Mitchell and Another v Hodes N.O. and Others (3584/02) [2002] ZAWCHC 71 (13 December 2002)

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[2002] ZAWCHC 71
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Mitchell and Another v Hodes N.O. and Others (3584/02) [2002] ZAWCHC 71; 2003 (3) SA 176 (C); 2003 (1) SACR 524 (C); 2003 (3) BCLR 253 (C) (13 December 2002)

REPORTABLE
IN THE HIGH COURT OF SOUTH
AFRICA
(CAPE OF GOOD
HOPE PROVINCIAL DIVISION)
CASE NO. 3584/02
In the matter
between:
RODNEY
MITCHELL
First Applicant
PETER
GRAHAM GARDENER
Second Applicant
and
PETER
BARRIE HODES N.O.
First Respondent
ROBERT
JOHN WALTERS N.O.
Second Respondent
GAVIN
CECIL GAINSFORD N.O.
Third Respondent
________________________________________________________________
JUDGMENT :
13 DECEMBER 2002
________________________________________________________________
VAN
HEERDEN J
:
Introduction
This is an
application for an order in,
inter alia
, the following terms:
‘
2. Reviewing and setting aside the ruling, alternatively the
refusal to make a ruling, by the first respondent on Friday 31 May
2002
in the section 417 commission of enquiry into the affairs of
LeisureNet Ltd (in liquidation);
Declaring
the first respondent’s ruling, alternatively his refusal to make a
ruling as sought, on Friday 31 May 2002, to be inconsistent
with the
provisions of section 35 of the Constitution;
4.1 Directing
that no examination of the applicants in terms of
the provisions of section 417 of the Companies Act, 61 of 1973,
shall take place in respect of any matter that has a bearing on the
criminal charges against them, or which might have a bearing on the
criminal charges as amended and amplified in due course, pending
the
finalisation of the pending criminal proceedings against them;
Alternatively
to paragraph 4.1 above, remitting the matter to the first
respondent for reconsideration of the applicants’ application
by
him;
5. Directing such persons as may oppose this application to pay
the costs thereof
’.
The events
which gave rise to this application were, briefly, as follows:
LeisureNet
Limited (in liquidation) (‘
LeisureNet
’) was placed under a
provisional winding-up order by this court on 7 October 2000, which
order was made final on 30 November 2000.
LeisureNet was wound up on
the basis that it was unable to pay its debts within the meaning of
section 344(f), read together with
section 345(1), of the Companies
Act 61 of 1973, as amended (‘
the Companies Act
’). Also on
30 November 2000, this Court granted an application made by the
second and third respondents (then the joint provisional
liquidators
of LeisureNet) for the appointment of a commission of enquiry in
terms of sections 417 and 418 of the Companies Act,
to enquire into
the trade, dealings, affairs and property of LeisureNet (‘
the
Commission
’). In terms of section 418(1) of the Companies Act,
the first respondent, a practising senior advocate of the Cape Bar,
was appointed
by the Court as Commissioner (‘
the Commissioner
’).
On 23 March 2001, the second and third respondents were appointed
the joint final liquidators of LeisureNet (‘
the LeisureNet
liquidators
’). The Commission commenced its work on 1 June
2001, and by 28 June 2002, it had heard the evidence of 21 witnesses
over 49 days.
The first and
second applicants (‘
Mitchell
’ and ‘
Gardener
’,
respectively) were the founders of the Health and Racquet Club
business which was subsequently taken over and conducted by
LeisureNet.
They were at all material times the joint chief
executive officers of LeisureNet, only resigning from their positions
as such in
August 2000 shortly before the liquidation of the said
company. Pursuant to summonses issued by the Commissioner, both
Mitchell
and Gardener testified before the Commission on 8 February
2002 and again appeared before the Commission on 13 March 2002. On
both
such occasions, they had been ordered, in terms of the relevant
summonses, to produce to the Commission certain documents relating
to,
inter alia
, offshore entities known as Clockwork Limited
(‘
Clockwork
’), Moreland Overseas Limited (‘
Moreland
’),
Ajax Way Investments Limited (‘
Ajax Way
’) and Kinsman
Consultancy Limited (‘
Kinsman
’). It would appear that the
first two companies were created for the benefit of Mitchell and his
family, and the last two for
the benefit of Gardener and his family.
(Mitchell and Gardener deny, however, that they are ‘
the
corporate controllers
’ of these companies.) All four companies
are registered in the British Virgin Islands and are administered by
the Insinger de
Beaufort Trust (Jersey) Limited registered in Jersey
(‘
the Insinger Trust
’). Mitchell and Gardener denied
having in their possession any documentation relating to these
British Virgin Island companies
(‘
the BVI companies
’), and
the Commissioner was informed that they were unable to procure any
such documentation from the Insinger Trust themselves.
On Saturday,
30 March 2002, Mitchell and Gardener were arrested by representatives
of the Directorate of Special Operations (‘
the Scorpions
’),
and appeared in court on Wednesday, 2 April 2002. According to the
‘
Draft Charge Sheet
’, they face the following charges:
Count
1 : Fraud;
Court
2 : Fraud, alternatively theft;
Count
3 : Contravention of section 234 of the Companies
Act;
1
Court
4 : Fraud, alternatively a contravention of section
104 of the Income Tax Act 58 of 1962;
Count
5 : (Only in respect of Gardener) Fraud,
alternatively a contravention of
section 59 of the Value Added Tax Act 89 of 1991.
Mitchell had
been summoned to testify before the Commission during the week
commencing 27 May 2002, and Gardener during the week commencing
3
June 2002. During the course of Mitchell’s examination on 27 May
2002, counsel appearing for Mitchell and Gardener raised an
objection
to the line of examination being pursued and thereafter sought a
ruling from the Commissioner in terms identical to those
of prayer
4.1 of the Notice of Motion in the present proceedings, as set out
above. The Commissioner declined to make the ruling
sought and the
applicants now seek to have that decision reviewed. The Commissioner
abides the decision of the court, while the
LeisureNet liquidators
oppose the application.
Background
Many of the facts set out
below are common cause, while others appear from the applicants’
allegations, as set out in their founding
and replying papers before
the Court and in the various Annexures thereto. To the extent that I
have incorporated facts derived
from allegations made by the
LeisureNet liquidators in their answering affidavits and in the
Annexures thereto, I have indicated
the points of factual dispute
between the parties, to the extent necessary for the purposes of the
present proceedings.
LeisureNet is a public
company registered in South Africa. Prior to its liquidation,
it was
listed in the Hotels and Leisure sector of the JSE Securities
Exchange (‘
JSE
’). It owned
inter alia
, the Health
and Racquet Club business which operated 85 health clubs in South
Africa. It also held 57.8% of the ordinary issued
share capital in
Healthland International Limited (‘
Healthland International
’),
a company registered in Malta, which company was in turn the holding
company of LeisureNet’s offshore operations. At the
time of
LeisureNet’s provisional liquidation, Healthland International had
17 subsidiaries throughout Europe and Australia, which
subsidiaries
owned 22 operating health clubs, with a further 17 health clubs under
development in the United Kingdom, Spain, Germany,
Austria and
Australia.
LeisureNet’s
offshore expansion commenced in approximately 1997. In 1998,
Healthland Holdings Limited (‘
Healthland Holdings
’) and
Healthland Management Limited (‘
Healthland Management
’),
both registered in Malta, were established as wholly-owned
subsidiaries of Healthland International. Healthland Holdings was
the holding company of Healthland Europe Limited (formerly known as
LeisureNet International Limited – ‘
LeisureNet
International
’). Prior to 1 May 1999, LeisureNet International
held a 50% interest in Healthland Germany Limited. This company in
turn had
a wholly-owned subsidiary, Healthland Germany GmbH, which
operated the health clubs in Germany and Austria. The managing
director
of Healthland Germany GmbH was one Johan (Hans) Eduard Moser
(‘
Moser
’). The other 50% of the shares in Healthland
Germany Limited were held by Dalmore Limited (‘
Dalmore
’),
a company registered (in 1985) in Jersey in the Channel Islands and
administered by Ernst & Young Trust Company (Jersey)
Limited (now
known as the Royal Bank of Canada Trust Company (International)
Limited). The registered shareholders of Dalmore are
Cacique
Investments Limited, Damor Investments Limited and Paternoster
Nominees Limited, all with the same registered office address
as
Dalmore. The shareholders of these companies are not known to the
LeisureNet liquidators.
Although this
is not entirely clear from the papers before this Court, it appears
to have been generally believed by the LeisureNet
board of directors
that Dalmore was the chosen ‘
corporate vehicle
’ of Moser.
In addition to Moser, a German citizen, who had at one time lived in
South Africa, Dalmore was represented by a Cape
Town attorney (and
erstwhile director of LeisureNet) by the name of Joubert Rabie
(‘
Rabie
’). Rabie is apparently a long-time friend and
business associate of Mitchell, Gardener and Moser. According to one
of the (three)
versions advanced by Rabie in his evidence before the
Commission in this regard, Mitchell and Gardener were each the
beneficial owners
of 20% of the shares in Dalmore, although this has
been denied by Mitchell and Gardener, both of whom assert that they
never held
any interest in Dalmore. Furthermore, according to
Rabie’s testimony before the Commission, he (Rabie) is effectively
the beneficial
owner of 15% of the shares of Dalmore, while Moser is
effectively the beneficial owner of 45% of such shares.
On 16 April
1999, Dalmore sold its 50% shareholding in Healthland Germany to
LeisureNet International for a price of DM10 million,
with effect
from 1 May 1999, in terms of a sale of shares agreement concluded
(on the former date) between Dalmore, Moser, Healthland
Germany,
LeisureNet International and LeisureNet. Rabie, acting under a power
of attorney, signed the sale of shares agreement on
behalf of Dalmore
and Moser, while Gardener signed the agreement on behalf of
LeisureNet and its subsidiaries. The LeisureNet board
of directors
purported to ratify this transaction on 26 May 1999.
According to
the LeisureNet liquidators, the acquisition by LeisureNet
International of Dalmore’s 50% interest in Healthland Germany
was a
fraudulent transaction in a number of respects, including the
following:
the
purchase consideration was grossly inflated in that Healthland
Germany GmbH was at the time technically insolvent and the shares
in
Healthland Germany purchased by LeisureNet apparently worth almost
nothing;
the
alleged beneficial interest of Mitchell and Gardener in Dalmore was
unknown to the other members of the LeisureNet board of
directors
when they ratified the transaction;
contrary
to the terms of the sale of shares agreement and to the decision of
the LeisureNet board on 26 May 1999, the purchase price
of DM10
million was not funded by the issue of shares in LeisureNet but, in
fact, the payment was made in cash. It is alleged
that LeisureNet
funds in the amount of DM10 million approved by the Exchange Control
Division of the South Africa Reserve Bank
for the expansion and/or
development of health clubs in Spain was, on the instructions of
Gardener, utilised for the payment of
the purchase price. The
recipient of these funds was Dalmore but, from Dalmore, DM4 million
of the DM10 million was channeled
to Ajax Way and Clockwork.
While
Mitchell and Gardener admit that DM4 million of the sum of DM10
million ‘
that was paid by LeisureNet International
’ was
subsequently paid by Dalmore to two of the BVI companies, they allege
that this was the consequence of ‘
an entirely separate
agreement
’ that they had with Moser. All the other allegations
made by the LeisureNet liquidators concerning the fraudulent nature
of the
sale of shares by Dalmore to LeisureNet International are
denied by the applicants.
