1
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
DELETE WHICHEVER IS NOT APPLICABLE
(1) REPORT ABLE: YES.
(2) OF INTEREST TO OTHER JUDGES: YES.
(3) REVISED.
2025-01-15
Case Number: 2023-058536
In the matter between:
PRUDENTIAL AUTHORITY OF SOUTH AFRICA Applicant
and
FINANCIAL SERVICES TRIBUNAL First Respondent
LAND BANK INSURANCE COMPANY SOC LIMITED Second Respondent
LAND BANK LIFE INSURANCE COMPANY SOC LIMITED Third Respondent
This judgment was prepared and authored by the Judge whose name is reflected and
is handed down electronically by circulation to the Parties/their legal representatives
by email and by uploading it to the electronic file of this matter on CaseLines. The
date for handing down is deemed to be 15 January 2025.
JUDGMENT
2
POTTERILLJ
I was asked to pay tribute and I do so willingly thus I commence this judgment with a
tribute to counsel who in this matter represented the Prudential Authority together with
Advocate Aslam Bava SC and Advocate Nassir Ali. I was informed that he was a hard
working member of this legal team and participated in every aspect of this matter on
behalf of the Prudential Authority. This counsel is Advocate Matodzi Mavhungu who
sadly passed away in a fatal vehicle collision on the morning of 4 August 2024 at the
age of 26.
He was the youngest of 8 children and his family members lovingly called him "Ntsako"
and considered him a beacon of joy. He excelled at school earning him a full
scholarship to study at the University of Umpopo [Turfloop campus]. At University,
Advocate Mavhungu was both an academic tutor and a student activist, and he co
founded the African Law Projects alongside Advocate Zondeka Makondo, advocating
against the financial exclusion of disadvantaged students. He was also a key figure in
a landmark case; Matshidiso and Others v The President of the Republic of South
Africa and Others1 which underscored his commitment to social justice.
He completed his LLB with distinction in 2019. He interned at MES Legal Solutions
and did his articles serving as a candidate attorney at Melo Attorneys in Pretoria. He
was called to the bar in 2021 and completed his pupillage at the Johannesburg Society
of Advocates under the mentorship of Advocate Nkhosikhona Gama. He was also
trained by Advocate Aslam Bava SC and Advocate Sandile Khumalo SC as part of the
Duma Nokwe education programme for pupils -ironically, these two Senior Counsel
are the lead Counsel on opposite sides in the current review application before me.
He was a proud member of the Duma Nokwe Group of Advocates, where he
established his practice in 2022. Despite his brief career, he made significant
contributions, notably arguing in the case of President of the Republic of South Africa
1 (2016) ZAGPPHC 902 {12 October 2016)
3
v Zuma and Others2 and earning four additional reported judgements in such a short
space of time where he acted as lead Counsel.
I am informed that he was a shining star of the Duma Nokwe Chambers and was
known for his deep knowledge of the law, education and unwavering humility. His
chamber was a refuge for many pupils and juniors as he was always willing to assist
those who knocked on his door in every possible way. He was admired by his fellow
students at the University of Limpopo, and many of his former classmates
consequently trusted him to successfully move their applications for admission as legal_
practitioners and usher them into the legal profession. ''Another Turfie on the roll" soon
became his signature phrase, signifying a successful involution from being
classmates/friends to becoming colleagues/ "learned friends" -a victory for the
University and the legal profession. He also continued to mentor many students and
legal practitioners. At the time of his passing, Matodzi was pursuing a Master of Laws
in Human Rights Advocacy and Litigation at the University of the Witwatersrand.
I am informed that he insisted and practised a good work-life balance and one of his
favourite lines was "life is more than pleadings ". Fluent in at least six of the official
South African languages, he took pride in being a linguist.
He was a kind, open-minded person who loved learning about different cultures and
interacting with people from all walks of life. I am told that one of his nicknames,
"MuAfrika" (meaning African), could not be a more fitting representation of the kind of
person he was: kind, compassionate, humble, altruistic and overall, a true embodiment
of Ubuntu. One of his favourite African proverbs (which ironically still stands as his last
status update on WhatsApp), "maa a mutukana a si vhumatshelo hawe", meaning
''your background does not determine your destiny" in his mother tongue of
Tshivhenda , should serve as an important life lesson to us all.
I trust this tribute to a counsel and his legacy, whose name I see on the papers, but
who is sadly not before me, will continue to inspire many more.
2 2024 (1) SACR 32 (GJ)
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Introduction
[1] The Prudential Authority of South Africa [the PA] is seeking the review and
setting aside of the findings of the Financial Services Tribunal [the FST] that was
granted in favour of the Land Bank Insurance Company SOC Limited [LBIC] and the
Land Bank Life Insurance Company SOC Limited [LBLIC]. Where both the LBIC and
LBLIC are relevant I will refer to them as the respondents. The FST abides the Court's
decision.
