GOWORA
JA: This
is an appeal against a judgment of the Administrative Court by which
the court dismissed the appeal to that court against a decision of
the Securities Commission of Zimbabwe (“the Commission”)
cancelling the licences of the first and second appellants, and
imposing sanctions upon the third and fourth appellants.
The
first appellant Remo Investment Brokers (Pvt) Ltd (“REMO”) is one
of the longest established registered securities exchanges within
Zimbabwe. The second appellant Mahomed Iqbal Mahmed (“Mahmed”) is
a securities dealer and is also the Managing Director of REMO. The
third appellant Rezana Ebrahim (“Ebrahim”) is married to Mahmed
and is a Compliance Officer for REMO. She and Mahmed are the
beneficial owners of REMO. The fourth appellant John Motsi (“Motsi”)
is a Registered Securities Dealer.
Following
upon turbulence within the securities sector, the Commission
suspended REMO from trading for a period of six months. After the
suspension of REMO, the Commission instituted investigations through
Proctor and Associates who compiled a report. Armed with that
report, the Commission charged REMO and Mahmed of contravening
certain specified sections of the Securities Exchange Act [Chapter
24:25],
(“the Act”).
The
appellants were invited to make representations to the charges.
Ultimately, the Commission confirmed the convictions and cancelled
the licences of REMO and Mahmed for a period of five years after
which they could re-apply for registration. Ebrahim was advised by
the Commission that she was permanently disapproved as a Compliance
Officer. Motsi was able to retain his dealer's licence but was
advised that he had to practise under a supervising senior broker for
a period of one year.
Aggrieved
by the decisions of the Commission, the appellants collectively
launched an appeal with the Administrative Court which dismissed the
appeal and confirmed both the conviction and sanctions imposed by the
Commission.
The
appellants now appeal to this Court on several grounds.
Mr
Mpofu
on behalf of the Commission took the point in his heads of argument
that the grounds of appeal complain against every finding made by the
court a
quo.
The grounds, which number thirteen, have been framed too widely.
They are not clear and concise as required by the Rules of this
Court.
Although
the manner in which the grounds have been set out is not in itself
fatal to the appeal, it would be neater to deal with the appeal on
the basis of the substantive issues for resolution rather than the
piece meal approach detailed within the grounds.
A
preliminary point raised on appellants' behalf was that the court a
quo
had erred in finding that the cancellation of the licences of REMO
and Mahmed was effected in terms of section 105 of the Act. In the
alternative, it was argued that the court erred in failing to find
that the cancellation of the said licences was premature regard being
had to the provisions of section 48 as read with section 108 of the
Act. It was contended further that the court a
quo
had erred in any event in failing to find that, contrary to the
provisions of section 105(2), the appellants had not been afforded an
adequate opportunity to be heard. It was argued that they did not
receive a fair hearing.
It
was therefore contended that on this basis the appeal should succeed.
Before
the Administrative Court, the appellants had similarly argued that
the cancellation of the licences had been done in breach of the
quoted sections. Per
contra,
the respondent contends that the licences for Remo and Mahmed were
cancelled under section 105 of the Act.
The
court a
quo
found that, in terms of section 48(3), the Commission was not
empowered to cancel a licence under section 48(1) until a period of
thirty (30) days allowing for an appeal to the Administrative Court
in terms of section 108 would have elapsed. The court, however,
found that contrary to the contention of the appellants, the licences
were cancelled in terms of section 105 of the Act as opposed to
section 48(1).
In
the circumstances, the court a
quo
came to the conclusion that there had been no breach of section 48(3)
and section 108 on the part of the Commission.
In
my view the dispute centres on the interpretation of sections 48, 49
and 105 of the Act. The powers of the Commission to cancel a licence
are provided for in section 48 and section 105 of the Act. It was
section 105 which the court found to be the applicable section.
Section
105(1) reads in relevant part:
“If,
after considering an inspector's report sent to it in terms of
subsection (1) of one hundred and four, together with any
representations made by the person, committee or operator concerned
in terms of subsection (3) of that section, the Commission is
satisfied that the person, committee or operator as the case may be,
has contravened any term or condition of his or her licence,
registration or approved scheme, as the case may be, or any provision
of this Act, or any direction, requirement or order made under this
Act, the Commission may, subject to subsection (2), do any of one or
more of the following-
…
(f)
direct the person, committee or operator to suspend all or any of his
or her business;
…
(i)
in the case of a licensed or registered person or entity, cancel the
licence or registration or amend any of its terms and conditions.”
It
is common cause that prior to launching an investigation into the
activities of REMO, the Commission advised the former in writing that
it intended to investigate the relationship between itself and
Interfin Securities (Private) Limited (“Interfin”), and further,
that to facilitate such investigation, it was necessary to cause the
suspension of REMO.
