Current Commercial Cases

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Current Commercial CasesVolume 29 Part 1 February 2020

EDITORIAL POLICYCurrent Commercial Cases is a reporter ofjudgments of importance to commerce andcommercial practice. The underlying assumption ofthis publication is that judgments are importantbecause they are indicators of the rules underwhich commerce is obliged to operate. Whethersuch judgments are consistent with each other ornot, and whether rational or irrational, publication ofthem is necessarily beneficial to the operation ofcommercial practice.

DISCLAIMERFacts not germane to reported judgments arenormally omitted, as are obiter dicta. For thisreason, and because summary in itself involvessimplification, none of the judgments reported inCurrent Commercial Cases should be interpretedas final statements of the law. The contents of thispublication should therefore not be used as a basisfor any course of action.

INTERNET SITEThe Web Site address of The Law Publisher CC is:http://www.lawpublisher.co.za

EDITORMARK STRANEX BA Hons LLB, Advocate,Member of the Durban Bar.

PUBLISHERCurrent Commercial Cases is published by TheLaw Publisher CC, CK 92/26137/23.

ISSN 1019-2530

In this issue ...

PropertyATLANTIC BEACH HOMEOWNERS’ ASSOCIATION NPC v

ESTATE AGENCY AFFAIRS BOARD ..................... 3KRETZMANN v KRETZMANN ...................................... 5PrescriptionBOTHA v STANDARD BANK OF SOUTH AFRICA LTD 7CompaniesFERROSTAAL GMBH v TRANSNET SOC LTD ........... 9MOUTON v PARK 2000 DEVELOPMENT 11 (PTY) LTD

................................................................................. 11Credit TransactionsVAN VUUREN v ROETS ................................................ 13NATIONAL CREDIT REGULATOR v STANDARD BANK OF

SOUTH AFRICA LTD ............................................. 15ContractLIBERTY GROUP LTD v MALL SPACE MANAGEMENT CC

................................................................................. 17InsolvencyLUNDY v BECK ............................................................. 19TJEKA TRAINING MATTERS (PTY) LTD v KPPM CON-

STRUCTION (PTY) LTD ......................................... 20ShippingMV MADIBA 1VAN NIEKERK v MV MADIBA 1 ................................... 21BankingSOUTH AFRICAN RESERVE BANK v BANK OF BARODA

(SOUTH AFRICA) ................................................... 22

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In this issueIn this issue CLICK ON PAGE NUMBER TO LINK FROM TAGIn this issue

Agencyrevocation of by principal 17

Bankduties under Financial Intelligence Centre Act

(no 22Business rescue

defective when commenced after liquidation 11vote against adoption of plan 9

Companiesbusiness rescue 9business rescue resolution 20

Credit Transactionsrelease from debt review order 13

Mortgage bondcancellation of, effect of prescription 7presription of debt secured by 7

Prescriptionof debt secured by mortgage bond 7

Propertyestate agent 3

Sale of landcompliance with formalities 5option agreement 5

Sequestrationulterior purpose of 19

Set offcredit agreement subject to National Credit

Act 15Shipping

maritime claim, what is 21

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A JUDGMENT BY MBHA JA(NAVSA JA, WALLIS JA,DAMBUZA JA and VAN DERMERWE JA concurring)SUPREME COURT OF APPEAL16 SEPTEMBER 2019

2019 (6) SA 381 (SCA)

A person who concludes anagreement with an estate agentdesigned to assist the estate agentin the marketing of property is notan estate agent as defined in theEstate Agency Affairs Act (no 112of 1976).

ATLANTIC BEACH HOMEOWNERS’ ASSOCIATION NPC vESTATE AGENCY AFFAIRS BOARD

THE FACTSOn 9 July 2015, an agreement

was concluded between AtlanticBeach Homeowners AssociationNPC (ABHOA), represented byMr White, and Pam Golding, dulyrepresented by Ms Campbell. Theagreement, styled PropertyPartner Agreement (PPA), was fora three-year period and providedfor the appointment of PamGolding as ABHOA’s propertypartner, on a non-exclusive basis,for the marketing of propertiesforming part of the estate forwhich ABHOA had beenestablished.

In terms of the agreement,ABHOA agreed to grant PamGolding certain marketingbenefits. These included thatABHOA would, at its cost andexpense: display Pam Golding’sname and branding on ABHOA’smarketing pamphlet and map ofthe estate; on a weekly basiscause one property to beadvertised in a local newspaperand in ABHOA’s newsletter;display a ‘for sale’ sign brandedwith Pam Golding’s name andcorporate logo on the relevantproperty; provide access toABHOA’s electronic-mediaadvertising template; entitle PamGolding to indicate on itscorporate stationery that it wasassociated with ABHOA; provideresidents of the estate with afridge magnet which includedPam Golding’s contact details;provide a link from ABHOA’swebsite to that of Pam Golding inrespect of properties for sale; anddisplay Pam Golding’s contactdetails and logo at all entrances tothe Estate.

In consideration for thesemarketing benefits, Pam Goldingwould pay ABHOA a marketingfee equal to 1%, excluding value-added tax, of the gross purchaseprice of each property sold byPam Golding up to a purchaseprice of R5m, and 0,5% of

anything above that price. Inaddition to payment of themarketing fee, Pam Goldingwould be obliged at all times touse its best endeavours topromote and extend sales ofproperties in the estate andenhance its reputation by makingall efforts to promote it. PamGolding also warranted that itssole business was to operate as anestate agency and that all thenecessary licences, certificatesand permits to operate thebusiness of an estate agency werein place.

A complaint was lodged withthe Estate Agency Affairs Boardthat ABHOA granted to PamGolding the exclusive right tomarket properties within theestate, in consideration forcommission of 1% of the purchaseprice of any property sold in theestate through Pam Golding. Nocomplaint was laid againstABHOA and Mr White.

The Board then charged ABHOAand Mr White on three counts.The first count was an allegedcontravention of section 26 of theEstate Agency Affairs Act (no 112of 1976), which requires anyperson who performs any act asan estate agent to be a holder of avalid fidelity fund certificate. Itwas alleged that during July 2015ABHOA and Mr White, withoutholding a valid fidelity fundcertificate issued by the Board,operated or held themselves outto be estate agents and signed thePPA in terms of which theyagreed to act as ‘spotters’.

ABHOA applied for an orderdeclaring that it and White werenot estate agents as defined insection 1 of the Act.

THE DECISIONAn estate agent is defined in the

Act as any person who for theacquisition of gain holds himselfout as a person who advertises

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that he, on behalf of any otherperson — (i) sells or purchases orpublicly exhibits for saleimmovable property or anybusiness undertaking ornegotiates in connectiontherewith or canvasses orundertakes or offers to canvass aseller or purchaser therefor; or (ii) lets or hires immovableproperty . . . ; or (iii) collects or receives anymoneys payable on account of alease of immovable property . . . ;or (iv) renders any such otherservice as the Minister on therecommendation of the boardmay specify from time to time inthe Gazette’.

