Brief Summary

Confiscation Orders — Prevention of Organised Crime Act — Application for confiscation order dismissed — First respondent convicted of theft and claimed no benefit from unlawful activities — Legal issue of whether a confiscation order can be granted despite respondent's claims of no realisable property. — Court held that the first respondent's conviction established the basis for a confiscation order, but his assertions regarding the lack of benefit and realisable assets necessitated further inquiry, leading to the dismissal of the application.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was an appeal to the North Gauteng High Court, Pretoria, against a decision of the Regional Court (Regional Division of Gauteng), in which the court a quo dismissed an application for a confiscation order brought under section 18 of the Prevention of Organised Crime Act 121 of 1998 (POCA).

The appellant was the National Director of Public Prosecutions (NDPP), who had been the applicant in the confiscation proceedings in the court a quo. The respondents were Barry Hilton du Preez (first respondent, who had since died while serving a sentence of imprisonment) and Etriecia du Preez (second respondent, the first respondent’s former spouse).

The procedural history was that the first respondent pleaded guilty and was convicted of multiple counts of theft. After conviction, the NDPP initiated POCA confiscation proceedings, and the regional magistrate ordered that an enquiry in terms of section 18(1) be instituted. The confiscation application was ultimately dismissed on 23 November 2007, with further reasons supplied on 22 April 2008. The NDPP then appealed that dismissal to the High Court.

The dispute concerned post-conviction confiscation under Chapter 5 of POCA, and in particular whether the first respondent had benefited from his thefts and whether property held by the second respondent (obtained pursuant to a divorce order and settlement) could be treated as realisable property through the mechanism of an affected gift as contemplated in POCA.

2. Material Facts

The first respondent pleaded guilty to, and was convicted of, 301 counts of theft involving R4,338,671.85, stolen over an 18-month period from March 2003 to September 2004. These convictions provided the jurisdictional basis for the NDPP to seek a confiscation order under POCA.

Following conviction, the NDPP launched an application on 29 June 2006 seeking a confiscation order in terms of section 18 of POCA. The application was supported by an affidavit from a senior state advocate. The NDPP’s case, as presented in those papers, was that the first respondent had benefited by receiving the stolen money and that the appropriate confiscation amount was at least the amount of the victims’ loss, namely R4,338,671.85. It was also asserted that the first respondent had realisable property available, and that absent an adequate explanation the confiscation order should be granted.

The court a quo made an order on 29 June 2006 instituting an enquiry in terms of section 18(1), and postponed determination of the amount to a later date.

In an answering affidavit, the first respondent admitted receipt of money through unlawful activities but stated that he had used the proceeds solely for gambling, and that he had not retained assets derived from the unlawful activities. He identified only one asset said to have been purchased from the proceeds, namely a Hyundai Getz, which he described as a gift to the second respondent; according to the affidavits, that vehicle was sold to raise funds connected to his bail, and the bail money was later forfeited to the State.

The first respondent also described the parties’ financial circumstances during the marriage (in community of property), the accumulation of debts, and a divorce granted on 3 June 2005. A settlement agreement had been concluded on 16 March 2005, in terms of which the second respondent retained, among other things, the immovable property at 304 Malherbe Street, Capital Park, Pretoria (previously registered in both names), the Nissan Sentra motor vehicle, and household contents, with the second respondent assuming responsibility for the bond. The first respondent contended that this transfer was not a “gift” because the second respondent was entitled to it in the context of the divorce settlement and her contributions and liabilities.

The second respondent, in a confirmatory affidavit, supported the account that she had not benefited from the proceeds of theft, that she had contributed to the household and incurred liabilities (including loans from family members), and that the divorce settlement was concluded because the marriage had broken down and because she had carried financial burdens linked to the first respondent’s gambling.

In reply, the NDPP alleged that the divorce and settlement were a stratagem designed to place assets out of reach of creditors and victims and contended that the transfer of the first respondent’s share in the immovable property and other assets amounted to an affected gift. The NDPP further suggested that because of the thefts, a debt existed against the joint estate and that this should have affected what could properly have been distributed on divorce.

