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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 29662/2018

In the matter between -

FLEKI PROPRIETARY LIMITED                                                                             Applicant

and

FNB SECURITIES PROPRIETARY LIMITED                                                    Respondent

J U D G M E N T

 

COPPIN J:

[1] This is an opposed application where, at the outset, the applicant sought a range of orders specified in paragraphs 1 to 6 (inclusive) of its notice of motion. However, at the time of hearing the relief sought by the applicant had been whittled down to the relief claimed in the following three prayers, namely:

(a) Prayer 1: an order that the respondent (“FNBS”) “take all steps necessary to cause the re-materialising under the Companies Act of the applicant’s holding of 3000 shares in British American Tobacco company (JSE code BTI), within five business days from the making of this order and then without delay make the certificate available at respondents premises to the applicant’s representative…”;

(b) Prayer 2: an order declaring “that objectively no fact or circumstances existed in 2017 and 2018 that gave ground for fearing or regarding anything in respect of the applicant or its behaviour as being irregular, unlawful, suspicious, or in breach of any compliance with anything or could justify a reasonable discretion to refuse doing stockbroking type business with applicant and any related person.”; and

(c) Prayer 5: that the respondent be ordered to pay the costs of the application. At the hearing the applicant did not persist in seeking an order for costs on a punitive scale as is claimed in prayer 5, but reverted to that claim in supplementary heads of argument filed after the hearing.

[2] I shall be dealing with each of the above prayers in turn. The main issue arising from prayer 1 is, in essence, whether FNBS’ compliance with a request of the applicant in terms of section 54 of the Companies Act[1], to materialise its dematerialised BTI shares, could be made subject to a condition. In respect of prayer 2, the main issue arising relates to this court’s jurisdiction and its discretion to make declaratory orders. The cost issue is dependent on the final outcome of the application.

[3] I shall be referring to the Companies Act 71 of 2008 as “the Companies Act’ and to the old Companies Act (i.e. Act 61 of 1973) as “the old Companies Act”.

 

Background Facts

[4] On or about 3 January 2011 when First Rand Limited acquired all the shares in FNBS, the applicant and other related companies, controlled by HC, a retired High Court judge, held stockbroking accounts with FNBS that were regulated by mandates concluded a while before.

[5] In 2016 a remediation process was embarked upon by FNBS with clients such as the applicant and its associated companies and in terms of which details and mandates were updated. On 3 March 2016 HC requested FNBS to make adjustments in particular to three of the six accounts held by companies controlled by HC (including the applicant and Kommoso CC (“Kommoso”)). These accounts seemingly contained manual entries made prior to 2008 that overrode the automatic electronic system entries for listed share corporate actions such as scrip dividends and schemes of arrangement – and had the effect of decreasing the cost of acquisition (i.e. the base cost of the shares) and increasing capital gains tax over time. The base cost being the cost of acquisition of the asset that is subject to capital gains tax[2].

[6] The record indicates that during the period March 2016 to February 2017 HC had engaged FNBS on occasion regarding the base cost of shares held in accounts, including the account of Kommoso, and that these engagements were marked by discussion and, at times, by disagreement. By about 14 February 2017 FNBS had committed to correcting its system to reflect the correct opening and closing balances of Kommoso’s AFE shares and Kommoso was satisfied with the base cost of all the other shares in its account, including its PIK shares.

[7] In May 2017 HC, acting on behalf of Kommoso, requested FNBS in terms of section 54 of the Companies Act to re-materialise its AFE and PIK shares, the base costs of which had been adjusted. FNBS acceded to this request and presented the AFE and PIK share certificates to HC on 11 May 2017.

[8] On 28 July 2017 Kommoso transferred 12,000 AFE shares for a consideration of R1, 285, 800 plus STT, and 15113 PIK shares for a consideration of R928, 938 plus securities transfer tax (“STT”) to the applicant. On 21 August 2017 HC lodged transfer forms and proof of payment of the STT in respect of the AFE and PIK shares with FNBS for the credit of the account of the applicant and also requested FNBS to dematerialise and “deposit” the AFE and PIK shares into the applicant’s account. HC instructed FNBS that the base cost of the shares are to be recorded as R1, 289, 052 for the AFE shares, and R930, 295 for the PIK shares.

[9] According to FNBS, these instructions raised a red flag, because they were consistent with a composite transaction in terms of which, essentially, shares are moved between associated accounts and their base cost increased without any record of a capital gain by the account holder, or any certificate issued in that regard by FNBS to the South African Revenue Service (SARS).  FNBS avers that, in light of its statutory and/or regulatory obligations under the Financial Intelligence Centre Act[3] (“FICA”) to monitor and report suspicious and/or unusual transactions, it was duty-bound to first make enquiries before complying with HC’s instruction to dematerialise the AFE and PIK shares to the applicant’s credit.

