About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Free State High Court, Bloemfontein
SAFLII
>>
Databases
>>
South Africa: Free State High Court, Bloemfontein
>>
2018
>>
[2018] ZAFSHC 100
|
|
Ex parte: National Director of Public Prosecutions (1540/2018) [2018] ZAFSHC 100 (12 June 2018)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
FREE
STATE HIGH COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
Reportable:
No
Of
Interest to other Judges: Yes
Circulate
to Magistrates: No
Case No. :
1540/2018
The
ex parte application of:
THE
NATIONAL DIRECTOR OF PUBLIC PROSECUTIONS
Applicant
IN
RE an application in terms of
section 38
of the
Prevention of
Organised Crime Act
No. 121 of 1998
for
the preservation of certain property
CORAM:
DAFFUE, J
HEARD:
15 MAY 2018
JUDGMENT
BY
J
P DAFFUE
DELIVERED:
12
JUNE 2018
I
INTRODUCTION
[1]
The Bank of Baroda (“Baroda”) wants this court to
reconsider a preservation order granted
ex
parte
and
on an urgent basis on 27 March 2018 by Naidoo J.
[2]
The order was obtained in terms of s 38(2) of the Prevention of
Organised Crime Act, 121 of 1998 (“POCA”) and it
is not
in the form of a rule
nisi.
[3]
The only parties featuring in this reconsideration application in
terms of rule 12(1)(c) of the Uniform Rules of Court is Baroda
and
the National Director of Public Prosecutions (“the NDPP”)
that obtained the preservation order.
[4]
An amount of R33 205 871.86 held by Baroda in its Nedbank
correspondent account no [....] has been preserved and Baroda
seeks
the setting aside of this order.
II
THE PARTIES
[5]
The NDPP is the applicant in the application and it was represented
by Advv N A CASSIM SC, NTIMUTSE, R NAIDOO and S FREESE before
me.
[6]
Baroda is the aggrieved entity who applies for reconsideration,
referring to itself as the reconsideration applicant.
It its
papers the NDPP, Eugene Nel (the person appointed as
curator
bonis)
and Nedbank Ltd are cited as 1
st
,
2
nd
and 3
rd
respondents respectively. Advv A BHAM SC and L M SPILLER
appeared for Baroda. The reconsideration application is opposed
by the NDPP only. In order to avoid confusion I shall
hereinafter refer to the parties as Baroda and the NDDP respectively.
III
HISTORY OF THE LITIGATION
[7]
On 18 January 2018 the NDPP obtained an
ex
parte
order
under application number 168/2018 for preservation of property
against several affected parties including Baroda. The
order
against Baroda was for the preservation of an amount of R30 m
standing to the credit of its Nedbank account, the details
of which
are mentioned
supra.
Baroda applied for reconsideration of this order and on 9 March 2018
Jordaan J, who gave the preservation order, set aside
that order and
directed the release of the amount of R30 m.
[8]
A few days later,
i.e.
on 27
March 2018, Naidoo J was approached with yet another urgent
application brought
ex
parte.
The
learned judge granted orders against Baroda and another entity.
In terms hereof an amount of
“
R33 205 871.86
received
by the Bank of
Baroda (South Africa) on or about
14
October 2013
from an
account conducted by Estina (Pty) Ltd with the Bank of Baroda under
account no. [....] which sum
may
be held
for the benefit of
the Bank of Baroda (South Africa) at Nedbank Ltd
in
account no [....]
or in any
other bank account or fund”
was
preserved in terms of s 38(2) of POCA. I added the emphasis.
The importance of the amount and date of receipt in
particular will
appear
infra.
[9]
The object of this second preservation order was to preserve funds
received by Baroda on or about 14 October 2013 in the amount
of
R33 205 871.86 in Baroda’s account number [....] held
with Nedbank. It is common cause that the credit
balance of the
particular account is made up of deposits by numerous depositors and
the account is therefore referred to as a
“
pool
account”
.
Estina (Pty) Ltd (“Estina”) does not have any right,
personal or real, to the amount standing to the credit of Baroda
in
this account. The matter is not as simple as would be the
case where Estina’s bank account with Baroda was
seized in
order to preserve funds. I shall explain later.
IV
THE
NDPP’S CASE
[10]
Estina received R250 202 652.00 from the Free State
Department of Agriculture for the Vrede Dairy Project, but instead
of
using the funds for
bona
fide
dairy
farming, most of the money were paid to companies and individuals
who had nothing to do with farming. The curator
bonis
appointed in terms of the first preservation order, Mr E Nel,
investigated the matter and showed that R110 450 000.00
of
these funds were paid into the Baroda account held with Nedbank.
[11]
In order to obtain its preservation order the NDPP’s counsel
referred in their heads of argument to the history of the
Vrede Dairy
Poject and the flow of funds and submitted that money laundering
occurred. They stated also that
“
R33 205 871.86
was paid to the Bank of Baroda to settle the loans of Kamal Vasram
who was a sole Director of Estina.”
