S v Brown

• Jurisdiction: South Africa
• Judge: Navsa ADP, Brand JA, Ponnan JA, Theron JA and Zondi JA
• Judgment Date: 01 December 2014
• Citation: 2015 (1) SACR 211 (SCA)
• Docket Number: 681/2013 [2014] ZASCA 217
• Hearing Date: 05 November 2014
• Counsel: WJ Downer SC (with T du Toit-Smith) for the appellant (the state). BW Pretorius for the respondent, instructed by the Legal Aid Board, Cape Town Justice Centre.
• Court: Supreme Court of Appeal

Navsa ADP (Brand JA, Ponnan JA, Theron JA and Zondi JA concurring): H

[1] This is an appeal by the state, in terms of s 316B of the Criminal Procedure Act 51 of 1977 (the Act), against sentences imposed by the I Western Cape High Court (Veldhuizen J) on the respondent, Mr Joseph Arthur Walter Brown (Brown), pursuant to a conviction on two counts of fraud. [1] The trial in the high court, for reasons that will become apparent, attracted a great deal of public and media attention.

Navsa ADP (Brand JA, Ponnan JA, Theron JA and Zondi JA concurring)

The issues A

[2] Brown initially pleaded not guilty to a host of charges preferred against him. After several witnesses had testified on behalf of the state he changed his plea to one of guilty on the two counts referred to above and in due course was convicted and sentenced on each count to a fine of B R75 000 or a suspended sentence of 18 months' imprisonment. The dispute in this case has its origins in the acceptance by the state, with the approval of the court, of a plea of guilty in medias res. The resolution of the dispute around the appropriate sentence involves, inter alia, a consideration of the precise scope of the plea of guilty and the extent to which evidence adduced up until that stage and thereafter during the C sentencing phase could be taken into account in the determination of an appropriate sentence. An unsettling aspect I intend devoting a discrete part of the judgement to is the number and nature of interventions by the court below in favour of Brown. First, however, it is necessary to set out the background in the paragraphs that follow.

The indictment D

[3] Brown had been indicted in the Western Cape High Court on four counts of fraud, one count of corruption based on an alleged contravention of s 1(1)(a) read with s 3 of the Corruption Act 94 of 1992, a further count of corruption based on s 3(b)(ii)(aa) and/or 3(b)(ii)(bb) and/or E 3(b)(ii)(cc) and/or 3(b)(iv) read with ss 1, 2, 24, 25 and 26(1)(a) of the Prevention and Combating of Corrupt Activities Act 12 of 2004, and one count of money-laundering based on an alleged contravention of s 4(a) and/or (b) read with ss 1 and 4(i), 4(ii) and 8 of the Prevention of Organised Crime Act 121 of 1998, and two counts of theft. There were a number of alternative counts which, for present purposes, are irrelevant. F

[4] The indictment comprised 84 pages, containing a general preamble and specific preambles in relation to each count. In respect of three of the four counts of fraud, the allegations against Brown, in essence, were that G he, through companies effectively controlled by him, procured large amounts of capital from clients for investment by fraudulently representing that he would safeguard those amounts and obtain favourable returns, when in fact, the money was thereafter invested recklessly or misappropriated for the benefit of Brown, his associates and/or corporate entities in which he held an interest. In relation to the fourth count of H fraud, the core allegations against Brown are as follows: Brown, through Fidentia Asset Management (FAM), which he controlled, purchased an

Navsa ADP (Brand JA, Ponnan JA, Theron JA and Zondi JA concurring)

A entity namely Mercantile Asset Trust Company (MATCO) that administered pension funds, including the investment portfolios underlying those funds. In purchasing MATCO, Brown fraudulently represented to its shareholders that FAM was able to pay, in cash, the full purchase price of R93 million and that it would only assume management control upon B payment of the full purchase price. The indictment went on to allege that Brown knew at the material times that FAM did not have the cash to buy the MATCO shares and that, in fact, before the full purchase price had been paid, he took control of MATCO's assets and then used R60 million of the funds MATCO was administering, inter alia, on behalf of pension fund beneficiaries, to pay the balance of the purchase price. Simply put, C Brown used MATCO's money to pay the greater part of the purchase price. Thus, so it was alleged, funds previously under MATCO's control for the benefit of beneficiaries of the investment portfolio were not employed to that end but were used to benefit Brown. The single biggest trust administered by MATCO at the end of 2002 was the Mine Workers D Provident Fund (MWPF). The assets which MATCO administered and which Brown through a corporate entity took control of before paying the full purchase price, so it was alleged, was an amount of R70 million held in a current account at Investec bank, as well as a portfolio administered by Old Mutual worth R1,13 billion.