[10] To this end, according to FNBS, it requested from HC, in respect of the share transactions between Kommoso and the applicant, “proof of the payment/submission/declaration to SARS” for its records. HC, who took exception to this request and saw it as an affront, responded that FNBS was engaging in speculation and guesswork and that the fate of Kommoso’s shares after materialisation was not the business of FNBS. According to FNBS these views of HC formed the subject of enquiry and debate within its ranks.

[11] On 2 October 2017 Kommoso, through HC, terminated its mandate with FNBS. And on 2 November 2017 FNBS’ board authorised the termination of its mandate with the account holders represented by HC, subject to HC furnishing a satisfactory explanation for not producing the information requested regarding the Kommoso shares.

[12] On 4 November 2017 HC wrote to Mr Van Eyden, director and chief executive officer of FNBS concerning, inter-alia, the affairs of the applicant and stated the following: “the books are in the hands of the auditors for the 2016 – 2017 year. A proper (complete) ITC 3C is now required that states the information for both shares (including Illovo)(or two certificates, both accurate). FNBS may not sit back. There is no basis or way in which the actual facts of purchasing costs can be re– written to accord with the hearsay guesswork of a CSDP. FNBS must now correct its records to accord with the proof placed before it. For Kommoso operations have skew views and made entries about what did not involve FNBS, as intelligent senior staff will understand.”

[13] According to FNBS, consequent upon receiving the letter, Mr Van Eyden caused further internal investigations to be conducted and for discussions to be held within FNBS. HC was not willing to wait. On 4 December 2017 HC wrote an email to Mr Van Eyden threatening FNBS with litigation “… unless a positive response was received” from Mr Van Eyden by no later than 10 December 2017. Mr Van Eyden replied to this email on 8 December undertaking to respond to its contents by 13 December 2017.

[14] On 11 December 2017, pursuant to a decision taken at FNBS, it, in writing, requested HC to provide an affidavit explaining the transaction between Kommoso and the applicant and confirming the facts contended on behalf of Kommoso and the applicant. In particular, it sought confirmation of the base cost values of the AFE and PIK shares provided by HC in his letter of 21 August 2017 to FNBS.

[15] HC complied with the request and submitted a lengthy affidavit to FNBS on 15 December 2017 in which he, inter alia, confirms under oath that he was a member of the applicant and of Kommoso. He took exception to the fact that FNBS seemed not to believe him and stated that he found that “demeaning” and “thought that he had no record of dishonesty with FNBS”. HC expounded further on these aspects in that affidavit. HC further confirmed what he had informed FNBS in writing of in August 2017, i.e. concerning the cost of acquisition by the applicant, was the truth.

[16] According to FNBS, after discussing the matter internally and considering that it would remain HC’s responsibility, on behalf of both entities, Kommoso and the applicant, “to account for the transfer of shares in the books and records as well as the tax returns” of those entities, FNBS (ultimately) resolved “to accept the affidavit as sufficient evidence or explanation to permit FNBS lawfully and properly to record the base cost values in the [applicant’s] account as those contended for in writing and confirmed under oath by [HC]”. FNBS gave effect to that resolution at the beginning of March 2018. However, this was preceded by another email from HC to Mr Van Eyden in which HC, essentially, demanded the required action.

[17] On 4 March 2018 HC, in an email, requested Mr Justin Louw of FNBS to re-materialise the applicant’s 3000 BTI shares. The email reads as follows: “Hierdie is ‘n versoek om Fleki se British Tobacco aandele te materialise. Ek sou ‘n split in vier gelyke aantal aandele verkies maar as dit vier maal die (stewige) fooi vir materialisasie beteken, sal ek die “split” self hanteer. Ek sal die sertifikaat/sertifikate by jou kantore kom afhaal…”.[4]

[18] According to Mr Van Eyden (who is the deponent of FNBS’s answering affidavit in this application) this request came “before any dust could settle on the AFE and PIK re-materialisation – dematerialisation” issue and it resulted in “further enquiry and debate” amongst the relevant teams at FNBS.

[19] On 8 March 2018 Mr Lowe reverted to HC by email, essentially seeking a reason for HC’s request. The email reads as follows: “Our compliance teams have asked us for the reason you wish to re-–mat the BTI shares as the JSE does not re-mat shares unless [there are] special circumstances. Could you be so kind as to give me more clarity? We can transfer shares (at no brokerage cost) to another individual or entity electronically which is a lot safer and cheaper so there is no need for a re–mat. It also allows us and the JSE to have an audit trail.”

