ARINSA CaseBook 2020

Persuant to Section 4 of POCA, the respondent or any other person is prohi**d from disposing or otherwise with whole or any other part of the property namely Parcel V17532 at Eden Island.

Application to set aside interlocutory order by which Applicants assets had been forfeited and a receiver appointed to receive the property - order made on incorrect information provided to court  - applicant's evidence countering belief evidence of respondents not relevant to showing legitimate source of funds used to purchase forfeited property.

Interlocutory order.

Benefit amount is not net profit. It is all the proceeds of unlawful activities, that is, the entire contract of R52 million.

The ultimate amount of confiscation order that is ordered is an exercise of a court’s discretion taking into consideration various factors. If a lower amount is arrived at, this is so because of the discretion and not because the benefit is not R52 million.

The distinction between whether or not a defendant benefits, by how much, and the final amount to be ordered are three distinct questions and steps in the confiscation enquiry. To miss one step will lead to an erroneous position such as what happened. One starts with the overall benefit and then possibly reduces it to arrive at an appropriate order. The “appropriate amount” may not be the full amount of the benefit.

Discretion of the court in making an appropriate confiscation order

A number of factors may be taken into consideration. The well known Shaik judgements lists some important factors such as the type of crime involved.

Para 7 “In the exercise of its discretion to make a confiscation order a court must have regard to the main objects of the legislation, which is to strip criminals of the proceeds of their criminal conduct... to deprive the convicted person of ill-gotten gains…”

Para 21 “When considering the amount to be confiscated a court must have regard to the extent to which the property to be confiscated derived directly from the criminal activities.”

Para 23 “In the circumstances it would be unjust to grant a confiscation order for the full amount of the contract. As a matter of fact the projects were completed by the respondent and ownership of the building now vests with the DPW KZN. It cannot be denied that the DPW KZN is utilising and enjoying the benefits of the buildings completed by the respondent. It would seem to me that the cost of the construction component of the proceeds received is, in the circumstances of this case, a materially relevant factor to the exercise of the discretion in respect of a confiscation order.”

The court took into consideration costs and the fact that the contract had been delivered on.

5.     Nature of confiscation proceedings: it was finally clarified that the nature of confiscation proceedings whilst they are indeed “civil in nature” (s13 of POCA), they are not in the form of a motion court application. They are inquisitorial in nature. This impacts how a court arrives at a decision. It descends into the arena. The SCA criticised the High Court for not acting as such:

“[28]: What the section provides is that the presiding officer must have regard to all the evidence and facts placed before him or her before making an appropriate order. If the presiding officer is not satisfied with the evidence placed before him (as the regional magistrate was), to make a confiscation order, he or she is entitled to call such further evidence as may be necessary to assist him or her.”

Overall this was a very successful case and settles a number of key points in conviction based forfeiture which have been long awaited.

Introduction

The NDPP was successful in a case that was appealed all the way to the Constitutional Court. A good summary of the case is set out in the first few pages of the judgment.

In brief, the late Mrs Botha was the SASSA Head of Department in the Northern Cape Province, when she accepted a gratification or corrupt benefit from Trifecta after she awarded the latter with building rental tenders worth millions.

Her gratification was in the form of renovations to her Kimberly house to the tune of some R1.1 m and shares to her relatives. The High Court in Kimberly granted the NDPP a preservation order against the value of the renovations and shares themselves, as well as a later forfeiture order, but erred at the forfeiture stage when it forfeited the entire house. (The submission at SCA that the NDPP should have counter appealed against the latter order is well made.).

Botha’s grounds of opposition throughout were that she had repaid R411 000 of the R1.1 m to Trifecta by virtue of a renovation ‘loan’ agreement and that this amount ought to be set off or deducted from the R1.1 m, failing which it would be unjust or disproportionate to forfeit the full amount.

The NDPP’s stance was that the so-called loan was a sham and an afterthought after she realised that the Parliamentary Committee and the police were investigating her corrupt relationship with Trifecta. Further, it was argued that a proportionality analysis does not and should not be applied to proceeds of unlawful activities as is applied in instrumentality of offences cases (notwithstanding the judgment in NDPP v Salie). In other words, the full amount of the gratification and the shares were to be forfeited.

