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[2021] ZASCA 102
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South African Reserve Bank v Leathern N.O and Others (854/2020) [2021] ZASCA 102; 2021 (5) SA 543 (SCA); [2021] 4 All SA 368 (SCA) (20 July 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 854/2020
In
the matter between:
SOUTH
AFRICAN RESERVE BANK
APPELLANT
and
RENETTE
LEATHERN N O
FIRST RESPONDENT
WILLIAM
DAVID LEATHERN N O
SECOND
RESPONDENT
JERIFANOS
MASHAMBA N O
THIRD RESPONDENT
[In
their capacities as duly appointed trustees of the
insolvent
estate of Ahmed Dawood Bhorat (T2450/16)]
GROBANK
LIMITED
FOURTH RESPONDENT
Neutral
citation:
South
African Reserve Bank v Leathern N O and Others
(Case no 854/2020)
[2021] ZASCA 102
(20 July
2021)
Coram:
MAYA P,
MBHA
and
MAKGOKA JJA and
GORVEN
and UNTERHALTER AJJA
Heard:
20 May 2021
Delivered:
This judgment was handed down electronically
by circulation to the parties’ representatives by email, and by
publication on
the Supreme Court of Appeal website and release to
SAFLII. The time and date for hand down is deemed to be 10h00 on the
20
th
day of July
2021.
Summary:
Insolvency law – funds in bank accounts
blocked in terms of
Regulation 22A and/or 22C of
the Exchange Control Regulations – whether the requirements to
set aside blocking order satisfied
– whether such funds vested
in an insolvent estate – whether sequestration order
invalidates blocking order.
ORDER
On
appeal from:
Gauteng Division of the High
Court, Pretoria (Holland-
Müter
AJ
sitting as court of first instance):
1
The appellant’s application to adduce
further evidence is dismissed with costs including the costs of two
counsel.
2
The appeal is upheld with costs including the
costs of two counsel.
3
The order of the high court is set aside and
replaced with the following:
‘
The
application is dismissed with costs including the costs of two
counsel.’
JUDGMENT
Makgoka JA (Maya
P, Mbha JA and Gorven and Unterhalter AJJA concurring):
[1]
On
15 June 2017 the appellant, the South African Reserve Bank
(the Reserve Bank) issued a blocking order against two bank
accounts of Mr Ahmed Dawood Bhorat, trading as R & R Traders
and Brokers (R and R Traders) held with the fourth respondent,
Grobank Limited (formerly the Bank of Athens). The accounts were
blocked on suspicion that Mr Bhorat had used them in contravention
of
certain provisions of the Exchange Control Regulations
(
the regulations
);
promulgated in
terms of s 9 of the Currency and Exchanges Act 9 of 1933 (the
Act).
[1]
At the
time, the funds standing to his credit in the two accounts were
R13 132 887.98 and R1 868 995.05, respectively.
[2]
Five days later, on 20 June 2017, Mr
Bhorat’s estate was provisionally sequestrated at the instance
of the South African Revenue
Services (SARS), pursuant to an
unsatisfied judgment obtained against Mr Bhorat in March 2015
for outstanding tax liability
of over R40 million. The first,
second and third respondents were provisionally appointed co-trustees
of Mr Bhorat’s
estate on 11 July 2017, and finally
appointed on 24 October 2018, following confirmation of the
provisional sequestration order
on 5 March 2018.
[3]
The trustees asserted that in terms
of s 20(2)(
a
)
of the Insolvency Act
24 of 1936 (the
Insolvency Act)
the
funds formed part of Mr Bhorat’s estate, and as such, vested in
them as the trustees of his insolvent estate with effect
from the
date of Mr Bhorat’s provisional sequestration, 20 June 2017.
Accordingly, they demanded that the funds be paid over
to them. The
Reserve Bank declined for Grobank to do so, and contended that
according to its investigations, the funds did not
‘belong’
to Mr Bhorat and accordingly did not accrue to his insolvent estate.
[4]
Consequently, the trustees launched
an application in the Gauteng Division of the High Court,
Pretoria (the high court) seeking
a declaratory order that the funds
vested in them as the trustees of the insolvent estate of Mr Bhorat.
Ancillary thereto, they
sought an order lifting the ‘blocking’
order; and for Grobank to pay over the funds to them. The Reserve
Bank opposed
the application. Grobank did not oppose the application,
and has adopted the same stance in this appeal by filing a notice to
abide
the decision of this Court.
