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[2008] ZASCA 92
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Pratt v FirstRand Bank Ltd. (416/07) [2008] ZASCA 92; [2009] 1 All SA 158 (SCA); 2009 (2) SA 119 (SCA); (2009) 71 SATC 148 (12 September 2008)
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case
No: 416/07
ANNE
ELIZABETH MARY PRATT Appellant
and
FIRST
RAND BANK LIMITED Respondent
Neutral
citation:
Pratt
v First Rand Bank
(416/07)
[2008] ZASCA 92
(12 SEPTEMBER 2008)
Coram:
HARMS
ADP, CLOETE, HEHER and JAFTA JJA and KGOMO AJA
Heard:
2
SEPTEMBER 2008
Delivered:
12
SEPTEMBER 2008
Corrected:
Summary:
Currency –
exchange control – rulings issued by Reserve Bank –
admissibility of evidence to prove status and scope
of such.
_____________________________________________________________________
ORDER
__________________________________________________________________
On
appeal from:
High Court,
Pretoria (Mokgoatlheng AJ sitting as court of first instance).
The
appeal is dismissed with costs including the costs of two counsel.
_____________________________________________________________________
JUDGMENT
__________________________________________________________________
HEHER
JA (HARMS ADP, CLOETE, JAFTA JJA and KGOMO AJA concurring):
[1] The
appellant, Mrs Anne Pratt, would appear to be an astute and
successful businesswoman. In 2001 she owned thirty per cent
of the
shares in Anne Pratt and Associates (Pty) Ltd. The balance was held
by the Fast Track Trust, registered in the Isle of Man,
of which the
appellant was, at least, a beneficiary and perhaps its controller.
She wished to rearrange her affairs. For this purpose
she consulted
the respondent, a commercial bank and an ‘authorised dealer’
1
in foreign exchange.
[2] Eventually
a series of agreements was concluded. For present purposes they were
designed to bring about, first, the acquisition
of the Trust’s
interest in the company by a close corporation, Classy Living CC of
which the appellant was to be the sole
member, and, second, the
payment for such acquisition. To this end the
respondent
agreed to lend the appellant the sum of R25 million. At her request
it transferred that amount to an account held by
the Trust at a bank
in Jersey in the Channel Islands.
[3] When
the date for repayment of the loan fell due the appellant declined to
honour the obligation. The respondent threatened
proceedings to
recover the debt but the appellant issued summons first. She claimed
an order declaring that the agreements were
null and void.
[4] Her
case as pleaded was that the agreements or their implementation
constituted a transaction
2
whereby capital or a right to capital was directly or indirectly
exported
from
the Republic of South Africa in contravention of Exchange Control
Regulation 10(1)(c),
3
because no exemption or permission to do so was granted by the
Treasury or
a
person authorised by the Treasury, and the loan agreement,
being
part of that transaction, was illegal, null and void and unenforcible
at the instance of the respondent.
[5] The
respondent denied that the transaction embodied in the agreements
fell within the ambit of regulation 10(1)(c) as relied
on by the
appellant. It pleaded in the alternative that, if it did so fall─
(a) in
terms of Regulation 22E,
4
the Minister of Finance may delegate to any person any power or
function conferred upon the Treasury by any provision of the
Regulations;
(b) pursuant
to that power the said Minister delegated the powers and functions
conferred upon the Treasury in respect of regulation
10(1)(c) to the
Governor of the Reserve Bank or the South African Reserve Bank;
(c) the
Reserve Bank, through its exchange control department, acting in
pursuance of such delegation, issued exchange control
rulings
applicable to authorised
dealers, including the respondent;
(d) in
terms of exchange control ruling E.5(C)(a)
5
the respondent was permitted, in relation to regulation 10(1)(c), to
remit through normal banking channels the local sale
or
redemption proceeds of non-resident owned assets in South Africa;
(e) the
respondent was accordingly permitted to conclude and implement the
transactions reflected in the agreements.
[6] The
respondent counterclaimed for specific performance of the loan
agreement in the form of payment.
6
The appellant pleaded a defence substantially founded on the facts
set up in support of the claim in convention.