The SCA agreed with Botha’s argument in relation to the set off because forfeiture of the full amount of the renovations would be disproportionate, it reasoned. It did not find that the loan was a scam. It did not however agree with the High Court that the entire house should be forfeited – it was the value of the renovations that were targeted by the NDPP. The shares were forfeited.

Constitutional Court (CC)

The issues raised on appeal by the NDPP were:

1.          That property that constitutes unlawful activities does not form part of property that enjoys constitutional protection in terms of s25 of the Constitution, namely the right not to be arbitrarily deprived of property; and

2.          As a result, the proportionality enquiry does not apply since it more properly applies to the determination of arbitrariness of deprivation that is linked to the constitutional right.

All 8 judges of the CC agreed that the full amount of the renovations (and the shares having already been forfeited by the SCA) should be forfeited to the State, that is, without deducting the alleged repayment for a loan as the SCA had done.

The judges differed in how they arrived at this conclusion. The issue turned on whether or not the property was protected by s25 of the Constitution.

Majority judgement

Five judges held that proceeds of unlawful activities do not form part of property that is protected under the right not to be arbitrarily deprived of property. No person can ever hold any lawful right in such property in order for that right to be protected. Any concerns in respect of arbitrariness is regulated by the requirements of POCA.

Property that constitutes an instrumentality of offences is subject to s25 of the Constitution since the property may not be proceeds of unlawful activities, that is, the owner has a lawful right to the property.

Issues of proportionality apply to constitutional considerations: it is a means to determine if forfeiture would be arbitrary or not. Because s25 does not apply to proceeds, such an enquiry is not relevant to proceeds cases.

In addition, the court found that the loan was a sham and thus any set off was not proper.

Minority judgement

Three of the CC Judges found that all property, whether or not it is proceeds, fall within the right not to be arbitrarily deprived of property. The minority reasoned that the constitutional right does not confer a right to property but rather a protection against arbitrary state interference. The question is not about a right to unlawful property but a right against the state not to act arbitrarily.

As a result, proportionality considerations apply and prevent the State from unjustifiably infringing upon property rights. In this case, because the property was proceeds, and corruption was a serious scourge in South Africa, it would not be disproportionate to forfeit the entire amount. Hence why the Court arrived at the same conclusion - but via a different avenue.

Conclusion

This judgment is an excellent one. Our jurisprudence has been developed significantly. It settles the law on the issue of proportionality and overrules the position in the Salie matter.  It is also welcomed in relation to its strong pronouncement against corruption.

The forfeited amount is to be recovered from the deceased estate of Botha.

As a whole pensions funds are governed by separate legislation, the Pension Funds Act. It  attempts to ring-fence pension money from any attachment in order to prevent the person who is the beneficiary thereof and his/her family from becoming a liability to the State when he/she is old and frail.

What happens to these funds in the forfeiture context?

The answer depends on which application is being considered: restraint or confiscation. It also depends on whether or not the funds have been paid out to a defendant / respondent. Furthermore, it requires consideration of the Pension Funds Act 24 of 1956 (PFA).

Funds paid out to defendant

If the funds have been paid out to a defendant, that is, they are in the form of money that the defendant for example holds in a bank account, then like with any other money in his/her account these funds can be restrained as realisable property, or used to pay a confiscation order.

The issue however needs indepth understanding since the relationship between POCA and the Pension Funds Act require consideration. In particular, are pension funds ringfenced from any attachment through remedies catered for in POCA even if they were paid out to a defendant? Is there some kind of exception that protects pension funds?

In the SCA judgement of Sentinel Retirement Fund and Another v Masoanganye and Two Others (1003/2017) [2018] ZASCA 126 (27 September 2018), the court held the following at paragraph [14] of the judgment:

“It follows that a ‘benefit’, as defined, belongs to the fund for so long as it is in the hands of the fund, and not the member. It therefore cannot be subject to any restraint under POCA. The fact that a payment becomes due and has accrued to the member does not change this.”

The protection under the PFA terminates the minute the member stops being a member of the Fund and becomes entitled to receive the pay out of the benefit.

[16]“The high court held that once a benefit is paid to the member, and he ceases being a member, the protection afforded to the benefit by s 37A(1) falls away and the pay-out then becomes part of the general estate of the former member.”

The Sentinel SCA judgment clarifies that the Pensions Funds Act does not prevent the restraint of pension money of a defendant after it has been paid out by a fund.  It only held that while the pension money is still “in the hands” of the pension fund it is not susceptible to restraint nor can it be used to pay a confiscation order.

