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[2016] ZASCA 202
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National Director for Public Prosecutions v Ramlutchman (677/15) [2016] ZASCA 202; 2017 (1) SACR 343 (SCA) (9 December 2016)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 677/15
Not
reportable
In
the matter between:
THE
NATIONAL DIRECTOR OF PUBLIC
PROSECUTIONS
APPELLANT
and
ISHWARLALL
RAMLUTCHMAN
RESPONDENT
Neutral
Citation:
NDPP
v Ramlutchman
(677/15)
[2016] ZASCA 202
(9 December 2016)
Coram:
Bosielo, Mathopo and Van der Merwe
JJA
Heard:
22 November 2016
Delivered:
9 December 2016
Summary:
Prevention of
Organised Crime Act 121 of 1998 (POCA) – confiscation order –
locus standi of accused person whose estate
was sequestrated ─
s 18(2) of POCA – misdirection by regional court –
matter referred back to conduct enquiry
in terms of s 18(6) of
POCA.
ORDER
On
appeal from:
the
KwaZulu-Natal Division of the High Court, Pietermaritzburg (Madam
Justice Pillay & Bezuidenhout AJ) sitting as court of
appeal):
1
The application for the substitution of the respondent is dismissed
with costs.
2
The appeal succeeds to the extent that the order of the high court is
set aside and replaced with the following:
‘
The
matter is remitted to the Durban Regional Court sitting as Special
Commercial Crimes Court to conduct an enquiry in terms of
s 18(6)
of the
Prevention of Organised Crime, Act 121 of 1998
.’
3
There is no order as to costs of the appeal.
JUDGMENT
Mathopo
JA (Bosielo and Van der Merwe JJA concurring):
[1]
The respondent, Ishwarlall Ramlutchman was convicted in the Durban
Regional Court sitting as the Special Commercial Crimes Court
(the
regional court) of 21 counts of fraud and one count of corruption.
The fraud charges were taken together for the purposes
of sentence
and he was fined R500 000 or ten years imprisonment. A further
five years imprisonment was imposed and suspended
for five years. In
respect of the corruption charge, the respondent was sentenced to
five years imprisonment which was suspended
for five years.
[2]
The common cause facts giving rise to the convictions and sentences
as gleaned from the statement in terms of
s 112(1)
of the
Criminal Procedure Act 51 of 1977
handed in by the respondent at the
regional court can be summarised as follows: In 2006 the respondent
became aware of opportunities
available through registration with the
Construction Industry Development Board (CIDB) and decided to apply
for a CIDB grading
in order to tender for projects advertised by the
Department of Public Works KwaZulu-Natal (DPW KZN). By operation
of law,
it was necessary for contractors tendering for DPW KZN
contracts to register with the CIDB and obtain a grading. The CIDB
grading awarded to a contractor determines the size and value of the
DPW KZN contracts for which he could qualify.
As
the respondent sought the assistance of a person who had previously
obtained a CIDB grading or who had assisted contractors in
obtaining
a CIDB grading in this regard, he approached Pat Singh, an accountant
and Sandile Ntuli of Sinamandia, a construction
company.
The
respondent then requested the above persons to make the necessary
arrangements to obtain a grading of 7GD or 7CE for him, which
would
entitle him to tender for large projects. When the respondent made
this request he knew that neither he, nor his alter ego
AC
Industrials Sales & Service (AC), met the requirements for a 7GB
or 7CE grading in that he did not have the required track
record, nor
did he have any qualified professionals in his employ. It is
undisputed that the respondent knew that his conduct was
unlawful,
and that but for the higher grading he would not have qualified for
large tender contracts. As a result of this fraudulent
grading, the
respondent succeeded in securing sixteen construction contracts in
respect of which the total amount of R52 190 224.88
was
paid to the respondent.
[3]
As a result of the respondent’s convictions and sentences the
National Director of Public Prosecutions (NDPP) applied
to the
regional court to confiscate the amount of R52 million in terms
of s 18 of the Prevention of Organised Crime Act
121 of 1998
(POCA). Section 18(1)
(a)
deals with circumstances under
which a court may grant the confiscation order. It provides as
follows:
‘
(1)
Whenever a defendant is convicted of an offence the court convicting
the defendant may, on the application of the public prosecutor,
enquire into any benefit which the defendant may have derived from –
(a)
that offence;
(b)
. . .