[5]
The
thrust of the trustees’ application was that: (a) the Reserve
Bank did not have reasonable grounds to block Mr Bhorat’s
accounts; (b) neither the regulations under which the accounts were
blocked, nor the common law, exclude or exempt the funds from
vesting
in the insolvent estate; (c) the blocking of the accounts did not
divest Mr Bhorat’s insolvent estate of the ownership
of the
funds, nor did it grant the Reserve Bank a preferent right to the
funds above the rights of the creditors in the insolvent
estate. The
trustees’ assertions prevailed in the high court, which issued
a declaratory order that the funds vested in Mr
Bhorat’s
insolvent estate. The high court accordingly lifted the blocking
order and ordered Grobank to immediately pay over
the funds to the
trustees. The Reserve Bank was also ordered to pay the costs of two
counsel.
[2]
In
addition, the high court extended the blocking order on the following
terms:
‘
1
That the blocking order issued by the [Reserve Bank] on 15 June 2017
in respect of the accounts numbers 30000001640 and 20000441617
of Mr
Ahmed Bhorat (trading as R and R Traders and Brokers) standing to his
credit at Grobank be extended in terms of
section 9(2)(g)
of the
Currency and Exchanges Act 9 of 1933 to date of a final determination
of the main application (including any appeal); unless
the [Reserve
Bank] is ultimately successful, in which event the order shall be
extended with a period of 90 days from the date
of the final
determination.
2
The [Reserve Bank] is directed to take such steps as may be necessary
to procure that the accounts identified in prayer 1 above
be
converted into interest-bearing accounts.
3
That the [trustees’] rights to challenge the validity of the
blocking order is not prejudiced by the extension.’
[6]
The Reserve Bank appeals against
that order, with the leave of the high court, on four grounds,
namely: (a) that the relief
sought by the trustees was not competent
as the blocking order was a final administrative order which should
have been challenged
under the Promotion of Administrative Justice
Act 3 of 2000 (PAJA); (b) that the high court was incorrect in its
evaluation as
to whether the Reserve Bank had established a
reasonable suspicion that Mr Bhorat had contravened the regulations;
(c) that
the funds deposited into Mr Bhorat’s accounts did not
‘belong’ to him as he was merely a collection agent; (d)
and that the sequestration order did not invalidate the blocking
order.
[7]
There are three key issues on
appeal. First, whether the high court was correct to set aside the
blocking order. Secondly, whether
the funds standing to the credit of
Mr Bhorat’s bank accounts ‘belonged’ to him and
fell into his insolvent estate,
thus vesting in the trustees.
Thirdly, and closely linked to the second issue, is whether a
sequestration order invalidates a blocking
order by operation of law.
To determine these issues, it is necessary to set out the provisions
of the regulations under which
the accounts were blocked, as well as
the factual background underpinning the decision to block them.
[8]
Amongst other things, the
regulations prohibit various financial transactions, including the
transfer of money from South Africa
to any person outside the
country, save within their ambit. In terms of the regulations, where
a designated functionary of the
Reserve Bank, on reasonable grounds,
suspects a person to be involved in the contravention of any
provisions of the regulations,
the functionary is empowered, under
the provisions of regulations 22A and/or 22C, to issue a blocking
order in respect of a banking
account suspected of being used for
illegal purposes. The effect of the order is to prohibit any
person from withdrawing,
or causing to be withdrawn any money
standing to the credit of the bank account in question. If the
Reserve Bank is satisfied that
contraventions indeed occurred, it may
ultimately declare the attached funds forfeit to the State.
[9]
Regulation 22A deals with the blocking or attachment of
‘tainted’ goods and money, ie goods and money which may
be the
subject of a contravention of the regulations. On the other
hand, regulation 22C deals with the blocking or attachment of
‘untainted’
money to the value of the contravention
perpetrated by the exporting of ‘tainted’ money. In the
present case, the Reserve
Bank placed reliance on both regulations,
albeit in the alternative.
Regulation 22D
provides, among others, for the review of an attachment or an order
made in terms of regulation 22A or regulation
22C. It provides that
any person who feels himself aggrieved by such attachment or order
may
bring an
application in a competent court for the review thereof. Such court
may set aside any such attachment or order or decision,
as the case
may be, on the grounds set out in the provisions of s 9(2)(
d
)(i)
or (iii) of the Act.
Sub-section (i)
provides that:
‘
(i)
[a]ny person who feels aggrieved by any decision made or action taken
by any person in the exercise of his powers under a regulation…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, and
the
court shall not set aside such decision or action or grant such other
relief unless it is satisfied
—
(
aa
)
that the person who made such decision or took such action did not
act in accordance with the relevant provisions of the regulation;
or
(
bb
)
that such person did not have reasonable grounds to make such
decision or to take such action…’
(
cc)
that such grounds for the making of such decision or the taking of
such action no longer exist.
(Emphasis
added.)
