Minister of Rural Development and Land Reform v Land Agriculture Bank of South Africa and Others (90/2020) [2021] ZAECGHC 61 (6 July 2021)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO. CA 90/2020

Date heard: 24 May 2021

Date delivered: 06 July 2021

In the matter between:

THE MINISTER OF RURAL

DEVELOPMENT AND LAND REFORM First Applicant

and

LAND AND AGRICULTURE BANK

OF SOUTH AFRICA

First Respondent (Appellant in cross-appeal)

MOOIVILLE (PTY) LTD

Second Respondent

WILLEM JANSEN VAN VUUREN Third Respondent

CPAD FARM HOLDINGS Fourth Respondent

MONGESI ALFRED MDE

Fifth Respondent

THE NATIONAL DIRECTOR

OF PUBLIC PROSECUTIONS

Sixth Respondent

MIKE TIMKOE TRUSTEES CC Seventh Respondent

DONALD GEORGE DUKE JACKSON Eighth Respondent

THE MASTER OF THE HIGH COURT

Ninth Respondent

REGISTRAR OF DEEDS, CAPE TOWN Tenth Respondent

JUDGMENT

RUGUNANAN, J

[1] Before this Court are an appeal and a cross-appeal, the lead parties being the appellant (“the Minister”) in the appeal, and in the cross-appeal, the Land and Agricultural Bank of South Africa (“the Bank”). The Bank is cited as first respondent with nine others. Where necessary it will, for the avoidance of confusion, be convenient to refer to the other respondents by name.

[2] The appeal and cross-appeal arise from an order varied by Goosen J on 11 February 2020 at the instance of the Bank, subsequent to the order having been made by Majiki J on 13 January 2015. The order by Majiki J (hereinafter “the original order”) issued under section 53(1)(a) of the Prevention of Organised Crime Act[1] (“the Act”) and was in respect of the civil forfeiture to the State of fixed property known as Honeyville Farm (“the property”).

[3] On 5 March 2020, Goosen J granted the Minister and the Bank respectively leave to appeal and leave to cross-appeal against certain portions of his judgment and order[2] in the variation proceedings.

HISTORY

[4] The factual background, although convoluted, is essentially common cause between the parties. On 13 April 2007, CPAD Farm Holdings (Pty) Ltd (“CPAD”), as registered owner of the property caused a mortgage bond to be registered over the property in favour of the Bank as security for monies advanced to CPAD in accordance with a credit facility. In 2008 the Bank obtained a judgment in its favour inclusive of interest on the capital amounts of R559 401, 90 and R5 216 367, 03 together with an order declaring the property executable. Pursuant to the judgment, a warrant of execution was issued and the property attached by the sheriff.

[5] Subsequent to the attachment, and during October 2014, the Director of Public Prosecutions (“the DPP”) acting in accordance with the Act, applied for and obtained a preservation order in respect of the property. Mike Timkoe Trustees CC (“Timkoe”) were appointed curator bonis to CPAD, the erstwhile owner of the property, and took control thereof. On receipt of the preservation order the Bank instructed its attorneys to protect its interests. The State Attorney, acting for the DPP, informed the attorney acting for the Bank that it would be unnecessary for the Bank to enter an appearance in the pending forfeiture application, and that the order declaring the property forfeit to the State would exclude the Bank’s secured interest in the property that arose from the mortgage bond.[3] On 13 January 2015 the DPP obtained a forfeiture order without any reference to the interest of the Bank.

The order by Majiki J

[6] The order included the following terms:

“1. An Order be and is hereby granted in terms of section 53(1)(a) of the Prevention of Organised Crime Act 121 of 1996 (POCA), declaring forfeit to the State the Honeyville Farm measuring 1218,9797 hectares in the district of Humansdorp (the property).

2. In terms of section 50(6) of POCA paragraph 5 below shall take effect 45 days after publication of a notice thereof in the Government Gazette unless an Appeal is instituted before this time in which case this Order will take effect on the finalisation of such Appeal.

3. Michael Timkoe (Timkoe), who was appointed as curator in the preservation order, be and is hereby directed to continue acting as such for the purpose of this Order.

