S v Western Areas Ltd and Others

• Jurisdiction: South Africa
• Judge: Labuschagne J
• Judgment Date: 03 November 2003
• Citation: 2004 (4) SA 591 (W)
• Docket Number: JPV 2002/129
• Hearing Date: 03 November 2003
• Counsel: W H G van der Linde SC (with him K D Moroka and L Mdalana) for the State. G J Marcus SC and M R Hellens SC (with them A E Bham and M Chaskalson) for accused 1, 2 and 4. J J C S Meiring for accused 3.
• Court: Witwatersrand Local Division

Labuschagne J:

[1] The accused are charged with fraud, contravention of s 424 of the Companies Act 61 of 1973, contravention of s 40(c) of the Stock Exchanges Control Act 1 of 1985 and a contravention of s 2(1) of the Insider Trading Act 135 of 1998. F

[2] Mr Marcus and Mr Hellens on behalf of accused 1, 2 and 4 and Mr Meiring on behalf of accused 3 have, in accordance with the provisions of s 85(2) of the Criminal Procedure Act 51 of 1977, objected to the indictment on various grounds.

[3] The objections to the indictment fall into two categories: G

[3.1]

The first category comprises objections to counts 1, 2, 3, 4, 6 and 7. In broad terms these charges turn on allegations of non-disclosure of certain matters. It was argued that these charges do not disclose an offence inasmuch as it is not competent in law to found criminal liability for fraud based on a duty to disclose flowing from H the Securities Regulation Panel (SRP) rules and the companies Act where neither the rules nor the relevant provisions of the Companies Act create criminal liability for non-compliance therewith.

[3.2]

The second category of objections relates to counts 9 and 12. The objection to count 9, dealing with impermissible splitting of I charges, was not persisted with. In regard to count 12 it was argued that on the facts pleaded by the State no offence is disclosed in that the indictment on the same facts and at the same time avers an offence as well as a defence as envisaged by s 4(1)(d) of the Insider Trading Act. J

Labuschagne J

[3.3]

In addition to the above objections there is an application for a declaration that s 4(1) of the Insider Trading Act is A inconsistent with the Constitution. This relates only to count 12. By agreement between the parties this application was postponed sine die.

The indictment B

[4] [4.1]

Since the objections raised by accused 3 are the same as those raised by accused 1, 2 and 4 the former are not dealt with separately.

[4.2]

The gravamen of the objection is that since non-compliance with the duty to disclose is not criminalised by the law C that creates it such non-disclosure cannot sustain a charge of fraud. On my understanding of the argument it was common cause between the parties that all the other essential elements of criminal fraud were present. Furthermore there is no attack on the constitutional validity D of any of the provisions of the Companies Act or those of the SRP Code or rules.

[4.3]

After receipt of the objections the State gave notice of its intention to amend the indictment. Before the argument commenced the amendment was granted by consent between the parties. In terms of the amendment the answer furnished in response to the first, second and E fourth accused's request for further particulars in para 27.1 was deleted and the following was substituted therefor:

'It is both a statutory and common-law duty. The duty arises from a statutory obligation, properly interpreted, and viewed in the F context of the facts set out in the preamble to the indictment and as supplemented by further particulars thereto. In particular, the State relies on the surreptitiousness of the accuseds' conduct, the materiality of the facts not disclosed, and the impression which the accused knew their non-disclosure left with the SRP, the JSE and the G investing public, ie that (in the case of counts 1 to 4 and 7) the particular share trades had not occurred, and (in the case of count 6) that the particular representation was true. At common law, for the purpose of the crime of fraud, these circumstances (ie the existence of such a statutory obligation, viewed in the context of the said facts, gave rise to the legal duty pleaded.' H

The relevant charges

Count 1

[5] [5.1]

In count 1 the accused are charged with fraud arising I out of their alleged purchase of Randfontein shares for cash in the three-month period prior to 6 December 1999 in the name of various entities.

[5.2]

The State alleges that the fraud was committed by the failure of the accused, by means of an appropriate announcement, to J

Labuschagne J

disclose to the SRP, the JSE and the public such purchases of A Randfontein shares, in circumstances where they had a legal duty to make such disclosure.

[5.3]

The State also alleges that at the time the accused failed to make the disclosure of the purchases of Randfontein shares, they knew that the offer did not comply with the SRP rules in that the offer was not made to Randfontein shareholders on terms similar to the B most favourable of such purchases of Randfontein shares.