Investigations
made by the LeisureNet liquidators and testimony before the
Commission have also allegedly raised serious concerns
about certain
‘
management contracts
’ entered into at different times
between Healthland Management, on the one hand, and the various
abovementioned British Virgin
Island companies, on the other, in
terms of which substantial sums of money were apparently paid from
LeisureNet Group funds to the
latter companies. According to
Mitchell and Gardener, these payments were made as ‘
management
fees
’, as agreed upon with the boards of the LeisureNet
companies, under a scheme whereby Mitchell and Gardener ‘
donated
’
their offshore work to the BVI companies, which companies in turn
provided management services to the Healthland (ie the LeisureNet
offshore) group. Issues such as the justifiability of these
management fees, and the backdating of certain of the management
contracts
(to a date on which the contracting parties were not yet in
existence), appear to require explanation.
Similarly,
the liquidators also have grave concerns about the manner in which
Mitchell and Gardener each acquired a 5% equity interest
in
Healthland International at a nominal – or no – cost, Mitchell’s
interest being held in Moreland and Gardener’s interest
in Kinsman.
Mitchell and Gardener allege that these shares were acquired as part
of a share incentive arrangement and that the issue
of the shares to
the two BVI companies was approved by the LeisureNet board.
Apart from
various other issues canvassed in the papers before this Court,
reference is also made to the fact that, while LeisureNet
was not
able to finance its offshore expansion by means of its own resources,
it committed itself to support Healthland International
and the
latter’s subsidiaries in various ways, including the provision of
extensive guarantees amounting to hundreds of millions
of rands. It
is also alleged by the liquidators that LeisureNet’s financial
position was materially misrepresented to its bankers,
creditors and
shareholders, particularly in relation to its annual financial
statements for the financial year ending 31 December
1999. The
material misrepresentation was allegedly attributable to,
inter
alia
, a questionable accounting policy (a revenue recognition
policy colloquially referred to as ‘
upfronting
’), which
resulted in a gross exaggeration of LeisureNet’s debtors, and the
non-disclosure of contingent liabilities amounting
to almost R1
billion. It would appear that the substance of most (if not all) of
these allegations are denied by Mitchell and Gardener.
During
February 2002, in applications brought
ex parte
by the
LeisureNet liquidators, Louw J of this Court granted orders directing
that letters of request be issued asking the Royal Court
of Jersey to
act in its aid for the purpose of recognising the appointment of the
LeisureNet liquidators. In terms of these orders,
the LeisureNet
liquidators were authorised to institute legal proceedings in any
court of competent jurisdiction in Jersey so as
to obtain recognition
of their appointment as liquidators, to institute legal proceedings
for the recovery of all movable property
belonging to LeisureNet
situated in Jersey, and to institute any other proceedings to achieve
the proper and effective winding-up
of LeisureNet. Letters of
request were issued by the Registrar of this Court and, on 26
February 2002, the Royal Court of Jersey,
acting in aid of this Court
at the instance of the LeisureNet liquidators, granted relief against
Mitchell, Gardener, Rabie, Moser,
Dalmore and the four BVI Island
companies. The substance of the orders granted in Jersey was that
various entities in Jersey, including
the Insinger Trust, and certain
banks and trust companies, were required to deliver up to the
LeisureNet liquidators documentation
concerning the affairs of
Mitchell, Gardener, Rabie, Moser, Dalmore and the four BVI companies.
Moreover, the assets of these parties
in Jersey were frozen pending
possible substantive relief to be obtained by the LeisureNet
Liquidators.
An urgent
application subsequently made by Mitchell and Gardener to set aside
both orders made by Louw J was dismissed with costs
(by Nel J) on 3
May 2002 (see
Gardener & Another v Walters & Another NNO:
In re Ex Parte Walters & Another NNO
)
.
2
Mitchell and Gardener applied for leave to appeal against the
judgment of Nel J and also applied to the Royal Court of Jersey for
a
stay of its order granted on 26 February 2002, pending the resolution
of their application for leave to appeal against Nel J’s
judgment.
On 24 May 2002, the Royal Court of Jersey dismissed this application.
An application for leave to appeal against this
order by the Royal
Court of Jersey was subsequently also dismissed. Mitchell and
Gardener thereafter withdrew their application
for leave to appeal
against the judgment of Nel J.
As indicated
above, the arrest of Mitchell and Gardener on 30 March 2002, and
subsequent events before the Commission, ultimately
led to the
abovementioned decision made by the Commissioner on 31 May 2002,
which decision the applicants now seek to have reviewed.
Nature
of the present proceedings
In their
main answering affidavit, the LeisureNet liquidators contended that
the decision made by the Commissioner on 31 May 2002
does not
constitute ‘
administrative action
’ and is therefore not
subject to ‘
judicial review
’, properly so called. In
their main replying affidavit, the applicants, whilst not conceding
that the actions of the Commissioner
do
not
constitute
‘
administrative action
’, took the view that their
classification as such was not a prerequisite for the relief sought
by them. According to the applicants,
whatever the nature of the
Commissioner’s conduct, this Court has the power to control the
proceedings of the Commissioner.
In argument
before this Court, Mr
Gauntlett SC
, who together with Messrs
Woodland
and
Manca
appeared for the respondents,
submitted that the impugned ruling by the Commissioner was made
pursuant to a judicial or
quasi
judicial function and that, at
common law, it does not constitute administrative action. Counsel
relied in this regard,
inter alia
, on certain
obiter dicta
by Ackermann J in
Bernstein & Others v Bester & Other NNO
[1996] ZACC 2
;
1996 (2) SA 751
(CC). As will be discussed in greater detail
below, this case concerned the constitutional validity of sections
417 and 418 of the
Companies Act, which sections provide for an
enquiry, during the winding-up of a company, by the Master of the
High Court, by the
Court itself, or (as in the present case) by a
commissioner appointed in terms of section 418. One of the grounds
on which the constitutionality
of these sections was challenged in
the
Bernstein
case was that the mechanism set up by these
sections violated sections 24(b) and (c) of the Constitution of the
Republic of South
Africa Act 200 of 1993 (‘
the interim
Constitution
’).
3
Speaking for the majority of the Constitutional Court, Ackermann J
commented as follows:
‘
The enquiry in question is an integral part of the liquidation
process pursuant to a Court order and in particular that part of the
process aimed at ascertaining and realising assets of the company.
Creditors have an interest in their claims being paid and the
enquiry
can thus, at least in part, be seen as part of this execution
process. I have difficulty in fitting this into the mould
of
administrative action. I also have some difficulty in seeing how
section 24(c) of the interim Constitution can be applied to
the
enquiry, because it is hard to envisage an
“administrative
action”
taken by the Commissioner in respect whereof it would
make any sense to furnish reasons. The enquiry is after all to
gather information
to facilitate the liquidation process. It is not
aimed at making decisions binding on others.
’
4
The
learned judge also had difficulty in seeing how a commissioner
appointed to conduct a section 417 enquiry could be described as
an
‘executive organ of the State’
for the purposes of section
7(1) of the interim Constitution.
5
Both these
statements were
obiter
, Ackermann J indicating expressly
6
that it was unnecessary to give an answer to these questions. Even
assuming that the enquiry conducted under sections 417 and 418
of the
Companies Act did indeed constitute administrative action in terms of
section 24 of the interim Constitution, the learned
judge could find
nothing in those sections which was inconsistent with the
administrative justice rights relied upon by the applicants.
In
particular, nothing in the sections in question prevented the
applicants from approaching the High Court to vindicate their
administrative
justice rights, should actions taken and procedures
adopted by the Commissioner violate such rights.
7
Interestingly,
in their separate judgments in the
Bernstein
case, Kriegler J
(Didcott J concurring) and O’Regan J specifically declined to
endorse the doubts expressed by Ackermann J on the
question as to
whether an enquiry under sections 417 and 418 of the Companies Act
constituted ‘
administrative action
’ as contemplated by
section 24 of the interim Constitution.
8
Kriegler J was also not prepared to ‘
commit
[himself]
to
agreeing, if only with a doubt, as to whether a commissioner
appointed under section 417 is an executive organ of the State
’.
9
After
judgment had been reserved in this matter, the Court requested the
parties to make supplementary written submissions on the
following:
‘
Having regard to the fact that the decision of the Commissioner
[the first respondent]
was made after the date of commencement
of the promotion of Administrative Justice Act, No.3 of 2000 (
“the
Act”
):
Does
the decision of the Commissioner fall within the definition of
“administrative action”
as contained in section 1 of the
Act?
If
so, what will the effect of the provisions of sections 6 and 8 of
the Act be?
’
In their
supplementary written submissions, both Mr
Burger SC
, who
together with Messrs
Fagan
and
Butler
appeared for the
applicants, as also counsel for the LeisureNet liquidators contended
that the impugned ruling by the Commissioner
does
not
constitute ‘
administrative action
’ as defined in
section
1(i)
of the
Promotion of Administrative Justice Act 3 of 2000
.
Although the two sets of counsel gave different reasons for this
conclusion, it is not necessary, for the purposes of this case,
either to canvass such reasons or to express any view as to the
correctness (or otherwise) of the conclusion. An analysis of the
supplementary written submissions furnished on behalf of the
applicants makes it abundantly clear that the applicants are relying
for the relief sought by them only on the inherent power of the High
Court to control the proceedings at enquiries held in terms
of
sections 417 and 418 of the Companies Act. The applicants do not
purport to be attempting to enforce administrative justice rights
in
terms of section 33(1) of the Constitution of the Republic of South
Africa Act 108 of 1996 (‘
the Constitution
’). Nor, would
it seem, do the applicants rely on the kind of judicial review of the
exercise of public power, flowing from the
application of the
doctrine of legality (and which may conveniently be referred to as
‘
rationality review
’), described by the Constitutional
Court in
Pharmaceutical Manufacturers of SA & Another
:
In
re Ex Parte President of the Republic of South Africa & Others.
10
As
indicated above, this Court appointed the first respondent as
commissioner pursuant to the provisions of section 418 of the
Companies
Act. By so doing, the Court in effect delegated to the
first respondent its wide-ranging powers, under section 417 of the
Companies
Act, to summon before it persons believed to be capable of
giving information concerning the trade, dealings, affairs or
property
of a company in liquidation, and to examine such persons on
oath. The first respondent thus obtains his authority to act as
Commissioner
from his appointment by the Court and, in conducting the
enquiry, performs what would otherwise be the Court’s functions on
its
behalf. Indeed, an enquiry by a commissioner appointed by the
Court has been described as ‘
the Court’s enquiry.
11
With the amendment of sections 417 and 418 of the Companies Act in
1985,
12
however, the power to order an enquiry, and to appoint a commissioner
to conduct such enquiry, has been extended to the Master, in
which
event an application to the Court is not necessary. (See, in this
regard, the judgment of Tebbutt J in
Van der Berg v Schulte.
13
)
Notwithstanding this amendment, even an enquiry ordered by the
Master remains subject to the Court’s control.
As was
pointed out by Ackermann J in the
Bernstein
case (
supra
):
‘
The judgment
[in the
Van den Berg
case]
is not
authority for the proposition that, merely because the Master of the
Supreme Court
[now the High Court]
orders such an enquiry, the
Supreme Court loses its power to prevent oppressive or otherwise
improper enquiries being instituted or
to prevent enquiries from
being conducted in an oppressive or otherwise improper manner. This
cannot be the consequence of the amendment.
Whether the order is
made by the Master or by a Judge, it is still an order issuing from
the Supreme Court. Our Supreme Courts
have over many years taken the
view, based on the English and other authorities, that they have the
power to prevent s 417 type enquiries
which would result in
oppression or intervene where enquiries are conducted in an
oppressive or vexatious manner or result in hardship
to the examinee
or where unusual, special or exceptional circumstances are present.
’
14
It is also
established law that the nature of a commissioner’s functions in
conducting an enquiry is such that he or she is obliged
to act in
accordance with the norms of natural justice, applying the standards
of procedural fairness and impartiality appropriate
to this forum,
failing which an aggrieved party may approach the Court for suitable
relief.