(c)
. . .
and,
if the court finds that the defendant has so benefited, the court
may, in addition to any punishment which it may impose in
respect of
the offence, make an order against the defendant for the payment to
the State of any amount it considers appropriate
and the court may
make any further orders as it may deem fit to ensure the
effectiveness and fairness of that order.’
[4]
In brief the section provides that after convicting a person of an
offence, a court may on application by a public prosecutor
enquire
into whether a benefit has been derived from that offence or from
related criminal activity and if the court finds that
a benefit has
risen it may make an order for the payment to the State of any amount
it considers appropriate.
[5]
Acting in terms of s 18(3) of POCA the regional magistrate
initiated an enquiry into the question whether the respondent
has
received a benefit from the offences of which he had been convicted.
The purpose of the enquiry, which is twofold, is that
the court first
has to determine whether to make an order against the defendant for
the payment to the State of an amount of money
it considers
appropriate. And secondly, it must determine the appropriate amount
to be paid. A confiscation order is a civil judgment
for payment to
the State of an amount of money determined by the court and is made
by the court in addition to a criminal sentence.
The order that a
court may make in terms of chapter 5 is not for the confiscation of a
specific object, but an order for the payment
of an amount of money
to the State.
[6]
Section 12(3) of POCA provides that for the purposes of chapter 5, ‘a
person has benefited from unlawful activities if
he or she at any
time, whether before or after the commencement of POCA, received or
retained any proceeds of unlawful activities’.
‘Proceeds
of unlawful activities’ are in turn broadly defined in s 1
of POCA as:
‘
.
. . any property or any service, advantage, benefit or reward which
was derived, received or retained, directly or indirectly,
in the
Republic or elsewhere, at any time before or after the commencement
of this Act, in connection with or as a result of any
unlawful
activity carried on by any person, and includes any property
representing property so derived.’
[7]
In the exercise of its discretion to make a confiscation order a
court must have regard to the main objects of the legislation,
which
is to strip criminals of the proceeds of their criminal conduct. To
this end the legislature has, in chapter 5 of POCA, provided
an
elaborate scheme to facilitate such stripping. This chapter deals
with the making of confiscation orders by a criminal court
at the end
of a criminal trial. The purpose of chapter 5 is to ensure that no
person can benefit from his or her wrongdoing. This
court in
National
Director of Public Prosecutions v Rebuzzi
(94/2000)
[2001] ZASCA 127
(23 November 2001) held that the primary
object of a confiscation order is not to enrich the State, but rather
to deprive the convicted
person of ill-gotten gains. The function of
the court in this scheme is to determine the benefit from the scheme,
its value in
monetary terms and the amount to be confiscated.
[8]
As a result of the application for the confiscation order the NDPP
and the respondent agreed to a draft order before the regional
magistrate regulating further conduct of the application for the
confiscation order. The prosecutor filed written statements in
terms
of s 18(6)
(a)
(iii)
read with s 21(1)
(a)
of POCA, dealing with information relating to the ‘determination
of the value of a defendant’s proceeds of unlawful
activities’.
On the other hand the respondent agreed in terms of s 18(6)
(a)
(iv)
read with s 21(3) of POCA to tender to the court a statement in
writing under oath or affirmation by him relevant to the
court’s
determination of the amount which may be realised. The prosecutor
filed a reply to the respondent’s answer.
In addition the
parties agreed to give notice to interested persons who may have an
interest in the property sought to be realised,
to allow such
person/s to make representations to the court in connection with the
realisation of that property in terms of s 20(5)
of POCA. These
statements formed part of the record before the high court and are
also part of the record before us.
[9]
It is not in dispute that the respondent has benefited from the
offences that he has been convicted of and also that his criminal
activity is sufficiently linked to these offences. What is in dispute
is the amount of the benefit to be confiscated. In this regard
various competing arguments were advanced by the parties as to the
approach to be adopted in determining what constitutes a benefit
in
terms of the POCA.