[2] The PA is a statutory body established in terms of section 32 of the Financial
Sector Regulation Act 9 of 2017 [the FSR-Act] and under the administration of the
South African Reserve Bank. Of relevance in this matter is that it performs the
prudential and regulatory supervision of Insurance companies. The LBIC is a short
term insurer which was registered in terms of the since repealed Short Term Insurance
Act 53 of 1998 [STIA]. The LBLIC was registered as a long term insurer in terms of the
since repealed Long Term Insurance Act 52 of 1998. Both are still so registered in
terms of the Insurance Act 18 of 2017 [Insurance Act]. The respondents are wholly
owned subsidiaries of the Land and Agricultural Development Bank of South Africa
SOC limited with the Government being the only shareholder.
[3] The PA imposed administrative penalties on the LBLIC and LBIC for
contraventions of s14(1) and s16(1) of the Insurance Act and on LBIC for
contravent ion of s23(1 )(a) of the Insurance Act. These sections are discussed later on
in the judgment. The penalty imposed on LBLIC was R2,064,000.00, with
R1 ,376,000.00 of that suspended for a period of three years from the date of imposition
subject to the respondents not committing a similar offence during this period. The
balance of the penalty, R688 000.00 was to be paid within 14 days of the imposition .
LBIC was also imposed a penalty of R5 million of which R3 million was suspended for
a period of three years for imposition on condition that LBIC did not commit a similar
offence during the period of suspension. The balance of R2 million was to be paid
within 14 days of the imposition.
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[4] In terms of s230(1) of the FSRA the respondents approached the FST to
reconsider the decisions of the PA. In a nutshell the FST found that the respondents
did not contravene s14 of the Insurance Act. Pertaining to the contravention of
s23(1 )(a) it found the PA was not entitled to take any regulatory action against LBIC
rendering the PA's decision ultra vires. The LBLIC did not seek a reconsideration of
the decision pertaining to s16, but submitted the penalty imposed was unreasonable.
The FST reduced the penalty to R250 000.
[5] The PA brought this legality review against the decisions of the FST submitting
that the findings were irrational, influenced by an error of law and the FST exceeded
its powers and/or exercised its powers incorrectly. Furthermore, that the findings were
so unreasonable that no other Tribunal could come to such findings. It was also
submitted that there was no rational connection between the findings made and the
purpose of the FSR-Act, the Insurance Act and the PA's standards captured in G01
4.
Locus standi of PA
[6] On behalf of the respondents it was argued that the PA does not have locus
standi to bring a review. It contended that the FST was the successor to the Financial
Services Appeal Board [FSAB] and has the same powers as the FSAB. Since it has
the same powers the finding in Registrar of Pension Funds v Howie NO and Others3
[Howie-matter] is applicable and the PA, akin to the registrar of the FSBA, has no locus
standi to review the FST's decision. Reliance was placed on paras [23) and [24] of the
judgment that reads as follows:
"[23] In order to determine the nature of that interest one must go back to the
purpose behind the establishment of the Appeal Board and its powers under s
268(15) of the FSB Act. The purpose is clear. It is to enable persons affected
by decisions of the Registrar to challenge those decisions before a specially
constituted body. The Appeal Board is to decide, on the information before the
3 (222/2015) [2015] ZASCA 203; [2016] 1 All SA 694 (SCA) (2 December 2015)
6
Registrar, what decision the Registrar should have made. And, once the
Appeal Board has spoken, either the Registrar's decision stands, because it
has been confirmed, or it is substituted by the Appeal Board's decision. In the
latter event the Appeal Board's decision stands in the place of the decision of
the Registrar. In effect it becomes the Registrar's decision. That much is clear
from the fact that it does not direct the Registrar to act differently, but directs
that its own order be given effect.
[24] Recognising that the Registrar has locus standito challenge the decision
by the Appeal Board would upset the statutory relationship between the two as
set out in the FSB Act. It would be inconsistent with the purpose of creating the
Appeal Board and has the potential to undermine it in performing its function.
If one of the parties affected by it is unhappy with a decision by the Appeal
Board they are free to review it. Recognising an independent right in. the
Registrar would permit of challenges to a decision accepted by the parties
affected thereby. The Registrar does not point to any aspect of her regulatory
functions that would be detrimentally affected if she cannot challenge decisions
by the Appeal Board. Whilst the absence of authority to support the Registrar's
position is not of itself fatal it provides a further pointer to the conclusion that
the Registrar does not have focus standi in this situation."
[7] The wording of s235 of the FSB-Act that "any party" unhappy with a decision of
the Registrar did not include the "decision-maker" [the Registrar] and the PA, as the
decision-maker, likewise cannot bring a review as it would upset the statutory
relationship between the PA and the FST by potentially undermin ing the FST and
negating the purpose for which the FST was created affecting its ability to function.
The Act provides that when an aggrieved party brings a reconsideration application to
the FST it is exercising an internal remedy as provided for in s7(2) of the Promotion of
Administrative Justice Act 3 of 2000 [PAJAJ.