15
Counsel for
the LeisureNet liquidators argued that, in exercising its power to
prevent the mechanism of sections 417 and 418 being
used
oppressively, vexatiously or unfairly towards the examinee, the High
Court acts, not on the basis of judicial review, or of
appeal, but by
virtue of its inherent jurisdiction to control the decisions and
conduct of its delegee
as a delegee
. This may well be so.
However, it is in my view not necessary to attach any label to such
proceedings for the purposes of this
case:
if
, as is alleged
by the applicants, the Commissioner’s ruling infringes or threatens
to infringe their rights to a fair trial in
terms of section 35 of
the Constitution, such ruling would, at the very least, result in
hardship to the applicants, thus triggering
the Court’s power to
intervene in the manner discussed above.
The Applicants’
case
The
applicants rely heavily on the fact that they have been arrested and
that criminal proceedings are pending against them. The
enquiry is a
public one and, throughout the enquiry proceedings thus far,
representatives of the Scorpions and of the South African
Revenue
Services have been present. Only the first three charges against the
applicants have been formulated in detail and it would
appear that
the contents of the ‘
General Preamble
’ to the ‘
Draft
Charge Sheet
’, and of the first three counts, have been
formulated by the State largely on the basis of the evidence given at
the enquiry thus
far.
It is also
apparent that the State will in all probability amplify the existing
charge sheets and that further evidence given at the
enquiry will be
utilised by the State in so doing. In particular, the VAT and income
tax charges (counts 4 and 5) are totally devoid
of any detail at this
stage and, from the main replying affidavit filed on behalf of the
LeisureNet liquidators in the present proceedings,
possible evasion
of VAT and of the payment of income tax forms an important part of
the intended examination of the applicants by
the LeisureNet
liquidators. It is thus more than likely that the information which
will be used by the State in ‘
fleshing out
’ the VAT and
income tax charges will be derived, in large measure, from evidence
to be led at the enquiry. To put it bluntly,
by giving further
evidence at the enquiry prior to the finalisation of the pending
criminal proceedings against them, Gardener and
Mitchell will
probably, to a greater or lesser extent, be ‘
writing their own
charge sheets
’, at least in respect of the VAT and income tax
charges.
In dealing
with the potential prejudice to the applicants in being compelled to
give evidence at the enquiry while criminal proceedings
in respect of
the same subject-matter are pending against them, counsel for the
applicants highlight the following aspects of the
intended ambit of
the examination of the applicants by the LeisureNet liquidators:
Firstly,
in paragraph 37.1 of the main founding affidavit, the applicants
state the following:
‘
As appears from what I have described above, the second and
third respondents intend to examine us upon the issues raised in the
charge
sheet and which might be raised in the charge sheet after its
amendment … It is also clear that the second and third respondents
intend to cross-examine us in order to pursue the thesis in the
affidavits filed on their behalf so far.
’
In the main answering affidavit, the LeisureNet liquidators admit
that they ‘
do intend to examine Mitchell and Gardener on the
issues referred to
’ in the said paragraph 37.1.
Secondly,
in paragraph 20 of the founding affidavit, the applicants summarise
the contentions of the LeisureNet liquidators as these
appear in the
founding papers filed in the recognition application brought before
Louw J, and state that these are some of the
issues upon which the
liquidators intend to examine them. In answer, the LeisureNet
liquidators state that:
‘
We do not dispute that we contend that Mitchell and Gardener
participated in a fraudulent scheme, that the value of the shares was
either nil or insubstantial and that Mitchell and Gardener had
secret, undisclosed interests in Dalmore at the time of the
transaction
and that they misled the board of LeisureNet as to the
form of the purchase consideration for the Dalmore transaction.
These are
issues in respect of which we intend to examine Mitchell
and Gardener.
’
Thirdly,
in the founding affidavit, the applicants allege that the
liquidators intend to examine them beyond the ambit of what has
already been ventilated at the enquiry and in the various court
proceedings referred to above:
‘
Our examination by the liquidators will in all likelihood deal
with,
inter alia
:
38.1 The contentions of wrongdoing on our part that
are advanced by the liquidators in their affidavit
[filed in
the recognition application]
, … and in their affidavit in the
proceedings before Mr Justice Nel;
The
relationships between the second applicant and me and our immediate
families on the one hand and the BVI companies and, ultimately,
the
Insinger de Beaufort Trust on the other hand;
The
extent, if any, to which it may be alleged that we might exercise
control over the BVI companies;
The
extent to which witnesses and documentary evidence relied upon (and
to be relied upon by the State in criminal proceedings)
is
unreliable, slanted, ill-informed, biased, incomplete or not
contextualised (as the case may be);
The
evidence available to us to answer and rebut the averments now
contained in the draft charge sheet;
Questions
on tax and VAT which might incriminate us without being able
meaningfully to consider the risk of incrimination due
to the
vagueness of the charges as formulated at present. These questions
would also require us to show our hand in respects
other than
relative to possibly incriminating matters.
’
The liquidators admit
that they do intend to question Mitchell and Gardener on the issues
referred to in paragraph 38.1 to 38.6, but
point out that their
answers may not be used against them in a subsequent criminal trial.
The applicants’ case is summarised in paragraph
39 of the main founding affidavit as follows:
‘
Compelling us to testify before the conclusion of the criminal
proceedings will enable the State to have a comprehensive insight
into
our defence even before the charge sheet has been finalised.
It
will erode our common law rights, our right to silence, our right to
a fair trial and our constitutional rights
.
’
(emphasis added).
The crisp
issue (as formulated by applicants’ counsel) is thus whether or not
the applicants’ common law and/or constitutional
rights to a fair
criminal trial will be violated should they be compelled to testify
before the Commissioner, pending the conclusion
of the pending
criminal trial, on issues which relate to such pending trial.
The
applicants contend that their right to the relief sought is in
essence the right of an accused person not to be compelled to give
evidence at an insolvency enquiry whilst criminal proceedings in
respect of the same subject-matter are pending against such person.

This, according to the applicants, is not only a constitutional
right, but is also a right which has been consistently recognised
at
common law. The applicants rely on a number of cases decided prior
to the advent of the interim Constitution to illustrate the
‘
well-established principle of South African law
’ that –
‘
Where civil proceedings and criminal proceedings arising out of
the same circumstances are pending against a person,
[the usual
practice]
is to stay the civil proceedings until the criminal
proceedings have been disposed of
’ (per Tindall J in
Gratus
& Gratus (Prop.) Ltd v Jackelow
).
16
In the
Gratus
case, the applicant sought the provisional
sequestration of the respondent’s estate. In its petition, the
applicant alleged that
the respondent was indebted to it in respect
of monies stolen from it by the respondent. The respondent filed an
affidavit in which
he stated that criminal proceedings were pending
against him. He stated that, by reason of the pending criminal
proceedings, he
was unable to deal with or comment on any allegations
made in the petition, as any statement made by him at that stage
would prejudice
him in his defence in the criminal trial.
In dealing
with this issue, Tindall J expressed the view that the ‘
principle
at the root of the practice
’ referred to above –
‘
is …that the accused may be prejudiced in the criminal
proceedings if the civil proceedings were heard first, because he
might give
evidence in the civil proceedings and might be subjected
to cross-examination, or he might be compelled to disclose
information in
his possession before the criminal proceedings were
disposed of.
’
17
As the
respondent made no statement in the proceedings before Tindall J
disputing the allegations made by the applicant, the Court
granted
the provisional order. However, the Court held that the respondent
‘
certainly might be prejudiced if, pending the decision of the
criminal proceedings, he were examined under the Insolvency Act, or
if he were interrogated by the provisional trustee
’.
18
This possibility of prejudice was averted by a direction being given
by the Court, with the agreement of the applicant, that pending
the
decision of the criminal proceedings, there would be no examination
or interrogation of the insolvent.
Similarly, in
Du Toit v Van Rensburg,
19
Corbett J (as he then was) also had to deal with a petition for the
sequestration of the respondent’s estate in circumstances where
it
appeared that a criminal charge was pending in respect of matters
which formed, to some extent, the subject-matter of the sequestration
application. The respondent had not yet been given notice of the
application and, accordingly, his attitude to both the application
and the allegations contained in the petition was not known. In his
judgment, Corbett J (without citing the
Gratus
case, but
referring to the case of
Standard Bank v Johnson
20
)
stated that
‘[I]
t has been held that where civil
proceedings and criminal proceedings arising out of the same
circumstances are pending against a
person it is the usual practice
to stay the civil proceedings until the criminal proceedings have
been disposed of
,’
21
and described the principle underlying this practice
in
substantially the same words as those utilised by Tindall J in the
Gratus
case (as cited above).
22
In deciding
whether or not to grant the provisional sequestration order in such
circumstances, Corbett J held that it was ‘
basically a question
as to whether there is a danger that the respondent will suffer
prejudice in those criminal proceedings by reasons
of the granting of
such order
’.
23
The learned judge granted the provisional order, but (as in the
Gratus
case) averted the possibility of prejudice to the
respondent by directing that no examination of the respondent in
terms of the Insolvency
Act or interrogation of him by a provisional
trustee was to take place pending the finalisation of the
application.
In
Irvin &
Johnson Ltd. v Basson
,
24
the Court (per Trengove J) accepted the correctness of the approach
in the
Gratus
and
Du Toit
cases (
supra
), holding
that –
‘…
if it is shown that the proceedings in an insolvency, and
examination of an insolvent, are likely to prejudice the insolvent in
his
defence in related criminal proceedings, the Court has a
discretion to stay all proceedings against him until the criminal
proceedings
have been concluded.
’
25
In the
unreported judgment of Kriegler J in
Havenga v Rheeder &
Another NNO
26
and in the case of
Kamfer v Millman & Stein NNO &
Another,
27
an insolvent’s interrogation on issues forming the
subject-matter of pending criminal proceedings against such insolvent
was stayed,
pending the finalisation of the criminal proceedings. In
the
Havenga
case, Kriegler J referred to the practice followed
in the
Gratus & Du Toit
cases (
supra
),
and described the principle underlying the practice as follows:
‘
Die beginsel onderliggend aan die praktyk is duidelik, naamlik
regverdigheid teenoor 'n persoon wat 'n strafsaak moet tegemoet gaan
en wat onberekenbaar benadeel kan word as hy onder wederregtelike
verpligting staan om sy hand te openbaar nog voor die strafsaak
begin
het.
’
28
This
terminology was also used by Brand AJ (as he then was) in the
Kamfer
case (
supra
).
29
It is, however, important to point out that Brand AJ, in considering
the potential prejudice that may result for an interrogee in
an
enquiry in terms of sections 417 and 418 of the Companies Act,
referred
specifically
to the provisions of section 417(2)(b)
of the Act, in terms of which the interrogee
‘…
may
be required to answer any question put to him at the examination
notwithstanding that the answer may tend to incriminate him,
and any
answer given to any such question may thereafter be used in evidence
against him.
’
It is also
important to note that, as emphasised by counsel for the LeisureNet
liquidators, a perusal of Kriegler J’s judgment in
the
Havenga
case makes it clear that the potential prejudice relied upon by the
applicant in that case was such prejudice as may result from
an
insolvent being compelled to incriminate himself. Thus, in
summarising the applicant’s complaint, Kriegler J stated that:
‘
Applikant beroep hom op hierdie hof om beskerming teen die
benadeling wat hy met betrekking tot die strafsaak ly, as gevolg
daarvan
dat hy verplig word om ingevolge artikel 152
[of the
Insolvency Act 24 of 1936
]
alle vrae te beantwoord,
selfs
dié oor aspekte wat in die strafsaak aan die orde sal wees en wat
hom moontlik kan inkrimineer
’
30
(emphasis added).
Based on
their analysis of the pre-interim Constitution cases, the applicants
argue that, despite the language of judicial discretion
and the
notional weighing-up of competing interests utilised in these cases,
the South African courts have invariably intervened
by staying the
further interrogation of an accused person in an insolvency or
winding-up enquiry, once the potential for prejudice
to such accused
person has been established. This was expressly recognised by Nugent
J in the case of
Davis v Tip NO & Others
.
