to at the
outset deal with the applicants’ contention that “
a
person authorised by the Treasury
”
as referred to in Exchange Control Regulation 3(1) means an
“
authorised
dealer
”, and
that therefore those banks who have been appointed as authorised
dealers are persons authorised by the Treasury to
grant permission as
contemplated in Regulation 3(1). A finding against the applicants in
regard to this question would be dispositive
of their contention that
Standard Bank had validly granted permission to Kilimanjaro to export
foreign currency.
[36] The applicants’
argument is, in my view, without merit. The legislative history
giving rise to the current wording of
Regulation 3(1) is instructive.
When the regulations were first published on 1 December 1961 it was
provided that permissions
in terms of Regulations 8, 9, 10 and 13
could be granted by “
the
Treasury or an authorised dealer, and in accordance with such
conditions as the Treasury or authorised dealer may impose
”.
Regulation 3 from the outset limited the permission to a “
permission
granted by the Treasury or a person authorised by the Treasury
”,
and contained no reference to an authorised dealer. Accordingly,
counsel for the second respondent rightly points out
that where it
was intended that an authorised dealer could grant certain
permissions, this was expressly stated in the relevant
regulations.
[37] All references to the phrase
“
an authorised
dealer
” in
Regulations 8, 9, 10 and 13 were removed in Government Notice R957 of
4 May 1987. By effecting such removal the Minister
of Finance
clearly intended to bring these regulations in line with other
regulations such as Regulation 3 which provide that any
permission
could only be granted by the “
Treasury
or a person authorised by the Treasury and not by an authorised
dealer
”.
[38] This interpretation is
supported in the published work “
Suid-Afrikaanse
Valutabeheerwetgewing
”
by AN Oelofse, where the following is stated at page 15:
“
’
n
Aantal van die regulasies (naamlik reg 8(1), 9(1), 10(1) en
13(1)) het aanvanklik bepaal dat nie slegs die Tesourie nie,
maar ook
‘n gemagtigde handelaar, toestemming kon verleen om die
handelinge to verrig wat deur daardie regulasies verbied
word. Die
oorspronklike bewoording het die indruk geskep dat ‘n eie
diskresie aan ‘n gemagtigde handelaar verleen
word om die
betrokke toestemming te gee. Dit was natuurlik nie die bedoeling
nie. Die bedoeling was dat die gemagtigde handelaars
slegs binne die
Tesourie (Reserwebank) se voorskrifte mag optree. Die verwysings na
‘n gemagtigde handelaar in bogenoemde
regulasies is gevolglok
deur Regeringskennisgewing R957 van 4 Mei 1987 geskrap. Dit is nou
duidelik dat ‘n vergunning wat
ingevolge genoemde regulasies
namens die Tesourie deur ‘n gemagtigde handelaar aan sy kliënt
verleen word, geen geldige
vergunning is indien dit in stryd met die
voorskrifte aan gemagtigde handelaars is nie. Die handeling
ingevolge so ‘n ‘vergunning’
is dues ‘n
oortreding van die regulasies
…
”
[39] The following are further
indications that approval which may be given by the Treasury or a
person authorised by the Treasury
cannot be given by an authorised
dealer. On 1 December 1961 (the same date on which the Exchange
Control Regulations were promulgated)
the Minister of Finance
published what is termed “Orders and Rules”. In terms of
paragraph 2 thereof the first respondent
appointed the South African
Reserve Bank to carry out all the powers and functions assigned to
the Treasury under the regulations,
with the exception of the powers
and functions assigned to the Treasury by Regulations 3(5) and 8, 16,
20 and 22. It is accordingly
apparent that wherever in the
regulations the phrase “
the
Treasury or a person authorised by the Treasury
”,
or the word “
Treasury
”
appears (save in Regulation 3(5), 3(8), 16, 20 and 22), such power
and function was assigned to the South African Reserve
Bank which is
therefore entitled to exercise that power and function.
[40] Paragraph 3(a) of the Orders
and Rules provides that the banks therein specified have been
appointed as authorised dealers
for the purposes of the regulations.
Among the list of banks are Standard Bank of South Africa Limited and
Bidvest Bank Limited.
[41] Paragraph 3(b) of the Orders
and Rules provides that “
[T]he
Minister has, in terms of Regulation 19, also authorised the banks
referred to in subparagraph (a) to order any person to
furnish
information required by them for the purposes of, and in connection
with, their functions under the Regulations
”.
