Standard Bank of South Africa Ltd and Another v Ocean Commodities Inc and Others

• Jurisdiction: South Africa
• Judge: Corbett JA, Miller JA, Holmes AJA, Galgut AJA and Diemont AJA
• Judgment Date: 29 September 1982
• Citation: 1983 (1) SA 276 (A)
• Hearing Date: 13 September 1982
• Court: Appellate Division

Corbett JA:

This appeal concerns rights to certain shares and debentures purchased on the Johannesburg Stock Exchange ("JSE"). The late Mr Cecil Harris (originally second respondent), and his brother, Mr Mervyn Harris (third respondent), were at all material times until 31 May 1975 citizens of, and permanently resident in, the

Corbett JA

territory then known as Rhodesia and now known as Zimbabwe. As all the events with which this case is concerned took place before the change of name (legal proceedings in this case were instituted in October 1976), I shall continue to refer to the territory concerned as "Rhodesia". Shortly before the hearing A of the appeal by this Court, Cecil Harris (the original second respondent) died and, in terms of Rule of Court 15 (3), the executors in his estate were duly substituted for him. For convenience I shall refer to him and his brother (the third respondent) individually by name and collectively as "the Harris brothers". After 31 May 1975 the Harris brothers took up permanent residence in the Republic of South Africa, Cecil B Harris on or about 7 June 1975 and Mervyn Harris towards the end of June 1975.

It appears that the Harris brothers were wealthy gentlemen and that as from about 1970 they carried in, in partnership, the business of dealing in stocks and shares on the Stock Exchange. About three months before their emigration to South Africa, ie in March 1975, the Harris brothers declared themselves to be C the beneficial owners of shares quoted on the JSE to a total market value of R276 457.

By reason of the Exchange Control Regulations ("ECR") then in force in Rhodesia, there were statutory curbs upon the acquisition, holding and disposal of what were termed "external securities". The actual regulations are not before the Court, D but the contents and general effect of some of the relevant provisions have been canvassed by various deponents, including Mr S A F Ullyett, who at the time when he made his affidavit was an assistant to the general manager of the Reserve Bank of Rhodesia, and Mr V T A Hadrys, then the assistant general manager of the Standard Bank Ltd in Rhodesia. According to this E evidence the general position under the ECR may be summed up as follows:

Exchange control came into effect in Rhodesia on 23 February 1961. From then until November 1965, when there occurred the change in the constitutional status of Rhodesia known as the unilateral declaration of independence (or UDI), a Rhodesian F resident was permitted to acquire and expend foreign currency in the acquisition of "external securities" by transferring Rhodesian funds outside the country with which to purchase such securities on condition that the scrip so acquired was registered in the name of what was termed a "specified nominee". Payments for external securities so acquired by a Rhodesian resident were permitted to be made only through an G "authorized dealer".

At this point it is necessary to explain the meaning of three terms: "external securities", "specified nominee" and "authorized dealer". Two of these were evidently defined in Exchange Control Instructions, issued by the Rhodesian Reserve H Bank to authorized dealers under authority of the Exchange Control Act and the regulations framed thereunder. In terms thereof an external security was defined as

"any security which is quoted on a Stock Exchange outside Rhodesia or in respect of which a register is maintained outside Rhodesia";

and a specified nominee as

"the nominee company of an authorized dealer and the nominee company of any Rhodesian stockbroker which was in existence on 23 February, 1961".

Corbett JA

An authorized dealer was defined in a schedule to the regulations to include only commercial and merchant banks registered in Rhodesia and conducting business therein. Only companies registered in Rhodesia or stockbrokers carrying on A business and resident in Rhodesia fell within the definition of "specified nominee".

The advent of UDI in November 1965 resulted in changes in the regulations concerning external securities. The Reserve Bank then directed that Rhodesian residents were no longer permitted freely to transfer funds from Rhodesia with a view to the B purchase of external securities. From then on such securities could be acquired and paid for only in Rhodesian currency through a member of the Rhodesian Stock Exchange. In the result the only external securities available for purchase were those previously acquired by residents of Rhodesia, in which case the transaction amounted to a "switch" of external securities between residents, or securities acquired by C Rhodesian stockbrokers on the JSE with "blocked rands" (subsequently termed "securities rands") generated by the sale in South Africa of external securities owned by Rhodesian residents. As before, all transactions by Rhodesian residents relating to external securities had to be entered into through D an authorized dealer and the external securities acquired had to be registered in the name of a specified nominee. According to Hadrys, these requirements ensured that residents of Rhodesia and emigrants therefrom who sold external securities purchased on their behalf with Rhodesian funds could receive, as consideration therefor, only Rhodesian currency payable in Rhodesia.