[10]
It was the appellant’s case that the value of the respondent’s
proceeds of unlawful activities amounted to R52 190 224.88
and this amount, it contended, was a benefit which in terms of
s 12(3) of POCA was liable to be confiscated.
[11]
The respondent contended that only the nett proceeds constitute a
benefit under POCA and that since the appellant had failed
to
establish the precise amount of the nett proceeds an order for the
confiscation was incompetent. The regional court agreed with
the
respondent's contentions and dismissed the application. Aggrieved by
that decision the appellant appealed to the high court
and relied
principally on the same arguments which it advanced before the
regional court.
The
high court
[12]
The high court agreed with the respondent and upheld the regional
magistrate’s findings and concluded that the entire
contract
amount received by the respondent as proceeds of unlawful activities,
could not be regarded as a benefit because it was
not exclusively a
gain or profit. In other words it held that the costs of the
construction component of the proceeds could not
rationally be equal
to a gain or benefit. The high court adopted an approach that to
treat the gross proceeds as a benefit would
result in the State being
unjustly enriched at the expense of the respondent and this would be
disproportionate and result in the
respondent paying more than the
amount which he benefited from and which is prohibited under s 18(2)
of POCA. The high court
reasoned that it is absurd to seek an order
for the full value of the sum total of the contract sums, knowing
fully well that the
projects were completed and that ownership of the
buildings had been transferred to the DPW KZN and that the
latter was enjoying
its use and not the respondent.
[13]
Dissatisfied with what it considered to be the insufficient evidence
regarding the exact amount of the benefit sought to be
confiscated,
the high court dismissed the appellant's appeal. This appeal is with
the special leave of this court.
The
issues on appeal
[14]
The estate of the respondent was finally sequestrated on 2 July 2015.
The appellant gave notice to the trustees of his estate
of the
intention to continue with these proceedings in terms of
s 75(1)
of the
Insolvency Act 24 of 1936
. The trustees elected to abide the
decision of this court. Thus, there is no need to join the trustees
as parties to these proceedings.
The appellant, however, filed an
application in this court for an order that the trustees be
substituted for the respondent. This
application was based on the
proposition that, as a result of his sequestration, the respondent
has no locus standi in this matter.
[15]
The preliminary issue in this appeal is therefore whether the
respondent has locus standi to participate in these proceedings,
notwithstanding the fact that his insolvent estate has been
sequestrated. The main issue on the merits is whether the benefit
envisaged by
sections 12(3)
and
18
(1) of POCA in the context of this
matter is the gross contract value of R52 190 224.88 or the
fruits of the unlawful
activity which accrued to the respondent.
Allied to this issue is whether the value of the respondent's benefit
was sufficiently
established and whether the regional court was
precluded by the provisions of
s 18(2)
of POCA from making a
confiscation order.
Locus
standi of the respondent
[16]
The NDPP argued that on the appointment of his trustees the
respondent was precluded from further participating in this appeal.
The contention advanced was that his estate had been taken out of his
control and now vested in the trustees and therefore the
only persons
competent to deal with his estate, to administer it, to sue in
respect of it or to defend action concerning it are
the trustees and
not the respondent (insolvent). The argument advanced by the NDPP is
that because the trustees elected to abide
the decision of this court
the respondent has no locus standi to bring or defend actions
connected with his estate in the absence
of any irregularity on the
part of the trustees. Dissatisfied with the stance adopted by the
trustees the respondent argued that
he retained locus standi because
his interests were not protected.
[17]
It was correctly submitted on behalf of the respondent that his legal
disability (insolvency) does not divest him of his right
to deal with
matters connected to his estate where the trustees, as in the instant
case, have expressed a reluctance to participate
in the proceedings.
In my opinion he has a reversionary interest in the estate. The
argument advanced is that because he is the
person enumerated in
s 18
of POCA against whom the order of confiscation may be granted if the
court is satisfied, he should be afforded an opportunity to
deal with
the order contemplated in
s 18
of POCA in so far as it affects
him.
