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[2013] ZAWCHC 68
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National Director of Public Prosecutions v Cunningham and Others (11528/2011) [2013] ZAWCHC 68; [2013] 3 All SA 97 (WCC); 2013 (2) SACR 580 (WCC) (27 March 2013)
Republic of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
[Reportable]
Case No: 11528/2011
In
the application of:
THE NATIONAL DIRECTOR OF PUBLIC PROSECUTIONS muniAPPLICANT
APPLICANT
And
MELVYN IVOR CUNNINGHAM
DEFENDANT
MELVYN IVOR CUNNINGHAM N.O.
IN HIS CAPACITY AS TRUSTEE OF
THE M I CUNNINGHAM TRUST (IT 11120/99)
FIRST RESPONDENT
ANNEMARIE CUNNINGHAM N.O.
IN HER CAPACITY AS TRUSTEE OF THE
M I CUNNINGHAM TRUST (IT 11120/99)
SECOND RESPONDENT
LOUIS MARTIN BREDELL
IN HIS CAPACITY AS TRUSTEE OF THE
M I CUNNINGHAM TRUST (IT 11120/99)
THIRD RESPONDENT
ANNEMARIE CUNNINGHAM
FOURTH REPONDENT
HUGO GUSTAV REMI DEVEUGELE
FIFTH RESPONDENT
ILONA DEVEUGELE
SIXTH RESPONDENT
BLUE BEACON INVESTMENTS 31 (PTY) LTD
SEVENTH RESPONDENT
INFO COLOUR PAGES (PTY) LTD
EIGHTH RESPONDENT
TWIN CITY WATERKLOOF PROPERTIES
(PTY) LTD
NINTH RESPONDENT
THE EMBASSY BROOKLYN (PTY) LTD
TENTH RESPONDENT
WEST DUNES PROP 352 (PTY) LTD
ELEVENTH RESPONDENT
ARROW CREEK INVESTMENTS 85
(PTY) LTD
TWELFTH RESPONDENT
CLUBVIEW ONTWIKKELINGS (PTY) LTD
THIRTEENTH
RESPONDENT
SIGHOMES WATERKLOOF RIDGE
FOURTEENTH
RESPONDENT
SIGHOMES CONSTANTIA (PTY) LTD
FIFTEENTH RESPONDENT
SIGHOMES VREDEHOEK (PTY) LTD
SIXTEENTH RESPONDENT
SIGNATURE ACQUISITIONS (PTY) LTD
SEVENTEENTH RESPONDENT
SPRINT WEB PORTAL (PTY) LTD
EIGHTEENTH
RESPONDENT
PROSPERA REALTY (PTY) LTD
NINTEENTH RESPONDENT
M I CUNNINGAHM FAMILY HOLDINGS
(PTY) LTD
MINISTER OF JUSTICE AND CONSTITUTIONAL DEVELOPMENT
STEVEN POWEL N.O.
(in his capacity as curator bonis)
TWENTIETH RESPONDENT
TWENTY-FIRST RESPONDENT
TWENTY-SECOND
RESPONDENT
JUDGMENT DELIVERED ON 27 MARCH 2013
HENNEY, J:
Introduction and Background
[1] On 12 June 2012 this court confirmed a provisional restraint
order granted by
Saldanha J
on 24 June 2011 against the
Defendant and related Respondents in the matter of NDPP v Cunningham
and others 2012(2) SACR 591 (WCC).
[2] In respect of those proceedings in which confirmation of the
provisional restraint orders was sought, the court also granted
interim relief against further family members whom the Applicant
avers have received effected gifts. The further family members
were
joined in those proceedings as Respondents.
[3] The NDPP and the Fifth and Sixth Respondents have agreed that the
confirmation of the provisional restraint order by this Court
of 12
June 2012 in respect of property in their possession be delayed until
now. This is therefore the return day of the provisional
restraint
order against Fifth and Sixth Respondents.
[4]
The Facts Underpinning this Application
The facts giving rise to this application are based on the
relationship between the Defendant (“Cunningham”) and the
Deveugeles. From this it will be clear why there was a joinder and a
provisional order granted against them.
[5] Cunningham was a trustee of the MI Cunningham Trust (“the
MIC Trust”). The MIC Trust was the majority shareholder
of
Webworks (Pty) Ltd, a private company. Cunningham was also the
managing director of Webworks. The other shareholders were an
entity
by the name of Top Dog (“Top Dog”), which held 15% of the
shares; Target Equity (“Target Equity”),
a British Virgin
Island company which held 10% of the shares; and Price Waterhouse
Cooper Corporate Finance (“PWC”)
which held 2% of the
shares.