The issue to be decided waswhether ABHOA or Mr Whitehad in any manner, directly orindirectly, held themselves out aspersons who sell properties ofothers for commission, oradvertised themselves as personswho do so.

A careful perusal of the propertypartner agreement and theevidence of implementationthereof did not reveal thatABHOA or Mr White in anymanner held themselves out oradvertised that they soughtmandates to sell property. Therewas no evidence that ABHOA orMr White solicited approachesfrom the general public topurchase or sell properties ontheir behalf for commission. Theproperty partnership agreement

involved nothing more than theprovision by ABHOA to PamGolding of marketing benefits,which were specified in theagreement, in return for theconsideration specified in thePPA.

There was nothing to suggestthat, by concluding andimplementing the propertypartner agreement, ABHOA or MrWhite held themselves out oradvertised themselves as personsthat sought to sell the propertiesof others for commission. Therewas no evidence that they actedas estate agents as defined. In theresult they should not besubjected to the envisageddisciplinary proceedings.

A careful perusal of the property partner agreement and the H evidence ofimplementation thereof does not reveal that ABHOA or Mr White in any manner heldthemselves out or advertised that they sought mandates to sell property. There is noevidence that ABHOA or Mr White solicited approaches from the general public topurchase or sell properties on their behalf for commission. The property partnershipagreement involved nothing more than the provision by ABHOA to Pam Golding ofmarketing benefits, which are specified in the agreement, in return for the considerationspecified in the PPA.

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KRETZMANN v KRETZMANN

A JUDGMENT BY EKSTEEN JEASTERN CAPE LOCALDIVISION, PORT ELIZABETH27 AUGUST 2019

2020 (1) SA 162 (ECP)

An option agreement need notcomply with the requirements ofsection 2(1) of the Alienation ofLand Act (no 68 of 1981). However,an option which includes the termsupon which a sale is to beconcluded upon its exercise cannotbe validly exercised, whether orallyor in writing.

THE FACTSIn an action brought by him and

a co-plaintiff, Kreztmann allegedthat they attempted to purchase aproperty situated in PortElizabeth. They were unable toraise a bond to enable them topurchase the property. They thenconcluded an oral agreementwith the defendant in terms ofwhich the defendant undertook toraise the capital and to purchasethe property in his own name,but for their benefit, which heduly did. The property wasaccordingly registered in thename of the defendant.

The particulars of the plaintiffs’claim recorded that after beingunable to raise the necessaryfinance to purchase the property,the plaintiffs entered into an oraloption agreement with thedefendant. The option was to theeffect that the defendant gave tothe plaintiffs an option topurchase the property, for aperiod of 5 years from the date oftransfer into his name, byentering into a written agreementof sale with him for its purchase,for a price consideration equal tothe amount owing on theassociated mortgage bond at theexercise of the option. Theplaintiffs undertook to payvarious costs associated with theproperty, including themunicipal rates and thedefendant’s mortgage bondpayments.

The transfer of the property intothe defendant’s name wasregistered on 17 January 2014.Onor about 13 July 2018, theplaintiffs duly exercised theiroption as aforesaid by providingto the defendant, a signedagreement of sale for the propertyreflecting a purchase price of R2550 000,00, being the amountowing by the defendant toInvestec Private Bank in respect ofthe property at the exercise of the

option.The defendant raised an

exception to the claim. Hecontended that the particulars ofclaim lacked averments necessaryto sustain a cause of action, interalia, because the plaintiff’s casewas premised on an ‘oral optionagreement’ in terms of which itwas alleged that the defendantgave the plaintiffs an option, for aperiod of five years from the dateof transfer of the property inquestion, to purchase theproperty on certain conditions.However, section 2(1), read withthe definition of ‘alienate’, of theAlienation of Land Act (no 68 of1981) provides that no alienationof land shall . . . be of any force ofeffect unless it is contained in adeed of alienation signed by theparties thereto or by their agentsacting on their written authority.The alleged agreement fell foul ofthis section because it was notreduced to writing and signed bythe parties

THE DECISIONThe plaintiffs’ case as pleaded

was therefore founded on an oralagreement in terms of which thedefendant granted them an optionfor a period of five years topurchase the property on certainterms which were orally agreedupon by them.

The sole issue was whether theagreement contended for wasrequired by law to be in writingfor it to be enforceable.

An option to purchase, however,is a different phenomenon. Anoption to purchase is comprisedof two distinct parts: an offer topurchase; and an agreement tokeep that offer open, usually for afixed period.

Formalities prescribed for thesubstantive contract ought not toapply to option agreementsrelating to such a contract.However, as a general rule, pacta

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de contrahendo have to conformto formalities prescribed for thesubstantive contract envisagedby the parties and thereforeoption contracts to purchase landmust conform to the applicablestatutory formalities.

However, whilst an optionagreement (the pactum de

contrahendo) relating to the saleof land need not be in writing, itcan only be validly enforced if theoffer to which it relates complieswith the provisions of section 2(1)of the Act. In this case, however,the plaintiffs’ case as pleaded wasthat both the option agreementand the agreement relating to the

terms upon which the sale wouldoccur were orally concluded. Anoption of that nature relating toland cannot be validly exercised,whether orally or in writing. Theoption agreement therefore had tofail.

The exception was upheld

Whilst an option agreement (the pactum de contrahendo) relating to the sale ofland need not be in writing, it can only be validly enforced if the offer to whichit relates complies with the provisions of s 2(1) of the Act. In this case, however,the plaintiffs’ case as pleaded is that both the option agreement and theagreement relating to the terms upon which the sale would occur were orallyconcluded. An option of that nature relating to land cannot be validlyexercised, whether orally or in writing.

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BOTHA v STANDARD BANK OF SOUTH AFRICA LTD

A JUDGMENT BY CACHALIA JA(SALDULKER, PLASKET ANDDLODLO JJA and WEINER AJAconcurring)SUPREME COURT OF APPEAL6 SEPTEMBER 2019

2019 (6) SA 388 (SCA)

The prescription period applicableto a debt secured by a mortgagebond is fixed at the date on whichthe debt becomes due and does notalter its character merely becausethe bond is subsequently cancelled.

THE FACTSBotha’s husband concluded a

home loan agreement with theStandard Bank of South AfricaLtd. The agreement required himto register a mortgage bond overhis property for an amount ofR450 000 in the bank’s favour andalso to obtain a suretyship fromBotha. Clause 18 contained two‘special conditions’. The first wasthat the loan would beconsolidated with an existingloan secured by the propertyoffered as mortgage security forrepayment over the period of theloan. The second was that themortgage bond would stipulatethat the bank secure anadditional sum, equivalent to 25per cent of the bond amount. Thiswould represent further security(cover) for situations where thebank would be obliged to payamounts on the principal debtor’sbehalf for which he would beliable.