It was common cause that the first respondent died on 30 August 2007 while serving his sentence. The appeal record did not reflect that an executor had been appointed or that substitution procedures had been pursued; the High Court indicated that, on its approach to the merits, it was unnecessary to decide that aspect.

The magistrate dismissed the confiscation application, stating in the later reasons that the court was not satisfied that the divorce was one of convenience aimed at disposing of assets acquired with proceeds of unlawful activities, and was not satisfied that property held by the second respondent constituted an affected gift under POCA.

3. Legal Issues

The appeal required determination of two closely related questions arising from the application of Chapter 5 of POCA to the facts.

The first issue was whether, for purposes of section 18, the first respondent had derived a benefit from his thefts such that a confiscation order could competently be made, and whether dissipation of the stolen funds through gambling affected that enquiry. This presented a question involving the application of statutory concepts (benefit and proceeds of unlawful activities) to largely common-cause factual premises about receipt and alleged dissipation of money.

The second issue was whether assets transferred to the second respondent pursuant to the divorce order and settlement could be treated as realisable property by characterising them as affected gifts in terms of POCA. This was primarily a question of law and application of law to fact, focusing on the legal effect of a valid court order (the divorce order), and on POCA’s definitions of “realisable property” and “affected gift”.

A further issue arose in the High Court’s discussion (expressly stated to be obiter) concerning the potential effect of section 17(6) of POCA on the timing and vires of confiscation proceedings where sentencing occurs without a confiscation order being made.

4. Court’s Reasoning

The High Court approached the appeal on the basis that the NDPP’s case depended materially on treating property now held by the second respondent as part of the confiscation machinery, either directly as “realisable property” or indirectly via the concept of an “affected gift”. The argument advanced for the NDPP was that, because the joint estate had (on the NDPP’s formulation) benefited while also owing a debt to the victims, the divorce distribution effectively produced an impermissible disposition in the second respondent’s favour, and thus fell within POCA’s affected-gift framework.

The High Court held that this argument could not succeed because the divorce order granted on 3 June 2005 was a valid court order that stood and produced legal consequences unless and until set aside. Relying on authority emphasising the continuing effect of court orders until properly overturned, the court reasoned that there was no indication that the divorce order had been set aside, nor that proceedings to set it aside were pending at any material time. On the facts before it, the divorce order was the operative cause for the transfer of the assets described in the affidavits.

From that premise, the High Court concluded that a transfer effected pursuant to a valid court order could not, in the circumstances of this case, be characterised as an affected gift as contemplated by section 16 of POCA. The court referenced authority indicating that the “affected gift” concept did not apply to such a transfer where the dispositive legal basis was a valid court order.

Turning to the confiscation framework, the High Court emphasised that, under section 20(1) of POCA, the amount that might be realised at the time of making a confiscation order is determined by reference to the values of all realisable property held by the defendant plus the values of all affected gifts made by the defendant, subject to recognised priority obligations. “Realisable property” in section 14 includes property held by the defendant and property held by a person to whom the defendant has directly or indirectly made any affected gift.

Because the High Court found that, in light of the divorce order, the first respondent had not directly or indirectly made an affected gift to the second respondent, it followed that the relevant category of realisable property (property held by a recipient of an affected gift) did not arise. The court then stated, in consequence, that no realisable property existed for purposes of making a confiscation order on the facts as presented in the appeal.

The court also dealt with the discretionary dimension of confiscation proceedings. It stated that POCA contemplates that a court, in granting or refusing a confiscation order, exercises a discretion judicially on a consideration of relevant facts. The High Court was not prepared to interfere with the magistrate’s exercise of discretion and referred to a set of considerations drawn from the record, including that the relevant assets were held under a divorce order obtained lawfully; that there was a lack of evidence in the record concerning values of the immovable property and concerning the funding of various items of movable property; that the second respondent was herself a victim of the first respondent’s conduct; and that, in the circumstances, it was just and equitable that her access to adequate housing be preserved.