[6] In addition to this, either the Fifth Respondent, Hugo Gustav
Remi Deveugele (“Fifth Respondent”), one Marc Sonic
(“Sonic”), Cunningham personally or the trust held a loan
account(s) in Webworks. This agreement provided for the
conversion
of the loan account into equity in the event that Webworks defaulted
on the loan. Webworks operated a card loyalty
scheme under the name
of “Infinity”. Webworks referred to its clients as
partners. These included the Automobile
Association (“AASA”),
SANPARKS, The Mugg and Bean and others.
[7] On 13 June 2005 a company by the name of Fidentia showed an
interest in acquiring Webworks. Fidentia was interested in acquiring
the shares and the loan account.
Cunningham as trustee in the majority shareholder, M I Cunningham
Trust negotiated the sale with Fidentia, without the knowledge
of the
minority shareholders. He agreed on behalf of the Trust to sell
Webworks to Fidentia.
[8] Before the trust could effect the sale to Fidentia, it had to
acquire the entire shareholding of Webworks from the other minority
shareholders. Before the trust could enter into the sale of shares
and the loan account(s), one of which was owned by the Webworks
from
the other minority shareholders.
[9] Cunningham had represented to the minority shareholders at that
stage that the value of Webworks was approximately R41 million
1
.
This he did by representing to one Michael Levenstein acting on
behalf of Target Equity and PWC that to buy their shares, which
represented 12% of the shares in Webworks for an amount of R4
million. Thereafter, Cunningham convinced the Fifth Respondent,
who
also acted on behalf of Top Dog and in his personal capacity, that
the value of Webworks was worth no more than R35 million.
[10] The Fifth Respondent then reached an agreement with Cunningham,
that Top Dog would sell its shares to the Trust for R5,7 million.
It
was agreed that Sonic and the Fifth Respondent would sell their joint
interest in Webworks to Cunningham for R3,4 million.
Before this,
however, Cunningham had already agreed with Fidentia that it would
sell the shares in and loan account(s) in Webworks
to Fidentia for a
sum of R160 million. (Cunningham failed to disclose fact to the other
shareholders).
[11] The NDPP alleges that by doing this Cunningham committed the
crime of fraud by materially misstating the financial affairs
of
Webworks in its financial statements and during negotiations with
Fidentia. This induced Fidentia to purchase the shares and
loan
account in Webworks for an amount of R160 million, whereas in truth
the company was worth no more than R10,5 million.
[12] In order to fund the acquisition of the shareholding of the
minority shareholders and the loan account, Cunningham, on behalf
of
the Trust, before acquiring the share capital of the other
shareholders, concluded a loan agreement with Fidentia, on 24 March
2005 and 29 March 2005, in terms of which Fidentia loaned an amount
of R25 million to the Trust.
[13] As a result of this, the entire equity stake in Webworks was
consolidated into the MIC Trust. This amount of R25 million
was also
meant to be a deposit by Fidentia on the entire shareholding in
Webworks by the trust prior to its sale or transfer to
Fidentia.
[14] All this was unknown to the Fifth Respondent and the other
minority shareholders. The Fifth Respondent at a later stage found
out that Cunningham had misled him and the other minority
shareholders, in that he had sold the shares and the loan account to
Fidentia at a much higher value that was presented to them. This
prompted the Fifth Respondent and the other shareholders to institute
a delictual claim against Cunningham to claim the value of their
shares in proportion to the price Cunningham sold them to Fidentia,
due to the misrepresentations and Cunningham’s failure to
disclose the true facts relating to the sale of Webworks.
The Settlement Agreement
[15] In terms of a later settlement agreement, which had been
rendered between the parties in respect of claims Deveugele, Sonic
and Top Dog had made in respect of the sale of Webworks, the Trust
agreed to pay Deveugele a total amount of R16 million. This
was made
up of an immediate payment of R3 million, and it was agreed that
further payments would be made, totalling R3,6 million
over a period
between 1 September 2009 until 1 August 2012. The rest would be in
the form of payment to R100 000,00 per month.
[16] Mortgage Bonds were registered in favour of Deveugele over
immovable property held by Cunningham, namely, 6 Montrose Constantia,
registered in the name of Sighomes Constantia, and 41 Fishermans
Bend, Llandudno (registered in Cunningham’s name), both
in an
amount of R6,5 million. These bonds were registered on 22 July 2009.
Despite the fact that the settlement agreement was
in favour of
Deveugele, Sonic and Top Dog, Deveugele is the only registered bond
grantor over both properties.
[17] In terms of the settlement agreement all payments were to be
paid into the account of Ilona Deveugele, the Sixth Respondent
and
Deveugele’s wife. Top Dog and Sonic are not mentioned as
beneficiaries to whom payment should be made.
