Van Zyl and Another v Price Waterhouse Coopers Incorporated and Others (12511/2013) [2014] ZAWCHC 213 (7 October 2014)

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[2014] ZAWCHC 213
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Van Zyl and Another v Price Waterhouse Coopers Incorporated and Others (12511/2013) [2014] ZAWCHC 213 (7 October 2014)

IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No.: 12511/2013
DATE:
07 OCTOBER 2014
In the matter
between:
WILLEM HENDRIK
VAN
ZYL
....................................................................................
First
Applicant
DEON JOHANN
PIENAAR
.......................................................................................
Second
Applicant
And
PRICEWATERHOUSECOOPERS
INCORPORATED
...........................................
First
Respondent
LINDA
MCPHAIL
...................................................................................................
Second
Respondent
LOUIS
STRYDOM
.....................................................................................................
Third
Respondent
TJAART
HAMMAN
................................................................................................
Fourth
Respondent
JUDGMENT
DELIVERED: TUESDAY, 07 OCTOBER 2014
SALDANHA,
J
[1.]
The applicants are both independent financial investment brokers,
licensed and accredited with the Financial Services Board.
They
apparently sold investments to certain persons in the Blaauwberg
Beach Hotel development which was developed by the Realcor
Group
(Realcor).  The second, third and fourth respondents
(collectively referred to as the respondents) were employed by
the
first respondent and were initially appointed as inspectors in terms
of
section 11
of the
South African Reserve Bank Act No. 90 of 1989
into the affairs of the Realcor Group and subsequently as managers in
terms of
section 84
[1]
of the
Banks Act No. 94 of 1990.  The applicants sought final
declaratory relief against the respondents and an indemnification
by
them arising out of their appointments as managers in terms of the
Banks Act which relief was couched in the Notice of Motion
as
follows:
“
1.
Declaring that the Respondents appointed as managers failed to act as
envisaged in terms Section 84 of the Bank’s Act,
1990;
2.
Declaring the conduct and/or omission/s of the said Respondents to be
unlawful and actions to be ultra vires;
3.
Directing that as result of the Respondents action and/or omissions,
applicants should not be held responsible for any loss sustained
by
any investor as a result of the Applicant marketing the investment
whilst the Respondents were overall in change of the Realcor
Group.
4.
Further and/or alternative relief as the Honourable Court may deem
fit;
5.
Costs of this application.”
[2.]
In the founding affidavit of the first applicant (which was confirmed
by the second applicant insofar as it related to him)
the relief was
formulated somewhat differently to that in the Notice of Motion as:
“
16.1
Declaring that the failure of the manager so appointed by the South
African Reserve Bank to act in terms of sections 81 to
84 of the
Banks Act to be unlawful;
16.2
Declaring that the conduct of the said inspectors and later managers
to be unlawful and ultra vires;
16.3
Declaring that any award made by the FAIS Ombudsman against the
Declaring Applicants or any other broker for selling the investment

to the member of the public within the Realcor Group, such award
ought to be satisfied by the Respondents herein
[2]
.”
[3.]
During the course of argument counsel for the applicants proposed an
amendment to the relief sought in respect of the indemnification
to
the effect that the respondents be held “…
no more
than jointly liable for any loses sustained by the applicants who
marketed the investments while the respondents were in
charge of the
Realcor Group.
”
[4.]
The respondents opposed the application on both procedural and
substantive grounds and moved that the application be dismissed
with
costs (inclusive of the costs attendant upon the employment of two
counsel).
[5.]
Briefly tabulated the procedural grounds on which the application is
opposed are the following:
(i)
The respondents contend that the application discloses no basis on
which the relief can be granted as the applicants have failed
to set
out in the founding affidavit a cause of action and moreover no
evidence sufficient to sustain the relief has been tendered.
In
this regard the respondents pointed to a lack of clarity and
consistency in respect of the basis for the relief in the founding

affidavit; contradictory assertions made in the replying affidavit
and new claims made against the respondents in a supplementary

replying affidavit, which affidavit was also the subject of a
striking out application by the respondents. The striking out
application
was aborted at the hearing after the applicants abandoned
any reliance on the contents of the affidavit. The respondents also
referred
to what they described as the “
changing basis”
for the relief as contained in the Heads of Argument filed on behalf
of the applicants and which was exacerbated and compounded
by new and
un-pleaded grounds for the relief during the course of oral
argument.  In this regard counsel for the respondents
remarked
that the applicants had literally resorted to a “
trial by
ambush”
by having failed to make out their case in their
founding papers.
(ii)
The respondents contend that the applicants failed to establish that
they or any one of them had the requisite standing to
claim the
relief sought and that the application was at best premature.
(iii)
That the application was founded on both incorrect factual and legal
premises’.
(iv)
That the relief sought as formulated was both incoherent and
incompetent.
(v)
That the relief sought fell within the statutory limitation
applicable to the respondents which excluded any liability for what

was alleged and claimed by the applicants against the respondents.
[6.]
In respect of the substantive basis of their opposition the
respondents contended that insofar as final relief was sought by
the
applicants on motion, in line with
Plascon Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
, at
634H-I,
the relief could not be granted as it was not justified on the facts
alleged by the respondents considered together with those
facts
alleged in the applicant’s founding affidavit which were
admitted by the respondents.
Brief
background.
[7.]
On the 21
st
April 2008 the respondents were appointed as temporary inspectors by
the Governor of the Reserve Bank in terms of section 11(3)
[3]
and 12
[4]
of the
South African
Reserve Bank Act No. 90 of 1989
in respect of Purple Rain Properties
15 (Pty) Ltd, trading as Realcor Cape; and/or Deonette de Ridder, a
business woman who was
the sole director of the Purple Rain
Properties, and/or various other companies in what was referred to as
the Realcor Group of
Companies, and/or any related person or entity
(including Midnight Storm Properties 386 (Pty) Ltd (MSI))
[5]
.
In this judgment the group of companies and entities are collectively
referred to as Realcor.
[8.]
In the letters of appointment dated 24 April 2008
[6]
received by the second, third and fourth respondent from the Deputy
Registrar of Banks they were informed that the Governor of
the
Reserve Bank had reason to suspect that Realcor was conducting the
business of a bank in contravention of the provisions of
the Banks
Act and that the respondents were mandated to inspect the affairs of
Realcor and to investigate and report on the suspected

contravention.
[9.]
In terms of the appointment they were vested with powers as set out
in section 4
[7]
of The
Inspection of Financial Institutions Act (Act No. 80 of 1998.
They were also required to furnish the registrar with
a written
report as soon as possible on completion of their investigation.
[10.]
Arising from the inspection conducted by the respondents and based on
their report the Registrar of Banks concluded that Realcor
had
obtained money by conducting the business of a bank without being
registered or authorized to do so under and in terms of the
Banks
Act.
[11.]
On the 26
th
August 2008 the Reserve Bank issued a
directive to De Ridder representing Realcor headed “
Directive
pertaining to the repayment of funds issued by the Registrar of Banks
in terms of section 83 of the Banks Act, 1990.”
The
relevant extract from the directive stated;
“
34.1
Whereas as a result of an inspection conducted under section 12 of
the South African Reserve Bank Act, 1989 (Act No 90 of 1989,)
the
Registrar of Banks (the Registrar) is satisfied that Purple Rain
Properties 15 (Pty) Ltd and/or Deonette de Ridder and/or Coral
Lagoon
Investments 233 (Pty) Ltd and/or Pearl Isle Trading 167 (Pty) Ltd
and/or Majestic Silver Trading 167 (Pty) Ltd and/or Africa’s

Best 258 (Pty) Ltd and/or Africa’s Best 25 Limited and/or
Turquoise Moon Trading 125 (Pty) Limited and/or Midnight Storm

Investments 386 (Pty) Limited and/or Realcor Cape and/or any related
person or entity and/or all of them (hereinafter the one,
the other,
or all of them referred to as “the institution”) have
obtained money by conducting the business of a bank
without being
registered as a bank in terms of section 17 of the Banks Act, 1990
(Act No 94 of 1990- the Banks Act) or without
being authorized, in
terms of the provisions of section 18A(1) of the Banks Act, to carry
on the business of a bank.
34.2
“now therefore, the institution is hereby directed, in terms of
section 83(1), read with section 84, of the Banks Act,
subject to and
in accordance with the provisions set out in the schedule hereunder,
to repay all monies so obtained by the institution
from members
and/or participants and/or “investors” under “the
scheme” operated/conducted by the institution,
in so far as
such money  has not yet been repaid, including, if possible, any
bank interest that may lawfully have accrued
on such amounts.”
[8]
The
scheme related to short term loans obtained by Realcor from members
of the public as investments.
[12.]
On the 26
th
August 2008 the Deputy Registrar appointed the second third and
fourth respondents in terms of section 84(1) read together with