[10]
The factual basis for blocking the
accounts was set out in the Reserve Bank’s answering
affidavit, deposed to by Mr Andre
Malherbe, a manager and an
investigator in its Financial Surveillance Department. Mr Malherbe
stated that during May 2017, the
Reserve Bank commenced an
investigation into the affairs of several entities and persons
suspected of being involved in illicit
financial flows from the
country. Its investigation had revealed that R and R Traders and
other persons or entities were suspected
of having contravened
several provisions of the regulations between September 2016 and June
2017. The alleged contraventions involved
a scheme in respect of
foreign currency, importation of goods and exportation of capital
from the country, totaling more than R700 000
000. Mr Bhorat was
identified as part of a group of persons and entities designated as
‘forex transferring entities’,
who were suspected of
having used their bank accounts as conduits for illicit transfer of
money to various foreign beneficiaries,
in China and Hong Kong.
[11]
On 13 June 2017, the Reserve Bank
identified a transfer of R3 320 709 into one of Mr Bhorat’s
bank accounts (the
first account).
The examination of the account and the foreign exchange transaction
records, revealed that the account was
mainly utilised as a foreign
exchange trading account. Twenty-six deposits totalling R12 601
794.41 were made into this account
mainly by three companies between
14 June 2017 and 15 June 2017. All the funds were ‘booked’
by authorised dealers
as foreign exchange transactions.
[12]
The investigation further revealed
that R and R Traders had, allegedly in contravention of the
regulations, transferred approximately
R201 000 000 abroad since
June 2016 as advance import payments, whereas goods to the value of
approximately R78 400 000 had
been received in South Africa. There
appeared to be an almost ten-fold increase in foreign exchange
turnover within two months
preceding the R3 320 709 transaction
referred to above. There were also a number of advance import
payments in respect of which
R and R Traders had failed to clear
goods through customs within four months from the date of payment
made on account of such goods.
[13]
Mr Malherbe further stated that one
of the foreign beneficiaries of the foreign exchange transferred by R
and R Traders was an entity
controlled from South Africa, which acted
as an agent in China or Hong Kong for transfers from a number of the
forex transferring
entities to the ultimate beneficiaries, against
payment of commission. Mr Bhorat’s second account appeared to
have been funded
by cash deposits between 13 and 14 June 2017, save
for one transfer from the first account. The bulk of these funds were
utilised
for purposes of foreign exchange transactions.
[14]
It was on the basis of the above
information that Mr Malherbe, on behalf of the Reserve Bank,
suspected that Mr Bhorat’s accounts
had been used as conduits
for illicit financial flows from the country, hence the action taken
to put in place the blocking orders.
In
the light of the Reserve Bank’s explanation, it must first be
determined whether the Reserve Bank’s suspicion, which
triggered the invocation of regulation 22, was reasonable. As already
stated, the absence of reasonable suspicion is one of the
three bases
for setting aside a blocking order in terms of regulation 22D, read
with
s 9(2)(
d
)(i)(
bb
)
of the Act.
The high court was not persuaded that there was reasonable suspicion.
It said:
‘
The
[Reserve Bank] argues that the monies blocked do not vest in the
trustees as it is the fruit of either theft of fraudulent action.
There are only vague unsubstantiated allegations in this regard and
no proof of any kind was before the court…’
[15]
The
high court applied the wrong test by requiring the Reserve Bank
to provide some ‘proof’ that the regulations
had, in
fact, been contravened. The high court also failed properly to assess
the explanation and evidence provided by the Reserve
Bank.
This
Court has endorsed Lord Devlin’s formulation of the meaning of
‘suspicion’:
[3]
‘
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.’
[4]
[16]
Thus,
all that was required of the Reserve Bank was a suspicion based on
reasonable grounds, which had to be objectively assessed.
When
one considers the Reserve Bank’s detailed explanation,
supported by an excerpt from Mr Bhorat’s bank statement,
the
suspicion is overwhelming. For example, in just one day, 14 June
2017, there were alarming movements of large sums of money
in and out
of the first account: a total amount of R7 525 442 was
debited in payment of foreign entities. In all the
circumstances, the
Reserve Bank’s suspicion was well-founded and reasonable. The
high court was thus not entitled to set
aside the blocking order, as
the provisions of regulation 22D, read with
those
of s 9(2)(
d
)(i)(
bb
)
of the Act
, discussed earlier, were
not satisfied.
[17]
I
turn now to consider whether Mr Bhorat was the owner of the funds
standing to his credit.
The
high court correctly referred to the general position in our law,
which is this. Generally, where money is deposited into a
bank
account of an account holder it mixes with other money and, by virtue
of
commixtio
,
it becomes the property of the bank.
[5]
The
account holder has no real right of ownership of the money standing
to his credit
[6]
but
acquires a personal right to payment of that amount
[7]
from
the bank, arising from their bank-customer relationship.
