Case CCT 311/22
[2024] ZACC 14
Hearing Date: 17 August 2023 (Thursday)
Judgement Date: 12 July 2024
Post Judgment Media Summary
The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.
On 12 July 2024 at 10h00, the Constitutional Court handed down a judgment in an application for leave to appeal against the whole judgment and order of the Supreme Court of Appeal handed down on 13 October 2022.
The applicant was the Minister of Rural Development and Land Reform (Minister). The respondent was the Land and Agricultural Development Bank of South Africa (Land Bank). On 2 August 2006, the Minister provided funding for the acquisition of the immovable property: Portion 1 and the Remaining Extent of the farm Poplar Grove No. 303, as well as the farm Honeyville No. 302 (collectively the property), in the amount of R2 617 100 for the ultimate benefit of 39 identified beneficiaries, in terms of a Land Redistribution and Agricultural Development Grant (LRAD Grant) as part of the constitutionally mandated programme of land redistribution and reform. The Land Bank advanced a capital sum of R5 082 900 and an additional sum of R1 016 580 in respect of legal costs, interest and other fees under a mortgage bond over the property registered in favour of the Land Bank, to facilitate the transaction.
Pursuant to corrupt activity during the transaction, the property was never registered in the name of the trust on behalf of the identified beneficiaries but was instead registered in the name of CPAD Farm Holdings (Pty) Limited (CPAD Farm), on 13 April 2007. On the same day, the mortgage bond over the property was registered in the Deeds Office in favour of the Land Bank that provided security for the sums mentioned above. CPAD Farm then defaulted on payments that fell due to the Land Bank. In 2008, the Land Bank instituted proceedings against CPAD Farm for the outstanding monies and sought an order declaring the property executable. On 3 September 2008, the Land Bank obtained default judgment against CPAD Farm for payment of the capital advanced, accrued interest and legal and other costs. On 14 October 2009, the sheriff attached the property in execution of the default judgment.
In October 2014, the National Director of Public Prosecutions (NDPP) launched an ex parte application against a director of CPAD Farm and a former employee of the Minister in the Eastern Cape Local Division of the High Court, Port Elizabeth (High Court) in respect of the property, in terms of section 38 of the Prevention of Organised Crime Act 121 of 1998 (POCA). On 28 October 2014, a preservation order was granted, and Mike Timkoe Trustees CC was appointed as curator bonis to assume control of the property. A copy of the preservation order was served on the Land Bank which then instructed an attorney, Mr Gregory Parker, to represent its interest therein. Following an agreement with the NDPP’s legal representatives that its interest in the property would be excluded in terms of the POCA, the Land Bank did not intervene or participate in the section 38 proceedings.
On 13 January 2015, the property was forfeited to the State in terms of section 53(1)(a) of the POCA. The forfeiture order made no mention of the interest of the Land Bank and merely provided that the property “be handed back” to the Minister.
On 25 May 2015, the curator bonis concluded an agreement of sale in terms of which the property would be sold to a third party for R8 million to recoup the Land Bank’s losses. By then the Land Bank’s debt secured by the bond already exceeded R8 million. As such, the execution of the Deed of Sale would result in the Land Bank receiving the full proceeds of the sale and the Minister receiving nothing. The Land Bank and the Minister entered into a series of negotiations but could not reach an agreement.
The Land Bank approached the High Court for an order amending the forfeiture order to exclude its rights in terms of the mortgage bond. To that end, it sought a variation of the forfeiture order to incorporate the phrase “subject to the rights of the bondholders” and empower the curator bonis to sell the property, subject to the rights of the bondholders.
The High Court adopted the reasoning in National Director of Public Prosecutions v Levy [2004] 4 All SA 103 (W) (Levy). It highlighted that the POCA seeks to protect the interests of innocent third parties who have become victims of fraudulent activity. It concluded that the organ of state was not precluded from being a holder of a recognisable interest in the property which was worthy of protection. The High Court held that the Land Bank and the Minister had established defined interests in the property and that such interests had to be excluded from the forfeited property. The High Court therefore varied paragraph 1 of the original order. However, the High Court rejected the submission by the Minister that both parties were entitled to recover capital losses. It held that the default judgment obtained by the Land Bank included recovery of both capital and interest thereon.
