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[2018] ZAGPJHC 696
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Ospoort Boerdery CC and Another v Freyson Attorneys and Another (15637/2018) [2018] ZAGPJHC 696 (13 November 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
CASE
NO: 15637/2018
In
the matter between:
OSPOORT
BOERDERY
CC FIRST
APPLICANT
FERTILE
FARM TRADING (PTY)
LTD SECOND
APPLICANT
and
FREYSON
ATTORNEYS FIRST
RESPONDENT
THE
FINANCIAL INTELLIGENCE CENTRE SECOND
RESPONDENT
J
U D G M E N T
VAN
DER SCHYFF, AJ
Introduction
[1]
This application comm
e
nced
as an interdict. The applicant sought a mandamus against the first
respondent, and costs on an attorney and client scale. No
relief was
sought against the second respondent, nor costs in the event of it
not opposing the application. The second respondent
was cited only
because it might have an interest in the subject matter of the
application.
[2]
The first
respondent filed a notice to abide by the judgment of the court,
subject to no costs order granted against it but seeks
an order for
costs on a punitive scale against the second respondent. The notice
to abide is dated 25 May 2018 and was only delivered
to the
applicants’ attorneys. The second respondent was not served
with the notice to abide or the explanatory affidavit
attached
thereto. The second respondent duly performed, in accordance with the
terms sought by the applicants, on 20 September
2018.
[3]
On 29 June
2018 the second respondent gave notice of its intention to abide by
the judgment of the court, provided that no cost
order be granted
against it. On 19 July 2018 the second respondent filed an answering
affidavit to the first respondent’s
explanatory affidavit.
[4]
The first
respondent delivered a supplementary affidavit dated 5 October 2018
together with a condonation application to cure the
late filing
thereof. In view of the facts of this dispute as set out below, and
the relevance of the content thereof, I granted
condonation for the
late filing of the supplementary affidavit as well as the late filing
of the second respondent’s heads
of argument.
[5]
The
applicants’ mandamus eventually developed into a dispute as to
the liability for costs. The applicants sought a costs
order against
the first respondent. The first respondent sought costs against the
second respondent. The second respondent submitted
that its
opposition was necessitated by the first respondent’s citing it
as an interested party to this application.
[6]
I shall
briefly refer to the salient facts of this matter prior to the
launching of this application in order to determine the liability
for
costs.
The
facts
[7]
The common
cause facts preceding the institution of this application are the
following:
i.
The first
applicant, on behalf of the second applicant, paid a deposit of
R500,000-00 into the trust account of the first respondent
in regard
to a sale agreement. The sale agreement was subsequently duly
cancelled.
ii.
The
applicants’ interaction with the first respondent was through
and employee of the first applicant, Mr G Krynauw, but the
deposit
was paid to the first respondent by the first applicant.
iii.
The first
respondent was requested to repay the deposit to the first applicant,
during November 2017. The first respondent informed
the applicants
that it would repay the deposit into the trust account of the
applicants’ attorney. On 23 November 2017, the
first respondent
was provided with the trust account details of a firm of attorneys
acting on behalf of the second applicant. However,
prior thereto and
pursuant to the first applicant initially insisting on the money
being repaid to it directly, the first respondent
reported the
transaction as a suspicious transaction to the second respondent, on
17 November 2018.
iv.
On 17
November 2018 the second respondent reverted to the first respondent
and acknowledged receipt of the report.
v.
In a letter
dated 21 May 2018, the second respondent informed the first
respondent that its reliance on the Financial Intelligence
Centre
Act, 38 of 2011 (FICA) was ‘misplaced and legally flawed’.
vi.
On 20
September 2018 the deposit was paid into the trust account of the
applicants’ current attorneys by the first respondent
after
having been informed on 23 August 2018 by one Captain Vermaak of the
Hawks that the investigation against the applicants
was complete and
that no criminal activities had been detected. I pause to mention
that it is not apparent from the affidavits
filed of record on whose
behest the investigation by the Hawks was initiated. The e-mail
communication attached to the first respondent’s
supplementary
affidavit only mentions a meeting between Captain Vermaak and the
first respondent, wherein it was confirmed that
the second respondent
would be informed of the findings.
