South African Reserve Bank v Khumalo and Another (235/09) [2010] ZASCA 53; 2010 (5) SA 449 (SCA) ; [2011] 1 All SA 26 (SCA) (31 March 2010)

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South African Reserve Bank v Khumalo and Another (235/09) [2010] ZASCA 53; 2010 (5) SA 449 (SCA) ; [2011] 1 All SA 26 (SCA) (31 March 2010)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 235/09
In the matter between:
THE SOUTH AFRICAN RESERVE BANK
Appellant
and
MZILIKAZI GODFREY KHUMALO
First
Respondent
MAWENZI RESOURCES AND FINANCE
COMPANY (PTY) LTD
Second
Respondent
Neutral citation:
The
South African Reserve Bank v M G Khumalo
(235/09)
[2010] ZASCA 53
(31 March 2010)
Coram:
HARMS DP, NUGENT,
LEACH JJA, HURT and MAJIEDT AJJA
Heard: 24 February 2010
Delivered: 31 March 2010
Summary
: Exchange Control
Regulations – Regulation 22C(1) is not invalid for failing to
incorporate a time period not exceeding that
laid down in s 9(2)(g)
of the Currency and Exchanges Act 9 of 1933
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
North Gauteng
High Court (Pretoria) (B R Southwood, J R Murphy and T J Raulinga JJ
sitting as a court of first instance).
1. The appeal succeeds with costs, including the costs
of two counsel.
2. The order of the court a quo is set aside and is
replaced by the following:
‘
The application is dismissed with costs, including
the costs of two counsel.’
______________________________________________________________
JUDGMENT
______________________________________________________________
LEACH JA (HARMS DP, NUGENT JA, HURT et MAJIEDT AJJA
concurring):
[1] This appeal concerns the validity of a notice of
attachment issued by the appellant, the South African Reserve Bank,
under r 22C(1)
of the Exchange Control Regulations
1
(‘the regulations’) promulgated under the Currency and Exchanges
Act 9 of 1933 (‘the Act’). For purposes of this judgment
it can
be accepted that references to ‘the Treasury’ in both the Act and
the regulations are to be construed as referring to
the appellant.
[2] The first respondent is a businessman and a director
of various companies, including the second respondent. From August
2002,
the appellant held discussions with the two respondents in
regard to whether various transactions had contravened the
regulations.
On 12 August 2008 the appellant, unpersuaded that the
transactions in question did not amount to contraventions, issued the
disputed
notice purporting to attach various assets of the
respondents which it alleged were ‘moneys or goods’ contemplated
by r 22C.
[3]
This led to
the respondents seeking urgent interim relief, including orders
declaring the notice to be invalid and interdicting the
appellant
from giving effect to the notice pending the outcome of a review
application that was yet to be brought, in which additional
relief
would be sought. The application came before a full bench of the
North Gauteng High Court (Southwood, Murphy and Raulinga
JJ). One of
the grounds upon which it was said by the respondents that the notice
was invalid was that r 22C(1) under which the notice
was issued was
said itself to be invalid because it was not in conformity with the
authorizing statute. In the course of argument
in the court below
counsel for both parties agreed that, if the court were to uphold the
respondents’ contention in that respect,
then a final order should
be made that the notice was invalid. Having found in their favour the
court below made an order accordingly
and the prayer for interim
relief became superfluous. With the leave of that court that
appellant now appeals against that order.
[4]
An
appeal lies against an order that is made by a court and not against
its reasons for making the order. It follows that on appeal
a
respondent is entitled to support the order on any relevant ground
and is not confined to supporting it only for the reasons given
by
the court below.
2
In this court, the respondent did not seek to support the order on
any ground than that given by the court below, which was that
the
regulation under which it was made did not conform with the
authorising statute and was thus invalid, subject to one subsidiary
issue that I will come to. This means that the principal issue on
which the appeal turns is whether the full bench was correct in
its
conclusion on the invalidity of r 22(C)(1) for the reasons that it
gave. If the respondent fails on that issue, and on the subsidiary
issue that I referred to, then the order that it made falls to be set
aside, and the challenge to the validity of the order falls
to be
dismissed. The remainder of the notice of motion did no more that
foreshadow a review application that was yet to be brought
and need
not concern us.
