Brief Summary

Banks — Repayment administrator — Appointment and powers under the Banks Act — Respondent appointed to oversee repayment of funds unlawfully obtained by applicants conducting banking business without authorization — Applicants sought to amend final court order regarding possession of assets and repayment of funds — Court held that the Prudential Authority, as the successor to the Registrar of Banks, should have been notified of the application due to its interest in the repayment process — Application dismissed as the original order was not granted in the absence of the applicants and could not be reconsidered under Uniform Rule 6(12)(c).

Comprehensive Summary

Summary of Judgment

Introduction

This judgment concerned an application in the High Court of South Africa, Northern Cape Division, Kimberley, in which the applicants sought relief directed at undoing or curtailing the continuing effects of a prior final order granted on 26 February 2016. That earlier order had authorised the respondent, appointed as a repayment administrator under the Banks Act 94 of 1990, to take possession of and retain the applicants’ assets in furtherance of the repayment regime under sections 83 and 84 of the Act.

The parties to the present proceedings were Mr Pule Ezechiel Lotlhare, Ms Lerato Lotlhare, and Reatswelela Traders CC (as applicants), and Mr Johann George Kruger NO (as respondent). The respondent had previously been appointed, first as an inspector under the South African Reserve Bank Act, and later (following the inspection outcome) as a repayment administrator under the Banks Act to recover and facilitate repayment of money obtained through the unlawful conducting of “the business of a bank”.

Procedurally, the matter arose against the backdrop of an urgent ex parte application brought by the respondent in December 2015, which resulted in a rule nisi authorising seizure/possession of assets and the registration of caveats over immovable property. After the applicants received notice of the rule nisi and the return date but elected not to oppose, the rule was made final on 26 February 2016. More than two years later, on 6 June 2018, the applicants launched the present application seeking, in substance, reconsideration/amendment of the 2016 final order, return of seized assets, and repayment of a substantial sum said to have been “overpaid”.

The general subject matter of the dispute was the proper operation of the statutory repayment administration mechanism created by sections 83 and 84 of the Banks Act, including the scope of the repayment administrator’s authority to hold assets, and whether the repayment process could be treated as complete merely because the applicants had paid a quantified amount into the respondent’s attorneys’ trust account.

Material Facts

The court treated the following factual background as material.

On 18 March 2011, the respondent was appointed in terms of section 11(3) of the South African Reserve Bank Act to inspect TVI Express Makers and/or TVI Express, to determine whether the business of a bank was being conducted unlawfully, in contravention of the Banks Act and related legislation. Following the inspection, the Registrar of Banks (as it then was) became satisfied that the applicants had obtained money by conducting the business of a bank without registration or authorisation.

On 28 January 2015, the Registrar of Banks appointed the respondent, in terms of section 83(1) of the Banks Act, as the repayment administrator contemplated in section 84. The appointment contemplated repayment to members/participants/investors under the scheme operated by the applicants, including, if possible, any lawfully accrued bank interest. The appointment schedule required the respondent to act under the Registrar’s control and to take reasonable steps, including liquidation of assets, to expedite and ensure repayment.

A direction under section 83(1) of the Banks Act was issued directing the applicants to repay money obtained. On 14 December 2015 the respondent approached the court urgently for authorisation to take possession of all assets of the applicants under section 84(1A)(b)(i) and for caveats to be registered over their immovable property. A rule nisi issued, calling on the applicants to show cause on 26 February 2016 why the assets should not remain in the respondent’s possession “in pursuance” of sections 83 and 84. The applicants were given notice of the return date and chose not to oppose, after which the rule nisi was made final.

It was common cause that certain assets (including motor vehicles and furniture) were attached and that caveats were registered over immovable property belonging to the applicants. The final order authorised continued possession of those assets in pursuance of the Banks Act provisions.