The
appellants have not challenged the propriety of the suspension.
The
Commission advised REMO that the suspension was being effected in
accordance with the provisions of section 49. The suspension was
effected by a letter dated 29 March 2012, addressed to Mahmed in the
following terms:
“An
announcement was made at yesterday's trading session that your firm
is suspended from trading on the Zimbabwe Stock Exchange with
immediate effect.
A
complaint was received from Remo Investment Brokers (Pvt) Ltd that
Interfin Securities had misappropriated shares lodged as collateral
in a loan transaction. The Zimbabwe Stock Exchange and Securities
Commission of Zimbabwe have since had sight of Interfin Securities
(Pvt) Ltd's response to the allegations.
Regrettably,
there are serious inconsistences in the submissions made by both
parties so that it has been found necessary to suspend you from
trading in terms of section 49 of the Securities Act in order to
facilitate a full investigation. Amongst other issues, the enquiry
will seek to establish the exact nature and terms of the transaction
between two members of the Zimbabwe Stock Exchange involving such a
material sum of money as well as the true beneficial owner of the
shares lodged as collateral with yourselves.
The
period of suspension is a maximum of 6 months but regular reviews
will be carried out and you will be permitted to return to trading as
soon as possible after satisfactory conclusion of the matter.
In
the circumstances we look forward to your full co-operation with the
matter.”
Section
49 under which the licence was suspended reads in relevant part:
“49
Suspension of a licence
(1)
Subject to subsection (6), if the Commission considers it necessary
to suspend a licence -
(a)
in order to facilitate an investigation into the holder's conduct;
or
(b)
pending the determination of an appeal in terms of section one
hundred and eight; or
(c)…
the
Commission may, by notice in writing to the holder, suspend the
licence wholly or partially in relation to all or any of the
activities authorised by the licence.
(2)
A suspension in terms of subsection (1) shall last for such period as
the Commission may specify, but in no case shall it last for longer
than six months.”
The
position of the appellants is that once the Commission suspended the
licence in terms of section 49, it was only logical that any
cancellation subsequent to such suspension be done in terms of
section 48(1) and, that consequently, the provisions of section 48(3)
would apply. The argument advanced on behalf of the appellants is
that once a licence is suspended under Part V of the Act,
specifically in terms of section 49, then it stands to reason that
any cancellation of the licence can only be effected in terms of
section 48 as it is also found in Part V of the Act.
As
I understand the argument, section 49 must be read together with
section 48.
The
letter of 29 March 2012 is specific as to the intention behind the
suspension, that there was need to investigate the relationship
between REMO and Interfin Securities. The Commission did not in the
letter specify any alleged violation on the part of REMO and the
logical conclusion is that it was intended that the investigation
would reveal if there was any wrongdoing on the part of REMO and
Interfin in their mutual dealings.
The
facts considered by the court a
quo
were the following;
After
the suspension, the Commission appointed Proctor and Associates to
investigate the conduct of REMO and Interfin. This power is derived
from section 103(1) of the Act which empowers the Commission to
direct an inspector to conduct an investigation where:
“(e)
the Commission has reasonable grounds for believing that a licensed
person or board of a registered securities exchange or operator of a
central securities depository, or any person connected with such a
person, board or operator, has committed an offence under this Act,
other than an offence arising out of conduct referred to in paragraph
(a)
or (b);
or …”
Upon
completion of an investigation an inspector is required in terms of
section 104(1) to forward the report to the Commission. On receipt
of a report from the inspector, the Commission is required under
section 104(2) to forward the report to the licensee and invite the
licensee to make representations to it on the conclusions of the
inspector and the recommendation.
On
7 May 2012 the Commission sent a copy of the report from Proctor and
Associates to REMO and requested a written response within a period
of thirty days. REMO responded by a letter dated 8 May 2012.
Section
104(2) provides in relevant part:
“On
receipt of a report in terms of subs (1), the Commission shall-
(a)
send a summary of the conclusions reached in the report, and any
recommendations made therein, to the licensed person, committee of
the registered securities exchange or operator of the central
securities depository, as the case may be, that was the subject of
the investigation; and
(b)
invite the committee, licensed person or operator concerned to make
representations on the conclusions and recommendations set out in the
summary.
3.
A licensed person, committee of a registered securities exchange or
operator of a central securities depository that has been sent a
summary of conclusions and recommendations in terms of subsection (2)
may, within thirty days, submit to the Commission representations on
any of the conclusions or recommendations.”
On
23 May 2012 the Commission advised all the appellants in writing that
it intended to cancel the licences of the first two and impose
sanctions on the last two and, as a consequence, all the appellants
were invited to appear before the Commission in person to make
representations.