section 83(1) of the Banks Act “
to
manage
and control the repayment by the institution of monies in compliance
with the directive issued to the institution...”
[9]
The
duties of the respondents as managers were extensively set out in a
schedule to the letter of appointment. They were also conferred
with
the powers under sections 4 and 5
[10]
of The Inspection of Financial Institutions Act 1998 (Act no. 60 of
1998).
[13.]
In terms of their appointment the respondents were to hold office
until such time as there had been full compliance with the
directive
but the Registrar could in writing withdraw the appointment of a
manager on good cause shown whereupon the manager was
required to
vacate his or her office.
The
complaints of the applicants.
[14.]
The applicants listed a myriad of complaints in support of the relief
that they sought.  Some of the complaints related
to the
Registrar of the South African Reserve Bank (SARB) while others
should more appropriately have been raised against the directors
of
Realcor and probably also their legal representatives. None of them
were joined to the proceedings.
[15.]
The applicants contended that the basis of the application was
“
rooted”
[11]
in a ruling of the FAIS Ombudsman that had been made against a fellow
broker who had also sold Realcor investments to a member
of the
public. The investor obtained an order against the broker in terms of
which the broker was obliged to repay to the investor
the value of
his entire investment made together with interest. The applicants
claimed that the basis of the Ombudsman finding
was that broker was
negligent for not having performed the necessary investigations and
for not having conducted a due diligence
of the Realcor Group prior
to selling the investments to members of the public and was therefore
found liable to repay the investment,
more especially since Realcor
had been finally liquidated and there was no prospect of the investor
receiving a return on his investment.
The FAIS Ombud declared
the risk profile of the investment as high as opposed to moderate
conservative.  The applicants contended
that the finding against
the broker by FAIS was wrong as the investment products sold by the
brokers in Realcor to members of the
public were sold while the
respondents were the managers of Realcor and who effectively were in
charge of the companies; that the
respondents vetted and approved
each of the investment tools used and in addition had overseen the
flow of funds in and out of
the banking accounts of the companies and
moreover  they had approved the commissions paid to them.
The applicants explained
that investments in Realcor which were sold
prior to the appointment of the respondents were repaid to investors
after the respondents
were appointed but that investments that
related to a 12 month debenture scheme sold by brokers after the
appointment of the respondents
were now the subject matter of
complaints to the FAIS Ombudsman.  That, they claimed, placed
them and their businesses at
risk.  The first applicant claimed
that clients with whom he had established a business relationship had
terminated all business
dealings with him as a result of the
investments in Realcor having turned sour.  He claimed that the
cancellations had a direct
effect upon them as investment brokers
through no fault of their own.
[16.]
The applicants claimed that as a result of the respondents’
failure to act in terms of the Banks Act all related companies
in
Realcor were liquidated and the main asset, the hotel, had been
sold.  A consequence, they claimed, was that investors
were at
risk of losing their entire investments.
[17.]
The applicants explained that Realcor Cape (Pty) Ltd through its
subsidiary company, Midnight Storm Investments 386 Ltd (MSI),
a
property development company, had sought to develop the five star
hotel in Table View with “
the
man in the street”
[12]
as shareholders.  The funding of this development they claimed
was to be obtained through the sale of shares as provided for
in the
Companies Act No. 61 of 1973 and with the issue of debenture notes.
Realcor, they claimed, depended upon investments
made by ordinary
members of the public with the view that such members would in the
end be the shareholders (owners) of “
a
five star, green hotel being managed by the international Radisson
Hotel Group in terms of a signed fifteen year management
agreement.”
[13]
The
applicants (and other brokers) had been approached by the Realcor
Group to market the product to the public in consideration
for
commission.  They claimed that their attempts to achieve this
goal for the benefit of ordinary members of the public in
the Realcor
group was “
thwarted
by the unilateral actions of the respondents”
[14]
which
actions they claimed were “
in
direct conflict with the prevailing laws and policies of the South
African Reserve Bank at the time.”
[15]
[18.]
The applicants explained that MSI obtained monies from members of the
public through public investment companies through the
issue of
prospectuses which were distributed publicly.  The public
investment companies were Grey Haven Riches 9 Limited,
Gray Haven
Riches 11 Limited and Iprobrite Limited.  Funds collected by
those companies were invested in MSI for the construction
of the
hotel.  MSI never obtained monies directly from the public.
[19.]
The applicants claimed that up until the 26
th
August 2008 (the date of the appointment of the respondents as
managers) Realcor was managed by a board of directors comprising
de
Ridder and Mr Wimpie Nortje.  They claimed that the position
changed on the 26
th
August 2008 in terms of sec 84(1) the Banks Act when the appointment
of the managers took effect and whereupon the respondents
took
“
control
of the entire company, its assets and managed the flow of funds as
provided for in the Banks Act 1990 and other legislation.”
[16]
[20.]
The applicants claimed that in terms of sections 81 to 85 of the
Banks Act the management of the company, which included “
the
flow of funds,”
in
and out of Realcor was in the hands of the respondents as the
appointed managers.  They claimed that section 84(1)(A)
[17]
of the Banks Act “
was
analogous to the provisions of the
Insolvency Act No 24 of 1936
as it
divested the directors of control of the company
”
[18]
and vested control in the hands of the respondents.  The
applicant’s claimed that the “
managers
stood in the position above that of
directors
of the company as all actions were stayed against the company save
with the knowledge of the SARB (it’s appointed
managers…”
[19]
[21.]
The applicants further complained that they had been unaware of any
finding by the South African Reserve Bank of, “
MSI
being part of an illegal deposit taking scheme.”
[20]
They
claimed their view was reinforced by the fact that no court
application (to the best of their knowledge) had been launched
by the
SARB against MSI for an order prohibiting such “
prevailing
and or anticipated behavior by SARB against MSI.”
[21]
They claimed that the absence of any court application to prevent any
anticipated illegal taking of monies from members of
the public was
“
unequivocal
proof”
[22]
that the raising of money from members of the public in the manner
conducted by the Realcor Group “
was
in fact not illegal.”
[23]
[22.]
The applicants claimed that upon the receipt of the report by the
SARB from the inspectors and having considered same the
Registrar
appointed the respondents as managers without “
seeing
the need to apply to this honourable court for an order to prohibit
the continued illegal activity.”
[24]
They noted however that the provisions of
section 81
[25]
of the Banks Act (with regard to the Registrar applying to a court
for an appropriate order) were not peremptory and afforded the
SARB a
discretionary power to do so.
[23.]
In respect of the processes followed by the South African Reserve
Bank with regard to Realcor they noted that the report which
led to
the appointment of the respondents on the 26
th
August 2008
was never published nor had it given to  Realcor and had not
been placed before a competent court.
[24.]
They noted further that no application for the liquidation of MSI was
launched by the respondents or the SARB from which they
deduced that
“
the
respondents had found no evidence that MSI under directive was either
technically or legally insolvent as at August 2008 or
very soon
thereafter.”
[26]
They added further that inasmuch as the respondents were “
de
jure”
in charge of Realcor including MSI and while the companies were under
their management it became insolvent with a final order for
the
liquidation of the Realcor Group obtained on the 28
th
August 2012, almost four years after the appointment of the
respondents.
[25.]
The applicants contended that it was incumbent upon the respondents
in terms of the Banks Act “
to
take into their possession and control all assets, books of accounts,
share registers, records of debenture holders, etc. and
that same
would be scrutinized before any action/s are implemented.
[27]
”
They
claimed that the role of the respondents was not limited to the mere
identification of the persons who made investments and
to embark on a
repayment plan but that they had at the same time to “
oversee
the flow of funds.
[28]
”
This obligation they claimed presupposed that the respondents, “
being
qualified auditors,
[29]
”
had to oversee the flow of funds into and out of the companies
banking accounts and that they were in fact in charge of all the

finances of Realcor.
[26.]
The applicants claimed that at no stage were they, as the investment
brokers who sold the investments to members of the public,
presented
with any documentary evidence and/or informed on what basis the
Registrar of SARB had found that MSI had conducted the
business of a
bank in contravention of the Banks Act.  They claimed that to
the best of their knowledge it “
cannot
be asserted that MSI acted as a bank because the natural corollary of
obtaining money is also borrowing, furnishing credit
facilities to
members of the public.  This renders the SARB’s assertion
of MSI conducting the business of a bank as
being hollow.
[30]
”
[27.]
The applicants also claimed that the respondents had a duty to keep
the brokers (insofar as the investments were secured by
them) and/or
investing public apprised of their involvement in the Realcor group
and recorded that the only correspondence they
received as brokers
from the respondents was during November 2010 more than two years
after their appointment as managers; in which
they were informed of
the investigation by the Registrar of SARB.
[31]
[28.]
The applicants also claimed that the “
initial
finding that MSI was conducting the business of a bank while not
being registered as such is baseless and without substance.
[32]
”
They
contended that having made such a finding the SARB “
was
not receptive to any other information which could prove the
contrary.  The fact that the SARB did not disclose the
inspectors
report to MSI is indicative of the stance adopted by
SARB.
[33]
”
[29.]
The applicants stated that as at the 9
th
June 2009 the monies collected in terms of the unlawful loan
agreements were repaid to the body of investors and in this regard

referred to an email from a Mr Wimpie Nortje, the marketing director
of Realcor, to a Mr Pieter Muir (a Senior Property Investment

Consultant) in which he thanked the consultants and brokers for their
co-operation in the conversion process of the loans to debentures.

The applicants contended that the respondents had at that stage
thus given effect to the terms of their letter of appointment
and “
at
that stage, fulfilled their task for which they were appointed, the
natural consequence would have been that their mandate has
been
fulfilled and the directive ought to have been withdrawn.  This
however did not take place
.
[34]
”
[30.]
They claimed that the Registrar of the SARB did not withdraw the
directive and neither did the respondents vacate the offices
of
Realcor and allow the company to continue with its business as usual.
They claimed that the respondents remained in charge and
continued
trading with company money, the assets and authorized the continued
sale of investments, the payments for supplies and
to contractors who
were “
steadily
completing the hotel.
[35]
”
[31.]
The applicants claimed that upon the investors being repaid and
“
having
been informed that the loan agreement was contrary to the provisions
of the Banks Act many an investment broker, like myself
were
contacted by the investor for reasons which included; the
re-investment of their money, answering questions of the return
they
had received, been instructed to look at ways to re-invest as they
did receive a good return on their investment made with
Realcor.
[36]
[32.]
The applicants claimed further that “
many
investors reinvested their money upon redemption of the twelve month
loans which were found to be in contravention of the Banks
Act”
[37]
and
that such investments were made in terms of a Prospectus which had
been approved by CIPRO prior to the applicants marketing
the
investments. This they contended also ensured that the investments
carried the approval of the Financial Services Board who
protected
members of the public.  In respect of the debentures referred to
in the Prospectus they referred to the various
correspondence between
the then attorney of Realcor Mr Mario Laubscher of Heunis &
Heunis, to the fourth respondent who, the
applicants claimed, was to
have ensured that the redrafted Prospectus was brought onto “
a
legal footing”
[38]
and claimed that the twelve month debentures “
as
an investment tool was vetted and approved by the appointed
managers.”
[39]
I
will deal with these contentions in greater detail when setting out
the respondents’ version.
[33.]
The applicants contended that as “
a
reasonable investment broker”
[40]
they felt comfortable and assured that the investments made by their
clients were “
safe
in that the SARB and the respondents were in charge of the company,
any form of illegality which could present itself was removed
any
risk which the investor might have had been minimized, and that
further construction of the asset (the Hotel) was continuing,
the
SARB and its managers (the respondents herein) were in charge of the
flow of funds i.e. incoming and outgoing funds.”
[41]
[34.]
The applicants claimed that “
a
year later on the 2
nd
September 2009 after many investments had already been made in terms
of the twelve month debenture agreements were sold an email
under the
hand of the second respondent was sent out which pronounced that the
twelve month debenture agreement as an investment
tool was also in
conflict with the Banks Act.”
They
claimed that no reason for this alleged irregularity was ever given
nor was there any order of court which declared the
sale of the
investment tool to be in conflict with the provisions of the Banks
Act.
[42]
They claimed
that the basis for such decision appeared to them to be that the
second respondent “
was
unaware thereof and she did not approve the sale of the 12 month
debentures.  This unawareness and lack of approval is
further
evidence, in my view, of the managers being in a position above that
of the directors.”
[35.]
The applicants contend that the conduct of the respondents was
“
highly
peculiar it seems to be sinister in that a year had passed since a
appointed manager Hammond (the fourth respondent) who
was at the time
also employed by the first respondent had sight of the twelve month
debentures as an investment tool and had raised
no objection to it
being used as an investment tool.”
[43]
[36.]
The applicants contended that the respondents had at no stage prior
to their raising the illegality of the twelve month debentures

mentioned the existence of Commercial Paper Notice No. 2172
[44]
Government Gazette No. 16167 dated 14 December 1994.  They
claimed that what they found “
more
frightening”
[45]
was that the respondents had either not known about its contents and
consequences or they had intentionally elected to remain silent
about
it to the detriment of the investing public and had at no stage
informed the investor about it.  The applicants contended
that
they did not believe that the respondents had not known about the
existence of the Commercial Paper, its conditions or effects
as they
were highly qualified forensic auditors contracted by the SARB to
perform various tasks within the financial services sector
and they
ought to have been fully apprised of all laws, regulations or
directives relating thereto.  They claim that this

non-disclosure had a material impact on them and the relationship
which they established over many years with members of the public
and
had impacted on their credibility as brokers of repute.  They
further claimed that the respondents “
should
not have allowed the investing public to re-invest their monies on
three different occasions, each time with the use of a
different
investment tool.”
[46]
They claimed that the respondents ought to have stopped any further
investments when they took office on the 26
th
August 2008 more especially since the monies collected in terms of
the twelve month loan agreements had been repaid.
[37.]
The applicants contended that should one accept that the scheme was
an unlawful deposit-taking scheme, the natural consequence
flowing
therefrom would have been the restoration to the investors of the
monies unlawfully obtained.  Applicants claimed
though “
it
seemed that in the whole process of managing Realcor under directive
and management of the respondents the restoration of money
to the
investor has simply been ignored.”
[47]
They also claimed that inasmuch as the Registrar of SARB was
entrusted with a supervisory role in protecting the public at
large
the “
motives
of the SARB so stepping in is surely questionable.  To date no
account has been rendered to the investors as to where
their money
ended up.  This further raises the question as to the legitimacy
of the SARB stepping in.”
[48]
[38.]
The applicants also referred to a loan from Wesbank which had been
obtained by the directors of Realcor allegedly, without
the knowledge
and consent of the respondents.  The applicants claimed that
inasmuch as it was the duty of the respondents
to have overseen the
flow of funds, the respondents must have been aware of the loan “
but
elected to remain silent as once the funds was in the companies
banking account they could access same to ensure that their
account
(the
respondents’)
be
paid.”
[49]
[39.]
The applicants claimed that as the hotel neared completion the Deputy
Registrar of the SARB on the 15
th
October 2010 issued a public statement via “Moneyweb” in
which he stated that the Realcor Group was involved in illegal