In December 2015 the applicants received correspondence from the respondent’s attorneys stating that the inspection revealed a “true amount of money unlawfully obtained” of R1 535 400.00, with a worksheet available. On 18 December 2015 a worksheet was provided; the applicants paid R535 400.00 that day and paid the balance on 28 December 2015 into the attorneys’ trust account.

In the present application, the applicants sought relief including reconsideration of the 2016 order; a declaration that the order had been complied with and that the “true amount” had been settled fully and finally; return of all seized assets; and repayment of R898 200.00, asserted to be amounts reflected as credits in bank statements which, on their version, represented inter-account transfers rather than investor deposits.

The court accepted that there was confirmation (in the form of an unsworn statement by a private banker, Ms Theart) supporting the proposition that credits totalling R898 200.00 were inter-account transfers by the first applicant. The respondent’s response on the papers was that an affidavit was required. The court noted there was no indication the respondent had attempted to verify the banker’s information directly, despite statutory and mandate-based investigative powers.

At the same time, the court treated as material that the broader repayment process had not been finalised, including that distribution to investors had not occurred, and that further investigation remained relevant to identifying all claimants, tracing all deposits (including alleged cash payments), and addressing potential liabilities such as interest and the repayment administrator’s costs.

Legal Issues

The court was required to determine whether the applicants were entitled, on the papers and within the confines of applicable procedural mechanisms, to obtain orders that would effectively undo or neutralise the operative effect of the 26 February 2016 final order and compel the release of assets and repayment of money held under the repayment administration.

The dispute involved questions of procedural law (including joinder/notice to an interested organ and the scope of Uniform Rule 6(12)(c)), the interpretation and application of the statutory scheme in sections 83 and 84 of the Banks Act (particularly section 84(1A)(b)(i)), and the application of law to fact regarding whether the statutory repayment process could be treated as completed.

The matter also required an evaluative judgment on costs in circumstances where the application failed, but the repayment administration had reportedly remained unresolved for an extended period without satisfactory explanation.

Court’s Reasoning

A central strand of the court’s reasoning was that the relief sought implicated the statutory structure under which a repayment administrator acts. Under section 84(3) of the Banks Act, the repayment administrator acts under the control of the relevant supervisory body (the “Authority”), and section 84(6) provides for the repayment administrator’s remuneration by the Authority. The “Authority” is defined in section 1 of the Banks Act as the Prudential Authority established under section 32 of the Financial Sector Regulation Act 9 of 2017, which became (from 1 April 2018) the successor to the Registrar of Banks. Because section 32(2) makes the Prudential Authority a juristic person, it had a distinct legal interest.

On that basis, the court rejected the applicants’ contention that notice to the Authority was unnecessary because they were not challenging the respondent’s appointment or statutory powers. The court characterised the application as one that, in substance, asserted improper execution of the repayment administrator’s duties and sought declarations about finalisation, release of assets held under the Authority’s control, and repayment of money collected within a process supervised by the Authority. The court held that the Authority had a clear interest and should at least have been given notice. This defect was treated as sufficient, on its own, to prevent the application from succeeding.

A second decisive feature of the reasoning related to the applicants’ attempt to achieve “reconsideration” of the 2016 order. The applicants relied on Uniform Rule 6(12)(c), which permits reconsideration of an order granted in a person’s absence in an urgent application. The court accepted that the initial rule nisi had been granted urgently and in the applicants’ absence. However, the order attacked in the present proceedings was the final order of 26 February 2016, granted after the applicants had received notice of the return date and elected not to oppose. The court held that the final order could not be characterised as having been granted “in the absence” of the applicants as contemplated by Rule 6(12)(c), because the purpose of the rule is to redress potential injustice flowing from urgent orders granted without participation where material considerations may not have been placed before the court. Jurisdictional requirements for Rule 6(12)(c) include that the order be granted urgently and in the absence of the affected party; those requirements were not met in respect of the final order. The court further noted that the applicants did not rely on Uniform Rule 42, and no authority supported a proposition that the court could “reconsider” another court’s final order outside established avenues such as appeal or review. To the extent that the relief required revisiting the final order, the application could not succeed.