31
Arguing that it is ‘
axiomatic
’ that no individual’s
common law rights have been diminished by the advent of the 1993 and
1996 Constitutions, counsel for the
applicants thus contend that the
ruling of the first respondent obliging the applicants to give
evidence at the section 417 enquiry
–
despite the fact that they
have been
arrested and charged
– has the consequence of
placing the applicants in a worse position than that in which they
would have been prior to the ‘
new
’ South African
constitutional dispensation. According to the applicants, it
therefore follows, from the ‘
axiomatic position
’ relied
upon by them, that the Commissioner’s ruling was wrong.
Turning to
the position after the advent of this ‘
new
’ constitutional
dispensation, the applicants argue that the judgments of the
Constitutional Court in
Ferreira v Levin NO & Others
;
Vryenhoek & Others v Powell NO & Others
32
and in the
Bernstein
case (
supra
) cannot be
interpreted so as to prevent the applicants,
as accused persons
,
from invoking their fair trial rights under section 35(3) of the
Constitution,
33
in the context of an enquiry held in terms of sections 417 and 418 of
the Companies Act.
In the
Ferreira
case, the Constitutional Court considered the
constitutional validity of section 417(2)(b) of the Companies Act.
As indicated above,
this section provides that any person summoned to
testify at an enquiry under section 417 into the affairs of a company
in the course
of winding-up,
‘
may be required to answer any question put to him at the
examination, notwithstanding that the answer might tend to
incriminate him,
and any answer given to such question may thereafter
be used in evidence against him.
’
The
applicants in that case had not been arrested or charged and were
therefore not ‘
accused persons
’. With one dissent,
34
the Court declared the provisions of section 417(2)(b) to be invalid,
‘
to the extent only
that the words
“and any
answer given to any question may thereafter be used in evidence
against him”
in s 417(2)(b) apply to the use of any such answer
against the person who gave such answer, in criminal proceedings
against such person,
other than proceedings where that person stands
trial on a charge relating to the administering or taking of an oath
or the administering
or making of an affirmation or the giving of
false evidence or the making of a false statement in connection with
such questions
or answers or a failure to answer lawful questions
fully and satisfactorily
’.
35
Two of the
judges based their finding of invalidity on the inconsistency of the
provision with section 11(1) of the interim Constitution
36
and eight of the judges found such provision to be unconstitutional
because of its inconsistency with section 25(3) of such constitution
37
Emphasising
that, unlike Mitchell and Gardener, the applicants in the
Ferreira
case were not accused persons, counsel for Mitchell and Gardener
argued that there is a ‘
fundamental point
’ about the
Ferreira
case which is easily misunderstood: that the
Constitutional Court in that case interfered with the provisions of
section 417 of
the Companies Act to a very limited extent for one
reason only, namely that
that was all the Court was required to
do
. The constitutional validity of section 417(2)(b) of the Act
was the one issue which was within the exclusive jurisdiction of the
Constitutional Court. The various other issues which had been
(incorrectly, so the Court held) referred to the Constitutional Court
– such as whether the evidence given against an examinee at an
enquiry may be used against him or her at a subsequent civil trial
–
were matters which could be determined by the Division of the Supreme
Court which had so referred them.
38
According to applicants’ counsel, the judgment of the majority did
not
deal exhaustively with the rights of an accused person to
a fair trial, but merely tested the constitutional validity of
section
417(2)(b) of the Companies Act against the complaint of the
applicants in that case to the effect that, although they had not yet
been arrested or charged, they were required to answer questions at
the section 417 enquiry which might incriminate them, and which
might
thereafter be used in evidence against them.
39
According to counsel, the judgment of the Constitutional Court was
certainly not intended to suggest that
any
evidence could now
be given at a section 417 enquiry, on the basis that the examinee
could take his chances at a subsequent criminal
trial. This
conclusion, so it was argued, was borne out by the following
statement by Chaskalson P in his majority judgment:
‘
The finding that section 417(2)(b) of the Companies Act is
inconsistent with the Constitution is in essence based on a finding
that
the section infringes the rule against self-incrimination …
The rule against self-incrimination is not simply a rule of evidence.
It is a right which by virtue of the provisions of section 25(3) is,
as far as an accused person is concerned, entitled to the status
of a
constitutional right. It is inextricably linked to the right of an
accused person to a fair trial. The rule exists to protect
that
right. If that right is not threatened the rule has no
application.
’
40
Counsel for
the applicants further submitted that the judgment of the
Constitutional Court in the
Bernstein
case (
supra
) did
not stand in the way of the relief sought by the applicants; on the
contrary, the judgment of Ackermann J (writing for the
majority) in
that case must be interpreted so as to support the applicants’
case.
In the
Bernstein
case, the whole mechanism created by sections 417
and 418 of the Companies Act, and not just the obligation to answer
potentially
self-incriminating question in terms of section
417(2)(b), was subjected to constitutional challenge. In addition to
the right to
a fair trial (and, in particular, the privilege against
self-incrimination), the applicants relied on their right to freedom
and
security of the person; their right to personal privacy (both in
general and, in particular, the right not to be subjected to seizure
of private possessions); the right to just administrative action;
the right to fairness in civil litigation, and the right to equality.
The Constitutional Court rejected all the arguments. In dealing
with the challenge based on the right to personal privacy, Ackermann
J, writing for the majority, stated the following:
‘[60] …
Section 417(2)(b), before it was declared invalid to
the extent
indicated in the order of this Court in
Ferreira v
Levin
, in express and unequivocal terms compelled an
examinee to answer a question even though this might tend to
incriminate the examinee
and further provided that such incriminating
answer could be used thereafter in evidence against the examinee,
inter alia
in criminal proceedings. On the
clear wording the provision could simply not be read down so as not
to exceed the examinee’s chap
3 rights. Accordingly, the Court
could not avoid declaring the provision in question invalid to the
extent indicated in its order.
There is no other provision in s 417
or s 418, or for that matter in any other provision of the Act which
expressly or by necessary
implication compels the examinee to answer
a specific question which, if answered, would threaten any of the
examinee’s chap 3
rights. It must, in my view, follow from this
that the provisions of ss 417 and 418 can and must be construed in
such a way that
an examinee is not compelled to answer a question
which would result in the unjustified infringement of any of the
examinee’s chap
3 rights …
[61]
In this context the provisions of s 418(5)(b)(iii)(aa) of the
Act are important. The subparagraph in question provides that a
person
who, having been duly summoned under s 417 or s 418 to the
examination
“fails,
without sufficient cause
… to answer fully and
satisfactorily any question
lawfully
put to him in terms of
s 417(2) or
this section … shall be guilty of an offence”.
(Emphasis supplied.) Nothing could be clearer, in my view, than
this. If the answer to any question put at such examination would
infringe or threaten to infringe any of the examinee’s chap 3
rights, this would constitute
“sufficient cause”
, for
purposes of the above provision, for refusing to answer the question
unless such right of the examinee has been limited in a
way which
passes s 33(1) scrutiny. By the same token the question itself would
not be one
“lawfully put”
and the examinee would not, in
terms of this very provision, be obliged to answer it …
’
(See also,
in this regard, the judgment of Ackermann J, writing for the whole
Constitutional Court, in
Nel v Le Roux NO & Others
.
41
)
Applicants’
counsel, relying on this part of Ackermann J’s judgment in the
Bernstein
case, argued that the applicants, having been
arrested and charged,
are
able to invoke their right to a fair
trial, including their right to remain silent and their right not to
be compelled to give self-incriminating
evidence at this stage of the
enquiry, notwithstanding the judgment of the Constitutional Court in
the
Ferreira
case. In relying on their right to a fair trial,
the applicants emphasised that this right (embodied in section 35(3)
of the Constitution)
is broader than the list of specific rights set
out in that subsection – ‘
it embraces a concept of substantial
fairness which is not to be equated with what might have passed
muster in our criminal courts
before the Constitution came into
force
.’
42
Relying on,
inter alia
, Kriegler J’s formulation in the
Havenga
case (
supra
) to the effect that ‘
incalculable prejudice
’
(‘
onberekenbare benadeling
’) could be suffered by an
accused person having to ‘
show his hand
’ before the trial,
counsel for the applicants argued strenuously that this concept of
‘
showing one’s hand
’ goes wider than the danger of
self-incrimination, ie it is not confined to the risk that, by being
compelled to answer questions
at a winding-up enquiry, the examinee
may incriminate him or herself, and that such incriminating evidence
could subsequently be
used against the examinee at the criminal
trial. According to the applicants, the essence of their complaint
is not
merely
that they may be compelled to incriminate
themselves by giving evidence at the enquiry. Their complaint is
much broader – they
contend that they will suffer prejudice in that
the manner in which the State will present its case; the witnesses
it will call;
the witnesses it will attempt to avoid calling; the
way in which it will formulate the charges; and the approach it will
adopt
to cross-examination will be based upon, or at the very least
informed and shaped by, the evidence to be given by the applicants
at
the enquiry. This prejudice is not eliminated by the ‘
direct
use immunity
’ in respect of incriminating evidence given at the
enquiry, which use immunity was (in effect) ‘
read in
’ to
section 417(2)(b) of the Companies Act by the
Ferreira
case.
Reverting to
the abovementioned ‘
axiomatic position
’ relied upon by
them, applicants’ counsel concluded that the
Ferreira
and
Bernstein
cases must be interpreted so as to allow the
applicants, as accused persons, to invoke their fair trial rights
under section 35(3)
of the Constitution in a manner which will
prevent them from having to ‘
show their hand
’ before the
finalisation of their criminal trial. If the
Ferreira
and
Bernstein
cases were to be interpreted so as to compel them to
testify at the winding-up enquiry, despite the fact of their arrests
and the
charges against them, their rights as accused persons would
not be as well protected under the Constitution, as they were
protected
at common law – this, according to applicants’ counsel,
could not have been the intention of the framers of either the
interim
or the final Constitutions.
The
Liquidators’ case
Counsel
for the LeisureNet liquidators accepted that the Court’s
‘
discretion
’ to stay civil proceedings against a person
until related criminal proceedings against such person have been
concluded is not a
‘
discretion
’ in the traditional sense
of the term. With reference to the cases of
Davis v Tip NO &
Others
(
supra
)
43
and
Seapoint Computer Bureau (Pty) Ltd v McLoughlin & De Wet
NNO
,
44
counsel proceeded from the premise that, once it is established that
the accused person might suffer prejudice if the civil proceedings
were to continue, the Court effectively has a duty to intervene so as
to avoid such prejudice occurring. It is clear from the ruling
made
by the Commissioner on 31 May 2002, which forms the subject of the
present proceedings, that this was in fact that point of
departure
adopted by the Commissioner.
The
liquidators’ counsel rejected as untenable the ‘
axiomatic
position
’ relied upon by the applicants, contending that the
structure of the applicants’ argument founded on this ‘
axiom
’
is ‘
as unsound as it is strategic in conception
’. Counsel
relied in this regard on the judgment of the Constitutional Court in
the case of
Pharmaceutical Manufacturers of SA & Another: In
re Ex Parte President of the Republic of South Africa & Others
(
supra
), in which a unanimous court (per Chaskalson P)
rejected an attempt to compartmentalise law in South Africa into
common law, statutory
and constitutional components.
45
Counsel emphasised that, in the words of Chaskalson P:
‘
There are not two systems of law, each dealing with the same
subject-matter, each having similar requirements, each operating in
its
own field with its own highest Court. There is only one system
of law. It is shaped by the Constitution which is the supreme law,
and all law, including the common law, derives its force from
Constitution and is subject to constitutional control.
’
46
According to
the liquidators, the only correct approach to the applicants’ claim
of rights is an integrated one, taking the Constitution
and the
pronouncements of (
inter alia
) the Constitutional Court
regarding the constitutional validity of a statutory compulsion to
provide evidence in investigative enquiries
as its starting point.