activity, the net result of which was that “
many
an investor who had acquired shares and debentures wanted to withdraw
their money from this scheme.”
[50]
Applicants claimed that Realcor could not meet its financial
obligations and on advice received issued an application to
rescue
the business in terms of the Companies Act.
[40.]
The applicants claimed that had they been aware of any illegality in
the investment tools (the twelve month debentures as
issued) at the
time the company was managed by the respondents they “
would
not have marketed theses investment products.”
[51]
They
further claimed that the respondents were enriched and had received a
financial reward (ostensibly with regard to the
fees that they had
earned) in their capacities as the managers from August 2008 which
payments were made by the companies that
they were managing in terms
of the Banks Act.
[41.]
The applicants also contended that for all of these reasons that they
were entitled to be indemnified for any losses which
they may sustain
as a result of any investors seeking redress against them. They also
claimed that any claim which they may have
against the respondents
“
could
become prescribed and further it would motivate the FAIS Ombudsman to
fully investigate the happenings and circumstances surrounding
the
Realcor Group prior to making a finding if any at all.”
[52]
[42.]
The applicants claimed that the “
SARB
and its managers had been acting in a cavalier nonchalant manner
towards the investing public under the pretext that they were
acting
in the interest of the investing public.”
[53]
They
claimed that the prejudice and harm suffered by the investing public
as a result of the conduct of the SARB and its managers
was
“
astronomical,
the true extent of the prejudice suffered by the investing public at
this stage is too difficult to comprehend and
calculate.”
[54]
They
further claimed that on the application being successfully finalized,
the court should also consider “
an
amount of damage (sic) for damages which was sustained by the
investing public.”
[55]
[43.]
In their replying affidavits the applicants raised further complaints
against the respondents which necessitated the latter
filing a
further answering affidavit to refute the allegations, in particular
those to the effect that the respondents through
their control over
Realcor had misappropriated monies, as being unfounded, untrue and
denied.  The applicants had also contended
that the second
respondent had misrepresented to the court the facts with regard to
her and the other respondents’ prior
knowledge of the Wesbank
loan to Realcor.  The second respondent clarified the position
and explained that inasmuch as the
Wesbank loan had been brought to
their attention it was only done after the loan had been approved and
the monies expended.
Inasmuch as the applicants implied
dishonesty on the part of the respondents they placed on record that
such allegations were manifestly
untrue and were denied.
[44.]
The applicants filed a further affidavit in reply to the respondents’
supplementary affidavit.  The contents of
the reply was the
subject of the aborted striking out application wherein the
respondents claimed that averments made by the applicants
were of a
hearsay nature, irrelevant, vexatious and defamatory of them.
The
Respondents’ version
[45.]
In their narrative as to how they exercised their functions and
duties under the Banks Act in relation to Realcor the respondents

conveniently distinguished between, and dealt separately with, three
different periods during their appointment.  The first
period
commenced from the date of their appointment on 21 April 2008 until
September 2009.  The second period extended to
early February
2011. The third period followed thereafter until their appointment
was withdrawn upon the liquidation of the entities
in Realcor.
First
Period
.
[46.]
During the period of their appointment as temporary inspectors the
respondents explained that they met with and held various
discussions
with the managing and controlling director of the companies within
Realcor, Ms de Ridder, in particular, with regard
to the manner and
method in which finance had been raised by the companies in Realcor
from members of the public.  The respondents
contended that at
all material times during the inspection process, the directors and
de Ridder, in particular, retained control,
administration and
operation over all of the companies within Realcor and the various
business activities conducted by them.
The respondents denied
that they, either as inspectors or managers, controlled, directed or
managed (the day to day affairs) of
any of the companies in Realcor.
[47.]
The respondents claimed that in order to minimize any disruption
within the businesses of Realcor they refrained from removing
any
documentation from the company’s premises and had merely made
copies of documents they considered necessary for the purposes
of
their inspection.  The documents related to the short term loans
made by members of the public to the various entities
in Realcor
which they suspected at the time may have been viewed by the Reserve
Bank as constituting the business of a bank in
contravention of the
Bank’s Act.  They emphatically stated that at no stage had
they conducted a forensic audit or any
audit in terms of
international auditing standards and that at no stage did they
express an audit opinion in relation to the finances
and the affairs
of the Realcor companies and claimed that they were neither mandated
nor instructed by the Registrar of SARB to
do any such audit.
[48.]
The respondents claimed that in their capacity as inspectors they had
not given any advice to Realcor nor to any of the directors
thereof
with regard to the conduct of the business, its administration or any
other activity related to the affairs or the businesses
of Realcor
and its various companies.  They claimed that it was not within
their mandate under the directive and it was not
within the terms of
their appointment by the Registrar and that they at all times
performed their functions and responsibilities
strictly in accordance
with the letters of appointment.
[49.]
The respondents claimed that as managers they were principally
mandated to manage and control the repayment by Realcor of
all the
monies obtained from members of the public, participants and/or
investors in the unlawful investment schemes operated and
conducted
by the companies in Realcor.  They contended that theirs was a
limited function that was confined to their efforts
and interactions
in managing and controlling the repayment process in terms of the
directive and the provisions of the Banks Act.
[50.]
In contrast to the claims made by the applicants in their founding
papers the respondents stated that they had not:
(i)
taken control of any company within Realcor;
(ii) replaced and
substituted themselves in the stead of the directors and or as
corporate controllers of Realcor;
(iii)
performed the functions and duties of Directors or corporate
controllers;
(iv)
managed the companies, their affairs or the business conducted by
them;
(v)
managed or controlled the finances or assets.
These
duties, functions and authorities they maintained remained vested in
and continued to be performed by the directors of the
companies
within Realcor and in particular by de Ridder.
[51.]
In their analysis during 2008 of the amounts received by Realcor they
explained that it appeared to them that a total amount
of
R291,311,379,90 was allocated to various development schemes which
had been raised from 1,941 investors.
[52.]
The respondents pointed out that Realcor, represented by de Ridder,
was at all times legally represented and had not challenged
the
directive nor the appointment of the respondents and accepted the
obligation to repay and “
undertook
to us as managers both to desist from doing so any further in the
future
[a
reference to contravention of the Banks Act]
and
to make arrangements to repay these monies in question to the
investors in question.”
[56]
[53.]
The respondents stated that they had put into place a system to
oversee the repayment of the amounts to investors through
the
appointment of a Mr Rushdie Solomons, an employee of the first
respondent.  Solomons attended upon the officers of Realcor
on a
weekly basis to verify the short term loan repayments and reported to
the managers.  The second, third and fourth respondents
were
physically based in Pretoria and had travelled to Cape Town for
meetings with de Ridder and other representatives of Realcor
as and
when it was necessary.  They explained that during the course of
their engagements with Realcor and de Ridder in particular,
they
(Realcor and de Ridder) were represented by an attorney Mr Mario
Laubscher, who they claimed had often participated in the
meetings
and with whom the majority of their correspondence was exchanged
with.  The respondent claimed that there had been
extensive
meetings and exchanges of communications between themselves as
managers and the management of Realcor represented by
Laubscher
relating to how and from what sources Realcor would repay the monies
to investors in terms of the SARB directive.
[54.]
The respondents claimed that on the 2
nd
September 2009 it came to their attention for the first time that
Realcor had been marketing on its website “
fixed
term 12 month debentures in Grey Haven Riches 9 (Pty) Ltd (GHR9), a
company in Realcor being an investment company in Realcor
raising
funds for the construction of the Hotel by MSI.”
[57]
The respondents claimed that they had not been aware of the twelve
month debentures described on the website as neither Laubscher
nor
any of Realcor’s representative had ever brought it to their
attention nor were the debentures referred to or disclosed
in the
Prospectus of GHR9 with which they had originally been furnished
approximately a year earlier.
[55.]
Insofar as the engagement between the respondents and the legal
representatives of Realcor is the subject of much contention
in these
proceedings it is perhaps necessary to set it out with some detail.
(i) The respondents claimed that on the 4
th
September 2008
Laubscher had sent an email to the fourth respondent and attached a
copy of the GHR9 Prospectus approved by the
Registrar of Companies.
The email also made reference to the conversion of the remaining
loans in MSI to shares in GHR9.
Laubscher stated that Realcor
welcomed the fourth respondent’s opinion that the conversion of
the options were in order.
(ii) In response, the fourth respondent on
the same date requested further information such as; a copy of the
registered Prospectus;
a copy of the loan agreements with the
option to purchase shares contained in the Prospectus and
confirmation that the agreement
referred to was standard to all
investors and that there were no deviations; a list of investors in
electronic format and details
of whether the offer in terms of the
Prospectus was made first to option holders and then to members of
the public and the dates
relevant to such offers.  (iii) On the
8
th
September 2008 the respondents received per courier
from Laubscher a further copy of the GHR9 Prospectus, this one dated
the 11
th
July 2008, completed and with annexures.
The copy of the Prospectus and the annexures contained no reference
whatsoever to
twelve month debentures.  (iv) On the 9
th
September 2008, Laubscher emailed the fourth respondent and again
made no reference whatsoever to fixed term debentures.
[56.]
Respondents claimed that the matter rested there for a number of
months.  (v) On the 9
th
June 2009 the respondents
claimed that they received yet a further copy of the GHR9 Prospectus,
now dated 28
th
April 2009.  It was couriered by a Mr
Kobus Stone of Realcor to a Ms Lily Moruri of the first respondent in
response to her
request for an additional copy of the Prospectus.
The GHR9 Prospectus received on the 9
th
June 2009
contained references to debentures, with added details relevant to
the debentures.  The amendment and/or the supplement
which had
added details relevant to the debentures was not disclosed to the
manager and were not noted.  (vi) At a meeting
with the
respondents on the 2
nd
September 2009, Laubscher handed
yet a further copy of the GHR9 Prospectus, dated the 11
th
July 2008 to the second respondent.  The second respondent
claimed that while this version of the Prospectus while dated the

same date as the one received on the 4
th
September 2008 it
included an addendum that contained reference to the debentures.
She claimed that she only noticed the
reference to the debentures on
the evening of the 2
nd
September 2009 and claimed that her
attention had not been directed to this important variation by either
Realcor’s representatives
or for that matter by Laubscher.
(vii) On the 8
th
September 2009 the second respondent
accompanied by attorney, Neels Alant of Hahn & Hahn Attorneys,
who represented the respondents,
met with Laubscher at Realcor’s
head office in Grabouw where the following was placed on record;
(a)
that the respondents had not been made aware of variations or
additions to the GHR9 Prospectus, particularly insofar as those

variations or additions related to the marketing of a second class of
twelve month debentures as detailed in the supplement to
the
Prospectus which had been lodged with the Registrar of Companies
during September 2008 without their knowledge; and
(b)
Realcor was advised that the twelve month debentures were in
contravention of the Banks Act and did not meet the requirements
of
the Commercial Paper Notice 2172 dated 14 December 1994.  A copy
of the Notice was sent to Laubscher after the meeting.
(c)
The second respondent claimed that at the meeting there was
a
discussion as to whether the short term twelve month debentures which
had been issued and sold to investors and from which the
monies
received were utilized to repay investors under the initial directive
complied with any of the exclusions created by paragraph
(cc) of the
definition of “
business
of a bank
”
as defined in section 1
[58]
of
the Banks Act and specifically whether it complied with the
Commercial Paper Notice.  Alant advised that since no attempt

had been made to comply with the Notice, any attempt to create some
form of constructive compliance would not have remedied the
legal
short comings in the funding model.  The exceptions were
therefore not applicable.  (viii) In the face of the aforegoing

Realcor represented by de Ridder and Laubscher undertook: (aa) to
stop marketing and/or selling fixed term debentures with immediate

effect and to provide the respondents with written confirmation
thereof.  (bb) to remove all reference to the fixed term
debentures from Realcor’s website with immediate effect (and
they undertook to provide the respondents with written confirmation

thereof; and (cc) to provide the respondents by the 17
th
September 2009 with detailed documents setting out the manner in
which Realcor intended to address or remedy the situation which
had
arisen.  (ix) The matters addressed at the meeting were
confirmed in an email dated 9
th
September 2009 by the respondents to Heunis & Heunis and de
Ridder.  The respondents also requested a detailed schedule
of
the twelve month debenture holders, and a table reflecting each
person’s name and the amount invested.  (x) In a
letter
dated 10 September 2009 from Heunis & Heunis, Realcor undertook
not to continue with the marketing of debentures identified
during
the meeting.  Realcor however alleged that they had provided the
respondents with several copies of the Prospectus
which they used to
market the debentures and relied on the fact that the Prospectus was
approved by the Registrar of Companies.
(xi) The respondents in
a letter dated 11 September 2009 referred to the misleading manner in
which the Prospectus of GHR9 had
been provided by Realcor to them and
added that the mere fact that the Prospectus had been registered with
the Registrar of Companies
did not exempt Realcor from complying with
the Banks Act and reserved their rights in the light of the “
apparent
misrepresentations”
[59]
that were made regarding the inclusions of the second class of
debentures in the GHR9 Prospectus.  They recorded that they
had
never endorsed nor approved the soliciting of funds through
debentures in terms of the amended Prospectus. (xii) Laubscher
in a
response dated 17 September 2009 denied that Realcor had made any
misrepresentations regarding the inclusion of the second
class of
debentures in the GHR9 Prospectus and contended that the principle of
disclosure as they understood it in the context
of the Companies Act
required registration of the Prospectus with the Registrar of
Companies.  He referred to the representations
made to the
fourth respondent on the 3
rd
July 2009 by Realcor in terms of which the option to purchase shares
in GHR9 was disclosed and the fact that the respondents as
inspectors
had not raised any query relevant to Realcor’s intention to
sell shares in terms of the public offer.  (xiii)
The
respondents pointed out that the correspondence of the 3
rd
July 2009 made no reference to the twelve month debentures.
(ivx) Laubscher thereafter made reference to the fact that the

respondents had never objected to the shares and debentures in terms
of the Companies Act.  The respondents maintained that
the
Prospectus which they had been provided with and which they
considered made no reference to “
fixed
term debentures.”
[60]
Moreover Laubscher had acknowledged that the supplement to the
Prospectus in which reference was made to the “
fixed
term debentures”
[61]
was registered on the 30
th
September 2008 and was not provided to the fourth respondent (the
supplement was not registered at the time that the Prospectus
was
provided to the fourth respondent).
[57.]
The respondents also referred to a letter dated 7 October 2010 by Mr
Herman S Viljoen (Viljoen), a financial consultant employed
by
Realcor and de Ridder to assist in the administration of Realcor and
in the conduct of its business activities and also with
regard to the
management of the companies by the respondent, where Viljoen claimed
that Realcor distanced itself from the comments/allegations
of
Laubscher and acknowledged the unlawfulness of its conduct by
stating; “
After two years since these prospectuses in Gray
Haven 9 and Grey Haven 11 were issued, registered at CIPRO and
approximately R326
million worth of one year debentures were
obtained, PWC noted that they had not been previously aware of this
new prospectus which
is again an illegal instrument as according to
SARB notice number 2172 issued on the 14
th
December 1994 the issue of debentures for less than a five year
period were still in contravention of the SARB Act.