[5.4]

The charge of fraud is based on the non-disclosure and not on the fact that a similar offer on the most favourable terms was not made to Randfontein shareholders. In its further particulars to the C indictment the State alleges that the legal duty relied upon is a statutory duty and the specific statutory provisions relied upon are s 440L of the Companies Act read together with the appropriate provisions of the SRP Code and in particular rule 6.1 read with rule 5.1(a). D

[5.5]

Rule 5.1(a) provides that when an offeror or any person acting in concert with it has acquired relevant securities in the offeree company (in this case Randfontein) within the three-month period prior to the commencement of the offer period and without the consent of the SRP the offer to the holders of the relevant securities of the same class shall be in terms similar to the most E favourable of such acquisitions. Rule 6.1 provides that immediately after such an acquisition, an appropriate announcement should be made.

[5.6]

It is clear therefore that the State relies on the failure to make certain disclosures provided for in the Code in order F to create a legal duty to disclose the purchases referred to in count 1.

Count 2

[5.7]

Count 2 is similar to count 1 save that it relates to the purchase of Randfontein shares for cash at above the offer price G contained in the s 311 scheme of arrangement during the period subsequent to the announcement of the offer.

[5.8]

In the reply to the request for further particulars to the indictment the State relies specifically on SRP rule 6.1 read together with rule 5.2(a) as the source of this duty of disclosure. H

[5.9]

Rule 5.2(a) requires an offeror or any person acting in concert with the offeror, if it purchases relevant securities in the offeree company at above the offer price, to increase its offer to not less than the highest price paid for the shares so acquired. Rule 6.1 requires an appropriate announcement to be made immediately I after such an acquisition has been made.

[5.10]

Again the basis upon which the fraud charge is formulated is a legal duty to disclose certain facts in accordance with the relevant provisions of the Code, the non-disclosure of which is alleged to give rise to a charge of fraud. J

Labuschagne J

[5.11]

In the first alternative to count 2 the State relies upon rule 7.1(a) which requires an offeror or offeree (or any A concert party) which deals in the relevant securities for their own account during the offer period, to make disclosure thereof to the SRP, the JSE and the public, in a press release.

Count 3 B

[5.12]

This count is also based on a non-disclosure of facts which the State alleges the accused had a legal duty to disclose. The State specifically relies in this regard on the provisions of rules 6.1 and 9.1(a) of the Code.

[5.13]

Rule 9.1 provides: C

'Where

(a)

except with the consent of the Panel, the securities of any class under offer in the offeree company acquired for cash by an offeror or any person acting in concert with it during the offer period or within three months prior to its commencement carry 10% or more of the voting rights currently exercisable at a class meeting of that class; or D

(b)

in the view of the Panel there are circumstances which render such a course necessary in order to give effect to General Principle 1,

the offer for that class shall be in cash or accompanied by a cash alternative at not less than the highest price paid by the offeror or any person acting in concert with it for securities of that class during the offer period or within three months prior to its commencement.' E

General Principle 1 provides:

'All holders of the same class of securities of an offeree company shall be treated similarly by an offeror.'

[5.14]

Again the accused are not charged with the failure to make the offer contemplated in rule 9.1 rather, it is the F non-disclosure of the facts required by rule 6.1 which is relied upon by the State for the duty of disclosure under this count.

Count 4

[5.15]

In count 4 it is alleged that the accused failed to disclose to the SRP, the JSE and in a press release their dealings in G shares of accused 1 for their own account. Again the basis of the charge is non-disclosure in breach of an alleged statutory duty of disclosure. The State specifically relies upon rule 7.1(a) of the Code in this regard. H

Count 6

[5.16]

This charge of fraud is based on what the State alleges ought to have been disclosed in the documents relating to the s 311 scheme of arrangement. I

[5.17]

In its reply to the requests for further particulars to the indictment the State does not rely upon any provisions in s 311 or s 312 of the Companies Act as the basis for the charges of fraud.

[5.18]

Instead, the State relies upon s 11.1 of the JSE's listing requirements and in particular on the provision which states J

Labuschagne J

that circulars, if voting or other action is required, must contain all information necessary to allow the holders of securities to make a A proper informed decision. In addition, the State relies upon rule 21.3(a)(ii) of...