Finally, the High Court raised an additional point as obiter. It discussed section 17(6) of POCA, which provides that Chapter 5 proceedings are concluded when the convicting court sentences the defendant without making a confiscation order, subject to section 18(2). The court reasoned that the statutory scheme appeared to contemplate that any section 18(1) determination (whether the defendant benefited) should already have been made by the time of sentencing, leaving only the quantification under section 18(2) to be completed thereafter. On that interpretation, if both the benefit finding and the confiscation order were made only after sentencing, there was a risk that such an order would be ultra vires the Act. The court expressly refrained from making a finding on this point because it had not been argued extensively, and indicated that its comments were merely obiter.

5. Outcome and Relief

The High Court dismissed the appeal and upheld the magistrate’s dismissal of the NDPP’s application for a confiscation order.

The court ordered that the appeal be dismissed with costs.

Cases Cited

Jacobs v Baumann NO 2009 (5) SA 432 (SCA).

Smith v East Elloe Rural District Council and Others [1956] UKHL 2; [1956] 1 All ER 855 (HL).

National Director of Public Prosecutions v Pillay and Others 2009 (2) SACR 607 (D).

Legislation Cited

Prevention of Organised Crime Act 121 of 1998, including sections 12(1), 12(3), 14, 16, 17(6), 18(1), 18(2), 19(1), 20(1), and 24(2).

Rules of Court Cited

Rule 15(3).

Held

The court held that the NDPP’s attempt to treat assets transferred to the second respondent pursuant to a valid divorce order as affected gifts could not succeed where the divorce order had not been set aside and was the legal source of the transfers. In those circumstances, the transfers could not be characterised as “affected gifts” under POCA on the approach adopted by the court.

The court further held that, because there was no affected gift to the second respondent, the statutory basis for treating property held by her as realisable property under POCA was absent, and the NDPP’s confiscation case could not be sustained on the record as presented.

The court also held that it would not interfere with the magistrate’s refusal to grant a confiscation order, describing the decision as involving a judicial discretion exercised on the relevant facts, and identifying record-based considerations supporting non-interference. The court additionally expressed obiter views raising concerns about the vires of a confiscation order made after sentencing in light of section 17(6), but made no binding finding on that issue.

LEGAL PRINCIPLES

A court order remains valid and produces legal consequences unless and until it is properly set aside. The existence of allegations impugning the underlying motives for an order does not, without proper proceedings to rescind or set aside, deprive the order of effect.

For purposes of Chapter 5 of POCA, the amount recoverable by confiscation is determined with reference to the statutory concepts of realisable property and affected gifts, as reflected in sections 14 and 20(1). Property held by a third party is brought within “realisable property” only to the extent that it is property held by a person to whom the defendant has made an affected gift (directly or indirectly) as contemplated in POCA.

A transfer of assets occurring pursuant to a valid divorce order was treated in this judgment as not susceptible, on the facts and arguments presented, to recharacterisation as an affected gift under POCA, particularly where the divorce order stood and had not been set aside.

The granting or refusal of a confiscation order is described as involving a judicial discretion exercised upon consideration of relevant facts. An appellate court will not readily interfere where the record supports the discretion exercised, including where evidentiary gaps exist on valuation and where equitable considerations arising from the facts (as identified in the judgment) inform the outcome.

The judgment also contains obiter observations that section 17(6) of POCA may conclude Chapter 5 proceedings upon sentencing without a confiscation order, subject to section 18(2), potentially limiting the competence of post-sentencing confiscation orders where the section 18(1) benefit finding has not been made by sentencing; however, no definitive ruling was made on that point.

National Director of Public Prosecutions v Du Preez and Another (A406/08) [2010] ZAGPPHC 1 (27 January 2010)