[20] HC’s response on the same date was terse and to the point: “it is nothing of their business.” Nevertheless, on 9 April 2018 HC made enquiries directly with the JSE. The questions he posed to the JSE are important as they really form the crux of the main issue to be resolved in this matter. In an email to its public relations officer, Ms Mayekiso, HC states: “I thought that the public relations officer would be the right person to contact for help. For that reason this email… I hope you can answer or re–direct the email to whoever can help. I know that legislation authorises dematerialisation of shares. The devil can be in the detail. 1. Can you please refer me to a source where I can actually read what governs the process, e.g who actually manages and supervises and what rules operate as affecting the shareholder. 2. Of pertinent importance is: If I dematerialise a listed share, can I get it back into certificated held shape? 3. If the answer is yes, is the right to go back to certificated form subject to any right of the registered holder (“depository”) or share broker to refuse the materialisation for example to revert to a certificate only if a reason is provided, or only if the reason that is provided is convincing to the relevant holder/share broker? Or only if the listed company concerned agrees? 4. If so, I need to establish what right of refusal or delay exactly may be in the way?…” (Underlining added)

[21] On 11 April 2018 Ms Mayekiso informed HC that the request was not for the JSE, but for Strate (Pty) Ltd (“Strate”), and that she had forwarded it to Strate which will respond to HC. Strate is licensed as South Africa’s only central securities depository in terms of the Securities Services Act. The settlement of all trades within the JSE occurs within Strate[5]. It appears as if no response was received from Strate.

[22] In the meantime, following an email from HC to Mr Louw of FNBS to follow-up on the applicant’s instruction, FNBS on 6 April 2018 wrote to HC notifying him of the termination of the applicant’s account with effect from 8 May 2018. Notwithstanding the notice, HC persisted to demand that FNBS comply with the applicant’s instruction. Mr Louw responded to HC on 7 May 2018 confirming the termination of the applicant’s account with FNBS and requesting the details of the applicant’s new account. The applicant then brought this application on 13 August 2018.

 

Issue: The request to de-materialise shares

[23] On the papers in the application the parties, essentially, still maintain the same stances they, respectively, had prior to the application. The applicant contends that in terms of the Companies Act it has a choice as to the form of its shares, i.e. in either certificated, or in un-certificated, form and that if it makes a request to the broker (the relevant participant) in terms of section 54 that its uncertificated shares be withdrawn from the uncertificated securities register and that certificates be issued in respect of those withdrawn securities, as contemplated in that section, the broker is obliged to comply with the request by notifying the relevant company to provide the requested certificate and to remove the details of the uncertificated shares from the uncertificated securities register.

[24] FNBS, maintains, inter-alia, in its answering affidavit, that it will not oppose the relief sought by the applicant in prayer 1 of its notice of motion if HC attaches to the applicant’s replying affidavit records reflecting that Kommoso reported to SARS the capital gain realised by it on the transfer to the applicant of the AFE and PIK shares, and if HS also undertakes, on behalf of the applicant, to do likewise in respect of the BTI shares upon their disposal. The applicant refused to accept this “tender” of FNBS.

[25] In its answering papers FNBS avers that it is entitled to request any information from the applicant in terms of the written mandate concluded between them on 9 February 2017. It relies in particular on clause 16 of the mandate in terms of which it was agreed that: “[FNBS] may at any time whilst this mandate is in force and effect, request any additional documents/information as it may require and such documents must be furnished within 14 (fourteen) days or such other period of time as [FNBS] may communicate in such request”.

[26] FNBS also points out that in terms of clauses 3, 9, 17.1 and 19 of the same mandate it was authorised to hold and manage the applicant’s investments subject to the terms of the mandate and the provisions of the applicable legislation or regulations; that it was entitled to, at any time, request from the applicant additional documentation and/or other information, even before acting on any instruction from the applicant, and that the latter was obliged to comply with that request. Further, that FNBS was permitted to monitor the applicant’s transactions and entitled to refuse to carry out any of the applicant’s instructions; and that either party was entitled to terminate the mandate on 30 days written notice. FNBS dealt expansively with these grounds in its affidavits. In addition, FNBS maintained that its refusal to comply with the applicant’s request was justified because of its obligations in terms of FICA, the Tax Administration Act[6], the Financial Markets Act[7], the Financial Sector Regulation Act[8], the Banks Act[9] and the Exchange Control Regulations of the Reserve Bank.

[27] When the matter was first called counsel for the applicant argued, in essence, that in terms of the plain wording of section 54, FNBS was obliged to comply with the applicant’s instruction for the dematerialisation of its BTI shares and could not make such compliance conditional. In particular, counsel relied on section 49 (4) (b) of the Companies Act which, in essence, provides that the provisions of sections 52 to 55 (i.e. including section 54) of the Companies Act prevail in the case of a conflict between any provisions in those sections and any other provision of the Companies Act or any other law, the common law, the company’s memorandum of incorporation, or any agreement.

[28] Counsel for FNBS had not anticipated the reliance on section 49(4)(b). It was not referred to in the applicant’s heads of argument or in any of its affidavits. In light of what was essentially a new argument the parties were given an opportunity to file further heads dealing with that aspect. In the supplementary heads filed on behalf of FNBS counsel, essentially, elaborated on its alleged statutory obligations in terms of FICA. Ultimately it is submitted that those obligations of FNBS prevail over section 54, read with section 49(4), of the Companies Act. In particular, it is contended that sections 21C, 21E and 29(1), read with section 1A, of FICA, obliges FNBS not to comply with the applicant’s instruction to materialise the BTI shares, because that instruction “triggered a genuine and reasonable concern as to its lawfulness and propriety.”