The
bank’s obligation, as owner of the funds credited to the
customer’s account, is to honour the customer’s payment
instructions.
[8]
Once
ownership passes to the bank it immediately incurs the obligation to
account to its customer.
[18]
Based on this general position, the
high court concluded that Mr Bhorat had acquired a personal right
against Grobank in respect
of the funds. The court reasoned as
follows:
‘
It
is only when a credit in the account was obtained by theft or fraud,
or erroneously paid into the account that the client will
have no
claim against the bank for that money. See
Nissan
South Africa (Pty) Ltd v Marnitz
N
O
2005 (1) SA 441
(SCA) at 448-449.
[9]
The
necessary proof is lacking in this matter.’
[19]
With respect to the learned Judge,
Nissan
is
no authority for the proposition that theft, fraud, or erroneous
payment are the only circumstances in terms of which an account
holder will have no claim against the bank for the money standing to
their account. While those instances might be the obvious
ones, this
is certainly not a closed list. As Du Plessis explains:
‘
The
question whether funds “belong” to a particular person,
in the sense that such a person enjoys a right to claim
the credit
balance in the account, depends on the agreement governing the
operation of the account. The name of the account holder
is not
decisive. The agreement may for example determine that a party may
deposit funds into the account as agent, and also withdraw
funds as
agents, but without personally enjoying the right to claim the credit
balance in the account…’
[10]
(Footnotes
omitted.)
[20]
Indeed, in
Joint
Stock Company Varvarinskoye v Absa Bank Ltd and Others
[2008] ZASCA 35
;
[2008] 3 All SA 130
(SCA);
2008 (4) SA 287
(SCA)
para 31, this Court explained that the rule that only an account
holder may assert a claim to money held in its account with
a bank,
is not a universal and inflexible one. In that case, it was
held that where to the knowledge of the bank and the
account holder,
the account holder had limited control over the funds, the right to
claim the funds standing to the credit of the
account, did not accrue
to the account holder but to the depositor. I shall revert to
this decision.
[21]
Counsel for the respective parties
referred to
Muller N O and Another v
Community Medical Aid Scheme
[2011]
ZASCA 228
;
2012 (2) SA 286
(SCA);
[2012] 2 All SA 252
(SCA). There,
Humanity, a medical aid scheme, had agreed to transfer its members to
another medical aid, Commed, with effect from
1 September 2008.
Humanity
was
wound up later that month. The September 2008 contributions, were,
however, paid into Humanity’s account and its liquidators
laid
claim to them. This Court held that but for the provisions of s
63(14) of the Medical Schemes Act 131 of 1998 (Medical
Schemes
Act), in terms of which the contributions vested in Commed on
confirmation by the Council of Medical Schemes of the transfer
of the
membership of Humanity’s members to Commed, the
contributions would have formed part of Humanity’s estate.
At
para 13, the following was said:
‘
[T]he
September contributions were not kept separately in an earmarked
account, with the agreement of the bank, for payment to Commed
or
repayment to Humanity’s members. They were “mixed”
with other funds in the account resulting in an amount
standing to
the credit of Humanity. To call Humanity a “custodian” of
the September contributions deposited into its
bank account, as the
court below did, adds nothing to the issue. The contributions paid
were not trust funds. Nor was Humanity’s
bank party to any
agreement between Humanity and Commed. There is no evidence to
suggest that Humanity’s bank had agreed
to hold the September
contributions as agent or custodian for Commed, whether disclosed or
undisclosed, or that it had knowledge
of such arrangement. Nor is
there any evidence to suggest that Commed had acquired any personal
rights against Humanity’s
bank in respect of the contributions.
Moreover, there is no evidence to the effect that Humanity’s
rights to operate upon
its bank account had in any way been limited
by reason of the payment of the September contributions into it. The
fact that Humanity
undertook to pay the amount of the September
contributions to Commed had no effect on its powers as account holder
and did not
fetter or restrict them.’
(Footnotes
omitted.)
[22]
Counsel for the trustees relied on
these findings, and submitted that they were applicable in this case.
Counsel emphasised that:
Mr Bhorat opened and operated the accounts
in his own name; none of the deposits were kept in a separate
earmarked account on behalf
of any of the depositors and the funds
were mixed with Mr Bhorat’s other funds; there was no evidence
that Grobank had agreed
to hold the funds as agent for the
depositors; there was no evidence to suggest that Mr Bhorat’s
rights to operate on his
bank account were in any way limited.
[23]
Counsel also relied on
Trustees,
Estate Whitehead v Dumas and Another
[2013]
ZASCA 19
;
2013 (3) SA 331
(SCA), where an investor had transferred
funds to the account of a fraudster after he had been induced to
enter into an agreement
by the fraudster’s misrepresentation.