Realcor again took this up with his professional advisors, Heunis &
Heunis Attorneys, who admitted that they in fact used an
older,
incorrect SARB notice issued instead of the one above.  There
(sic) services were subsequently terminated and new attorneys,
AJ
Coetzee & Associates were appointed during January 2010….
Realcor again commenced with the process of paying these
‘illegal
instruments’ since 1 September 2009.”
(xiii) On
the 30
th
September 2009 the respondents emailed Realcor to
follow up on the request for information relating to the twelve month
debentures.
(ivx) On the 7
th
October 2009 they
received an email from Realcor titled “
Debentures,”
to which were attached two spreadsheets in excel titled “
GHR
deb and GHR deb 11,”
that reflected the details of the
debentures as follows:
“
73.1
GHRdeb 9
there that been 1.852 ‘sales’
of debentures in Gray Haven Reachers 9 for the period 1
st
October 2008 to 5
th
August 2009 totalling
R282,127,913.28; and
73.2
GHRdeb 11: there had been 166 ‘sales’ of debentures in
Gray Haven Reaches 11 for the period 1 to 31
st
August totalling R30,563,526,71.”
[62]
Upon receipt of the worksheet, the respondents confirmed with the
bookkeeper of Realcor Mr. Cobus Stone that GHRdeb 9 and GHRdeb11

reflected investors who had purchased twelve month debentures in the
two companies.  The respondents claimed that at no prior

occasion had they been aware of, or were provided with, details of
debentures in GHR11 and neither had they even been aware of
the
existence of such an entity.
[58.]
The respondents claimed that the short term debentures (that had not
been disclosed to them) and the finance raised therefrom
and the
application of such funds by Realcor impacted directly on their
mandate as managers and meant that they were therefore
not in a
position to finalize their report to the Registrar of SARB in terms
of the directive.  They claimed that, “
To
the contrary, the purported fulfillment of the directive, that is the
repayment of the moneys to the investors, had on the face
of it given
rise to a further non-compliance by Realcor with the provisions of
the Banks Act and a series of further irregularities,
all of which
required their inspection and intervention. (read management)”
[63]
They claimed that a further series of investors had become entitled
to repayment by Realcor of their investment, by reason
of their
non-compliance, and contravention of the Banks Act under the
protection provided by section 84 of the Banks Act.
[59.]
The respondents claimed that they continued with their communication
and interaction with the directors of Realcor with regard
to the
repayment of the twelve month debentures to investors on instruction
of the Registrar of SARB as an extension of their “
mandate
and appointment under the 2008 directive in question.”
[64]
The applicants in their replying affidavit disputed that the
respondents’ mandate had been extended as they claimed
“
no
written
proof”
[65]
of such extension had been
provided by the respondents.
[60.]
The respondents recorded that at all material times throughout their
appointment and throughout the period until late 2009
and into 2010
Realcor administrated, operated and controlled the assets and
business activities of Realcor, including the construction
of the
Hotel by MSI.  The respondents claimed that the representatives
of Realcor had persuaded them that Realcor was both
able to repay
investors and that they would in fact be repaid.  They claimed
that they were reliant on the information and
documentation provided
to them by Realcor through its directors and/or legal representatives
as they, were not in possession of
the financial records of Realcor.
They claimed that the affairs of the companies and all the relevant
financial information
and documentation remained in the hands of and
under the control and direction of Realcor and de Ridder in
particular.
The
second period.
[61.]
The respondents referred to a meeting held in February 2010 at the
offices of the Reserve Bank, attended by: the respondents,

represented by Mr Trevor Hills, an associate director in the first
respondent; Realcor, represented by an audit committee member;
de
Ridder; Viljoen; and attorney Mr AJ Coetzee, (who at that time had
replaced Laubscher of Heunis & Heunis as attorneys of
Realcor).
At the meeting Coetzee explained that the debentures were compulsory
convertible debentures which had to be converted
to shares within a
period of twelve months of issue and on expiration of the twelve
month period the compulsory convertible debentures
would in fact have
to be converted into shares.  The shareholders would be
permitted to either sell the shares converted or
to retain them.
The respondents explained through Hill that the SARB had no objection
to the conversion of the twelve month
debentures to shares on
condition that no holder would be forced to accept such conversion
and that those who chose not to convert
their investment to shares
should be repaid.  It was also agreed at the meeting by all
present that the twelve month debenture
holders in question would be
presented with the option of either converting their instruments to
shares or to be repaid at the
end of the twelve month period.
The respondents claimed that they understood that Realcor would
implement such agreement.
[62.]
On the 17
th
June 2010 the respondents received an email
from de Ridder in which she set out the proposal to be made to the
compulsory debenture
holders with regard to the conversion of their
debentures to shares, and the alternative choice they had to be
repaid the investment
on due date, with a thirty day notice period.
The respondents claimed that they thereafter wrote several emails to
de Ridder
and Coetzee requesting further details and the progress of
the payments to the remaining twelve month debenture holders.
The respondents in that period also called for and received financial
information from Realcor dating back to 2008 that enabled
them to do
solvency testing on GHR9, and GHR11.  It appeared that up until
June 2010 the information provided to the respondents
by Realcor
indicated that it was able to repay all unconverted twelve month
debentures as and when they fell due.
[63.]
During the second period it however became apparent to the
respondents that the investment companies in question and Realcor
as
a whole were experiencing cash flow problems.  At about June,
July 2010 Realcor was no longer able to repay the twelve
month
debentures in the ordinary course as and when they fell due.
This, the respondents claimed, was unrelated to any conduct
on their
part as managers as they had not procured the acceleration of the
repayment dates.  The respondents recorded that
as at the 5
th
November 2010 according to the records an amount of R27,399,568.24
million had not been repaid to the remaining twelve month debenture

holders.
The
third period.
[64.]
The respondents explained that during February 2014 a Realcor
investor provided them with information and documentation, the

details of which were set out in an affidavit in a matter which came
before a court in this Division under case number 15243/11
instituted
by Realcor for the business rescue of Africa’s Best 258 (Pty)
Ltd, one of the Realcor companies.  The second
respondent had
also deposed to an affidavit in that matter about the information
received from the Realcor investor which indicated
that Realcor had
not made full disclosure to the respondents regarding the identity of
investors who had advanced money relating
to the fixed period twelve
month debentures and the extent of the investments made.  The
second respondent claimed that when
this issue was raised with
Realcor and in particular with de Ridder and Prinsloo (the attorney
who assisted de Ridder in the proposed
business rescue plan), their
response did not adequately address the respondents’ concerns.
They claimed that de Ridder
and Wimpie Nortje; the marketing director
of Realcor, simply declined to consult with the respondents on these
concerns.
[65.]
The respondents claimed that as a result of the various allegations
made by the investor and anonymous sources the second
respondent
together with employees of the first respondent travelled to the
offices of Realcor in Grabouw on the 23
rd
February 2011 to
consult with de Ridder and Nortje.  Both of them refused to
attend the consultation.  The second respondent
claimed that
they also requested to be allowed access to certain documentation and
data but the request was denied.  The respondents
thereafter
took steps to preserve the documentation which they believed was
relevant for their inspection by placing the documents
in boxes and
sealing it in the presence of Realcor representatives.  They
also made arrangements with members of Realcor for
Realcor to have
access to the documents but not to remove them from the premises.
[66.]
The respondents claimed that during this period they also received
information that a substantial portion of funds from investors,
in
excess of R140 million, had not been used for the construction of the
Hotel.  This, the respondents claimed, was contrary
to what was
set out and promised to investors in the Prospectuses of the various
investing companies.
[67.]
At this stage the respondents appointed a team of quantity surveyors,
SM Maré & Associates (SM & Maré),
to prepare an
independent valuation of the Hotel development.  It appeared
from the valuation and calculations made by the
respondents and based
on financial information furnished to them by Viljoen and Realcor
that the estimated costs presented in respect
of the Hotel
development were overstated by approximately R155 243 646.00.
It appeared that approximately R650 million had
been collected from
members of the public through Prospectuses issued in GHR9, GHR11 and
Iprobrite Ltd.  This the respondents
indicated would imply that
the further R5,993,881,00 remained unaccounted for.
[68.
The valuation prepared by SM & Maré indicated that the
estimated costs for the completion of the Hotel excluding
VAT was
R76,800,000,00.  The respondents claimed that, but for the
monies in question having been diverted, sufficient funds
had been
available for the completion of the hotel.
[69.]
In March 2011 the respondents addressed a letter to Prinsloo and de
Ridder in which they raised the issue of alleged misappropriation
of
the R140 million invested by members of the public in GHR9, GHR11 and
Iprobrite Ltd which was apparently used for matters
unrelated
to the construction and development of the hotel.  In April 2011
Prinsloo responded by denying the misappropriation
of the R140
million.  A trial balance prepared by Realcor for MSI for the
period 1 July 2010 to 30 July 2011 was attached
to the letter in
support of the manner in which the funds were invested in GHR9, GHR11
and Iprobrite.  Prinsloo stated that
a Mr Bernard Shaw of BSO
Chartered Accountants had verified the figures in the annexures.
The respondents claimed that when
they contacted Shaw he confirmed
that R27 Million of the R47 million reflected as additional special
requirements from Radisson
Capitalize was verified.  No other
amounts in the annexures had been verified by Shaw and/or by BSO
Chartered Accounts.
[70.]
The respondents further claimed that from the financial records of
Realcor and from the information obtained from the employees
of
Realcor in respect of the general ledger and trial balances they
found significant differences to the records which Prinsloo
had
provided to them.  They thereafter made contact with Prinsloo on
the 31
st
May 2011 who advised them telephonically that his
relationship with de Ridder had broken down, that she was no longer
being co-operative
and that she was reluctant to provide access to
the sealed documents.
[71.]
The respondents claimed that they thereafter took the decision to
exercise their powers in terms of section 4 of the Inspection
and
Financial Institutions Act to move the boxes containing the sealed
information to a secure premises.  When the representatives
of
the first respondent attended at the premises of Realcor on the
morning of 2
nd
June 2009 to remove the boxes they found
that the seals on all the boxes except one had been broken and
resealed, the seals on
filing cabinets containing relevant
information had been broken and seven boxes had been removed from the
premises.  They
claimed that the information in the seven boxes
were essential to their inspection and they had reason to believe
that de Ridder
may have attempted to destroy the evidence which had
been removed.  The respondents claimed that they were informed
that de
Ridder had requested staff to install a virus on the data
server which would have the effect of destroying and corrupting the
data.
They, were also informed that on the 30
th
May
2011 de Ridder instructed an employee to change the figures contained
in the accounting records of Realcor and which had been
saved on the
data server.  They also received information that the boxes had
been removed apparently by de Ridder’s
husband, Jacques de
Ridder, and information as to where the boxes were stored.  With
the assistance of the South African Police
they retrieved the boxes.
[72.]
The respondents claimed that as they had access to the documents and
the financial records of Realcor they were better able
to assess the
financial position of Realcor and the funds it held and to consider
whether there had been any misappropriation of
funds within Realcor.
By the 22
nd
June 2011 they established sufficient
irregularities to motivate them to request Absa Bank that account
40472993149 held in the
name of Purple Rain Properties No. 15 (Pty)
Ltd (a Realcor company) be made available to accept only deposits but
that no withdrawals
or transfers out of these accounts were to be
made without the express permission of either of the respondents.
A similar
process was invoked with First National Bank.  They
explained that the requests to the banks were necessary as the
Registrar
of SARB had a direct interest in ensuring that all the
remaining holders of twelve month debentures, the total value of
which at
that stage amounted to in excess of R27 million, were repaid
in full and in circumstances in which it appeared, that Realcor was