[7] The
matter proceeded to trial. An order made in terms of rule 33(4)
confined the initial hearing (to the extent presently relevant)
to
the following questions:
(a) whether
the agreements constituted transactions falling within the ambit of
regulation 10(1)(c);
(b) whether
the respondent had permission to conclude such agreements and/or was
exempted from the provisions of that regulation;
(c) if
the respondent did not have permission or exemption, were the
agreements a contravention of that regulation;
(d) if
they were a contravention, was the result a nullity?
[8] Only
the respondent led evidence. The witness was Mr Andreas Ribbens, its
official in charge of exchange control and the person
with whom the
General Manager, Exchange Control in that department of the Reserve
Bank liaised in relation to any issue not dealt
with through the
normal day-to-day structures of their respective banks. I shall
shortly consider the substance of his testimony.
[9] The
trial judge, Mokgoatlheng AJ, answered the separated questions as
follows:
(a) the
agreements constituted transactions falling within the ambit of
regulation 10(1)(c)
7
;
(b) the
respondent had permission to conclude the agreements;
(c) the
agreements did not contravene the aforementioned regulation and were
not null and void.
[10] The
learned judge dismissed the plaintiff’s summons and ordered the
appellant to pay the respondent’s costs including
those of two
counsel. He granted leave to appeal to this Court.
[11] There
was no dispute in the appeal that regulation 10(1)(c) was engaged by
the agreements or certain of them.
[12] Before
proceeding to the merits of the appeal it is necessary to remark on
the approach adopted by the learned judge and the
parties to the onus
of proof at the trial. All seem to have accepted that the defendant
carried the burden of showing that it had
permission from the Reserve
Bank to remit the proceeds of the sale to Jersey. However, proof that
such permission was necessary
and that it was
not
obtained were essential elements of the plaintiff’s case as
pleaded ─ without such proof her claim lacked its
raison
d’etre
.
Moreover, the illegality on which the plaintiff relied was not such
as appeared
ex
facie
the
transaction. She was, therefore, required not only to plead it but
also to adduce evidence of all necessary and relevant facts
in its
support:
Yannakou
v Apollo Club
1974
(1) SA 614
(A) at 623G-H;
F
& I Advisors (Edms) Bpk v Eerste Nasionale Bank van SA Bpk
[1998] ZASCA 65
;
1999
(1) SA 515
(SCA) at 525F-526C. This was clearly an instance where the
plaintiff bore the onus of proving a negative: see Schmidt,
Bewysreg
4ed
34-5;
Kriegler
v Minitzer
1949
(4) SA 821
(A) at 828.
[13] The
incidence of the onus was of the greatest importance. The cardinal
question in the first stage of the case was compliance
(or not) with
the requirements of regulation 10(1)(c). The failure of the appellant
to adduce any evidence of absence of permission
should have been
fatal to the success of her claim. It was not her case, even on
appeal, that the respondent’s evidence discharged
her onus. Her
counsel contended only that such evidence was inadmissible, and,
therefore, ineffective in discharging the onus which
the respondent
appeared to have accepted.
[14] Nevertheless,
since evidence was placed before the court concerning the issue of
permission it cannot be ignored and I shall
briefly deal with its
admissibility and substance.
[15] The
respondent’s purpose, in presenting the evidence, was
principally to show that if the transactions were struck by
regulation 10(1)(c) (which it disputed, but the learned judge,
correctly, I think, found they did) then the export of capital or
a
right to
capital
took place ‘with permission granted by the Treasury and in
accordance with’ such conditions as it had imposed.
[16] The
respondent relied on the exchange control rulings to justify and
explain the existence of permission. At the trial counsel
for the
appellant voiced a clear objection to any reference to such rulings
unless their admissibility was established by the calling
of evidence
from the Reserve Bank to identify the source of such rulings and to
bring them within the scope of the permission contemplated
in
regulation 10(1)(c). Nor, according to counsel, was evidence from Mr
Ribbens admissible to interpret that regulation or any
ruling which
related to its application. I have no quarrel with the last-mentioned
submission in so far as it relates to the regulation,
but the same
does not hold for rulings.