 

Discussion

Brief background and legislative history of uncertificated securities

[29] The traditional position in South African company law was that shares were evidenced by certificates. Section 91 of the old Companies Act provided that the shares or other interests which any member has in a company shall be movable property, transferable in the manner provided by the old Companies Act and the articles of association of the company. The need arose to bring the South African law in line with international developments, making the transfer process of shares and other securities more efficient. There was in particular a need to provide for the dematerialisation of shares or for uncertificated securities, and for the materialisation of such securities[10].

[30] Accordingly, section 91A was introduced into the old Companies Act. The section dealt with uncertificated securities and regulated, inter-alia, the transfer of such securities in accordance with the rules of a central securities depository. It provided for, inter-alia, the keeping of a sub-register that was to be kept by a “participant”[11] and further provided that the participant was the only one that could affect the transfer of uncertificated securities in the sub-register. This holding and transfer of uncertificated securities was introduced specifically to provide for securities traded on public financial markets such as the JSE[12].

[31] Although section 91A of the old Companies Act contained specific provisions that companies may not issue certificates evidencing title to uncertificated securities (section 91A(7)(a)) – the section permitted a person who wanted to withdraw its uncertificated securities held by the participant and obtain a certificate in respect of part or all of those securities – to notify the participant accordingly. The participant was obliged to notify the relevant company to provide such certificate and to remove the uncertificated securities, so withdrawn, from the subregister maintained by the participant (section 91A(7)(b)(i)). Having been so notified, the company was obliged to immediately enter the said person’s name and details, in respect of his holding, in the company’s register of members and to indicate on the register that the securities are no longer held in uncertificated form. The company was also obliged to prepare and deliver to that person a certificate of the securities and to notify the central securities depository that they were no longer held in uncertificated form (section 91A(7)(i), (ii), (iii) and (iv)).

[32] But the intention, supposedly, was to gradually phase out certificates and the re-materialisation process, and to that end the certificated and uncertificated holding and transfer systems of shares were continued in parallel and the shareholder was given the choice to, either have its securities (or shares) in certificated, or in uncertificated form (section 91A(7)(a) of the old Companies Act). Even though the introduction of uncertificated securities was voluntary in terms of the old Companies Act, in practice all listed companies were obliged to agree for the securities to be held in uncertificated form. The JSC also made it a requirement that the transactions relating to securities of South African listed companies must be settled in uncertificated format in Strate[13].

[33] In the Companies Act the Legislature yet again opted for the non-– compulsory model, allowing investors to have a choice between having the securities, either in certificated, or in uncertificated form. This conservative approach was in line with the stated purpose of the Companies Act to “encourage active participation in economic organisation”[14]. The shareholder is free to at any time withdraw (or rematerialise) its shareholding from the uncertificated system and to have it converted to a certificated shareholding[15]. Hence, the nature of uncertificated securities in the old Companies Act and in the (new) Companies Act is, basically, still the same[16].

[34] Section 49(2) of the Companies Act provides that securities are to be evidenced, either by certificates, or are to be uncertificated. Of further significance, in terms of section 49(3) of the Companies Act – except to the extent expressly provided by the Companies Act – (a) the rights and obligations of security holders are not different solely on the basis of their respective securities being certificated or uncertificated; and (b) any provision of the new Companies Act applies with respect to any uncertificated securities, in the same manner as it applies to certificated securities.

[35] In terms of section 49(5) certificated securities may cease to be evidenced by certificates, in which case subsection (4) applies to those securities from the time they become uncertificated. Section 49(6) provides on the other hand, that any uncertificated securities may be withdrawn from the uncertificated securities register in the manner contemplated in section 54, and certificates are to be issued for those securities – thus evidencing them. Sections 52 to 55 of the Companies Act then cease to apply to those securities. Section 49(6)(b) provides that while the securities are in certificated form – for greater certainty – transfer of their ownership cannot be affected by a participant or the central securities depository (CSD) – unless they are held in certificated form in collective custody by the participant or the CSD.

 

The meaning of sections 54 and 49(4) of the Companies Act>

[36] The wording of section 54 is clear and unambiguous. The section provides: “(1) a person who wishes to withdraw all or part of the uncertificated securities held by that person in an un-certificated securities register, and obtain a certificate in respect of those withdrawn securities, may so notify the relevant participant or central securities depository, as determined in accordance with the rules of the central securities depository, which must within five business days – (a) notify the relevant company to provide the requested certificate; and (b) remove the details of the uncertificated securities from the uncertificated securities register. (2) after receiving a notice in terms of subsection (1)(a) from a participant or central securities depository, as the case may be, a company must (a) immediately enter the relevant person’s name and details of that person’s holding of securities in the company’s security register and indicate on the register that the securities so withdrawn are no longer held in uncertificated form; and (b) within 10 business days, or 20 business days in the case of a holder of securities who is not resident within the Republic – (i) prepare and deliver to the relevant person a certificate in respect of the securities; and (ii) notify the central securities depository that the securities are no longer held in uncertificated form. (3) a company may charge a holder of its securities a reasonable fee to cover the actual costs of issuing a certificate, as contemplated in this section.”