[18] The Provisional Restraint Order was granted in favour of NDPP
against the Fifth Respondent on the basis that the terms of
the
settlement agreement and the mortgage bonds which were registered in
favour of the Fifth Respondent constitute an affected
gift.
[19] At the commencement of the proceedings, in respect of the
confirmation of the provisional order against Fifth and Sixth
Respondents,
the NDPP, the Fifth and Sixth Respondents agreed that
the question of the confirmation of the provisional order against
them would
be held over until the main application was determined as
against Cunningham and the other parties.
[20] This court’s finding that the requirements for the making
of a restraint order against Cunningham had been met, does
not only
have consequences for Cunningham, but also for persons holding
realisable property in terms of Section 14 of the Prevention
of
Organisation Crime Act, Act 121 of 1998 (“POCA”).
I pause here to refer to the specific provisions of the POCA which
are applicable in this case.
[21]
Applicable Provisions of POCA
Section 12 of Chapter 5 of the POCA defines an “
affected
gift
” as
any gift made by the Defendant concerned not more than seven
years before the fixed date; or
made by the Defendant concerned at any time, if it was a gift –
of property received by that Defendant in connection with an
offence committed by him or her or any other person, or
of property or any part thereof; which directly or indirectly
represented in that Defendant’s hands property received by him
or her in that connection …”
Section 14 of the POCA provides a definition of realisable property.
According to this provision the following property shall
be
realisable property in terms of chapter 5 of the POCA, namely:-
any property held by the Defendant concerned, and
any property held by a person to whom that Defendant has directly
or indirectly made any affected gift
.
[22] Section 16 of the POCA defines gifts as follows:
For the purposes of this Chapter a Defendant shall be deemed to have
made a gift if he or she has transferred any property to
any other
person directly or indirectly for a consideration the value of which
is significantly less than the value of the consideration
supplied
by the Defendant.
For the purposes of Section 20(2) the gift which a Defendant is
deemed to have made shall consist of that share in the property
transferred by the Defendants which is equal to the difference
between the value of that property as a whole and the consideration
received by the Defendant in return.
[23]
Applicant’s Case
In this application for confirmation of the Provisional Order, the
NDPP claims that Cunningham transferred property to the Fifth
Respondent when he in response to a claim for damages which resulted
in Cunningham and the Fifth Respondent concluding a settlement,
agreed to pay a sum of R16 million to the Fifth Respondent.
[24] The property the NDPP claims that Cunningham had transferred
pursuant to this settlement was; two mortgage bonds in favour
of the
Fifth Respondent of R6,5 million each as security for the payment of
R16 million; and cash payments via the account of the
Sixth
Respondent in an amount of R1,1 million.
[25] The NDPP contends that the value of the Fifth Respondent’s
delictual claim is negated by the fact that Cunningham cannot
be said
to owe the Fifth Respondent a lawful duty of care to disclose his
fraud on Fidentia and to share the proceeds thereof.
They further argue that it would in any event have been improbable
that the Fifth Respondent and the other shareholders would have
a
valid claim.
[26] The NDPP argues that the property transferred pursuant to the
settlement agreement constitutes the realisable property of
the
Defendant.
Respondents’ Case
[27] The Fifth and Sixth Respondents argue that there is no prima
facie case for the relief sought against them. In particular
they
argue that the NDPP has failed to demonstrate that the mortgage bonds
arising from the settlement agreement are an affected
gifts since it
had failed to show that the alleged property transferred (i.e. the
mortgage bonds) to the Fifth Respondent was for
a consideration the
value of which is considerably less than the value of the
consideration supplied by Cunningham, as required
by Section 16 of
POCA.
[28] Further, it was argued that the alleged gift can never be an
affected gift arising from any alleged unlawful activity of
Cunningham since it arises out of a compromise of a damages claim
that was brought by the shareholders of Webworks as Plaintiffs
in the
North Gauteng High Court, Pretoria under case number 25288/2006,
which compromise was made an order of court.
[29] The Fifth Respondent further contends that to the extent that
the mortgage bonds are registered in his name as nominee for
the
Plaintiffs (other shareholders) in the abovementioned case, such
parties have a direct and substantial interest in the subject
matter
of the litigation and no relief can be granted unless they are
joined.
[30] The Fifth Respondent further argues that in the absence of any
statutory definition or an exhaustive definition of the word
“gift”,
it must be determined with reference to the ordinary dictionary
meaning of the word. Counsel for the Fifth
Respondent argues that
the definition of the word “gift” as ascribed to by the
NDPP, namely, a willing transfer of
property from the Defendant
(Cunningham) to a third party where no consideration is given in
return, without referring to the origins
of the plain meaning of the
word “gift”, raises several problems.