[5] The regulations were made under
the powers extended to the Governor- General (later the State
President and now the President)
by s 9 of the Act which inter alia
provides:
‘
(1) The
(President) may make regulations in regard to any matter directly or
indirectly relating to or affecting or having any bearing
upon
currency, banking or exchanges.
(2)(
a)
Such regulations may provide that the (President) may apply any
sanctions therein set forth which he thinks fit to impose, whether
civil or criminal.
(b)
Any
regulation contemplated in paragraph (a) may provide for-
(i) the blocking, attachment and
obtaining of interdicts for a period referred to in paragraph (g) by
the Treasury and the forfeiture
and disposal by the Treasury of any
money or goods referred to or defined in the regulations or
determined in terms of the regulations
or any money or goods into
which such money or goods have been transformed by any person, and-
(aa) which are suspected by the
Treasury on reasonable grounds to be involved in an offence or
suspected offence against any regulation
referred to in this section,
or in respect of which such offence has been committed or so
suspected to have been committed;
(bb) which are in the possession
of the offender, suspected offender or any other person or have been
obtained by any such person
or are due to any such person and which
would not have been in such possession or so obtained or due if such
offence or suspected
offence had not been committed; or
(cc) by which the offender,
suspected offender or any other person has been benefited or enriched
as a result of such offence or suspected
offence -
Provided that, in the case of
any person other than the offender or suspected offender, no such
money or goods shall be blocked, attached,
interdicted, forfeited and
disposed of if such money or goods were acquired by such person bona
fide for reasonable consideration
as a result of a transaction in the
ordinary course of business and not in contravention of the
regulations; and
(ii) in general, any matter
which the (President) deems necessary for the fulfilment of the
objectives and purposes referred to in
subparagraph (i), including
the blocking, attachment, interdicting, forfeiture and disposal
referred to in subparagraph (i) by the
Treasury of any other money or
goods belonging to the offender, suspected offender or any other
person in order to recover an amount
equal to the value of
the
money or goods, recoverable in terms of the regulations referred to
in subparagraph (i), but which can for any reason not be so
recovered.
(c) . . .
(d) Any regulation contemplated
in paragraph (a) shall provide-
(i) that any person who feels
aggrieved by any decision made or action taken by any person in the
exercise of his powers under a regulation
referred to in paragraph
(b) which has the effect of blocking, attaching or interdicting any
money or goods, may lodge an application
in a competent court for the
revision of such decision or action or for any other relief . . .
(ii) . . .
(iii) that any person who
feels aggrieved by any decision to forfeit and dispose of such money
or goods may, within a period prescribed
by the regulations, which
shall not be less than 90 days after the date of the notice published
in the Gazette and referred to in
subparagraph (ii), institute legal
proceedings in a competent court for the setting aside of such
decision, and the court shall not
set aside such decision unless it
is satisfied-
(aa) that the person who made
such decision did not act in accordance with the relevant provisions
of the regulation; or
(bb) that such person did not
have grounds to make such decision; or
that the grounds for the
making of such decision no longer exist.
(e) . . .
(f) . . .
(g) The period referred to in
paragraph (b) (i) shall be a period not exceeding 36 months or such
longer period-
(i) as ends 12 months after the
final judgment (including on appeal, if any) in every prosecution for
any contravention of the regulations
or any other law in relation to
the money or goods concerned or in which such money or goods are
relevant to any aspect of such prosecution;
or
(ii) as may be determined by a
competent court in relation to the money or goods concerned on good
cause shown by the Treasury.’
[6] As appears from this, a distinction is drawn between
money and goods involved or suspected of having been involved in any
contravention
of the regulations
(sometimes
referred to as ‘tainted’ money or goods) and other money and
goods (which may be described as ‘untainted’). The
President is
empowered by s 9(2)(b)(i) to make regulations relating to the
attachment, freezing and forfeiture of tainted money and
goods for a
period referred to in s 9(2)(g) and by s 9(2)(b)(ii) to make
regulations in general in respect of any matter which he
‘deems
necessary for fulfilment of the objectives and purposes referred to’
in s 9(2)(b)(i) including the attachment and freezing
of untainted
money and goods. Although no specific reference is made to 9(2)(g) in
s 9(2)(b)(ii), the reference in that subparagraph
to an attachment or
freezing ‘referred to in subparagraph (i)’ leads to the
reasonable conclusion that the legislature intended
the prescribed
time limit to also apply to the attachment and freezing of untainted
money and goods.