Botha’s husband, the principaldebtor, then registered threemortgage bonds over hisproperty in favour of the bank tosecure the loan and hisindebtedness to the bank arisingfrom the home loan agreement.Botha bound herself in favour ofthe bank as surety and co-principal debtor. Botha acceptedthat any acknowledgment ofindebtedness by the principaldebtor of proof of a claim againsthis insolvent estate would bebinding upon her.

On 28 November 2011 theprincipal debtor’s estate wasfinally sequestrated and trusteesappointed to administer it. Thebank sought to recover the fulloutstanding balance then owingto it by the principal debtor fromthe insolvent estate. On 27September 2012 the bank provedits claim against the estate in anamount of R2 315 043. Theprincipal debt, and thus the

surety’s debt, then became due,and prescription began to runagainst the debt as contemplatedby section 12(1) of thePrescription Act (no 68 of 1969).But, since the principal debt wasthe object of the bank’s claim inthe principal debtor’s insolventestate, it constituted animpediment to the continuedrunning of prescription in termsof section 13(1)(g). Thisimpediment ceased to exist on 26January 2015 when the Masteraccepted the trustees’ finalliquidation account.Consequently, prescription thenbegan running again.

Botha contended thatprescription ran for one moreyear by operation of s 13(1)(i)when the principal debtprescribed on 26 January 2016.The bank contended thatprescription continued to runbeyond this date because the 30-year period, and not the three-year period, applied.

On 26 July 2016, the bank issuedsummons claiming a shortfall ofR1 285 871 from Botha as suretyfor the principal debt.

THE DECISIONThe first question was whether

the cancellation of the bondschanged the prescription periodapplicable to the debt from 30years to three years.

Oliff v Minnie 1953 (1) SA 1 (A)established that the prescriptionperiod applicable to a debtsecured by a mortgage bond isfixed at the date on which thedebt becomes due and does notalter its character merely becausethe bond is subsequentlycancelled. The classification of thedebt conclusively determines theperiod of prescription, not the fateof the security.

It is incorrect to say that oncethe security ceases to exist, thedebt is no longer secured. The

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true position is that it is onlywhen the right of action accruesand the debt is due that theprescription period isdetermined. And oncedetermined, the period is fixedand immutable; it is not alterableretroactively through thesubsequent cancellation of thebond.If Botha’s submission that thecancellation of the securityaltered the prescription period

were to be upheld, it would meanthat the period applicable to thesecured debt may be alteredretroactively in mid-stream, afterprescription has begun to runagainst the debt. The same debtwould then be governed by twodifferent prescription periods.The anomalous consequencewould be that where three yearshave already run against a 30-year debt then, in the absence ofany delay or interruption, the

debt would become prescribedimmediately, thus leaving thecreditor remediless through nodilatoriness on its part. Thiswould undermined the purposeof the Act, which designatescategories of debt according toclasses of written instrument andascribes particular prescriptionperiods to them in order to ensurelegal certainty.

The bank’s claim succeeded.

The terms of the loan agreement, which include the suspensive and special conditionsrelating to the mortgage bond referred to earlier, make it artificial to separate the antecedentcontract of loan from the bond agreement. Once the suspensive and special conditions underthe loan agreement were fulfilled, there was in fact only one agreement and not twocoexisting agreements. The debt secured under this agreement was the mortgage debt, whichbecame due and to which the 30-year period of prescription applied. This was also how thebank described the debt in its claim to the trustees of the insolvent estate, which counsel forthe appellant properly accepted posed a difficulty for her.

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FERROSTAAL GMBH v TRANSNET SOC LTD

A JUDGMENT BY BOZALEK JWESTERN CAPE DIVISION, CAPETOWN29 AUGUST 2019

2019 (6) SA 490 (WCC)

The determination in terms ofsection 153(7) of the Companies Act(no 71 of 2008) that a vote againstthe adoption of a business rescueplan was inappropriate is based ona value judgment made afterconsideration of all the facts andcircumstances.

THE FACTSFerromarine Africa (Pty) Ltd’s

(FMA) only business, andprincipal asset, was a head leaseit had over certain of TransnetSoc Ltd’s property located at theport of Saldanha. The lease wasfor a period of 15 yearsterminating in September 2022.The primary use to which FMAput the premises was to lease itout to various subtenants, andthe only revenue which it derivedfrom the property was thatwhich it earned from suchsubleases. FMA had no employeesand had two directors.

As at mid-2018 the monthlyrental payable by FMA toTransnet was approximatelyR1.5m per month.Notwithstanding that Transnetopposed both an initial and arevised business rescue plan, thebusiness rescue proceedingproceeded without being drivento a head until August 2018. Atthat stage Transnet broughtproceedings to set aside theresolution in terms of which thevoluntary business rescueproceedings were commenced,declaring that they had endedand converting the FMA’sbusiness rescue status to one ofliquidation. The application wasbrought on the basis that therewas no reasonable prospect ofrescuing FMA. Those proceedingswere opposed. The hearing of thematter was postponed, partheard, to 6 and 7 August 2019.

On 19 July 2010 FMA concluded,in principle, a sublease withArcelorMittal, which envisagedArcelorMittal installing a spiralwelding mill valued in excess of$10m on the leased premises atthe port of Saldanha, which willbe used for the production of steelpilings to be used in the marineconstruction industry.

As a result of this developmentthe business rescue practitioner

issued a revised business planwhich took into consideration theadditional income to be generatedfor FMA from the proposedsubleases. That plan wasconsidered at a meeting ofcreditors on 31 July 2019 but wasvoted down by Transnet. SinceTransnet held the majority of thecreditors’ voting interests, theconsequence of its vote was thatthe plan was rejected.

The business rescue practitionertook the view that the vote wasinappropriate, as contemplated insection 153(1)(a) of the CompaniesAct (no 71 of 2008). FMA’sshareholders, ie Ferrostaal Gmbhand the second applicant, thenbrought an applicationto set aside the vote taken againstthe revised business rescue plan.

THE DECISIONSection 153(1)(a) provides that if

a business rescue plan has beenrejected as contemplated insection 152(3)(a) or (c)(ii)(bb) thepractitioner may — (i) seek a vote of approval fromthe holders of voting interests toprepare and publish a revisedplan; or (ii) advise the meeting that thecompany will apply to a court toset aside the result of the vote bythe holders of voting interests or Ishareholders, as the case may be,on the grounds that it wasinappropriate.

Section 153(7) provides that onan application contemplated insubsection (1)(a)(ii) or (b)(i)(bb), acourt may order that the vote ona business plan be set aside if thecourt is satisfied that it isreasonable and just to do so,having regard to — (a) the interests represented bythe person or persons who votedagainst the proposed businessrescue plan; (b) the provision, if any, madein the proposed business rescue

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plan with respect to the interestsof that person or those persons;and (c) B a fair and reasonableestimate of the return to thatperson, or those persons, if thecompany were to be liquidated.

The determination that the votewas inappropriate must be basedon a value judgment made afterconsideration of all the facts andcircumstances.