[8] On behalf of the PA it was submitted that the PA has locus standi because in
the FSR-Act, unlike the FSB-Act, it specifically includes "the decision-maker" as a
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party that can bring a review. Attention was drawn to the fact that s26(2) of the FSR
Act reads as follows:
"Any person aggrieved by a decision by the executive officer [the Registrar]
under a power conferred or a duty imposed upon him by or under this Act or
any other law may within in the period and in the manner and upon payment of
the fees prescribed by the Minister by regulation, appeal against such decision
to the board of appeal."
Contrary to this wording, the FSR-Act provides in s235 as follows:
"Any party to proceedings on an application for reconsideration of a decision
who is dissatisfied with an order of the Tribunal may institute proceedings for a
judicial review of the order in terms of the Promotion of Administrative Justice
Act or any applicable law."
[9] It was further contended that if one then has regard to the definition of "party"
in the FSR-Act it is clear that the PA has the locus standi to bring a review application.
Section 1 defines party as:
"party to proceedings on a reconsideration of a decision by the Tribunal, means-
(a) the person who applied for the reconsideration: and
(b) the decision-maker that made the decision."
In terms of s218 a decision maker includes the "financial sector regulator " with section
1 of the FSR-Act defining a financial sector regulator as including the PA.
[1 OJ The Court was implored to find that it is undeniable that the Legislator intended
that the decision-maker can institute review proceedings.
Decision on locus standi
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[11] The FSB-Act provided for an appeal whereas the FSRA provides for a
reconsideration . Furthermore, the Acts regulating the two bodies are vastly different.
The FSB-Act had 30 sections and its purpose was defined in one sentence. The FSRA
has close to 300 sections and its purpose is not only to "provide for the establishment
of a board to exercise supervision over the business of financial institutions; and for
matters connected therewith" as provided for in the FSB-Act. It was promulgated to
inter a/ia "establish a system of financial regulation by establishing the Prudential
Authority and the Financial Sector Conduct Authority, and conferring powers on these
entities ... " It was seen as a new dawn for the financial services sector as the new
"Twin Peaks" regulators were established; the PA and the Financial Sector Conduct
Authority [FSCA].
[12] The fact that a reconsideration is seen as an internal appeal in terms of s7(2)
of PAJA confirms that a party can, if dissatisfied with a decision of the FST, review the
decision in terms of PAJA. The question is who is this party that can bring a review in
terms of PAJA or any other law. When comparing the FSB-Act and the FSRA-Act the
wording of s26 made it clear that a party dissatisfied can appeal against the decision
of the Registrar, thus excluding the Registrar as the Registrar would be hard pressed
to be dissatisfied with its own decision. In contrast the wider wording of s236 of the
FSB-Act has not limited it to other parties reviewing the PA's decision, but a "party to
proceedings" of the reconsideration. Parties to the proceedings in terms of the Act
includes the decision-maker, herein the PA and thus it can also bring a review
application.
[13) The Legislature chose to include the decision-maker thus widening who can
apply to review a decision of the FST. The question is whether despite this express
provision I must adhere to the ratio in the Howie-matter. The Supreme Court of Appeal
therein distinguished between a Registrar appealing and a review and found that a
review by a Registrar is possible; as in this matter. But, herein the legislature has
expressly included the Registrar which was not the factual situation in the Howie
matter. I have no reason or legal basis not to adhere to the express provisions of the
FSR-Act.
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[14] Furthermore, in the Howie-matter "the Registrar did not point to any aspect of
her regulatory functions that would be detrimentally affected if she cannot challenge
decisions by the Appeal Board. Whilst the absence of authority to support the
Registrar's position is not of itself fatal it provides a further pointer to the conclusion
that the Registrar does not have locus standi in this situation.04 In the matter before
me the PA set out that the "unintended consequence of the Tribunal Ruling is that
section 14 of the Insurance Act is rendered factually unenforceable and only serves to
undermine the standards that the Applicant is mandated to uphold, as per section 105
of the FSRA" And, "As it stands, an offending party may choose to delay reporting
any changes to the applicant with no adverse consequence attributable ." On behalf of
the PA it was argued that the ruling of the FST has the unintended effect of stripping
the PA to wield the necessary tools to enforce sections 14 and 16 of the Insurance Act
and section 23 of the STIA. This unforeseen consequence has rendered these
statutory provisions factually unenforceable. " Thus, in terms of the Howie-matter , this
is a further basis to conclude that the PA has locus standi.
[15] I accordingly find that the PA has locus standi to bring the review application.
Did the LBLIC and LBIC contravene s14 of the Insurance Act?
[16] Section 14(1) provides:
"The appointment of any of the following key persons must be approved by the
Prudential Authority and takes effect only if the Prudential Authority approves
the appointment."
In terms of section 14(1 )(a) a director is a key person.
4 Par 24 of the Howie-matter
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In terms of section 63 of the Insurance Act the Prudential Authority is empowered to
prescribe prudentia l standards and it has done so in terms of Prudential Standard GO1
4 with 4.4 reading as follows:
"Notwithstanding that primary responsibility for assessing fitness and propriety
of key persons and significant owners resides with the insurer, the Act requires
the Prudential Authority to approve significant owners and certain key persons.