4. Pending the taking effect of this Order the property shall remain under the control of Timkoe.

5. On the date on which this Order takes effect, to wit 45 weekdays after publication in the Government Gazette, Timkoe shall cause the property to be handed back to the Department of Rural Development and Land Reform for reallocation in terms of all applicable procedures, and as such to sign all necessary documents in regard thereto. This will be regarded as payment to the State.

6. The applicant is directed to cause notice of this Order to be served on the respondent.

7. The applicant is further directed to publish a notice of this Order in the Government Gazette as soon as it is practicable.”

[7] Paragraph 1 of the order declared the property forfeit to the State. Paragraph 5 stipulated that Timkoe, the appointed curator bonis, was required “to cause the property to be handed back to the Department of Rural Development and Land Reform for reallocation”. It further provided that “this will be regarded as payment to the state”.

The application for variation and the order by Goosen J

[8] In the circumstances set out below the Bank sought a variation of the order by Majiki J to include, firstly, at the end of paragraph 1, the words “subject to the rights of the bondholders.” In the second instance, it also sought a declaration (in effect negating paragraph 5 of the original order), that Timkoe be entitled to proceed with the sale of the property subject to the rights of the bondholders. Parenthetically, Donald George Duke Jackson is a second bondholder but did not participate in the proceedings in the Court a quo, nor in this Court.

[9] Although Goosen J expressed concern about the inconsistent interplay between paragraphs 1 and 5 of the original order,[4] as well as the procedural failing by the Minister and the Bank to have invoked the Act[5] for seeking exclusion of their respective interests in the forfeited property, and the Minister’s failure to have launched a counter-application for amendment of the original order in the variation proceedings[6], the learned judge determined that the original order “[had] to be varied not only to give effect to the provisions of [the Act] but also to facilitate the final resolution of the matter.”

[10] This determination, as indicated in the judgment a quo, is informed by an analysis of the provisions of the Act[7], a finding that the Minister and the Bank are both victims of unlawful activity[8], and that each have established defined interests in the property which ought to be excluded from the operation of the forfeiture order[9]. The quantum of the Minister’s interest was determined in the amount of R2 617 017 by reference to the papers in the initial application for a preservation order.[10] The finding pertaining to defined interests was premised on the approach adopted by Van Oosten J in National Director of Public Prosecutions v Levy and Others[11], the relevant extracts from which have been quoted at length in the judgment a quo.[12]

[11] In the circumstances Goosen J issued the following order (hereinafter “the order a quo”):

“1. Paragraph 1 of the order by Majiki J dated 13 January 2015 is amended by the insertion at the end thereof of the phrase “subject to the rights of bondholders”.

2. Paragraph 5 of the order is deleted and replaced with the following:

“5 In terms of s 57 of [the Act] the curator bonis is authorized as of the date on which the forfeiture order takes effect, to perform all the powers and functions specified in the Act including the following …”

[12] The introductory portion to paragraph 5 was followed by a description of powers which included the authority to dispose of the property by sale and to deal with the proceeds in accordance with the Act.[13]

Clarification sought by the Minister

[13] During May 2015, Timkoe intended to enter into a deed of sale in respect of the forfeited property with Willem Jansen Van Vuuren, the latter acting on behalf of Mooiville (Pty) Ltd. Because the envisaged sale would result in the Minister being unable to retain the property and procure its disposal to designated beneficiaries of a land redistribution programme, the Minister responded by launching an application in June 2020 for clarification of paragraph 2[14] of the order a quo. In that application the Minister sought insertion of the following wording at the commencement of paragraph 5, namely:

“Subject to the rights of [the Minister] to retain the property at a market related value (hereinafter referred to as ‘proceeds of sale’) ...”