The moratorium which FMAenjoyed in respect of its extremelysubstantial arrear rentals wouldendure for another three years ifthe revised plan was adopted andwould only be addressed as andwhen any extension to the headlease was negotiated at the end ofthat period. It was striking thatno explanation was furnished asto why Transnet could not beginto address the arrearsimmediately, but only in threeyears’ time. The business rescuepractitioner’s revised business

plan provided no explanation inthis regard. The question couldwell be asked, what will changein three years’ time to then placeFMA in a more advantageousposition to address the arrearrentals issue?

A further critical element to theproposed plan was that evenafter the head lease expired inthree years’ time, the plan offeredlittle certainty as to how thesearrears could be effectivelyaddressed.

There was weight in Transnet’sargument that the revisedbusiness rescue plan made anyprospect of repayment of anyportion of the arrear rentalindebtedness uncertain anddependent upon the happening ofan uncertain future event,namely, agreement on a 15-yearhead lease extension.

A second important issue inassessing the reasonableness ofthe revised business rescue plan

and the resulting vote was thequestion of future rental in termsof the existing head lease.Payment of the agreed rental forthe remainder of the three-yearperiod did not appear to beclearly provided for orguaranteed by the revised plan.Clause 13.2 of the revised planmade reference to FMA being‘confident’ that it will be able tocontinue making payment of thefull rental what appears to bepossible future subleases.

Having regard to all thesecircumstances and competinginterests and notwithstandingthe uncertainty should FMA beplaced into liquidation, it couldnot be found that the result of thevote was inappropriate and, inparticular, that, when regard ishad to the various interests insection 153(7)(a), (b) and (c), it was‘reasonable and just’ to set asidethe result of the disputed vote.

The application failed.

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MOUTON v PARK 2000 DEVELOPMENT 11 (PTY) LTD

A JUDGMENT BY SHER JWESTERN CAPE DIVISION, CAPETOWN23 JULY 2019

2019 (6) SA 105 (WCC)

Business rescue proceedingscommenced in contravention ofsection 129(2)(a) of the CompaniesAct (no 71 of 2008) are defectiveand may be set aside.

THE FACTSIn July 2018 Mouton obtained a

writ of execution whichauthorised the attachment andsale of Park 2000 Development 11(Pty) Ltd’s immovable properties.An advertisement then notified oftheir intended disposal by way ofpublic auction on 12 December2018.

The day before the auction wasto be held, Mouton’s attorneysreceived notification by emailfrom attorneys Lucas DyselCrouse Inc that an entity knownas Meiprops Twee en Twintig(Pty) Ltd, had launched anapplication for the liquidationand winding-up of Park 2000,which application was enrolledfor hearing on 14 December 2018.Lucas Dysel Crouse Increpresented Park 2000, and also abusiness rescue practitioner,Stewart.

About 15 minutes after receivingnotification of the intendedliquidation of Park 2000 Mouton’sattorneys received emailcorrespondence from an entityknown as Smoken Consulting(Pty) Ltd, through which Stewartoffered consulting and ‘businessrescue’ services, in which theywere also informed that Park2000 had made application thatsame day to be placed underbusiness rescue. Two days laterthe Companies and IntellectualProperty Commission (the CIPC)duly appointed Stewart as thebusiness rescue practitioner. Inthe meantime, the liquidationapplication was withdrawn theday after it was launched.

Notwithstanding that Park 2000had sought to place itself inbusiness rescue on 11 December2018, and despite a demandwhich was made by Stewart thatthe auction was to be cancelled asa result thereof, it went ahead onthe instructions of Mouton’sattorneys, as they were of the

view that the business rescueproceedings were irregular andPark 2000 had not legitimatelyand validly been placed inbusiness rescue, whereupon thetwo properties were sold at theauction.

Mouton brought an applicationfor an order declaring that theresolution which was adopted on11 December 2018 by Park 2000 tocommence business rescueproceedings, was invalid, andconsequently that such resolutionand the proceedings whichfollowed it, including theappointment of Stewart as thebusiness rescue practitioner,should be set aside.

THE DECISIONThe principal question which

arose for determination waswhether or not the businessrescue proceedings were defectivebecause they were launched at atime when liquidationproceedings had already been‘initiated’ against Park 2000, orwhether the resolution by meansof which the business rescueproceedings were launched wasnull and void because it was nottaken by the requisite majority.

One of the crucial questionswhich required determinationwas which of the business rescueand liquidation applicationspreceded the other? Section 129(1)of the Companies Act (no 71 of2008) provides that the voluntaryplacement of a company underbusiness rescue ‘begins’ when itsboard takes a resolution to sucheffect, if it has reasonable groundsto believe that the company isfinancially distressed and thereappears to be a reasonableprospect of rescuing it. But interms of section 129(2)(a) such aresolution may not be adopted ifliquidation proceedings have(already) been ‘initiated’.

The word ‘initiated’ in section

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129(2)(a) is intended to refer to apreceding act or conduct bywhich liquidation proceedingsare set in motion and is notintended to signify the moment intime when the proceedings aredeemed to have formally‘commenced’. The word ‘initiated’does not bear the same meaningas the word ‘commenced’ insections 348 and 352 of theprevious Act, and it was neverintended that it should have thesame meaning. When referring tothe ‘initiation’ of liquidationproceedings in section 129(2)(a)the legislature intended to refer tothe preceding causative act orconduct whereby the legal

process in relation to suchproceedings was set in motion.

The liquidation proceedingsagainst Park 2000 were ‘initiated’when the resolution to launchthem was taken, and not whenthe liquidation application wasfiled with the court. Thatoccurred in the morning of 11December 2018 and before thesubsequent resolution which wasadopted to place the companyunder business rescue. Theresolution to launch businessrescue proceedings must havebeen taken after the resolution tolaunch liquidation proceedings,and not before. Given that the

liquidation proceedings were‘initiated’ by the adoption of thenecessary resolution in thisregard, it followed that thebusiness rescue resolution wasadopted in breach of theprovisions of section 129(2)(a) ofthe Act. Consequently, Moutonwas entitled to an order settingthe resolution aside. It followedfrom this that the business rescuewould come to an end andStewart’s appointment asbusiness rescue practitioner hadto fall away.

Given non-compliance with theprovisions of section 129(2)(a), anorder setting aside the resolutionwill be just and equitable.

The word ‘initiated’ in s 129(2)(a) is therefore intended to refer to a preceding act orconduct by which liquidation proceedings are set in motion and is not intended tosignify the moment in time when the proceedings are deemed to have formally‘commenced’. In my view, H therefore, the word ‘initiated’ does not bear the samemeaning as the word ‘commenced’ in ss 348 and 352 of the previous Act, and it wasnever intended that it should have the same meaning.

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VAN VUUREN v ROETS

A JUDGMENT BY SUTHERLAND J(CARELSE J and MAIER-FRAWLEY AJ concurring)GAUTENG LOCAL DIVISION,JOHANNESBURG3 SEPTEMBER 2019

2019 (6) SA 506 (GJ)

There is no authority conferred onany court to make an orderreleasing the consumer in respect ofwhom the magistrate has made anorder in terms of section 87(1) of theNational Credit Act (no 34 of 2005).