Counsel emphasised that, not only is this so as a matter of
principle, but most pertinently for the present
proceedings,
Ackermann J in this
Bernstein
case (
supra
) (writing for
the majority and without dissent on this point), held in relation to
sections 417 and 418 themselves that:
‘
The Constitution has in principle brought about the fundamental
change to the way in which the evidential privileges of a witness
or
those of an examinee at any statutory enquiry … should be
approached.
’
47
In analysing
the common law cases relied upon by the applicants (discussed in
detail above), the LeisureNet liquidators pointed out
that, prior to
the advent of the 1994 constitutional dispensation, the evidence
which an accused person gave at a winding-up enquiry,
including
self-incriminating evidence,
could
be used against such person
at a subsequent trial. Thus, in an attempt to ensure that such a
person was given a fair criminal trial,
the South African Courts in
the pre-constitutional decisions relied upon by the applicants made
orders which effectively prevented
the interrogation of such a person
prior to the finalisation of the pending criminal trial. In so
doing, the potential prejudice
to the accused person which the courts
sought to avoid was that which might result from such person being
forced to incriminate himself
or herself. As pointed out by the
liquidators, the kind of prejudice now being relied upon by the
applicants – the risk that the
State will obtain a tactical
advantage in the forthcoming criminal trial should the applicants be
compelled to ‘
show their hand
’ prior to the finalisation
of such trial – was not pertinently raised before, or considered
by, the Court in any of these pre-constitutional
cases.
The
liquidators fundamentally disputed the applicants’ proposition that
they enjoy ‘
a right not to be compelled to give evidence at an
insolvency enquiry while criminal proceedings in respect of the same
subject matter
are pending against them
’. Their answer to the
applicants’ contention that the
Ferreira
and
Bernstein
cases must be interpreted so as to allow the applicants,
as
accused persons
, to obtain the relief currently sought by relying
on their rights to a fair trial under section 35(3) of the
Constitution, was a
crisp one: According to the liquidators, the
following principles emerge from the Constitutional Court judgments
in the
Ferreira
and
Bernstein
cases:
48
The
statutory mechanism provided by sections 417 and 418 of the
Companies Act (save for the ‘
offending
’ part of section
417(2)(b) which formed the subject of the
Ferreira
case)
serve important public purposes and is constitutionally valid;
An
examinee may be required to answer any question put to him or her at
a section 417 enquiry notwithstanding the fact that the
answer may
tend to incriminate such person;
No
incriminating evidence given pursuant to statutory compulsion at
such an enquiry may be used in criminal proceedings against
the
person who gave evidence other than in criminal proceedings for
perjury;
The
safeguard which an examinee has in ensuring that his or her right to
a fair trial is not prejudiced, is the use immunity conferred
upon
such examinee in relation to his or her evidence. Regarding direct
evidence, there is a complete use immunity. In relation
to
derivative evidence, the Court ultimately hearing the criminal trial
has a discretion to disallow such evidence if the examinee’s
right
to a fair trial will be compromised should such evidence be allowed;
Notionally,
an examinee may refuse to answer questions which may infringe
constitutional rights on the basis that he or she has
‘
sufficient
cause
’ to do so within the meaning of section
418(5)(b)(iii)(aa) of the Companies Act. However, a refusal to
answer questions on the
basis that the compelled evidence may
prejudice the examinee in a future criminal trial, in particular the
potential infringement
of the right to a fair trial under section
35(3) of the Constitution, will
not
constitute such
‘
sufficient cause
’.
In providing
the abovementioned safeguards to persons in the position of the
applicants, the Constitutional Court in both the
Ferreira
and
Bernstein
cases emphasised the important public purposes which
the provisions of section 417 and 418 of the Companies Act seek to
achieve.
Thus, it was argued on behalf of the LeisureNet
liquidators, in balancing the important public purposes served by
these provisions
against the rights of the examinee, it is explicable
why the Constitutional Court left the mechanism completely intact,
save for
the offending part of section 417(2)(b), and why an examinee
should be compelled to testify on all relevant matters subject, of
course,
to the safeguards set out above. The liquidators stressed
the fact that the declaration of invalidity in respect of section
417(2)(b)
in the
Ferreira
case did not affect any of the other
provisions of sections 417 and 418 of the Companies Act and, as was
observed by Ackermann J in
that case, it was not contemplated that
the declaration of invalidity would have any significant impact on
the purpose or efficacy
of enquiries under these provisions:
‘
A declaration of invalidity will not effect any of the other
provisions of sections 417 or 418 of the Companies Act and will have
insignificant, if any, impact on the purpose or efficacy of enquiries
under these proceedings.
’
It is common
cause that the issues before the Commission are complex and
intertwined. Moreover, the liquidation of LeisureNet and
the
collapse of the LeisureNet group represents one of the largest
corporate collapses in South African financial history. The total
estimated claims of creditors against LeisureNet amount to R1,15
billion. The total claims admitted to proof against LeisureNet
(of
more than 4 000 creditors) amount to R659 million, comprising secured
claims of R336 million, preferent claims of R23 million
and
concurrent claims of R306 million. Counsel for the liquidators
contended that, were the argument on behalf of the applicants
to be
accepted, it would in substance mean that they could not be examined
in any meaningful way. Thus, particularly in light of
the fact that
the applicants were the chief executive officers of LeisureNet,
granting the relief sought by the applicants would
effectively
stultify the purpose which the statutory mechanism of the winding-up
enquiry is intended to achieve.
Counsel for
the liquidators made a detailed analysis of the
Ferreira
and
Bernstein
cases. I will return to this analysis in greater
detail below. In summary, so it was argued, the Constitutional Court
upheld the
constitutional validity of the mechanism provided by
section 417 and 418 of the Companies Act, subject to the one
‘
qualification
’ to section 417(2)(b) imposed in the
Ferreira
case, which qualification was imposed on the basis of
the privilege against self-incrimination. On the correct
interpretation of
Ferreira
and
Bernstein
, read together
as they must be, examinees in the position of the applicants cannot
rely on their fair trial rights under section
35(3) of the
Constitution to escape being examined at a section 417 enquiry. The
effect of these decisions, according to counsel,
is that company
officials may now
not
escape being examined by invoking the
spectre of potential future prejudice in pending criminal
proceedings. Finally, it does not
assist the applicants to attempt
to distinguish the present matter from that of
Ferreira v Levin
,
on the basis that they rely on the right to silence, and not
specifically on the privilege against self-incrimination. Given that
the decision in the
Ferreira
case is that the public purpose
of a section 417 enquiry justifies an examinee being compelled to
answer questions that
are
self-incriminating, then
undoubtedly, a
fortiori
, an examinee must be obliged to answer
neutral or less injurious questions. It could not have been the
intention of the Constitutional
Court that the right to silence could
emasculate the remaining legislative provisions of sections 417 and
418, when the right against
self-incrimination cannot. If the
sections are consistent with this more onerous construction then,
logically, so are the less onerous.
Discussion
In my
view, the liquidators’ criticism of the applicants’ argument is
well founded. As indicated above, the applicants, having
taken it as
‘
axiomatic
’ that no common law rights have been diminished
by the advent of the 1993 and 1996 Constitutions, then formulate the
question to
be answered as follows: Does the interpretation which
the Constitutional Court has placed on sections 417 and 418 of the
Companies
Act have the result that an individual’s rights
qua
accused person are as well protected now, even though such individual
be compelled to testify at an insolvency enquiry, as they were
protected at common law?
To my mind,
this is an incorrect approach. As argued by counsel for the
liquidators, it is clear from recent pronouncements of the
Constitutional Court
49
and the Supreme Court of Appeal
50
that, in determining whether particular actions, omissions or
decisions infringe or threaten to infringe the constitutionally
protected
rights of individuals, an integrated approach must be
followed. The common law must not be treated as a body of law
separate and
distinct from the Constitution by first attempting to
seek an answer in the common law, and only thereafter – and
separately –
considering the effect of the Constitution.
In my view
the answer to the question as to whether the applicants are entitled
to the relief sought by them is not to be found in
an analysis of the
pre-1993 Constitution cases relied upon by the applicants, followed
by an attempt to ‘
test
’ the relevant Constitutional Court
cases (particularly the
Ferreira
and
Bernstein
cases)
against the former line of cases. The question is simply whether, in
the light of the Constitutional Court judgments in
Ferreira
and
Bernstein
, the applicants
can
now be compelled to
continue to testify at the section 417 enquiry on issues that may
have a bearing on matters raised in the charge
sheets against them,
notwithstanding the fact of their arrests and the fact that the
charge sheets have not yet been finalised, or
whether such compulsion
is unconstitutional.
I agree with
the contention advanced by counsel for the applicants that neither
the
Ferreira
case, nor the
Bernstein
case, purported to
deal exhaustively with the impact on section 417 enquiries of the
examinee’s broad right to a fair trial, in
circumstances where such
examinee is an accused person. Moreover, in neither case, did the
Constitutional Court
directly
address the issue of whether the
arrested person’s section 35(1)(a) right to remain silent during
pre-trial investigations or the
accused person’s section 35(3)(h)
right to remain silent during plea proceedings and trial have an
impact on section 417 enquiries.
51
As argued by applicants’ counsel, the judgment of the majority in
the
Ferreira
case simply tested the constitutional validity of
section 417(2)(b) of the Companies Act against the complaint of the
applicants
in that case (who had not yet been arrested or charged) to
the effect that they were required to answer questions at the section
417 enquiry which might incriminate them, and which might thereafter
be used in evidence against them. The finding that section
417(2)(b)
of the Companies Act was, to a limited extent, inconsistent with the
interim Constitution was ‘
in essence based on a finding that the
section infringes the rule against self-incrimination
’.
52
This is not,
however, the end of the matter. A large portion of the judgment of
Ackermann J in the
Ferreira
case (with which portion the
majority agreed) was devoted to the determination of whether, in the
South African context, both a direct
and a derivative use immunity
was necessary to save section 417(2)(b) from being unconstitutional,
or whether a direct use immunity
by itself would suffice. In the
course of this discussion, Ackermann J analysed in considerable
detail the judgments of different
judges of the Supreme Court of
Canada in the case of
Thomson Newspapers Ltd et al v Director of
Investigation and Research et al.
53
This case concerned certain provisions of the Canadian
Combines Investigation Act (RSC 1970 c C-23), which Act embodied a
complex
scheme of economic regulation, providing for a system of
investigation and research which allowed the Director to determine
facts
relevant to particular issues of market behaviour, including
breaches of prescribed guidelines set forth in the Act. In terms of
section 17 of the Act, the Director of Investigation and Research
could, in the course of carrying out an investigation under the
Act,
apply
ex parte
for an order requiring any person to be
examined under oath and to produce business records or other
documents. Section 22(2) of
the Act protected examinees who were
compelled to testify by providing that no oral evidence given by an
examinee could subsequently
be used against him or her in criminal
proceedings, except on a charge of perjury. However, nothing in that
section protected the
examinee from the use of derivative evidence
obtained as a result of the compelled testimony. The applicants, who
had been served
with orders to appear before the Restrictive Trade
Practices Commission to be examined under oath and to produce certain
documents,
attacked section 17 of the Act, contending that it
violated,
inter alia
, section 7 of the Canadian Charter of
Rights and Freedoms.
54
Of the five
judges in that case, only Wilson and Sopinka JJ came to the
conclusion that the direct use immunity contained in section
20(2) of
the Act was
not
sufficient to prevent section 17 of the Act
from violating the ‘
fundamental justice
’ provision in
section 7 of the Canadian Charter. La Forest J, while holding that
section 17 of the Act did constitute a deprivation
of liberty within
the meaning of section 7, concluded that it did so in accordance with
the principles of fundamental justice, stating
that:
‘…
the
use of derivative evidence derived from the use of the s 17 power in
subsequent trials for offences under the Act does not automatically
affect the fairness of those trials. It follows that complete
immunity against such use is not required by the principles of
fundamental
justice. The immunity against the use of actual
testimony provided by section 20(2) of the Act together with the
judge’s power
to exclude derivative evidence where appropriate is
all that is necessary to satisfy the requirements of the Charter.
