FACTS

Maslamon Theegarajan Pather (first applicant) and Ah-Vest Limited (second applicant)Footnote ¹⁰ contravened the market manipulation provisions of the Securities Services Act during the period between 31 May 2005 and 14 October 2005.Footnote ¹¹ The Directorate of Market Abuse (DMA)Footnote ¹² investigated the appellants’ conduct on behalf of the Financial Services Board (FSB) (first respondent)Footnote ¹³ during the period between November 2006 and May 2007.Footnote ¹⁴ The DMA conducted its investigations in accordance with the Securities Services ActFootnote ¹⁵ before it was amended. The second applicant has been listed on the Alternative Exchange of the Johannesburg Stock Exchange (JSE) since July 2004.

The DMA held that both appellants engaged in disclosure-based market manipulationFootnote ¹⁶ by falsely representing to the auditors that recorded credit sales transactions of R830,486.18 were genuine transactions, made in the ordinary course of business in April 2005 for audit purposes in relation to the second applicant's accounting records and financial statements for the year ending 28 February 2005. The first applicant recklessly caused its false audited financial statements for the year ending 28 February 2005 to be published on the JSE's Securities Exchange News Service (SENS) on 31 May 2005.Footnote ¹⁷ The DMA referred this matter to the second respondentFootnote ¹⁸ under the Securities Services Act.Footnote ¹⁹ Nonetheless, the actual referral took place after the amendments of the General Laws Amendment Act had come into effect.Footnote ²⁰

The second respondent found the appellants guilty of contravening section 76 of the Securities Services Act in 2009 and imposed administrative penalties against them. The appellants then approached the Appeal Board and argued that the administrative penalties had been imposed against them erroneously. However, the Appeal Board confirmed the second respondent's determination on 16 August 2010.Footnote ²¹ This determination was supported by the Minister of Finance (third respondent). Consequently, the appellants filed for a review of the determination in the High Court, arguing that the second respondent: lacked jurisdiction to impose administrative penalties against them by operation of section 79 of the Securities Services Act; lacked jurisdiction since its former jurisdiction to impose administrative penalties had been abolished by section 78(4) of the General Laws Amendment Act; applied the incorrect standard of proof; and erroneously relied on sections 102 to 105 of the Securities Services Act, which were unconstitutional.Footnote ²²

SECOND RESPONDENT DECISION

The second respondent held that the appellants contravened section 76 of the Securities Services Act after the referral from the DMA.Footnote ²³ Section 76 of the Securities Services Act prohibited disclosure-based market manipulation through the making or publication of false, misleading or deceptive statements, promises or forecasts in respect of listed securities. Similar provisions are currently contained in section 81 of the Financial Markets Act. The Financial Markets Act now requires any person who unknowingly has made or published a false, misleading or deceptive statement, promise or forecast to promptly publish a full and frank correction when he or she becomes aware that such statement, promise or forecast was false, misleading or deceptive.Footnote ²⁴ The second respondent decided the matter involving the appellants under the Securities Services Act before its amendment by the General Laws Amendment Act and subsequent repeal by the Financial Markets Act.Footnote ²⁵

The first respondent obtained evidence under oath from witnesses concerning the applicants’ conduct and business affairs, and held that both appellants were guilty on two counts of disclosure-based market manipulation.Footnote ²⁶ On the first count, the first applicant was found guilty of falsely representing to the auditors that R830,486.18 worth of recorded credit sales transactions were genuine transactions made in the ordinary course of business. On the second count, the first applicant was guilty of knowingly causing the second applicant's fictitious audited financial statements to be published on the SENS on 31 May 2005. The first appellant caused another false publication to be made on the SENS on 14 October 2005 to the effect that the overstatements in the financial statements were caused by human error. The EC rejected this position.