It
was specifically submitted that
“
the
offence of money laundering was committed when money was transferred
from Estina to other companies whose core function was
not
agriculture....”
Reliance
was placed in the founding affidavit of the NDPP on evidence
presented by Messrs Schalkwyk and Nel, a financial investigator
and
the appointed curator
bonis
respectively
.
No
doubt, counsel’s submissions must have influenced the court to
grant a preservation order.
[12]
The application presented to Naidoo J consisted of 933 pages
contained in three lever arch files. The whole purpose was
to
present evidence of the alleged fraudulent nature of the Vrede Dairy
Project and the fact that money allocated to the project
was not used
for
bona
fide
farming,
but to unlawfully channel funds to several third parties.
According to the NDPP’s papers several people, including
Mr
Kamal Vasram (“Vasram”), have been charged recently
in the Bloemfontein Magistrate’s court in respect
of various
offences.
[13]
Nel, who was apparently placed in possession of all relevant
documentation pertaining to transactions between Baroda and Estina
and Baroda and Vasram, made it clear in paragraph 12 of his
supporting affidavit that the Baroda account with Nedbank mentioned
supra
was
utilised by Baroda to
“
receive
deposits on behalf of Baroda, which deposits were intended for the
benefit of Baroda’s clients and from which account
payments
were made to third parties on the instructions of Baroda and its
clients.”
He
submitted that the aforesaid sum should be subjected to a
preservation order, it being the proceeds of unlawful activities.
However he stressed in paragraph 17 that Baroda was not accused of
being a participant in any unlawful activities. On his
version,
relying on two judgments, the proceeds of crime may be preserved
“
even if the
recipients of such proceeds were innocent recipients and did not
participate in the unlawful activities which generated
such
proceeds.”
The
NDPP’s
main
deponent
did
not refute this stance in the founding affidavit, but a change of
heart can be identified in the replying affidavit.
[14]
In the replying affidavit the NDPP indicated that Nel’s opinion
is not supported. The deponent went so far to state
that, on
the objective facts, Baroda is not an innocent party. It is
stated that no explanation was proffered for the large
loans advanced
to Estina’s sole director. On the NDPP’s version
Baroda knew on the probabilities that it was
unlawful to utilise the
proceeds of Estina to repay Vasram’s loan. It is alleged
that the money received to discharge
Vasram’s liability
remained the proceeds of unlawful activities and therefore subject to
preservation. The argument
in the affidavit went further and
the deponent submitted that it was
“
not
required of the NDPP to show that those self-same monies remain in
the Nedbank account.”
According
to the NDPP
“
Vasram
obtained the funds illegitimately from his business relationship”
and Baroda
“
is
the holder of those funds having received repayment of a loan it
advanced.”
V
BARODA’S DEFENCE
[15]
Baroda is of the view that the NDPP’s argument, based on Nel’s
submission, is wrong and
“
premised
upon the same flawed understating of the law relating to money held
in correspondent bank accounts and the nature of the
bank/customer
relationship as was the first preservation order.”
Therefore the
order should be rescinded on the same basis that Jordaan J rescinded
the first order against Baroda.
[16]
It is submitted that
“
once
Estina’s personal right against the bank was extinguished
(namely, when Estina withdrew the funds) there are no ‘proceeds’
that can be attached in the hands of the bank.”
The
argument continues to the effect that the NDPP seeks to preserve
Baroda’s personal right against Nedbank for payment of
R33 205 871.86 in circumstances where neither Estina nor
Vasram has a significant credit balance in any account with
Baroda.
The credit balance in Baroda’s Nedbank account constitutes a
personal right against Nedbank and represents
the deposits of
innocent customers of Baroda, having been made in the lawful
conducting of the business of a bank, and does not
constitute the
proceeds of crime.
[17]
Furthermore, Baroda is not implicated in whatever misdeeds Estina and
its cohorts may have committed and it is not the NDPP’s
case
that Baroda is part of the Estina scheme or a beneficiary thereof.
[18]
It is common cause that Baroda advanced loans to Vasram and that
fixed deposits made by Estina with Baroda served as
security.
Baroda used the pool of funding available to it (being the aggregate
of all deposits) to advance the loans to Vasram
and its other
borrowing customers. It is the bank’s case that Estina at
a later stage gave a lawful instruction to
the bank to make payment
to Vasram in an amount equal to Vasram’s indebtedness to the
bank, i.e to credit Vasram’s
loan account with an amount equal
to his indebtedness to the bank. Simultaneously Estina’s
account was debited (and
therefore reduced) with the same amount.
Baroda is not in possession of the “proceeds of crime”
for the same reason
that the other banks like Standard Bank and FNB
were never in possession of the proceeds of crime.
VI
BARODA’S
RELATIONSHIP WITH BANKS AND CUSTOMERS
[19]
Until 31 March 2018 Baroda operated as a “foreign institution”
in South Africa as defined in the Banks Act, 94
of 1990. It had
only two branches in this country, respectively in Johannesburg and
Durban. On 31 March 2018 it ceased to
operate and conduct the
business of a bank in South Africa. Baroda did not operate as a
clearing bank and as a result it
had to conduct a correspondent
banking relationship with clearing banks which it did with
inter
alia
Nedbank.