[42] Regulation 19(1) reads as
follows:
“
FURNISHING
OF INFORMATION
19.(1) The
Treasury, or any person authorised by the Treasury, may order any
person to furnish any information at such person’s
disposal
which the Treasury or such authorised person deems necessary for the
purposes of these regulations and any person generally
or
specifically appointed by the Treasury for the purpose may enter the
residential or business premises of a person so ordered
and may
inspect any books or documents belonging to, or under the control of
such person.
”
[43] Counsel for the second
respondent rightly makes the point that a bank which was appointed as
an authorised dealer in terms
of paragraph 3(a) of the Orders and
Rules was not thereby also constituted as “
a
person authorised by the Treasury
”
for purposes of Regulation 19(1), otherwise the specific
authorisation in paragraph 3(b) of the Orders and Rules would have
been unnecessary.
[44] Paragraph 10(a) of the
Orders and Rules also stipulates that persons who “
desire
information or advice on exchange or currency matters governed by the
Regulations or who require approval or permission in
respect of
exchange, currency or gold transactions so governed, should apply to
the Exchange Control through their bankers in the
Republic or, if
they have no such bankers, through one of the banks referred to in
paragraph 3 thereof
”.
[45] Counsel for the second
respondent rightly contends that it is clear from paragraph 10(a) of
the Orders and Rules that approval
or permission which is required in
terms of any regulation and which may be given by “
the
Treasury
” or by
“
a person
authorised by the Treasury
”
cannot be given by a banker or by an authorised dealer, but must be
sought on application to the Exchange Control Department
of the
Reserve Bank, which application must be submitted through a banker or
an authorised dealer.
[46] It is also apparent from a
reading of the regulations that the Treasury and authorised dealers
have separate and distinct
functions. The Treasury is defined in
Regulation 1 to mean in relation to any matter contemplated in the
Regulations, “
[T]he
Minister of Finance or an officer in the Department of Finance who,
by virtue of the division of work in that Department,
deals with the
matter on the authority of the Minister of Finance
”.
And, in Regulation 1, an authorised dealer is defined to mean “
in
respect of any transaction in respect of gold, a person authorised by
the Treasury to deal in gold, and in respect of any transaction
in
respect of foreign exchange, a person authorised by the Treasury to
deal in foreign exchange
”.
[47] My attention has further
been drawn to the following extracts from the Exchange Control
Manual, in which the functions of authorised
dealers are set out.
“
D.4
Functions of authorised Dealers
In
terms of paragraph 3 of the Orders and Rules certain banks were
appointed as Authorised Dealers in Foreign Exchange. Their
function
is to assist Exchange Control in administering exchange control. All
applications to Exchange Control have to be made
through an
Authorised Dealer.
…
D.5
Applications to Exchange Control
Where
an Authorised Dealer is not empowered to approve the purchase or sale
of foreign currency in terms of the authorities set
out in the
Rulings, an application must be submitted to Exchange Control through
the head office of the bank concerned. The norms
applied by Exchange
Control in deciding on applications with respect to different types
of transactions are discussed in Chapter
5 of the Manual.
…
”
The manual expressly provides that authorised dealers have no
authority to grant permission to make advance payments for imports.
“
2.1.4 Matters
to be referred to Exchange Control
Advance
payments for imports
The
transfer of funds in anticipation of purchases in countries outside
the Republic should be refused by Authorised Dealers
since, in
general, Exchange Control is not prepared to provide foreign exchange
in payment of imports prior to the date of shipment
or dispatch of
the goods to South Africa. In deserving cases an application may be
lodged with Exchange Control.
”
[48] The second respondent states
that the only persons authorised by the Treasury, as referred to in
Regulation 3(1), are officials
in the Exchange Control Department of
the South African Reserve Bank, and not authorised dealers such as
the Standard Bank. Mr
GH Sommerville, the Head of the Exchange
Control Division within Standard Bank, avers, in a supporting
affidavit, that the bank’s
appointment as an authorised dealer
affords it the right to buy and sell foreign currency, but only under
the conditions and within
the limits prescribed by the Reserve Bank.
He confirms that Standard Bank is not regarded as “
a
person authorised by the Treasury
”
for the purposes of Regulation 3(1), as alleged by the applicants,
and that Standard Bank is not the agent of the Exchange
Control
Department of the Reserve Bank. He supports the second respondent’s
contention that Standard Bank is not and has
never been entitled to
deal with applications or grant permission to its clients for any
foreign exchange transaction which falls
outside the parameters as
outlined in the Exchange Control Rulings. (According to Basson, the
Department issues Exchange Control
Rulings to authorised dealers
which contain administrative measures as well as the permissions,
conditions and limits applicable
to transactions in foreign exchange
which may be undertaken by authorised dealers.) None of these
allegations is disputed or capable
of dispute by the applicants.