[17] The
exchange control rulings have no statutory force. Mr Ribbens
explained that they are ‘general authorities given to
authorised dealers to do certain transactions’. They are not
made available to the public. There is a rulings committee which
is
convened by the Reserve bank and on which representatives of
authorised dealers serve. At its meetings the content of rulings
existing and proposed is discussed and the subject, if necessary, may
be pursued at a liaison committee meeting between banks and
the
Reserve Bank. Out of the decisions taken at these meetings emerge the
rulings which are issued by the Reserve Bank for the
guidance of
authorised dealers. It is clear that a ruling is nothing more or less
than a comunication between the Reserve Bank
and dealers which is
designed to facilitate the application of the regulatory system. Like
any communication between businessmen
falling short of a contract it
is open to elucidation by either party. Mr Ribbens’s evidence
in this regard was part of an
explanation of how authorised dealers
conduct their day to day business in the practical environment
created by the Reserve Bank
for the oversight of foreign exchange
dealings in order to implement the Foreign Exchange Regulations.
There could be no valid
objection to that evidence. Nor as Mr Puckrin
conceded at the outset of his argument could he argue that the
fact
that rulings were issued to authorised dealers and exist in specific
terms amounted to hearsay evidence. As a fact those rulings
were the
basis upon which the authorised dealers dealt with exchange control
transactions and it was admissible for Mr Ribbens
to explain the
interrelation of the rulings and to testify, again as a fact, that
the respondent understood and applied ruling
E5(c)(a) as a blanket
permission granted to remit off-shore the proceeds of the sale of
securities owned by foreigners provided
that that was effected
through normal banking channels. Ribbens also located the decision to
grant such permission in the historical
context of the slackening of
exchange controls upon assets held by non-residents. The evidence of
such an ongoing practice by authorised
dealers at the behest of the
Reserve Bank and in the environment described by Mr Ribbens was such
as to give rise to a rebuttable
inference of fact,
viz
that
the practice had the approval of the Reserve Bank. But the appellant
to whom it was open to challenge such evidence in cross-examination,
did not do so, nor as I have said, did it adduce countervailing
evidence.
[18] Mr
Puckrin submitted, on behalf of the appellant, that ruling
E.5(A)(i)(a) (which, as noted, permits remittal of proceeds of
non-resident owned assets through normal banking channels) provides
in specific terms for the ‘administrative procedures
governing
transactions in securities’. That ruling continues:
‘
The
attention of authorised dealers is also drawn to the provisions of,
inter alia, Exchange Control Regulation 10(1)(c). In this
regard it
is essential that all securities related transactions, between a
resident and a non-resident/immigrant whereby capital
or any right to
capital is directly or indirectly exported from the Republic,
especially those which have cross-border cash flow
implications, are
carefully scrutinized and documentary evidence such as brokers’
notices/validated trade advices, sighted
in order to ensure that such
transactions are concluded at arms length and at market related
prices. In the case of any doubt on
the part of the Authorised Dealer
concerned the proposed transaction is to be referred to the Exchange
Control Department of the
South African Reserve Bank.’
[19] Mr
Ribbens testified as to the procedures followed by the respondent.
But Mr Puckrin submitted that the respondent had fallen
short of the
requirements by failing to scrutinise the transactions carefully and
have sight of the documentary evidence in order
to ensure that the
agreements were concluded at arms length (which, he submitted, they
were not) and at market-related prices (which
he likewise submitted
was not the case). I have referred to the evidence of the status of
the rulings as ‘guidelines’
to dealers. That evidence
does not of itself elevate their terms to ‘conditions’
for the purpose of the statutory prescriptions.
If that was the
contention of the appellant it was open to the appellant (assuming
that the pleadings raised the issue) to call
witnesses from the
Reserve Bank to provide a basis but she did not. Nor, in any event,
upon a fair reading of Ribbens’s evidence,
can one conclude
that the measure of the respondent’s scrutiny of or insight
into documents fell short of what the Reserve
Bank regarded as
sufficient.