Consequently it had a general account with Nedbank, a so-called
“pool” account which reflected inflows and
outflows from
Baroda’s customers without any connection between such inflows
and outflows. All monies paid to customers
of Baroda or paid by
such customers holding accounts with Baroda had to pass through the
“pool” account.
[20]
Baroda does not challenge the evidence of the unlawful and fraudulent
nature of the Vrede Dairy Project. This appears
to be common
cause. Several people and entities have been charged with
serious and wide-ranging counts of criminal misconduct.
Bearing
in mind the findings herein as will be recorded infra, this is
irrelevant in the determination of Baroda’s liability
as
neither Baroda, nor any of its officials have been charged. I
shall deal with fingers pointing to Baroda’s possible
knowledge
of unlawful and criminal activities
infra
.
VII
PURPOSE AND NATURE OF PRESERVATION ORDERS
[21]
Section 38 falls in Chapter 6 of POCA. The primary focus of
this chapter is on property that has been used to commit
an offence
or which constitutes the proceeds of crime, rather than the offenders
themselves. The guilt or wrongdoing of the
owners or possessors
of property is not primarily relevant to the proceedings. See:
NDPP v
Mohamed
NO
[2002] ZACC 9
;
2002 (4) SA 843
(CC) at para
[17]
and
NDPP
v R O Cook Properties, 37 Gillespie Street Durban (Pty) Ltd and
Seevnarayan
(Seevnarayan)
2004
(2) SACR 208
(SCA) at para [20].
[22]
As mentioned in
Mohamed
NO supra
a two-stage approach is provided for in Chapter 6 of POCA.
During the first stage a preservation order is obtained. The purpose
of a preservation order is to preserve the particular property until
the court is able to deal with the NDPP’s application
for
forfeiture of the property in favour of the State during the second
stage.
[23]
The court must grant a preservation order in terms of s 38(2)(b) if
it is satisfied that there are reasonable grounds
to believe that the
property is the proceeds of unlawful activities. See:
Mohamed
NO supra
at para [22].The two other circumstances set out in s 38(2)(a) and
(c) are not relevant for purposes hereof.
VIII
THE
LAW IN RESPECT OF APPLICATIONS IN TERMS OF RULE 6(12)(C)
[24]
Counsel argued
in
limine
how
the reconsideration application should be adjudicated. Mr Bham
submitted, as the heading of the so-called reconsideration
application makes clear, that Baroda is in actual fact the applicant
in this application and therefore it had a right to reply
to the
NDPP’s “answering” affidavit. What is more,
two further affidavits were filed by the parties.
He requested
me to consider all the affidavits in order to have a proper
conspectus of all the relevant facts.
[25]
Mr Cassim did not agree. He submitted that Baroda’s first
affidavit in support of its application for reconsideration
shall be
regarded as an answering affidavit to the NDPP’s founding
affidavit and that the NDPP’s response thereto is
in essence
the replying affidavit as the NDPP aptly referred thereto. He
submitted that the court should not consider any
of the further
affidavits filed by the parties, including the NDPP’s
supplementary affidavit.
[26]
The authorities are not harmonious on the topic. Therefore I
ruled that the parties should address me on all issues and
facts
placed before me in all the affidavits and reserved the right to
eventually decide whether or not to consider the extra sets
of
affidavits.
[27]
The court has a wide discretion under subrule 6(12)(c) and several
factors may be taken into account in order to reconsider
an order
obtained
ex
parte. See: Erasmus, Superior Court Practice
vol
2 at D1-89 and authorities quoted. These include whether an
imbalance, oppression or injustice has resulted, and if so,
the
nature and extent thereof and whether alternative remedies are
available.
[28]
The aggrieved party may approach the court in invoking rule 6(12)(c)
by not filing an answering affidavit in which case the
applicant
shall not be allowed to file a supplementary affidavit in an attempt
to bolster his/her case. However, if
the respondent does
file an answering affidavit, the applicant has the right to reply
thereto in which case the usual rules pertaining
to application
procedure will apply: no new matter may be introduced in the replying
affidavit by the applicant. In a case
as in the second scenario
the parties on reconsideration will be in the same position,
had they come to court on notice in
the ordinary way. I agree
with the pronouncement of the law by Sutherland, J in
IDC
v Sooliman
2013
(5) SA 603
(GSJ) at 606 I – 607 A.
[29]
I do not agree with the procedure followed by Baroda or Mr Bham’s
arguments in support thereof. If this procedure
is allowed as
of right, it would mean that parties will be allowed filing four sets
of affidavits which is contrary to the norm
applicable in application
procedure. There is no reason whatsoever why an aggrieved party
seeking the reconsideration of
an order granted in his absence shall
be allowed as of right the luxury of an additional affidavit.