not doing so and in fact appeared to be disbursing funds and where it
may well have been trading while insolvent.
[73.]
The respondents thereafter made payments from these accounts to cover
legitimate expenses of Realcor and payable in the ordinary
course of
the day to day conduct of the business, which included payment of
salaries of employees and other similar related administrative
costs
and charges.  This continued to be the position until Realcor
was wound up by order of this court and thereafter administered
by
the appointed liquidators.
[74.]
The respondents placed on record that at no time had they interfered
or sought to interfere with the business of Realcor and
particularly
the completion of the hotel by MSI and the commencement of the
trading of the hotel as a business concern.  They
stated that
rather than having dictated matters they permitted the directors and
representatives of Realcor to make proposals to
them (as the managers
on behalf of the Reserve Bank) as to how the non-compliance and/or
contraventions of the Banks Act were to
be addressed and remedied.
In doing so they consistently attempted to work with Realcor and had
on numerous occasions requested
the directors of Realcor to present a
plan to remedy and or address the illegal instruments.  They
further claimed that at
no stage had the respondents ever insisted on
“
immediate
repayment”
[66]
of either the short term loans made by members of the public to
various entities in the Realcor Group or the twelve month debentures

issued in GHR9 and GHR11.  The repayment of the short term loans
were made according to an accelerated schedule as proposed
by and
presented by Realcor and which repayment was closely monitored by the
respondents and their representatives.  They
claimed that the
twelve month debentures were repaid or converted to shares as and
when the instalments fell due and as far as
they were aware none of
these instruments were repaid before the due date.
[75.]
The respondents claimed that the failure to complete the hotel was
entirely unrelated to any act or omission on the part of
the
respondents or on the part of the Reserve Bank.  They submitted
that as a matter of overwhelming probability the inescapable

inference to be drawn from the facts was that the failure on the part
of Realcor to complete the Hotel and open its doors for trading
as
planned was due to the misappropriation by Realcor of in excess of
R140 million intended for those very purposes.
[76.]
The respondents submitted further that as a matter of probability had
those funds been properly applied the Hotel would have
been
completed.  The Hotel would have been in a position to trade and
conduct its business and in those circumstances the
final financial
position and solvency of Realcor and of MSI in particular may have
been entirely different to that which was presented
at the time of
their winding up.
The
legal premise of the application.
[77.]
One of the principal contentions of the applicants’ claims, and
which formed a central dispute between the parties was
their
interpretation of the provisions of Chapter 3 of the Banks Act, in
particular sections 81 to 84, to the effect that the appointment
of
each of the respondents as a “
manager”
under the
Act has a matter of law the following consequences;
(i)
The “
managers”
replaced the directors of the
company in respect of which the statutory provision and related
directive applied, and
(ii)
That in effect the managers “
step into the shoes”
of the directors of the companies subject to the directive thereby
“
acting as directors”
and taking upon themselves
and exercising all the powers, duties responsibilities and functions
of such position;
(iii)
The directors of the company no longer function as such and lose all
their powers of authority in decision making and become
entirely
subservient to and subjected to the authority of the managers; and
(iv)
That the managers “
de lege”
and “
de
facto”
operate and administer the company’s assets
and business, and are both responsible and accountable for the
operation and administration
thereof as if they were the directors of
the company.
[78.]
In considering the interpretation of the provisions of Chapter 3 of
the Banks Act Mr Kuschke SC, who together with Mr Walters
and Mr
Smith appeared on behalf of the respondents, correctly submitted that
the applicants’ approach overlooked the fact
that the
provisions in the Banks Act relate only to the control by the
Registrar of certain specified activities by persons not
registered
as a bank but who nevertheless take deposits from the public and in
so doing carry on the business of a bank in contravention
of the
express provisions of the Banks Act.  In this regard the taking
of deposits from the public is a very specific activity
against which
the intervention by the Registrar is directed.
[79.]
In terms of section 83(1) of the Banks Act, where an inspection under
section 12
[67]
of the
South
African Reserve Bank Act 90 of 1989
reveals that a person has
obtained monies by carrying on the business of a bank (taking
deposits from the public) while not registered
as a bank or without
being authorized in terms
section 18A(1)
[68]
of the Banks Act to carry on the business of a bank, the Registrar
may direct that person in writing to replace such money, including

any interest and any other amounts owing by him or her in respect of
such money, in accordance with the requirements of the Act
in such
period as the Registrar may specify by notice.  Central to this
provision is the taking of money from the public and
the
directive
(my underlining) to replace same. In terms of section 84(1) of the
Banks Act,
[69]
simultaneously
with the issue of a written directive the Registrar must appoint a
person, described as “
a
manager,”
to manage and control the repayment of the monies unlawfully
obtained.  This appointment is by letter and signed by the
Registrar
and in my view relates very specifically to the directive
to the company to repay the money unlawfully raised by taking
deposits
in contravention of the Banks Act.
[80.]
The applicants rely in particular on the provisions of sections 84
(1)(A)(a) as their basis for the claim that the “
managers”
(the respondents) were required to have taken possession and control
of all the assets of the entities and/or persons subject to
the
relevant direction.  Section 84(1)(A)(a) provides that;
84
Management and control of repayment of money unlawfully obtained.
“
(1A) (a)
The repayment administrator shall at the request of the Registrar, as
soon as may be practicable report to the Registrar
whether or not the
person subject to the relevant direction is, in the repayment
administrator's opinion, solvent, and if the repayment
administrator
finds that the person subject to the direction is insolvent, the
repayment administrator shall comment on whether
such person is
technically or legally insolvent.
[Para.
(a) substituted by s. 42 (b) of
Act
22 of 2013
.]
(b)
On appointment of a repayment administrator and whilst the person
is subject to the relevant direction as contemplated in this section-
(I)
the repayment administrator shall recover and take possession
of
all the assets of the person subject to the relevant direction
;
and (my underlining)
(ii)
all actions, legal proceedings, the execution of all writs, summonses
and other legal process against the person subject to
the relevant
direction shall be stayed and not be instituted or proceeded with
without the leave of the court and without also
serving the legal
process documentation on the Registrar.
[Para.
(b) substituted by s. 42 (b) of
Act
22 of 2013
.]
The
“
manager”
must act on behalf of and under the control of the Registrar in terms
of section 84(3)
[70]
and may
from time to time apply to the Registrar for instructions in regard
to any matter arising out of or in connection with
the performance of
his or her duties in terms of subsection (4).  The duties of the
manager are prescribed in subsection (4)
and in particular accords to
the manager the responsibility to conduct such further investigations
into the affairs of the persons
subject to the direction that the
Registrar may deem necessary in order to establish;
(i)
The true amount of the money unlawfully obtained by the person as
contemplated in terms of section 83(1);
(ii)
The identities of all persons from whom such monies were so
unlawfully obtained;
(iii)
Where any such money or assets into which such money was converted
are kept or can be located; and
(iv)
any other fact which in the opinion of the Registrar or the manager
needs to be established in order to facilitate the repayment
of such
monies in terms of the relevant direction.
[81.]
Counsel for the respondents submit, and in my view correctly so, that
as a matter of ordinary construction and with particular
reference to
the clear and unambiguous language of the provisions of the Act, the
persons so appointed by the Registrar as “
managers”;
(i)
do not replace the directors of the company in respect of which the
statutory provision and the later direction apply; to the
contrary
the directors remain in office and continue to act and exercise the
powers of their position and remain responsible and
accountable as
directors of the company in the ordinary course; and
(ii)
do not take it upon themselves the powers, duties, responsibilities
and functions of those directors;
(iii)
that contrary to the submission by applicants’ counsel, the
powers, duties and functions of the managers are limited
and
restricted to the purpose set out in the Act, the letter of
appointment by the Registrar and the further directions and
requirements
of the Registrar, and only for as long as the managers
hold office and remain under the Registrar’s control, acting as
his
or her agents.
[82.]
The Registrar and therefore also the managers have in my view only
limited powers of “
interference and/or involvement”
in
relation to the company, its affairs and its assets as the company
remains under the effective control of the directors and
shareholders.  Such limited “
interference”
is
aimed at ensuring ongoing and proper compliance with the provision of
the Banks Act and the repayment of monies unlawfully obtained
in
contravention thereof.
[83.]
The principal functions of the manager as set out in the Act are to
“
manage and control the repayment of money in compliance
with the directions by the persons subject thereto”
and not
to conduct or administer the operation, affairs and business of the
company under directive as the directors remain seized
with that
responsibility.
[84.]
The powers and duties of the managers are therefore confined to the
repayment of money unlawfully obtained by the company
under the
directive  that carried on the business of a bank without being
registered as such or without authorization in terms
of section
18A(1).  Such powers and duties are unrelated to the remaining
assets and business of the entity under directive
save to the extent
that such assets are directly relevant to ensure the repayment of the
money, such as the circumstances in which
the respondents issued the
request to ABSA and FNB and attended to payment of the day to day
expenses of the companies.
[85.]
Counsel for the respondents submitted and correctly in my view that
following the same logic and principle the duty of the
managers to
report on the question of the legal or technical solvency of the
entity/person under directive is not a general one
but is directed
specifically at the ability (or inability), as the case may be, of
the entity to repay the monies in question.
Similarly, the
recovery of and taking possession of assets of the person or entity
subject to the directive is confined for that
same purpose and
object, namely, to ensure the repayment of monies in question.
In context; the powers duties and functions
of the manager must be
construed within the primary purpose for which the Registrar, through
the appointed manager, must ensure
the repayment of monies unlawfully
obtained by the taking of deposits in contravention of the Banks
Act.  I am therefore unable
to agree with the contention by the
applicants, and which was reiterated in argument by Mr Uijs S.C, who
together with Mr. Banderker
appeared for the applicants that the
respondents enjoyed a “
wide mandate”
with
extensive powers to take control of and deal with “
all
assets”
of the Realcor companies under directive and that
they, by virtue of the Act, replaced the directors of the companies
and were
responsible for the day to day financial affairs of the
companies. Moreover in my view, it appeared that they dealt with the
assets
for the limited purpose of fulfilling their oversight function
and role under the directive and to ensure the repayment of the
monies unlawfully raised in contravention of the Banks Act.
[86.]
I further find that the respondents had clearly established and
demonstrated that as a matter of fact (and in part supported
by the
claims of the applicants themselves) that the respondent’s did
not take control of, direct and/or administer the affairs,
assets
and/or conduct of the business operations of Realcor save to the
extent as specifically required for the carrying out of
their
mandate.  In this regard the applicants claimed that the
respondents’ instruction to the various banks to freeze
the
accounts of the companies under direction and their payment of the
day to day expenses and costs that related to the construction
of the
hotel amounted to a manifest demonstration that the respondents had
in fact taken over control over the assets of the companies.