[20] The
appellant also built an argument on the proposition that the exchange
control department of the Reserve Bank had, in ruling
E.5(C)(a),
unlawfully delegated the exercise of its discretion to permit or
refuse applications for the export of sale proceeds
which had been
conferred on it by the Treasury for the purposes of regulation
10(1)(c). But that is not so. The department did
not delegate any
power. It took a decision to grant a blanket permission and
authorised its dealers to implement the decision through
normal
banking channels. The ruling as quoted above, does no more than
recommend a thorough investigation of applications and,
in case of
doubt, a referral to the department for a decision.
[21] In
the result the appellant has failed to persuade me that the court
a
quo
erred
in finding that the evidence of Ribbens was admissible and that such
evidence established that the respondent was authorised
to remit the
proceeds of the sale of the member’s interest in Anne Pratt and
Associates (Pty) Ltd as it did.
[22] Mr
Puckrin contended that the learned judge erred in dismissing the
claim in convention. He submitted that the answers to the
rule 33(4)
questions left open the possibility of amendment of the terms of that
claim. I do not agree; its very foundation has,
as I earlier
discussed, been destroyed. Moreover a long time has passed since the
order was made, nothing has been done to supplement
the claim and
counsel did not suggest what might still be done.
[23] The
high court did not make any order in respect of the counterclaim. The
respondent will accordingly be entitled to enrol
the counterclaim for
finalisation in that court in due course. It is accordingly
unnecessary to provide for that in the order.
[24] In
the result the following order is made:
The
appeal is dismissed with costs including the costs of two counsel.
____________________
J
A HEHER
JUDGE OF APPEAL
APPEARANCES:
FOR
APPELLANT:
C E PUCKRIN
SC
K
W LÜDERITZ
FOR
RESPONDENT:
P F LOUW SC
M
A CHOHAN
ATTORNEYS:
FOR APPELLANT: KLAGSBRUN
DE VRIES & VAN DEVENTER
,
PRETORIA
HONEY
& PARTNERS, BLOEMFONTEIN
FOR
RESPONDENT: ROUTLEDGE MODISE
c/o
FRIEDLAND HART INC, PRETORIA
MATSEPES,
BLOEMFONTEIN
1
In s 1
of the Schedule to the Exchange Control Regulations contained in
GNR1111 of 1 December 1961, as amended,
‘authorised dealer’ means, in respect of any transaction
in respect of gold, a person authorised by the Treasury
to deal in
gold, and in respect of any transaction in respect of foreign
exchange, a person authorised by the Treasury to deal
in foreign
exchange’.
2
There
was some debate between counsel as to whether the agreements in
their cumulative effect constituted a single transaction
for the
purposes of Regulation 10(1)(c) or whether each agreement had to be
examined according to its own terms. The appellant’s
counsel
espoused the first approach and I shall assume for purposes of this
judgment that he is correct.
3
‘
10
Restriction on export of capital
(1)
No person shall, except with permission granted by the Treasury and
in accordance with such conditions as the Treasury may
impose─
.
. .
(c)
enter
into any transaction whereby capital or any right to capital is
directly or indirectly exported from the Republic.’
The
appellant’s parallel reliance on regulation 3(1)(e) is no
longer relevant in this appeal.
4
‘
22E
Delegation of powers
(1)
The Minister of Finance may delegate to any person any power or
function conferred upon the Treasury by any provision of these
regulations or assign to any such person a duty imposed thereunder
to the Treasury.
(2)
The Treasury shall not be divested of any power or function or duty
delegated to any person under sub-regulation (1) and may
at anytime
withdraw or amend any decision taken by any such person in the
exercise or performance of the power or function or
duty in
question.’
5
Chapter
E of the Exchange Control Manual is headed ‘GENERAL POLICY
APPROACH TO EXCHANGE CONTROL’. Ruling 5(C)(a) provides
‘The
local sale or redemption proceeds of non-resident owned assets in
South Africa may be regarded as remittable through
normal banking
channels. . .’
6
It
claimed, in the alternative and conditionally, on the basis of
unjustified enrichment (a case not relevant to this appeal).
7
And
within regulation 3(1)(e).