E Naturally, these controls applied to all dealings by the Harris brothers in external securities. They were customers of the Fife Street Branch of the Standard Bank in Bulawayo ("Standard Bank Bulawayo"). From October 1970 until March 1973 Hadrys was the manager of this branch. The branch acted as the authorized dealer in respect of transactions involving external F securities by the Harris brothers. At some stage - it is not clear precisely when - the Harris brothers were granted what Hadrys termed a "dispensation" permitting them to have their portfolio of external securities registered in the name of a South African nominee. This was second appellant, Standard Bank Nominees (Transvaal) (Pty) Ltd ("Standard Bank Nominees"), a company incorporated in South Africa and having its G registered office in Johannesburg. It is the only "nominee company" of first appellant, the Standard Bank of South Africa Ltd ("Standard Bank"), and it holds securities registered in its own name on behalf of, and to the order of, all the branches of the Standard Bank throughout South Africa. In terms H of this dispensation Standard Bank Nominees acted in respect of the portfolio of external securities of the Harris brothers as if it were the Rhodesian specified nominee. Instructions were given by Standard Bank Bulawayo to the Stock Exchange Branch, Johannesburg, of the Standard Bank (I shall call this branch "Standard Bank SEB") to give effect to these arrangements. The scrip relating to these external securities was lodged with, and kept in the custody of, Standard Bank SEB and held "to the order of Standard Bank Bulawayo"; and the shares were registered in the name of Standard Bank Nominees,

Corbett JA

which in turn held them "to the order of" Standard Bank SEB. Dividends accruing on the shares were remitted to the Harris brothers in Rhodesia, presumably via Standard Bank SEB and Standard Bank Bulawayo.

The dealings by the Harris brothers on the JSE, while they were A still resident in Rhodesia, took the form of what are termed in the affidavits "switch transactions", ie the selling of external securities held and the purchase with the proceeds thereof of other shares. Orders to buy and sell were given through a South African stockbroker, sometimes by Standard Bank B Bulawayo, acting on the instructions of the Harris brothers or one or other of them, and sometimes, with the permission of Standard Bank Bulawayo, by the Harris brothers themselves. This latter procedure was adopted simply to save time.

As a consequence of the switch transactions there was from time to time a residue of blocked rands in the possession of Standard Bank SEB. This residue was, on the instructions of C Standard Bank Bulawayo, placed to the credit of a blocked rand account established by Standard Bank Bulawayo with the Standard Bank SEB on or about 20 January 1972. The establishment of this account was reported to, and authorized by, the Rhodesian Reserve Bank during May 1972.

During May 1975 each of the Harris brothers was informed by D letter that, in terms of a directive from the Rhodesian Exchange Control authorities, he was granted "emigrant status" as from 1 June 1975. This meant, according to these letters, that in terms of the ECR the brothers were considered to be "non-residents" of Rhodesia as from that date. And, as I have mentioned, the Harris brothers took up permanent residence in E South Africa during June 1975. Thereafter, the external securities in question remained, as they had previously been, registered in the name of Standard Bank Nominees and the scrip remained in the possession and custody of Standard Bank SEB "to the order of" Standard Bank Bulawayo. Dividends were remitted to the Harris brothers in South Africa.

F It is alleged by the respondents that on 1 June 1975 the Harris brothers sold to first respondent, Ocean Commodities Inc ("Ocean"), all their external securities, as held by Standard Bank SEB and registered in the name of Standard Bank Nominees, for the sum of R568 890,05; and, in addition, the blocked rand account with Standard Bank SEB, the balance of which amounted G to R5 134,71, at its par value. In terms of the contract the purchase price was payable to the Harris brothers in equal shares and was to remain owing to them on loan account, subject to certain terms and conditions relating to the repayment of the loan account and the payment of interest. The terms of this contract are set forth in a letter addressed by Ocean to the H Harris brothers and dated 10 November 1975 (annexure EGB 1...