National Director of Public Prosecutions v Abrina 6822 and Others (7432/10) [2010] ZAKZPHC 77; 2011 (1) SACR 419 (KZP) (30 November 2010)

IN THE KWAZULU-NATAL HIGH COURT

PIETERMARITZBURG

REPUBLIC OF SOUTH AFRICA

CASE NO.7432/10

In the matter between

THE NATIONAL DIRECTOR OF PUBLIC

PROSECUTIONS …...........................................................................Applicant

and

ABRINA 6822 …....................................................................1st Interested Party

AMMARCHAND SEWPERSAD …...................................2nd Interested Party

ROSHEN SEWPERSAD ….................................................3rd Interested Party

___________________________________________________________

J U D G M E N T

Del. 30 November 2010

WALLIS J.

[1] This case raises a short, but important point, about the proper interpretation of s 38 of the Prevention of Organised Crime Act No 121 of 1998 (“POCA”). The point arises in the following circumstances.

[2] The J A & F Charnaud Trust conducted farming operations on eight properties, six in KwaZulu-Natal and two in the Free State. It decided, for business reasons, to put the farms on the market. The second and third interested parties, a father and son, wished to acquire the farms. The vehicle they proposed to use for that purpose was a company Abrina 6822 Limited1, the shares in which are owned by the Rosco Family Trust, of which Mr Roshen Sewpersad, is a trustee and beneficiary. The Sewpersads faced a difficulty in acquiring the farms in that they needed finance. It is the circumstances in which finance was obtained that give rise to this case.

[3] On 23 October 2008 an agreement of purchase and sale was concluded between the Charnaud Trust and another company, Abrina 6882 Limited,2 in terms of which Abrina 6882 purchased the farms for a total price of R27 244 556. Livestock and implements on the farm were purchased separately from Mr and Mrs Charnaud. Clause 16(a) of the agreement contains a suspensive condition in the following terms:

‘This agreement is conditional upon the Purchaser obtaining a grant in the amount of R33 953 456,00 … on or before 15 November 2008 …

This condition will be fulfilled when the Purchaser receives confirmation of a grant.’

According to Mr Roshen Sewpersad, who deposed to the affidavit on behalf of the interested parties, when he and his father learnt of the proposed sale of the farms by the Charnaud Trust they had decided to enter into negotiations for the acquisition of the farms. They intended to use a company, described in the affidavit only as Abrina (whether this was Abrina 6882 or Abrina 6822 is

therefore unclear), as the vehicle for the purchase. Their intention was that the acquisition would be effected ‘with the assistance of a grant’ from the Department of Rural Development and Land Reform. Mr Sewpersad says that he pursued negotiations with the Department in regard to such a grant and an application was made through the Department’s Ladysmith offices. However no details of that application emerge as a copy is not annexed to his affidavit.

[4] The suspensive condition was not timeously fulfilled. In the result, on 4 December 2008 the Charnaud Trust and Abrina 6882 concluded a fresh agreement on the same terms, save that the date in the suspensive condition was 15 December 2008. Once again, however, the suspensive condition was not fulfilled.

[5] These two agreements had been signed on behalf of Abrina 6882 by Mr Roshen Sewpersad’s father, Mr Ammarchand Sewpersad, the second interested party. On 8 January 2009 a fresh agreement in respect of the purchase and sale of the properties, as well as the livestock and implements, was concluded. However on this occasion the purchaser was Abrina 6822, not Abrina 6882. The other

change is that in concluding the agreement Abrina 6822 was represented not by the second respondent but by one Mzosongo Elliot

Mabaso. Mr Mabaso signed the agreement with a mark, the correctness of which was verified by a commissioner of oaths. Once again the agreement was subject to a suspensive condition in the terms already quoted save that the date for fulfilment was 15 January 2009.

[6] On this occasion the transaction proceeded (at least in respect of the properties that are in dispute in this case). On 30 March 2009 the Charnaud Trust transferred the six farming properties situated in KwaZulu-Natal to Abrina 6658 Limited against payment of a price of R22 244 556. That transfer was subsequently corrected on 17 June 2009 and the title deed was rectified to show Abrina 6822 as the owner of these properties. According to an affidavit deposed to by Mr Ammarchand Sewpersad the error was due to a mistake in conveyancing.