[18]
The respondent’s argument relates to the trustees’
reluctance to participate in the proceedings. It is unconscionable
that the respondent, with a direct and substantial interest in the
outcome of this litigation, would be denied an opportunity to
safeguard his interests. In terms of s 34 of the Constitution he
has a right to have his dispute resolved before a court.
I agree with
the respondent that an insolvent always possesses a residuary
interest in his estate and does not have to show irregularity
or
illegality to enforce or protect his rights. It is sufficient if the
respondent has a direct and substantial interest in the
outcome of
these proceedings (see
Zulu
& others v Ethekwini Municipality & others
[2014] ZACC 17
;
2014 (4) SA 590
(CC) at para 16-23). It is undisputed
that if the respondent is successful in this appeal his estate will
dramatically change because
his liabilities will be greatly reduced
and his prospects of applying for rehabilitation will be enhanced.
For the aforementioned
reasons the application of the NDPP has no
merit and falls to be dismissed.
The
proper approach on appeal to the exercise of the discretion by a
regional court in terms of s 18 of POCA
[19]
I now turn to consider whether the regional court exercised a proper
discretion in terms of s 18(1) of POCA when refusing
the
confiscation order.
[20]
In view of the fact that there is a close connection between the
criminal conviction and the confiscation order, the discretion
conferred upon a court by s 18 is a discretion to determine the
amount that it should order a defendant to pay. That determination
is
made once the court has convicted the defendant of a criminal offence
and at the same time imposes a sentence upon such a person.
The
presiding officer upon whom the discretion is conferred by statute is
normally the presiding officer who has presided over
the criminal
trial and had sentenced the accused. Such a judicial officer would
have heard all the evidence and the arguments in
the criminal trial
and would, in the circumstances, have been appraised of all the
issues in the case. Consequently the discretion
to deal with the
confiscation order is analogous to the discretion to determine the
proper sentence to be imposed in criminal proceedings
(see
National
Director of Public Prosecutions v Gardener & another
[2011] ZASCA 25
;
2011 (1) SACR 612
(SCA)). With that in mind the
legislature sought to ensure that it would be that court which would
determine the appropriate amount
to be confiscated. It is only in
instances where the presiding officer who convicted the defendant is
absent or for any reason
not available that another judicial officer
may be appointed in his stead in terms of s 18(4) of POCA.
[21]
In approaching this question a court will bear in mind that the
enquiry as to whether the proceeds should be confiscated is
not the
same enquiry to be undertaken when resolving disputes of facts in
motion proceedings. The purpose of confiscating
proceeds of
crime is to ensure that criminals realise that they cannot benefit
from the ill-gotten gains and that crime does not
pay. When
considering the amount to be confiscated a court must have regard to
the extent to which the property to be confiscated
derived directly
from the criminal activities. In certain instances, as in the present
case, where the entire contract amount was
not retained by the
respondent, a balancing act must be done by a court in the exercise
of its discretion to determine the precise
amount to be confiscated.
[22]
In this court the NDPP argued that because the contract value was
R52 million, it is that gross value which is a benefit
which
falls to be confiscated in terms of s 18(1) read with s 12(3)
of POCA. The case for the NDPP is that the said sum
is a benefit as
defined in terms of s 1 of POCA. According to the Oxford English
Dictionary the word ‘benefit’
means an ‘advantage
or profit gained from something’. In support of its argument
the NDPP relied on
S
v Shaik & others
[2008] ZACC 7
;
2008 (2) SACR 165
(CC), where the court dealing with the
interpretation of the word ‘benefit’ as in this case held
that a person will
have benefitted from unlawful activities if he or
she has received or retained any proceeds of unlawful activities (see
s 12(3)
of POCA). It is thus clear that the word ‘benefit’
cannot be interpreted in isolation from the proceeds or unlawful
activities. I agree with the appellant that in
Shaik’s
case the section was interpreted to mean that a confiscation order
may be made in respect of any property that falls within the
broader
definition and is not limited to the nett amount. I agree, therefore,
that the amount of R52 million paid to the respondent
falls within
the wide meaning of benefit. Both the regional court and the high
court erred in this regard. Whether it was appropriate
in the
circumstances of this matter to make a confiscation order in that
amount, is of course another matter.