[14] On the basis that the disposal of the forfeited property to the Minister was not precluded by the operation of section 57(1)(c) as a mechanism for authorising the curator bonis to dispose of it “by sale or any other means”[15], the application was dismissed.[16] Leave to appeal to this Court, was however granted to the Minister on the additional ground that the court a quo erred in amending and deleting paragraph 5 of the original forfeiture order granted by Majiki J, and more particularly, the portion which directed that the relevant property be handed back to the Minister for reallocation.[17]

THE APPEAL AND CROSS-APPEAL

[15] The Minister seeks an order that:[18]

(a) The proceeds of the sale of the property be apportioned between the State and the Bank according to the capital loss sustained by them, respectively;

(b) The property be handed back to the Minister for land redistribution to deserving beneficiaries; and

(c) The Bank pays the costs of the appeal.

[16] In the cross-appeal the Bank seeks an order that:

(a) Paragraph 1 of the order by Majiki J be amended by inserting at the end thereof the phrase “subject to the rights of the bondholders”;

(b) The proceeds of the sale of the property first be apportioned to the Bank, and, in the event of free residue after payment of the Bank’s judgment debt and interest, to the Minister; and

(c) The Minister be directed to pay the Bank’s costs.

[17] The essential issues for determination in the appeal and cross-appeal are as follows:

(a) Whether the Bank’s interest or loss sustained should be confined to the capital advanced by it or whether it should include interest on such capital;

(b) Whether the court a quo erred in deleting paragraph 5 of the forfeiture order by Majiki J;

(c) Whether the court a quo erred in awarding proportional sharing;

(d) Whether or not the court a quo should have found that the Bank’s judgment which pre-dates the forfeiture order, and which judgment has not been set aside, takes precedence; and

(e) Whether the finding of the court a quo constitutes an arbitrary deprivation of a portion of the Bank’s constitutional right to property.

The purpose of the Act and the approach adopted by the court a quo for determining exclusionary interests

[18] With regard to the approach for determining the underlying purpose of the Act and the determination of “interests” which may, under section 52, be excluded from the operation of a forfeiture order, Van Oosten J, in Levy, favoured an extensive interpretation. This interpretation recognised that it was the intention of the legislature to protect the interests of innocent third parties who have become the victims of fraudulent activity.[19] The soundness of this proposition which Goosen J imported into the judgment a quo[20] was not contested by either of the parties on appeal before us. Nor was the finding disputed that the Minister and the Bank are innocent parties who are victims of fraudulent activity[21] with defined interests which ought to be excluded from the forfeited property[22].

[19] Recognising that the Bank held security in the form of a mortgage bond which was perfected by obtaining a judgment and an order authorising execution, the learned judge commented, however, that he could conceive of no reason why the Bank’s interest in the property should be limited to the capital losses suffered.[23] What followed was an order deleting paragraph 5 of the original order with provision being made in paragraphs 5.2.1 and 5.2.2 for the parties’ losses to be paid from the balance of the proceeds of the sale of the property in amounts equal to value of the Bank’s judgment and equal to the value of the grant funds paid by the Minister.[24] In addition, paragraph 1 of the original order was amended to incorporate the wording, “subject to the rights of bondholders” at the end thereof.

[20] Counsel for the Minister, Mr Buchanan SC, contended at the outset that both the Minister and the Bank ought to benefit from the proceeds of the sale of the property in proportion to the capital losses each had incurred. In advancing this argument he submitted that the difficulty presented by paragraph 1 of the order a quo is its inconsistency with the purpose of the Act. Whereas the original order specifically incorporated a reservation in favour of the State, the end result of the order a quo is that the entire proceeds of the sale if realised with capital, interest and costs, would accrue to the Bank to the detriment of the beneficiaries of the land redistribution programme on whose behalf the Minister expended public funds.

[21] This perspective, Mr Buchanan contended, demonstrates the inconsistency of the order a quo with the purpose of the Act and elevates the interests of one victim over those of another, a situation which he argued is not countenanced by the Act because the Act does not recognise a hierarchy of victims. Applied to the facts, the argument proffered is that the mere fact that the Bank had registered a bond over the property and obtained a judgment does not, within the scope of the Act, elevate its status as a victim to a higher or prior position to another victim such as the Minister in the present case.