This Court concluded that
the
investment transaction between the investor and the fraudster, though
tainted by fraud, nevertheless constituted a
causa
for
the payment. The investor intended to pay the fraudster and
voluntarily made the payment into the latter’s account,
who
had
no restrictions to operate his bank account once the funds were
deposited into his account. The fraudster had a valid claim
against
the bank in respect of those funds. Thus, upon the sequestration of
his estate,
the
funds
fell into the estate of the fraudster.
[24]
It
must be emphasised that the account holders in both
Muller
and
Dumas
(Humanity and the fraudster) had unfettered discretion in respect of
the funds deposited into their respective accounts. To the
contrary,
in this case, on the uncontroverted version of the Reserve Bank,
Mr
Bhorat did not have such
right
in respect of the funds deposited into his accounts, and could only
deal with them as directed by the depositors. It is instructive
that
although in a position to do so, the trustees did not procure an
affidavit from Mr Bhorat to refute the Reserve Bank’s
assertion. This would not have been an onerous task, as
one
of their first obligations as provisional trustees was to interview
Mr Bhorat to determine, among other things, exactly what
the assets
and liabilities of the insolvent estate were.
[11]
In
the absence of any explanation by Mr Bhorat, the Reserve Bank’s
uncontradicted version must therefore be accepted. There
is nothing
clearly untenable or
palpably
implausible
about its version to justify its rejection on the papers.
[12]
[25]
Therefore,
this case has to be approached on the footing that there was an
understanding between the depositors and Mr Bhorat that
his control
of the accounts was restricted to the extent he could deal with the
funds only as directed by the depositors.
Viewed
in this light,
Muller
and
Dumas
are distinguishable from the present case.
It
should be stressed that this can only apply to the present matter
since, at a later stage, the question might need to be determined
by
recourse to oral evidence if the Reserve Bank seeks a forfeiture
order and this is opposed by the trustees. The further comments
hereunder must be understood in this provisional light.
[26]
The restricted right of an account
holder to deal with funds in its account was also a defining feature
in
Joint
Stock.
There,
Joint
Stock had deposited funds into the bank account of an entity whose
account was held with Absa. The funds were earmarked for
payment of
building contractors for the establishment of a mine and processing
facilities. Absa knew about the purpose
of the account and that
the account holder had limited rights in respect of those funds.
Absa had also agreed with the account
holder that the funds
could only be withdrawn upon a particular procedure being followed;
and that the account holder had no interest
in or control over the
funds. Despite knowledge of the above, Absa appropriated the funds,
asserting a right of set-off in respect
of monies owed to it by the
account holder. In these circumstances, this Court held that Absa
could not rely on set-off and could
not justify the appropriation of
the funds, as the right to claim the funds did not accrue to the
account holder.
[27]
This brings me to the latest
pronouncement by this Court on the issue. In
FirstRand
Bank Limited v Spar Group Limited
[2021] ZASCA 20
;
[2021] 2 All SA 680
(SCA) the following were the
pertinent facts. A franchisee had defaulted on the terms of a
franchise agreement between it and Spar.
Spar decided to operate the
franchisee’s outlets at its own cost and for its own benefit.
The funds generated from operating
the outlets went through
speed-point facilities operating in the outlets, which were linked to
the franchisee’ three bank
accounts held with First Rand Bank
(FirstRand). Both FirstRand and the franchisee declined Spar’s
request to alter the receiving
bank accounts so as to allow it to
have control of the funds. The result was that the funds generated by
Spar were paid into the
franchisee’s accounts. Both FirstRand
and the franchisee knew that the personal right to the deposited
funds accrued to Spar,
and not to the franchisee. Despite this
knowledge, FirstRand subsequently used the funds to set-off the
monies owed to it by the
franchisee, and also allowed the controlling
mind behind the franchisee to withdraw funds from two of the
accounts.
[28]
After a survey of the authorities,
including
Joint Stock
,
this Court held as follows. Even in the absence of an agreement
between an account holder, the bank and a third party in terms
of
which the account holder has no right to the funds in their account,
as was the case in
Joint Stock
,
where a bank owes a personal obligation to a third party which has
credited the account of bank’s customer, such funds cannot
be
used to set off the customer’s debts against the Bank. In such
circumstances the rights in respect of those funds accrued
to a third
party, and not to the account holder. Mere knowledge of the personal
right accruing to a third party by the bank gives
rise to an
obligation to the third party (para 58-60). Relevant to the present
case is the following part of the court’s
summary of the
position in our law at para 86:
‘
A
customer, with no entitlement to moneys deposited into their account,
who knows that they enjoy no such entitlement, may not make
disbursements from the account in respect of credits deriving from
these moneys. To do so amounts to theft…’
[29]
As
I see it, the position can be no different where, as in this case,
there seems to be an understanding between the depositor(s)
and the
account holder that the latter is only entitled to deal with the
funds as directed by the depositor(s).