THE FACTSIn 2015, Van Vuuren applied for

debt review . Roets, a registereddebt counsellor, accepted theapplication. In due course, Roetsdecided that Van Vuuren wasindeed overindebted. Roets thennotified the creditors and thecredit bureaux of the application.Such notice of the acceptance ofan application has the effect ofsuspending legal process inrespect of the debtor’sobligations. Van Vuuren’s matterwas sent to the magistrates’ courtand an order was granted by themagistrate, as contemplated insection 87(1)(b)(ii) of the NationalCredit Act (no 34 of 2005),rearranging his repaymentobligations. Van Vuurencomplied with the order.

In 2016, 18 months after theinitial application, Van Vuuren’sfinancial circumstances improvedso that he was able to pay hiscreditors on the original terms ofthe agreements and no longerneeded to rely on the debt reviewrelaxations of the order. VanVuuren asked Roets to take therelevant steps to release him fromdebt review. Roets refused on thegrounds that the circumstancesdid not entitle him to issue aclearance certificate. Moreover,Roets told him that themagistrates’ court had no powerto release him; hence, the onlyoption was to approach the HighCourt to do so.

A similar situation waspresented to the court by a secondapplicant, Nel. However, in thiscase, no order had yet been madeby a magistrate. Both contendedthat they were trapped in debtreview when they no longer needto facilitate their financialrehabilitation through thatprocess. They contended thatupon a proper interpretation ofthe Act that, the High Court hadjurisdiction to acknowledge they

no longer needed to be subjectedto the effects of debt review, iebarred from incurring furthercredit, and in consequence, theHigh Court should therefore orderthe termination of their status aspersons subject to debt review.

THE DECISIONThere is no authority conferred

on any court to make an orderreleasing the consumer in respectof whom the magistrate has madea section 87(1) order from theeffects of that order.

Where a section 87 order by amagistrate was made, theconsumer is bound to theprovisions of s 88(1)(c) and 88(2)until all the consumer’sobligations under arearrangement are discharged orall novated obligations in terms ofa consolidation agreement aredischarged.

Another provision regulates anexit: section 71, in which it isprovided that a consumer whosedebts have been re-arrangedmust be issued with a clearancecertificate by a debt counsellorwithin seven days after theconsumer has satisfied all theobligations under every creditagreement that was subject tothat debt re-arrangement orderor agreement, in accordance withthat order or agreement. Thesection requires that a debtcounsellor, under the stipulatedconditions, may issue a clearancecertificate. If the debt counsellorfails to give a clearance certificate,the consumer must lodge acomplaint with the Tribunal. TheTribunal does not to deal with arescission of the magistrate’sorder — the order is per seundisturbed.

If, on the facts alleged by VanVuuren, he can satisfy section71(1)(b), he can exit debt review. Ifthe facts do not meet theprescripts, he cannot. However,

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no court has jurisdiction to ordera release.

The critical point for a consumerin the position of Van Vuuren issatisfying section 71(1)(b)(iii), ie‘that all obligations under everycredit agreement included in there-arrangement order oragreement, other than thosecontemplated in subparagraph

(i), have been settled in full’.An exit from debt review where

a magistrate has made an orderin terms of section 87, is by aclearance certificate being issuedby the debt counsellor. Where nosection 87 order is made, the debtcounsellor’s proposal, togetherwith other informationevidencing the inappropriateness

of an order, is placed before themagistrate to facilitate a rejectionof the proposal.

A High Court is not able to makean order confirming that anapplicant is no longeroverindebted, where no validdeclaration of overindebtednessis before court.

Ostensibly, the critical point for a consumer in the position of Van Vuuren issatisfying s 71(1)(b)(iii), ie ‘that all obligations under every credit agreement includedin the re-arrangement order or agreement, other than those contemplated insubparagraph (i), have been settled in full’. According to his allegations, he is atpresent satisfying the original agreements’ obligations, but has not extinguished theindebtedness yet. If Van Vuuren cannot satisfy those requirements, he has, within thescheme of the statute and its policy choices, no right to exit. This outcome seems to bea policy choice by the legislature.Moreover, there is an additional problematic aspect of the text to A consider. Aspointed out by the Banking Association of South Africa, s 88(1) and s 71(1) are notsynchronised. A paradox results in terms of which the credit record is sanitised interms of s 71, but the consumer remains frozen out of the credit market in terms of s88(1). This anomaly is most probably the result of an oversight when amendmentswere effected in 2014 and the need to correlate the outcomes was overlooked. Plainlythe position could not have been intended and legislative repairs are needed.

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NATIONAL CREDIT REGULATOR vSTANDARD BANK OF SOUTH AFRICA LTD

A JUDGMENT BY KEIGHTLEY JGAUTENG LOCAL DIVISION,JOHANNESBURG27 JUNE 2019

2019 (5) SA 512 (GJ)

The correct interpretation ofsection 124 of the National CreditAct (no 34 of 2005) is that itexcludes the operation of common-law set-off in all credit agreementsthat are regulated by the Act.

THE FACTSThe Standard Bank of South

Africa Ltd applied set off againstamounts standing to the credit ofits customers in order to settleindebtedness of such customers.The indebtedness arose fromcredit agreements which weresubject to the National Credit Act(no 34 of 2005).

Section 90(2)(n) of the Actprovides that a provision in acredit agreement is unlawful if itpurports to authorise or permitthe credit provider to satisfy anobligation of the consumer bymaking a charge against an asset,account, or amount deposited byor for the benefit of the consumerand held by the credit provider ora third party, except by way of astanding debt arrangement, or tothe extent permitted by section124.

Section 124(1) provides that it islawful for a consumer to provide,a credit provider to request or acredit agreement to include anauthorisation to the creditprovider to make a charge orseries of charges contemplated insection 90(2)(n), if suchauthorisation meets all thefollowing conditions: (a) the charge or series ofcharges may be made onlyagainst an asset, account, oramount that has been — (i) deposited by or for thebenefit of the consumer and heldby that credit provider or thatthird party; and (ii) specifically named by theconsumer in the authorisation; (b) the charge or series ofcharges may be made only tosatisfy — (i) a single obligation underthe credit agreement; or (ii) a series of recurringobligations under the creditagreement, specifically set out inthe authorisation; (c) the charge or series ofcharges may be made only for an

amount that is — (i) calculated by reference tothe obligation it is intended tosatisfy under the creditagreement, and (ii) specifically set out in theauthorisation; (d) the charge or series ofcharges may be made only on orafter a specified date, or series ofspecified dates — (i) corresponding to the dateon which an obligation arises, orthe dates on which a series ofrecurring obligations arise, underthe credit agreement; and (ii) specifically set out in theauthorisation; and (e) any authorisation not givenin writing, must be recordedelectromagnetically andsubsequently reduced to writing.