’
55
L’Heureux-Dubé
J followed a similar approach, concluding that –
‘
As far as it compels individuals to testify in their personal
capacity
…
s 17 of the Act does not infringe s
7 of the Charter
…
Section 20(2) of the Act
affords witnesses sufficient protection to conform to the requirement
of fundamental justice embodied in
s 7 of the Charter. The right
enabling an accused not to be compelled to testify at his own trial
in our legal system does not extend
to witnesses in proceedings such
as the one set up by
s 17 of
the Act. It suffices, for the purpose of s 7 of the Charter if
witnesses are afforded subsequent use protection guaranteed
by s
20(2) of the Act. Derivative evidence, which consists mainly of real
evidence, cannot be assimilated to self-incriminating
evidence and
does not go to the fairness of the judicial process which is what, in
the end, fundamental justice is all about.
’
56
In the
Ferreira
case, Ackermann J favoured the approach adopted by La
Forest J, rather than that adopted by Wilson J. The learned Judge
regarded
as important the following distinction drawn by La Forest J
between the direct use of compelled testimony and the use of evidence
derived from compelled testimony:
‘
There are serious grounds on which objection can be raised to
an absolute rule that testimonial immunity must always extend to
evidence
derived from compelled testimony. While allowing the Crown
to use such evidence in criminal proceedings may in a formal sense be
equivalent to permitting direct reliance on the compelled testimony
itself, there is an important difference between the type of
prejudice that will be suffered in the two cases. It is only when
the testimony itself has to be relied on that the accused can
be said
to have been forced to actually
create
self-incriminatory evidence in his or her own trial. The compelled
testimony is evidence that simply would not have existed
independently
of the exercise of the power to compel it; it is in
this sense evidence that could have been obtained
only
from the accused.
By
contrast evidence derived from compelled testimony is,
by
definition
, evidence that existed independently of the
compelled testimony. This follows logically from the fact that it
was evidence which
was found, identified or understood as a result of
the
“clues”
provided by the compelled testimony. Although
such evidence may have gone undetected or unappreciated in the
absence of the compelled
clues, going undetected or unappreciated is
not the same thing as non-existence. The mere fact that the
derivative evidence existed
independently of the compelled testimony
means that it
could
have been found by some
other means, however low the probability of such discovery may have
been.
’
57
Ackermann
J referred quite extensively to the reasons given by Wilson J for her
conclusion that section 17 of the Canadian Combines
Investigation Act
violated a person’s right to liberty and security of the person
(within the meaning of section 7 of the Canadian
Charter) in a manner
which was not in accordance with the principles of fundamental
justice. Some of the reasoning followed by Wilson
J is particularly
instructive for purposes of the present proceedings, as it is to a
large extent similar to the reasoning followed
by counsel for the
applicants in support of their argument that the applicants will
suffer ‘
incalculable prejudice
’ should they be compelled
to ‘
show their hand
’ in the section 417 enquiry, prior to
the finalisation of the criminal proceedings against them. Thus, for
example, Wilson J referred
specifically to a situation ‘
where
the compelled testimony given by the individual may be used to build
a case against him in what is, in effect, a subsequent
criminal
prosecution.
’
58
Moreover, following the reasoning of the United States Supreme Court
in
Kastigar v United States,
59
in which case it was held that both a direct use immunity and a
derivative use immunity was necessary in order to escape
constitutional
challenge to a statute limiting the right against
self-incrimination, Wilson J stated the following:
‘
It seems to me that in order to prevent a suspect from being
conscripted against himself in a criminal or
quasi
-criminal
proceeding
…
, the suspect must be protected
against the use of evidence derived from testimony given at the
earlier investigatory proceeding as
well as against the use of the
testimony itself. Otherwise the suspect is convicted, metaphorically
if not literally, out of his
own mouth. He has, as the United States
Supreme Court put it, through the use of the derivative evidence been
“forced to give testimony leading to the infliction of
penalties affixed to criminal acts”.’
60
Referring to
the ‘
flexible approach
’ advocated by La Forest J to
balancing the interests of the individual and those of the State - by
vesting in the trial judge a
discretion to determine when, and when
not, derivative evidence flowing from compelled testimony should be
admitted against an accused
- Wilson J concluded that:
‘
The judge’s discretion under section 24(2)
61
is no guarantee of protection against the use of derivative evidence
obtained as a result of a witness’s compelled testimony.
It is
merely a discretion and one which is required to be exercised on a
very specific basis, namely whether or not the admission
of the
evidence would bring the administration of justice into public
disrepute
.’
For the
purposes of evaluating the applicants’ arguments in the present
proceedings, the following passages from the judgment of
La Forest J
in the
Thomson Newspapers Ltd
, relied upon by Ackermann J in
the
Ferreira
case as ‘
significant
’, are in my view
of considerable importance:
‘
The fact that derivative evidence exists independently of the
compelled testimony means
…
that it could also
have been discovered independently of any reliance on the compelled
testimony. It also means that its quality
as evidence does not
depend on its past connection with the compelled testimony. Its
relevance to the issues with which the subsequent
trial is concerned,
as well as the weight it is accorded by the trier of fact, are
matters that can be determined independently of
any consideration of
its connection with the testimony of the accused. If it were
otherwise, it would not, in fact, be derivative
evidence at all, but
part of the actual testimony itself
…
What
prejudice can an accused be said to suffer from being forced to
confront evidence
“derived”
from his or her compelled
testimony, if that accused would have had to confront it even if the
power to compel testimony had not been
used against him or her? It
do not think it can be said that the use of such evidence would be
equivalent to forcing the accused
to speak against himself or
herself; once the derivative evidence is found or identified, its
relevance and probative weight speak
for themselves. The fact that
such evidence was found through the evidence of the accused in no way
strengthens the bearing that
it, taken by itself, can have upon the
questions before the trier of fact.
’
62
In
adopting a ‘
flexible approach
’ to the question of
derivative use immunity in the context of compelled testimony at
investigative enquiries, La Forest J also
made the following (in my
view, very pertinent) statements:
‘
In short, a general requirement of derivative use immunity
would mean that in many cases the use of the power to compel
testimony
would furnish wrongdoers with the type of
“immunity
baths”
that were characteristic of the transaction immunity
formerly available in the United States
…
Law
enforcement authorities would be faced with the choice of either
securing information quickly at the risk of jeopardising subsequent
prosecutions, or conducting more protracted and widely cast
investigations. Either way, the advantages the community currently
enjoys
from the power to compel testimony would be severely
restricted. While I accept that this price must be paid where the
use of evidence
derived from compelled testimony would undermine the
fairness of a person’s trial, I cannot accept that it should also
have to
be paid where the use of the derivative evidence would not
have that effect
…
In my
view, derivative evidence that could not have been found or
appreciated except as a result of the compelled testimony under
the
Act should in the exercise of the trial judge’s discretion be
excluded since its admission would violate the principles of
fundamental justice
…
I do not think such
exclusion should take place if the evidence would otherwise have been
found and its relevance understood. There
is nothing unfair in
admitting relevant evidence of this kind
…
The touchstone for the exercise of the discretion is the
fairness of the trial process.
’
63
(Emphasis added.)
It is
important to note that, in the deciding to follow an approach whereby
a blanket exclusion of derivative evidence flowing from
compelled
testimony at section 417 enquiries is
not
applied, but where
such evidence is dealt with by the trial judge on the flexible basis
of discretionary admissibility, Ackermann
J specifically referred to
the fact that section 25(3) of the interim Constitution
64
guarantees to every accused person the broad right to a fair trial,
which right is not limited to the specific rights enumerated
in that
subsection.
65
The learned judge emphasised the extremely important public purposes
served by the holding of a section 417 enquiry, stating that:
‘
Evidence obtained as a result of such an enquiry cannot be
equated with evidence obtained as a result of unlawful conduct.
Where,
for example, derivative evidence is obtained as a result of
torture there might be compelling reasons of public policy for
holding
such evidence to be inadmissible even if it can be proved
independently of the accused. Otherwise, the ends might be allowed
to
justify the means. The admission of evidence in such
circumstances could easily bring the administration of justice into
disrepute
and undermine the sanctity of the constitutional right
which has been trampled upon. The same considerations do not apply
to derivative
evidence obtained as a result of the application of
section 417(2)(b) at a section 417 enquiry
.’
66
Pointing out
that the officers of a company have a responsibility to account to
shareholders for the way in which the company conducts
its affairs
and, if the company goes insolvent, to account to shareholders and
creditors for the failure of the business, Ackermann
J opined that –
‘
Giving evidence at a section 417 enquiry is part of the
responsibility to account. It cannot simply be said that the
administration
of justice would necessarily be brought into disrepute
by the subsequent use, even in criminal proceedings against the
examinee,
of
derivative evidence
obtained as a
result of the application of section 417(2)(b) of the Act. Indeed,
the public, and especially the victims of the crime,
might find a
denial of the right to use such evidence inexplicable
.’
67
The learned
judge went on to state that:
‘
Although no statistical or other material was placed before us,
it is quite apparent that the United States has vastly greater
resources,
in all respects and at all levels, than this country when
it comes to the investigation and prosecution of crime, more
particularly
when regard is had to the particularly high crime rate,
which one can take judicial notice of, currently prevalent in South
Africa.
This in my view gives added weight to the considerations of
efficiency, economy of time and the most prudent use of scarce
resources,
highlighted by La Forest J in
Thomson Newspapers
and to which I have already referred, and supporting the adoption of
a flexible approach in dealing with the admissibility of derivative
evidence. The flexible approach is narrowly tailored to meet
important state objectives flowing from the collapse and liquidation
of companies and the resulting duties of liquidators to protect the
interests of creditors and the public at large, while at the
same
time interfering as little as possible with the examinee’s right
against self-incrimination. It is balanced and proportional
and, in
my view, fully justifiable in an open and democratic society based on
freedom and equality. To the extent that this conclusion
is in
conflict with any of the general views expressed in
Park-Ross
and Another v The Director, Office of Serious Economic Offences
,
68
I disagree with those views.
’
69
As was argued
by counsel for the liquidators, the honest conduct of the affairs of
companies is indeed a matter of great public concern,
requiring the
exposure of dishonest conduct and the restoration to the company of
assets misappropriated from it. Such exposure
cannot effectively
take place unless the affairs of companies which fail can be
thoroughly investigated and reconstructed. This
objective is often
impossible to achieve without the full co-operation of the directors
and other office-bearers of the company.
Moreover, the liquidation
of a company is not infrequently the result of mismanagement
involving fraud and theft on the part of
the directors and other
officers of the company. Such persons are ‘
the only eyes, ears
and brains of the company
’ and often the only persons who have
detailed knowledge of the operation of the company prior to its
liquidation. In the words
of Sachs J in the
Ferreira
case:
‘
The whole purpose of getting to the bottom of the collapse
so as to inform and reimburse as much as possible those who
invested or traded in good faith, would be defeated if the director
could
shield him or herself behind the right not to answer
incriminating questions. It is precisely in areas where assets have
been fraudulently
disposed of, that specially penetrative
investigations for their recovery might be required. Company
directors and other officials
who appeal to the public for funds and
engage in public commercial activity with the benefit of not being
personally liable for
company debts, cannot complain if they are
subsequently called upon to account for their stewardship, at least,
for the purposes
of discovering all assets so as to minimise the loss
to creditors and give full information to shareholders
…
Indeed, it would be ironical if crooked directors were more able to
avoid submitting themselves to enquiry than honest ones.