[37] The conversion from uncertificated to certificated securities is triggered by the wishes of the holder of the securities – and if he desires materialisation and notifies the relevant participant or CSD, where the securities are held in dematerialised form, in accordance with the rules of that depository, of such wish or desire – the participant (or depository, as the case may be) is obliged to, in turn, notify the company to provide the required certificate and to remove the details of the uncertificated securities from that register. In turn, the company receiving the notification from the participant or depository, as the case may be, is obliged to do what section 54(2) requires of it. Neither the relevant participant, nor the depository, nor the company, has any discretion in that regard. This is in line with, inter alia, one of the stated purposes of the Companies Act, namely, to encourage active participation in economic organisation[17]. The legal framework for dematerialisation of shares is voluntary and the decision to hold a share certificate is optional and within the discretion of the shareholder[18].

[38] Section 49(4)(b) of the Companies Act, in effect, confirms this. The section provides: “sections 52 to 55 (a) apply only to uncertificated securities; and (b) prevail in the case of a conflict between any provision of those sections and any other provision of this act, any other law, the common law, the company’s Memorandum of Incorporation or any agreement.”

 

The predominance of statutory provisions

[39] Thus, section 49(4), read in conjunction with section 54, provides, in short, that even if any other provision of the Companies Act, or any other law, the common law, or the company’s MOI, or any agreement (which would include a mandate) provides that the participant has a discretion, or may refuse to comply with the request to materialise, the provisions of section 54 prevail.

[40] It is of further significance that at the time section 49(4) was enacted in 2008, FICA was already on the statute books and in operation, but section 49(4)(b) does not, at least expressly, make an exception regarding FICA or its provisions.

[41] The high watermark of FNBS’s resistance to the applicant’s request for the materialisation of its 3000 BTI shares – is that it has obligations in terms of FICA and that the provisions of that Act prevail over those of the Companies Act (including section 49(4) and section 54). In other words, according to the argument, section 49(4) must be read so as to make the FICA legislation an exception. FNBS, in particular, refers to section 1A of FICA that was inserted into that Act in 2008 by section 2 of the Financial Intelligence Centre Amendment Act[19], and which provides: “if any conflict, relating to the matters dealt with in this Act, arises between this Act and the provisions of any other law existing at the commencement of this Act, save the Constitution, the provisions of this Act prevail.”

[42] That the provisions of section 49(4) thus only become relevant where there is a conflict between the provisions contemplated in that section (including section 54) and, inter-alia, any other law, including the provisions of FICA, is clear from its wording and from section 1A of FICA. FNBS has not shown that there is conflict between section 54 and those provisions of FICA that it relies upon, and there is indeed no conflict.

[43] FNBS relies principally on sections 21C, 21E(c), and 29(1) of FICA. Its purported concession in its supplementary heads of argument that if those sections are “properly” read, they are not in conflict with section 54 of the Companies Act, puts paid to its argument that those provisions of FICA therefore trump the provisions of section 54 of the Companies Act and prevail over the latter. In the absence of conflict the question of the predominance of the statutory provisions does not even arise.

 

The FICA provisions

[44] Section 21C of FICA provides essentially that “an accountable institution must conduct ongoing due diligence in respect of a business relationship, which includes (a) monitoring of transactions undertaken throughout the course of the relationship, including where necessary… (ii) the background or purpose of… all unusual patterns of transactions, which have no apparent business or lawful purpose.” (Emphasis added).

[45] Section 21E(c) of FICA essentially provides that if the (accountable) institution is not able to conduct such due diligence it “(i) may not… conclude a single transaction with a client; (ii) may not conclude a transaction in the course of a business relationship, or perform any act to give effect to a single transaction; or (iii) must terminate… an existing business relationship with a client, as the case may be, and consider making a report under section 29 of this Act.” (Emphasis added).

[46] Section 29(1) deals with the reporting to the Financial Intelligence Centre of “suspicious and unusual transactions”. It requires “a person who carries on a business, or is in charge of, or manages a business, or is employed by a business and who knows, or ought reasonably to have known, or suspected that, inter-alia, (a)…; (b) a transaction or series of transactions to which the business is a party – (i) facilitated or is likely to facilitate the transfer of the proceeds of unlawful activities… (ii) has no apparent business or lawful purpose; (iii) is conducted for the purpose of avoiding giving rise to a reporting duty under this Act; (iv) may be relevant to the investigation of an evasion or attempted evasion of a duty to pay any tax, duty or levy imposed by legislation administered by the Commissioner for the South African Revenue Service; or (v) relates to the offence relating to the financing of terrorist and related activities; or (c) the business has been used or is about to be used in any way for money-laundering purposes… must, within the prescribed period… report to the Centre the grounds for the knowledge or suspicion and the prescribed particulars concerning the transaction or series of transactions.” (Underlining added)

[47] At present FICA does not define the term “transaction”. The definition that was there previously was deleted from section 1 of FICA in 2017[20]. The deleted definition read as follows: “‘transaction’ means a transaction concluded between a client and an accountable institution in accordance with the type of business carried on by that institution”. (Emphasis added). It is obvious that the deleted definition was not helpful, because one still had to give meaning to the term “transaction”. Its deletion and the absence of substituted wording, seems to indicate that the intention was for the term “transaction” to be interpreted in the context of the nature of business, or business activity, that was being considered in a particular case.