Subsequent
to the letter of 23 May 2012, all the appellants appeared before the
full board of the Commission and made representations on the proposed
action intended by the Commission against each of them. On 7 June
2012 the Commission proceeded to cancel the two licences and imposed
the sanctions which are the subject of this appeal.
Having
confirmed that the cancellations were effected under section 105 of
the Act, the court a
quo
also found that the cancellations were not done in a summary manner
but after due consideration of a report presented to it by Proctor
and Associates following upon an investigation into the activities of
the appellants and Interfin.
Section
48, on which the appellants hinge their appeal, reads:
“48
Cancellation of licence
(1)
Subject to subsections (2) and (3), the Commission may, by notice in
writing to the holder, cancel
a licence if the Commission has reasonable grounds for believing
that-my
emphasis)
(a)
the holder has ceased to carry on business; or
(b)
the licence was issued in error or through fraud or the
misrepresentation of a material fact by the holder; or
(c)
the holder has contravened any provision of this Act or any term
of/or condition of the licence;
or (my emphasis)
(d)
the holder misrepresents the facilities he or she offers to the
public; or
(e)
the holder has become disqualified to hold a licence in terms of
section thirty-nine; or
(f)
the holder no longer meets any prescribed financial requirements for
carrying on any activity authorised by the licence; or
(g)
the holder, or any employee or agent of the holder, has been guilty
of any act or omission in the conduct of the holder's business that
has resulted or is likely to result in prejudice to members of the
public;
or (my emphasis)
(h)
n/a; or
(i)
n/a;
(2)
Before cancelling a licence in terms of subsection (1), the
Commission shall notify the holder in writing that it proposes to
cancel the licence and of the Commission's reasons for proposing to
do so and shall give the holder of the licence an adequate
opportunity to make representations in the matter.(my
emphasis)
Provided
that, if the Commission believes on reasonable grounds that it is not
possible to notify the holder personally, the Commission shall
publish a notice in the Gazette and a newspaper circulating in the
area in which the holder carries or carried on business, stating that
the licence will be cancelled unless the holder lodges an appeal with
the Administrative Court in terms of section one hundred and eight
within thirty days from the date of publication of the notice in the
Gazette.
(3)
The Commission shall not cancel a licence in terms of subsection (1)
-
(a)
until-
(i)
the period within which an appeal may be lodged in terms of section
one hundred and eight has elapsed; or
(ii)
the thirty day period referred to in the proviso to subsection (2)
has elapsed, where a notice was published in terms of that proviso;
unless
the holder has consented to its cancellation;
(b)
if an appeal is lodged in terms of section one hundred and eight,
until the appeal has been abandoned or withdrawn or, where it has
proceeded to finality, until the Commission is notified that its
decision has been upheld.
(4)……………”
One
must look at the purpose and provisions of an Act in order to
interpret the different sections forming that Act.
In
construing the meaning of a section it is necessary to look at the
Act generally to see what the scope of it is and whether the section
accords with the scope and intention of the Act. It then becomes
possible to draw a conclusion as to its meaning, considering the
terms of the enactment.
The
piecemeal approach advocated by the appellants does not accord with
principles of construction of statutes.
In
my view it is impossible to know the intention of the legislature
without enquiring further and ascertaining the context in which the
Legislature intended to regulate.
In
S
v Fikizolo
1978 (2) SA 676, VAN RHYN J stated:
“It
is a fundamental principle that the intention of the Legislature must
be inferred from the words which the Legislature used and in Du
Plessis v Joubert
1968 (1) SA 585 (A) at 595 BOTHA JA stated the following in this
regard:
'Only
a clear and indubitable, particular intention of the Legislature, and
not merely an assumed intention can justify a departure from the
usual meaning of words and then only if the words are amenable to
another meaning.'”
Moreover
the whole piece of legislation must be examined to determine the
intention of the Legislature. It is equally clear that one section
can throw light on the intention of another section:-
“The
correctness of the statement that the whole Act must be taken into
account has been adopted so generally in our practice as to be a
matter of course, that our courts have seldom found it necessary to
stress this.” Steyn Die Uitleg van Wette 4th
ed at 143.
Stripped
bare of the verbiage, the process of cancellation under section 105
is preceded by an investigation of the licence holder. Any report
from the investigation is availed to the licence holder for comment
and in addition, the Commission is obliged to call upon the holder to
make representations to it before any sanction is imposed.
There
is no provision for the suspension of a licence under section 48
prior to its cancellation. In fact, the provisions of section 48 do
not contemplate a situation where the holder has been the subject of
an investigation under section 49.
Where
a licence is cancelled under section 48(1), such cancellation is made
subject to the provisions of subsections (2) and (3) of section 48.