The
payment of the monies by the depositors into Mr Bhorat’s
account were bilateral juristic acts requiring the meeting of
minds
between the depositors and Mr Bhorat (See
Burg
Trailers SA Pty Ltd & Another v Absa Bank Ltd and Others
2004 (1) SA 284
(SCA) para 7;
Nissan
para 24).
Although there is no suggestion
that Grobank was aware of this arrangement, the understanding between
the depositors and Mr Bhorat
meant that for the duration of the
Reserve Bank’s investigation, and for as long as the accounts
are subject to a blocking
order, Mr Bhorat had no right to claim
those funds. This is based on the fact that there is reasonable
suspicion that the accounts
were used for purposes of contravening
the regulations.
[30]
The reasonable suspicion of the
Reserve Bank may never amount to anything more and the blocking order
may lapse. In that event,
Mr Bhorat may press a claim to the funds
which, for the reasons given, may well be contested. In addition, Mr
Bhorat may ultimately
be found to have no claim against Grobank in
respect of the funds, if the accounts were simply being used as a
conduit by recourse
to which persons other than Mr Bhorat sent their
funds abroad. I make no finding on this score, but simply indicate
that the high
court’s conclusion that Mr Bhorat enjoyed a
personal right to the funds as against Grobank could not be made on
the evidence
before it and on the basis of the law that now governs
these matters.
[31]
On the other hand, if the Reserve
Bank’s investigation leads to a conclusion that indeed the
accounts were used in contravention
of the regulations, a forfeiture
order could ensue, in which case, Mr Bhorat or the depositors would
have no claim to the funds,
subject to a right to challenge the
forfeiture order.
Consequently,
whether the funds are
subject
to a
concursus creditorum
and thus vest in the trustees, can only be determined once either of
the two scenarios occurs.
[32]
The effect of the above is that, at
this stage,
the trustees have no better
claim than Mr Bhorat as against the Reserve Bank. Provided the
Reserve Bank’s blocking order complies
with the regulations, it
may block the funds and the trustees cannot enjoy access to them,
whatever is ultimately proven as to
who has a claim to the funds.
Viewed in this light, the trustees’ application to the high
court was premature and should
not have succeeded.
[33]
This
brings me to the trustees’ contention that a blocking order
lapses by operation of law once a sequestration order is
granted, and
that the assets subject to such an order vest in the insolvent
estate. It is trite that all the property of the insolvent
on the
effective date vests in the Master and after appointment, in the
trustees of the insolvent estate. The
Insolvency Act
[13
]
excludes
certain property from the insolvent estate, as do other statutes.
[14]
The
trustees contended that because the regulations do not contain a
similar provision, the blocking order lapses once a provisional
sequestration order is granted, and the funds vest in the insolvent
estate. This contention found favour with the high court, which
held:
‘
[I]n
my view the regulations should contain similar exclusions as in other
statutes, particularly as in
s 35
of POCA to warrant the desired
outcome. To argue that monies subject to a blocking order do not vest
in the trustees in the absence
of an exclusion is not convincing and
should be rejected. It is not for the court to read into regulations
what is not included.
There is no ambiguity with regard to the
regulations and the argument on behalf of the [Reserve Bank] cannot
succeed.’
[34]
Other
than considering the absence of an express exclusionary provision,
the high court did not engage in any interpretive exercise
of the
regulations. Although the text is often the starting point of any
statutory construction, the meaning it bears must pay
due regard to
context. This is so even when the ordinary meaning of the
provision to be construed is clear and unambiguous.
[15]
The
high court erred in its approach and reasoning.
[35]
A
general principle of statutory interpretation is that the words in a
statute must be given their ordinary grammatical meaning,
unless to
do so would result in an absurdity. In
Cool
Ideas 1186 CC v Hubbard and Another
[2014] ZACC 16
;
2014 (4) SA 474
(CC) para 28 the Constitutional Court
put three interrelated riders to this general principle, namely that:
(a) statutory provisions
should always be interpreted purposively;
(b) the relevant statutory provision must be properly contextualised;
and (c) all statutes
must be construed consistently with the
Constitution.
[16]
[36]
Applying the injunction in
Cool
Ideas
to interpret statutory provisions
purposively, I read the purpose of the regulations, among others
things, to be three-fold: (a)
to prevent
loss of foreign
currency resources through the transfer abroad of financial capital
assets held in South Africa;
(b)
to ensure
effective
control of the movement of financial and real assets into and out of
South Africa; and (c) to
avoid
interference with the efficient operation of the commercial,
industrial and financial system of the country.