[31] According to the ordinary definition of the word, “gift”
connotes a willing or ordinary transfer or giving of
property to
someone without payment. Therefore, according to the Fifth
Respondent, if regard is to be had to the facts and circumstances
of
this case, there was no willing transfer of the property by
Cunningham to the Plaintiffs (Fifth Respondent and the other
shareholders)
but only after a substantial litigation resulting in a
compromise that was made a court order.
[32] Furthermore, according to the Fifth Respondent, there certainly
was consideration given in return by the Fifth Respondent
and the
other Plaintiffs, in the form of a compromise of a substantial claim
for damages ranging between approximately R14,3 million
and R28
million in capital above excluding interest and costs.
[33] The NDPP’s reliance on the definition of “gift”
in terms of Section 16(1) of POCA, according to the Fifth
Respondent,
does not assist the NDPP. They argue that this provision is clear.
It does not create an entirely different definition
of “gift”.
Its purpose is to avoid a situation where a person, receiving
property in an attempt to avoid the improvisions
of POCA, agrees to
some insignificant counter performance so as not to make the property
appear as a “gift” in the
ordinary sense of the word.
It is argued that the consideration given as counter performance for
the property transferred to the Fifth Respondent (Plaintiffs)
was not
significantly less than the value of the consideration supplied by
Cunningham.
[34]
Issues for Determination
Whether any property transferred in terms of a settlement or
compromise between two litigants pursuant to civil proceedings can
be restrained in terms of POCA as the realisable property of the
Defendant (Cunningham).
If it is shown that such property is the realisable property of the
Defendant, whether the property transferred between the parties
pursuant to the settlement amounts to an affected gift;
Whether a mortgage bond registered in favour of the Fifth Respondent
utilized as security for the payment of a sum of money (in
this case
R16 million) due by the Defendant in terms of a settlement agreement
can be regarded as property in terms of POCA;
Whether the cash payments made are affected gifts and are
susceptible to be restrained although the NDPP has not explicitly
asked in the provisional order that they be restrained.
Whether the other shareholders affected by the settlement agreement
should have been joined.
I will now deal with the issues in turn.
Was the property transferred in terms of the settlement agreement
the realisable property of Cunningham?
[35] What is abundantly clear is that the Fifth Respondent, after it
had come to his attention that Cunningham had sold the shares
and the
loan account in Webworks for a value much more than that which
Cunningham had presented it to them, instituted proceedings
for the
loss of their share of the proceeds of the sale of Webworks to
Fidentia.
[36] The Fifth Respondent in their Particulars of Claim in their
action instituted against Cunningham alleges that Cunningham had
represented and failed to disclose to them the fact that the value of
shares in and the loan claim against Webworks was worth more
than R35
million, and that the Fifth Respondent’s share in Webworks was
R5,7 million.
[37] It was furthermore stated in the Particulars of Claim by the
Fifth Respondent (and other shareholders) that, at March 2005,
to the
best of their knowledge, the Trust did not have a buyer for all the
shares and loan claims against Webworks. This whilst
Cunningham had
already during March 2005 agreed to sell the entire issued share
capital to Fidentia for R100 million (as alleged
in his Particulars
of Claim)
2
.
[38] It was also not disclosed at that stage that Cunningham on
behalf of the Trust had already received a R25 million deposit
from
Fidentia to enable the Trust to acquire the shares of all the
minority shareholders. As a result of the litigation in respect
of
the Plaintiffs claims against Cunningham, a settlement was reached
between Cunningham and the Fifth Respondent.
[39] A term of the settlement agreement was that it was entered into
on the part of Cunningham the Trust without any admission
of
liability. The agreement was subsequently made an order of court on
27 July 2009
3
.
[40] I am in agreement with the contention of Ms Saller for the NDPP
that the value of the Fifth Respondent’s delictual claim
is
negated by the fact that Cunningham cannot be said to have owed the
Fifth Respondent and the other shareholders a lawful duty
of care to
disclose his fraud on Fidentia and to share in the proceeds thereof.
[41] The so-called delictual claim was based on misrepresentations
and non-disclosure of the true facts to the shareholders during
March
2005, which led to the Fifth Respondent suffering damages as set out
in the Particulars of Claim which forms part of the
Fifth
Respondent’s case.
[42] What the Fifth Respondent alleges is that had it not been for
Cunninghams’ non-disclosure and misrepresentations of
the true
facts when he and the Trust acquired the shares of the minority
shareholders they would not have suffered the damages
which resulted
in the settlement.