The High Court granted the Minister leave to appeal and the Land Bank leave to cross-appeal to the Full Court. The Full Court upheld the appeal with costs and dismissed the cross-appeal with costs. The Full Court also endorsed the approach in Levy. However, it differed with the High Court in terms of how the Minister and the Land Bank’s interest in the property had to be apportioned. It held that the interest in the property had to be limited to the equivalent of their capital loss without ranking in status or prior position. Thus, each party was entitled to share in the proceeds of the disposal of the property in accordance with the ratio of their respective capital losses. The Full Court deleted and substituted paragraph 1 of the order with a new paragraph to the effect that the proceeds of the sale of the immovable property were to be apportioned between the Minister and the Land Bank on the basis of the capital loss sustained by both parties pursuant to the unlawful activity.
The Land Bank appealed the Full Court’s decision to the Supreme Court of Appeal (SCA). The SCA found that the appeal raised two issues: (a) whether the Minister had an interest in the property as defined in the POCA; and (b) if so, how the competing claims of the parties for the exclusion of interests from the operation of the forfeiture order should have been determined.
The SCA explained that section 1 of the POCA defined “interest” as to “include any right”. It found that “includes” also had a life of its own, denoted a term of exhaustion and was equivalent to “means”. According to the SCA “interest” meant “any right”, which may include a contingent right to property. On that basis, the SCA held that on the facts of this case, the Minister had no right to the property and had no interest in the property despite the fact that the grant allocated by her department paid portion of the purchase price of the property.
The SCA also rejected reliance on Levy, which it held was wrongly decided. It held that the purpose of Chapter 6 of the POCA was not to compensate victims of fraud but to forfeit property that was used in furtherance of that activity to the State. Section 300 of the Criminal Procedure Act 51 of 1977 (CPA) was one of the legal provisions that applied in relation to compensation for losses. The purpose of Chapter 6 was to provide for the protection of the pre-existing interests of innocent citizens in property subject to forfeiture. Thus, whether such a person was a victim of crime was irrelevant.
The SCA further held that Chapter 6 gave no indication of an intention by the Legislature to render common law principles inapplicable or vary them and that although it did not prescribe principles for the ranking of competing claims for the exclusion of interests in property from a forfeiture order, the Legislature must have contemplated that such applications could be made. Their ranking would thus be determined according to two common law principles. First, real rights generally prevail over personal rights; and second, the maxim qui prior tempore potior est iure (he who is earlier in time is stronger in law) applied to the ranking of rights that were equal in hierarchy. On the application of these principles, the SCA held that the “interest” of the Land Bank ought to have been afforded precedence over that of the Minister. The Court concluded that the rights of the Land Bank under the bond should have been excluded from the operation of the forfeiture order. The Minister’s claim for the exclusion of interest was disallowed on the basis that the Minister had no such interest in law. Therefore, the appeal was upheld with costs.
In this Court, the Minister submitted that this application engaged this Court’s extended jurisdiction as it raised an arguable point of law of general public importance, and that it was in the interests of justice to grant leave to appeal as the matter bore reasonable prospects of success.
On the merits, the Minister argued that the SCA erred in finding that the LRAD Grant funds advanced by the Minister to facilitate the sale of the property did not give the Minister an “interest” in respect of the property as defined in section 1 of the POCA. The Minister contended that her right in respect of the property arose as a result of the common cause fact that the funds were partly used to pay the purchase price of the property. Further, the Minister contended that at all material times, it was “effectively common cause” between the Minister and the Land Bank that both parties had an “interest” in the property as defined in section 1 of the POCA.
The Minister further argued that under the broader principles and purpose of the POCA (including the protection of innocent parties against fraud), the proceeds of the sale should have been apportioned to the parties’ pro-rata, based on their respective capital investments.
Conversely, the Land Bank submitted that although the SCA’s findings differed from those of the High Court and the Full Court, the matter did not engage the jurisdiction of this Court, since the Minister also had to establish that there was a measure of plausibility in the argument advanced.
The Land Bank agreed with the SCA’s findings and submitted that the Minister had no interest in the property. The Land Bank denied the Minister’s contention that it was “effectively common cause” between the Minister and the Land Bank that both parties had an “interest” in the property.
The Land Bank agreed with the SCA’s findings and submitted that the Minister had no interest in the property. The Land Bank denied the Minister’s contention that it was “effectively common cause” between the Minister and the Land Bank that both parties had an “interest” in the property.
In this Court, the key issues which required determination were whether the Minister had an interest in the immovable property concerned, as defined in the POCA; and, if so, how the competing claims of the parties for the exclusion of their “interest” from the operation of a forfeiture order under the POCA should have been determined?
In a majority judgment penned by Maya DCJ (Kollapen J, Mathopo J, Mhlantla J, Theron J and Tshiqi J concurring), this Court held that the matter engaged this Court’s extended jurisdiction as the conflicting judgments in the lower courts indicated an arguable point of law of general public importance regarding the interpretation of the applicable provisions of the POCA. This Court held that as such, the conflicting interpretations in the lower courts required a definitive pronouncement by this Court as the conflict had a material bearing on the Minister’s prospects of success. The Court thus held that the interests of justice warranted that leave to appeal be granted.