[48] FNBS has submitted in its supplementary heads of argument that the term “transaction” should be given its ordinary dictionary meaning namely “the act of buying or selling, or the action of conducting business”[21]. It argues that this meaning is consistent with the context and purpose of FICA – “in that it serves to bring a greater rather than lesser class of financial interactions within the ambit of regulatory scrutiny”. I do not agree. If it was that simple there is no reason why the Legislature would not have defined the term “transaction” by giving it the dictionary meaning contended for by the respondent. The Legislature clearly did not want to restrict the meaning to that extent.

[49] The applicant’s counsel, on the other hand, in effect, contended that since FICA still retains the definition of the term “single transaction”[22], that definition should be utilised to give meaning to the term “transaction”. The definition of ‘single transaction’ reads as follows: “ ‘single transaction’ means a transaction – (a) other than a transaction concluded in the course of a business relationship; and (b) where the value of the transaction is not less than the amount prescribed, except in the case of section 20 A” (emphasis added).

[50] I do not agree with that argument either, albeit accepting that both, the dictionary meaning and the definition of “single transaction”, provide some insight into what a transaction is, and may be invaluable in determining what it cannot be.

[51] Both, the above meanings envisage an underlying agreement (i.e. a meeting of minds) in a business relationship context. Ultimately, one would have to consider the nature of the business relationship and consider whether the act under consideration is a “transaction” within that context, and whether there is some agreement, or whether it is a unilateral act.

[52] The Legislature most probably also chose not to define the term in the FICA because there may be many kinds of “transactions” which do not only involve buying and selling. The act of buying and selling may be but one kind of transaction, or business activity, or act of doing business. The term “business” generally means any activity that occupies the time, attention and labour of a person for the purposes of making a profit[23]. It is more extensive than the term “trade”, which is the essential idea underlying buying and selling.

[53] The applicant’s counsel also referred to the definition of “transaction” in the Financial Markets Act[24]. There, for the purposes of that Act, it is defined as a “contract of purchase and sale of securities”[25].

[54] The actions contemplated in section 54 of the Companies Act are not “transactions” as contemplated in FICA. The person who (unilaterally) desires to materialise its uncertificated securities, or shares – does not enter into any agreement with the relevant participant or the CSD – it merely notifies those parties of its desire, in accordance with the depository’s rules, and the participant or depository is, by law, obliged to comply with the request in the manner prescribed by section 54. The company is also obliged to comply with its obligations under that provision. In any event, it cannot be contended that, either the request, or any part of the process allowed and enshrined by section 54 of the Companies Act, are unlawful.

[55] FNBS’s reliance on FICA, including section 29 of that Act, is misplaced and based on a misreading of those provisions. In refusing to comply with the request to materialise the applicant’s BTI shares – FNBS seems to have overlooked the purpose and object of the provisions of section 54 of the Companies Act and has, effectively, regarded that section as non-existent.

[56] FNBS’s assumption of bad motives on the part of the applicant (or for that matter HC) for requesting a materialisation of its BTI shares is unsound and cannot serve to lawfully justify FNBS’s refusal to comply with section 54 of the Companies Act. Its assumptions about what the applicant may or may not have done following its purchase of the AFE and PIK shares from Kommoso, is similarly, not lawfully justified and appears contradictory, in particular, since it had accepted HC’s affidavit explaining the position as sufficient. FNBS does not even say that it had reported that matter, or its suspicions concerning that transaction, to the Financial Intelligence Centre, or to SARS, or any other (including, relevant) State authority.

[57] It is noteworthy that when FNBS first refused to comply with the applicant’s request to materialise its uncertificated BTI shares it said that “the JSE does not re-mat shares unless [there are] special circumstances”. The respondent made no mention at all of their suspicions, or their alleged obligations in terms of FICA. These latter justifications were only raised in their answering papers in this application. The initial justification appears not to have been correct – because the JSE does not re-mat shares – and had nothing to do with the request for the materialisation of the shares, as is evident from the correspondence that passed between HC and the JSE’s public relations officer, Ms Mayekiso. She referred HC’s queries to Strate.