In
sum, the purpose of a blocking or attachment order in terms of the
regulations is to secure assets which may be liable to forfeiture
in
terms of the regulations. This adds to the general context of the
regulations in that a blocking order is provisional only and
the
final position can only be determined if the Reserve Bank seeks a
forfeiture order
.
Context
includes, amongst others, the mischief which the regulations are
aimed at, that is, the prevention of illicit flow and influx
of
foreign capital from the country risk of damage to the economy of the
country as a result.
[37]
A blocking or attachment is
therefore a prerequisite for a valid forfeiture of the funds to the
State. If a blocking order
is terminated by the grant of a
subsequent sequestration order, the forfeiture of the assets used in
the contravention of the regulations
might never be realised. The
effect would be that assets which legitimately ought to be forfeited
to the State in terms of the
regulations, would vest in the insolvent
estate and be subject to distribution by the trustees. The remedy of
forfeiture, a sanction
of public law imposed to protect the currency
and the economy, would be lost by operation of the law of insolvency.
That is an absurdity so glaring that the
legislature could not have contemplated it.
[38]
Just as a solvent person must
suffer the lawful attachment of funds in his or her bank account,
with the possible imposition of
forfeiture in due course, the
trustees of the insolvent estate of that person can be in no better
position. Seen in this context,
the reach of the regulations is such
that a sequestration order must yield to a blocking order. This
interpretation is consistent
with s 224 of Constitution, in terms of
which the primary object of the Reserve Bank is to protect the value
of the currency ‘in
the interest of balanced and sustainable
economic growth in the Republic.’ The regulations constitute
mechanisms, among others,
to assist the Reserve Bank to execute its
Constitutional mandate.
[39]
To sum up, when the estate of a
person is sequestrated, and an account held in the name of a person
is subject to a blocking order,
for the duration of the Reserve
Bank’s investigations or the allowed 36-month period, it cannot
be determined whether the
funds vest in the trustees of the insolvent
estate. This depends on proof of whether the funds ‘belong’
to the account
holder. This can only be finally determined if a
forfeiture order is sought. As such, a blocking order functions to
temporarily
delay a determination whether the funds in a blocked
account vest in the trustees. For that reason, in the interim, the
trustees
are not entitled to demand that the funds be paid out to
them for distribution. As to the legal consequences of a
forfeiture
order after sequestration, should this occur, this issue
need not be determined in this appeal.
[40]
It remains to furnish the reasons
for our order dismissing the Reserve Bank’s application to
adduce further evidence
on appeal, which we heard separately. Given
that the Reserve Bank is victorious in the appeal, the reasons for
refusing its application
to adduce further evidence on appeal pales
into insignificance. The trustees won the battle but lost the war.
The only real relevance
thereof is in respect of costs. Because of
that, the reasons for the order are stated pithily.
[41]
The Reserve Bank sought to introduce
further evidence in the form of two affidavits by Mr Malherbe and Mr
Bhorat. The upshot of
the affidavits is two-fold. The first is that,
after the judgment in the high court had been handed down, Mr Bhorat
approached
Mr Malherbe and essentially ‘confessed’ that
he was involved in illicit flow of money from the country in
contravention
of the regulations, and that he was not the ‘owner’
of the funds in his accounts. Secondly, the Reserve Bank furthermore
sought to establish that the trustees knew about Mr Bhorat’s
version a month prior to the hearing in the high court, but
failed to
disclose that fact to the court.
[42]
As to the first, I have already
mentioned that the regulations do not require proof of contravention
thereof – only a reasonable
suspicion. To the extent that the
affidavit of Mr Bhorat is meant to prove the truthfulness of the
Reserve Bank’s allegations,
it will achieve nothing more than
enhance an already established case. Simply put, the Reserve Bank did
not need the new evidence
to establish its case. Regarding the
alleged failure to disclose the information to the court by the
trustees, whilst it might
be relevant to the trustees’
professional conduct, it is totally irrelevant to the issue in
dispute. For these reasons the
application to adduce further evidence
was dismissed.
[43]
In the result the following order is
made:
1
The appellant’s application for leave
to adduce further evidence is dismissed with costs including the
costs of two counsel.
2
The appeal is upheld with costs including
the costs of two counsel.
3
The order of the high court is set aside
and replaced with the following:
‘
The
application is dismissed with costs including the costs
of
two counsel.’
T
Makgoka
Judge
of Appeal
APPEARANCES
For
Appellant:
K W Lüderitz SC (with him E Muller and J Hlongwane)
Instructed by:
Gildenhuys Malatji
Inc., Pretoria,
Honey &
Partners, Inc., Bloemfontein.