’
70
I have dealt
somewhat extensively with the reasoning followed by Ackermann J in
the
Ferreira
case for rejecting the constitutional necessity
of a derivative use immunity in the context of section 417
proceedings. To my mind,
it is in this reasoning that an answer to
the complaint of the applicants in the present proceedings is to be
found. It is true
that, unlike the situation in the
Ferreira
and
Bernstein
cases, the applicants currently before me have
already been arrested and charged. It is also true that at least
some of the charges
against them have not yet been properly and fully
formulated. Should they be compelled to testify further at the
section 417 enquiry,
they may well be deprived of certain ‘
tactical
advantages
’ in the conduct of their criminal trials. It is
possible, indeed probable, that the State will use the evidence to be
given by
them at the section 417 enquiry to complete the content of
the charges against them – or even to formulate such charges. In
the
end, however, the State will have to prove the charges against
them beyond reasonable doubt and, in so doing, the State will not
be
able directly to rely on any of the evidence given by them in the
course of the section 417 proceedings. This obviously applies,
not
only to the charges currently levelled against them, but also to any
further charges which the State may, in terms of
section 81
of the
Criminal Procedure Act 51 of 1977
, join in the criminal proceedings
against them at any time before evidence is led in the criminal
trial. Insofar as the State’s
case against the applicants may
depend on evidence derived from their compelled testimony, it will be
the duty of the trial judge
to ensure a fair trial, if necessary by
the exercise of his or her discretion to exclude, in appropriate
circumstances, some or all
of such derivative evidence. I agree with
Ackermann J that the trial judge is the person best placed to take
that decision.
71
Given the key
position occupied by the applicants in the affairs of the LeisureNet
group, and the extremely complex and intertwined
nature of the issues
upon which the liquidators need to examine them, the effect of the
relief sought will, if granted, delay indefinitely,
and substantially
stultify, the very purpose of the
section 417
proceedings. In my
view, a careful analysis of the judgments of the Constitutional Court
in the
Ferreira
and
Bernstein
cases, with particular
reference to the emphasis on the extremely important public policy
objectives achieved by
section 417
enquiries, supports the conclusion
that the applicants
cannot
be allowed to rely on either their
fair trial rights under section 35(3) of the Constitution, or on the
potential loss of an ill-defined
‘
tactical advantage
’ at
their criminal trial, to escape being examined on matters pertaining
to the trade, dealings, affairs and property of LeisureNet,
including
such matters as may have a bearing on the criminal charges against
them.
Finally,
regard should be had to the case of
Equisec (Pty) Ltd v Rodrigues
& Another
,
72
to which the Commissioner made reference in his ruling on 31 May
2002. In that case, it was alleged by the applicant, a stockbroker,
that it had been instructed by the first respondent (its client) to
sell a parcel of shares on behalf of the first respondent. It
sold
the shares for R4 million and paid that amount into the first
respondent’s bank account. In due course, it was discovered
that
the share certificate submitted to it by the first respondent was
stolen and the share transfer form was a forgery. As a consequence,
the applicant was unable to make good delivery of the shares it had
sold. The applicant ascertained that all but about R5 000,00
had
been withdrawn from the first respondent’s bank account. It
immediately notified the police, who arrested the first respondent.

The applicant then applied urgently for the provisional sequestration
of the joint estate of the first and second respondents, who
were
married in community of property. A provisional sequestration order
was granted in the absence of the first respondent, who
was by then
in custody. A prosecution of the first respondent was imminent but,
in the interim, the applicant sought to secure the
final
sequestration of the estate of the respondents.
On the return
day, the application was opposed by the first respondent who, in a
counter-application, sought an order staying the
sequestration
proceedings until such time as the criminal prosecution against him
had been finalised, on the grounds that he would
otherwise be
prejudiced in the conduct of his defence at the criminal trial.
The Court
(per Nugent J, as he then was) summarised the prejudice upon which
the first respondent relied as follows:
‘…
the first respondent would prefer for the moment to say
nothing at all about the matters which have given rise to his
prosecution,
which of course he is ordinarily entitled to do. If the
sequestration proceedings are not stayed, however, he might be called
upon
to disclose information relating to those self-same matters and
he wishes to avoid being placed in that position.
’
73
The Court
held that there were two circumstances in which the first respondent
would face the prospect of disclosing information which
may be
relevant to whether he had committed the offence with which he was
then charged. The first circumstance was that he was called
upon to
answer the allegations made against him by the applicant in the
founding affidavit if he was to avoid his estate being finally
sequestrated. Nugent J regarded the choice which the first
respondent faced in this regard – between abandoning his defence to
the civil proceedings or waiving his right to remain silent – as
not constituting prejudice against which he should expect to be
protected by the Court.
The second
circumstance to which Nugent J referred is the one which is relevant
to the present proceedings. The learned Judge correctly
observed
that, if the provisional sequestration order were to be made final,
the first respondent could expect to be called upon
to submit to
compulsory interrogation in terms of
section 65
of the
Insolvency Act
24 of 1936
. The judge noted that the applicant had indicated quite
openly that the very purpose for which it required the final
sequestration
of the respondent’s estate was so that it could
utilise the provisions of
section 65
in order to establish from the
first respondent the whereabouts of the moneys, which at that stage
were unknown to the applicant.
In dealing
with this ‘
second circumstance
’, Nugent J made the
following pertinent comments about compulsory interrogations in terms
of
section 65
of the
Insolvency Act:
‘
Section 65(2)
of the principal Act as amended provides that a
person who is liable to be interrogated in terms of the section may
not decline to
answer any question
“upon the ground that the answer would
tend to incriminate him or upon the ground that he is to be tried on
a criminal charge and
may be prejudiced at such a trial by his
answer”.
Section 65(2A) aims at securing some protection for the person
under interrogation by requiring that that part of the proceedings
in
which he is required to answer such questions should be held
in
camera
and by providing further that his answers to those
questions should not be published and are generally inadmissible in
subsequent
criminal proceedings.
Clearly it
was the intention of the Legislature when amending the
Insolvency Act
to
render a person liable to answer questions under interrogation
notwithstanding that criminal proceedings are pending against him.

Furthermore, there is no suggestion in argument before me that the
provisions of that section are unconstitutional and thus invalid
and
it is not immediately apparent to me that the section might be,
taking into account the safeguards which have been introduced
by
section 65(2A) of the Act against the use of the testimony given in
the course of such an enquiry.
(Compare
Ferreira v
Levin NO & Others; Vryenhoek v Powell
NO &
Others
1996 (1) SA 984
(CC)
(1996 (1) BCLR 1)
;
Bernstein &
Others v Bester &
Others NNO
[1996] ZACC 2
;
1996 (2) SA 751
(CC)
(1996 (4) BCLR 449).)
That being so, it would seem to me that where the Legislature has
expressly authorised the interrogation of a person who might have
knowledge of the affairs of the insolvent estate, notwithstanding
that he is facing a criminal prosecution, it is not open to me
to
frustrate that legislation by staying the sequestration merely to
avoid that occurring. If there are circumstances in which this
might
be done, in my view, they would at least require to be exceptional
circumstances and there are none in the present case. One
must not
lose sight of the fact that the applicant has a legitimate interest
in establishing the whereabouts of the assets which
were in the
possession of the first respondent and in doing so at the earliest
opportunity in order to avoid their being dissipated
or concealed and
it is for that purpose that the
Insolvency Act allows
for such an
enquiry. The safeguards contained in
section 65(2A)
seem to me to go
a long way towards, at the same time, preserving the interests of the
first respondent and I can see no good reason
why it should be
necessary to intervene any further. In my view, no good grounds have
been made out for suspending the sequestration
proceedings
.’
74
One of the
‘
safeguards
’ referred to by Nugent J in
section 65(2A)
of
the
Insolvency Act
– namely, the direct use immunity provided for
in
section 65(2A)(b)
– is substantially the same as the safeguard
given to examinees in
section 417
proceedings by the decisions of the
Constitutional Court in the
Ferreira, Bernstein
and
Parbhoo
cases. Applicants’ counsel sought to distinguish the
Equisec
case from the present case by pointing out that, unlike
section 65
(2A)(a) of the
Insolvency Act, there
is no provision in
sections 417
and
418
of the Companies Act for holding
in camera
that part
of the proceedings where self-incriminating evidence may be given by
an examinee, nor for prohibiting the publication of
information
regarding such evidence.
If, however,
one has regard to the provisions of
section 67(1)
of the
Insolvency
Act, the
distinction sought to be drawn by applicants’ counsel
between the protection afforded to an examinee by
section 65(2A)
of
the
Insolvency Act and
the protection afforded to examinees in
section 417
enquiries, is more apparent than real. In terms of
section 67(1)
of the
Insolvency Act, should
it appear from a
statement made at a
section 65
interrogation that there are
reasonable grounds for suspecting that any person has committed any
offence, the Master is obliged to
transmit such statement, or a
certified copy thereof, and all necessary documents to the
Attorney-General (now the Director of Public
Prosecutions), so as to
enable the latter to determine whether any criminal proceedings
should be instituted.
75
Thus, the holding of the relevant part of the insolvency
interrogation proceedings
in camera
, and the prohibition upon
the publication of information regarding possibly self-incriminating
questions and answers, will
not
prevent the evidence given at
the proceedings from being accessible to the State and from potential
use by the State to formulate
criminal charges, and build a criminal
case, against the examinee.
In view of the above, the views expressed by Nugent J in the
Equisec
case on the constitutionality of compelling testimony by an accused
person, in the context of insolvency interrogation proceedings,
(
obiter
though they may be) are indeed pertinent to the
present proceedings. To my mind, the inevitable tension between the
rights of an
examinee in
section 417
proceedings (in particular, the
broad right to a fair trial of an examinee who is also an accused
person) and the indubitable public
interest in the proper
investigation of corporate collapses, has been adequately and fairly
balanced by the Constitutional Court
by the introduction of a direct
use immunity, and by making the use of derivative evidence at a
subsequent criminal trial subject
to the discretion of the trial
judge (whose duty it is to ensure compliance with fair criminal trial
standards).
It cannot be gainsaid
that the ruling made by the Commissioner on 31 May 2002 is very
sketchy and does not grapple with the issues
raised by the applicants
in support of the relief sought by them from the Commissioner.
However, it follows from what I have said
above that, in my view, the
ruling made by the Commissioner was not unconstitutional, oppressive
or unfair to the applicants, and
there is accordingly no reason for
this Court to interfere with such ruling.
In the
circumstances, I would recommend that the application be dismissed
with costs, including the costs of two counsel.
…………………………….
B J VAN HEERDEN
TRAVERSO
AJP
: I agree and it is so ordered.
……………………………..
J H M TRAVERSO
1
ie
failure by the director of a company to disclose his or her interest
in a contract to which the company is a party and which
is of
significance in relation to the company’s business.
2
2002
(5) SA 796 (C).
3
Section
24(b)
entitled all persons to procedurally fair administrative
action where their rights or legitimate expectations were affected
or
threatened, while
section 24(c)
gave all persons the right to be
furnished with written reasons for administrative action which
affected their rights or interests.
4
At
para [97].
5
At
para [98].
Section 7(1)
provided that the Bill of Rights (Chapter 3)
of the interim Constitution
(and thus also
section 24) bound all legislative and executive organs of State at
all levels of
government.
6
At
para [99].
7
At
paras [100] – [101].
8
At
paras [131[ and [155].For comment on the approach taken by Ackermann
J in this regard, see further Van Wyk ‘Administrative
Justice in
Bernstein
v Bester
and
Nel
v Le Roux
’
(1997) 13
SAJHR
249
at 255-256; De Waal ‘Is there a General and Residual Right to
Procedural Fairness in South Africa?’