On the merits, this Court held that the interpretation of the word “interest” as defined in section 1 of the POCA, read with sections 52 and 54, was pivotal in these proceedings. This Court held that the SCA erred in not examining the reference to the phrase “right, title or interest” in section 54 of the POCA, because if it had done so, it would have realized the flaw in its interpretation that “interest” means “right”, which would have partially rendered the section meaningless. In its view, the Legislature clearly distinguished between an “interest” and a “right” and that the word “includes” in the definition of “interest” was intended to be non-exhaustive as the Legislature meant to give the word “interest” a wide interpretation.
This Court held further that, in light of the wide ambit of the word “interest”, the Minister’s “interest” in the property was indeed acquired innocently, legally and for consideration (for payment or reward), as contemplated in the forfeiture provisions of Chapter 6 of the POCA. This Court found that, although the Minister’s claim is a personal right in the form of the LRAD Grant, it extends beyond a mere amount advanced by a loaner to a loanee, as the LRAD Grant is intrinsically linked to the State’s obligation of land reform and redistribution in terms of section 25(5) of the Constitution. This Court held further that the Minister’s “interest” was neither a vague nor flimsy interest which diminished rights. Instead, this Court found that although the Minister’s “interest” did not take the form of a real right which entitled it to a preferential claim against the property, the Minister’s “interest” was still in the forfeited property and that such “interest” was acquired lawfully and innocently as contemplated by section 54(8) of the POCA. This Court held further that although section 300 of the CPA empowered the Minister to institute action against persons who had misappropriated the LRAD Grant funds, no reason had been advanced to show that the Minister should have been precluded from protection under the POCA. Thus, this Court found the Minister to have an “interest” in the property.
This Court held further that the competing claims of the Land Bank and the Minister had to be ranked according to the common law maxim qui prior est tempore potior est iure (he who is earlier in time is stronger in law) as the POCA did not envisage a hierarchy of claims nor did it expressly alter the common law position. This Court further held that the Land Bank’s real right in the property as the mortgagee and secured creditor entitled it to a preservation of the proceeds of the mortgaged property to satisfy the debt owed to it (i.e. the capital sum, interest and costs), and that no pro-rata apportionment of the capital amounts was necessary.
In the premises, the majority of the Constitutional Court granted the Minister leave to appeal and partly upheld the appeal by ordering that the Land Bank’s interest, comprising the secured debt in the form of the mortgage bond over the property, be excluded from the forfeiture order. This Court also ordered that the Minister’s interest, comprising of the LRAD Grant allocated to purchase the property, be excluded from the operation of the forfeiture order. The Court made no order as to costs.
Rogers J (Schippers AJ and Van Zyl AJ concurring) penned a second judgment, which agreed with the majority judgment’s finding that this Court’s jurisdiction was engaged and that leave to appeal should be granted.
The second judgment found that the word “interest” in the definition section of the POCA was exhaustive, and thus only included rights in property. The second judgment found that even if the definition of “interest” for purposes of section 54(2) of the POCA was not exhaustive, the Minister’s claim still had to fail. The Department had a personal monetary claim against the fraudsters because it was defrauded. In such a case, that a fraudster used the money to acquire property did not change the legal nature of the interest or right of the defrauded party.
The second judgment took the view that the majority judgment’s interpretation was erroneous, since an “interest” in property in the POCA was something capable of reducing the full value of ownership over the property. Personal monetary claims did not reduce the value of ownership of the debtor’s property. The forfeiture of such property had no effect on the defrauded party’s personal claim. The second judgment argued that to exclude the Department’s supposed “interest” in the property from the forfeiture would in truth be an attempt to elevate the Department’s personal claim into a claim conferring a special right to levy execution against the forfeited property.
The second judgment held that it would be contrary to the objects of the POCA to give too broad of a definition to an “interest” in property. The purpose of the provisions dealing with exclusion from forfeiture is not to protect victims of crime, but rather to avoid prejudice to parties who acquired an interest in the relevant property innocently and for fair value. Giving too wide a definition to “interest” would also reduce the amount that the State would receive into the Criminal Assets Recovery Account, which is used for the beneficial purposes set out in section 69A(1) of the POCA. Finally, the second judgment found that the majority judgment’s interpretation would lead to unsatisfactory confusion in the operation of the POCA. For these reasons, the second judgment would have dismissed the appeal.
The Full judgment here