The respondents explained though that as a result of the conduct of
the directors of Realcor and the risk of the continued dissipation
of
the assets of Realcor, they did so for the very specific purpose of
ensuring the repayment of the remaining amounts owed on
the twelve
month debentures to investors.
[87.]
I might add that it would moreover have been entirely impractical for
three persons (the respondents) to have taken control
over the entire
financial affairs of the Realcor companies.  If that was in fact
intended their letter of appointment would
have stated it in clear
terms.
The
respondents’ claim that there is no basis set out for the
relief sought by the applicants.
[88.]
The respondents submit that the applicants have not set out the basis
upon which the relief they seek is founded and that
they have not
formulated such relief clearly and coherently both in the Notice of
Motion and in their founding affidavits.
The case made by the
applicants, they submit (such as it is), is vague and embarrassing.
As already indicated, in prayer
1 of the Notice of Motion the
applicants placed reliance on the alleged failure “
to act as
envisaged in terms of section 84 of the Banks Act, 1990.”
In the founding affidavit the applicants assert a failure “
to
act in terms of section 81 to 84 of the Banks Act.”
The respondents contend that the applicants failed to set out, or to
describe with any sufficient detail, the precise acts
or omissions of
the respondents on which they rely, and how such acts/omissions
constitute violations of any specific provisions
of the Banks Act.
The respondents’ contention in my view is not entirely without
merit.  The litany of complaints
raised by the applicants in
their founding affidavit were characterized by a lack of yet most
were raised without any particularity,
rather appearing as general
assertions of what they understood to be the respondents’
failure to have complied with their
duties and responsibilities under
the provisions of the Banks Act.  The recurrent complaint raised
by the applicants was that
the respondents had failed to take control
over all the assets of Realcor, in circumstances in which they were
responsible for
the daily inflow and out flow of monies and that the
subsequent liquidation of the Realcor group occurred under the watch
of the
respondents which they ascribed as due to the failure of the
respondents to have properly carried out their functions.  The

respondents readily conceded that they had not taken control over all
the assets of the Realcor group; that they had not taken
over the
directorial functions in the companies and were not responsible for
its day to day running.  They claimed that they
understood their
mandate as being limited to achieving the purposes of the provisions
in Chapter 3 of the Banks Act and their primary
concern and
responsibility was to oversee the repayment of monies unlawfully
obtained from investors in contravention of the Banks
Act.
Moreover, they implicitly relied on the information they received
from the directors and staff of Realcor with regard
to the liquidity
of the companies.  The applicants themselves had accepted that
the companies were liquid and had not asserted
a view contrary to
that under which the respondents had laboured (on the representation
by the directors and officials of Realcor).
[89.]
The respondents also explained that towards the end of the second
period and during the third period for the first time did
it appear
from enquiries made by them, that the Realcor companies had suffered
a cash flow crisis and were not able to meet the
obligations to the
remaining twelve month debenture holders.  They had at that
stage also received information that approximately
R140 million
earmarked for the development of the hotel had been misappropriated.
Given the above it is unclear on the information
provided by the
applicants on what basis it could be found that the respondents had
failed to comply with their responsibilities
under section 84 of the
Banks Act or that their actions has led to the eventual demise of the
Realcor Group.
[90.]
The respondents further contended that the applicants failed to
identify what conduct they wish to have declared unlawful
and
ultra
vires
.  It was likewise not asserted with any clarity in the
founding affidavit, and indeed no case is made out by the applicants,

as to how and in what respects the respondents exceeded or acted
outside any statutory powers delegated to them.  To the contrary

the applicants claimed that the respondents failed to carry out their
functions in accordance with the “
wide powers”
accorded to them.
[91.]
During the course of argument, Mr Uijs submitted that while the
applicants were not raising, nor were they seeking to rely
on, a
claim that the twelve month debentures were not in fact “
unlawful,”
(contrary to their assertions in the founding affidavit) he
nonetheless contended that “
an
argument to that
effect”
could be made.  He submitted also that in
terms of section 83 of the Banks Act no lawful basis had been
established by the
respondents or by the SARB to have instructed
Realcor to repay the amount raised by way of the “
twelve
month debentures”
as such an instruction was not permitted
within the provisions of section 83 of the Banks Act.  He
submitted that an inspection
in terms of section 12 of the
South
African Reserve Bank Act as
contemplated in
section 83
first ought to
have been conducted.  If as a result of the inspection the
Registrar was satisfied that the twelve month debentures
were in
contravention of the provisions of the Banks Act only then could a
directive have been issued, first in terms of section
83(1), and in
terms of the provisions of section 84 a manager was to have been
simultaneously appointed.  For that reason
he submitted that
both the respondents and the Registrar of the Reserve Bank had acted
outside of the provisions of sections 83
and 84.  Mr Kuschke,
very appropriately, in a short response referred to the fact that
such contention had not been raised
in the founding papers or for
that matter in any of the affidavits filed on behalf of the
applicants and that the respondents had
not had the opportunity of
responding to such a claim.  Mr Kuschke submitted that the
respondents were being “
ambushed”
in argument and
relied on the recent unreported decision of
Iris
Arillda
Fischer and Another v Boitumelo Ramahlele  and Forty-Six Other
Respondents ((Case No: 203/2014), 27 May 2014, Delivered
04 June
2014.
On the same basis Mr Kuschke submitted that the
applicants had also raised the issue of the respondents’
non-compliance
with the provisions of the Act by their alleged
failure to have made a formal report about the insolvency or
otherwise of Realcor
for the first time in their Heads of Argument.
Needless to say, the applicants are confined to their founding papers
and
as far as their complaints and claims are made against the
respondents and could not simply in argument, whether in writing or
orally have raised new factual contentions.  Moreover inasmuch
as the applicants challenged the authority of the Registrar
of the
SARB to have issued the instruction to the respondents to investigate
the 12 month debentures, the applicants ought to have
joined the
Registrar as a party to these proceedings.  They, with ample
opportunity, chose not to do so.
The
indemnification sought.
[92.]
In respect of the relief sought with regard to an indemnification,
the respondents contend that the applicants had failed
in their
founding affidavit to make out any case for such relief based on an
apparent breach of a statutory duty imposed on the
respondents in the
Banks Act or in any other legislation for that matter.  To the
extent that the applicants sought to rely
on the imposition of a duty
(of care) on the respondents,  either individually or
collectively, arising from sections 81 to
84 (inclusive) of the Banks
Act, the applicants were required to have proved each of the elements
of such duty and its breach.
[93.]
In this regard the respondents contended that applicants, in the
context of sections 81 to 84 of the Banks Act had failed
both: to
establish that the respondents owed a duty of care to each or either
of them; to have alleged and proved all the requisite
elements of the
“
aquilian”
liability, in particular,
negligent or reckless conduct (whether by acts or omission) that
correlated to any such legal duty;
and to have proved a causal link
between such alleged act or omission and any financial loss or other
form of damages that the
applicant  may have already suffered,
or will in the future suffer.
[94.]
Mr Kuschke pointed out that the applicants were burdened with having
to prove the element of wrongfulness and added that the
court in its
consideration of the element would have to take into account not only
the interests of the parties, but also that
of the broader community,
and any conflicting interests would have to be carefully weighed and
balanced.  He referred to the
decision of Hefer J on point in
the matter of
Minister of Law & Order v Kadir
[1994] ZASCA 138
;
1995 (1) SA 303
(A) at 318E-318J
“
As
the judgments in the cases referred to earlier demonstrate,
conclusions as to the existence of a legal duty in cases for which

there is no  precedent entail policy decisions and value
judgments which 'shape and, at times, refashion the common law [and]

must reflect the wishes, often unspoken, and the perceptions, often
dimly discerned, of the people' (per M M Corbett in a lecture

reported sub nom 'Aspects of the Role of Policy in the Evolution of
the Common Law' in
(1987) SALJ 104
at 67). What is in effect required
is that, not merely the interests of the parties inter se, but also
the conflicting interests
of the community, be carefully weighed and
that a balance be struck in accordance with what the Court conceives
to be society's
notions of what justice demands. (Corbett (op cit at
68); J C van der Walt 'Duty of care: Tendense in die Suid-Afrikaanse
en Engelse
regspraak' 1993 (56) THRHR at 563-4.) Decisions like these
can seldom be taken on a mere handful of allegations in a pleading
which
only reflects the facts on which one of the contending parties
relies. In the passage cited earlier Fleming rightly stressed the

interplay of many factors which have to be considered. It is
impossible to arrive at a conclusion except upon a consideration of

all the circumstances of the case and of every other relevant
factor….”
[95.]
In their founding affidavits the applicants asserted, which was
emphasized in argument by their counsel, that the respondents
owed
the applicants a duty to have disclosed to them and to the investing
public their appointment by SARB as the investigators,
and as
managers; the reasons for such appointment and the contents of the
report of the investigation conducted by them.
Applicants
claimed that had such disclosure been made to them or the investors
the investors would have elected not to have re-invested
in Realcor
and they as brokers would not have marketed and sold the
investments.  Mr Uijs submitted that the respondents were

further obliged to have informed the investors that they were
entitled to the “
immediate
repayment”
of the short term loans which were deemed unlawful in contravention
of the Banks Act.  The respondents contend that inasmuch
as they
were appointed as inspectors to investigate, and/or as managers, they
were employed as officers of the Reserve Bank and
any report made by
them in that capacity fell within the confidentiality provisions of
section 33
[71]
of the
South
African Reserve Bank Act.  The
respondents contended that they
were also bound by
sections 84
(1)(e)
[72]
of the Banks Act.  They submitted that as such, they were
prohibited from disclosing the contents of the report, and any
information contained therein, to any person.   The
applicants they added had not made out a case as to why the
confidentiality
provisions should be overridden.  The
respondents also point out that the applicants had themselves
complained that the communications
sent out on the 3
rd
November 2010 informing brokers about the directive and the
repayments were a breach of the very confidentiality provisions.

The respondents point out further that upon their appointment at the
initial meeting with the directors and the staff of Realcor
they were
specifically requested by Realcor not to disclose and to make public
their investigations and in particular their  findings
as it
would have impacted on the “
kliente
vardisie”
of Realcor.  Moreover, respondents submitted that they could not
have made disclosure of their investigation, and the findings,
as the
interests of
all
the investors, and in particular those who invested lawfully in the
Realcor Group, could have been adversely impacted upon by such

disclosure or publication.
[96.]
In a time-line of events tabulated by the applicants in their
founding affidavit they stated that “
On
9
th
June 2009; brokers informed that the twelve month loan agreement
investors have been repaid in terms of directive.”
[73]
It is apparent and contrary to the respondent’s claim they had
only received information in November 2010 of the investigation
and
directive by the Registrar in Realcor.  Notwithstanding such
information it appeared investors chose to re-invest in the
Realcor
group as applicants claimed “
they,”
the investors, “
were
satisfied with the investment that they received in the scheme.”
[97.]
Counsel for the respondents correctly pointed out that the investors
in both the unlawful twelve month loans and the unlawful
twelve month
debentures schemes would not have been
entitled
to an
immediate repayment of their investment and neither was such
entitlement prescribed in the mandate of the respondents from
the
Registrar.
[98.]
Inasmuch as the applicants also contended that the investments (the
short term loans and 12 month debentures)  were
void
ab initio
and that the investors were therefore entitled to its immediate
repayment respondents relied on the decision of Southwood AJA in
Dulce
Vita CC v Van Coller & Others (192/12) ZA SCA 22 (22 March 2013),
which
states at para [35],  “…
there
is no provision in the Banks Act which provides or even indicates
that if the promoter of a public property syndication scheme,
in
contravention of the Bank’s Act, raises funds by accepting
loans against the issue of debentures this would have had the
effect
that the whole scheme is unlawful.”
Furthermore in
Gazit
Properties v Botha & Others NNO
2012 (2) SA 306
(SCA
)
Majiedt JA held that a contravention of the Bank’s Act does not
result in the illegality of the agreements in terms of which
the
deposits are made and stated at para [35]:  “
There
is nothing in the Act that leads to such a conclusion, see Oilwell
(Pty) Ltd v Protec International Ltd and Others
2011
(4) SA 394
(SCA)
para 19. To the contrary, the provisions of s 83(1) of that Act,
which empower the Registrar of Banks to direct the recipient
of
money unlawfully obtained while unlawfully carrying on the business
of a bank to repay such money, lead ineluctably to the opposite