Section 124(2) provides thatbefore making a single charge, orthe initial charge of a series ofcharges, to be made under aparticular authorisation, thecredit provider must give theconsumer notice in the prescribedmanner and form, setting out theparticulars as required by thissubsection, of the charge orcharges to be made under thatauthorisation.

The National Credit Regulatorbrought an application for anorder declaring that in light ofsections 90(2)(n) and 124 of theNational Credit Act, the commonlaw right to set-off was notapplicable in respect of creditagreements which were subjectto the National Credit Act.

The bank opposed theapplication on the grounds thaton a plain reading of section90(2)(n), it is only expressprovisions of a credit agreementthat will be unlawful if they donot accord with sectio n 124. Asthe common-law principle of set-off did not have to be expressed ina credit agreement, it did not fallwithin the ambit of this section atall.

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THE DECISION The bank’s position seemed to

be that it is unlawful for a creditprovider to actually tell aconsumer in the credit agreementthat it will be relying oncommon-law set-off by includinga provision to this effect in thecredit agreement. However, it isperfectly lawful for the creditprovider to keep the consumer inthe dark by making no referenceto set-off in the agreement at all,and then to rely on common-lawset-off nonetheless.

But this position wasfundamentally irrational, andcontrary to section 3 of the Actthat provides, as one of thegeneral purposes of the Act, thepromotion of a transparent creditmarket.

The real starting point of theinquiry was section 124, and notsection 90(2)(n). It is section 124that establishes what form of set-off is lawful in respect of creditagreements regulated by the Act.It is not limited to set-offprovisions contained in a creditagreement only. Instead, section124 covers a broader fieldincorporating different possible

lawful ‘repayment practices’. Thesystem of set-off establishedunder section 124 is plainlydesigned to represent a completebreak from the past applicationof the common-law principle ofset-off, and its overt purpose is tosafeguard the rights of consumersin the set-off process. Section 124has at its heart the requirementthat the consumer who owes acredit provider must have a sayin, and must authorise, whetherand how set-off is to be applied inrespect of credit balances in theiraccounts. It gives the consumer asay in how their debts are to bemet, rather than leaving it to thesole discretion of the creditprovider to deduct money fromtheir accounts.

If the Bank’s interpretation wasaccepted, the effect was to renders 124 ineffective. This was theinescapable effect of readingsection 124 as retaining common-law set-off alongside set-off underthe Act. The two mechanisms areso divergent that there is verylittle overlap between them.Given this divergence, therewould seem to be absolutely noincentive at all for credit

providers to elect to regulate set-off under section 124 rather thanresorting to their common-lawrights if these were still available.

The purpose of section 124 wasprecisely to effect that break fromthe common-law past that wasnecessary in order to achieve theunderlying objects of the Act.When section 124 provides that‘(i)t is lawful C for . . . a charge orseries of charges contemplated insection 90(2)(n)’ to be made on theconditions set out thereunder, itmeans that these are the onlyconditions under which set-offmay lawfully be applied inrespect of credit agreementsunder the Act. While it does notexpressly oust the continuedapplication of common-law set-off in parallel with section 124, itsmeaning and effect are to do so.These provisions were plainlyintended to alter, and to oust, thecommon-law position as regardscredit agreements regulated bythe Act.

The correct interpretation ofsection 124 is that it excludes theoperation of common-law set-offin all credit agreements that areregulated by the Act.

Credit Transactions

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LIBERTY GROUP LTD v MALL SPACEMANAGEMENT CC

A JUDGMENT BY ZONDI JA(LEACH JA, TSHIQI JA, SWAIN JAand MOCUMIE JA concurring)SUPREME COURT OF APPEAL1 OCTOBER 2019

2020 (1) SA 30 (SCA)

A principal is entitled to revoke amandate of agency. It would beagainst public policy to coerce aprincipal into retaining anindividual as his agent, when he nolonger wishes to retain him as such.

THE FACTSMall Space Management CC

acted as an agent for LibertyGroup Ltd, facilitating theconclusion of contracts withexhibitors for rental of mall spaceor exhibition courts at fourshopping centres, for which itwas paid commission. Thecontract between the parties wasone of mandate in terms of whichMall Space facilitated theconclusion of the agreements forthe hire of the exhibition courts atthe request or on the instructionof Liberty Group.

Mall Space failed to accountproperly to Liberty Group for therental income it received from thetenants and fell into arrears withthe payment of such income toLiberty Group. As a result, itbecame indebted to LibertyGroup and its agent in theamounts of R566 274,76 and R3634 491, respectively, for which itsigned acknowledgements ofdebt.

On 29 August 2017 JHI Retail, onbehalf of Liberty Group, wrote aletter to Mall Space informing itthat its services to lease rentalcourt space to tenants in therelevant shopping centres wouldno longer be required with effectfrom 4 September 2017. Libertythen conferred on the fifthappellant, Excellerate, themandate which Mall Space haduntil then performed.

Mall Space contended that sincethe mandate agreement did notprovide for a notice to be given forits termination, it was subject toan implied or tacit term that itwas terminable on reasonablenotice. It contended this wouldrequire at least six months’ notice.

Mall Space sought an order (a)directing Liberty to allow itaccess to rental court space at therelevant shopping centres inorder to carry out its mandate; (b)interdicting the Liberty from

terminating the mandateagreement; and (c) restraining thefifth appellant from competingunlawfully with it by wrongfullyinterfering with its rights in themarketing, planning andcoordinating of promotionalevents and exhibitions at theshopping centres concerned.

THE DECISION Under the common law Liberty

Group, as principals, were free toterminate their mandate.

Liberty Group terminated theirmandate for a good reason. Therewas no unlawful infringement ofMall Space’s rights. The evidenceestablished that Mall Space failedproperly to account to LibertyGroup for the rental income itreceived from the tenants. MallSpace was substantially inarrears with its payment of themoneys due to them as itsprincipals. In fact, it signedacknowledgements of debt.

Mall Space had to show that thecontractual right it obtained fromLiberty Group protected aninterest that was also enforceableagainst Excellerate, with which ithad no contractual relationship;that Excellerate unlawfullyinfringed or threatened to infringethat right; and that there was noadequate alternative remedy.Mall Space failed to establish aclear right. First, the mandate itobtained from Liberty Group didnot give it an exclusive right tooperate at the relevant shoppingmalls and it claimed noentitlement to exclusivity.Secondly, Excellerate was dulyappointed by Liberty Group toassume the functions andresponsibilities which werehitherto performed by Mall Spaceafter termination of its mandate.There was no ground upon whichthe alleged interference with MallSpace’s rights could be said to beunlawful. An interdict cannot be

Contract

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granted where there is no actualor threatened unlawfulness in theinfringement of a right.

In the present case there was noterm of a contract alleged to becontrary to good faith, fairnessand equity. The relevant rule ofthe common law was that aprincipal is entitled to revoke amandate of agency. It would beagainst public policy to coerce aprincipal into retaining anindividual as his agent, when heno longer wishes to retain him assuch. If the termination of the

mandate has prejudiced the agenthis remedy lies in a claim fordamages and not in an ordercompelling the principal to retainhim as his agent in the future.