However, special circumstances
may exist and it is accepted that
further sets of affidavits may be allowed if it would be fair to both
sides and considering the
fundamental principle that disputes should
be adjudicated upon all relevant facts.
[30]
In
casu
Baroda
filed its so-called reconsideration application on 13 April 2018
whereupon the NDPP responded by giving notice to oppose
on 18 April
2018 and filed its “answering” affidavit on 30 April
2018. Baroda’s “replying”
affidavit was
filed hereafter and the matter was set down to be heard as an urgent
application on Tuesday, 15 May 2018. On
Friday 11 May 2018 two
further affidavits were filed, to wit a supplementary affidavit by
the NDPP and Baroda’s response
thereto. None of the
parties sought leave from the court prior to filing the further
affidavits to file these. In fact,
leave was never formally
sought.
[31]
I have difficulty in understanding why the matter was set down for a
Tuesday whilst the parties’ legal representatives
should have
been aware of this Division’s Practice Directives in terms
whereof opposed applications are heard on Thursdays.
I was
expected to read more than a thousand pages in a short time. By
the time the matter came before me, being six
weeks after
Baroda had closed its business in this country, it could hardly be
regarded as urgent anymore. However I made
it clear that I was
prepared to hear the application, but my consent should not be
regarded as laying down a precedent.
[32]
My approach should perhaps have been to decline considering the
affidavits following upon the NDPP’s answer (actually
the
replying affidavit). However, the NDPP invited Baroda in
paragraph 31 of this affidavit to place further information
and
documents before the court which opportunity it was just too eager to
accept. The NDPP filed a supplementary affidavit
out of time,
but Baroda responded thereto. Again, and without trying to lay
down any precedent, I decided to consider all
the evidence contained
in all the affidavits on the basis of expediency and in fairness to
both parties.
IX
LEGAL PRINCIPLES
APPLICABLE TO
EX
PARTE
APPLICATIONS
[33]
Preservation orders are often brought by the NDPP
ex
parte.
This
is allowed and the rationale is clear. It is important to note
that the granting of such orders deprives the affected
party of a
fundamental right to be heard,
i.e.
an
opportunity to state their case. These applications should be
considered and adjudicated with regard to s 34 of the Constitution:
the right to a fair hearing. Yacoob J stated the following at
paragraph [11] in the unanimous judgment of
De
Beer NO v North-Central Local Council and South-
Central
Local
Council and others
[2001] ZACC 9
;
2002
(1) SA 429
(CC):
“
It
is a crucial aspect of the rule of law that court orders should not
be made without affording the other side a reasonable opportunity
to
state their case.”
[34]
In
NDPP
v Braun and another
2007
(1) SACR 326
(C) at paras [20] and [21] Traverso DJP made it clear
that applications under s 38 of POCA do not relieve the NDPP from the
normal
burden imposed on every applicant who approaches the court for
an
ex
parte
order. She continued that it
“
should
be invoked where there is some good cause or reason for the procedure
such as genuine urgency or where the giving of notice
would defeat
the very object for which the order is sought.”
[35]
Traverso DJP summarised the principles applicable to
ex
parte
applications
in paras [22] to [27] with reference to the
locus
classicus, Schlessinger v Schlessinger
1979
(4) SA 342
(W) at 349A – B as well as the SCA judgment of
Southwood AJA in
Powell
NO and others v Van der Merwe NO and others
2005
(1) SACR 317
(SCA). I do not intend to repeat that. In the
first judgment Le Roux J made the point that
“…
unless
there are very cogent practical reasons why an order should not be
rescinded, the Court will always frown on an order obtained
ex
parte
on incomplete
information and will set it aside even if relief could be obtained on
a subsequent application by the same applicant.”
In the latter judgment
Southwood AJA went further and stated that
“…
.the
approach should apply equally to relief obtained on facts which are
incorrect because they have been misstated or inaccurately
set out ….
or, as in this case, because they have not been sufficiently
investigated…..”
[36]
Sutherland J emphasised
that the
“
principle
of audi alteram partem is sacrosanct’
and
“
the only times
that a court shall consider a matter behind a litigant’s back
are in exceptional circumstances.”
The
learned judge explained that this means that
“
it
must mean ‘very rarely’ - only if a countervailing
interest is so compelling that a compromise is sensible, and then
a
compromise that is parsimonious in the deviation is allowed.”
See:
South
African Airways SOC v BDFM Publishers (Pty) Ltd and others
2016
(2) SA 561
(GJ) at para [22].
[37]
In
Thint
v NDPP
2009 (1) SA 1
(CC) at para [102] the Constitutional Court reiterated
that an applicant in
ex
parte
applications
bears a duty of utmost good faith in placing all the relevant
material facts within his/her/its knowledge before the
court.
The court accepted that the test of materiality should not be so high
to render it
“
practically
impossible for the State
(in
that case – or in my view any other applicant –)
to comply with its duty of disclosure,
or that will result in applications so large that they might swamp ex
parte judges.”