Payment to curator?

A separate question that arises is whether or not a pension fund must make payment to a defendant or the appointed curator in a restraint case. This was considered in the aforesaid Senetinel judgement. The court confirmed that [17] “The curator steps into the shoes of the defendant …  A payment to the curator is, therefore, in truth and effect a payment to the defendant himself.  As a result, payment can be made by the pension fund to the curator directly.

The ratio in paragraph [18] of the Sentinel case was also held in the case of Van Heerden & Another v National Director of Public Prosecutions & Another 916910/11) [2015] ZAWCHC 96 (22 June 2015)

Pension funds to be paid out to a defendant

If the pension funds are still to be paid out to the defendant (or curator) in a restraint case, this future payment may be restrained on the basis of section 26(2)(c) of POCA. This section holds that a restraint order may be made in respect of all property that is transferred to the defendant (or respondent) after the making of a restraint order.

Position before payout

The funds in effect belong to the fund. At most, what the defendant holds is an interest in a future payment or a claim or a right to receive payment. POCA makes provision for the restraint of an interest (see definition of property in s1 of POCA).  It is this interest that can be restrained.

At confiscation stage, this interest may be included as realisable property. The question however that arises is whether or not the realisation court can order the realisation of that interest into actual funds. It is this latter aspect that has still to be considered by our courts. Currently, it appears not to be possible when read with the Pension Funds Act. The question that arises therefore is whether or not there is any purpose of restraining such an interest. This should be decided on a case by case basis.

The matter may be one of pragmatism or timing: the relevant fund may have taken a decision to pay out the funds or be in the process itself of paying out the funds to a defendant in terms of the Pension Funds Act. It is therefore not a futile exercise to restrain the interest as well as the future property, namely the funds in terms of section 26(2)(c). Once this process of payment has been completed then the confiscation order can be satisfied.  Engagement with the relevant fund may be necessary.

National Director of Public Prosecution (Ex parte Application) 2018 (2) SACR 176 (SCA)

The National Director of Public Prosecutions (NDPP) applied ex parte to the High Court in terms of s 38(1) of the Prevention of Organised Crime Act 121 of 1998 (POCA) for a preservation order in respect of a motor vehicle which was found by police officers to contain a concealed compartment in which they found 50 kilograms of heroin.

The court a quo dismissed the application, finding that the NDPP, to proceed with such an application, had to show a real possibility that the vehicle would be lost to them if the driver or owner thereof came to know about the application for the order. Furthermore, that bringing the preservation application in terms of s 38, for possible forfeiture under s 48 of POCA (read with s 50), without giving notice, amounted to an abuse of the provision. In addition, such an application had to comply with the provisions of the practice directives of the Mpumalanga High Court and, in particular, paras 2.5.5.2 and 2.5.5.3.

The Supreme Court of Appeal, on appeal by the appellant, held as follows:

-             That s 38 did not require the NDPP to show a real possibility that the property in question would be lost if the owner came to know about the application for a preservation order, and it was entitled to launch an application in terms of s 38 by way of an ex parte application. The provisions of Chapter 6 of POCA were not conviction-based, but were civil remedies which the NDPP could invoke even if a conviction was lacking. It was not an abuse of s 38 if the NDPP decided to approach the court in terms of the section by way of an ex parte application.

Paragraphs 20 – 21 and 24 of the SCA judgment

-             Further, that it was not competent for the Court to interfere with the decision of the State to follow a particular forfeiture process. The NDPP had legitimately chosen to proceed in terms of Chapter 6 of POCA, and such a decision had to be respected by the court.

Paragraph 28 of the SCA judgment

-             Further, that the provisions of paras 2.5.5.2 and 2.5.5.3 of the practice directives of the Mpumalanga High Court were inconsistent with the provisions of s 38 of POCA insofar as it suggested that an ex parte application would not be heard, except where notice of the application was not required by, and would not adversely affect, any person, and that any other ex parte application would only be enrolled and heard in exceptional circumstances. The practice directive was subordinate to any relevant statute, the common law and the Uniform Rules, and could not be applied to restrict or undermine such. The practice directives essentially dealt with the daily functioning of the courts and their purpose was to supplement the Rules of Court.

Paragraphs 30 – 31 of the SCA judgment

The appeal was allowed, and the appellant was given leave to re-enrol the application in its original form as an ex parte application.