HIGH COURT DECISION

First, the appellants argued that the second respondent did not have the jurisdiction to enforce market manipulation administrative penalties by operation of section 79 of the Securities Services Act, since only High or Regional Courts had such jurisdiction. The High Court held that, when determining the second respondent's jurisdiction, plain language and statutory interpretation rules must be carefully considered. Consequently, the High Court held that section 79(1) of the Securities Services Act did not preclude the second respondent from enforcing its own anti-market abuse administrative penalties. Thus, the criminal jurisdiction of the High or Regional Courts to try market abuse offenders could be exercised concurrently with the second respondent's jurisdiction to impose anti-market abuse administrative penalties against such offenders.Footnote ²⁷

Secondly, the appellants argued that the second respondent lacked jurisdiction to enforce anti-market manipulation penalties because its former jurisdiction had been abolished by section 78(4) of the General Laws Amendment Act.Footnote ²⁸ However, the High Court held that section 78(4) of the General Laws Amendment Act did not deprive the second respondent of its jurisdiction to adjudicate upon market abuse cases by virtue of the presumption against retrospectivity and / or section 12(2) of the Interpretation Act.Footnote ²⁹ The High Court held that certain market abuse contraventions could continue to be sanctioned under the Securities Services Act as if it had never been repealed, due to the common law presumption against retrospectivity.Footnote ³⁰ Moreover, since section 78(4) of the General Laws Amendment Act impacted on existing substantive rights of the concerned parties at common law, it was not applicable to the respondents’ case.

Thirdly, the appellants argued that the second respondent erred by applying a civil standard of proof to proceedings that were more criminal in nature, thereby undermining the rule of lawFootnote ³¹ and their right to be presumed innocent. However, the High Court held that the enforcement authorities had discretion to enforce either criminal or civil anti-market abuse penalties.Footnote ³²

Fourthly, the appellants submitted that the second respondent's reliance on sections 102 to 105 of the Securities Services Act was unconstitutional, since it contravened sections 1(c), 2, 7(2), 34 and 35(3) of the South African Constitution of 1996 (the Constitution).Footnote ³³ Nevertheless, the High Court held that the applicants were not “accused persons” within the meaning of section 35(3) of the Constitution and that anti-market abuse administrative penalties were correctly applied.

HIGH COURT JUDGMENT ANALYSIS

Kgomo J correctly held that, when determining the second respondent's jurisdiction, the courts must consider statutory interpretation rules to avoid prejudicing the relevant parties. The plain language ruleFootnote ³⁴ stipulates that, in the absence of a contrary or ambiguous meaning within a statute, its words must be given their ordinary and literal meaningFootnote ³⁵ even though the intention of the legislature might have been different.Footnote ³⁶ This could have influenced the appellants to conclude that the EC lacked jurisdiction to try market manipulation offences, since section 79 of the Securities Services Act could be interpreted literally as limiting such jurisdiction to the High or Regional Courts. Thus, the appellants failed to comprehend that the courts must broadly consider the statutory context of legislative provisions in the light of the Constitution.Footnote ³⁷ The Constitution requires courts to promote the objects of the Bill of Rights when interpreting legislation and / or developing common law or customary law.Footnote ³⁸ Kgomo J correctly held that the courts may override the plain wording of a statutory provision if such an approach is consistent with the Bill of Rights.Footnote ³⁹ The appellants maintained that the High Court must apply the plain language rule, while the respondents argued that this rule was inconsistent with the Securities Services Act,Footnote ⁴⁰ which empowered the second respondent to scrutinize market abuse offenders’ submitted documents or hear their oral evidence.Footnote ⁴¹ Nevertheless, no similar provisions are found in the Financial Markets Act but they are found in the Protection of Funds Act, which empowers the second respondent to summon and cross-examine offenders.Footnote ⁴²

Kgomo J correctly held that section 104(6) and (7) of the Securities Services Act confirmed that both the second respondent and the courts were empowered to impose administrativeFootnote ⁴³ and criminal sanctions respectively against market abuse offenders. No similar provisions are found in the Financial Markets Act, but they are currently contained in the Protection of Funds Act.Footnote ⁴⁴ Despite the literal meaning of section 79(1) of the Securities Services Act, this provision did not imply that the second respondent had no jurisdiction to impose its own market abuse administrative penalties against the offenders.Footnote ⁴⁵ This provision granted the courts and second respondent an option to elect whether or not to impose administrative or criminal sanctions against market abuse offenders.Footnote ⁴⁶ Thus, the appellants erroneously concluded that the second respondent's decision was ultra vires. Therefore, the High Court correctly adjudicated this matter under the original jurisdiction of the old EC to avoid prejudicing the relevant parties.