X
EVALUATION
OF THE EVIDENCE WITH REFERENCE TO LEGAL PRINCIPLES
[38]
I intend to deal firstly with legal principles and some case law
whereafter I shall consider the evidence and submissions of
counsel.
The
full bench of this Divsion summarised the bank/customer relationship
as follows in
Standard
Bank of SA v Mokoena
(A59/2015)
[2016] ZAFSHC 69
(12 May 2016) at para [14]:
“
It
is trite that the relationship between a banker and customer is
regarded as a contractual one. The basic although not sole
relationship between a banker and customer in respect of a current
account is one of debtor and creditor. If the current
account
of the customer reflects a credit balance he/she is the creditor and
the bank the debtor. The customer is the debtor
and the bank
the creditor if the current account is overdrawn. The roles of
the bank and the customer are then reversed insofar
as the bank
becomes the creditor and the customer the debtor. In either of
these two situations the bank still acts as agent
when carrying out
the instructions of its customers to make payment against their
accounts. See:
Standard
Bank of SA Ltd v Oneanate Investments (Pty) Ltd
1995 (4) SA 510C
at 530G – 532C and
Absa
Bank Bpk v Janse van Rensburg
2002 (3) SA 701
SCA at para 16.”
[39]
The effect of the relationship between a bank and its customer is
that a bank becomes entitled to funds deposited in the customer’s
account, but obliged to give effect to the customer’s payment
instructions. See:
Muller
NO and another v Community Medical Aid Scheme
2012 (2) SA 286
(SCA) para [13]. The bank becomes the
owner of the funds deposited and the customer obtains a personal
right or claim
against the bank based on the bank/customer
relationship.
[40]
In my view the legal principle remains the same even in a case such
as the present where Baroda was a non-clearing bank and
had to make
use of other clearing banks such as Nedbank.
[41]
Although POCA was not applicable in the dispute adjudicated by the
SCA in
Absa
Bank v Lombard Insurance
2012 (6) SA 569
(SCA) the legal principle enunciated must be
considered. The question to be answered was whether receipt of
stolen funds
by the two appellants, Absa and FNB, operated as a
discharge of their mutual customer’s respective debts to them.
The
customer fraudulently obtained funds from Lombard Insurance and
paid that into her current account with FNB from where she
transferred
funds to her other FNB accounts to extinguish her debts
with FNB and also transferred money to her Absa account from where
further
transfers were made to extinguish her Absa debts. The
court held that the customer who caused the fraudulent transfer of
money intended to discharge her indebtedness and found in favour of
the two appellants by dismissing Lombard Insurance’s claims
for
the amounts of the stolen funds used to discharge the fraudster’s
debit balances. The court confirmed that it did
not matter that
payments were made by electronic transfer.
[42]
We are concerned with Chapter 6 of POCA. This chapter provides
for the forfeiture, by civil proceedings, of the very
proceeds of
crime. A preservation order was obtained in terms of s 38.
It serves as interim protection or preservation
whilst s 48 is
utilised to obtain final forfeiture of the actual proceeds of crime.
Both these sections are confined to the
very proceeds of crime.
Both sections require the NDPP to show that the property concerned is
the proceeds of unlawful activities.
[43]
It is important to deal with some aspects of POCA and applicable
authorities before I evaluate the evidence. The legislature
intended
to introduce strict measures to combat organised crime and in the
process to
inter
alia
provide
for the recovery of the proceeds of unlawful activity. I refer
to the long title and preamble of POCA. Clearly
the intention
is to ensure that criminals are not only severely punished by the
introduction of severe sentences, but also to prevent
these criminals
from benefitting from their heinous deeds. I shall consider two
relevant definitions and some authorities.
[44]
“
Proceeds of
unlawful activities”
are
broadly defined in s 1 of POCA. It relates to
“
any
property or any service, advantage, benefit or reward which was
derived, received or retained, directly or indirectly, ….,
in
connection with or as a result of any unlawful activity, …
and includes any property representing property so derived.”
The
Constitutional Court stated in
S
v Shaik
[2008] ZACC 7
;
2008
(5) SA 354
(CC) at para
[25]
that this definition is widely cast,
especially if the definition of
“
property”
is considered.
“
Property”
is defined as
“
money
or …. and includes any rights, privileges, claims and
securities and any interest therein and all proceeds thereof.”
It
is accepted that the court in
Shaik
dealt with Chapter 5 and not Chapter 6 of POCA, but the principle
enunciated remains applicable.
[45]
In
Mohamed
NO
and
Seevnarayan
supra
the
Constitutional Court and the Supreme Court of Appeal respectively
referred to the broad approach to be applied when interpreting
the
definitions of
“
property”
and
“
proceeds
of unlawful activities”
.
In
Seevnarayan
the
respondent made several investments under fictitious names with the
purpose to conceal the origin of the funds in order to evade
income
tax. The court found at paras [57] to [61] that he committed
fraud, but that the funds were not an
“
instrumentality
of an offence.”