[23]
It is common cause and was rightly conceded by the NDPP that the
respondent had utilised approximately 90 per cent of
the sum of
R52 million to construct the buildings which on completion he
handed over to the DPW KZN. It is thus clear
that if the entire
amount is declared confiscated there would be no rational connection
between the amount R52 million and
the confiscation order. In
the circumstances it would be unjust to grant a confiscation order
for the full amount of the contract.
As a matter of fact the projects
were completed by the respondent and ownership of the building now
vests with the DPW KZN.
It cannot be denied that the DPW KZN
is utilising and enjoying the benefits of the buildings completed by
the respondent.
It would seem to me that the cost of the construction
component of the proceeds received is, in the circumstances of this
case,
a materially relevant factor to the exercise of the discretion
in respect of a confiscation order. The respondent, in his answering
affidavit, stated that his capital outlay was more than 90 per cent
and his profits less than 10 per cent. This was not disputed
by the
NDPP.
[24]
What constituted the appropriate amount for confiscation, is the
primary issue in this appeal. The regional court and the high
court
were not persuaded that sufficient evidence had been placed before
them to make an appropriate confiscation order.
[25]
Before us, the submission of the appellant was that the regional
court should have made a confiscation order in the amount
of R5,7
million or R5,2 million. In the alternative the submission made on
behalf of the appellant was that the jurisdictional
requirements of
s 18(6) of POCA requires a judicial officer to direct and
control the enquiry in such a manner so as to enable
him or her to
determine the appropriate amount of confiscation. The contention
advanced was that having regard to the common cause
facts that (a)
the proceeds of the contracts were approximately R52 million;
(b) the curator valued the realisable assets
at approximately
R5.7 million which valuation was not disputed; (c) that the
respondent had made a profit; (d) on the respondent's
version the
profit was between 0 per cent - 10 per cent, it was incumbent upon
the regional magistrate to call for such evidence
as may be necessary
to assist her in determining the precise amount to be confiscated. In
this regard the appellant persisted with
its argument that the
magistrate should have directed the State and the defendant
(respondent) to tender statements in connection
with any matter
relating to the enquiry into the benefits and also to ensure that all
persons holding any interests in the realisable
property be given an
opportunity to make representations in connection with the
realisation of the property.
[26]
The respondent, on the other hand argued that because the appellant
had the machinery to place the necessary evidence before
the regional
court, the regional magistrate cannot be criticised for the
appellant’s ineptitude and urged upon us to uphold
the findings
of the regional court which were endorsed by the high court.
[27]
It is clear to me that such an enquiry was not performed by the
regional magistrate. Instead she approached the enquiry as
if it were
similar to an application under the Uniform Rules of the Court.
Section 18(2) sets two bases for calculating the upper
limit of the
amount that may be confiscated. The first which is relevant for the
purpose of this case is the amount ordered to
be confiscated may not
exceed the value of the proceeds of the offences or related criminal
activities as calculated in accordance
with chapter 5 of POCA. This
calculation is obviously based on the definition of the proceeds of
unlawful activities as set out
in POCA. Section 19(1) of POCA is also
relevant in assisting a court in calculating the value of the
proceeds to be confiscated.
It provides:
‘
Subject
to the provisions of subsection (2), the value of a defendant’s
proceeds of unlawful activities shall be the sum of
the values of the
property, services, advantages, benefits or rewards received,
retained or derived by him or her at any time,
whether before or
after the commencement of this Act, in connection with the unlawful
activity carried on by him or her or any
other person.’
[28]
The regional magistrate paid lip service to the provisions of the
above section when she dismissed the appellant's claim and
lost sight
of the fact that the purpose of the enquiry is twofold: first, the
court has to decide whether to make an order against
the defendant
for payment to the State of an amount of money; and, secondly, it
must determine the appropriate amount to be paid.
The enquiry under
s 18(1) does not impose an onus on the appellant. An enquiry in
terms of s 18(1) should be contrasted
from an application for a
forfeiture order in terms of Part 3 of Chapter 6 of POCA. In the
latter case the prescribed procedure
is akin to a civil application
(s 48) and it is specifically provided the application should
only be granted on proof of a
balance of probabilities (s 50).