The appellants merely focused on the fact that sections 94(e), 97 to 99, 100 to 106 and 111(1)(b) of the Securities Services Act were repealed and incorporated into the Protection of Funds Act, without taking into account that this repeal did not affect the second respondent's market abuse jurisdiction as stipulated by section 78(4) of the General Laws Amendment Act. Accordingly, the respondents postulated about three conceptual possibilities that were probably brought by this provision. The first possibility is that section 78(4) of the General Laws Amendment Act rendered market manipulation offences that were committed before its enactment immune from administrative penalties. The second possibility is that administrative penalties could still be imposed on market abuse offenders under the old EC. Lastly, section 78(4) of the General Laws Amendment Act preserved the jurisdiction of the old EC to enforce market abuse administrative penalties. The first possibility was incompatible with the common law presumption against retrospectivity.Footnote ⁴⁷ Thus, although the common law presumption against retrospectivity can be rebutted by the express terms of a statute, the law as existing before the enactment of new legislation must be applied if the court is left in doubt regarding the operation of that legislation.Footnote ⁴⁸ Therefore, the second respondent was still empowered to hear market abuse cases under section 78(4) of the General Laws Amendment Act.Footnote ⁴⁹ Consequently, Kgomo J correctly held that the common law presumption against retrospectivity enabled the old EC to retain its jurisdiction.Footnote ⁵⁰

On the second and third possibilities, Kgomo J held that section 78(4) of the General Laws Amendment Act impacted existing substantive rights of the concerned parties at common law, since its amendments were not applicable in respect of the market abuse contraventions that occurred before its enactment.Footnote ⁵¹ Substantive rights are those rights that are crucially important to the existence and well-being of any human being and are different from procedural rights that may be utilized by any person to enforce certain procedures under procedural law. However, Kgomo J failed to provide other practical measures that could be employed to distinguish between the jurisdiction of the old and new EC.

Moreover, the fact that the amending statute is procedural in nature does not automatically mean that it will always be interpreted as having retrospective effect.Footnote ⁵² Accordingly, where the substantive rights and obligations of the parties concerned are not negatively affected by the new statute, the provisions of that statute must apply. Thus, although the administrative penalty that could be imposed by the new EC under section 6D(2)(a) of the Protection of Funds Act is similar to the penalty that was stipulated in section 104(2)(d) of the Securities Services Act, the compensatory order that is provided in section 6D(2)(b)(i) of the Protection of Funds Act was not found in the Securities Services Act.Footnote ⁵³ The Financial Markets Act provides for no such compensatory order.Footnote ⁵⁴ Unlike the former position under section 104(5) of the Securities Services Act, the new EC is now empowered to make orders for costs for constituting its panel and related expenses incurred by the DMA.Footnote ⁵⁵ Thus, section 78(4) of the General Laws Amendment Act negatively impacted the substantive rights of the relevant parties at common law, since it did not abolish the second respondent's anti-market abuse regulatory jurisdiction by virtue of the presumption against retrospectivity and / or the Interpretation Act.Footnote ⁵⁶ The wording of section 78(4) of the General Laws Amendment Act must be interpreted as referring to any investigation that was instituted by the DMA but awaited referral to the second respondent before this provision came into force. This correct approach was followed in The Directorate of Market Abuse v Brown and Two Others.Footnote ⁵⁷ Therefore, the High Court correctly decided that section 78(4) of the General Laws Amendment Act preserved the jurisdiction of the second respondent in respect of market abuse offences committed before its enactment.

The courts conduct a civil standard of proof on the balance of probabilities, while they conduct a criminal standard of proof beyond any reasonable doubt. Accused persons are entitled to be tried by the courts under the criminal standard of proof. It is not clear why the appellants concluded that their alleged offences were more criminalFootnote ⁵⁸ than administrative in nature. The appellants’ decision was probably influenced in part by the judgment in Woodlands Dairy (Pty) Ltd and Another v Competition Commission,Footnote ⁵⁹ which held that administrative penalties are closely related to criminal penalties. The appellants overlooked the fact that they were never brought to court as accused persons and that it is debatable whether administrative penalties are absolutely criminal in nature. Therefore, Kgomo J correctly held that the administrative penalties for market abuse in South Africa are both criminal and civil in nature.Footnote ⁶⁰ Moreover, section 104(8) of the Securities Services Act provides that an administrative penalty does not constitute a previous conviction, as contemplated in the Criminal Procedure Act.Footnote ⁶¹ A related provision is found in section 6I(3) of the Protection of Funds Act, while the Financial Markets Act has no such provision. Section 103(2) of the Securities Services Act stipulates that the DMA or registrar may file with the clerk of any competent High Court a certificate stating the market abuse administrative penalty to be paid by an offender; that certificate has the effect of a civil court judgment made in favour of the FSB. A similar provision is found in section 6E(2) of the Protection of Funds Act but not in the Financial Markets Act.