Under section 114 of the Act, the Authority is required to approve directors and
auditors before they are appointed. Fitness and propriety is the central
consideration of any such approval. In the case of other key persons, insurers
are required to notify the Authority within 30 days of an appointment , or of
changes in circumstances that may adversely affect the fit and proper status of
a key person (see section 15 of the Act). Insurers are also required to notify
the Authority within 30 days of the termination of an appointment of a key
person (see section 16 of the Act)."
[17) It was common cause at the reconsiderat ion hearing that 4 directors had been
appointed to the boards of the respondents between March and April 2020. This was
done without the approval of the PA. The respondents sought retrospective approvals
for the appointments a year later which the PA granted retrospectively in June 2021.
[18] The PA set out that they granted approval as "condonation " purely to prevent
unbusinesslike results; i.e. to solve a practical problem. The respondents set out that
the COVID lockdown had interfered with their functioning as well as the fact that it had
lost all members of their Compliance Control Function which created gaps in its
compliance processes. It also had extended certain directors appointments to avoid a
lack of a quorum. All of these factors caused the delay in complying with s14.
[19] The FST in 5 short paragraphs dealt with this issue. It set out the stances of the
parties and then provided the reasons for its decision as follows:
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"The PA submitted that the wording of the section does not support the
Applicants' interpretation that the appointment only takes effect on approval but
can occur earlier.
The PA's submission is undermined by its willingness to grant retrospective
approval, more than a year later, of the appointments. Assuming, as we must,
that the approvals were properly granted by the PA, this approach undermines
the contention that the approvals must be granted prior to appointment and
supports the Applicants ' argument on this issue. In these circumstances, the
PA's approach has the result that the appointments and their approvals
coincide."
The FST found that there was no contravention of s14 of the Insurance Act.
[20] On behalf of the PA it was argued that s14 has the purpose to ensure that
persons holding key positions meet the necessary standards of necessary prudential
oversight. This cannot be obtained if these key persons are allowed to serve in
positions before the PA grants approval. This leads to a factual appointment but
without having legal effect. This fundamentally undermines the regulatory framework
designed to protect the integrity of financial institutions.
[21) It was submitted that PA's position has consistently been that approval must be
sought prior to the appointment of key persons as required by section 14 in conjunction
with the· GO1 4. It was conceded that such compliance may not always be achievable
or practical with the result that key persons may be appointed without seeking the
necessary approval from the PA. This practically would happen when, as with the
respondents, their internal organisational processes were not structured in a way that
facilitates the seeking of prior approval. In those cases the PA will then on the facts
and considering the practicalities of the situation, ratify the appointment.
[22] It was argued that if retrospective approval is sought it must be done within a
reasonable period and if regard is had to the time periods in the Insurance Act then 30
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days would constitute a reasonable period. The conclusion was that if an insurer fails
to seek the PA's approval before appointing key persons and further fails to seek
retrospective approval within a reasonable must be deemed to have contravened s14
of the Act.
[23) Furthermore, when retrospective approval is granted it does not cure the
respondents ' breach of s14 but merely gave effect to the purpose of s14(1)(a) to
prevent unbusinessl ike results. It was argued that retrospective approval may be
granted to regularise an appointment after the fact, but is did not retrospectively
legitimise a period during which a key person served without proper approval.
[24] On behalf of the respondents the argument was simple. There can only be
approval after an appointment was made. The PA cannot approve a non-existent
appointment. An appointment was not to be confused with the legal effect of the
approval. Section 14 simply does not set out that before an appointment is made there
must be approval. In this matter the Minister, as the shareholder of the respondents,
appoints members to the board of the respondents. It could never be argued that the
Minister must first approach the PA for approval before the appointments are made.
[25] Moreover , a retrospective approval, deems the approval to have been granted
on the date of the approval and therefore there can be no breach of s14 of the
Insurance Act.
[26] The PA had admitted that s14 did not expressly provide that there must be
approval from the PA before appointment. It now relies on a reasonable period within
which approval must be sought. This argument renders the point made that G01 4
states prior approval must be obtained moot. Furthermore, the argument now raised
about a reasonable period was not argued before the FST and boils down to ex post
facto rationalisation.
Decision on s14
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[27] The SFT's short reasons for its decision on this issue is for good reason. S14,
on no interpretation, reads that there must be approval of directors by the PA before
appointment. GO1 4 ascribes wording to s14 that simply does not exist and does not
aid the PA. But, logically and practically , there cannot be approval before appointment.
[281 The argument now raised, that was not before the FST, that approval must be
sought within 30 days, is arbitrary. The fact that approval was not sought within 30
days cannot be deemed to be a contravention of s14; there is no such provision in the
Act or in the GO1 4. But, even more damning is that approval was granted
retrospect ively. The effect of this is that approval and appointment occurred in
conjunction.