[8]
The first
respondent contended that it was entitled to retain the deposit
pending a directive issued by the second respondent authorising
payment. It is common cause that the only communication between the
first and second respondent pursuant to the second respondent
acknowledging receipt of the report, is a letter dated 17 January
2018, wherein the second respondent requested the first respondent
to
provide additional documentation. Additional documentation was sent
to the second respondent on 31 January 2018.
[9]
The first
respondent contends that it is the second respondent’s failure
to provide them with a directive, or instruction
to pay out the
money, and that its failure ‘to drive the matter to finality’
constituted the sole cause for the non-payment
to the applicants.
[10]
The second
respondent contended that the first respondent has misconstrued the
relevant provisions of FICA and that accordingly
it is not empowered
by FICA to issue any directive authorising payment. Further, and in
terms of s 33 of FICA, there was no obligation
on the first
respondent not to proceed with the transaction in the absence of a
directive not to proceed, and first respondent
accordingly,
unjustifiably shifts the blame for non-payment on the second
respondent.
FICA
[11]
It is clear
from the long title of FICA that it aims at establishing a FIC in
order to combat money laundering activities and to
impose certain
duties on institutions and other persons that may be used for money
laundering purposes.
[12]
The FIC
issued Guidance Note 4 on Suspicious Transaction Reporting in GN 301
of 14 March 2008 in
Government
Gazette
No. 30873. The note explains who must report suspicious transactions,
what gives rise to the obligation to report, what the nature
of a
suspicion is, what the implications of making a suspicious
transaction report are, and the process required to report suspicious
transactions.
[13]
The issue
as to costs does not relate to the fact that the transaction was
reported as a suspicious transaction, but to the undue
delay
pertaining to the repayment of the deposit in light of the time
having lapsed since the reporting of the transaction and
the actual
repayment of the money. The question as to whether it was reasonable
for the first respondent to refuse to repay the
money must be viewed
in view of sections 33 and 34 of the FICA, and Part 5 of Guidance
Note 4.
[14]
Section 33
of the FICA provides:
‘
An accountable institution,
reporting institution or person required to make a report to the
Centre in terms of sections 28 or 29,
may continue with or carry out
the transaction in respect of which the report is required to be made
unless the Centre directs
the accountable institution, reporting
institution or person in terms of section 34 not to proceed with the
transaction.’
[15]
Section 34
of the FICA reads:
‘
(1) If the Centre, after
consulting an accountable institution, a reporting institution or a
person required to make a report in
terms of section 28, 28A or 29,
has reasonable grounds to suspect that a transaction or a proposed
transaction may-
(a)
involve-
(i)
the proceeds of unlawful
activities or property which is connected to an offence relating to
the financing of terrorist or related
activities; or
(ii)
property owned or controlled by
or on behalf of, or at the direction of a person or entity identified
pursuant to a resolution of
the Security Council of the United
Nations contemplated in a notice referred to in section 26A (1); or
(b)
constitute-
(i)
money laundering; or
(ii)
a transaction contemplated in
section 29 (1) (b),
it may direct the accountable
institution, reporting institution or person in writing not to
proceed with the carrying out of that
transaction or proposed
transaction or any other transaction in respect of the funds affected
by the transaction or proposed transaction
for a period of no longer
than 10 days as determined by the Centre, in order to allow the
Centre to make the necessary inquiries
concerning the transaction
and, if the Centre considers it appropriate, to inform and advise an
investigating authority or the
National Director of Prosecutions.’
[16]
In Part 5
of Guidance Note 4 it is stated unequivocally that:
‘
Section 33 of the FIC Act
provides that a reporter may continue with and carry out a
transaction in respect of which a report is
required to be made
unless
the Centre directs the reporter not to proceed with the transaction
in terms of section 34.’
(my emphasis)
[17]
In paragraph 5.3
of Part 5 of the guidance note it is explained that:
‘
One of
the main purposes of an intervention order is to prevent the
dissipation of funds or property which may be the proceeds of
unlawful activity. A typical example of where this may be the case is
where funds or assets are due to be transferred from one
location to
another or from one person to another, especially where the transfer
will have the effect of moving the funds or assets
out of South
Africa. Reporters are encouraged to indicate to the Centre at the
time of making a report under
section
29
if
they believe that the funds or assets involved in a transaction or
series of transactions may be dissipated. The same also applies
if a
report has been filed with the Centre and the reporter subsequently
becomes aware that the suspected proceeds may be dissipated.