(1997) 13
SAJHR
228
at 245-246; Henderson ‘The Meaning of “
Administrative
Action
”
‘
(1998) 115
SALJ
634
at 636-638; Hoexter ‘The Future of Judicial Review in South
African Administrative Law’
(2000) 117
SALJ
484
at 507-509; and see also
Strauss
and Others v The Master and Others NNO
2001
(1) SA 649
(T) at 665A-666D.
9
At
para [155].
10
[2000] ZACC 1
;
2000
(2) SA 674
(CC) at paras [83] – [86] and [90]. In this case, the
Constitutional Court found that, irrespective of whether or not the
action
in question constituted ‘
administrative
action
’,
the principle of legality entailed a duty to exercise public power
in a rational manner: ‘
It
is a requirement of the rule of law that the exercise of public
power by the Executive and other functionaries should not be
arbitrary. Decisions must be rationally related to the purpose for
which the power was given, otherwise they are in effect arbitrary
and inconsistent with this requirement. It follows that in order to
pass constitutional scrutiny the exercise of public power
by the
Executive and other functionaries must, at least, comply with this
requirement. If it does not, it falls short of the standards
demanded by our Constitution for such action
’
(para [85], per Chaskalson P). The Constitutional Court went on to
hold that ‘[t]he question whether a decision is rationally
related
to the purpose for which the power was given calls for an objective
enquiry’ (para [86]), and that ‘[r]
ationality
in this sense is a minimum threshold requirement applicable to the
exercise of all public power by members of the Executive
and other
functionaries. Action that fails to pass this threshold is
inconsistent with the requirements of our Constitution and
therefore
unlawful
’
(para
[90].
11
See
Lok
& Others v Venter NO. & Others
1982
(1) SA 53
(W) at 58A-H
;
Venter v Williams & Another
1982
(2) SA 310
(N) at 313C-E;
Foot
NO. v Alloyex (Pty) Ltd & Others
1982
(3) SA 378
(D)
at 383F
.
12
See
sections 9 and 10 of the Companies Amendment Act 29 of 1985.
13
1990
(1) SA 500
(C) at 508I-509H.
14
At
para [35] and the other authorities there cited.
15
See,
for example,
Schulte
v Van der Berg & Others NNO
1991
(3) SA 717
(C) at 720I-721B;
Receiver
of Revenue, Port Elizabeth v Jeeva & Others; Klerck &
Others NNO v Jeeva & Others
[1996] ZASCA 5
;
1996
(2) SA 573
(A) at 579H-I;
Absa
Bank Ltd v Hoberman & Others NNO
1998
(2) SA 781
(C) at 796E-H; and cf
Advance
Mining Hydraulics (Pty) Ltd & Others v Botes NNO & Others
2000
(1) SA 815
(T) at 824B-825A.
16
1930
WLD 226
at 230.
17
Ibid.
18
Ibid.
19
1967
(4) SA 433
(C).
20
1923
CPD 303.
21
At
435H.
22
At
436A.
23
At
436B
24
1977
(3) SA 1067
(T).
25
At
1072H
26
Case
No. 287/88, TPD.
27
1993
(1) SA 122
(C).
28
At
pgs 7-8 of the typed judgment.
29
At
125J-126C.
30
At
pgs 3-4 of the typed judgment.
31
1996
(1) SA 1152
(W) at 1157D-E.
32
1996
(1) SA 984
(CC).
33
Including
their right to remain silent (section 35(3)(h)) and their right not
to be compelled to give self-incriminating evidence
(section
35(3)(j)).
34
Kriegler
J, who held that the application was not ripe for hearing (at paras
[205]-[207].
35
At
para [157].
36
Per
Ackemann J at para [127] and Sacks J at paras [245], [249], [261]
and [269]. The approach of these two judges was that, as the
applicants (examinees) were not ‘
accused
persons
’,
they had no standing to rely on section 25(3) (the right of an
accused person to a fair trial) of the interim Constitution.
They
could, however, rely on section 11(1) (the right to freedom), which
incorporated a residual right against self-incrimination.
37
Per
Chaskalson P at paras [168] and [186] (Mahomed DP, Didcott J, Langa
J, Madala J and Trengove AJ concurring), Mokgoro J at para
[208] and
O’Regan J at para [244]. Section 25 of the interim Constitution
was the precursor to section 35 of the final Constitution.
Section
25(3) gave to every accused person ‘
the
right to a fair trial, which shall include the right –
…
to be
presumed innocent and to remain silent during plea proceedings or
trial and not to testify during trial;
…
not
to be a compellable witness against himself or herself
’.
38
See
paras [11]-[19], read with para [158].
39
At
para [160].
40
At
para [159].
41
1996(3)
SA 562 (CC) at paras [6]-[8].
42
See
S
v Zuma & Others
[1995] ZACC 1
;
1995 (2) SA 642
(CC) at para
[16]
.
43
At
1156J-1157E.
44
1997
(2) SA 636
(W) at 648A-F.
45
At
paras [17]-[57].
46
At
para [44].
47
At
para [62].
48
As
also from the subsequent Constitutional Court cases of
Nel
v Le Roux NO & Others
[1996] ZACC 6
;
1996
(3) SA 562
(CC) and
Parbhoo
& Others v Getz NO & Another
1997 (4) SA 1095
(CC).
49
See,
for example,
Fedsure
Life Assurance Ltd & Others v Greater Johannesburg Transitional
Metropolitan Council & Others
[1998] ZACC 17
;
1999 (1) SA 374
(CC) at para
[111]
;
Pharmaceutical
Manufacturers Association of SA & Another In re Ex Parte
President of the Republic of South Africa & Others
[2000] ZACC 1
;
2000
(2) SA 674
(CC) at para
[44]
;
Carmichele
v Minister of Safety and Security & Another (Centre for Applied
Legal Studies Intervening)
[2001] ZACC 22
;
2001
(4) SA 938
(CC) at paras [33]-[36].
50
See,
for example,
Brisley
v Drotsky
2002
(4) SA 1
(SCA) at paras [88]-[89];
Minister
of Safety & Security v Van Duivenboden
[2002]
3 All SA 741
(SCA) at para [17]-[18];
Van
Heerden v Minister of Safety and Security
[2002] 4 All SA 346
(SCA) at para [12].
51
See,
in this regard, De Waal ‘Revitalising the Freedom Right?
De
Lange v Smuts NO
[1998] ZACC 6
;
1998
(3) SA 785
(CC)’
(1999) 15
SAJHR
217
at 227-228.
52
Id
at para [159].
53
(1990)
47 CRR 1
(also reported at (1990) 67 DLR (4
th
)
161, the latter report being cited by Ackermann J).
54
Section
7 guarantees the right to life, liberty and security of the person
and the right not to be deprived thereof except in accordance
with
the principles of fundamental justice.
55
Id
at 63 (see also the
Ferreira
case at paras [76] and [112].
56
Id
at 80-81.
57
Id
at 51-52 (see also the
Ferreira
case at para [134]).
58
Id
at 119.
59
[1972] USSC 160
;
406
US 441
(1972).
60
Id
at 136.
61
Section
24(2) of the Canadian Charter provides that ‘[w]
here,
in proceedings under subsection (1), a court concludes that evidence
was obtained in a manner that infringed or denied any
rights of
freedoms guaranteed by this Charter, the evidence shall be excluded
if it is established that having regard to all the
circumstances,
the admission of it in the proceedings would bring the
administration of justice into disrepute.
’
The equivalent section in the South African Constitution is section
35(5), in terms of which ‘[e]
vidence
obtained in a manner that violates any right in the Bill of Rights
must be excluded if the admission of that evidence would
render the
trial unfair or otherwise detrimental to the administration of
justice.
’
62
Id
at 52-53 (see also the
Ferreira
case at para [111]).
63
At
59 and 61 (see also the
Ferreira
case at para [112].
64
The
precursor to section 35(3) of the 1996 Constitution.
65
See
the
Ferreira
case at paras [149]-[150].
66
Id
at para [150].
67
Id
at para [151].
68
1995
(2) SA 148
(C). In the
Park-Ross
case the first applicant was served with a summons in terms of
section 5 of the Investigation of Serious Economic Offences Act
117
of 1991 (now repealed). The first applicant contended that if he
were to attend an enquiry under section 5 and be questioned
there,
his constitutional rights (including his right to a fair trial and
his right to remain silent in terms of section 25 of
the interim
Constitution) would be infringed. Tebbutt J (Scott J concurring)
held (at 162F-164I) that an enquiry under section
5 did not form any
part of the criminal process and could not be regarded as an
investigative stage in the criminal process. This
was despite the
fact that information garnered or documents disclosed could set in
train a process which could lead to incrimination
or give rise to
real evidence of an incriminatory nature. There was thus no
justification either from the wording of section 25
of the interim
Constitution, or generally, to extend the scope of the right to
remain silent to an enquiry under Act 117 of 1991.
Tebbutt J was
nevertheless of the view that the use of evidence given by a person
at such an enquiry in any subsequent criminal
trial of that person
would indeed constitute a violation of his or her right to remain
silent in terms of section 25(3)(c) of the
interim Constitution
(which section set out the rights of accused persons). However,
because section 5(8)(b) of Act 117 of 1991
excluded the use of
evidence given by an examinee in any subsequent criminal trial of
such examinee, section 5 was not, in the
view of Tebbutt J, in
conflict with the interim Constitution. It is perhaps particularly
important to note, for the purposes of
the present proceedings, that
Tebbutt J held (at 165D-J) that section 5(8)(b) of Act 117 of 1991
must be interpreted so as to exclude
both
direct testimony by the examinee
and
derivative evidence from use in any subsequent criminal proceedings
against such examinee. Ackermann J in the
Ferreira
case, referring
specifically
to this part of Tebbutt J’s judgment, adopted a different (and
narrower) approach to use immunity in the context of section 417
enquiries. The ‘
flexible
approach
’
of Ackermann J in the
Ferreira
case was in turn approved by Kriegler J in
Key
v Attorney-General, Cape Provincial Division, and Another
[1996] ZACC 25
;
1996 (4) SA 187
(CC) at paras [10]-[14], Kriegler J also holding
that ‘[i]
nsofar
as the decision in
Park-Ross
is inconsistent with this conclusion, it must be taken to be
incorrect
’
(at para [14]).
69
Id
at para [152]. For discussion of this aspect of the reasoning of
Ackermann J, see Klare ‘
Legal
Culture and Transformative Constitutionalism
’
(1998) 14
SAJHR
146
at 176-177, especially notes 63-64.
70
Id
at para [261]. See also, in this regard, paras [122]-[127], and the
Bernstein
case (
supra
)
at paras [15]-[27].
71
This
was also the approach followed by the Constitutional Court in
Key
v Attorney-General, Cape Provincial Division, and Another
(
supra
).
In that case, the applicant – the accused in a pending criminal
trial – sought (
inter
alia
)
an order that all evidence relating to the criminal proceedings
against him derived from documents seized in raids on his home
and
office (made in terms of section 6 of the now repealed Investigation
of Serious Offences Act 117 of 1991) ‘
is
inadmissible and may not be used against
[him]
in
the criminal proceedings
’.
The Court (per Kriegler J) held that this was a matter for the
trial judge, not for a pre-emptive order: ‘
Ultimately,
as was held in
Ferreira
v Levin
,
fairness is an issue which has to be decided upon the facts of each
case, and the trial Judge is the person best placed to take
that
decision … If the evidence to which the applicant objects is
tendered in criminal proceedings against him, he will be entitled
at
that stage to raise objections to its admissibility. It will then
be for the trial Judge to decide whether the circumstances
are such
that fairness requires the evidence to be excluded
’
(at paras [13]-[14]; see also paras [10]-[11] and [15]).
72
1999
(3) SA 113
(W).
73
Id
at 115J-116A.
74
Id
at 117B-I.
75
See,
in this regard,
Du
Plessis NO v Oosthuizen; Du Plessis NO v Van Zyl
1995 (3) SA 604
(O) at 613G-614A.