[7] It is not wholly clear from the documents what has happened with the two farming properties situated in the Free State, but it seems probable that they too were transferred to Abrina 6822. However, no point was made of this in argument and it is unnecessary

to explore the matter any further.

[8] As contemplated in the three sale agreements described above the funds for the purchase of the properties by Abrina 6822 were obtained from the Department: Land Affairs through the Provincial Grants Approval Committee (‘PGAC’) for the Province of KwaZulu-Natal. In other words Abrina 6822 did not provide any funds for the acquisition of the properties. Those funds were provided by the State. The provision of those funds by the State is said by the applicant to have been procured by fraud.

[9] I do not need to set out in detail the circumstances in which the Department: Land Affairs, through the PGAC, provided these funds because Mr Moodley SC, who appeared for the interested parties, accepted that on the evidence at present before the court it has been established that there are reasonable grounds to believe that the funds in question were procured by way of a fraud on the Department. I need therefore only describe in brief terms the nature of that fraud.

[10] The critical event is a meeting of the PGAC that took place on 13 January 2009, two days before the suspensive condition in the agreement of 8 January 2009 had to be fulfilled. The committee was furnished with a memorandum, the purpose of which was to request it to support the submission of a project for the acquisition of the Charnaud Trust properties. The minute reflects that the committee was told that there would be 42 beneficiaries of that acquisition. This was in accordance with the motivation submitted to the committee, which referred not only to the KwaZulu-Natal farms but also to the two Free State properties. That minute seeks funding for the acquisition by way of subsidies in terms of the Land Reform Labour Tenants Act No.3 of 1996. It says that there are 42 applicants. Paragraph 5.1 of the report records that the applicants allege that they have been residing on portions

of the subject properties for time immemorial as labour and some as cash tenants. Three of the applicants made applications under the Act prior to 2001 but others missed the cut-off date in March 2001. In paragraph 5.4 it is said:

‘This project application stands to benefit 42 applicants including three labour tenants, 26 associates and 13 farm-workers.’

It is suggested that the rights of the labour tenants have been infringed upon, that their dwellings are in a poor state and that there is a need to establish a planned settlement for them. A list of the 42 beneficiaries is set out in the report. In regard to the identity of the purchaser of the property it is said that:

‘4.7 There is a company registered by the applicants that is to take interim ownership of the properties whilst the Ladysmith District Office in consultation with the applicants are in a process of establishing a relevant land holding entity as a matter of urgency.’

Later in paragraph 5.10 of the report it is said that:

‘The community is in a process of registering Nondela Land Trust that it to hold land and has also managed to purchase a shelf company, Abrina 6882 Limited…that is to administer the business operations of the project.’

[11] In addition to that report there is an affidavit by Mr Madhanpall, the chair of the PGAC who says that an agreement of sale and purchase was also placed before the committee for its consideration. That agreement3is not one of the agreements already described in this judgment. It purports to be an agreement between Abrina 6822 and the Charnaud

Trust. It purports to be signed by Mr and Mrs Charnaud and Mr Mabaso, but Mr Moodley SC accepts that on the face of it all the signatures are forgeries. Unlike the earlier agreements it contains a lengthy recital in which it lists in a schedule to the agreement the names of certain persons who are said to be labour tenants in terms of the Land Reform (Labour Tenants), Act 3 of 1996 with rights over the properties that are the subject of the agreement. It purports to record that the Charnaud Trust admits that those people are labour tenants and that there has been compliance with sections 16 and 17 of that Act. In recital IV it is said that these people will become the members of the purchaser, that is, the members of Abrina 6822.