[43] However, even if Cunningham had not represented to the other
shareholders that the value of the entire shareholding was R35
million, and even if Cunningham had disclosed to them that he had
entered into an agreement to sell the entire shareholding for
an
amount of R160 million, the other shareholders would not be able to
receive their proportionate share of R160 million, because
this sale
was entered into, and the proceeds therefrom, acquired, by fraudulent
means. As such a delictual claim based on non-disclosure
and
misrepresentation could not be successful as causation would have
been absent. In fact their share paid out to them was paid
out as
part of the proceeds of the fraud perpetrated by Cunningham.
[44] Mr Botha for the Fifth Respondent argued that even if it might
be so that the underlying cause which gave rise to the settlement
or
compromise is illegal or
contra bones mores
, it does not
affect the compromise or settlement. In this regard he referred the
Court to various authorities
4
.
[45] I agree that the compromise or settlement between the Fifth
Respondent and the shareholders and Cunningham can be regarded
as
res
iudicata
, which would mean that neither Cunningham nor the Fifth
Respondent would be able to reinstate any action which gave rise to
such
settlement. However, in my view it does not mean that any
realisable property that had been transferred as a result of such
settlement
agreement, which forms part of the proceeds of crime
within the meaning of the POCA, is insulated from restraint in terms
of POCA.
[46] The settlement agreement or compromise was between the Fifth
Respondent and the other shareholders on the one hand, and Cunningham
and the Trust on the other hand. It does not bind a third party like
the authorities and cannot exclude the operation of POCA,
and the
ability of the authorities to restrain or gain control of the
realisable property if such property were either the proceeds
of
crime or the realisable property of Cunningham (“the
Defendant”). I hold that the property transferred in terms
of
the settlement agreement is the realisable property of Cunningham.
B.
Whether the Property transferred is an “affected gift”
[47] I agree with Ms Saller when she argued that if a compromise
agreement were given, as she put it, special status for the purposes
of the application of POCA, then the parties wishing to transfer
affected gifts could simply institute action, compromise on one-sided
terms and obtain an order by agreement in order to shield themselves
from the ambit of Section 16(1) of POCA.
[48] Whether the Fifth Respondent or recipient of such property or
payment receives it innocently in my view for the purposes of
POCA is
not relevant. What is relevant is whether the recipient was entitled
to it. Where it was shown that such property was
the proceeds of
crime, the transfer thereof to an innocent party cannot protect it
from the effect or consequences of that crime.
If it was the
realisable property of Cunningham, the Fifth Respondent was in terms
of Section 14(1)(b) of POCA not entitled to
it and it is therefore an
“affected gift”.
C.
Was the property a “gift” for the purposes of
Section 16(1) of POCA
[49] In this case it is not disputed that Cunningham had allegedly
made fraudulent misrepresentations to Fidentia which led to
Fidentia
acquiring Webworks for a sum of R160 million. The alleged fraud was
perpetrated by giving false information to Fidentia
by not only
misrepresentation as to the value and the worth of Webworks, but also
by allegedly supplying them with inaccurate and
falsified financial
statements.
[50] The Fifth Respondent at the time of the Webworks sale to
Fidentia was unaware of these facts and he cannot dispute them.
He
can therefore not dispute that Cunningham had allegedly committed an
offence.
[51] At the time when Cunningham had acquired the Fifth Respondent
and the other minority shareholders’ share capital during
May
2005, they did not dispute what it was worth and did not request that
a higher value be attributed to Webworks. They even
agreed even to a
lower value than that which Cunningham presented to them and their
share in proportion to this value was paid
out to them.
[52] According to the shareholders’ Particulars of Claim,
Cunningham had represented to them that the value of Webworks was
approximately R35 million. Cunningham, however according to their
Particulars of Claim convinced them that Webworks was worth
no more
than R35 million. Only thereafter, they found out that Cunningham
sold Webworks to Fidentia for about 4 times the value
he had
presented to them.
[53] At that stage, it seems they never questioned how Cunningham was
able to convince Fidentia to believe that the value of Webworks
was
worth about 4 times that which they had been led to believe it to be.
[54] Even though they did not have subjective knowledge that
Cunningham had acquired this value through alleged fraud, it
objectively
remains so. Subsequently, the Fifth Respondent became
aware of this fact. As said earlier, objectively he could never have
been
entitled to his share of the amount for which the total
shareholding was sold, because there is
prima facie
proof that
it forms part of the proceeds of the crime allegedly committed by
Cunningham.
[55] What we have here is a situation where a person innocently in
terms of an agreement receives a share in the proceeds of crime.
Despite the Fifth Respondent’s innocence, it was not something
that he was entitled to and which was unjustly withheld from
him, but
a proportionate share in the proceeds of crime. Can it be said,
given the circumstances, that it would be in the public
interest that
he should be successful in his claim to his share? Surely it cannot
be?