The second respondent correctly exercised its discretion to apply a civil standard of proof to the appellants’ case as echoed by Luiz,Footnote ⁶² who submitted that the primary purpose of the administrative penalties that the second respondent may impose against market abuse offenders is to enhance deterrence and / or provide adequate redress to affected persons, but not to punish offenders. This approach is expressed in Financial Services Board and Berman and Stacey,Footnote ⁶³ which held that market abuse proceedings were an administrative enquiry and not criminal proceedings per se and that the market abuse administrative penalties should be severe enough to discourage other offenders.Footnote ⁶⁴ Moreover, in both Davidson & Tatham v Financial Services Authority Footnote ⁶⁵ and Parker v Financial Services Authority,Footnote ⁶⁶ the civil standard of proof was applied in order to determine appropriate anti-market abuse penalties.

Obviously, the second respondent is not empowered to hear any market abuse criminal proceedings, since it is not an ordinary court within the meaning of section 35(3)(c) of the Constitution.Footnote ⁶⁷ Thus, the nature of the proceedings should be considered to determine whether the offenders are accused persons.Footnote ⁶⁸ This determination is complicated by the fact that the Constitution does not define the term “accused persons” for the purposes of section 35.Footnote ⁶⁹ In De Lange v Smuts NO and Others,Footnote ⁷⁰ the court held that the purpose and nature of the committal proceedings under section 66(3) of the Insolvency Act 24 of 1936 did not constitute criminal proceedings that could give rise to a criminal conviction. Thus, a mere examinee is not an accused person as indicated in National Director of Public Prosecutions v Phillips and Others,Footnote ⁷¹ where a person facing a confiscation order was not treated as an accused person; such an order is not meant to punish but rather to deprive offenders of their illicit benefits. This ultimately shows that the market abuse proceedings instituted by the second respondent are either civil or administrative in nature, and designed for the purposes of deterrent.

The appellants erroneously held that the second respondent's decision to impose anti-market abuse administrative penalties against them violated sections 1(c), 2, 7(2), 34 and 35(3) of the Constitution, since they were not “accused persons” within the meaning of section 35(3) of the Constitution. The second respondent did not contravene section 34 of the Constitution, since the appellants were never denied access to the courts or independent tribunals as their matter was heard by an independent administrative tribunal and the High Court. The appellants had no legal basis to seek an anti-market abuse criminal proceedings trial before the ordinary courts, since they were not accused persons and their constitutional challenge relating to section 34 of the Constitution should fail because it was not part of the initial papers that were filed in the High Court.Footnote ⁷² The determinations of the second respondent and the Appeal Board could amount to an administrative action as defined in the Promotion of Administrative Justice ActFootnote ⁷³ and section 33 of the Constitution. Consequently, the appellants cannot successfully argue that the second respondent was not empowered to hear market abuse cases.Footnote ⁷⁴

As discussed above, the appellants’ right to a fair trial was not violated by the decision of the second respondent to impose administrative sanctions against them because: the main object of the second respondent's proceedings is not to punish the offenders but to protect the integrity of South Africa's financial markets; and the appellants were not regarded as accused persons.Footnote ⁷⁵ Thus, the second respondent's administrative sanctions are more preventative rather than criminal in nature.Footnote ⁷⁶ In conclusion, it is submitted that Kgomo J correctly dismissed the appellants’ constitutional challenge to the second respondent's reliance on sections 102 to 105 of the Securities Services Act. Kgomo J was also correct to dismiss the appellants’ entire application for the review of the decision of the second respondent with costs.