On the merits of the asset-seizure complaint, the court addressed the applicants’ suggestion that the Banks Act only permitted attachment of assets “set out in the direction” or only assets to the value of the unlawfully obtained funds. The court held that this construction was incorrect in light of section 84(1A)(b)(i), which provides that, upon appointment and while the person is subject to the relevant direction, the repayment administrator “shall recover and take possession of all the assets” of the person subject to the direction. The court reasoned that the phrase “subject to the relevant direction” qualifies the “person”, not the “assets”, and therefore the statute does not support a limitation to specific assets or a value cap. The court also noted that the direction and the letter of appointment did not specify any such limitation. The court referred to earlier judicial acceptance of the practice of seeking court sanction for the possession of assets (despite the Act not expressly requiring such an application), and emphasised that the existence of the court order could not simply be disregarded.

The court then evaluated the applicants’ contention that the section 83(1) direction had been fully complied with because they had paid the amount demanded in the respondent’s attorneys’ letter (described as the “true amount unlawfully obtained”). The court identified multiple difficulties. First, even on the assumption that this was the full amount unlawfully obtained, payment into trust did not complete the statutory repayment process contemplated by section 84. The court treated distribution to claimants as part of that process, and it was common cause that distribution had not occurred. A declarator that the applicants had “settled the true amount fully and finally” would not, on the court’s reasoning, equate to finalisation of repayment administration.

Second, the court held that the applicants’ own case undermined any contention that repayment was complete because they conceded liability for interest on unlawfully obtained monies, yet did not claim to have settled interest. The court considered it important that the demanded “true amount” was described as money unlawfully “obtained”, rather than as the amount “owing” or “recoverable”, indicating that other components (such as interest and administrative costs) could still be relevant to completion.

Third, the court considered that the applicants had not presented independent evidence establishing that the amount demanded represented the full extent of unlawfully obtained money. Their case largely relied on a bank-statement-credit methodology and a subtraction of transfer credits to reach a lower asserted figure. The court noted that the demand letter itself had stated the amount was subject to further investigation and variation, and that the applicants’ replying papers disclosed that investigations had produced allegations of cash payments that would not appear as bank credits. Against that background, the court was not prepared to infer that the absence (after several years) of further proof of payments necessarily meant there were no additional deposits.

As to the claimed repayment of R898 200.00 (said to be inter-account transfers), the court accepted that there was not a “real dispute” on the papers that those credits were transfers, especially given the respondent’s limited engagement with the banker’s confirmation and the respondent’s investigative obligations. However, the court held that this did not justify ordering repayment to the applicants at that stage because there remained disputes and uncertainties about whether all investor payments had been traced, whether all investors had been identified, and how interest and administrative costs would be addressed. Until the repayment process was finalised, the money held remained an asset under the respondent’s possession like the other attached assets, and it could not be concluded that the amounts claimed back would not ultimately be needed for investor refunds and costs of administration.

The court expressed an understanding of the applicants’ frustration with what it characterised as the respondent’s apparent lack of effort and unexplained delay. The respondent asserted that a plan needed to be advertised and sanctioned and claimed he had been on the point of approaching the court, but the court noted an absence of explanation for why this had not already occurred. The court also observed that alleged cash-paying investors had not been identified to the applicants and that no confirmatory affidavits from such persons were provided.

Finally, the court considered a request that it grant “further and/or alternative relief” to put the respondent on terms to finalise the repayment process. The court declined, reasoning that the papers did not contain sufficient information to determine what would constitute a reasonable period for finalisation. The court also noted that the matter had not been framed as an application for a mandamus, and counsel for the applicants could not explain why that route had not been taken.

On costs, although the application failed, the court accepted that the delay and lack of explanation weighed against a conventional costs order. The court considered the respondent’s argument that the applicants should have withdrawn and awaited a promised application to sanction a repayment plan, but noted that similar promises had been made as far back as January 2016 without fruition. The court concluded that fairness required each party to bear its own costs.