It
also found at paras [68] and [69] that the NDPP at no stage claimed
that the capital of the investments originated in unlawful
activities
by the respondent; also that no basis was laid for an inference that
they originated in unlawful activities. At
paras [70] to [73]
the court also found that, even bearing in mind the broad definition
of
“
proceeds of
unlawful activities”
,
the interest earned could not be regarded to be
“
in
connection with or as a result of the offence.”
At
para [72] it was emphasised that there must be
“
some
form of consequential relation between the return and the unlawful
activity”
,
or put otherwise
“
the
proceeds must in some way be the consequence of unlawful activity.”
[46]
In
NDPP
v Abrina 6822
2011(1) SACR 419 (KZP) Wallis J (as he then was) accepted the
following based on authorities such as
Mohamed
NO and RO Cook Properties supra:
“
that
the guilt or wrongdoing of owners or possessors of property is not
primarily relevant to forfeiture proceedings…. Similarly,
where one is dealing with s 38(2)(b), one is concerned, not with the
mind of the owner of the property, but whether the property
constitutes the proceeds of unlawful activities as defined. The
phrase must be interpreted independently of the guilt or
innocence of
the owner of property.”
It
must be emphasised that the conclusion the learned judge arrived at
pertaining to several farms and certain movable properties
distinguishes the case from the facts
in
casu,
notwithstanding
the wide ambit of the definitions quoted
supra.
Here,
the Estina credit balance in its Baroda account has been utilised, as
duly instructed, to settle Vasram’s debt.
The amount
standing to the credit of Estina was extinguished (albeit not
completely) in the process.
[47]
I am convinced that the
Lombard
and
Seevnarayan
judments should be
followed and in so doing the established principles pertaining to the
bank/customer relationship should be upheld.
[48]
I dealt with the test applicable to these kinds of proceedings
supra
,
but it is perhaps apposite to reiterate that the SCA stated in
Singh
v NDPP
[2007] SCA 82 (RSA) at para [17] that the NDPP must
“…
prove
facts giving rise to reasonable grounds for believing
that the property is an instrumentality of the offence”
(or constitutes the
proceeds of unlawful activities.)
[49]
Estina
was registered on 24 June 2008. Its core business was “business
consultant.” On 19 October 2012 Estina’s
core
business changed to “agriculture, farming and related
activities.” Its registered address changed to the
same
address as that of Oakbay. On 31 July 2012 Estina opened a bank
account with Baroda. By that time it was also
a customer of
Standard Bank. Vasram was Estina’s only director.
Previously he was a retail sales manager at Sahara
Computers, a
flagship Gupta company, and he had no farming or agricultural
experience. Three loans were granted to
Vasram by Baroda
in 2013. Security in the form of Estina’s fixed
investments with Baroda was provided to the bank.
On 14 October
2013, the date mentioned in paragraph 2.1 of the second preservation
order, the loans in the total amount of R33 205 871.86
were
settled by way of a transfer of funds. In order to effect
this, Estina’s account with Baroda was debited
with the
amount and Vasram’s loan accounts credited.
[50]
Mr Bham started off his argument on the merits by conceding that
Baroda did not have any problem with Naidoo J’s
declaratory
order that the proceeds of unlawful activities dealt with in the
NDPP’s affidavits amounted to R250 202 652.00.
However, he argued that Naidoo J overlooked the principles applicable
to a bank/customer relationship set out
supra.
According
to him lawful loans were made to Vasram and the payments to settle
the loans were not the proceeds of unlawful activities.
[51]
Mr Bham’s main argument is that the NDPP’s founding
papers do not contain evidence of a factual link between
the funds
which are alleged to be proceeds of unlawful activities and the funds
used to pay the Vasram debt. In fact, Nel’s
affidavit
shows that the Vasram debt was paid using funds from a source other
than the Estina Standard Bank account. This
argument appears to
be sound if Nel’s affidavit and the bank statements relied upon
is considered thoroughly. On 14
October 2013 (the date
mentioned in the preservation order) the credit balance in the Estina
Baroda account was only R343 653.78
and on that day two deposits
of R25 m and R10 m respectively were made. These amounts were
not paid from the Estina Standard
Bank account and neither Nel, nor
anybody else, alleges that these deposits constituted the proceeds of
crime. In fact, Nel
only identified payments in the total sum
of R110 450 000.00, paid from the Estina Standard Bank
account to the Estina
Baroda account during the period between 18
April 2013 to 19 August 2014, as the proceeds of unlawful
activities. I refer
to paragraph 15 of Nel’s affidavit,
read with annexure EN 27. On 14 October 2013,
i.e.
the
day when the two deposits were made, Estina Baroda’s account
was debited when Vasram’s debt was paid and his account
thus
credited in order to extinguish the total debt of R33 205 871.86.
[52]
Mr Bham’s secondary argument is that there is no consequential
relation between the R33 205 871.86 that has
been preserved
and the alleged unlawful activity, the reason being that the credit
balance in Baroda’s Nedbank account is
the result of the
conducting of normal banking business. Therefore, Baroda’s
personal right against Nedbank for payment
of the credit balance
standing to Baroda’s account could not be preserved.