[29] I understand that the PA is aggrieved that the respondents only after a year
sought approval and that it seeks to guard against this becoming a practice with
directors being appointed and resigning, or being removed, as in this matter, with no
regulatory control in that time. The only way to achieve this is by amending s14 via the
Legislator , this Court cannot fulfil this function and overreach into that domain. The
argument of within a reasonable time was not raised before the FST and there was no
decision taken by the FST hereon; there is no decision to review. The Legislator had
set out time periods in the Act, for instance s16, but had not resorted to doing the same
in s14.
(30] The FST correctly found that the respondents did not contravene section 14 of
the Insurance Act.
Could the FST substitute the amount of the administrative penalty for the contravention
of s 16( 1 ) of the I nsu ranee Act?
(31] Section 16(1) of the Insurance Act provides:
"Termination of appointment of key persons
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16{ 1) An insurer ... must notify the Prudential Authority of the termination of
the appointment of a key person within 30 days of the termination of such
a person."
It was common cause the respondents had not complied with s16(1) in that the
respondents had terminated four directors without notifying the PA within 30 days.
Before the FST the respondents conceded that s16(1) was contravened in that they
oniy notified the PA in March 2021 while termination occurred during April, August and
October 2020. However, the respondents sought reconsideration of the penalty
imposed. It was submitted that the penalty was excessive and inappropriate.
[32] The FST found and reasoned as follows:
"27. The problem we are faced with is that these penalties were imposed in
respect of all the contraventions, and it is, accordingly, impossible to
determine which portion was to be allocated to the contravention of
section 16(1) only. If one has regard to the penalty imposed in the Life
Company's case, one would, however, be justified to assume that the
amount would have been about R1 million per company, half of which
was suspended.
28. The problem with that amount is, though, that taken in isolation, it is
excessive. There is no indication that the PA, the company, its
shareholder or policyholders were in any way affected by the breach. It
is apparent that the PA was more concerned about the general problems
with the administration of the Applicant than with the seriousness of the
particular contravention. (Even the contravention of sec 23 had no
external effect because it did not affect the shareholder , creditors, policy
holders, the PA or whoever.) In addition, the two Applicants , in effect,
were twice penalised for the same omission.
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29. Since the decisi~n to impose an administrative penalty is 'a decision in
terms of Chapter 13' as contemplated in section 234( 1 )(b )(i) of the
FSRA, the Tribunal is entitled to set aside the decision and substitute the
PA's decision with the decision of the Tribunal. We believe that this is an
appropriate instance to do so.
30. Without working through the checklist of sec 167 and considering the
respective submissions of counsel, we have decided that a financial
penalty is justified but in an essentially lower amount. Penalties are
discretionary matters and are not subject to calculation, and in our
estimation , a penalty of R250 000.00 would be appropriate. "
[33] On behalf of the PA it was argued that although in terms of s234( 1 )(a) the FST
could substitute the PA's penalty determination with its own, that in terms of the law
the FST was obliged to remit the penalty determination back to the PA. The FST
should not have usurped the powers of the PA and estimated an amount. This led to
an arbitrary penalty and it was not rationally connected to the purpose sought to be
achieved. The FST thus exceeded it powers and acted improperly by not referring the
penalty back to the PA.
[34] It was submitted that from the decision of the FST it was evident that the FST
did not comprehend how the PA had calculated and determined the penalties.
Furthermore , the contraventions were inherently serious and can therefore be
penalised administratively and criminally . Enforcement of these laws is essential to
uphold the integrity of financial markets and protect stakeholders. If not upheld, it could
erode public trust in the financial institutions and even compromise the overall stability
of the financial system.
[35] It matters not that the contravention of s16 did not directly impact the
shareholders, creditors and policy holders. Allowing the respondents to flout these
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prescripts without consequences could have broader adverse implications for the
financial sector. This "external effect" was in any event not a relevant consideration
when determining the quantum of the penalty because the impact of these
contraven tions is often not readily perceivable or palpable, until it's too late.
[36] On behalf of the respondents it was submitted that the FST acted in complete
compliance with the powers it had. In terms of s234(2)(b) the FST can:
"in the case of a decision of any of the following kinds, also make an order
setting aside the decision and substituting the decision of the Tribunal:
(i) A decision in terms of Chapter 13:
(ii) .. .
(iii) ... "
Administrative penalties are imposed in terms of Chapter 13 of the FSR-Act.
Submitting that the FST exceeded its powers is simply wrong.
[37] The PA had not in terms of rule 13 of the Rules of the Tribunal provided the
facts and the method of how the penalty was computed. All that was clear was that
the PA imposed a penalty comprising a global figure for all the contraventions without
stating what penalty was imposed for which contravention.
[38] The FST exercised it discretion taking into consideration the factors set out in
s 167(2)(b) of the FSR-Act: the nature of the contravention ; that the shareholders , the
respondents and the PA were not affected; the contraventions did not have an external
affect. It found that a penalty was to be imposed but at a lower amount. The FST also
considered the arguments of the parties before it.