[49] For these reasons I hold
that Standard Bank was not “
a
person authorised by the Treasury
”
as contemplated in Regulation 3(1) and that it was incapable of
giving permission to Kilimanjaro to export foreign currency.
This
contention is dispositive of the applicants’ contrary
contention and principal ground of review.
[50] The applicants’
further contention that no contravention had been committed because
Standard Bank had mistakenly debited
the amounts owing by Sylla
Trading to the banking account of Kilimanjaro, under the cover of the
authorisation granted in respect
of Sylla Trading, is equally without
merit. The second respondent rightly contends that no reliance can
be placed on the alleged
error, if an error at all was committed, by
Standard Bank. It matters not whose account was debited but who
applied for and was
granted permission to make advance payments, and
by whom the advance payments were made. On the common cause or
undisputed evidence,
only Sylla Trading had been granted permission
in terms of Regulation 3(1)(c) to make payment to persons resident
outside the Republic
or to credit such person. Kilimanjaro had no
authority to remit payments to persons resident outside the Republic.
[51] Sight cannot be lost of the
fact that the first applicant is and was at all material times the
sole member of Sylla Trading
and sole shareholder and director of
Kilimanjaro; he was the alter ego of these entities and managed
their affairs. It is hardly
likely that he would have been unaware
that only Sylla Trading had been granted permissions from time to
time to remit foreign
currency to persons resident outside the
Republic, and that Kilimanjaro had no authority or permission. It is
also improbable
that Standard Bank would have mistakenly debited the
banking account of Kilimanjaro with vast sums and effected
remittances to
third parties outside of the Republic without the
knowledge and concurrence of the first applicant. It is, in any
event, clear
from the papers that all applications made to Standard
Bank to purchase foreign currency were made by and signed by the
first applicant.
[52] The Standard Bank’s
report upon which Nel relies, as also the report received from
Rennies Bank Limited, reveal that
contraventions of the Exchange
Control Regulations had taken place on a large scale. These
contraventions involved officials of
Standard Bank who, it appears,
are no longer in the bank’s employ. It is unlikely that these
officials would have acted
in the manner that they did without the
concurrence, involvement and knowledge of the first applicant. I do
not accept the first
applicant’s contention that there had been
a mistake on the part of the officials of Standard Bank. In any
event, if such
mistake did occur, it cannot, for the reasons stated
above, avail the applicants.
[53] On a proper conspectus of
the relevant facts, both Kilimanjaro and Sylla Trading appear to have
committed contraventions of
Regulation 3(1)(c) of the Exchange
Control Regulations. And the first applicant appears to have
committed contraventions in his
personal and representative
capacities. He was the sole director and shareholder of Kilimanjaro
and the sole member and manager
of Sylla Trading and the
contraventions perpetrated by one or both of these entities were
contraventions which were perpetrated
by the first applicant. The
first applicant also committed a contravention of the regulations in
regard to his travel allowance
in 2006 in an aggregate amount of
R918 145.35.
[54] The blocking orders were
issued in terms of Regulation 22A(1)(b) and Regulation 22C(2)(a). It
is a necessary jurisdictional
fact which must exist before the powers
conferred in these regulations may be invoked that exist reasonable
grounds to suspect
that the applicants were persons as contemplated
in Regulation 22C(1), and from whom the second respondent would be
entitled to
recoup the amounts involved in the alleged foreign
exchange contraventions. The regulations do not require that Basson
have proof
that the contraventions had been committed and that the
applicants were persons contemplated in Regulation 22C(1); all that
was
required was a suspicion based on reasonable grounds. The
question as to whether the grounds for the suspicion are reasonable
or not must be objectively assessed (see
Minister
of Law and Order & Others v Hurley and Another
1986 (3) SA 568
(A) at 580C, which was referred to with approval by
McCreath J in
Francis
George Hill Family Trust
(
supra
)
at 711G-H. McCreath J also referred to the following dictum of Lord
Devlin in
Shaaban Bin
Hussien & Others v Chong Fook Kam and Another
[1969] 3
All ER
1626
(PC) at 1630, and approved in
Duncan
v Minister of Law and Order
1986 (2) SA 805
(A) at 819
I
:
“
Suspicion
in its ordinary meaning is a state of conjecture or surmise where
proof is lacking; “I suspect, but I cannot prove”.