[12] What will be apparent from this brief description is that the information placed before the PGAC was directed at procuring subsidies under a statute designed to benefit labour tenants into which category the Sewpersads do not fall. The true shareholding of Abrina 6822 was misrepresented and the identity of the actual shareholders at the time, namely the Rosco Family Trust, Mr Roshen Sewpersad and the other beneficiaries of that family trust, was not disclosed to the PGAC. The members of that committee approved

the subsidies (although not without qualms) in the belief that they were directed at benefitting 42 labour tenants listed in the report placed before them. On any basis the situation was wholly misrepresented to them and the clear purpose of such misrepresentation was to persuade them to approve the payment of the subsidies and in due course the payment of the purchase price of the farms. Mr Moodley’s concession that this provides reasonable grounds for believing that the farms were acquired in consequence of

a fraud perpetrated on the PGAC and through it the Department of Land Affairs is plainly correct.

[13] I add in the interests of fairness that the Sewpersads strenuously deny being party to any such fraud and I make no finding in that regard. There was some tentative suggestion, based upon one or two of the documents in the papers, that there may have been no fraudulent intention because the purpose was simply to acquire the properties and thereafter to put in place a structure

that would benefit, at least in some measure, the 42 labour tenants of whom Mr Mabaso was said to be one. None of this needs to be explored in this judgment.

[14] On the basis of those facts the National Director of Public Prosecutions (the NDPP) sought and obtained from Gorven J on 29 September 2010 a preservation of property order in terms of s 38 of POCA in respect of the six KwaZulu-Natal properties constituting the farms and ‘farm implements, furniture and livestock to the value of R6 136 400 or whatever is left of it’. Abrina 6822 and the two Sewpersads, father and son, have intervened in those proceedings as interested parties and on 15 October 2010 sought an order for the reconsideration of the order granted by Gorven J and the dismissal of the application. As they were entitled to do, because the original proceedings were brought ex parte without notice to them, they delivered affidavits in support of the reconsideration and a replying affidavit has been delivered on behalf of the NDPP. That application for reconsideration was argued before me on 5 November 2010.

[15] A number of issues were raised in the papers in support of the reconsideration of Gorven J’s order. The interested parties complained that it was unnecessary for the application to have been brought ex parte and without notice to them. They accepted that the statute permits such an application to be made ex parte4 but submitted the NDPP was not obliged to follow that procedure and there was no good reason why he should have done so in this case. It was also submitted that there had been material non-disclosures to Gorven J, particularly in that the sequence of sales from October 2008 through December 2008 and January 2009, had not been fully traced nor had certain information provided by the Sewpersads to investigators at various stages after problems arose. It was also originally submitted that the requirements of s 38(2) had not been satisfied.

[16] These points can be disposed of fairly summarily. Once it was accepted, as Mr Moodley SC did, that the facts I have summarised provided reasonable grounds to believe that the farms had been acquired in consequence of a fraud, the exculpatory material advanced by Mr Roshen Sewpersad in his affidavit became academic. Its disclosure could not have affected the thinking of Gorven J when he granted the preservation of property order. Subject to the main point that was advanced, that conclusion also disposed of the proposition that the case did not fall within s 38(2). That left only the form of procedure. It is unclear to me why it was thought necessary to bring these proceedings ex parte and without notice to the interested parties, bearing in mind that they dealt with immovable properties that could not disappear or be disposed of rapidly. However there was some tenuous evidence that livestock was being disposed of and the matter of the procedure was essentially one for Gorven J, and not me to decide. As my colleague was satisfied with the procedure and there is nothing in the additional information with which I have been furnished that would have affected his consideration of that question, I do not think that it is open to the interested parties to ask me to reconsider the matter.

[17] That clears the way for a consideration of the principal argument advanced by Mr Moodley. To appreciate the contention it is necessary to set out certain relevant provisions of POCA. The application was brought in terms of s 38, the relevant portions of which read as follows:

‘(1) The National Director may by way of an ex parte application apply to a High Court for an order prohibiting any person, subject to such conditions and exceptions as may be specified in the order, from dealing in any manner with any property.

(2) The High Court shall make an order referred to in sub-section (1) if there are reasonable grounds to believe that the property

concerned:

(a) is an instrumentality of an offence referred to in Schedule 1;

(b) is the proceeds of unlawful activities; or

(c) is property associated with terrorist and related activities.’