In such
cases the reporter may contact the Centre quoting their reference
number and informing the Centre of the activities within
such
account.’
[18]
Although
the first respondent explains in detail why it deemed it necessary to
report the transaction, it does not state that there
was any reason
to fear that the funds involved in the transaction may be dissipated
or moved outside the Republic.
[19]
Neither the
applicants nor the second respondent contended that the first
respondent acted with an ulterior motive, and I accept
that it was
merely overzealous in its attempt to prevent what it regarded a
suspicious channelling of funds. However, before continuing
any
further, I am constrained to remark that some doubt exists as to the
reasonableness of the first applicant’s contention
that it was
attempting to prevent a suspicious transaction. It is stated
paragraph 5 of the first respondent’s supplementary
affidavit:
‘
In this regard I annex hereto
the urgent application as “FF1”and refer the Court more
specifically to paragraph 22 thereof
and ask that the same be
incorporated herein with reference. It is of the utmost importance to
note that the 1
st
respondent had no dealings with the 1
st
Applicant prior to having been notified to make payment of the
R500 000.00 to the 1
st
Applicant.’ [Paragraph 22 reads: ‘Evident from the
aforementioned email was that I required the deposit to be refunded
to the Applicant and elected the bank account of the Os Poort
Boerdery CC … wherein the refund should be made. Os Poort
provided the applicant with a loan to pay the deposit to the First
Respondent and it, under the circumstances, would have been
convenient for the repayment of the deposit to occur directly to Os
Poort’].
[20]
Annexure
FA22 to the applicants’ founding affidavit however indicates
clearly that the payment of R500 000-00 that was
made into the
first respondent’s bank account on 15 November 2017, was made
by Os Poort Boerdery CC, and an investigation
by the first respondent
as to the source of the deposit would immediately have revealed the
identity of the depositor.
[21]
Even if it
is accepted that the first respondent was reasonable in suspecting
that it was confronted with a suspicious transaction
due to the fact
that neither the applicants nor the second respondent questioned the
reasonableness of the suspicion, the question
still remains whether
the first respondent was entitled to retain the money until it was
convinced that there was nothing untoward
the request to repay the
deposit to the applicants. This question needs to be addressed in
view of the fact that by the end of
November 2017, the applicants had
furnished the first respondent with the details of their attorney’s
trust account, and
furthermore, the second respondent stated in no
uncertain terms by the end of May 2018 that the first respondent’s
reliance
on the FICA was misplaced.
[22]
The
judgment of Sutherland J, in
South
African Petroleum Energy Guild (NPC) v RMB Private Bank
(2014/27890)
[2014] ZAGPJHC 368 (5 December 2014) provides some guidance on this
aspect. The learned judge dealt with a bank resisting
release of
funds on the grounds that it was a tacit or implied term of the
agreement between the client and the bank, that in the
event of the
bank suspecting on reasonable grounds that money in a client’s
bank account is the proceeds of illegal activity
or money laundering,
the bank was entitled to freeze the operation of the account until
having been satisfied to the contrary by
its client.
[23]
Sutherland J posed
the question what would happen if a bank makes a report in terms of s
29 of the FICA, to the FIC. In regard hereto
the learned judge held
(para 27):
‘
It seems to me that the
obligations of a bank to initiate action about money laundering are
wholly regulated by statute. There is
no space, and indeed no need
that is discernible in this regard, to imply additional duties on the
bank …
The respondent’s role in combatting money laundering is already
spelt out in the legislation: in essence to be vigilant about
possible unlawful activity and report it when it is noticed and if
lawfully instructed to put a hold on funds, to do so. There
is no
scope to develop a role for what would be a cousin of the Lex
Commissoria to add to the battalions arrayed against rich crooks.’
[24]
In the
present matter, I am of the view that the first respondent surpassed
any obligation it might have incurred pursuant to the
terms of FICA.
In addition, the retention of the applicants’ funds from
November 2017 until September 2018 far exceeded the
FICA’s
authorisation that the second respondent may in appropriate
circumstances issue a directive not to carry out any transaction
in
respect of suspected funds ‘
for
a period not longer than 10 days’
.
(my emphasis)
[25]
A further
question that needs to be addressed, is whether the second respondent
contributed to the dilemma faced by the applicants
because it
refrained from directing the first respondent to continue with the
transaction. The second respondent crisply and decisively
dealt with
this issue: it is not empowered by the FICA to authorise the
continuation of transactions. It can merely issue a directive
in the
circumstances provided for in s 34 of FICA.