E [5] In the present appeal we are concerned only with the two counts of fraud in respect of which Brown pleaded guilty and in relation to which he was sentenced. The first (count 2) concerns the investment with FAM by the Transport Education and Training Authority (TETA), established in accordance with the Skills Development Act 97 of 1998. TETA is a F statutory entity, the functions of which are, inter alia, the development of a sector skills plan for the transport sector. In short, it is responsible for skills development within that sector. Its funds are made up, inter alia, of employer levies. The second count of fraud (count 6) comprises the MATCO transaction and its consequences referred to in the preceding paragraph.

G [6] TETA is obliged, in accordance with Treasury Regulations, to have an investment policy which determines how its assets should be invested and protected. That policy must inform the relationship with any entity with which its funds are invested. Assets of a body such as TETA must be protected and its funds should not be invested with any entity that has an H investment profile and status less than that of South Africa's four major banks, namely Standard Bank, Nedbank, First National Bank and ABSA. According to the indictment the funds were procured by FAM pursuant to an improper financial inducement paid to TETA's chief executive officer. TETA's initial investment with FAM comprised two promissory notes to the I value of R50,3 million and R50 million, respectively. When TETA requested the return of R15 million, one of the promissory notes was irregularly sold in order for FAM to meet that request. During April 2004 TETA invested a further R100 million with FAM by way of two cash payments of R50 million. By that stage TETA had invested a total of approximately R206 million with FAM. Over time TETA continued to J authorise the reinvestment of the total amount in the belief that it had

Navsa ADP (Brand JA, Ponnan JA, Theron JA and Zondi JA concurring)

securely invested with FAM. At the end of 2006 TETA informed FAM that A it would not renew its investment. After an investigation was launched into FAM's affairs by the Financial Services Board (FSB), [2] TETA was informed by FAM that the latter intended to exit the asset management business and that it would repay the investment over a six month period. During the period of the investment monthly statements had been B dispatched by FAM to TETA, indicating that the total investment, including the two promissory notes, was safeguarded and yielding a return. The state's case was that Brown, through FAM, fraudulently misrepresented to TETA that the promissory notes to the value of R100,3 million would be secure and that all its investments would be managed as trust property, invested safely, and would yield high returns, whereas in truth C no sooner had he got his hands on the promissory notes, he cashed them before their maturity date for approximately R6 million less than their value, and TETA's investment was further diminished by Brown purchasing immovable property at a cost of more than R11 million and four luxury vehicles for a total amount in excess of R3 million, and further utilising TETA's funds for personal and/or corporate gain to the prejudice D of TETA.

The trial

Maddock's evidence E

[7] Amongst the witnesses to testify in support of the state's case after Brown's initial not guilty plea was Mr Graham Maddock (Maddock), a chartered accountant who in the indictment is alleged to have been integral to the commission of the alleged offences through a company which he controlled, namely Maddocks Incorporated. Maddock had F earlier been convicted and sentenced on counts similar to some of those faced by Brown. In respect of other charges to which Maddock might have been exposed, he was presented as a witness in terms of s 204 of the Act. [3]

[8] Maddock testified about the receipt of the TETA investments, namely G the promissory notes and the moneys referred to in para [6]. It is common cause that the two promissory notes referred to above were not kept secure or replaced by successive ones as part of an investment strategy consonant with the terms of the written mandate by TETA.

Navsa ADP (Brand JA, Ponnan JA, Theron JA and Zondi JA concurring)

A Maddock testified that the promissory notes were cashed before their maturity date and the proceeds then used to purchase immovable property to the value of R11 million in the names of trusts under the control of Brown, and four luxury motor vehicles for FAM, the total value of which was R3 million. The motor vehicles were used by Brown and B three others at FAM, including Maddock. It was apparent from Maddock's testimony that the investments were not ring-fenced and that FAM's operating expenses, as well as substantial dividends to shareholders, were paid from whatever investor funds were available. Payments labelled 'restraint of trade payments' were also paid to FAM's employees out of investor funds. The written mandate from TETA required its funds C to be invested with an A-rated bank in an investment account or in any one of their other investment instruments through...