[7]
Regulations
22A, 22B and 22C of the regulations made by the President provide for
the blocking of accounts, the attachment of money
and goods, and the
forfeiture and disposal of money or goods as envisaged by s 9(2)(b).
In
South African
Reserve Bank v Torwood Properties (Pty) Ltd
3
Harms JA, after describing these regulations as being both ‘lengthy
and convoluted’
4
– a fitting description for s 9 as well – went on to explain
their effect in broad terms as follows:
5
‘
What is contemplated by the
regulation, in very general terms, seems (by way of an example) to be
this: A contravention of the regulations
is committed. The amount
involved is Rx. That amount may be recovered by the Treasury. It may
recover by attaching and declaring
forfeit, for example, the money
“involved” in the contravention. If that Rx cannot be found, the
shortfall may be recovered by
the attachment of “other”
(untainted) money or goods from the persons mentioned in subpara (i)
to (iv) of reg 22C(1).’
[8]
For present
purposes it suffices to record the following in regard to the
regulations:
Regulation r 22A deals with the
tainted goods and money, with r 22A(1)(a) providing for the
attachment of tainted money and goods
and r 22A(1)(b) and (c)
providing for the prohibition of withdrawals out of accounts into
which tainted money is reasonably suspected
of having been deposited
and the prohibition of the use of tainted goods (this may loosely be
described as the ‘freezing’ of
such money and goods). Regulation
22A(3) provides that if attached tainted money and goods are not
forfeited under r 22B within
‘the period referred to in paragraph
(g) of section 9(2) of the Act’, they are to be returned.
Regulation
22C, on the other hand, deals with untainted money and goods, with r
22C(1) providing for the attachment of untainted money and
goods and
r 22C(2) providing for the issue of an order freezing untainted
money and goods. Importantly, while r 22C(3)(b) provides
for the
provisions of 22A(3) to apply mutatis mutandis to a freezing order
under r 22C(2), no specific provision is made for a
similar time
period to apply to attachments under r 22C(1).
Regulation 22B deals with the
procedures necessary to obtain forfeiture of both tainted and
untainted moneys and goods.
[9] The President’s failure to
provide a time limit on the duration of an attachment of untainted
money and goods formed the cornerstone
of the full bench’s finding
that r 22C(1) is invalid. It found that s 9(2) rendered it mandatory
for the President to stipulate
a time period not exceeding that
prescribed by s 9(2)(g) for the attachment of such assets. It also
held that the omission of a reference
to r 22C(1) in r 22C(3)(b) had
to be regarded as intentional and excluded the operation of a time
limit. It therefore concluded that
an attachment for an unlimited
period was intentionally envisaged by r 22C(1), a provision which is
in conflict with the provisions
of the Act and therefore invalid.
6
[10] The first question to be
considered is whether the legislature intended s 9(2) to prescribe
the form in which the regulations
were to be drawn (by directing that
they had to state, or at least refer to, a period for which the
attachment or freezing was to
remain in force) or simply intended to
prescribe a limit, as an objective matter of law, to the period for
which such attachment
or freezing could endure. In my view, all the
indications in the section are in favour of the latter intention.
[11]
The
provisions of s 9(2)(g) contemplate three different situations. The
first is the basic situation where an attachment or freezing
is to be
effected ─ it may remain in force for a period of at most 36
months. The second is where there is a prosecution for an
offence in
which the affected assets have been involved or are owned by a person
contemplated in ss 9(2)(b)(ii) ─ the attachment
or freezing will be
effective until the expiry of 12 months after a final judgment. The
third contemplates an application to court
for an extension of the
period on good cause shown by the Treasury. In my view, if the
legislature had intended that this comparatively
complicated
formulation had to be spelt out in the regulations, it would have
said so. It follows that the more reasonable conclusion
is that the
intention behind s 9(2)(g) was to set a statutory time limit for the
duration of an attachment or freezing of money or
goods and was not
intended to prescribe the content of the regulations and to require
the President to determine a time limit in
the regulations. All it
means is that these orders may not last longer than the prescribed
limit.