Subsection (2) enjoins the Commission to notify the holder in writing
that it proposes to cancel the licence, the reasons for proposing to
do so, and further to this, to afford the holder of the licence an
adequate opportunity to make representations. In the event that the
Commission believes on reasonable grounds that it is not possible to
notify the holder personally, the Commission is permitted to publish
a notice in the Gazette and a newspaper circulating in the area in
which the licence resides or is situate, stating that the licence
shall be cancelled unless the holder lodges an appeal with the
Administrative Court in terms of section 108 of the Act.
It
cannot be gainsaid that all the actions by the Commission after
receipt of the inspector's report were consistent with the
provisions of section 104.
All
the appellants were availed the opportunities afforded to a
registered person or a licence holder to be heard in terms of that
section prior to the Commission taking any action subsequent to an
investigation. None of the appellants have denied that the report
was sent to them, that they were requested to make representations,
or further, that they appeared before the Commission before sanctions
were imposed upon them on an individual basis.
The
procedure adopted by the Commission in its dealings with the
applicants is more consistent with the provisions of section 105 as
opposed to section 48.
The
latter section envisages a situation where the licence holder is
informed of the sanction that the Commission intends to impose and to
then avail the licensee an opportunity to make representations. Under
section 105 the licensee is investigated and a report of the
investigation is availed to the licence holder for comment. Over and
above this the licence holder is provided with an opportunity to be
heard by the Commission.
As
a consequence the requirement in section 48(3) obliging the
Commission not to cancel a licence until the opportunity given to
appeal to the Administrative Court becomes obvious. Unlike the
procedure provided for under section 105, a cancellation effected
under section 48 is summary and the licensee is not assured of an
opportunity to make representation before the cancellation. Thus,
there is need for the cancellation not to be effected before the
appeal process provided for under section 108 has been exhausted.
There
is no such requirement under s 105.
It
is also pertinent to note that under section 105, the Commission is
given the discretion to impose a sanction before affording the holder
an opportunity to make representations if it considers that immediate
action is necessary to prevent harm to the licensed person, its
employees agents, other securities or members of the public.
In
this case, all the appellants were afforded an opportunity to make
representations before the cancellations were put into effect and the
sanctions on the last two were imposed.
In
proceeding under this section, the Commission is not required to have
regard to the provisions of section 48(3). The distinction is
obvious. However any powers exercised by the Commission under section
105(1) are made subject to subsection (2) of the same section which
provides:
“Before
taking any action referred to in subsection (1), the Commission
shall-
(a)
inform the person, committee or operator concerned, in writing, of
the action it proposes to take; and
(b)
afford the person, committee or operator concerned an adequate
opportunity to make representations in the matter;
Provided
that where, the Commission considers that immediate action is
necessary to prevent irreparable harm to the licensed person,
registered securities exchange or central depository or its members,
creditors or participants, the Commission may take such action before
affording the person, committee or operator an opportunity to make
representations in terms of this subsection.”
In
this Court, the appellants submitted that the Commission had,
contrary to the provisions of section 105(2), not provided them an
adequate opportunity to make representations as to why the licences
of REMO and Mahmed should not be cancelled. Their contention that
the learned President in the court a
quo
did not address that issue has substance.
It
is trite that an appeal to the Administrative Court is an appeal in
the wide sense.
The
appellants could have, if they had chosen to do so, led evidence
before that court in order to ensure that whatever irregularities the
Commission may have been guilty of were corrected. They did not
avail themselves of that opportunity.
In
Watchtower
Bible & Tract Society of Pennsylvania & Anor v Drum
Investments (Private) Limited & Anor
1993 (2) ZLR 67 (S), GUBBAY CJ, remarked as follows at p 76A-E:
“I
am satisfied that the appeal from the decision of the Rural Council
to the Administrative Court is an appeal in the first sense above, an
appeal in the wide sense. I accept the comment of the court in the
Jones
case supra
that we are dealing with 'not so much a re-hearing as the first
full inquiry'. But that comment does not take the case out of the
category; it puts it more firmly in it.
The
main reasons why the appeal falls into the wide category are that the
Act, in providing for the appeal, authorises the Administrative Court
to 'make such order as it deems fit' (section 39(1) of Act 22 of
1976), and that evidence is for the first time led and examined in
accordance with the rules of a court of law.
I
do not think it is possible to argue that even though this is a
category one appeal, an appeal in the wide sense, the onus may
nevertheless be on the objector. The whole point of the formulation
which I have set out is that the appellate tribunal (in this case the
Administrative Court) is starting again. It is deciding afresh the
merits of the application, not the merits of the Rural Council's
decision. The formulation makes sense only if one accepts that the
onus is where it was in the original application.”
A
failure to deal with an issue that has been placed before a court
constitutes a misdirection. However, this Court is in as good a
position as the court a
quo
to determine the point raised by the appellants.