There is a definition of ‘proceeds of unlawful activities’ in s 1 of POCA which defines that expression as meaning;

‘…any property or any service, advantage, benefit or reward which was derived, received or retained, directly or indirectly, in the Republic or elsewhere, at any time before or after the commencement of this Act, in connection with or as a result of any unlawful activity carried on by any person, and includes any property representing property so derived.’

[18] Mr Moodley accepted that on the face of the broad language of these provisions the farms are the proceeds of unlawful activity. They are properties derived or received by Abrina 6822 as a result of the fraud perpetrated on the PGAC. As it is not a requirement of s 38(2) that the person in possession of the property sought to be preserved should have been the perpetrator of the unlawful activity by means of which the property was received by them, it is of no assistance to the Sewpersads to protest their innocence of any involvement in the fraud. That is irrelevant. In consequence of the fraud the PGAC authorised subsidies in terms of the Land Reform (Labour Tenants) Act. The money released by way of subsidy was used to acquire the farms in KwaZulu-Natal and the implements and livestock on those farms. Abrina 6822 was thereby relieved of any obligation to pay the purchase price of the farms, the livestock and the implements. It received these directly as the proceeds of unlawful activities. As I have said it is immaterial whether Abrina 6822 was aware of those unlawful activities or a party to them. It is in possession of property in respect of which there

are reasonable grounds to believe that the property is the proceeds of unlawful activities. Accordingly, taking the provisions of ss 38(1) and (2) at face value the preservation of property order was properly made.

[19] In order to circumvent this conclusion Mr Moodley SC advanced the following submissions. Fraud is a common law offence known both to our criminal and our civil law. If there has been fraud in the present case, then the Department of Land Affairs, which appears to be the victim of that fraud has conventional civil remedies that it is entitled to pursue in the civil courts, whilst seeking the prosecution of the perpetrators in the criminal courts. The civil courts are well situated to provide remedies to the victims of a fraud including, where appropriate, the recovery of property fraudulently transferred to a third party. However, in determining what remedy is appropriate and against whom that remedy lies the civil courts have to give consideration to the circumstances in which the possessor of property acquired in consequence of a fraud obtained that property. In doing so it is important to determine whether that person acted bona fide or mala fide. By contrast with the subtle remedies available under the common law in which the interests of all parties can be appropriately balanced, the remedies provided in chapter 6 of POCA are blunt instruments. Property that constitutes the proceeds of unlawful activities can be seized by way of a preservation order and becomes subject to forfeiture in terms of part 3 of chapter 6 of POCA. That forfeiture operates in favour of the State, which may not necessarily be the party injured by the unlawful activities relied on in seeking forfeiture. There is also the spectre of conflict between the State seeking the forfeiture of such property and an aggrieved party seeking return of the property under the common law.

[20] Mr Moodley submitted that these problems can be avoided if a line of demarcation is drawn between those cases to which POCA applies and claims that can and should properly be dealt with under the common law. In this case he submitted that the court is concerned with a common law fraud and accordingly, quoting from his heads of argument:

‘…the nature of the dispute does not fall within the compass or ambit of the objectives of POCA.’

In support of his argument he referred to the long title of the Act and the preamble as indicating that notwithstanding the broad language of certain particular sections in POCA it is directed at organised crime, money laundering and criminal gang activities,

both nationally and internationally, particularly those crimes that constitute an international security threat, such as crimes

associated with terrorist and related activities.

[21] Mr Moodley sought sustenance for his arguments in the judgments of Moseneke DCJ and Sachs J in Mohunram & Ano v National Director of Public Prosecutions & Ano (Law Review Project as amicus curiae).5 In that case the amicus curiae advanced an argument that the provisions of ss 38(2)(a) and 50(1)(a) of POCA dealing with preservation of property and forfeiture orders should not be construed as applying to all offences referred to in Schedule 1 of POCA but only to those offences that are also offences under POCA itself falling within the stated aims and purposes of POCA. Although van Heerden AJ, in a minority judgment concurred in by four of her colleagues rejected the argument, Moseneke DCJ6 said that he was unable to hold that the argument was without merit. Whilst Sachs J7 accepted that ‘no bright lines can be drawn between organised crime and private criminal activities’ he went no further than to assume for the purposes of the case that

‘There is no obligatory jurisdictional requirement that the instrument of an offence be shown to have a connection with organised crime, and once a criminal offence is literally covered by the Schedule, and the property concerned is proved to be an instrument in its commission, a forfeiture order in terms of ch 6 becomes permissible.’