Suspicion arises at or near the starting point of an investigation of
which the obtaining of
prima
facie
proof is the end.
”
[55] Basson, in my view, would
have had reasonable grounds to suspect that first applicant,
Kilimanjaro and Sylla Trading had committed
contraventions of
Regulation 3(1)(c) and that all three applicants are persons as
contemplated in Regulation 22C(1). He issued
the blocking orders on
2 November 2007, after having given due consideration to the
information which had been obtained through
the investigation
conducted by Nel and the information contained on the Department’s
database. Basson was continuously kept
informed of the
investigations by Nel. It is clear that Basson carefully and
properly applied his mind to all relevant information.
In the
circumstances I am of the view that he was justified in issuing the
blocking orders.
[56]
As
to Nel’s alleged errors, the error which Nel made was to state
that the authorisation granted up to a limit of US$15 million
was increased to US$100 million, to a total of US$150 million.
The errors are immaterial as the essential complaint
upon which
Basson relied related to the exportation by Kilimanjaro without
permission of funds in excess of those that had been
blocked.
[57] Finally, I turn to consider
the argument that Basson’s decision to block the funds was
irrational and constituted unfair
administrative action. It is a
constitutional requirement that the exercise of public power by the
executive and other functionaries
should not be arbitrary and that
decisions must be rationally related to the purpose for which the
power was given (see
Pharmaceutical
Manufacturers Association of SA and Another: In re ex parte
President of the Republic of South Africa and Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC) at paras 85 and 86).
[58] The applicants’
contentions as to irrationality are in my view without merit. The
purpose of Regulation 22C is to enable
the Treasury to recoup the
difference between the amount attached under Regulation 22A (which in
the present case is nil) and the
amount actually involved or
suspected to have been involved in the contravention or suspected
contravention of the regulations.
Basson was fully aware of the
amounts involved in the alleged exchange control contraventions and
of the amounts standing to the
credit of the accounts which had been
blocked. There was accordingly a rational basis for his decision to
block the funds standing
to the credit of the accounts in question as
the aggregate of those funds is but a small fraction of the amount
allegedly involved
or suspected to have been involved in the
contravention of the regulations.
[59] For these reasons the review
application cannot succeed, and falls to be dismissed.
[60] What remains is the question
of costs. The award of costs is a matter which falls within the
discretion of the Court, a discretion
that must be exercised
judicially, having regard to all relevant considerations. Save in
cases where constitutional litigation
is involved, the unsuccessful
litigant should ordinarily be ordered to pay the costs. The
applicants mounted a constitutional
challenge but elected to abandon
it. The reason for the abandonment was that the State President had
not, as is required, been
joined as a party to the application.
Counsel for the applicants argued that the point of non-joinder
should have been taken by
the respondents at the outset. The point
was never raised on the papers; nor was it raised in argument on
behalf of the first
respondent but only emerged for the first time
during the submissions made on behalf of the second respondent. In
the circumstances
the submission is that it would be just and
equitable, as between the applicants and the first respondent, that
no order as to
costs be made. I do not agree. The application could
have been postponed to enable the applicants to join the State
President
but the applicants chose not to do so and abandoned the
constitutional challenge. In the circumstances, it is, in my view,
proper
that the applicants be ordered to pay the first respondent’s
costs, including the costs of two counsel. As the second respondent
has succeed in its opposition, it is entitled to its costs.
[61] The following order is made:
The application is dismissed.
The costs of the application
(including the costs of the first and second respondents) are to be
paid by the applicants jointly
and severally, the one paying, the
other to be absolved. These costs are to include the costs
consequent upon the employment
of two counsel.
_____________________________
P BORUCHOWITZ
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL FOR
APPLICANTS :
SJ
MARITZ SC & J MINNAAR
ATTORNEYS FOR
APPLICANT
S : LOUIS
NEL INCORPORATED
COUNSEL FOR
FIRST RESPONDENT : P M MTSHAULANA SC
A L PLATT
/ATTORNEYS
FOR FIRST
…
ATTORNEYS FOR
FIRST
RESPONDENT: THE
STATE ATTORNEY
COUNSEL FOR SECOND
RESPONDENT : NGD MARITZ SC
K W LÜDERITZ
ATTORNEYS FOR
SECOND
RESPONDENT : NEWTONS
JUDGMENT
DATE : 13
TH
DECEMBER
2011