However,
as submitted by Mr
Mpofu,
notwithstanding the failure by the court a
quo
to address this particular aspect, the record shows that the
Commission complied with the requirements of section 104 and 105. The
court has already dealt with the instances of the appearances by the
appellants before the full board of the Commission in this judgment.
Over
and above those representations, the appellants communicated with the
Commission in writing after receipt of a letter dated 17 May to which
was attached the report from the inspector and calling upon the
appellants to respond to the report in writing within thirty days.
On
29 May, 2012 Motsi addressed a letter to the Commission in which he
stated the following:-
“We
refer to your letter dated 17 May 2012 to ourselves on the above
matter and advise that we have responded as per paragraph 3 of your
letter. Please find attached response for your attention.”
In
casu,
in addition to the written responses during the appearance of Mahmed
before the full board on 29 May 2012, the record reveals that he was
availed an opportunity to produce additional documentary evidence in
response to the report by the inspector. The record reflects that
fresh evidence was produced to the Commission on 29 May and 1 June
2012. The proceedings of 7 June, 2012 were at the appellants'
request. There never was a complaint during the intervening period
before the cancellation of the licences that the appellants had been
denied an opportunity to be heard.
In
this connection attention is drawn to the remarks of STEENKAMP AJA in
IMATU
v MEC, Environmental Affairs ETC, Northern Cape
1999 (4) SA 267 to the following effect:
“Mr
Van Wyk also referred to the various meetings and submitted that
there was no proper consultation or negotiation with second applicant
prior to first respondent's decision not to negotiate a new service
framework before or on 8 September 1998.
This
conclusion is not factually correct, because the second applicant was
invited to put forward an alternative scheme to provide primary
health services and did in fact do so but his proposals were referred
back to second applicant to put alternative models on the table
because there was no duty on the first respondent to come forward
with new models.
If
a process for a fair hearing is set in motion then the person who is
prejudiced should come forward and put his case to enable the other
parties to consider these alternative proposals. (See Baxter (op cit
at 546)).”
I
am of the view that all the appellants were given an adequate
opportunity to be heard before the cancellation of the two licences
and that the Commission complied fully with its obligations under the
Act. This view is fortified by the dicta in Duly
Holdings v Chanaiwa
2007 (2) ZLR 1 (S). In that matter GWAUNZA JA stated:
“To
the extent the respondent was given an opportunity to answer to the
charges and present his side of the story, he should not be heard to
say that there was no observance of the audi
alteram partem
rule. The court a
quo correctly
noted in its judgment that the rules of natural justice required no
more than that the domestic tribunal acts according to the common
sense precepts of fairness procedures followed. Given the
circumstances outlined above, I respectfully disagree with the court
a quo's conclusion that it could, in
casu,
not be said that the rules of natural justice were observed. I am
satisfied that the respondent was, therefore, not prejudiced in any
way by the disciplinary procedures followed.
The
appellant argues, correctly, that the adoption of the disciplinary
procedures not specifically outlined in the Code finds support in ZFC
v Geza 1998 (1) ZLR 137 (S), where this court emphasized the
importance of flexibility in the conduct of disciplinary tribunals,
and the principle that they were there to conduct an enquiry. It
cannot in my view, be said in this case that the disciplinary
tribunal did not conduct an enquiry.”
Those
remarks apply with equal force to the circumstances of this appeal
and I respectfully associate myself with them.
The
Commission is a disciplinary and regulatory body set up in terms of
the Act. Perforce, its procedures are less rigid and formal than
would be required of a court of law. The flexibility referred to in
the case of Geza (supra)
would be a necessary feature in the conduct of its proceedings. It
is not required to abide by a set of formal rules in its proceedings
as is required of a court of law. The only rules provided for under
the Act relate to the regulation of securities and licensed persons
and the conduct of their functions in terms of the Act, which rules
however do not prescribe the manner in which proceedings by the
Commission should be conducted.
A
reading of the Act however establishes that irrespective of whether
the Commission cancels a licence under section 48 or section 105, the
Act has provided that the Commission complies with the audi
alteram partem
principle before cancellation of a licence or the imposition of any
other sanction under the Act.
Notwithstanding
the failure by the court a
quo
to address the question as whether the Commission had given the
appellants an opportunity to be heard, the finding that the
cancellation of the licences was effected in terms of section 105 is
correct and cannot be faulted. I find no basis for overturning the
conclusion by the court in that regard.
On
the substantive issues relating to the Commission's decision to
cancel the licences, the court a
quo
concluded that the Commission had arrived at a correct decision. The
learned President of the Administrative Court, sitting with two
Assessors, stated as follows:
“Part
of the appellants' argument is that the cancellation of the First
and Second Appellants licences is too harsh. They argue that less
drastic penalties provided for in the Act would have sufficed.