In this case, Liberty Group, asprincipals, terminated theirmandate as they were not happywith the quality of services theyreceived from Mall Space. Therewas no obligation on them tohave given Mall Space sixmonths’ notice before doing so.They had a valid reason to cancelthe mandate. Liberty Group, as

principals, were entitled toterminate their mandate when itbecame clear to them that MallSpace could not deliver on theirmandate. Mall Space failed toaccount properly to them andthey could not be expected towait for the worst to happenbefore taking action to protecttheir own financial interests,which had been placed injeopardy by Mall Space’smismanagement of the contract.

The order sought by Mall Spacewas refused.

In this case, Liberty Group, as principals, terminated their mandate as theywere not happy with the quality of services they received from Mall Space. Therewas no obligation on them to have given Mall Space six months’ notice beforedoing so. They had a valid reason to cancel the mandate. Liberty Group, asprincipals, were entitled to terminate their mandate when it became clear tothem that Mall Space could not deliver on their mandate. Mall Space failed toaccount properly to them and they could not be expected to wait for the worst tohappen before taking action to protect their own financial interests, which hadbeen placed in jeopardy by Mall Space’s mismanagement of the contract.

Contract

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LUNDY v BECK

A JUDGMENT BY SNYCKERS AJGAUTENG LOCAL DIVISION,JOHANNESBURG22 MAY 2019

2019 (5) SA 503 (GJ)

A sequestration application shouldnot be brought for an ulteriorpurpose.

THE FACTSLundy purchased a house under

a sale in execution. The house hadbelonged to Beck. It was sold inexecution pursuant to a judgmentobtained by a bank against Beck.

Lundy and Beck concluded leaseand sale agreements in respect ofthe property, with Lundy aslessor and seller, and Beck or thetrust as tenant and purchaser.Beck remained in occupation ofthe property. Disputes arosebetween Lundy and Beck relatingto their agreements about theproperty. Beck remained on theproperty but Lundy received novalue in relation to the propertyhe had purchased. Lundyinstituted proceedings for ‘accessto the property’. Theseproceedings resulted injudgments in Lundy’s favour,including costs awards which ledto a taxed bill in his favour.

Lundy then brought anapplication for a provisionalorder for the compulsorysequestration of the estate of Beck.A final order of sequestration wasthen sought. Lundy founded hisapplication on section 8(b) of theInsolvency Act (no 24 of 1936).The alleged act of insolvencyinvoked was based on the sheriff’sreturn of service. The writ(warrant of execution) was inrespect of the sum of R78 123. Thereturn of service stated that theapproximate value of thedisposable property was R20 000and Beck declined to disclose anyfurther disposable property whenrequested to do so.

The amount of R78 123 was laterpaid to Lundy’s attorneys.

THE DECISIONIt is commonly accepted that if a

respondent pays the full debt onwhich a writ was issued thatyielded the nulla bona returnwhich is invoked as a s 8(b) act ofinsolvency, then the act ofinsolvency can no longer berelied on as a basis forsequestration. However, this isnot necessarily so, given that anact of insolvency is a proxy foractual insolvency, and itssubsequent ‘cure’ does notnecessarily undo its effects for thepurposes of what it is deemed toprove.

The question then arose as towhat comprised the debtembodied in the writ whichyielded the nulla bona return inthe present case. The act ofinsolvency had to be determinedwith reference to the debt statedto be due as and when due on theday execution was sought, andnot with reference to debts thatcould accrue subsequent to thatday.

However, the process ofsequestration was employed foran ulterior purpose, to use as atool to procure the vacation of theproperty by Beck, and then tosecure a settlement of holding-over charges. It was not broughtto secure payment of the costs-award debt by the process ofsequestration. This brought thesequestration application withinthe category of cases of ulteriorpurpose such as envisaged inWackrill v Sandton InternationalRemovals (Pty) Ltd 1984 (1) SA 282(W).

The application was dismissed.

Insolvency

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TJEKA TRAINING MATTERS (PTY) LTD vKPPM CONSTRUCTION (PTY) LTD

A JUDGMENT BY SUTHERLAND JGAUTENG LOCAL DIVISION,JOHANNESBURG21 JUNE 2019

2019 (6) SA 185 (GJ)

Liquidation proceedingscontemplated in section 129(2) ofthe Companies Act (no 71 of 2008)must be served on the company, notmerely issued, to meet therequirements of the section.

THE FACTSOn 18 April 2019 Tjeka Training

Matters (Pty) Ltd obtained theissue of a liquidation applicationin the High Court. On 15 May2019 KPPM Construction (Pty)Ltd filed a resolution ascontemplated in section 129(2) ofthe Companies Act (no 71 of2008). On 28 May 2019 theliquidation application wasserved on Tjeka..

Section 129(1) provides thatsubject to subsection (2)(a), theboard of a company may resolvethat the company voluntarilybegin business rescueproceedings and place thecompany under supervision, ifthe board has reasonable groundsto believe that — (a) the company is financiallydistressed; and (b) there appears to be areasonable prospect of rescuingthe company.

Section 129(2) provides that aresolution contemplated insubsection (1) — (a) may not be adopted ifliquidation proceedings have beeninitiated by or against thecompany; and (b) has no force or effect until ithas been filed.

The parties were in dispute as towhether the resolution preventedthe liquidation application which,though issued before theresolution was filed, was not yetserved.

THE DECISIONThe question was: did the mere

issue of the liquidationapplication satisfy the meaning tobe attributed to the phrase‘proceedings have been initiated .. . against the company’?

The board of KPPM was bonafide ignorant of the issue of theliquidation application by Tjeka.It may reasonably be supposedthat a prudent self-examination ofthe straits in which the companyfound itself included anappreciation that the risk offurther creditors bringingliquidation applications waspossible. However, the verydecision by a company todeliberate whether to place itselfinto business rescue is preciselythat kind of risk; thus, no fairrebuke was conceivable.

It was contended that althoughan action is commenced when thesummons is issued the defendantis not involved in litigation untilservice has been effected, becauseit is only at that stage that aformal claim is made upon him.This contention could be acceptedbecause the ‘involvement’ inlitigation is by means of a ‘formalclaim’.

The liquidation proceedingscontemplated in section 129(2) ofthe Act must be served on thecompany, not merely issued, tomeet the requirements of thesection.

The resolution of 15 May 2019trumped the liquidationproceedings served on 28 May2019.

Insolvency

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MV MADIBA 1VAN NIEKERK v MV MADIBA 1

A JUDGMENT BY LE GRANGE JWESTERN CAPE DIVISION, CAPETOWN6 AUGUST 2019

2019 (6) SA 551 (WCC)

There must be a meaningfulmaritime connection between themaritime claim, the ship and theowner of the ship to impart to theclaim a maritime character whichwould render it appropriate toadjudicate the claim in accordancewith maritime law.