[56] What he received therefore is susceptible to be restrained as
part of the realisable property of Cunningham which forms part
of the
proceeds of his alleged crime in terms of the provisions of POCA and
is an affected gift.
[57] Under these circumstances, I am unable to agree with the
argument of Mr Botha that due to the fact that there was not a
willing
transfer of the property, the Fifth Respondent’s share
cannot be regarded as a “gift”, in the ordinary sense of
the word. In my view, if regard is to be had to the wide reach and
purpose of POCA, any transfer, of any realisable property
of the
Defendant to any person who would also not be entitled to such
property, whether willing or not, such property would be
regarded as
a “gift”.
[58] Such a definition would accord with what
O’Regan ADCJ
said in
S v Shaik and Other 2008(5) 354 (CC)
at paragraph [25]
where she held, having regard to the purpose of POCA, that:
“
One of the reasons for the wide ambit of the definition of
‘proceeds of crime’ is, as the Supreme Court of Appeal
noted,
that sophisticated criminals will seek to avoid proceeds being
confiscated by creating complex systems of ‘camouflage’.”
Regard must also be had to the judgment of
Farlam JA
in
Procopos v National Director of Public Prosecutions
2009 (1) SACR
468
where he said
quoting from the headnote:
"[a]
person shall be deemed to have made a gift, if (a) there was a
transfer of property by the Defendant to another person;
(b) there
was a supply by such person of some consideration to the Defendant;
and (c) there is proof that such counter-consideration
was worth
significantly less than the property in respect of which it was
transferred
”.
[59] In this case, I am satisfied that there was a transfer of
property by the Defendant (Cunningham) to the Fifth Respondent when
the mortgage bonds were registered in favour of the Fifth Respondent
as security for the payment of the amount of R16 million in
terms of
the settlement.
[60] As far as the second requirement is concerned read together with
the third requirement, I am satisfied that it being the proceeds
of
crime, that the Fifth Respondent was not entitled to such a payment,
the Fifth Respondent in my view could not supply any consideration
to
the Defendant.
[61] It follows therefore, as far as the third requirement in terms
of Section 16(1) is concerned, that such counter consideration,
due
to the fact that the Fifth Respondent was not entitled to the
transfer of the property, is not only merely significantly less
than
the property in respect of which it was transferred, but also of no
worth and therefore an “affected gift”.
D.
Whether mortgage bonds can be considered as property that can
be restrained for the purpose of POCA
As
O’Regan ADCJ
in
Shaik supra
held when she said
at [25]:
“
Section 12(3) of the Act provides that for the purposes of
Ch 5, ‘a person has benefitted from unlawful activities if he
or
she has at any time, whether before or after the commencement of
this Act, received or retained any proceeds of unlawful activities’.
‘Proceeds of unlawful activities’ are in turn broadly
defined in s 1 of the Act as –
Any property or any service,
advantage, benefit or reward which was derived, received or retained,
directly or indirectly, in the
Republic or elsewhere, at any time
before or after the commencement of this Act, in connection with or
as a result of any unlawful
activity carried on by any person, and
includes any property representing property so derived.
The Section is thus widely cast, something which becomes even more
evident when the definition of ‘property’ contained
in s
1 of the Act is considered. ‘Property’ is defined as –
Money or other movable,
immovable, corporeal or incorporeal thing and includes any rights,
privileges, claims and securities and
any interest therein and all
proceeds thereof.
One of the reasons for the wide ambit of the definition of
‘proceeds of crime’ is, as the Supreme Court of Appeal
noted,
that sophisticated criminals will seek to avoid proceeds being
confiscated by creating complex systems of ‘camouflage’”.
In this case it is common cause, and in fact one of the terms of the
settlement agreement, that the two properties situated at
41
Fishermans Bend, Llandudno and 6 Montrose, Constantia, which were
acquired by Cunningham, as shown in the previous proceedings,
through
the proceeds of crime, would be encumbered each with a bond in favour
of the Fifth Respondent as security for the payment
of a sum of R16
million.
[62] This sum would according to the settlement agreement constitute
his portion in relation to the sum of R160 million acquired
during
the alleged fraudulent transaction with Fidentia.
[63] These bonds advanced in favour of the Fifth Respondent
constitute the transfer of property in the form of security as
referred
to in Section 1 of POCA, which I already held is an
“affected gift”.
E.