Given
the extent of the deviations from the expected standard of operating
the registered securities exchange that have been outlined above the
court finds that the Respondent was justified in opting for
cancellation of the First and Second Appellants' licences with
provision for re-application after five years if the two would have
been adequately rehabilitated.
Regarding
the Third and Fourth Appellants it is noted that the pronouncements
made with regard to them were not sentences but inevitable
pronouncements made by an administrator concerned with practical
consequences of its decision.
The
appeal is accordingly dismissed with costs.”
The
Commission preferred five (5) charges against REMO and Mahmed. The
appellants concede that they accept liability in respect of one of
the charges laid by the Commission. The first charge related to the
appellants participating in non-permissible activities in breach of
section 42(1) of the Act, in terms of which section a licence holder
is authorized to carry out one or more of the activities specified in
the definition of licensable activities.
The
allegation against REMO was that it borrowed money from Interfin
Securities which allegation REMO admitted. It was further alleged
that REMO had lent the money it borrowed from Interfin to its own
clients. This was denied when the appellants made representations to
the Commission. However, in a letter to the Commission dated 12
March 2012, soon after the dispute with Interfin had erupted, it was
stated:-
“During
the course of the last eighteen months we arranged several loans from
Interfin on behalf of our clients.
As
security for these loans, we lodged several share certificates with
InterfIn. The share certificates in question are as follows ……
On
23 February 2012, we settled all amounts due to Interfin and asked
for the return of the securities that had been lodged with them.”
It
is not disputed by any of the appellants that the lending of money is
not a licensable activity as defined in the Act.
The
Commission found that REMO had lent money to Cold Power after it had
borrowed from Interfin Securities. It was never disputed by REMO
that it gave money to Cold Power. This non permissible activity is
contained in a letter dated 8 May 2012 to the Commission wherein it
was stated:
“We
provided documentary evidence that the funds borrowed were not lent
to any of our associated companies. They were used to fund REMO, and
to an extent one or two of our other companies.”
REMO
and its associated companies are distinct and separate entities. The
monies were borrowed by it and any sums advanced to the associated
companies could only have been availed as loans. There is no
suggestion that REMO was giving grants to the associated companies.
Given
the admissions of the financial transactions, the conclusion by the
Commission that the sums in question were advanced as loans cannot be
seriously impugned. In any case, the extending of loans to other
persons was not one of the functions that Interfin was permitted
under its licence. As a consequence, REMO could not legally borrow
from Interfin and to that extent it participated in a non-permissible
activity.
REMO
was convicted of contravening section 50(1) of the Act by the
Commission. The conviction was upheld by the court a quo.
Section
50(1) requires that a licensed person shall open and keep a current
account at a bank as a separate trust account in which he or she
shall deposit any money received for or on behalf of a client.
The
Commission found that although REMO advised the Commission of the
opening of the account, there was no indication that the account in
question was used solely for funds belonging to clients. It was also
found by the Commission that the same account was used by REMO to
keep its own money, and further, that the same account was used for
channelling loans secured on behalf of REMO's clients.
It
was argued on behalf of the appellants that REMO was convicted on an
allegation in respect of which it had not been charged.
I
agree.
This
particular charge is not reflected amongst the charges laid against
REMO in the letter of 7 May 2012. The allegations spelt out in the
letter were that the borrowings and on-lending were not in the
accounts of the company as required in terms of Part VI. The
conviction of REMO on an alleged contravention of section 50(1)
constitutes an irregularity and the court a
quo
should have set aside the said conviction.
Further
to the above, the court a quo found that transactions relating to the
loans sourced by REMO from Interfin and its own loans to its clients
and to Cold Power were not reflected in the books of account that
REMO kept. The failure on the part of REMO to keep a record of the
transactions relating to the loans it received and lent to its
clients was found by the Commission to constitute a contravention of
section 51(1) which requires a licensed person to keep proper books
of account containing particulars and information of money the
licensee has received, held or paid for on account of any other
person and money that the licensee has deposited in his or her trust
account.
The
report from the inspector indicated that REMO did not keep a register
of all the securities in which the licence holder, or any director,
officer, employee, associate, or partner who is directly involved in
its business had an interest as required under section 61(1). The
provision is couched in mandatory terms.
It
is common cause that the shares that had been pledged to secure loans
were not recorded in the nominees register. In answer to queries
raised by the inspector, the appellants confirmed that the shares had
not been recorded because they had been paid for and delivered to the
client and thus could not be part of a scrip ledger. This response
would contradict the assertion now being made on behalf of the
appellants that the shares pledged as security actually belonged to
Mahmed and his wife Rezana Ebrahim.
In
addition, the appellants went on to state that only those shares held
by brokers in safe custody were recorded in the Scrip Ledger. They
stated that the nominee shares were not in the Scrip Ledger because
they were not custodial shares.