[58] In any event, the request to materialise the BTI shares (as contemplated in section 54 of the Companies Act) was not addressed to, either, the JSE, or to Strate, but was addressed to FNBS, which is the relevant participant and which was obliged to comply with the request in the manner contemplated in section 54. Even if the request had been addressed to Strate it would have been obliged to comply with the request as is envisaged in section 54.

[59] In the circumstances the applicant is entitled to an order in terms of prayer 1 of its notice of motion.

 

Issue 2: the declaratory relief sought (i.e. prayer 2)

[60] As mentioned at the outset, the applicant seeks a declaratory order that “objectively no fact or circumstances existed in 2017 and 2018 that gave grounds for fearing regarding anything in respect of the applicant or its behaviour as being irregular, unlawful or suspicious, or in breach of any compliance with anything or could justify a reasonable discretion to refuse doing stockbroking type of business with applicant and any related person”.

[61] FNBS argues that “given the resolution of earlier broker-client impasses in respect of the AFE and PIK shares as well as the termination of the mandates described in the chronology of events forming part of these submissions, it was denied by FNBS that there remains any live dispute between the parties that provides a basis on which [the applicant] could seek declaratory relief. Such an order would be in the nature of an academic opinion and ought therefore not be granted by this Court…”. It argues in the alternative, that the order is very broad (“sweeping”) and is not supported by the facts.

[62] In terms of section 21(1)(c) of the Superior Courts Act[26] the High Court has the power “in its discretion, and at the instance of any interested person, to enquire into and determine any existing, future or contingent right or obligation, notwithstanding that such person cannot claim any relief consequent upon the determination.”

[63] It is a trite proposition of law that the courts will not give a party legal advice or answer abstract, hypothetical or academic issues[27]. The declaratory order sought by the applicant is sweepingly broad and raises issues that fall within those categories of matters. The relief essentially relates to past events, namely, Kommoso’s request to materialise its AFE and PIK shares, the applicant’s acquisition of those shares, and the applicant’s request concerning its BTI shares, which forms the subject of prayer 1. As found earlier, FNBS was satisfied with HC’s explanation concerning the AFE and PIK shares, and the request to materialise the BTI shares was dealt with above.

[64] Alternatively, the statements and insinuations to which the declaratory order relate, might give rise to a cause(s) of action and another (or other), more appropriate, remedy(-ies) for the applicant, i.e, other than a declaratory order[28], although I make no specific finding in that regard, because of a lack of specific and sufficient information. The fact that other remedies, other than a declaration of rights are available is a factor that the court may take into account in the exercise of its discretion whether to, or not to, grant the declaratory order[29].

[65] In the supplementary heads of argument submitted on behalf of the applicant, it, seemingly, does not persist in seeking the declaratory relief. At the hearing counsel for the applicant also did not really press for the grant of that relief.

[66] Taking all the circumstances and facts into account I am disinclined to grant the declaratory order, and a case has not been made out for its grant.

 

Issue 3: Costs

[67] At the outset, the applicant sought a punitive cost order against the FNBS in the event of it being successful, and FNBS, in turn, sought a similar order against the applicant in the event of its success in this application.

[68] At the hearing the parties sought ordinary party–and--party costs against each other. The FNBS employed two counsels, and accordingly sought the costs of two counsel on the party-and-party scale. The applicant’s counsel sought the costs of senior counsel.

[69] In their, respective, supplementary heads of argument the parties reverted to seeking punitive costs orders against each other. FNBS sought an attorney and client costs order on the grounds that the applicant “belatedly and therefore wastefully” abandoned prayers 3, 4 and 6, as well as the punitive costs component of prayer 5, and had “effectively, abandoned prayer 2 as well”. According to FNBS, regardless of the outcome of prayer 1, the applicant would, accordingly, be “substantially unsuccessful in the litigation”. It was further submitted that the applicant was also responsible for driving up the costs by insisting that its counsel, who undertook to act pro bono for it, charge for their services, and by “refusing even to entertain reasonable offers of settlement”.

[70] According to the applicant’s counsel, the applicant was entitled to a punitive costs order because of the following: “throughout the correspondence with the applicant and in its opposing affidavit [FNBS] showed a remarkable lack of insight into its statutory obligations”; and it was, seemingly, not aware of section 54 of the Companies Act; when it became aware of that provision it “frantically attempted” to rely on its mandate for its refusal to act, even though it never relied on the mandate in the correspondence between the parties that preceded the application; that when such reliance proved futile, in light of section 49 (4) of the Companies Act, FNBS proceeded to rely on a “whole host of statutory provisions” in its answering papers, without being very specific about the provisions in the Companies Act and FICA it was relying on. Counsel for the applicant also pointed out that the fact that FNBS unilaterally imposed conditions on its tender to the applicant concerning the latter’s request for materialisation of its BTI shares, in the face of express statutory provisions effectively precluding it from doing so, confirms that it was mala fide, and acted without having any factual or legal basis for doing so.

[71] The award of costs is within the discretion of the court. It is a judicial discretion to be exercised in the light of all the facts and circumstances of the matter. The general rule is that a successful party is entitled to its costs[30]. Substantial success is sufficient[31].