[39] This Court cannot review the penalty imposed simply because it would have
imposed another penalty. Furthermore , remitting it back to the PA without informing
this Court what factors it would consider when considering the penalty is wrong.
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The decision pertaining to the penalty imposed for the contravent ion of s16 of the
Insurance Act.
[40] The FST acted in accordance with the powers confirmed on it in terms s234(2)
of the FSR-Act read with Chapter 13. These sections confer the power to substitute
the PA's imposed penalty and impose a new penalty. I was not referred to which "law"
the PA was referring that rendered the FST to have exceeded its powers and I know
of none. I find the FST did not exceed its powers by substituting the quantum of the
penalty, but in fact, acted in accordance with its derived powers.
[41] The question then is whether the FST acted irrationally , or as argued
improperly , by not remitting the decision pertaining to the penalty to the PA. because
in not doing so the FST usurped the powers of the PA. That while the FST did not
have information before it to come to a determination of the amount of the penalty.
[42] I find it prudent to repeat the penalties as imposed. For contravening section
23(1 )(a) of STIA and ss 14(1) and (16)1 of the Insurance Act the PA imposed on the
LBIC the administrative penalty of R5 million of which R3 million was suspended on
certain conditions. The balance of R2 million was to be paid within 14 days from the
order.
[43) For contravening ss14(1) and 16(1) of the Insurance Act the LBLIC was
imposed a penalty of R2,064,000.00. R1 ,376,000.00 was suspended for three years
on certain conditions and the balance of R688 000.00 was to be paid within 14 days
from the order.
[44] The PA did not before the FST, or in the papers before me, divulge what amount
of the globular penalty is for which contravention . This is problematic because if, like
in this matter, the respondents are found not to have contravened s 14( 1) what portion
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of the penalty falls away? The same problem lies with determining which portion of the
penalty is to be allocated to s16. There was no argument from the PA that the FST's
reasoning in arriving at a penalty of R250 000 incorrectly accepted that if regard was
taken of the penalty imposed on the LBLIC one would be justified to assume that the
amount would have been about R1 million per company, half of which was suspended.
[45] There was also no argument from the PA that the FST was wrong in finding
that an administrative penalty is a discretion exercised and not subject to calculation.
Unless the argument raised for the first time in oral argument before me, that the PA
has a table, or formula, as to how to calculate the penalties addressed this point. This
was not argued before the FST and it was not in the affidavits of the PA before me.
The respondents had no opportunity to answer thereto and the FST was not asked to
consider this "formulation ." I cannot under review now take this into account. The PA
had not provided the facts and the method of how the penalty was computed. I cannot
find that the FST acted irrationally when considering the amount of the penalty
imposed by the PA for the contravention of s16.
[46] The next question would be whether the PA had taken into account all the
factors it should have done and whether it took irrelevant considerations into account
when exercising its discretion in imposing a penalty. The FST took into account the
factors set out in s167 of the FSR-Act. In argument before the FST counsel for the PA
admitted that those are the factors on which it exercised it discretion.
[47] I am satisfied that the FST took into account all the factors necessary when
considering the penalty. The external effect is a factor to consider and the PA could
not refer to a single negative external impact of this contravention two years after s16
was contravened.
[48] I understand the PA's submissions that these contraventions are serious and
that enforcement of the laws is essential to protect stakeholders . There is however no
19
evidence that stakeholders herein were not protected . The argument that the
respondents' non-compliance with s16 cannot have any consequences is incorrect;
an administrative penalty has been imposed it may not be to the liking of the PA, but
under the circumstances it is rational to what was contravened, the factors to be
considered , the argument before the FST and the reasons for the contravention.
[49) I am very aware of the case-law on PAJA cautioning Courts to adhere to the
separation of powers principle and to only in exceptional circumstances grant the
remedy of substituting the decision-maker's decision with its own decision instead of
deferring it back to the decision-maker . Just as such intrusion is provided for in PAJA,
the FSR-Act also makes provision that the FST can substitute the penalty. However,
contrary to PAJA the FSR-Act has no pre-script that it only be done in exceptional
circumstances. In Trencon Construction (Pty) Limited v Industrial Development
Corporation of South Africa Limited and Another(CCT198/14 ) [2015) ZACC 22; 2015
(5) SA 245 (CC) (26 June 2015) the Court found that when a court is in as a good a
position as the administrator to make a decision it can substitute the order. A court can
also exercise its discretion when the administrator 's decision is a foregone conclusion.
A court must consider bias, delay and incompetence of the decision-maker .
[50] This case-law relates to the decision itself. Herein it was common cause that
s16 was breached. With the PA not setting out what skill and expertise is necessary
to impose a penalty, or what factors were considered the FST acted within its powers
to substitute the amount of the penalty and acted rationally. The matter of New Clicks5
relied on by the PA, albeit in another context found as follows:
"They must give an explanation of how the appropriate fee was calculated . This
explanation is crucial to the process of determining an appropriate fee. It
explains to the public and the pharmaceutical industry the manner in which the
fee was arrived at. It discloses the reasoning process of the Pricing Committee.