[12]
The
next question is whether the regulation, by omitting any reference to
a time limit, means that the President sought to give a
power to the
Treasury that is not limited in time. I think not. The regulations
are not to be read in isolation. Where possible,
they are to be
construed consistently with the empowering Act under which they were
made.
7
No matter how clear and unequivocal regulations may appear to be,
‘their interpretation and validity are dependent upon the
empowering
provisions which authorise them.’
8
The regulations must therefore be read in the light of the provisions
of s 9(2) and its purpose and objectives ─ including that
the
attachment of money and goods may not be for a period longer than
that prescribed in the Act. It therefore cannot be argued that
merely
because no mention of the time limitation contained in s 9(2)(g) is
made in the regulations, it does not apply to an attachment
made
under the regulations.
[13]
In
my view, the full bench therefore erred in its conclusion that s 9
required the President to stipulate a time period in the regulations
for the attachment and freezing of untainted money and goods. The
plain meaning of s 9(2) is that while the President is empowered
to
make regulations under which money and goods may be attached and
frozen, no such attachment or freezing is to last for longer
than the
prescribed period. The section does not require that period to be
reiterated in the regulations. In addition, the fact that
no such
time limit is specified in the regulation does not mean that an
attachment under r 22C(1) can last indefinitely. It can only
endure
as long as the maximum period prescribed by s 9(2)(g). The fact that
the President unnecessarily referred to the period in
s 9(2)(g) in
certain other regulations does not mean that his failure to also do
so in respect of attached untainted goods and money
renders r 22C(1)
invalid.
[14]
The
subsidiary issue that next arises is whether the notice was invalid
because it did not contain a time limit. In my view it was
not
required of Treasury to set a time limit in the notice. If it omits
to do so, as it did in this case, the default position is
regulated
by statute and the notice lapses after three years.
[15]
The
full bench consequently erred in concluding that r 22C(1) was invalid
and in setting aside the warrants. The appeal must therefore
succeed.
The parties were correctly agreed that costs should follow the event
and that the employment if two counsel was justified.
[16]
In
the result I order as follows:
1.
The
appeal succeeds with costs, including the costs of two counsel;
2.
The
order of the full bench is set aside and is replaced with the
following:
‘
The application is dismissed with costs, including
the costs of two counsel.’
_______________
L E LEACH
JUDGE OF APPEAL
APPEARANCES
APPELLANT: P G Ginsburg SC (with him K W Lüderitz)
Instructed by Newtons Inc, Pretoria
Symington & De Kok, Bloemfontein
RESPONDENTS: A Bhana SC
Instructed by Cliffe Dekker Hofmeyr Inc,
Sandown Matsepes Inc, Bloemfontein
1
Promulgated under
section 9
of the
Currency and Exchanges Act 9 of
1933
in Government Notice R 1111 of 1961and amended up to Government
Notice R 855 in Government Gazette no 20299 of 23 July 1999.
2
Per Trollip JA in
Sentrale
Kunsmis Korporasie (Edms) Bpk v N.K.P. Kunsmisverspreiders (Edms)
Bpk
1970 (3) SA 367
(A) at 395G-396A.
3
1997(2) SA
169 (A).
4
At 176 C-D.
5
At 178C-D.
A similar explanation is to be found in
Francis
George Hill Family Trust v South African Reserve Bank & others
1990
(3) SA 704
(T) at 711D-F.
6
That r
22C(1) was invalid for this reason is also the view expressed by
Prof A N Oelofse
Suid-Afrikaanse
Valutabeheer-wetgewing
at
109 (quoted with the approval by the full bench.).
7
Minister
of Health v New Clicks SA (Pty) Ltd
2006 (2) SA 311
(CC) at para 211.
8
Per
Smalberger J in
Singapi
& others v Maku & others
1982
(2) SA 515
(S) at 517C-D.