The
court a
quo
held that the excuse by the appellants that the shares were only held
for a short time did not assist because the strict requirement for
their inclusion in a register is for the benefit of the public.
Section 61(3) enjoins a licenced person to record any change in the
interest of security to be recorded within a period of forty-eight
(48) hours from the time of acquisition or change as the case may be.
On
20 May 2011 the Commission requested all securities dealing firms to
declare such loans as they might have obtained and a list of any
clients' shares that might have been pledged as security for any
loan. REMO rendered a nil return, which, as matters turned out, was
false. The appellants admitted that the return was false but gave
the alleged absence of Mahmed from the country as an excuse. The
appellants could not explain why the record was not corrected
subsequent to his return.
Section
65 reads in relevant part:
“(1)
The rules of a registered securities exchange shall make adequate
provision for such of the following matters as are appropriate to its
functions-
(a)…….n/a
(b)
in regard to membership of the exchange-
(i)…
(ii)
ensuring that-
(c)
members are of good character and integrity or, in the case of
members that are corporate bodies, that they are managed and
controlled by persons who are of good character and integrity.”
The
court a
quo
concluded that by making a false declaration as aforesaid, the first
and second appellants demonstrated the absence of professionalism and
integrity in their business dealings.
The
Commission, as the regulator under the Act, is obliged to ensure that
high standards are maintained by securities dealers. It did not
place either first or second appellants in good stead to claim that
the return was done during the absence of Mahmed from the country.
As
members of a registered securities exchange are required and meant to
be of good character and integrity, it was the finding by the
Commission, which finding the court a
quo
confirmed, that Mahmed was not a fit and proper person to hold a
licence as provided for in section 41(1)(c). Mahmed was the
principal dealer in REMO. The Act requires that a person in that
position should have the attributes of good character, honesty and
integrity in order to ensure efficiency, honesty, fair practice and
fair competition in relation to dealings with other exchanges.
It
was pointed out by Mr
Mpofu that
the appellants admitted guilt in respect of the failure to disclose
the financial transactions as well as the false declaration. Having
pleaded guilty to the charges before the Commission, the attempt to
run away from those admissions on appeal cannot be regarded in a
serious light.
In
DD
Transport (Pvt) Ltd v Abbot
1988 (2) ZLR 92 (S) GUBBAY JA (as he then was), when discussing
formal admissions stated:
“But
this admission in the plea is of the greatest importance, for it is
what Wigmore
(paras 2588-2590) calls a 'judicial admission' (of the confession
judicialis of
Voet
(42.2.6)) which is conclusive, rendering it unnecessary for the other
party to adduce evidence to prove the admitted fact, and incompetent
for the party making it to adduce evidence to contradict it.
(See
also Phipson
7ed p18).
Wigmore
loc cit,
speaking of judicial admissions in general, refers to the Court's
discretion to relieve a party from the consequences of an admission
made in error. It does not seem to me that such a discretion could be
exercised, in a case where the admission has been made in a pleading,
in any other way than by granting an amendment of that pleading.
These
dicta
were
approved by MACDONALD ACJ (as he then was) in Moresby-White
v Moresby-White
1972 (1) RLR 199 (AD) at 203E-H; 1972 (3) SA 222 (RAD) at 224.”
In
my view, the court a quo was correct in upholding the convictions in
respect of the following charges; section 42(1), section 41(1)(c),
section 51(1), section 61(1) and section 65(1)(b). The decision of
the court a quo in upholding the conviction of REMO on an alleged
contravention of section 50(1) constitutes a misdirection on the part
of the court on the basis that REMO was never charged of contravening
that particular offence. The conviction on that charge cannot
therefore stand and is accordingly set aside.
It
was contended on behalf of Mahmed that he received a harsher sentence
than what was meted to Zengeni of Interfin.
The
Act empowers the Commission to impose any sanction from issuing a
warning to the cancellation of a licence.
In
imposing such sanctions under section 105 the Commission exercises a
discretionary power. Implicit in the exercise of that discretion is
the fact that the Act does not impose any limitations on the
Commission on the extent of the duration of the period for which a
licence may be suspended or cancelled as the case may be.
It
is trite that the exercise of such discretion can only be interfered
with in limited circumstances.
Mahmed
has not argued a legal basis to justify the interference with the
cancellation of his licence by this court, and it is not enough to
argue that he should have received a similar sentence to that imposed
on Zengeni. In any case, it has not been suggested that the
Commission exercised its discretion improperly.
Whilst
it is accepted that the period of five years for which the licence
was cancelled appears a bit harsh, it cannot by any means be said
that such penalty is irrational. For that reason, any interference
with the period cannot be warranted or justified by an Appellate
Court.
That
said, slightly different considerations apply in respect of REMO.