Two judges concurred with Moseneke DCJ and two with Sachs J. In the result the views expressed by van Heerden J do not constitute a binding decision on the point by the Constitutional Court and Mr Moodley urged me not to follow the views of the minority.

[22] It is, however, necessary to point out that the question in this case does not revolve around property that it is the instrumentality of an offence but around property that constitutes the proceeds of unlawful activities. In regard to such property van Heerden AJ said8

‘The “proceeds of unlawful activities”, which by virtue of its definition includes crimes, can be declared forfeit whatever the nature of the unlawful activity or crime, giving expression to the ancient doctrine that no one should be permitted to profit from his or her wrongdoing.’

Not only did four other judges concur in that view but neither Moseneke DCJ nor Sachs J dissented from it. That is a powerful indication that insofar as we are dealing with the proceeds of unlawful activities the court is not concerned with whether the proceeds arise from organised crime, money laundering and criminal gang activities prohibited elsewhere in POCA. It is also not confined to the offences set out in Schedule 1 to POCA (although I note that fraud is one of those offences).

[23] I accept that the Sewpersads contend that they were not party to any fraud. However, there is already a substantial body of authority binding on me that holds that the guilt or wrongdoing of owners or possessors of property is not primarily relevant to forfeiture proceedings.9 In dealing with s 38(2)(a) the focus is not therefore on the state of mind of the owner but on the role the property plays in the commission of the crime and whether it constitutes an instrumentality of the offence. Similarly where one is dealing with s 38(2)(b) one is concerned not with the state of mind of the owner of the property but whether the property constitutes the proceeds of unlawful activities as defined. The phrase must be interpreted independently of the guilt or innocence of the owner of the property.10 Those issues become relevant when the court is considering questions raised under s 52 of POCA.

[24] Accepting that the decision by the Constitutional Court in Mohunram does not dispose of Mr Moodley’s argument it nonetheless faces an insuperable obstacle in the decision of the Supreme Court of Appeal in National Director of Public Prosecutions v R O Cook Properties (Pty)Limited and two other cases that I have already cited. Whilst all three of the cases dealt with by the SCA in that judgment raise the question whether the property in issue constituted an instrumentality of an offence, in the third case, that of National Director of Public Prosecutions v Seevnarayan, the court also had cause to consider whether the property constituted the proceeds of unlawful activities. What it said there precludes me from accepting Mr Moodley’s argument.

[25] In the court below in Seevnarayan it had been held that a restrictive interpretation should be given to the notion of property being derived, received or retained in connection with or as a result of unlawful activities. That court relied on the fact that in both the short title and long title of the Act it was directed at the combating of organised crime, money laundering and criminal gang activities. On that basis it held that the evasion of personal income tax could not be considered organised crime and that ‘the Act was never intended to be applied in situations such as the present’. This approach was firmly rejected by the court SCA in the following language:

‘[65] We cannot agree with this construction, which radically truncates the scope of the Act. It leaves out portions of the long title, as well as the ninth paragraph of the preamble. These show that the statute is designed to reach far beyond “organised crime, money laundering and criminal gang activities”. The Act clearly applies to cases of individual wrongdoing.’

That decision was reaffirmed by the SCA in National Director of Public Prosecutions v van Staden and Others.11 In that case it was held that a motor vehicle being driven by a driver who is under the influence of intoxicating liquor or drugs is capable of being an instrumentality of an offence in terms of POCA and accordingly susceptible to forfeiture under chapter 6 of POCA.