For
Respondents:
C E Puckrin SC (with him M Coetzee)
Instructed by:
Tintingers
Inc., Pretoria,
Cooper Bezuidenhout
(BFN) Inc., Bloemfontein.
[1]
In terms of
s 9(2)(
b
)(i)
the President may make any regulation
affecting
currency, banking or exchanges for-
‘
the
blocking, attachment and obtaining of interdicts for a period of [36
months] . . . and the forfeiture and disposal by the
[National]
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
[National] 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.’
[2]
The
high court order granted an order ‘in terms of prayers 1 –
4’ of the Notice of Motion. Those prayers included
a prayer
for costs against Grobank, which did not oppose the application. In
the body of the application, the trustees stated
that, if Grobank
did not oppose, no costs order would be sought. Therefore, to the
extent the costs order was made against Grobank,
it was made
per
incuriam
.
[3]
Duncan
v Minister of Law and Order
1986
(2) SA 805
(A) at 819I;
Minister
of Law and Order v Kader
1991 (1) SA 41
(A) at 50H-I;
BTR
Industries South Africa (Pty) Ltd and Others v Metal and Allied
Workers’ Union and Another
[1992] ZASCA 85
;
1992
(3) SA 673
(A) at 690G-H;
Powell
N O and Others v Van der Merwe N O and Others
[2005] 1 All SA 149
(SCA);
2005 (5) SA 62
(SCA) para 36.
[4]
Shabaan Bin Hussien
and Others v Chong Fook Kam and Another
[1969] 3 All ER 1626
(PC);
[1970] AC 942
(PC) at 948B.
[5]
Commissioner of
Customs and Excise v Bank of Lisbon International and Another
1994 (1) SA 205
(N) at 208I;
Standard
Bank of SA Ltd v Oneanate Investments (Pty) Ltd
1995 (4) SA 510
(C) at 530G-532D;
ABSA
Bank Bpk v Janse van Rensburg
2002
(3) SA 701
(SCA) at 709A-B.
[6]
S
v Kearney
1964
(2) SA 495 (A) at 503;
S
v Graham
1975
(3) SA 569 (A) at 577;
Trustees,
Estate Whitehead v Dumas and Another
[2013]
ZASCA 19; 2013 (3) SA 331 (SCA) para 13.
[7]
Louw N O and Others v
Coetzee and Others
2003
(3) SA 329
(SCA) para 12.
[8]
Muller N O and Another
v Community Medical Aid Scheme
[2011] ZASCA 228
;
2012 (2) SA 286
(SCA);
[2012] 2 All SA 252
(SCA)
para 13.
[9]
The full and correct citation is
Nissan
South Africa (Pty) Ltd v Marnitz N O and Others (Stand 186 Aeroport
(Pty) Ltd Intervening)
2005 (1) SA 441 (SCA); [2006] 4 All SA 120 (SCA).
[10]
J
E du Plessis
The
South African Law of Unjustified Enrichment
(2012) p 237.
See
also
McEwen
N O v Hansa
1968 (1) SA 465 (A).
[11]
Section 81(1)(
a
)
of the
Insolvency Act.
[12
]
This is in
accordance with the well-known principle enunciated in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634E-635C, which is this: in
motion
proceedings where disputes of fact arise on the affidavits, a final
order can be granted only if the facts averred in the
applicant's
affidavit, which have been admitted by the respondent together with
the facts alleged by the respondent, justify
such an order. This is
so, unless the respondent’s version
consists
of bald or uncreditworthy denials, raises fictitious disputes of
fact, is palpably implausible, far-fetched or so clearly
untenable
that the court is justified in rejecting them merely on the papers.
[13]
In terms of
s 23
of the
Insolvency Act, remuneration
for work done;
compensation for personal injuries, and pensions are expressly
excluded from the insolvent estate.
Section 82(6)
of the
Insolvency
Act excludes
wearing apparel, bedding etc.
[14]
For example,
compensation payable under the Occupational Injuries and Diseases
Act 130 of 1994; Unemployment Insurance Benefits;
Section 35(1) of
the Prevention of Organised Crime Act, 121 of 1998 (POCA).
[15]
Department of Land
Affairs v Goedgelegen Tropical Fruits (Pty) Ltd
[2007] ZACC 12
;
2007 (6) SA 199
(CC) para 53;
Road
Traffic Management Corporation v Waymark (Pty) Limited
[2019] ZACC 12
;
2019 (5) SA 29
(CC) para 29;
Bato
Star Fishing (Pty) Ltd v Minister of Environmental Affairs and
Tourism
[2004] ZACC
15
;
2004 (4) SA 490
(CC) para 90.
[16]
Constitution of the Republic of South Africa Act, 1996.