[26]
The first
respondent, it must be remembered, is a firm of attorneys. It
accordingly had access the FICA as well as the Guidance
Notes issued.
Guidance note 4 clearly indicates the main purposes of an
intervention order issued in terms of s 34, which is to
prevent
dissipation of funds. No facts were placed before this court to
indicate that the first respondent could on reasonable
grounds have
been of the view that the applicants intended moving funds out of
South Africa or to otherwise dissipate the funds.
It is accordingly
my finding that the first respondent’s belief that it was
entitled to retain the money pending a directive
by the second
respondent, was misplaced and legally untenable.
[27]
In view of the
fact that the first respondent only repaid the applicants’
money on 20 September 2018 the question as to what
would constitute a
reasonable time to await a directive from the FIC, need not be
addressed and was in any event not addressed
by the parties. It is
however of interest to quote Sutherland J’s remark in
South
African Petroleum Energy Guild
(para 30):
‘
The
languid, if not moribund response from the authorities in response to
the report by the respondent of a possible crime is lamentable.
But
the harsh reality is that a bank is not the sheriff in a frontier
town.’
Costs
[28]
As to the
question of costs, Sutherland J held in
South
African Petroleum Energy Guild
(para 31):
‘
Both
parties sought penal costs including that of two counsel. As I have
found the conduct of the respondent to be without any foundation,
the
costs must follow that result. As regards, the penal aspect, it is
not avoidable that the respondent is not a disinterested
person in
this controversy; i.e. a bank merely acting in the public interest
alone, albeit in error about its powers in law. Its
material interest
derives from the litigation with Sasol, and the prospect of holding
the applicants to account for the insolvency
of the defaulting debtor
and the linked alleged fraudulent guarantees. That factor, together
with the harshness of the burden the
respondent’s conduct
placed on the applicants, as yet unconvicted crooks as they might be,
warrant attorney and client costs.’
[29]
Both
applicants and the second respondent sought punitive costs against
the first respondent. The first respondent in turn sought
a punitive
costs order against the second respondent. As I have found, the first
respondent’s conduct was unreasonable and
without legal
foundation. The ordinary rule of costs following the result must
follow. The applicants, in my view, are entitled
to costs on an
attorney and client scale against the first respondent. The first
respondent refrained to repay a deposit paid by
the first applicant
to the first applicant after the sale agreement was duly cancelled. A
simple investigation as to the identity
of the party who made the
payment would have identified the first applicant as the depositor.
In addition, I take into consideration
that the second respondent did
inform the first respondent as I have referred to, that its reliance
on FICA was misplaced. The
first respondent however, stubbornly
persisted in its view. There is accordingly no reason why either the
applicants or the second
respondent should be out of pocket in regard
to the costs of this application.
[30]
As between
the first and second respondent I take into consideration that the
FICA does not contain any provision empowering the
second respondent
to authorise any transactions. The FICA prescribes the process that
follows on a suspicious transaction being
reported. In view of the
fact that FICA authorises the FIC to issue an intervention order to
restrict transactions for a maximum
period of 10 days, it was
unreasonable for the first respondent to accept that it was entitled
to retain the money for an extended
period of time. The first
respondent’s silence and the non-issue of a directive was an
answer in itself. The first respondent’s
decision to withhold
the repayment of the deposit for the extended period as I have held,
cannot be attributed to the second respondent’s
silence or
non-response. The second respondent was obliged to take part in the
court proceedings because the first applicant requested
a costs order
against it.
ORDER
In
the result the following order is made:
1.
The first respondent is ordered to pay the applicants’ and the
second respondent’s costs of the application on the
scale as
between attorney and client.
_________________________________
E
VAN DER SCHYFF
ACTING
JUDGE OF THE HIGH COURT
Counsel
for the applicants: Adv H van der Vyfer
Applicants’
attorneys: Ayoob Kaka Attorneys
Counsel
for 1
st
respondent: Adv
1
st
Respondent’s attorneys: Freysen Attorneys
Counsel
for 2
nd
respondent: Adv YF Saloojee
2
nd
Respondent’s attorneys: Ntanga Nkuhlu Inc
Date
of hearing: 10 October 2018
Date
of judgment: 2018