conclusion.”
The respondents contended and correctly so that there was no basis on
which any of the investors in the unlawful schemes
involving the
twelve month loans or the twelve month debentures would have been
entitled to an immediate repayment of their investment.
[99.]
In considering whether there was a legal duty on the respondents to
have disclosed the investigation report and its contents
to the
applicants and the investors this court must consider not only the
applicants’ interests but also the competing interests
of other
lawful investors and moreover the fact that respondents were bound by
statute to have kept such report confidential.
I am satisfied
that applicants would in such circumstances not have been entitled to
the disclosure of the report or any information
contained therein
from the respondents.
[100.]
The respondents submit further that the applicants failed to make out
any case in support of their contention that the respondents
were
negligent in the carrying out of their duties both in terms of the
Banks Act and/or in their capacities as managers.
The test for
negligence finds its authoritative statement in the dictum of Holme
JA in
Kruger
v Coetzee 1966 (2) SA 428 (A) 430.
[74]
[101.]
In their founding affidavit, the applicant at best vaguely referred
to negligence on the part of the respondents and certainly
did not
provide detail what conduct of the respondents constituted such
negligence.
[102.]
As already indicated the applicants claimed in their founding
affidavit that the basis for their application was “
rooted”
in a finding made by the FAIS Ombudsman against a fellow broker who
was found to have been negligent in the performance of his
duties.
The applicants however do not in any measure or detail give any
particularly as to the basis on which their clients,
the investors,
were persuaded or enticed as a result of the acts or omissions of the
respondents to have made any further investments
in Realcor (in
respect of the twelve month debentures), and no details were given of
the basis that they (the applicants) could
or would be found to have
been negligent by the FAIS Ombudsman.  Moreover, the respondents
contend that the applicants themselves
had a duty to have done a
proper due diligence into the Realcor companies in which they were
selling investments and their failure
to have done so was negligent.
The respondents contended and in my view correctly that the
applicants are certainly
not entitled to be indemnified by the
respondents against their own negligence and have not in these
proceedings established any
negligence on the part of the
respondents.
[103.]
Moreover, neither in the founding papers nor in argument did the
applicants even attempt to make out a case that there
existed a nexus
between any damages that they or their clients might suffer and the
conduct of the respondents.  Mr Uijs submitted
that was really a
matter for “
quantification”
for  a later
stage and he was moreover unable at “
this stage to point to
any conduct”
on the part of the respondents that had led to
the investments and or re-investments by investors.  The
respondents correctly
contend that the applicants had clearly failed
to establish any loss or that any loss was reasonably foreseeable or
had established
any causal link between any acts and omission on the
part of the respondents and that the applicants would as a matter of
probability
suffer loss in the future.  In my view, the
applicants have, in these proceedings failed to prove liability on
the part of
the respondents that warrants any indemnification.
The
legal standing of the applicants.
[104.]
The respondents claimed that the applicants failed to establish a
legal duty owed by the respondents, or any one of
them, under the
general category of “
investment brokers.”
During
the course of argument Mr Uijs submitted that the applicants did not
seek to pursue the relief on behalf of “
any other broker”
as contemplated in the founding affidavit and restricted the relief
to that against the applicants only.
[105.]
The respondents contended that the applicants had not established
that any claim had in fact been instituted against
themselves, merely
stating in the founding affidavit that “…
investments
sold by me after their appointment is the subject matter of
complaints to the FAIS Ombudsman and consequently places
me and my
business at risk.”
The applicants do not indicate
that they are the subject of any particular complaint nor did they
furnish any details of
such complaint.  The respondents point
out, and correctly in my view, that the failure on the part of the
applicants to have
established that any claim had been made against
them has two implications: the first being that the relief they
sought was entirely
academic and is founded on a hypothetical
scenario, and secondly, at best for the applicants they have merely
anticipated a possibility
of a claim being made against them.
In my view, at best for the applicants, their claims against the
respondents are entirely
premature.
Statutory
limitation on liability.
[106.]
Section 88 of the Banks
Act provides as follows;
“
88
Limitation of liability
No
liability shall attach to the South African Reserve Bank or, either
in his or her official or personal capacity, to any member
of the
board of directors of the said Bank, the Registrar or any other
officer
or
employee
of the
said Bank, for any loss sustained by or damage caused to any person
as a result of anything done or omitted by such member,
the Registrar
or such other officer or employee in the bona fide performance of any
function or duty under this Act.” [S.88
substituted by s.62 of
Act No. 19 of 2003].”
[107.]
There was a difference of view between the parties as to whether the
respondents could be regarded as “
employees”
and
“
officers”
for the purposes of the immunity
conferred in the statute.  Neither the terms, “
employee”
nor “
officer”,
are defined in the Banks Act and
therefore the ordinary meaning attaches to both terms.  An
officer is an appointed functionary
and while holding that office
performs a duty, serves or functions as an agent for the principal.
The manager was appointed
in terms of section 84(1) by the Registrar,
and at all times “
shall act under the control of the
Registrar, and the manager may from time to time apply to the
Registrar for instructions in regard
to any matter arising out of or
in connection with the performance of his or her duties.”
[108.]
Counsel for applicants submitted that the applicants did not seek to
persist in their claim that the respondents had
acted
mala fide
.
In the circumstances the conduct of the respondents, to the extent
that it was done
bona fide
in the performance of any function
or duty under the Act, clearly falls within the ambit of section 88
of the Banks Act.
As such, each of them in my view, is
therefore not liable for any losses claimed as a consequence of
damage caused by them in the
performance of functions for as long as
they acted
bona fide
while carrying out such functions.
The
defence raised by the respondents on the facts.
[109.]
At the commencement of the hearing Mr Uijs submitted that the
application was a “
very simple
one
” and
claimed that, “
most of the facts are common cause.”
He submitted further that the principle issue was the interpretative
question in respect of the powers, duties and responsibilities
with
which the respondents were endowed with in terms of Chapter 3 of the
Banks Act.  Mr Kuscke however pointed out that based
on the
contents of the founding affidavit of the applicants, their replying
affidavit and on the very argument presented on behalf
of the
applicants at the hearing, there remained serious disputes of fact
between the parties and that the factual disputes in
the application
had to be determined in accordance with the principles laid down in
the matter of
Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty)
Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
.  One of the central disputes of
fact related to the respondents’ contention that they had not
prior to the 2
nd
of September 2009 been aware of the
contentious twelve month debentures which were the subject matter of
the correspondence between
them and the applicants’ erstwhile
attorneys Laubscher of Heunis & Heunis.  In their replying
affidavit the applicants
sought to suggest that this dispute could
only be resolved by oral evidence.  They however placed no
contrary evidence in
their papers to challenge the version provided
by the respondents with regard to the facts and circumstances
surrounding the issuing
of the relevant Prospectus in 2008.
There was in my view clearly no basis to accede to the mere
suggestion of a referral
to oral evidence which in any event was not
pursued with any measure of urgency by the applicants in argument.
The matter
is therefore to be determined on the facts as alleged by
the respondents together with those facts asserted to in the
applicants’
affidavits that have been admitted by the
respondents and on such basis I am satisfied that the factual
assertions overall made
by the respondents are to be preferred over
the vague claims by the applicants.
The
appearance by Ms D de Ridder.
[110.]
Shortly into the hearing of the oral argument Ms Deonette de Ridder
the erstwhile director of the Realcor Group, interposed
and requested
the court to entertain an application by her to file an affidavit in
response to various allegations made against
her, in particular by
the respondents.  She informed the court that she has been
sequestrated but that she had not obtained
the permission from her
trustee to intervene in the matter.  She claimed that she had
become aware of the application in about
October, November 2013 and
that she consulted with the first applicant in January 2014 with
regard to the contents of the answering
affidavit filed by the
respondents.  She furnished the first applicant with whatever
information she had available.
Mr Uijs left the request of de
Ridder in the hands of the court while Mr Kuschke strenuously opposed
the belated attempt at the
filing of an affidavit by her.  He
pointed out that the matters that she sought to deal with, such as
the R140 million, were
in any event irrelevant to the determination
of the relief and that her deposing to an affidavit would
unnecessarily delay the
proceedings and that she was not in a
position to make good any order of wasted costs as a result of her
status.  Having considered
Ms de Ridder’s request and the
submissions by counsel for the respondents I turned down her request
as I was of the view
that the matters that she sought to deal with
were irrelevant to the determination of the present matter and would
have caused
an unnecessary delay in the proceedings.
The
various interlocutory applications and the questions of costs.
[111.]
On the 9
th
May 2014 the applicants gave notice of an
application in terms of which they sought an order against the
second, third and fourth
respondents for access to the complete and
entire investigation report as compiled and furnished by them to the
Registrar of Banks
pursuant to their inspection into the affairs of
Realcor.  The application was opposed by the respondents and was
meant to
have been heard on the same day and prior to the hearing of
the main application.  The applicants abandoned the application

on the morning of the hearing with an appropriate tender of costs by
them.
[112.]
The respondents for their part on the 19 March 2014 gave notice to
the applicants that at the hearing of the main application
an order
would be sought striking out various portions of the affidavit of the
first applicant’s affidavit dated 3
rd
March 2014
(referred to as applicants’ replying affidavit to respondents’
supplementary answering affidavit).
At the hearing of the
matter counsel for the applicants indicated that the applicants would
not seek to rely on the contents of
the affidavit.  It was
therefore not necessary to deal with the application to strike out.
The question of the costs
of the striking out application was
nonetheless argued by Mr Kuschke, who submitted that, given the
gratuitous and defamatory statements
made in the affidavit, much of
which was irrelevant and vexatious that
the
court should consider making a punitive order of costs against the
applicants for the aborted application.  Mr Uijs did
not make
any submissions on the issue and left it in the hands of the court.
Having considered the affidavit filed on behalf
of the applicants it
is apparent that the content thereof was ill considered and would if
the application was pursued, have been
struck out.  I am also of
the view that the respondents are entitled to an order of costs on a
punitive scale relating to
the aborted striking out application.
[113.]
In respect of the main application the respondents in their answering
papers initially sought an order of costs on
a punitive scale against
the applicants but in argument Mr Kuschke appropriately submitted
that such an order was not  warranted.
[114.]
T
he following order is made:
(i)
The application is dismissed with costs.
(ii)
The applicants are ordered to pay the wasted costs occasioned by the
Rule 35 application.
(iii)
The applicants are ordered to pay the wasted costs occasioned by the
aborted strike out application on an attorney and client
scale.
(iv)
The costs orders against the applicants are to be paid jointly and
severally by the two of them.
Saldanha
J
[1]
“
Simultaneously
with the issuing of a direction under section 83(1), or as soon
thereafter as may be practicable, the Registrar
shall by letter of
appointment signed by him or her appoint a person (hereinafter in
this section referred to as the manager)
to manage and control the
repayment of money in compliance with the direction by the person
subject thereto.”
2.
First applicants Founding affidavit; paragraph 16, page
11 of the record.
[3]
“
(3)
Every inspector so appointed shall be furnished with a certificate
stating that he has been appointed as an inspector under
this Act.
[4]
12 Inspection of affairs of person, partnership, close corporation,
company or other juristic person not registered as bank or
mutual
bank section (1) If the Governor or a Deputy Governor has reason to
suspect that any person, partnership, close corporation,
company or
other juristic person who or which is not registered in terms of the
Banks Act, 1990 (Act 94 of 1990), as a bank or
in terms of the
Mutual Banks Act, 1993 (Act 124 of 1993), as a mutual bank, is
carrying on the business of a bank or a mutual
bank, he or she may
direct the Registrar of Banks referred to in section 4 of the Banks
Act, 1990, to cause the affairs or any
part of the affairs of such
person, partnership, close corporation, company or other juristic
person to be inspected by an inspector
appointed under section 11
(1), in order to establish whether or not the business of a bank or
mutual bank, as the case may be,
is being carried on by that person,
partnership, close corporation, company or other juristic person.
(2)
The provisions of sections 4, 5, 8 and 9 of the Inspection of
Financial Institutions Act, 1984 (Act 38 of 1984), shall apply