[72] The main issue that triggered this application, and which remained in dispute throughout, concerned FNBS’ obligation to comply with the request that it materialise the applicant’s uncertificated BTI shares. The applicant’s position on the matter is vindicated and it is entitled to the relief sought in prayer 1 of its Notice of Motion. Its success is not merely technical. Further, it is not practicable to apportion costs to the different prayers.

[73] Taking into account all factors and circumstances, the applicant has been substantially successful and there is no reason to depart from the general rule regarding the award of costs[32]. However, the costs are to be on the ordinary party-and-party scale, save that it be noted that the employment of senior counsel by the applicant was justified and that such costs ought to be allowed.

[74] In the result the following order is made:

1. The respondent (FNBS) is to take all steps necessary (as envisaged in section 54 of the Companies Act 71 of 2008), to materialise the applicant’s holding of 3000 shares in British American Tobacco Company (JSE code BTI) within five (5) business days of the granting of this order.

2. The respondent (FNBS) is to pay the costs of the application, which shall include the costs of senior counsel.

 

 

            __________________________________________

        P COPPIN

       Judge of the South Gauteng Local Division

 

 

APPEARANCES:

FOR THE APPLICANT                  DTR Du Plessis SC

INSTRUCTED BY                         Hesselink Konig Incoporated

FOR THE RESPONDENT            R Pearse SC and

                                                            S Kazee

INSTRUCTED BY                         Norton Rose Fulbright

 

[1] The Companies Act 71 of 2008.

[2] See: the Eighth Schedule of the Income Tax Act 58 of 1962.

[3] The Financial Intelligence Centre Act 38 of 2001.

[4] My translation into English: “This is a request to materialise Fleki’s British Tobacco shares. I would have preferred a split of the shares into four equal portions, but if that means four times the (hefty) fee for materialisation, I will [rather] handle the split myself. I will collect the certificate/certificates from your office…” 

[5] See Maria Vermaas “The Reform of the Law of uncertificated securities in South African Company Law” Acta Juridica (2010) 90 fn 22.

[6] Tax Administration Act 38 of 2001.

[7] Financial Markets Act 19 of 2012.

[8] Financial Sector Regulation Act 9 of 2017.

[9] Banks Act 94 of 1990.

[10] See generally Maria Vermaas “The reform of the law of uncertificated securities in South African company law” Acta Juridica (2010) at 88.

[11] The ‘participant’ is as defined in the Security Services Act 36 of 2004, namely, “…a person that holds in custody and administers securities or an interest in securities and that has been accepted in terms of section 34 by the central securities depository as a participant in that central securities depository”.

[12] For commentary on s 91A see Maria Vermaas “Dematerialisation of Listed Shares; A Synopsis of the Companies Second Amendment Act 60 of 1998” (1998) 10 SA Merc LJ at 340- .

[13] See Maria Vermaas Acta Juridica article (above) 90.

[14] See s7(f) of the Companies Act 71 of 2008 and M Vermaas’ Acta Juridica article (above) 90.

[15] See s 49(3) and s 54 of the Companies Act 71 of 2008.

[16] Compare s 91A(7)(b) of the Companies Act 61 of 1973 with s 49(3) and s 54 of the Companies Act 71 of 2008. See also M Vermaas’ Acta Juridica article (above) 90 fn 25.

[17] See s 7(f) of the Companies Act 71 of 2008.

[18] See also Maria Vermaas’ Acta Juridica article (above) 98.

[19] The Financial Intelligence Centre Amendment Act 11 of 2008.

[20] By s. 1(s) of Act 1 of 2017 with effect from 2 October 2017.

[21]  Oxford Dictionary and Thesaurus (2 ed; 2008).

[22] See: s 1 of the Financial Intelligence Centre Act 38 of 2001 (”FICA”).

[23] See: F du Bois et al “Wille’s Principles of South African Law” (Juta; 9ed) 1007; Standard General Insurance v Hennop 1954 (4) SA 560 (A) at 565; Pezzutto v Dreyer [1992] ZASCA 46; 1992 (3) SA 379 (A) at 389.

[24] See: the Financial Markets Act 19 of 2012.

[25] See: s.1 of that Act.

[26] Superior Courts Act 10 of 2013.

[27] See; Electrical Contractors’ Association (South Africa) v Building Industries Federation (South Africa) (2) 1980 (2) SA 516 (T) at 519H – 520B.

[28] See: inter-alia, NAPTOSA v Minister of Education, Western Cape 2001 (2) SA 112 (C) at 125D.

[29] See: inter-alia, Standard Bank of South Africa Ltd v Trust Bank of Africa Ltd 1968 (1) SA 102 (T) at 105H.

[30] See: inter alia, Merber v Merber 1948 (1) SA 446 (A) at 443.

[31] See: inter alia, Swanepoel v Van Heerden 1928 AD 15 at 24.

[32] See: Merber v Merber (above) at 453.

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