5 Minister of Health and Another v New Clicks South Africa (Pty) Ltd and Others (Treatment Action Campaign
and Another as Amici Curiae 2006 (2) SA 311 (CC)
20
And it enables those who have an interest in the fee to assess whether the
Pricing Committee has properly discharged its statutory duty. This explanation
should generally be contained in the report of the Pricing Committee making a
recommendation to the Minister."6
The PA should have placed facts before the FST as to how the penalty was
determined.
Could the PA impose a penalty on the LBIC for contravention of the now repealed
s23(1 )(a) of the Short Term Insurance Act [STIA]?
[51] LBIC had admitted that it had increased its share capital in 2015 but due to the
time that had elapsed it did not know whether regulatory approval had been sought
and obtained in terms of s23 of STIA. PA imposed a penalty for this contravention.
[52] Before the FST LBIC raised that the transitional provisions in Schedule 3 item
5 of the Insurance Act either barred the PA from commencing an investigation or taking
regulatory action against it. This reads as follows:
"Continued investigation and enforcement of previous Act.
5(1) Despite the partial repeal of the previous Act-
(a) any investigation or inspection under the previous Act (the STIA)
by the Registrar in respect of compliance with the previous Act
and pending immediately before the effective date of 1 July 2018
may be continued by the Prudential Authority, and the Prudential
Authority may take any regulatory action under those Acts that
6 Para (532) of Minister of Health and Another v New Clicks South Africa (Pty) Ltd and Others supra
21
the Prudential Authority deems appropriate in respect of any non
compliance; and
(b) for a period of three years after the effective date, the Prudential
Authority under those Acts that the Prudential Authority deems
appropriate in respect of that non-compliance ."
[53] The FST found that item 5 of the Transitional Provisions permitted the taking of
regulatory action under the repealed STIA, but that the STIA
"contained no provision for the imposition of an administrative penalty for a
contravention of section 23. To the extent that section 167 of the FSRA provide
otheiwise, the item is a !ex specialis which overrides the general provisions of
section 167. As a result, no administrative penalty could competently have been
imposed by the Prudential Authority on the insurance company for
contravention of section 23 of STIA." It thus found that the PA could not take
any regulatory action against the LBIC and the PA's decision was ultra vires.
[54] On behalf of the PA it was argued that during STIA's tenure it was a financial
sector law as defined in section 1 of the FSRA and as listed in Schedule 1 thereof.
The PA was thus entitled to impose an administrative penalty for the contravention of
a provision thereof in terms of 167( 1) of the FSRA. Furthermore, section 167( 4) of the
FSRA reading as follows:
"The responsible authority may not impose an administrative penalty on a
person if a prosecution of the person for an offence arising out of the same set
of facts has been commenced."
It was submitted that the wording of this section implies that a person contravening a
financial sector law can either be charged criminally or be penalised administratively.
Section 65 of the STIA, as amended by section 140( c) of Financial Services Laws
22
General Amendment Act,45 of 2013 contained such a provision which read:
"(2) A short-term insurer who contravenes or fails to comply with a condition
contemplated in 9(2)(a) or a provision of a notice under section 12(12)(c)
or 13(2), or if section 7( 1 )(a), 15(1 ), (2), ( 4) or (5), 19(1) or (3), 23, 25(1)
or (2), 28(1 ), (3) or (4) [,] or 33 [or 49(4) or (6)], shall be guilty of an
offence and liable on conviction to a fine not exceeding [R1 ,000,000] R1
million."
Although there was no penalty for a contravention of s23 of the STIA the PA was
entitled to impose a penalty in terms of s167( 1) of the FSR-Act. The PA was obliged
to follow another legal route otherwise a breach of a law would go unpunished. There
was no criminal proceedings so it could proceed administratively .
[55] The FST's finding that the Transitional Provisions constituted a /ex specialis
that overrides the general provisions of section 167 is at odds with the language and
purpose of the transitional provisions. This common law principle of interpretation
sets out that when two laws govern the same situation laws governing a specific
subject matter supersedes a law that governs general matters only. But, it was argued
a subsequent general enactment is not intended to interfere with special provisions
unless it manifests such intention. Transitional provisions often address the application
of the repealed statute to existing situations at the commencement of the new statute
and the transitional provisions ought to be interpreted in this light. Prior to the repeal
of STIA the PA imposed administrative penalties for contraventions of STIA.
[56] The transitional provisions provide that the PA may initiate an investigation,
within a period of three years after the effective date of the transitional provisions, into
any suspected non-compliance with the STIA that occurred during the period of three
years immediately before the effective date. There was no reasonable basis upon
which the FST ought to have interpreted the phrase "regulatory action under the STIA"
23
to exclude regulatory action that the PA is empowered to take in respect of any
.financial sector law; not only STIA. If not so interpreted it would lead to a situation
where for three years the PA can pursue an investigation but cannot impose an
administrative penalty. This would not be a reasonable or sensible interpretation.