Reliance is then placed on
Lombard
supra
and
it is furthermore submitted that nothing in POCA purports to create
an exception to the rule in
Lombard.
Mr
Bham pointed out that money received by a bank can only be preserved
if it stands to the credit of a particular customer
of the bank.
I agree. Where the customer’s account has a nil or debit
balance there is nothing to be attached
or preserved.
[53]
The NDPP’s arguments failed to take the above legal principles
into consideration. Also, the issue of
commixtio
was
not properly addressed. No doubt, it is clear that the credit
balance of a criminal’s bank account may be frozen
or preserved
even if the funds deposited therein consist of so-called clean and
dirty (or tainted) money. That does
not mean that the
bank’s money can be preserved. Cachalia JA stated the
following in
Trustees,
Estate Whitehead v Dumas
2013
(3) SA 331
(SCA) at para [13], writing for a unanimous court:
“
Generally,
where money is deposited into a bank account of an account-holder it
mixes with other money and, by virtue of commixtio,
becomes the
property of the bank regardless of the circumstances in which the
deposit was made or by whom it was made.”
The
learned judge continued to refer to the bank/customer relationship
set out
supra.
[54]
The judgment of Jordaan J is apposite
in
casu
.
He held that the R30m that the NDPP wanted to preserve was not the
proceeds of crime for the following reasons: 1) Baroda
held all its
customers’ money in a single pool and individual amounts lost
their identity in the pool: 2) Baroda did not
hold the money in the
pool on its own behalf but on behalf of customers and 3) the amount
of R30m had in any event been transferred
to a call-account and was
no longer in Baroda’s possession. The learned judge
concluded that
“
(i)n
the same way that preservation orders are sought in respect of
specific accounts of affected entities in other banks, if a
preservation order is sought it should seek to preserve the account
of the specific client’s
(sic)
and
affected entities held by the bank and not the Nedbank account of the
bank itself.”
[55]
Although Mr Cassim strenuously argued that the facts
in
casu
differ
from those in the case on which Jordaan J made his finding, I am not
persuaded. Again, as in that case, Baroda’s
Nedbank
account was preserved. The amounts differ by about R3 m but
that is immaterial as the principle remains the same.
In the
first case there was an instruction by Estina to transfer the funds
to a call account, whilst in this case funds were transferred,
as
instructed, to settle another customer’s debt,
i.e
that of Vasram.
[56]
Mr Cassim submitted that the dispute can be adjudicated based on two
short answers, i.e. the broad definition of
“
proceeds
of unlawful activities”
and
a common sense approach based on reasonableness referred to by Samela
AJ in
NDPP
v Madatt
,
case no 6488/2007, a judgment in the Cape of Good Hope Division
delivered on 25 January 2008. It has to be mentioned that
the
learned judge relied on several judgments, but in particular
Mohamed
NO
and
Seevnarayan
supra.
I
have already referred to both judgments earlier herein.
[57]
Mr Cassim’s submission that it was proved that the funds used
to settle Vasram’s debt were reasonably suspected
to be the
proceeds of crime does not hold water. I have dealt with the
authorities
supra,
but
reiterate the following. Even if stolen money was used to pay the
Vasram debt, which was not proven, the current credit
balance
in Baroda’s Nedbank account consists of the deposits of many
other customers as a result of Baroda’s normal
banking business
and it cannot be suggested or submitted with conviction that the
credit balance is the consequence of or connected
to any unlawful
activities. There is just no consequential relation as
mentioned in
Seevnarayan
supra
.
[58]
I am satisfied that when Estina’s money was withdrawn from its
Baroda account to settle the Vasram debt,
Baroda’s liability to
Estina was discharged, save for any amount that might have been
standing to its credit at that stage.
We know that as at 29
December 2017 the credit balance was a mere R2 394.50.
These funds could have been preserved,
but it is accepted that the
NDPP is not interested to do that.
[59]
Although, with the benefit of hindsight and bearing in mind all
negative press reports published lately, not to speak
of the belated
action by the SAPS and the NDPP, one may argue that Baroda should
have been aware of irregularities and even fraudulent
actions, it
would be wrong to jump to such conclusions. I have my suspicion
about the involvement and role that Baroda’s
manager played in
granting the loans to Vasram and the settlement thereof, but I am not
prepared to go as far as the NDPP wants
me to go. Now, in 2018
and after being told how the participants in the fraudulent Vrede
Dairy Project went about their business,
it may be easy to point
fingers and accuse those allegedly involved of money laundering by
making use of a
“
complex
system of camouflage”
as
our courts have referred to such schemes. However, none of the
banks, as Baroda’s deponent testified without contradiction,
had reason to believe in 2013 that irregularities were the order of
the day pertaining to the Vrede Dairy Project and/or Estina
and/or
Vasram. No evidence was provided that Baroda knew or ought to
have known that the proceeds of unlawful activities
were deposited
into its Nedbank account. Suspicion is not enough.