Whether cash payments are an “affected gift” which
is susceptible to be restrained
[64] The next question to consider is whether the cash payments of
R5,3 million, which formed part of the settlement, made to the
Sixth
Respondent into the bank account of an entity called Commettre should
also be restrained. This question arose due to the
fact that the
NDPP in the provisional application only sought to restrain the
mortgage bonds registered in favour of the Fifth
Respondent as
security for the payment of the R16 million. R5,3 million of this
R16 million of which the Fifth Respondent admits
that he received
R1 135 419,00 as his share of the payments, can these also
be placed under restraint.
[65] The Fifth Respondent argued that during the provisional
application an order was never sought that the cash payments in
satisfaction
of the settlement agreement also be placed under
restraint as an affected gift which formed of the realisable property
of Cunningham
(Defendant). As a result of this the NDPP cannot
during the confirmation application now seek to have those payments
placed under
restraint. They should have made out their case in
their Founding papers to the provisional application. In this regard
the Fifth
Respondent referred to the dictum of
Miller J
in
Shakot Investments (Pty) Ltd v Town Council of the Borough of
Stanger
1976 (2) SA 701
D at 704 F – G
.
[66] The Fifth Respondent in relying on the decision of
Ghomeshi-Bozorg v Yousefi
1998 (1) SA 692
(W) argues that the
NDPP in the confirmation application can be in no better position in
respect of the relief it was seeking than
it was during the interim
ex-parte application.
[67] They argue that the NDPP’s excuse for not seeking the
restraint of the cash payments earlier, ie because they did not
have
any evidence at the time when the founding papers were drafted, is
not convincing because the Sixth Respondent was joined
precisely
because monies were paid into her account by Cunningham as they
alleged in the founding affidavit. No provision was
in any event
made in the founding papers to cater for any such eventuality.
[68] I disagree with the contention of the Fifth Respondent for the
following reasons.
Firstly, the order that was sought (in the initial papers) was the
restraint of the realisable property of Cunningham (the Defendant)
wherever it is located, which would include any affected gift made to
any person. As I said at paragraph 152 of the confirmation
judgment
in relation to Cunningham … “
The primary aim is to
preserve the assets of the Defendant which he might have acquired as
a result of the alleged crime. The Act
does not draw a distinction
between the realisable property of a Defendant and a donee, an
affected gift of a donee is regarded
as realisable property of the
Defendant. A distinction is however drawn between two classes of
persons that might hold realisable
property on behalf of the
Defendant”.
[69] The provisional order by
Saldanha J
, in respect of the
realisable property of the Defendant, cast the net very wide. The
provisional order in paragraph 1.1.5 referred
to
“[a]ffected
gifts not listed in Annexure A received by the Respondents or any
other person or entity at any time before or
after the granting of
this order or any property held by any Respondent, person or entity
who received such gift, to the value
thereof”.
[70] As I said in my earlier confirmation judgment at paragraphs 153
– 159, it is only after the provisional stage after
the
appointment of a Curator that the NDPP would be placed in a better
position to locate and identify realisable property. If
the
provisional order is not couched in wide terms it would leave the
door open to the Defendant or a person who is later identified
to
hold property on behalf of the Defendant to dissipate such property
before the curator by means of an order of court can take
control of
such property. As I said in my earlier judgment at [156] POCA seeks
as its primary objective to restrain property of
no one but the
Defendant. It does not seek to restrain the property of any person
not connected to a Defendant other than in terms
of s 14.
[71] It is also not correct, as the Fifth Defendant holds, that the
Curator and the NDPP knew that monies were indeed paid over
to the
Sixth Respondent. In support of their contention, the Fifth
Respondent refers to the Founding Affidavit at page 79 at paragraph
115.3 where it was stated that the Defendant agreed to pay R3 million
into an account in the name of the Sixth Respondent within
24 hours
of signature of an agreement which was concluded on 22 July 2009, and
further at paragraph 115.4, that the Defendant agreed
to pay
R100 000,00 in monthly instalments into the same account until 1
August 2012.
[72] However, what this indicates is merely a summary of the terms of
the settlement agreement. This by no means indicates that
payments
were in fact made. Nowhere does it state that at the time of the
drafting of the Founding Affidavit payments of R5,3
million were
indeed made of which the Fifth Respondent received about R1,1
million.
[73] It is further clear that this R5,3 million forms part of the
realisable property of the Defendant (“Cunningham”).
It
emanates from Cunningham and is therefore an “affected gift”.
Therefore as part of the original confirmation order
this R5,3
million being an affected gift is subject to restraint.
[74] Furthermore, the mortgage bonds were to be utilized as security
for the payment of R16 million which consisted of R13 million
(R6,5
million on each property) after R3 million cash was paid on 23 July
2009 immediately after the parties agreed to settle,
it would be
illogical and nonsensical that any additional cash amounts paid to
settle the R13 million by the Defendants, for which
the mortgage
bonds were to be utilized as security would not be subject to
restraint. Whereas the mortgage bonds offered as security
for these
cash amounts as pointed out earlier, would be susceptible to be
restrained.