[22] In answer, counsel for the Bank, Ms Rossi, placed reliance on the maxim qui prior est tempore potior est jure (priority in time gives rise to priority in law), this on account of the fact that the Bank’s default judgment inclusive of an order declaring the property specially executable predated the forfeiture order by some 7 years. In heads of argument reliance was also placed on the established principles of interpretation set out in Natal Joint Municipal Pension Fund v Endumeni Municipality[25] and in Cool Ideas 1186 CC v Hubbard and Another to support the Bank’s contention that its loss not be restricted to capital only, this in the light of the judgment a quo reflecting that no reason could be conceived as to why the Bank’s interest in the property should be limited to its capital losses. The effect of this limitation, so it was argued, is that it is unconstitutional and is tantamount to an arbitrary deprivation of the Bank’s secured entitlement to the property in question.

[23] It is evident that the Bank’s opposition to the appeal and its approach in the cross-appeal is predicated on the contention that it enjoys a prior and stronger right than any rights which may have accrued to the Minister, and that the relief sought by the Minister amounts to a deprivation of the Bank’s property rights.

[24] Section 57(2) of the Act stipulates:

“(2) Any right or interest in forfeited property not exercisable by or transferable to the State, shall expire and shall not revert to the person who has possession, or was entitled to possession of the property immediately before the forfeiture order took effect.”

[25] The section plainly offsets the Bank’s secured entitlement to the property on the basis contended for. Indubitably, the Levy case assumes weight in seeking to resolve the issue. In Levy it was found that:

“… the monies of the second and third respondent were used to pay the purchase price of the property. Their interest in the property accordingly is the equivalent of those amounts.” (emphasis added)

[26] Levy suggests, in our view, that the interest in the property of both the Minister and the Bank should be limited to the equivalent of their capital loss without ranking in status or prior position. This proposition supports the contention advanced by Mr Buchanan that the Minister and the Bank, as victims of unlawful activity, should each be entitled to participate in the proceeds of the disposal of the property in accordance with the ratio of their respective capital losses. In practical terms the ratio amounts to a 2:1 participation quota in favour of the Bank.

Reinstatement of the original order

[27] Adverting to the relief sought by the Minister in paragraph 2 of the amended notice of appeal[26], the order sought is to the effect that the property be handed back to the Minister for the purpose of land redistribution to deserving beneficiaries[27]. What is sought, is, in effect, a reinstatement of paragraph 5 of the original order.

[28] The judgment a quo adopts the stance that paragraph 5 of the original order was granted in error, presumably per incuriam - a position supported by Ms Rossi in argument before us. The conflicting interplay between paragraphs 1 and 5 of the order, as also the fact that Goosen J considered that the order was granted without regard to the prior attachment of the property at the instance of the Bank, informed this finding.[28]

[29] On his acceptance that the interests of the proposed beneficiaries will not be precluded by the administration of the property in the hands of the curator bonis[29], the learned judge framed his order to give effect to the provisions of section 57 of the Act. Of note is that the section authorises disposal by the curator bonis of forfeited property through “other means”[30] and “in accordance with the directions of the [Criminal Assets Recovery] Committee”[31]. On this premise, the order a quo is indicative that the disposal of the property to the Minister is not precluded by the operation of the section.[32] In the circumstances we remain unpersuaded that the order a quo necessitates interference to the extent set out in paragraph 2 of the amended notice of appeal, and as contended for on behalf of the Minister.

COSTS

[30] The Minister has been substantially successful on appeal with none of the issues affecting the cross-appeal being decided in favour of the Bank. The primary principle is that costs follow the result and a party that is substantially successful will ordinarily obtain a costs order in their favour.[33]

[31] In the result it is ordered as follows:

[31.1]. The appeal is upheld with costs.

[31.2]. The cross-appeal is dismissed with costs.

[31.3] Paragraph 1 of the order given by the court a quo is deleted and substituted by the following:

“1. The proceeds of the sale of the relevant immovable property be apportioned between the Fourth Respondent and the First Applicant on the basis of the capital loss sustained by the Fourth Respondent and First Applicant pursuant to the unlawful activity referred to in the founding papers.”

[31.4] Paragraph 2 of the order given by the court a quo is confirmed.