Support for this contention was to be found in Eksteen v Road Accident Fund. 7 The
FST's decision was thus influenced by a material error of law and irrational.
[57] The PA could competently have imposed a penalty because there were
jurisdictional facts allowing same; the investigation into the Insurance Company's
contravention of s23 of the STIA was commenced within the three-year period after
the transitional provisions came into effect and it was found there was a contravention
of s23. Furthermore, the FSR-Act read, with the STIA, made provision for an
administrative penalty to be imposed for non-compliance with section 23(1 )(a) of the
STIA. The PA did not act ultra vires. The PA could also impose a penalty in terms of
ss65 of STIA.
[58] In the supplementary heads and in oral argument counsel for the PA also
argued that in a penalty could be imposed in terms of s66 of STIA. Although it was not
raised in the papers, or before the Tribunal, submitted it could do so in terms of the
law.
[59] On behalf of the respondents the argument went that they' were informed by the
PA that the penalty was imposed in terms of s167. This was also the argument before
the FST. The PA could not on review shift the goal posts and now rely on other
sections as foundation for the penalty imposed.
7 (873/2019) (2021) ZASCA 48; (2021) 3 All SA 46 (SCA) {21 April 2021)
24
[60) It is common cause that the FSR-Act commenced on 1 April 2018 and that the
LBIC was no longer registered under STIA when the penalty was imposed in 2022 for
a breach in 2015. It could not impose a penalty in terms of s167 as the Act itself does
not allow for retrospective application. In fact, counsel for the PA conceded as much
at the FST hearing that no Act has retrospective effect when the general principle of
no Act having retrospective application was canvassed with counsel for the PA.
[61] Section 66 of STIA has no application because the contravention there is for
documents not submitted and not for not obtaining approval to increase share capital.
Reliance on s65 is also misplaced because it simply does not provide for an
administrative penalty but only for a fine if a party is found guilty of an offence.
Decision on the penalty imposed in terms of a contravention of s23 of STIA.
[62) From the record of the proceedings before the FST it seems that it was
accepted that LBIC had breached s23 in not seeking approval to increase its share
capital. The only issue the FST had to decide was whether the penalty imposed was
done in terms of the applicable law at that time that the penalty was imposed.
[63] There is no doubt that the letter informing the LBIC of the penalty expressly
states that the penalty is imposed in terms of s167 of the FSR-Act. It is undeniable
that the FSR-Act cannot be applied retrospectively. The question then is whether the
transitional arrangements provided that the PA could penalise for contraventions of
the repealed STIA in terms of s167 of the FSR-Act. I find it prudent to repeat the
transitional provisions :
5(1) Despite the partial repeal of the previous Act-
25
(c) any investigation or inspection under the previous Act (the STIA)
by the Registrar in respect of compliance with the previous Act
and pending immediately before the effective date of 1 July 2018
may be continued by the Prudential Authority, and the Prudential
Authority may take any regulatory action under those Acts that
the Prudential Authority deems appropriate in respect of any non
compliance; and
(d) for a period of three years after the effective date, the Prudential
Authority under those Acts that the Prudential Authority deems
appropriate in respect of that non-compliance."
"Those Acts" thus require interpretation and can only be interpreted as being the
repealed STIA still applicable for regulatory action by the PA for three years. The PA
simply did not make use of this in the three years. But, the transitional provisions are
not the fly in the ointment; the problem is that STIA did not have provision for the
imposition of an administrative penalty for a contravention of s23. On no interpretation
of ss 65 or 66 of STIA could an administrative penalty be imposed. S 65 does not •
relate to a contravention of s23 and s66 refers to a penalty imposed for a criminal
sanction. But, more importantly the PA made it clear to the LBIC that it imposed the
sanction in terms of s167 of the FSR-Act.
[64] Section 167 cannot be utilised retrospectively. As already stated, even if the
STlA was not repealed, the PA would be confronted with taking administrative action
but not being authorised to impose an administrative action. This unfortunate scenario
cannot be blamed on the Transitional Provisions with a plea to ascribe some
interpretation thereto to assist the PA. To solve this lacuna is not the utilisation of s167
against the entrenched principle that Acts have no effect retrospectively. There·was
no argument that s167 could have been utilised retro-actively .
[65) I am satisfied that the FST was correct in finding the PA acted ultra vires when
it imposed the penalty for the contravention of s23.
26
[66] I make the following order:
The application is dismissed with costs, with costs to include the costs of three
counsel. Senior Counsel on scale A and the other two counsel on scale B.
27
CASE NO: 2023-058536
HEARD ON: 30 October 2024
FOR THE APPLICANTS: ADV. A.A.S.A. BAVA SC
ADV. N.S.H. ALI
INSTRUCTED BY: GMI Attorneys
FOR THE 2No AND 3Ro RESPONDENTS : ADV. S. KHUMALO SC
ADV. L. MBATHA
ADV.M.MTSHALI
INSTRUCTED BY: Malatji & Co Attorneys
DATE OF JUDGMENT: 15 January 2025