[60]
Nel attached the first preservation order and two amendments thereof
to his supporting affidavit which formed part of
the documentation
considered by Naidoo J. There is no indication that Jordaan J’s
judgment was placed before the learned
judge and I have reason to
believe that the pertinent issues raised therein were never canvassed
during an obviously one-sided
argument put forward on behalf of the
NDPP. Although Mr Cassim tried his best to distinguish the two
matters in order to
persuade this court not to set aside the second
order, I was not convinced. This is sufficient reason to
reconsider the second
preservation order.
[61]
Mr Cassim relied on American authority as well as certain
dicta
by
Jordaan J in the aforesaid judgment for the submission that Baroda’s
Nedbank account could be preserved insofar as tainted
or stolen money
or the proceeds of unlawful activities were deposited in that
account. Jordaan J dealt with the principle
of
commixtio
and
stated that it would be unacceptable to expect of the NDPP to prove
that such tainted money (which would have lost its identity
and
become part of the totality of funds in the specific account) still
exists and is located in that account. I agree that
a
preservation order can be made once it has been proven that the
receiver has received funds in the particular account which are
the
proceeds of unlawful activities. This must be clear, but it is
a totally different scenario when a bank’s account
is to be
preserved. If this could be done in respect of Baroda’s
Nedbank account, then the funds of Standard Bank and
the other
commercial banks involved with Estina could have been preserved as
well. Such unfair and oppressive results are
too ghastly to
contemplate.
[62]
I accept that, as clearly stated in the case law referred to
supra
,
the focus in these proceedings is on property and not the owner or
possessor thereof, but I am satisfied that there was no “
property”
to
be preserved. The NDPP made it clear in paragraph 9 of its
replying affidavit that it did not have any
“
desire
to preserve monies rightfully belonging to customers of BoB
(Baroda)”
However, it is a necessary consequence of the order sought and
obtained. Estina did not have any substantial
credit balance in
any account with Baroda at the time the order was made and the
logical conclusion is that funds to which innocent
customers have
personal rights were preserved.
XI
CONCLUSION
[63]
In conclusion I am of the view that no facts were proven giving rise
to reasonable grounds for believing that any of
the funds deposited
in Baroda’s Nedbank account on 14 October 2013 were the
proceeds of unlawful activities.
[64]
Even if am wrong in coming to the aforesaid conclusion, the age-old
principles applicable to the bank/customer relationship
should be
applied, the effect being that Estina does not hold any account with
a substantial credit balance in the books of Baroda.
In any
event, the NDPP did not apply for a preservation order in respect of
Estina’s personal right in such account, but
Baroda’s
Nedbank account.
[65]
Furthermore, and even if it could be proven (which is not the case)
that the proceeds of unlawful activities were deposited
in Baroda’s
Nedbank account, that as a result of book entries Estina’s
account was credited and thereafter debited
to settled Vasram’s
debt with Baroda, the NDPP cannot claim such amount from Baroda based
on the principle laid down in
Lombard
supra.
Mr
Cassim pointed out quite correctly that the court in
Lombard
dealt with common law principles. I do not agree with his
submission that
Lombard
is not authority as far as the application of POCA is concerned. I
accept that this issue might have been a bone of contention
during a
possible future forfeiture application, but there is no reason why
this court should not at this stage deal with the legal
issue and
grant relief as requested by Baroda.
[66]
Although Baroda sought a reconsideration of Naidoo J’s order,
it elected not to argue the matter on the NDPP’s
founding
affidavit and annexures, but responded with a fully-fledged answering
affidavit to which the NDPP replied. As mentioned
I even
allowed further sets of affidavits. Having considered the
evidence, the arguments and the authorities, I am satisfied
that the
order of 27 March 2018 should be set aside partially as requested.
[67]
Baroda seeks the costs of two counsel. This is not an unfair
request bearing in mind the number of counsel representing
the NDPP
and the voluminous papers that had to be studied.
XII
ORDERS
[68]
The following orders are issued:
1)
Paragraph 2.1 of the preservation order granted by Naidoo J on 27
March 2018 under case no 1540/2018
is set aside;
2)
Paragraphs 3, 4, 5 and 6 of the aforesaid
preservation order, insofar as they relate to the amount of
R33 205 871.86
held by Bank of Baroda in Nedbank account no
[....], are set aside;
3)
Applicant, the National Director of Public
Prosecutions, shall pay the costs of the application, such costs
to
include the fees and expenses of two counsel.
_____________
J.
P. DAFFUE, J
On
behalf of applicant:
Adv N A
CASSIM SC and ADV A NTIMUTSE and ADV R NAIDOO and ADV S
FREESE
Instructed by:
The State Attorney
BLOEMFONTEIN
On
behalf of aggrieved party: Adv A BHAM SC
and Adv L M SPILLER
Instructed by:
Mervyn Taback Inc
BLOEMFONTEIN