M. S. RUGUNANAN

JUDGE OF THE HIGH COURT

I agree.

N. G. BESHE

JUDGE OF THE HIGH COURT

I agree.

R. KRÜGER

ACTING JUDGE OF THE HIGH COURT

Appearances:

For the Appellant: Mr. R. G. Buchanan SC

Instructed by:

The Office of the State Attorney

(Port Elizabeth)

c/o WHITESIDES Attorneys

53 African Street

Makhanda / Grahamstown

(Ref: Mr G. Barrow)

Tel: 046 622 7117

Email: barrow@whitesides.co.za

For the First Respondent

(Appellant in the cross-appeal):

Adv. T. Rossi

GREYVENSTEINS Attorneys

c/o Huxtable Attorneys

26 New Street

(Ref: Mr O. Huxtable)

Tel: 046 622 2961

Email: owen@huxattorneys.co.za

[1] Act 121 of 1998, as amended

[2] Order at pages 283-284 in Volume 3 of the record on appeal

[3] The historical detail of the interaction between the Bank’s attorney and the State Attorney is set out in the judgment a quo in paragraphs [6]-[9], record pages 218-219

[4] Judgment volume 3 page 262 paragraph [42]

[5] per section 54(1)

[6] Judgment Volume 3 page 253 paragraph [23]

[7] Judgment volume 3 pages 260-261 paragraphs [39]-[40]

[8] Judgment volume 3 pages 250-251 paragraphs [14]-[15] and [36]

[9] Judgment volume 3 page 259 paragraphs [35]-[36], page 263 paragraphs [46]-[47], and pages 264-265 paragraphs [49]-[50]

[10] Judgment volume 3 page 250 paragraph [13], [29], [35]-[36]

[11] [2004] 4 All SA 103 (W) at 110i and 111a-d

[12] At paragraphs [25]-[27]

[13] As per sections 56 and 57 of the Act, see judgment paragraphs [39] and [40]

[14] Which paragraph substituted paragraph 5 of the order by Majiki J

[15] In this regard see the express wording of section 57(1)(c) of the Act

[16] The exposition in paragraph [13] of the judgment in the application for clarification, record pp 298-310, and see further the Judgment at paragraph [49]

[17] Judgment in the application for clarification, record page 309, paragraph [28]; also amended notice of appeal record page 315

[18] Amended notice of appeal record volume 4 pages 313-314

[19] National Director of Public Prosecutions v Levy and Others [2004] 4 SA 103 (W) at paragraphs [13]-[14] and at 111b-c

[20] Judgment volume 3 page 256 paragraph [30]

[21] Judgment volume 3 page 256 paragraphs [29]-[30]

[22] Judgment volume 3 page 264 paragraph [49]

[23] Judgment volume 3 page 260 paragraph [37]

[24] Order per Goosen J volume 3 page 267 paragraphs 5.2.1 and 5.2.2

[25] 2012 (4) SA 593 (SCA) at 603F-604D

[26] Record volume 4 page 314

[27] Record volume 4 page 314

[28] Judgment paragraphs [42]-[46]

[29] Judgment volume 3 page 265 paragraph [51]

[30] Section 57(1)(c)

[31] Section 57(1)

[32] Goosen J’s reasoning is accentuated in paragraph [13] of the “clarification judgment”, volume 4, page 305 wherein it is stated: "While it is certainly correct that the position of the Minister and that of the 39 beneficiaries was recognised it is not so that there is a disjuncture between that recognition in the reasoning and the order which was framed. The recognition of the Minister's intention to proceed with the restitution of the land to the 39 beneficiaries cannot, it was held, translate into an order which results in the property, although declared forfeit to the State, being handed to the Minister for disposal in accordance with the original intention. That, in essence, is the basis upon which it was found that the order of Majiki J could not stand. It is for this reason that an order was framed to give effect to the provisions of s 57 of the Act, while accepting the disposal of the property to the Minister was not precluded by the operation of s 57."

[33] John Sisk & Son SA (Pty) Limited v Urban Foundation and Another 1985 (4) SA 349 (N) at 352G-H