To the extent that it was found in
York Timbers (Pty) Ltd v
National Director of Public Prosecutions
2015 (3) SA 122
(GP)
para 53 that s 18(1) places a true onus on the State, I
respectfully disagree. What the section provides
is that
the presiding officer must have regard to all the evidence and facts
placed before him or her before making an appropriate
order. If the
presiding officer is not satisfied with the evidence placed before
him (as the regional magistrate was), to make
a confiscation order,
he or she is entitled to call such further evidence as may be
necessary to assist him or her. In the present
matter the regional
magistrate did not do so. There was clearly insufficient information
to make a determination and this is borne
out by the fact that the
appellant’s forensic investigator, Mr Akbar Ally (Ally) in the
replying affidavit stated as follows:
‘
I
have no knowledge that 90% of the contract price was for material,
labour and costs and that 10% of the contract price was the
Defendant’s profit. I am aware that investigations are being
conducted in this regard. I intend to supplement this averment
once
such investigation is completed.
I
submit that it is irrelevant (in determining the value of the
proceeds of the Defendant’s unlawful activities) whether the
payment of R52 million was for re-imbursements for materials,
labour and costs or whether the said payment was towards the
defendant's profit.’
Ally
provided no assistance to the court. It is abundantly clear that by
the time the confiscation enquiry was held he had not conducted
investigations into the capital outlay and/or profit. A court can
only determine whether the proposed confiscation order exceeds
the
value of the defendant’s proceeds if it knows the value of the
proceeds. It is only when all the relevant facts are before
the court
that it will be in a position to do so. Absent any determination the
regional court was in the dark about the precise
amount that was
sought to be confiscated.
[29]
There is no doubt that what was placed before the regional magistrate
was insufficient for a proper determination. It must
be borne in mind
that the respondent contended that his profit for the considerable
time and effort, which he invested in the project,
was less than 10
per cent of the total amount paid to him. The profit margin falls
peculiarly within the knowledge of the respondent
and he appears to
be deliberately vague in this regard. On the other hand the appellant
conceded that the capital outlay was approximately
90 per cent. There
was clearly lack of unanimity regarding the amount sought to be
confiscated. In terms of s 18(6) it behoved
the regional
magistrate to adjourn the proceedings on such terms as she deems fit
and call for additional evidence. It is plain
to me that the regional
magistrate did not apply the provisions of the latter section fully.
Once the magistrate was of the view
that no clear evidence was
presented as to the exact amount of the profit, she ought to have
adopted a more robust approach and
invoked the provisions of
s 18(6)
(b)
of POCA and sought additional evidence. Instead she adopted a supine
attitude and dismissed the case on the basis that the appellant
failed to discharge an onus.
[30]
The regional magistrate materially misdirected herself by placing an
onus on the appellant and by failing to call for additional
evidence
in terms of s 18(6) of POCA. Therefore no proper enquiry was
conducted prior to the dismissal of the application.
These
misdirections entitled this court to interfere with the regional
court’s exercise of its discretion. In the circumstances
it
will be proper if the matter is remitted to the regional court to
conduct an enquiry in terms of s 18(6) of POCA.
Costs
[31]
Both parties achieved a measure of success on appeal. In my view it
is fair and just that no order be made in respect of the
costs of the
appeal.
[32]
I therefore make the following order:
1
The application for the substitution of the respondent is dismissed
with costs.
2
The appeal succeeds to the extent that the order of the high court is
set aside and replaced with the following:
‘
The
matter is remitted to the Durban Regional Court sitting as Special
Commercial Crimes Court to conduct an enquiry in terms of
s 18(6)
of the
Prevention of Organised Crime, Act 121 of 1998
.’
3
There is no order as to costs of the appeal.
________________________
R
S MATHOPO
JUDGE
OF APPEAL
APPEARANCES:
For
appellant:
M Gavindasamy SC
R
Naidoo
Instructed
by:
The
State Attorney, Durban
The
State Attorney, Bloemfontein
For
respondent:
V Gajoo
SC
J
Howse
Instructed
by:
Garlicke
& Bousfield Inc., La Lucia
Symington
& De Kok, Bloemfontein