Outcome and Relief

The court dismissed the application in its entirety.

No order as to costs was made. The practical effect was that each party was left to bear its own costs, notwithstanding the dismissal.

Cases Cited

ISDN Solutions (Pty) Ltd v CSDN Solutions CC and others 1996 (4) SA 484 (W)

Sheriff Pretoria North-East v Flink and another [2005] 3 All SA 492 (T)

National Director of Public Prosecutions v Braun and Another 2007 (1) SA 189 (C)

Oosthuizen v Mijs 2009 (6) SA 266 (W)

Kruger v Bailey and Others (Western Cape High Court, Cape Town, case number 1912/2014, 9 June 2014) (unreported)

Kruger v Joint Trustees of the Insolvent Estate of Paulos Bhekinkosi Zulu 2016 JDR 2102 (SCA)

National Director of Public Prosecutions v Phillips and Others 2002 (4) SA 60 (W)

Democratic Alliance v Kouga Municipality and others [2014] 1 All SA 281 (SCA)

Legislation Cited

South African Reserve Bank Act 90 of 1998

Banks Act 94 of 1990

Financial Sector Regulation Act 9 of 2017

Rules of Court Cited

Uniform Rule 6(12)(c)

Uniform Rule 42

Held

The court held that the application could not succeed because the applicants failed to give notice to the Prudential Authority (the “Authority” under the Banks Act), which had a direct and substantial interest in relief affecting the repayment administrator’s performance, the finalisation of the repayment process, and the release of assets and funds held under the statutory scheme.

The court further held that Uniform Rule 6(12)(c) did not permit reconsideration of the final order made on 26 February 2016, because that final order was granted after notice to the applicants and could not be treated as an urgent order granted in their absence. The court accepted that the existence of the final order remained operative and could not be bypassed.

On the statutory scheme, the court held that section 84(1A)(b)(i) authorises the repayment administrator to take possession of all assets of the person subject to the relevant direction, and does not limit possession to particular assets or assets up to a specific value. The court held that the repayment process had not been finalised because distribution to claimants had not occurred and because issues such as interest, costs, identification of all investors, and tracing of all payments remained unresolved.

Although the court was not persuaded that there was a genuine dispute that certain bank credits were inter-account transfers, it held that repayment of that amount to the applicants could not be ordered while the statutory repayment administration remained incomplete.

The application was dismissed, and fairness considerations led the court to make no costs order.

LEGAL PRINCIPLES

The judgment applied the principle that where statutory functions are exercised under the control of a supervisory authority, and the relief sought directly implicates that supervisory role and the process overseen, the supervisory body has a material interest and should be given notice, failing which the application is defective.

It reaffirmed that Uniform Rule 6(12)(c) is a narrow remedial mechanism directed at urgent orders granted in a party’s absence, intended to redress potential injustice flowing from the absence of participation at the urgent stage. The jurisdictional prerequisites of urgency and absence must be satisfied in relation to the order sought to be reconsidered, and the rule does not provide a route to reconsider a final order granted after notice and a decision not to oppose.

The judgment applied the statutory interpretation that section 84(1A)(b)(i) of the Banks Act 94 of 1990 authorises a repayment administrator, once appointed and while the person is subject to the relevant direction, to take possession of all the assets of the person. The phrase “subject to the relevant direction” qualifies the person subject to the direction, not the subset of assets capable of being taken into possession.

It also reflected the principle that completion of a statutory repayment administration process entails more than the debtor paying an asserted principal amount into trust; the process includes, materially, the identification of claimants, dealing with disputes about the amounts obtained, and the distribution of recovered monies, together with addressing ancillary components such as interest and administrative costs where applicable.

Lotlhare and Another v Kruger NO (2568/2015) [2018] ZANCHC 85 (16 November 2018)