mutatis mutandis in respect of an inspection carried out in terms of
subsection (1).
[5]
See certificate of appointment of 3
rd
respondent, Annexure “LM11 to founding affidavit  of 2
nd
respondent in second respondents answering affidavit Annexure ‘AO3”
[6]
See letter of appointment of second respondent, second respondents
answering affidavit Annexure ‘OA’
[7]
“
4
Powers of inspectors relating to institutions
(1)
In carrying out an inspection of the affairs of an institution under
section 3 or 3A an inspector may-
(a)(i)
summon any person who is or was a director, employee, partner,
member, trustee or shareholder of the institution and whom
the
inspector believes is in possession of or has under his or her
control, any document relating to the affairs of the institution,
to
lodge such document with the inspector or to appear at a time and
place specified in the summons to be examined or to produce
such
document and to examine or, against the issue of a receipt, to
retain any such document for as long as it may be required
for
purposes of the inspection or any legal or regulatory proceedings;
(ii)
administer an oath or affirmation or otherwise examine any person
who is or formerly was a director, employee, partner, member
or
shareholder of the institution;
[Para.
(a) substituted by s. 149 (b) of Act 45 of 2013 .]
(b)   at
any time without prior notice enter and search any premises occupied
by the institution and require the
production of any document
relating to the affairs of that institution;
(c)   cause
to be opened any strongroom, safe or other container in which he or
she reasonably suspects any document
of the institution is kept;
[Para.
(c) substituted by s. 149 (c) of Act 45 of 2013 .]
(d)   examine
and make extracts from and copies of any document of the institution
or, against the issue of a receipt,
remove such document temporarily
for that purpose;
(e)   against
the issue of a receipt, seize any document of the institution if the
inspector is of the opinion
that the document contains information
relevant to the inspection;
[Para.
(e) substituted by s. 149 (d) of Act 45 of 2013 .]
(f)   retain
any seized document for as long as it may be required for any
criminal or other proceedings
.”
[8]
See
letter dated 26 August 2006, second respondent’s answering
affidavit , Annexure ‘OA5.’
[9]
See
letter dated 26 August 2006, second respondent’s answering
affidavit, Annexure ‘OA6.’
[10]
“
Powers
of inspectors relating to other persons
(1)
In order to carry out an inspection of the affairs of an institution
under section 3 or 3A an inspector may-
(a)
(i)   summon
any person, if the inspector has reason to believe that such person
may be able to provide information
relating to the affairs of the
institution or whom the inspector reasonably believes is in
possession of, or has under control,
any document relating to the
affairs of the institution, to lodge such document with the
inspector or to appear at a time and
place specified in the summons
to be examined or to produce such document and to examine, or
against the issue of a receipt,
to retain any such document for as
long as it may be required for purposes of the inspection or any
legal or regulatory proceedings;
(ii)   administer
an oath or affirmation or otherwise examine any person referred to
in subparagraph (i);
[Para.
(a) substituted by s. 150 (b) of Act 45 of 2013 .]
(b)   on
the authority of a warrant, at any time without prior notice-
(i)   enter
any premises and require the production of any document relating to
the affairs of the institution;
(ii)   enter
and search any premises for any documents relating to the affairs of
the institution;
(iii)   open
any strongroom, safe or other container which he or she suspects
contains any document relating to
the affairs of the institution;
(iv)   examine,
make extracts from and copy any document relating to the affairs of
the institution or, against
the issue of a receipt, remove such
document temporarily for that purpose;
(v)   against
the issue of a receipt, seize any document of the institution
relating to the affairs of the institution
if the inspector is of
the opinion that the item contains information relevant to the
inspection;
[Sub-para.
(v) substituted by s. 150 (c) of Act 45 of 2013 .]
(vi)   retain
any seized document for as long as it may be required for criminal
or other proceedings,
but
an inspector may proceed without a warrant, if the person in control
of any premises consents to the actions contemplated
in this
paragraph.
[Sub-s.
(1) amended by s. 150 (a) of Act 45 of 2013 .]”
(2)
(a) A warrant contemplated in subsection (1) (b) may be issued, on
application of an inspector, by a judge or magistrate who
has
jurisdiction in the area where the premises in question is located.
(b)
Such a warrant may only be issued if it appears from information
under oath that there is reason to believe that a document relating

to the affairs of the institution being inspected, is kept at the
premises concerned.
(3)
Any person whose document has been removed or retained, or from whom
a document has been
seized, under subsection (1) (a) or (b) or
his or her authorized representative, may examine and copy such
document and make extracts
therefrom under the supervision of the
registrar or an inspector during normal office hours.”
[11]
First applicant’s founding affidavit, paragraph 12, page 9.
[12]
First applicant’s founding affidavit para 22, page 16
[13]
First applicants founding affidavit para 23 , page 17
[14]
First applicant’s founding affidavit para 24, page 17
[15]
First applicant’s founding affidavit para 24, page17.
[16]
First applicant’s founding affidavit para 32, page 22.
[17]
“The manager shall as soon as may be practicable report to the
Registrar whether or not the person subject to the relevant

direction is, in the manager’s opinion, solvent, and if the
manager finds that the person subject to the direction is insolvent,

the manager shall comment on whether such person is technically or
legally insolvent.”
[18]
First applicant’s founding affidavit paragraph  38, page
24.
[19]
First
applicant’s founding affidavit para 39, page 25.
[20]
First applicant’s founding affidavit paragraph 44, page 26.
[21]
Ibid, para 44, page 26
[22]
First applicant’s founding affidavit, para 44 page 26.
[23]
First applicants founding affidavit para 44 page 26.
[24]
First applicant’s  founding affidavit para 45, page 26.
[25]
“
Section
81 (1)
If the
Registrar has reason to suspect that any person who is not
registered as a bank in terms of this Act-
(a)   is
likely to conduct the business of a bank in contravention of the
provisions of section 11 (1) or 18A (6);
or
(b)   has
so contravened the provisions of section 11 (1) or 18A (6) or has
contravened the provisions of section
22 (4) or (5), or that such a
contravention is likely to be continued or repeated,
the Registrar
may apply to a division of the Supreme Court having jurisdiction
(hereinafter in this section referred to as the
court) for an order-
(i)   prohibiting
the anticipated contravention referred to in paragraph (a);
(ii)   prohibiting
the continuation or repetition of a contravention referred to in
paragraph (b); or
(iii)   prohibiting
the person concerned from disposing of or otherwise dealing with any
of his or its assets while
the contravention suspected of having
been committed or of being continued is investigated.”
[26]
First applicant’s founding affidavit para 50, page 30.
[27]
First applicant’s founding affidavit para 57, page 32.
[28]
First applicant’s founding affidavit para 57, page 32.
[29]
First applicant’s founding affidavit para 58, page 32.
[30]
First applicant’s founding affidavit para 61, page 33.
[31]
Email dated 3 November 2010 from first respondent to “
Brokers
representing 12 month Debenture      Holders
in Grey Haven Riches 9 and Grey Haven Riches 11.”
[32]
First applicant’s founding affidavit, para 63 page 34.
[33]
First applicant’s founding affidavit, ibid.
[34]
First applicants founding affidavit para 68, page 36.
[35]
First applicant’s founding affidavit para 69, page 36-37
[36]
First applicant’s founding affidavit para 70, page 37.
[37]
First applicant’s founding affidavit, para 70, page 37.
[38]
First applicant’s founding affidavit para 71, page 37.
[39]
First applicants founding affidavit .para 72, page 38.
[40]
First applicant’s founding affidavit para 89 page 43.
[41]
First applicant’s founding affidavit para 89, page 43.
[42]
First applicants founding affidavit para 90 page 43
[43]
First applicants founding affidavit para 91 page 44
[44]
“
commercial
paper" means -
(a)   any
written acknowledgement of debt irrespective of whether the maturity
thereof is fixed or based on a notice
period, and irrespective of
whether the rate at which interest is payable in respect of the
debt in question is a fixed
or floating rate; and
(b)   debentures
or any interest-bearing written acknowledgement of debt issued for a
fixed term in accordance
with the provisions of the Companies Act,
1973 (Act No. 61 of 1973),
but does not
include bankers' acceptances;
[45]
First applicant’s founding affidavit para 94, page 45.
[46]
First applicant’s founding affidavit para 95 page 45.
[47]
First applicant’s founding affidavit para 99, page 46.
[48]
Ibid
[49]
First applicant’s founding affidavit para 104, page 48.
[50]
First applicant’s founding affidavit para 109, page 50.
[51]
First applicant’s founding affidavit para 116, page 52.
[52]
First applicant’s founding affidavit para 120, page 53.
[53]
First applicant’s founding affidavit para 123, page 54.
[54]
First applicant’s founding affidavit para 124, page 54.
[55]
First applicant’s founding affidavit para 125, page 54.
[56]
Second respondents answering affidavit para 46, page 177.
[57]
Second respondent’s answering affidavit para 53, page 179.
[58]
“
the
business of a bank” means- “…but does not
include…
…
(cc)
any activity of  a public sector, governmental or other
institution, or of any person of category of    persons,

designated by the Registrar, with the approval of the Minister, by
notice in the Gazette, provided such activity is performed
in
accordance with such conditions as the Registrar may with the
approval of the Minister determine in the relevant notice;”
[59]
Second respondent’s answering affidavit para 68.2, page 183
[60]
Second respondents answering affidavit para 69.3, page 184.
[61]
Second respondents answering affidavit para 69.4 page 184.
[62]
Second respondents answering affidavit  para 73, 73.1, and 73.2
, page 185
[63]
Second respondents answering affidavit para 76, page 186
[64]
Second respondents answering affidavit para 77, page 186
[65]
Second respondents answering affidavit  para 77 page 186
[66]
Second respondents answering affidavit para 180 page 215.
[67]
“
12
Inspection of affairs of person, partnership, close corporation,
company or other juristic person not registered as bank
or mutual
bank
(1)
If the Governor or a Deputy Governor has reason to suspect that any
person, partnership, close corporation, company or other
juristic
person who or which is not registered in terms of the Banks Act,
1990 (
Act
94 of 1990
),
as a bank or in terms of the Mutual Banks Act, 1993 (
Act
124 of 1993
),
as a mutual bank, is carrying on the business of a bank or a mutual
bank, he or she may direct the Registrar of Banks referred
to in
section 4 of the Banks Act, 1990, to cause the affairs or any part
of the affairs of such person, partnership, close corporation,

company or other juristic person to be inspected by an inspector
appointed under section 11 (1), in order to establish whether
or not
the business of a bank or mutual bank, as the case may be, is being
carried on by that person, partnership, close corporation,
company
or other juristic person.
(2)
The provisions of sections 4, 5, 8 and 9 of the Inspection of
Financial Institutions Act, 1984 (Act 38 of 1984), shall apply

mutatis mutandis in respect of an inspection carried out in terms of
subsection (1).
[S.
12 substituted by
s.
6
of
Act
10 of 1993
and by
s.
7
of
Act
2 of 1996
.]”
[68]
“
18A
Branches of foreign institutions
(1)
An institution which has been established in a country other than
the Republic and which lawfully conducts in such other country
a
business similar to the business of a bank (hereinafter in this
section referred to as the foreign institution) may, notwithstanding

the provisions of section 11 (1), with the prior written
authorization of the Registrar and subject to the prescribed
conditions
and to such further conditions
,
if any, as the
Registrar may determine, conduct the business of a bank by means of
a branch in the Republic.”
[69]
The manager shall as soon as may be practicable report to
the
Registrar whether or not the person subject to the relevant
direction is, in the manager's opinion, solvent, and if the manager

finds that the person subject to the direction is insolvent, the
manager shall comment on whether such person is technically
or
legally insolvent.
[70]
“
The
manager shall act under the control of the Registrar, and the
manager may from time to time apply to the Registrar for
instructions
in regard to any matter arising out of or in connection
with the performance of his or her duties  in terms of
subsection
(4).”
[71]
33
Preservation of secrecy
(1)
No director, officer or employee of the Bank, and no officer in the
Department of Finance, shall  disclose to any person,
except to
the Minister or the Director-General: Finance or for the purpose of
the performance of his or her duties or the exercise
of his or her
functions or when required to do so before a court of law or under
any law-
(a)   any
information relating to the affairs of-
(i)   the
Bank;
(ii)   a
shareholder of the Bank; or
(iii)   a
client of the Bank,
acquired
in the performance of his or her duties or the exercise of his or
her functions; or
(b)   any
other information acquired by him or her in the course of his or her
participation in the activities
of the Bank,except, in the case of
information referred to in paragraph (a) (iii), with the written
consent of the Minister and
the Governor, after consultation with
the client concerned.
[72]
“
Any
written report to the Registrar by an inspector appointed in terms
of section 83 or any report by a repayment administrator
appointed
in terms of this section is confidential and shall not be disclosed
to any person: Provided that the Registrar may,
notwithstanding the
provisions of
section
33 (1)
of the
South African Reserve Bank Act, 1989
(
Act
90 of 1989
),
furnish such report to-
(i)   the
person subject to an inspection in terms of section 83 or that is
subject to a directive in terms of
section 84;
(ii)   a
person or institution contemplated in section 89;
(iii)   a
relevant division of the South African Police Services or the
National Prosecuting Authority;
(iv)   any
other person that can prove, to the satisfaction of the Registrar, a
legitimate interest in the matter
and only upon payment of a
prescribed fee and with the written consent of the person subject to
the directive; or
(v)   any
duly appointed provisional liquidator or provisional trustee of the
person subject to the directive.”
[73]
First applicant’s founding affidavit para 31.11, page 20.
[74]
“
For
the purposes of liability culpa arises if –
(a)
diligens paterfamilias in the position of the defendant
–
(i)
would foresee the reasonable possibility of his conduct
injuring another in his person or property and causing him
patrimonial
loss; and
(ii)
would take reasonable steps to guard against such occurrence; and
(b)
The defendant failed to take such steps…”