THE FACTSIn August 2016, a loan

agreement was entered intobetween Van Niekerk as lender,the owner of the Madiba 1, IscorpInvestments (Pty) Ltd andbareboat charterer Meltt (Pty)Ltd as borrower. Van Niekerklent and advanced to thebareboat charterer the capitalloan amount of R1 900 000 to payfor the design, construction andequipping of the vessel so as to beput into service for thetransportation of passengers.

Van Niekerk brought anadmiralty action in rem againstthe vessel for repayment of theloan in the amount of R1 900 000plus interest from the maturitydate, alternatively such rate asmay be deemed appropriate interms of section 5(2)(f) of theAdmiralty JurisdictionRegulation Act (no 105 of 1983).

The defendant took exception inaccordance with rule 9(5)(b) of theAdmiralty Rules to theparticulars of claim in theirexisting form, on two grounds.The first was that the claimadvanced in the particulars ofclaim was not a maritime claimas defined in section 1(1) of theAct.

THE DECISIONThe question which had to be

considered was whether theclaim was such that itsrelationship with ‘marine ormaritime’ matters wassufficiently close that it is

necessary to be heard as amaritime claim. There must be ameaningful maritime connectionbetween the maritime claim, theship and the owner of the ship toimpart to the claim a maritimecharacter which would render itappropriate to adjudicate theclaim in accordance withmaritime law.

In assessing the underlyingcause of the action in the presentcase, the loan agreement clearlyachieved the purpose ofestablishing a link between theship, the owner of the ship andthe maritime claims, namely thedesign, construction, repair orequipment of the ship and theearnings of the ship. The loancould therefore be regarded as amaritime claim, provided that thenecessary link was established.To view it differently wouldessentially mean that a matterwith meaningful maritimeconnection would be dealt withwithin the usual jurisdiction ofthe High Court. This wouldundermine the special rules andprocedures relating to theexercise of admiralty jurisdictionjustified by, and intended toaccommodate, the particularneeds associated with maritimematters.

The contention that the loanagreement could only be regardedas a maritime claim if a mortgagewas registered over thedefendant, was unsound and notsupported by case law.

The exception was dismissed.

Shipping

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SOUTH AFRICAN RESERVE BANK v BANK OFBARODA (SOUTH AFRICA)

A JUDGMENT BY LOUW J(LANGA AJ concurring)GAUTENG LOCAL DIVISION,PRETORIA2 APRIL 2019

2019 (6) SA 174 (GP)

A bank is only obliged to report tothe South African Reserve Bankmultiple transactions of amountsless than R24 999,99 if it appearsthat such a transaction is linked toothers which exceed that amount. Ifa transaction has been flagged bythe bank’s automated system assuspicious or unusual but is foundby the bank’s employees not to besuch, the transaction need not bedocumented as required byregulation 27 of the regulationspromulgated under the FinancialIntelligence Centre Act (no 38 of2001).

THE FACTSThe South African Reserve Bank

(the SARB) conducted aninspection at the Bank of Baroda(the bank) to determinecompliance by the bank with theprovisions of the FinancialIntelligence Centre Act (no 38 of2001) and the Money Launderingand Terrorist Financing ControlRegulations promulgated interms of Act. The SARB advisedthe Bank that it had madefourteen findings of non-compliance.

In terms of findings 3 and 4, theSARB found that the bank hadfailed to comply with therequirement of the Act, that itreport all cash transactionsexceeding the prescribedthreshold of R24 999,99 withintwo business days of thetransaction occurring. It foundthat the bank had eitherincorrectly reported or omitted toreport seven cash transactions inexcess of the threshold amount(finding 3), and had failed to filecash-threshold reports withinthe prescribed time (finding 4). Inregard to finding 3, the bank’salleged non-compliance consistedof various deposits by theConsulate General of India. TheConsulate made more than onedeposit on certain days, one ofwhich exceeded R24 999.99 theothers of which did not. Only thelarger deposit was reported.

In terms of findings 6, 7 and 8,the SARB found that the bank hadfailed to formulate and implementinternal rules, processes andworking methods, as required bythe Act, to enable it to detect andreport suspicious and unusualtransactions. It firstly found thatin cases where the bank’sautomated transaction-monitoring system flaggedpossibly suspicious and unusualtransactions, the bank’s processof investigating such alerts was

inadequate in instances when itdecided against reporting atransaction, as it failed todocument its reasons for sodeciding (finding 6). Secondly, theSARB found that the bank’sinternal rules were importedfrom its data centre in India andwere not customised for theSouth African environment(finding 7). Thirdly, it was foundthat the bank had not appliedsufficient scrutiny or care whenprocessing transactions involvingloans and fund transfers amongentities within the same groupand had failed to review itssystem alerts in respect ofintergroup transactions todetermine whether such alertswere reportable under section 29of the Act (finding 8).

An Appeal Board upheld thebank’s appeal in respect offindings 6, 7 and 8 and set anadministrative penalty of R10maside. The appeal in respect offindings 3 and 4 was partlyupheld and the administrativepenalty of R1m which wasimposed was set aside andsubstituted with anadministrative penalty of R400000.

SARB appealed.

THE DECISIONSARB’S contention was that the

aggregate of the amountsdeposited should have beenreported and that the failure toreport all of the amountsconstituted non-compliance withthe Act. However, on a plainreading of the applicableprovisions in particularregulation 22B, it was onlyrequired of an accountableinstitution that it report multipletransactions of amounts less thanR24 999,99 ‘if it appears’ to theaccountable institution that thetransactions are linked and to beconsidered fractions of one

Banking

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transaction. There was noevidence that the deposits werelinked. It followed that the AppealBoard correctly held that theSARB erred when it took the sixtransactions into account when itimposed the R1m penalty.

As far as findings 6, 7 and 8 wereconcerned, regulation 27(a)provides that the internal rules ofan accountable institutionconcerning reporting ofsuspicious and unusualtransactions must provide for thenecessary processes and workingmethods which will causesuspicious and unusualtransactions to be reportedwithout undue delay.

SARB argued that regulation27(a) requires that an

accountable institution’s internalrules must provide for the‘necessary’ processes andworking methods and that theregulation should, therefore, beinterpreted to necessarily includean obligation to documentreasons for deciding not to reporta transaction which was flaggedas suspicious or unusual by thebank’s automated system. Thisargument requires a purposiveinterpretation of the regulation.But the Act and the regulationsmust be restrictively interpreted.But even if purposivelyinterpreted, the regulation couldnot be interpreted to require of anaccountable institution todocument its reasons for decidingagainst reporting transactions

that had been flagged as possiblysuspicious or unusual. What itrequires, is that the internal rulesmust provide for the necessaryprocesses and working methodswhich will cause transactionswhich have been found to besuspicious and unusual to bereported without undue delay.That does not permit of aninterpretation that, if atransaction has been flagged bythe bank’s automated system assuspicious or unusual but isfound by the bank’s employeesnot to be such, the bank has anobligation to document thereasons for such finding.

The appeal was dismissed.

Banking

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