This
Court has set aside one of the five charges that REMO was found
guilty of. The Commission had imposed a globular penalty against REMO
on all the five charges in respect of which REMO had been convicted.
Considering however, that the conviction on one charge is
unsustainable it seems proper in these circumstances that the
globular penalty be interfered with to some extent in order to
reflect this finding.
In
determining the extent to which this court should interfere with the
globular sentence imposed by the Commission, there is need to bear in
mind the circumstances that gave rise to the four charges in respect
of which REMO was convicted.
As
security for being availed loans by Interfin, REMO surrendered shares
in negotiable form and, as matters turned out, Interfin used the same
shares as security for its own borrowings. In its letter to the
Commission of 8 May 2012, REMO provides a narrative of the manner in
which Interfin then dealt with those shares and the efforts REMO took
to recover them. In cancelling the licence of Mahmed, the Commission
made reference to the market disruptions that occurred when the
Deputy Sheriff seized the shares which are the subject of the dispute
between REMO and Interfin. It was noted that the market's
integrity and investor confidence was compromised.
Some
of the objectives that the Commission is charged with under section 4
include, the promotion of high levels of investor confidence, the
reduction of systemic risk, the promotion of market integrity and
investor confidence. The Commission is also obliged to prevent market
manipulation and ensure transparency in the market. As a
consequence, in the circumstances of this case, the sanction
attaching to the infractions should reflect the gravity of the proved
offences and should not appear to be a slap on the wrist as it were.
The
activities of REMO and Interfin sought to, and did undermine the
objectives of the Act. The potential prejudice to investors was
found by the Commission to be USD5.3 million. The Commission found
that the conduct of REMO and Mahmed went against the tenets that the
Commission was supposed to uphold and regulate.
In
my view, bearing in mind the mandate of the Commission to protect the
market and ensure the integrity of the market and regain investor
confidence, the Commission was correct in finding that it was
necessary that the licence of REMO and Mahmed be cancelled.
Given
the overall gravity of the transgressions by REMO, and, taking into
account the finding above that one of the charges in respect of which
REMO was convicted is not sustainable, it seems to me proper that a
portion of the period of five years in respect of which the licence
for REMO was cancelled should be reduced by six (6) months, leaving
the period of cancellation for REMO at four years and six months.
The
position is different when one considers the cases of Ebrahim and
Motsi.
On
24 May 2012 each of them received a letter from the Commission
inviting them to make representations in respect of their conduct in
the affairs of REMO. Ms Ebrahim was not a licensed person under the
Act, but she was an approved Compliance Officer. She was not
specifically charged with an offence, but as a Compliance Officer she
confirmed that she was the ears and eyes of the Commission with REMO.
The Commission decided to permanently disapprove her as Compliance
Officer. She was further advised that she would not be employed in
that capacity in this country.
Motsi
was not charged with a specific offence nor was his licence
cancelled. He was however sanctioned to work under the supervision
of a senior dealer for a period of one year. There is uncontroverted
evidence that he is in fact the most senior dealer in this country.
In
respect of the two, the principles relating to the audi
alteram partem rule,
which requires that a party be afforded a fair hearing, were not
adhered to. They were sanctioned in the absence of having specific
charges preferred against them.
In
relation to Motsi he was advised that he had not committed any
offence and, that merely due to his employment with REMO, it was
decided to sanction him.
I
find no justification for the actions of the Commission against
Ebrahim and Motsi. The court a
quo
ought not to have confirmed the sentences against them.
The
appeal succeeds in part to the extent that the sanction imposed on
REMO is reduced and, in respect of Ebrahim and Motsi, is set aside in
its entirety.
In
the result the Court makes the following order:-
1.
The appeal by the first appellant is allowed to the extent that the
conviction on a charge of contravening section 50(1) of the Act is
set aside and consequent thereto, the period of cancellation is
reduced to four years and six months.
2.
The appeal by the second appellant is dismissed.
3.
The appeal by the third and fourth appellants is allowed with costs.
4.
The order of the court a quo in respect of the third and fourth
appellants is set aside and substituted with the following:
“(a)
The appeal is allowed with costs.
(b)
The restrictions placed on the third and fourth appellants are hereby
set aside.”
5.
The first and second appellants are to pay the costs of this appeal
save for the costs of the third and fourth appellants, jointly and
severally, the one paying, the other to be absolved.
GARWE
JA: I
agree
PATEL
JA: I
agree
Venturas
& Samkange,
appellant's legal practitioners
Scanlen
& Holderness,
respondent's legal practitioners
1. At 6A-C
2. See
ZB
Financial Holdings v Manyarara
SC3/12; Malimanji
v Central Africa Building Society
2007 (2) ZLR 77 (S); Barros
v Chimponda
1999 (1) ZLR 58 (S)