[26] The broad approach that the SCA has taken to the meaning of the expression ‘proceeds of unlawful activities’ is in my view consistent with the approach of the Constitutional Court, which has accepted that the definition is deliberately cast in very wide terms12 and said that the definition is cast in terms that make it possible to confiscate property that has not been directly acquired through the commission of crimes.13

[27] There is accordingly no point in giving Mr Moodley’s argument more detailed consideration. Authority binding on me precludes me from accepting it. That authority holds that ss 38(2) and 50(1) of POCA, where they provide for preservation and forfeiture orders to be made in respect of property constituting the proceeds of unlawful activities, are not confined to cases where the activities constitute organised crime, money laundering and criminal gang activities or other offences created in terms of POCA. The sections may be invoked where the property in question constitutes the proceeds of a common law offence, such as fraud.

[28] For those reasons the attack on the order granted by Gorven J must fail. There is one respect in which the order he granted must be altered. Paragraph 7 makes the order applicable generally to:

‘Farm implements, furniture and livestock to the value of R6 136 400 or whatever is left of it.’

S 38(2)(b) is only applicable to property that is the proceeds of unlawful activities. There is unchallenged evidence in the application papers that the Sewpersads have caused additional livestock to be brought on to the farms as well as certain equipment.

Manifestly such additional livestock and equipment cannot be the subject of the preservation order. It is only the farm implements,

furniture and livestock that were acquired in terms of the sale by the Charnaud Trust to Abrina 6822 that can be made subject to the preservation order. I raised the problem in the course of argument and Mr Duma, who appeared for the NDPP, accepted that the order must be adapted accordingly. In my view it needs to be altered to read:

‘The farm implements, furniture and livestock acquired by Abrina 6822 Limited under the agreement whereunder it acquired the properties referred to in Annexure A.’

Apart from that minor alteration the application for reconsideration of the preservation of property order granted by Gorven J must fail and be dismissed with the usual consequences in regard to costs.

[28] The order I make is as follows:

1. The preservation of property order granted on 29 September 2010 is amended by the deletion of the present paragraph 7 in Annexure A to that order and its replacement by the following:

‘7. The farm implements, furniture and livestock acquired by Abrina 6822 Limited under the agreement whereunder it acquired the properties

referred to in Annexure A.’

2. The application for reconsideration of that order is dismissed with costs, such costs to include the costs consequent upon the employment of two counsel.

DATES OF HEARING 5 NOVEMBER 2010

DATE OF JUDGMENT 30 NOVEMBER 2010

APPLICANT’S COUNSEL MR T DUMA with Ms Nasreena Sayed

APPLICANT’S ATTORNEYS STATE ATTORNEY

INTERESTED PARTIES’

COUNSEL MR Y MOODLEY SC with

Mr S Nankan

INTEREST PARTIES’

ATTORNEYS D MAHARAJ & ASSOCIATES

INTERVENING PARTIES’

COUNSEL MR C R SNYMAN

ATTORNEYS Y CHETTY ATTORNEYS

1The First Interested Party.

2Not the first interested party.

3Annexure AM2 at pp 322 to 326 of the application papers.

4S 38(1)

5[2006] ZASCA 12; 2007 (4) SA 222 (CC)

6In para [114].

7Para [140].

8Para [16].

9National Director of Public Prosecutions and Another v Mohamed NO and Others [2002] ZACC 9; 2002 (4) SA 843 (CC) para [17]; National Director of Public Prosecutions v R O Cook Properties (Pty) Limited; National Director of Public Prosecutions v 37 Gillespie Street, Durban (Pty) Limited and Another; National Director of Public Prosecutions v Seevnarayan 2004 (2) SACR 208 (SCA) para [20].

9National Director of Public Prosecutions and Another v Mohamed NO and Others [2002] ZACC 9; 2002 (4) SA 843 (CC) para [17]; National Director of Public Prosecutions v R O Cook Properties (Pty) Limited; National Director of Public Prosecutions v 37 Gillespie Street, Durban (Pty) Limited and Another;

National Director of Public Prosecutions v Seevnarayan 2004 (2) SACR 208 (SCA) para [20].

10National Director of Public Prosecutions v R O Cook Properties (Pty) Limited, supra, para [21].

11 2007 (1) SACR 338 (SCA) paras [1] and [10].

12S v Shaik and Others [2008] ZACC 7; 2008 (5) SA 354 (CC) para [25]

13Para [69].