[75] For these reasons, the application to have the cash payments
restrained were indeed covered by the interim order. I therefore
hold that the R5,3 million cash payment made of which the Fifth
Respondent received R1,1 million as from the date of settlement
as
part payment of the R16 million is an affected gift.
F.
Joinder of Top Dog and Sonic
[76] Mr Botha submitted that Top Dog and Sonic given the content of
the settlement agreement, clearly have a direct and substantial
interest in the subject matter of this litigation and should have
been joined. The court can therefore not issue a final order
restraining the mortgage bonds in their absence.
[77] In answer to this the NDPP argued that the mortgage bonds are
registered in the name of the Fifth Respondent. No other party
is
capable of alienating the bonds or taking any steps relating thereto
and they are accordingly “held” by the Fifth
Respondent
alone. Whatever Top Dog and Sonic may have in the mortgage bonds are
merely personal rights against the Respondent.
[78] The NDPP throughout the proceedings did not seek any relief
against Top Dog and Sonic. Their aim consistently was to restrain
the mortgage bonds that were registered in the name of the Fifth
Respondent and later the cash amount received by the Fifth
Respondent.
[79] A party who seeks the joinder of another party should show that
the other party has a direct and substantial interest in the
issues
involved. In this regard see
United Watch and Diamond Co (Pty)
Ltd and Others v Disa Hotels and Another
1972 (4) SA 409
(C) at 415
E
. Later in that same decision the court refers to a decision of
Henri Viljoen (Pty) Ltd v Awerbuch Brothers
1953 (2) SA 151
(O)
where it was held that a direct and substantial interest is an
interest in the right which is the subject matter of litigation
and
it is not merely a financial interest which is only an indirect
interest in the litigation. The court in
United Watch and Diamond
Co (Pty) Ltd and Others v Disa Hotels and Another
1972 (4) SA 409
(C)
at 415 E
held that such an interest is generally accepted as a
legal interest in the subject matter which could be prejudicially
affected
by the judgment of the court.
[80] It has been held even though a party may have an interest in the
outcome of litigation, it does not warrant a non-joinder
plea. See
Herbstein and Van Winsen – Civil Practice
of the High
Courts of South Africa 5
th
Ed Vol 1 at 239.
[81] In this case the bonds to be utilized as security for payment of
the sum of R16 million were registered in the name of the
Fifth
Respondent. This formed part of the agreement. It was clearly the
intention of the parties that the bonds be registered
in the name of
the Fifth Respondent. He would therefore be the only person who would
acquire the right to alienate the bonds or
take any steps in the
event of any default to call up the security in terms thereof. No
such right would reside with Top Dog or
Sonic.
[82] It may well be that as a result of the settlement agreement, Top
Dog and Sonic have an indirect interest to protect their
claim by
means of the security the mortgage bond offers in the name of the
Fifth Respondent. As said earlier (at paragraph 46),
however, due to
the fact that the security in the form of the bonds, given the
definition of property in POCA, forms part of the
realisable property
of the Defendant, Top Dog and Sonic therefore cannot be said to have
a valid or legally enforceable interest
to preclude the authorities
in the form of the NDPP who has a valid interest in the subject
matter of this application not to restrain
the property whereas they
have no such right. Even if a case is made out that they should be
joined, they have no legally enforceable
claim against the NDPP, that
the property not be restrained.
I therefore find that it is not necessary to join Top Dog and Sonic
to these proceedings.
[83] In the result therefore I make the following order:
That the mortgage bonds registered on the properties held by the
Defendant, namely 41 Fishermans Bend, Llandudno and 6 Montrose,
Constantia, each to the value of R6,5 million, in favour of the
Fifth Respondent are placed under restraint.
The cash amount of R1,1 million as part payment of the R16 million
to the Fifth Respondent is also placed under restraint.
The provisional order on 12 June 2012 is confirmed.
……………………………….
R.C.A. HENNEY
Judge of the High Court
1
According to the
Particulars of Claim in the proceedings instituted against
Cunningham by the Fifth Respondent and other shareholders
the amount
shared was not more than R35 million – at page 1901 record.
2
It is not
disputed that this amount was R160 million rand.
3
Page 2083 of
the record.
4
Gollach & Gomperts
(1967) (Pty) Ltd v Universal Mills & Produce Co (Pty) Ltd
1978
(1) SA 914
(A); Karson v Minister of Public Works
1996 (1) SA 887
(E) 893; Georgias v Standard Chartered Finance Zimbabwe Ltd
2000 (1)
SA 126
(ZS) 138-139.